LANSING – A total of 65 full-time positions and more than

$129.8 million are being cut from the Michigan Economic Development

Corporation’s 2016 budget after its executive committee on Tuesday adopted a

resolution accepting the budget as proposed.

The MEDC in mid-August announced it would make major cuts

for its 2015-16 fiscal year budget beginning October 1 due to a combination of

“steep” reductions in the MEDC’s corporate revenues and its business

attraction support that comes from the Legislature. According to a document

from the meeting, total state funding decreased by 24 percent ($102.15 million)

for the upcoming fiscal year, and corporate funding has decreased 47 percent

($27.7 million) from the previous fiscal year.

Also in the mix is a dispute with the Gun Lake Tribe

regarding terms of the tribe’s compact that resulted in it ceasing payments to

the state in June.

“When revenue goes down at the casino, we have a

double whammy in the way the formula works,” Christopher Riznik, CEO and

fund manager for Renaissance Venture Capital Fund in Ann Arbor, told the

committee in his financial overview. “Obviously, there’s some painful

cuts, but it’s done with the realization that we have a lot of uncertainty on

revenue. We don’t know when the Gun Lake issue will be resolved and we can’t

assume increases in revenue from other sources.”

Talent and Economic DevelopmentDirector

Steve Arwood, speaking to reporters after the meeting, said the corporation

has to plan for what it knows. When the year began, it expected to have about

$7 million that it does not have currently due to the variety of factors, and

that caused the MEDC to reorganize.

Arwood, whose department now houses the MEDC, said the

effect of these cuts and schedule for laying people off would be announced


Lynne Feldpausch, vice president of human resources for the

MEDC, said the organization has both civil service and corporate employees, so

that makes the layoff timing a little more complicated to answer. She said the

corporate staff would be “departing” before the end of the fiscal

year, but since civil service staff have different rights depending on their

status, the MEDC can simply follow civil service regulations as it relates to

those staff members.

Arwood also did not detail specific programs or projects

that might be cut, saying only that the entire organization will be affected.

He reiterated this point when asked if there would also be a change in the

number of vice presidents and the like who sit at the top of the hierarchy.

“There will be a change in the entire organization

structurally,” he said. “We have not had our discussions yet with

staff so I’m not going to talk about personnel matters.”

In total, there will be a cut of more than $129.86 million

from the MEDC between changes in state funding and corporate funding.

When compared to the previous fiscal year:

Salaries and benefits are decreasing by slightly less than

$10.5 million;

Administrative costs, including employee travel, will see a

slight increase in funding to the tune of $552,900;

Marketing will see an increase of almost $5 million; and

Programs and grants are being slashed by about $124.9


While a document handed out at the meeting outlines the

total proposed funding, using both state and corporate money, of various

programs and grants for the upcoming fiscal year 2015-16 budget, there is no

specific comparison to the previous year, making it difficult to discern which

programs might be seeing what kind of reductions. Mr. Arwood did say during the

meeting, though, that in reviewing the whole organization, some key factors

were the rate of return on investment of various programs and those yielding

higher capital.

Arwood said there is a difference between eliminating

programs and coordinating the program function into a larger unit – the latter

of which the MEDC will use going forward.

“For example, we have the logistics and supply area

that we’ve had an office of. We will continue to focus on logistics and supply,

but having various offices to do these different things is something we can’t

sustain,” he said. “So we’re going to bring those core industries …

under an umbrella of a larger unit and use remaining staff to

cross-functionally train to work on these issues.”

Indeed, Arwood told the executive committee that the

mission and the vision of the organization will not be compromised with the

budgetary charges. He said the future of MEDC will focus on eight specific,

focused areas that contain tools for growth. They are:

Retain and grow Michigan businesses,

Maintain and strengthen automotive leadership,

Develop value-added agriculture and natural resources,

Accelerate manufacturing innovation,

Grow Michigan exports,

Deliver key entrepreneurial and economic gardening


Aggressively build national and international business

attention, and

Protect and grow defense-related industries.

The MEDC will also continue to develop and expand community

vitality initiatives, its image via the Pure Michigan brand, and increase

private investment, jobs, wages and customer satisfaction, Arwood told the


One key thing to watch going forward is that the MEDC

expects to be stricter about how much money it gives and where, as well as pay

closer attention to payment from the state for services the MEDC currently

provides but isn’t specifically paid for.

“In the current year, we’re expecting to be reimbursed

for about $7.6 million from the state for the services we provide on those

flagship programs we talked about. We are limited under statute for the 21st

Century Funds that fund those programs to 4 percent for administrative costs.

That limits what we can charge versus what it’s actually costing the

corporation to provide those services, Amanda Bright McClanahan, CFO for the

executive committee, said. “From 2015, it’s a reduction of a little over

$5 million of what we were able to charge the state.”

Doug Rothwell, MEDC executive committee chair, added:

“What it costs to run these programs versus what they can charge are two

different things. And it costs more to run them than they can charge.”

To make up for that shortfall throughout the current fiscal

year, the MEDC was forced to tap into its corporate side of the budget and a

sort of rainy day fund, known as the Strategic Reserve, that was once at more

than $30 million but now holds about $18 million.

“We do not know what may happen down the road, and

that is what’s there to protect the event that we may have other economic

things happen we didn’t understand. I think that’s prudent,” Arwood said.

“Right now this budget is balanced, but there’s no contingency. So what

we’re going to have to do is work within what we’ve got and make the most of

it. Certainly if there are issues that happen, we’ll come back to the executive

committee and we’ll talk about those issues. But this is a very, very hard

budget in terms of looking at a year’s operation.”

This story was published by Gongwer News Service. To

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