Michigan Has Given the E.V. Industry $1.4 Billion and Counting
Carmakers don't need a crony-capitalist slush fund.
In December 2021, Michigan Democratic Gov. Gretchen Whitmer signed legislation establishing the Strategic Outreach and Attraction Reserve (SOAR) program—"a $1 billion economic development fund to ensure the state can compete for billions of dollars in investment and attract tens of thousands of jobs to bolster our economy," according to the press release. Michigan's legislature apportioned an initial $1 billion for the program. SOAR grants would be disbursed to companies that invested in the state, or to state-affiliated entities for the benefit of those companies; all transfers would require approval first from the state Senate Appropriations Committee and then from the entire legislature.
In practice, SOAR just contributes further to a growing trend of corporate welfare, in which states give away huge chunks of taxpayer money to private companies. Michigan's example should prove to taxpayers and state governments alike that private companies alone should bear the costs of their own development projects.
According to a spreadsheet provided to Reason by the Michigan Department of Technology, Management, and Budget, the state has apportioned $2.166 billion to SOAR since March 2022. Of that amount, it has approved more than $1.4 billion for disbursement. So far, every expenditure has gone to benefit a company making electric vehicles (E.V.s), E.V. batteries, or associated battery components.
The state spent more than 75 percent of its initial SOAR infusion within seven months on just two deals: $666.1 million to General Motors (G.M.) and $100.8 million to Ford. Each disbursement came in response to that company's pledge to update or expand its Michigan manufacturing footprint.
In April 2023, the state authorized another $585 million in grants: $210 million to Ford for a battery plant, $200 million to battery manufacturer Our Next Energy, and $175 million to Gotion, Inc., for an E.V. battery component factory.
These incentives are ostensibly supposed to pay off in the long run: By attracting companies to your state, you create good-paying jobs and further economic development down the line. But there is increasing evidence that those agreements are a bad deal for the states that make them, spending hundreds of millions or billions of dollars in order to "create or retain" a few thousand jobs here and there. Corporate welfare simply does not work, especially not the way its proponents say it does.
Even the numbers that Michigan quotes are unimpressive. For example, while Gotion pledged to spend $2.36 billion on its factory, Michigan's incentives so far have eclipsed $800 million, meaning the state's taxpayers are funding one-fourth of the entire project.
While the company promises to create 2,350 jobs, the state's contribution to the project breaks down to more than $340,000 per job. For the same amount, Michigan could pay each of those 2,350 employees' salaries for almost six years.
G.M. has committed to investing at least $7 billion in the state across four sites and to create or "retain" 5,000 jobs. But state and local governments have so far kicked in $824 million in incentives and $666 million in SOAR funding, plus a $936 million break on utility rates—a total investment of $2.426 billion in direct grants or lost revenue, or more than one-third of G.M.'s entire pledged investment. Each of those jobs will cost Michiganders over $485,000.
Our Next Energy promises that its plant will create 2,112 jobs, in exchange for $200 million in state money—a comparatively paltry state expenditure of just under $95,000 per job. Notably, that company raised $300 million in venture funding in February to help finance its Michigan factory.
Ultimately, that method of financing projects is far superior: Companies with billion-dollar valuations should shoulder the burden of funding their own development projects. Let them take the risks and, if successful, reap the rewards—all on their own.
State governments can play a role in this process, but not by dispensing cash to favored firms. Rather, they should focus on making their states more hospitable to all businesses, perhaps by simplifying their tax structure or updating their infrastructure. Corporate welfare simply distorts the market, rewards companies that are politically connected, and wastes tons of taxpayer money.