Young men and women used to dream about starting a business in their garage, or discovering a way to make a living while doodling on the back of a napkin in an all-important moment of inspiration. Today, they’re more apt to dream about finding a taxpayer subsidy or low-interest, government business loan.
Subsidies are easy to find. Wisconsin’s Legislative Audit Bureau published a review of the state’s economic development programs the other day, and found that since 2007 there have been 196 of them that dispersed up to $1 billion in financial assistance.
No one, I suspect, has any real idea just what these programs accomplish.
There’s a small problem. Many of the recipients, the audit discovered, don’t always submit the reports that are supposed to help taxpayers determine whether the loans and grants and tax credits are a good investment. But there’s also a much larger problem the audit ignored. The case of Mercury Marine, the Fond du Lac engine and boat manufacturer, shows why.
In March of 2010, the Wisconsin Department of Commerce gave Brunswick Corp., the parent company of Mercury Marine, a $10 million grant. The cash, federal stimulus money actually, was funneled through the State Energy Program and was spent on new windows, HVAC improvements and energy-efficient lighting at the Mercury Marine plant, among other things.
A project description attached to a grant agreement between the Wisconsin Department of Commerce and Mercury Marine contended the money would “result in retaining 1,526 jobs” and that “without these projects, job loss will occur at this location.”
Jobs were indeed retained at the company. By the end of March, 2012, there were 2,440 full-time positions, according to a “project progress” report filed with the state in April of 2012. The count is now 2,582, according to Steve Fleming, a spokesman for the company.
According to those numbers, the government grant was a phenomenal success and a wonderful story – albeit an overly simplistic and, perhaps, blatantly misleading one.
Many Wisconsinites will remember the real story of Mercury Marine. In late 2008 – after threatening to move its Fond du Lac operations to Oklahoma – Mercury Marine was promised up to $70 million in state assistance that was tied to job growth, plus a $50 million low-interest loan backed by a Fond du Lac County sales tax and $3 million from the city of Fond du Lac. Unionized employees, meanwhile, made significant concessions because they feared losing their jobs. As a result, instead of work moving out of Fond du Lac, the company announced it was moving work into the area from a shuttered plant down south.
I wonder how folks in Oklahoma feel about stimulus money – federal tax dollars – being used to help Wisconsin at their expense. Then again, I wonder if that is what really happened. Common sense – and timing – suggests that stimulus funding was a small, and perhaps unnecessary, part of the dynamic.
Fleming, when I asked him how we can know if growth in or retention of jobs was due to stimulus spending in Fond du Lac, issued a statement:
"Mercury Marine understands and appreciates the commitments that have been made by its employees and various governmental agencies. We also understand the obligations that accompanied those commitments and subsequent funding, and are continuing to progress despite difficult conditions. Our goal the last four years has been, and remains, to emerge from this unprecedented industry downturn as a stronger, more profitable company that is better able to compete in a new, different and smaller marketplace.
Mercury Marine’s ultimate decision to remain in Wisconsin was founded on many elements. We understand that $10 million is a significant grant, and we’re able to say the funds were used for the intended and approved purposes. They were invested in Fond du Lac, Wis., and they positioned us for the job retention and growth we committed to and have demonstrated.
More specifically, the funds were used for infrastructure and energy-saving-related capital investments in our facilities in Fond du Lac. Again these investments have retained business and employees in Fond du Lac and have positioned us for further growth in Fond du Lac."
In other words, trust us.
The beauty of the grant for the company is that – while they probably can’t prove the $10 million had a quantifiable impact – nobody else can really prove that it didn’t. We’d somehow have to separate out the impact of the $10 million grant from the impact of all the other government money, the union concessions that had a big impact on the bottom line and everything else that impacted the company’s thinking: sales, market projections, economic forecasts, calculations about the cost of doing business in other states or countries versus here, and all sorts of other factors. I wonder if the folks who run the company even know in their heart of hearts if the $10 million from taxpayers made an impact. Self-interest – the thing that capitalists know usually drives business decisions – may have motivated them to do the exact same things absent the $10 million. We can’t really know.
Mercury Marine could easily be cast as proof of the success of stimulus spending. It got the money. It retained and created jobs, according to the reports that the Legislative Audit Bureau suggests are instrumental in determining the success of government investment. But in truth, it would take legions of government analysts and promises from supposedly private companies to give them full access to all of their corporate records to ever deduce if all the government money flowing to big and small corporations alike make a difference – even when they are growing.
Never mind all the ones that go belly-up.
As of last June, there were still 139 economic development programs in Wisconsin state government, an astounding number. If we can’t tell if the $10 million in stimulus spending helped with Mercury Marine, imagine how hard it is to decipher the impact of all the spending on all the other little businesses that expect, and get, government assistance nowadays.
Is it worth it?
Reputable bankers would never agree to give away or lend $1 billion based on a firm “Maybe,” or “Perhaps,” or “Who really knows?” So why do taxpayers?
June 19, 2012