Forbes.com Writer—MEDC Report Proves Ann Arbor SPARK is Exaggerating Job Creation Claims by 90 Percent

Please note: Kai Petainen is a member of The Ann Arbor Independent’s Editorial Board

by P.D. Lesko

ANN ARBOR SPARK is once again under fire for discrepancies in its job creation claims. Forbes.com writer Kai Petainen uncovered a detailed report prepared by Michigan Economic Development Corporation (MEDC) head Michael Finney for Gov. Rick Snyder that shows between 2006-2013 Ann Arbor SPARK reported to the MEDC it had created 630 jobs and worked with 129 companies. However, SPARK’s recently released 2013 Annual Report claims that the economic development entity created or retained 13,024 jobs and worked with 547 companies during the same time period.

Ann Arbor SPARK is answerable to the Michigan Economic Development Corporation (MEDC) on the state level, as well as to a Local District Financing Authority (LDFA) on the local level. The LDFA is answerable to Ann Arbor City Council who choose the members of the group’s board.

This local oversight group has come under intense pressure from City Council members, the public, local and national media to have an outside auditor verify job creation and job retention claims made by Ann Arbor SPARK since 2006.

Rick Snyder led Ann Arbor SPARK in 2005 when Mr. Finney was hired. Michael Finney was promoted to CEO in May 2009, when SPARK released its 2008 Annual Report.

That annual report alleged that between 2006-2008 Ann Arbor SPARK had created 7,054 new jobs and retained 5,740 jobs. The 2008 LDFA Report available on the City of Ann Arbor’s web site, says that SPARK added “at least 35 new jobs this year.”

SPARK’s 2013 Annual Report, signed by CEO Paul Krutko and Bank of Ann Arbor president Timothy Marshall—the President of SPARK’s Board of Directors—claims that the entity has helped create, retain or attract 13,024 “new jobs” since 2006. That works out to 220 fewer jobs than Rick Snyder and Michigan Finney claimed were created between 2006-2008.

Ward 2 Council member Sally Hart Petersen, whose husband’s venture capital firm was a founding member of Ann Arbor SPARK, serves on the LDFA Board.

Petersen, a candidate for mayor whose platform relies heavily on what she believes is the city’s need for more and better economic development, including development of the North Main Street area, has been in turns testy and measured in her responses to those who are demanding the LDFA launch an outside audit of SPARK’s numbers.

At a recent candidate forum, Council member Petersen told members of the public and media present, “Doing an audit takes money, and I think it is something that the LDFA should actually fund.”

She also said, “ ‘Is the data right is the data wrong?’ is not the relevant question…. SPARK has grown jobs. We can’t nickel and dime on the actual numbers of jobs….”

“She’s dead wrong about that,” countered one of her Council colleagues. “SPARK uses that data to justify its existence and why we should give it public money.”

Ward 3 Council member Stephen Kunselman, who is also running for mayor, said: “I don’t know what to believe. I think SPARK is somewhat corporate welfare. I think we have this impression of crony capitalism.”

The Detroit Free Press, the Lansing State Journal, the online “Michigan Cap Con,” as well as Michigan’s Auditor General, Thomas McTavish, have all documented the fact that the MEDC and Gov. Snyder have repeatedly exaggerated job creation and retention numbers.

Thomas McTavish audited the MEDC’s books and found that CEO Michael Finney’s organization couldn’t verify its claims of having created 12,000 jobs. The Detroit Free Press reported on McTavish’s report in January 2013:

The Michigan Economic Development Corp. has done a poor job of tracking the economic impact of the state’s low-tax renaissance zones and its claims that the program has created more than 12,000 jobs can’t be verified, state Auditor General Thomas McTavish said in a report released today.

The MEDC has not established a comprehensive process to evaluate the effectiveness of the program, under which state business, income and education taxes and local property taxes and income taxes are waived as economic incentives, the report said.

“We estimate that approximately $820 million in state and local tax revenue was abated in relation to the program from its inception in fiscal year 1996-97 through fiscal year 2009-10,” the report said.

“Therefore, it is imperative that MEDC be able to determine the value of the program.”

McTavish reported that the MEDC had not verified data reported to it by companies to which the MEDC had given money. McTavish’s report concluded: “we could not be assure of the accuracy of the data.”

Ward 1 Council member Sumi Kailasapathy, a CPA and Ward 4 Council member Jack Eaton have been vocal in their criticisms of Ann Arbor SPARK’s lack of transparency. At a recent City Council meeting, Kailasapathy asked when the LDFA was going to have an outside audit done of SPARK’s job creation numbers.

In an email, Kai Petainen pointed out that despite repeatedly asking for actual job creation numbers, “many council members” had not seen the Finney report to Gov. Snyder that Petainen had found online. He goes on to say in his email to Council members that, “This official report is perhaps the most data-driven report on SPARK and not a marketing document.”

At a May  City Council meeting, SPARK officials and their allies on Council clawed back $75,000 from the city’s general fund that a group of five Council members wanted to allocate to human services rather than to fund marketing for SPARK,. At that meeting, one Council member complained that SPARK was providing Council with marketing materials rather than actual data.

At a candidate forum on June 14, Ward 1 Council member Sabra Briere posed some pointed questions: “Does a business settle in Ann Arbor and hire more people without SPARK? We don’t know. Does a business grow bigger because of SPARK? SPARK can’t prove it does.”

Last Fall, Kai Petainen spearheaded an effort to get access to SPARK’s annual audit statements. While SPARK officials refused to release the information, Petainen  got the documents with help from the Michigan Attorney General.