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
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
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
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.”
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