The state shell game with tax funds is nuts

February 20, 2015
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A pall was cast on the beginning of Gov. Rick Snyder’s second term with the announcement from State Budget Director John Roberts revealing the state was $289 million short of projections in the current budget and $527 million below expectations for next year. Large companies cashing in tax credits were to blame.

The first question was how such a gross understatement was provided by the revenue projections team leaders given responsibility of the state’s financial security, especially in an economy trumpeting “Michigan is back” and citing all manner of good news, even while economists were far more cautious. MEDC played the trumpets loudest, proclaiming all the “investments” in Michigan business or business that might come.

This week, the Senate (and last week the House) is focused on two bills to cap or close venture capital funds because the House Appropriations Committee realized the state owes $9.4 billion in investment fund credits over the next 20 years.

The Business Journal finds it astonishing, especially after the horrible lessons of the national financial crisis, that such a ledger of future payments was not regarded. While leaders of the Michigan Venture Capital Association correctly project a black eye for Michigan in such caps and limits, it would be criminal not to provide such protections — at far less a “cost.”

The Business Journal this week quotes Al Pscholka, R-Stevensville, chairman of the House Appropriations Committee and a bill sponsor: “This fund was enacted with good intentions, but the reality of using Michiganders’ money to buy economic investments just isn’t sound policy or good government.” He noted that while the Venture Michigan Fund program is working as intended, the framework might not have been the best policy. The Business Journal agrees. State Rep. Brandon Dillon, D-Grand Rapids, has suggested renegotiating with the companies cashing in the credits.

The legislature, too, is looking at cuts (again) to K-12 education funding, and the result of such “balancing” is certain to give the state a black eye for its continued disinvestment in education. Given the current situation, legislators should look at the MEDC and Pure Michigan appropriations with intense scrutiny and complete revelation of spending reforms.

The House Fiscal Agency indicated the anticipated loss of revenue for the state could reach $140 million over the next three years as the first installment of a $50 million repayment to Deutsche Bank begins in the 2014-15 fiscal year.

Jennifer Owens, president of Lakeshore Advantage, told the Business Journal the “fund-the-funds” program is one of many tools that exist to support startup ventures. “I think at the state level there are limited funds, and the state has to make an investment where they think there is a return on their investment,” said Owens. “We are seeing locally more of a need in the early-stage space. Venture capitalists are looking at companies who are at revenue stage.”

The state’s funding priority list for taxpayer dollars must be evident before voters go to the polls in May to determine further financial commitment — for Michigan roads.

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