Reintegrating MEDC Into State Government

March 19, 2010

The March 17 revelation that the MEDC awarded a $9.1 tax credit to a convicted embezzler
suggests that the Michigan Legislature may want to reintegrate the MEDC programs into state
government. Such a reintegration would subject the state’s economic development programs to
state laws and oversight that are now frequently avoided by the legal structure and opaque
operating style of the MEDC.

Reintegration can be accomplished in the 2010 budget bills by “boiler plate.”

In the event the Legislature decides to bring the economic development functions back into
state government, the documents establishing the Michigan Economic Development
Corporation (“MEDC”) allows it to do so.

1. The MEDC was created under the following document:

AMENDED AND RESTATED INTERLOCAL AGREEMENT

BETWEEN
MICHIGAN STRATEGIC FUND
(A Public Body Corporate and Politic of the State of Michigan)
AND
PARTICIPATING PUBLIC AGENCIES AS SIGNATORIES TO THIS
INTERLOCAL AGREEMENT
CREATING THE
MICHIGAN ECONOMIC DEVELOPMENT CORPORATION
A Michigan Public Body Corporate
Effective: April 5, 1999
(As adopted by the Michigan Strategic Fund Board on December 18, 2003)

2. The stage for the MEDC was created when Governor Engler issued Executive Order
1999-1, pursuant to Michigan Constitution of 1963, Article 5, §2 and the laws of the
State of Michigan, consolidated State of Michigan economic development functions
and programs and their accompanying powers in the Michigan Strategic Fund.

3. The next step in moving the economic development functions was taken pursuant to the
Michigan Constitution of 1963, Article 7, §28 and the Urban Cooperation Act of 1967,
Act No. 7 of the Public Acts of 1967, Ex. Sess., being MCL 124.501 et seq. of the
Michigan Compiled Laws (the “Cooperation Act”). The laws permit a Public Agency
(i.e., the Strategic Fund) to exercise jointly with any other Public Agency any power,
privilege or authority which such Public Agencies share in common and which each
might exercise separately.

4. As a result of entering into an interlocal agreement to jointly exercise economic

development powers, the Strategic fund and local economic development agencies
MEDC Notes
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created the Michigan Economic Development Corporation, as a separate legal entity

and as a public body corporate.

5. No new economic development functions were created when the MEDC was created. It
simply transferred state functions outside state government and legislative control. The
powers of the MEDC are listed in Section 3.01 to include performing “successful,
effective and efficient economic development programs and functions throughout the
State” as follows:

a. Provide information and assistance to new and existing businesses to facilitate

resolution of governmental disputes concerning issues such as zoning and land
development;

b. Facilitate, coordinate, and advance Projects for encouraging new and existing
businesses in locating, purchasing, constructing, reconstructing, modernizing,
improving, maintaining, repairing, furnishing, equipping, and expanding in the
State;

c. Provide information to new and existing businesses regarding taxes, insurance

rates, environmental audits, safety audits, permits and worker recruitment and
training;

d. Encourage and solicit private sector involvement, support, and funding for
Projects;

e. Encourage the export of products and services to national and international

markets;

f. Provide information to tourists and the travel industry and encourage tourism
within the State;

g. Conduct studies and research, develop and maintain data and records in
connection with a comprehensive economic strategy; and

h. Provide, upon request, centralized administration of local economic

development programs.

6. The MEDC was never intended as a permanent entity. Section 6.01 provides:

The Corporation commences on the Effective Date and continues

for a term of ten (10) years (“Initial Term”). The term of this
Agreement may be extended for a term of five (5) years (“First
Renewal Term”) and may further be extended for an additional
term of five (5) years (“Second Renewal Term”). The maximum
term of this Agreement shall be twenty (20) years.

7. Pursuant to Section 6.02, the Strategic Fund itself may withdraw from the MEDC
MEDC Notes
Page 3 of 4

upon expiration of the Initial Term [i.e., 2009] or First Renewal

Term [2013] upon six (6) months notice to the Corporation prior to
the expiration of the Initial Term or the First Renewal Term. If the
Fund does not give notice of withdrawal, the Corporation shall
continue until expiration of the First Renewal Term or Second
Renewal Term

8. Pursuant to Section 6.04, the MEDC is terminated upon “withdrawal of the [Strategic]
Fund” or upon “Three-fourths (3/4) vote of the Executive Committee.” [Note: The
members of the Executive Committee are appointed by the Governor.]

9. Pursuant to Section 6.05, upon Termination all the MEDC’s remaining assets are
distributed back to the Strategic Fund within state government.

10. The interlocal agreement recognizes that the MEDC is operating with state funds at the
sufferance of the Legislature. At anytime the Legislature and Governor could decide to
appropriate economic development funds to the Strategic Fund, or another agency,
without permitting the transfer to the MEDC. The language reads as follows:

Section 9.05 State Appropriated Funds. Beginning on the

Effective Date, the Fund shall transfer to the Corporation the
estimated available balance of all State appropriated funds and
related obligations…after deduction from the appropriations for all
of the personnel and related operational costs of State classified
service employees to the extent permitted by law. The remaining
balance, if any, shall be transferred from the Fund to the
Corporation after the State’s fiscal year 1999…and each ensuing
fiscal year thereafter, the Fund shall transfer to the Corporation all
available State appropriated funds after deduction from the
appropriations for all of the personnel and related operational costs
of State classified service employees to the extent permitted by
law….The ability of the Fund to make transfers made under
this provision is subject to annual appropriation by the
Legislature and as provided by law.

Furthermore, the Legislature retains the power to required the return of all MEDC funds
to the Strategic Fund under the following provision:

Section 9.14 Transfers to the Fund. Upon request by the Fund,

the Corporation shall return any unexpended or
unencumbered funds, personnel, or property to the Fund to better
further the purposes of economic development upon a three-fourths
(3/4) vote of the Executive Committee or as required by law.

11. The salaries and benefits of classified employees were protected under the following
provision:
MEDC Notes
Page 4 of 4

Section 9.11 Employees. On the Effective Date, the Fund shall

detail State classified service employees to the Corporation to
supplement the non-classified employees of the Corporation.
These employees shall be detailed as state classified service
employees of the Fund and shall continue in the State benefit
system including wages, pension, seniority, sick leave, vacation,
health and welfare, longevity and other benefits.

12. Pursuant to Section 11.02, “all documents and records of the Corporation… shall be
maintained until termination of this Agreement and shall be returned to the Fund, or any
statutory successor or if neither, the State.”