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Shifting Economic Development Cash to Roads Sparks Fight in Michigan

Gov. Rick Snyder and lawmakers are anything but united after a recent call to transfer $185 million in economic funds to the transportation budget.

Fri June 19, 2015 - Midwest Edition

MACKINAC ISLAND, Mich. (AP) A theme at this year’s gathering of business and political leaders on Mackinac Island was “cohesion’’ — a commitment to be unified on long-term strategies to improve Michigan.

But Gov. Rick Snyder and lawmakers are anything but united on economic development after a recent call to transfer $185 million in economic funds to the transportation budget for road improvements. It’s a piece of Republican House Speaker Kevin Cotter’s plan to boost spending on roads largely with existing tax revenue, though he’s not ruling out increased taxes.

The GOP governor told a crowd at the Detroit Regional Chamber’s annual policy conference that the introduction of the legislation is leading Michigan to miss out on jobs and investment. It was his strongest criticism yet of the House proposal.

“It does send a message that we’re not being consistent. Good economic development — you have to have a 10- to 15-year horizon minimum,’’ said Snyder, a former venture capitalist who co-founded Ann Arbor’s economic development group and was the first chairman of the Michigan Economic Development Corp. His opinion was backed by Chamber President and CEO Sandy Baruah and other business chiefs.

The House plan primarily targets two economic development funding sources: the $75 million a year going to the 21st Century Jobs Trust Fund, which was created by selling a portion of Michigan’s settlement with tobacco companies; and the $60 million the state receives annually from American Indian casinos.

The money is used to give cash and loans to businesses looking to locate or expand in Michigan. It also funds Pure Michigan tourism advertising, entrepreneurship programs, trade missions and an initiative linking businesses together for procurement opportunities.

Cotter said companies need decent roads for commerce and their employees.

“Roads are a prerequisite to economic development. ... We have to have at least a reasonable level of road quality. Otherwise I think we’re going to get a diminished return on our economic development dollars we’re spending,’’ he said.

It’s tough to pinpoint the scope of the proposed cuts in part because of a recent reorganization of state agencies. But it would be significant.

The $135 million reduction could remove about one-third of an estimated $400 million to $450 million in state spending on economic development, not including federal education and workforce training money.

MEDC CEO Steve Arwood told lawmakers in Lansing and on Mackinac Island that the state budget expected to win legislative approval is acceptable, including a $13.8 million, or nearly 11 percent, cut in the business revitalization and community revitalization fund. The pot of cash is used for grants and loans after Snyder and the GOP-led Legislature moved away from awarding billions in business tax credits for which Michigan is on the hook until the early 2030s.

But Arwood is resisting further cuts as part of a road-funding fix. So is Snyder.

He said lawmakers may not realize that Michigan is approaching economic development in a smarter way than in the past.

“There’s not as much awareness of the different choices, what goes on as best practice, with legislators and also people around the state in terms of what does good economic development look like,’’ Snyder said.

The dispute comes amid increasing frustration from conservatives who question whether economic development spending is producing results and liberals who think businesses have benefited too much under Republican tax policies at the expense of lower- to middle-income residents.

House Democratic Leader Tim Greimel said subsidies and economic development programs that aren’t creating jobs should be eliminated to improve road conditions.

“Unfortunately, I think the House Republicans are using a chain saw instead of scalpel,’’ he said.

Republican Senate Majority Leader Arlan Meekhof said he worries that talk of cutting business development programs “impacts people’s decisions on whether they’re going to come here or not.’’

But Joseph Lehman, president of the Mackinac Center for Public Policy, a conservative think tank and longtime critic of the MEDC, said “the state may not have any asset more central to economic development than its roads. ... There is so much of our funding put into a program with dubious results.’’

Snyder and GOP lawmakers appear to be more in lockstep on another portion of Cotter’s road plan that would target $50 million initially budgeted for movie and TV incentives this fiscal year. The funding will fall to $25 million next year — with all but $6 million being used to resolve debt for a film production studio, leaving the future of the incentives in doubt.

Snyder’s administration is backing off a warning that the House plan could threaten the elimination of the Pure Michigan campaign, which will receive $33 million in the budget starting in October. It cautions the program still might have to be scaled back, though House Republicans say that’s not their intent.

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