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Published in Economic Development

Slashing MEDC budget could stall local projects, economic developers warn

BY Sunday, November 24, 2019 07:55pm

GRAND RAPIDS — As the state Legislature continues budget talks, West Michigan economic development executives remain concerned about a $26 million cut to the Michigan Economic Development Corp. budget.

The proposed cuts affect two key state incentives, the Business Development Program and Community Revitalization Program, which puts future projects at risk, said Birgit Klohs, president and CEO of The Right Place Inc., a Grand Rapids-based economic development organization. 

Birgit Klohs COURTESY PHOTO

“This has put great uncertainty on how we get projects through our pipeline,” Klohs told MiBiz.

The cuts to the MEDC budget will have the potential to affect communities around the state. That’s because the proposed budget would reduce the MEDC’s ability to fund new business and community development projects, putting those investments at risk, according to Otie McKinley, the media and communications manager for the MEDC. 

The Business Development Program provides loans, grants and other economic assistance for projects in Michigan that create jobs and/or provide investment. Meanwhile, the Community Revitalization Program offers assistance to projects involving the redevelopment of brownfield and historic preservation sites located in traditional downtown and high-impact corridors.

Research from the MEDC shows that a $26 million reduction would mean 50 fewer business and community development projects in the state. The MEDC expects this will lead to less job creation and private investment.

“It impacts how we create jobs, how we can help companies create those jobs both at the retention and expansion level, and the attraction level,” Klohs said.

For example, the incentives helped lure insurance giant Acrisure LLC to move 400 jobs from Caledonia to downtown Grand Rapids. The Michigan Strategic Fund board awarded $7 million in incentives to the company, with $1 million coming via a performance-based grant under the Michigan Business Development Program — funding that would have been cut under the proposed state budget.

“Frankly, I am not entirely sure how we are going to land deals without some of that being restored,” Klohs said.

Klohs believes the potential cuts would send a message that Michigan is not a welcoming place for business growth. At a local level, the cuts could affect how The Right Place works on potential projects given that it has fewer incentives to offer. Klohs said she is concerned about some of the projects The Right Place is currently working on because of the proposed cuts.

Meanwhile, other groups such as the Midland-based Mackinac Center for Public Policy support the cuts to the MEDC’s budget. A nonprofit think tank advocating for limited government, the Mackinac Center conducts research on topics such as the MEDC’s funding. 

“Most job creation goes on in the state without state support,” said James Hohman, director of fiscal policy for the Mackinac Center. “Most of the economy moves without lawmakers having to do something about it.”

Hohman pointed to data from the Bureau of Labor Statistics that showed Michigan added 194,000 jobs in the first quarter of 2019, and lost 175,900 jobs over the same period. The jobs that were announced through MEDC funding account for only a small percentage of the overall jobs gained, Hohman said. 

“They’re not at the scope required to really develop the economy,” he said, adding that the economic development programs in Michigan should be judged by whether they influence the state’s economy, not by whether Michigan lands a certain company.

In her career with The Right Place, Klohs said she has heard this argument, and would tend to agree with it if other states also cut their funding for incentives like the MEDC offers.

“If everybody lays down their weapons, I’m fine, but as long as South Carolina, North Carolina, Indiana, or Ohio put resources toward a project, you have just made us uncompetitive,” she said. “Will a project or two happen? Sure. Will most of them happen? Most likely not.”

To that end, Klohs pointed to the top three site selection factors for companies: talent, infrastructure and incentives. If Michigan’s competitors continue to have the incentive part of the equation, the state’s “ability to compete diminishes greatly,” she said.

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