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Exaggerated Claims of ‘Corporate Welfare’


Rep. Justin Amash and Club for Growth Action make false and distorted claims in TV ads that attack Amash’s Republican primary opponent, Brian Ellis, for wasting taxpayer money on “corporate welfare.”

Both ads involve actions taken in 2006 by the Michigan Strategic Fund, a state economic development board, when Ellis was a board member:

  • The Amash ad displays stacks of $100 bills and the figure “$500 million,” as the narrator accuses Ellis of “wasting millions on corporate welfare.” The Michigan Strategic Fund gave final or preliminary approval for about $500 million in loans in 2006. But the loan money came from private investors, not taxpayers.
  • The Club for Growth Action ad claims Ellis “wasted our tax dollars on a golf resort and production of gourmet mushrooms and pet food.” But no taxpayer money was spent on “gourmet mushrooms” because the company never accepted the funds. The golf resort? Ellis actually voted in 2006 to reduce by $725,000 a grant that was awarded before he joined the board. The pet food project was financed with private capital, not state money.

‘Wasting Millions,’ But $500 Million?

Amash, a two-term Republican congressman who is backed by the Tea Party Express, and Ellis, a businessman supported by the Michigan Chamber of Commerce, are engaged in what the National Journal described as “the ugliest House primary of the cycle.” The primary is Aug. 5.

In a TV ad that boasts of his conservative credentials, Amash attacks Ellis’ role as a member of the board of directors of the Michigan Strategic Fund in 2006. Amash attempts to link Ellis to then-Democratic Gov. Jennifer Granholm and label Ellis a big spender who wastes taxpayer money.

The ad says, “Ellis voted 100 percent with Jennifer Granholm, wasting millions on corporate welfare.” At this point, a split screen displays the images of the Democratic governor and Ellis side by side. The number “100%” is superimposed on Granholm and Ellis, followed by growing stacks of $100 bills and the words “$500 million.”

The $500 million figure is grossly inaccurate, as we will soon detail. But first let’s explore what the board does and how Ellis got on it.

Despite the ad’s use of Granholm’s image, the Michigan Strategic Fund, as it is presently constructed, was created in 1999 when former Republican Gov. John Engler issued an executive order restructuring the state’s economic development programs. The fund administers the Community Development Block Grant program, a federal program that provides funding for local economic development projects; approves state economic development grants and loans; and authorizes the issuance of tax-exempt, revenue-backed bonds.

How did Ellis get on the board? The Amash campaign says on its website that Ellis was “Jennifer Granholm’s appointee to a corporate welfare fund.” That’s misleading. Ellis was not Granholm’s choice.

Ellis was appointed by Granholm “as a nominee of the Senate majority leader,” according to the Journal of the Senate for Jan. 11, 2006. At the time, the majority leader was a Republican, then-Sen. Ken Sikkema. “The majority leader gets an appointment and he was mine,” Sikkema told us in an interview. Sikkema says he has known Ellis for more than 30 years and supports his challenge to Amash.

So, the connection to Granholm is tenuous at best — a technicality, really.

Ellis was on the board for one year. His term took effect Jan. 6, 2006, and he was present at most of the 2006 meetings. But he was not present at the monthly meeting in January 2007 and was officially replaced by Paul Hodges in February 2007. Amash campaign spokesman Ben Vanderveen gave us a copy of the 2006 meeting minutes, saying the records “do not include one ‘no’ vote from Brian Ellis or any other form of opposition to the governor’s proposals.”

It’s true that Ellis did not vote against any of the projects. But they weren’t Granholm’s proposals, and the vast majority of the funding for the projects did not come from taxpayers.

Nearly all of the funding approved by the Michigan Strategic Fund in 2006 was under the Industrial Development Revenue Bond program — now known as the Private Activity Bond program. Under that program, the fund issues tax-exempt revenue bonds to raise private capital on behalf of the companies. The state board then loans the bond proceeds to the companies, which are responsible for paying the loans back at the interest rate set by the market.

All states and the District of Columbia have Private Activity Bond programs that issue tax-exempt bonds, which the IRS limits based on population. The cap this year, according to the Bond Buyer, is nearly $35 billion — including nearly $1 billion in Michigan.

The program is attractive to companies because they can get low-interest loans, which allow the companies to raise more capital. “They provide profitable firms with capital cost savings stemming from the difference between taxable and tax-exempt interest rates,” as the state explains in a brochure on the program.

The program is also attractive to the state, because it is a risk-free way to raise capital for economic development, according to Mark Morante, a senior adviser for strategic projects at the Michigan Economic Development Corp., the parent agency of the Michigan Strategic Fund. Morante said if the company defaults on the bonds, the bondholders lose money, not the state. “The state is taking zero risk,” Morante said. “The bondholders assume all the risk.”

We found that Ellis in 2006 was present at meetings in which the Michigan Strategic Fund approved $226.2 million in revenue bonds for 22 companies, and gave preliminary approval for $267 million to 23 other companies. That adds up to nearly $500 million, the figure used in the ad. But it is important to note that Ellis was not on the board when final approval was given to those companies that had received preliminary approval in 2006. And, in some cases, final approval was never given — as was the case on a $100 million bond proposal by NextGen Energy that was scrapped before any bonds were sold.

Most important, though, all the loans issued by the Michigan Strategic Fund came from private equity, not state funds. And that funding was initiated by the companies, which apply for the loans, not the governor’s office.

“I don’t see how you can accurately say these were ‘the governor’s projects.’ And that was true whether it was Engler, Granholm or [Rick] Snyder as governor,” said Sikkema, the former Republican majority leader who nominated Ellis.

The Michigan Strategic Fund did approve projects in 2006 that were funded with state and federal dollars, but nothing approaching $500 million:

None of these programs adds up to $500 million.

Gourmet Mushrooms?

Club for Growth Action, a conservative super PAC that is a chief supporter of tea party candidates, also attacks Ellis on corporate welfare and links Ellis to the former Democratic governor. But its ad singles out three specific projects — two of which were not funded by taxpayers and a third that saw its grant reduced by Ellis.

 

Club for Growth Action TV ad: On Jennifer Granholm’s Strategic Fund, Ellis wasted our tax dollars on a golf resort and production of gourmet mushrooms and pet food.

Let’s take the projects one at a time, beginning with the so-called “gourmet mushrooms.” This is false on two counts: The grant in question had nothing to do with mushrooms, and the company never accepted the funds.

The mushroom claim refers to a grant approved by the Michigan Strategic Fund on April 19, 2006, for Diversified Natural Products, which grows mushrooms in addition to producing other biotechnology projects.

FactCheck.org spoke with Gary Mills, then the chief operating officer of the company, who spoke about the company’s project at the April 2006 meeting. Mills told us that not only did the grant have “nothing to do with mushrooms,” but the company rejected the award due to concerns from its “private investors about the strings attached.” Mills provided us with the grant award document, which clearly shows that the grant was for “HEP-30: A Natural Alternative to Treat Elevated Cholesterol,” not mushrooms.

Morante, of the Michigan Economic Development Corp., confirmed that Diversified Natural Products did not accept the grant.

The “golf resort” charge, according to Club for Growth Action, refers to a March 22, 2006, grant approved by the Michigan Strategic Fund for the Double JJ Resort. It’s true that the board approved a $1,075,000 grant that day, with no members objecting, as the meeting minutes show. However, Morante provided us with additional information on the grant. The board actually voted that day to reduce a grant that was awarded on Aug. 18, 2005, before Ellis’ tenure began, by $725,000.

The final claim that the ad makes regarding “pet food” also comes from the April 19, 2006, meeting. The John A. Van Den Bosch Company, a family business that produces “wild bird feed, big game feed, and pet food products,” did receive a $2 million loan for “renovating an existing structure and constructing, furnishing and equipping an approximately 15,000 square foot manufacturing facility.”

However, no taxpayer funds were used to finance construction of the facility. This award was given under the Industrial Development Revenue Bond program. As we said earlier, private capital is loaned to businesses, not state or federal funds.

Barney Keller, a spokesman for Club for Growth Action, insisted in an interview with us that the ad is correct — that Ellis indeed “wasted our tax dollars,” as the ad says, because Ellis approved all three of these projects. But that’s simply false. Only one of the three companies referenced in the ad received taxpayer money for its project.

Both Amash and Club for Growth Action make a common mistake in their ads. They could have simply said that Ellis wasted millions of dollars on “corporate welfare” — which is an opinion. We don’t fact-check opinions. We take no position on the merits of taxpayer-financed economic development projects. But both ads went beyond the facts, using a grossly inflated figure ($500 million) and making false claims about specific projects (“gourmet mushrooms”) that serve to inflame rather than inform the public discourse.

— Eugene Kiely, Alexander Nacht and Lauren Shapiro