How The 1 Percent Create Jobs: Officials Dump Millions In Public Money Into Local Job Creation & Exercise Little Oversight

by P.D. Lesko

Michigan has bled jobs, and the state’s residents have suffered Depression-era unemployment levels.

The Detroit Free Press recently concluded in its report card evaluation of Governor Rick Snyder that Snyder’s first year in office has been all about “jobs and kids.” The Freep went on to give Mr. Snyder a rather inflated set of grades. It’s not the first time Snyder has benefited from grade inflation, or inflated his own grades. In a 2008 annual report he signed as head of Ann Arbor SPARK, Snyder claimed the entity had created or retained over 12,000 jobs. Ann Arbor SPARK is the Washtenaw County SmartZone entity created under the notoriously not-so-watchful eye of the Michigan Economic Development Corporation (MEDC). Current MEDC head Michael Finney was second-in-command at SPARK when that Annual Report was released to the public. SPARK’s 2008 990 form, filed with the IRS and signed by Finney, claimed that that the entity had created 2,033 new jobs and helped retain 1,561 jobs—numbers that were, quite possibly, also inflated and certainly never verified.

To be sure, Finney’s 2008 numbers conflict with information in an investigative piece published by a Detroit newspaper. In a May 2010 exposé the Detroit Free Press revealed the fact that the Michigan Economic Development Corporation’s (MEDC) 21st Century Jobs Fund program, the first of two major initiatives under the 10-year, billion-dollar program, created only about a third of the actual jobs promised by recipients of Jobs Fund money between 2006 and 2009. The Freep reporter writes, “only 1,147 direct jobs had been created, about 33 percent of the jobs promised, according to a report from the MEDC.” Reporter Katherine Yung goes on to pen the knock-out punch, “Excluding jobs created by the research projects, most of which are temporary, only 935 direct jobs have been added.” Yung also revealed that two-thirds of the $137,000,000 in grants, loans and investment dollars from the Jobs Fund “went to recipients in one city: Ann Arbor.”

$90.4 million dollars for job creation, and between 2006-2009 Ann Arbor lost 9,000 jobs according to data from the U.S. Department of Labor, and unemployment rose to 10 percent. Many of the Ann Arbor companies in which that $90.4 million dollars were invested went belly up, according to Katherine Yung’s reporting—Solyndra-class investments made on Rick Snyder and Michael Finney’s collective watch. Mr. Finney was later appointed to head the MEDC at a salary of $250,000 per year based, in part, Snyder told state media, on a sterling record of “job creation successes” in Ann Arbor.

As the saying goes, friends don’t let friends drive drunk. However, in Washtenaw County and Ann Arbor a tight-knit group of politicos, their campaign donors, and business associates have let their friends at Ann Arbor SPARK fritter away millions in public money—like drunken sailors on shore leave. Is it a singular example of ingrained and virtually unchecked political cronyism, or an explanation why tens of millions in taxpayer money spent funding similar job creation entities statewide have not resulted in the economic turnaround our state’s residents so desperately need?

In January 2011, the Michigan Messenger reported: “A new report on problems with privatized state economic development agencies singles out the Michigan Economic Development Corporation for excessive executive bonuses as well as questionable subsidy awards and resistance to accountability.”

As it turns out, the apple (SPARK) doesn’t fall far from the tree (MEDC culture of resistance to accountability).

In 2010, almost 40 percent of SPARK’s $3 million dollar core budget came from public money captured by a Lower District Finance Authority (LDFA) empowered to capture tax dollars from the Ann Arbor public schools. Yet, SPARK officials have taken the stance that despite the fact that it is a publicly-funded group—a 501 c (6) entity—they do not have to release their audits to the public.

In Ann Arbor, the public schools have been deprived of close to $4 million dollars over the past several years in order to funnel money to SPARK. Local elected officials, including Ann Arbor’s Mayor, and the former head the LDFA board charged with oversight of SPARK, repeatedly claimed the State reimburses the school district for the tax money captured. However, in response to Freedom of Information Act requests, the AAPS could not produce any evidence that the District has ever been reimbursed by the State of Michigan for the millions diverted.

Ann Arbor SPARK’s contract states, “Contractor [SPARK] acknowledges the dual purpose and objective of the Business Accelerator and all related services, programs and events is to promote local job creation…” Local is defined as including Ann Arbor and Washtenaw County.

Despite this contractual stipulation, Ann Arbor SPARK has been pitching woo to the Livingston County Board of Commissioners—in closed meetings that allegedly violated the state’s Open Meetings Act law—promising to oversee “job creation” in that county in return for a several hundred thousand dollar fee. Members of the Livingston County Board of Commissioners did something their colleagues in Washtenaw County have never done: they wanted to know more about SPARK’s actual track record, and one Livingston County official went so far as to ask if the fee would be refunded if jobs were not created.

Meanwhile, in Washtenaw County, Freedom of Information Act requests revealed that neither city, county or officials at the University of Michigan could produce copies of Ann Arbor SPARK’s audited financial statements, 990 tax returns or audited job creation numbers from the past five years. The missing job creation data and financial information would suggest a pattern of lax oversight of public money and , ultimately, of Ann Arbor SPARK’s use of that money.

In 2009, the Washtenaw County Board of Commissioners, at the urging of then County Administrator (and SPARK Board member) Robert Guenzel, and Ann Arbor Commissioner Leah Gunn, imposed a new property tax on the county’s residents. There was no vote, rather Guenzel encouraged the Board to approve an Act 88 millage, a somewhat archane taxing mechanism from the early 20th century meant to fund agricultural development. The lion’s share of the money from the millage, over half a million dollars, was given over to Ann Arbor SPARK, for “job creation.” The Act 88 millage was renewed in 2011, supported with four yes votes from the Ann Arbor Commissioners, Gunn, Barbara Levin Bergman, Yousef Rabhi and Conan Smith (Smith, son of former gubernatorial candidate Alma Wheeler-Smith, was appointed to SPARK’s Board of Directors prior to the vote).

The Washtenaw Commissioners voted to impose a millage to fund Ann Arbor SPARK without possessing (or asking for) SPARK’s audited financial statements, audited job creation data or 990 income tax returns. In short, it appears that County Commissioners imposed a new tax because Ann Arbor SPARK officials told them that there was job creation aplenty going on.

Those assertions were in large part undocumented and their accuracy repeatedly questioned by the media.

For the past 24 months, A2Politico.com, the Lansing State Journal, as well as the Mackinac Center have written pieces about the inflated numbers used by the Michigan Economic Development Corporation and Ann Arbor SPARK when touting “job creation” successes.

Documents released in response to multiple Freedom of Information Act requests made in December 2011 also revealed that despite a contractual obligation to collect actual job creation data annually and cumulatively, Ann Arbor SPARK has neglected to do this— perhaps, hiding low annual numbers behind inflated cumulative tallies. A December 2011 Freedom of Information Act request revealed that the LDFA’s Board of Directors, while contractually obligated to gather annual and cumulative job creation data, had not done so for years. Furthermore, between 2006-2010, years when MichBio president Dr. Stephen Rapundalo (a former Ann Arbor City Council member) chaired the LDFA the group did not possess audits of Ann Arbor SPARK’s finances, job creation data or 990 tax returns.

MEDC is a platinum ($50,000) sponsor of MichBio. In July 2006 MichBio was awarded $1.4 million to develop the Michigan Life Sciences Pipeline program. The money came through the MEDC’s Michigan Strategic Fund. According to August 2007 minutes of the Michigan Strategic Fund, MichBio had spent $838,000 of the money, but had not gotten any pipeline members or even put up a web site for the program. An examination of returns filed with the IRS shows that MichBio stopped listing the pipeline as one of its programs in 2008.

A few weeks ago, in his final appearance before Ann Arbor City Council as the Chair of the LDFA, Rapundalo suggested that “job creation is not the best metric” to evaluate the work of Ann Arbor SPARK. Rapundalo, and Skip Simms, who earns a six-figure salary as the VP of Ann Arbor SPARK, were unable to answer a question concerning the exact number of jobs created by SPARK during 2010.

You can watch a short video of Rapundalo below.

SPARK’s Board of Directors includes two university presidents, a local bank president, lawyers from two of Michigan’s most powerful law firms, two local mayors, Ann Arbor’s city administrator, the county administrator and even the president of the University of Michigan musical society. It also includes Laurel Champion. Champion, once publisher of the Ann Arbor News, is now VP at AnnArbor.com. Neither the Ann Arbor News, nor AnnArbor.com has ever seriously investigated SPARK’s job creation claims. There has been no coverage of the no-bid contracts for service between the LDFA and Ann Arbor SPARK, the missing state funds due the local school district, or the LDFA board itself and connections between the LDFA board members and the MEDC, such as that of Dr. Rapundalo and his employer MichBio.

Ironically, one name that no longer appears on the list of board members of Ann Arbor SPARK is that of Governor Rick Snyder. Quietly, in 2011, Snyder left the board to dream up, one imagines, more “job creation” success stories for Michigan.

What he left behind, however, was a “job creation” entity that indulges in excessive executive pay and bonuses, as well as questionable awards and open resistance to accountability. Dr. Lawrence Summers, President Obama’s former economic advisor, visited Michigan in 2009 and called the MEDC’s “job creation” programs “crony capitalism.” Shortly thereafter, Rick Snyder issued a press release that said: “The MEDC has been mismanaged by the current administration….The use of tax incentives should include performance objectives, reportable results, and be transparent to citizens….There is little transparency or accountability in what return the state is getting on those investments.”

Snyder’s 2009 description of the MEDC also describes Ann Arbor SPARK under his leadership, under that of Michael Finney, and now under the leadership of Paul Krutko. Whether it describes what’s happening in Michigan’s many other SmartZones remains to be discovered.