Each year since 2018, the Center for Economic Accountability (CEA)—a nonpartisan think tank opposed to corporate welfare—has named its Worst Economic Development Deal of the Year, a dishonor awarded to the most egregious misuse of taxpayer funds nominally intended to spur economic growth.
This year, the ignoble honor goes to Michigan, which has awarded over $1.75 billion to Ford Motor Co. and Contemporary Amperex Technology Ltd. (CATL), a Chinese battery manufacturer. The two companies are jointly developing a factory in Marshall, Michigan, that would build lithium iron phosphate batteries for the automaker’s electric vehicle (E.V.) lineup.
In its announcement, the CEA breaks down what the state has pledged so far, which includes $630 million worth of road paving and site development; grants from various state funds of $210 million, $120 million, and $36 million; and a 15-year tax abatement valued at $772 million. Other estimates have put the total amount at $2.2 billion.
Last month, facing strong economic headwinds, Ford announced it was “re-timing and resizing some investments.” While the Michigan plant was originally intended to create 2,500 jobs, Ford changed its pledge to 1,700 jobs and lowered its potential output by 40 percent, estimated to shrink the company’s financial investment by $1 billion or more.
Since Ford originally pledged $3.5 billion, Michigan’s contribution to the project could be nearly as much as what Ford plans to spend on its own factory. Gov. Gretchen Whitmer, a Democrat, told reporters that Michigan’s investment may be “resized” as well, and “as Ford has had to make some changes…the state’s role will change as well.”
Of course, the deal’s merits were questionable from the start. When the project was first announced, Whitmer’s office claimed it would have “an employment multiplier of 4.38, which means that an additional 4.38 jobs in Michigan’s economy are anticipated to be created for every new direct job.”
This is a fanciful notion. Tim Bartik of the W.E. Upjohn Institute for Employment Research has estimated that a more typical multiplier on a local or state level is between 1.5 and 2. Last month, Bartik calculated the estimated benefits of Michigan’s proposed investment; while he was broadly positive, he noted that a 4.38 multiplier was “very high,” and “if the Ford project had a more typical multiplier—2.5 rather than 4.38—the project’s gross benefits would be less than the incentive costs.”
The automaker’s announcement that it would back off on its Michigan development came just a month after the automaker announced it was delaying $12 billion in E.V. investment across the country due to financial losses. Ford, which previously estimated that it would lose as much as $4.5 billion this year on its E.V. division, revealed in October that it lost $36,000 on each E.V. it sold in the third quarter.
Notably, this marks the second year in a row that the CEA has given its highest dishonor to a plant making E.V.s or E.V. batteries: Last year’s “winner” was the state of Georgia, which inked a lucrative deal with upstart E.V. manufacturer Rivian worth as much as $1.5 billion in state subsidies at a time when the company had delivered fewer than 50 vehicles to customers.
In 2020, the CEA singled out Ohio’s award of over $60 million for General Motors to keep its plant in Lordstown open; the automaker closed the plant in 2019 but was only made to repay a portion of the incentives. It later sold the plant to Lordstown Motors, an E.V. manufacturer that benefited from $24.5 million in subsidies before declaring bankruptcy this year.
“It’s notable that in five years, we’ve now had two electric vehicle battery plants and one EV assembly plant stand out as the worst economic development deals of their respective years, even during an era of unprecedentedly large and dumb subsidies by state and local governments,” CEA President John Mozena noted in the press release. “Federal industrial policies promoting politically favored technologies are driving short-sighted decisions by state and local elected officials, and communities across the country will be paying the price for those deals long after the politics and policies have moved on.”
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