Published in Economic Development

MEDC ‘comfortable’ after steep drop in tribal revenue sharing during pandemic

BY JAYSON BUSSA and JOE BOOMGAARD Sunday, October 10, 2021 06:30pm

Officials at the Michigan Economic Development Corp. say they are moving forward after the organization took a multi-million-dollar hit last year as revenue sharing from tribally owned casinos plummeted during pandemic-related shutdowns.

The Michigan Gaming Control Board recently released figures showing tribal payments to the MEDC for each of the last five years. While the four years prior to 2020 show payments to the state in excess of $53 million annually, those payments plummeted in 2020 to about $28.9 million — a 47 percent drop from the year before.

Quentin Messer Jr COURTESY PHOTO

The quasi-governmental MEDC is funded through both Michigan’s General Fund and corporate dollars, which traditionally have been fueled mostly by revenue sharing payments from tribally owned casinos.

Quentin Messer Jr., who took over this summer as CEO of the MEDC, said state economic development officials remain “comfortable” with the organization’s budget moving forward. 

“Our fundamental focus has to be direct impact on the tribes, and we need to be sensitive to that,” Messer told MiBiz, referencing the revenue shortfalls for the state’s sovereign tribal nations. “At MEDC, we are very at peace and comfortable with our FY22 budget. We feel very good. Did we get everything we wanted? No, but we will have the resources that’s required for us to dig deeper and have more meaningful solutions to the economic aspirations of all Michiganders. We feel comfortable.”

He added that the MEDC’s focus “should not be on the resources, but on coming up with creative, innovative solutions, because when we do that, the resources will follow. I’m incredibly confident that that will be the case.”

Still, it remains unclear how last year’s drop in casino revenue sharing has affected operations at the MEDC. While the MEDC’s new fiscal year started Oct. 1, the organization was unable to share its budget with MiBiz because it was still in the process of “putting our final touches” on it, officials said late last week.

A shortfall in tribal revenue sharing dollars has affected MEDC operations in the past. In 2015, the MEDC experienced a 47-percent drop in corporate dollars, which are largely derived from revenue sharing from tribal casinos. The decrease stemmed from a conflict with the Gun Lake Tribe, which withheld a $7 million biannual payment in protest of the state permitting the Michigan Lottery to launch online games, which it claimed violated its gaming compact with the state.

At the time, the loss of revenue sharing from just one tribe, accompanied by other deep cuts in funding from the general fund, led the MEDC to lay off around 65 staff members in a reorganization effort.

This time around, the MEDC faces a far different set of circumstances. Not only has the MEDC been able to make necessary adjustments to its operations throughout the pandemic, but the state also receives payments from the tribes’ online casino gaming and sportsbooks, which started operating at the beginning of 2021.

With in-person casino gaming regaining ground and the new revenue coming in from online gaming, the MEDC may already be looking in the rearview mirror at any revenue challenges.

“My sense of it is that any shortfall will not fundamentally make the state less competitive,” Messer said. “We have mechanisms for addressing those. We may be flat. There’s certain hiring that we need to do that we won’t do, for example, or there may be certain things that we have to delay. But it will not make us less competitive and not able to compete.”

The long game

Meanwhile, the state’s business attraction and retention programs have been under scrutiny in recent weeks following Ford Motor Co.’s announcement that it would venture outside of its home state to make a historic investment in electric vehicles.

Ford and partner SK Innovation Co. announced at the end of September that they planned to invest $11.4 billion to build facilities that manufacture both electric vehicles and batteries in Tennessee and Kentucky, where they expect to create 11,000 jobs.

Economic Development Leaders for Michigan, a coalition formed last year of 12 economic development agencies, issued a statement following Ford’s announcement, noting that Michigan’s “economic development toolbox is inadequate to compete for these pivotal projects.”

“This was kind of the last straw in ringing the alarm that our state is in a massive crisis and we don’t have the tools needed to compete for the future of the auto industry,” said Jennifer Owens, president of Zeeland-based economic development organization Lakeshore Advantage, which assists businesses in Ottawa and Allegan counties with growth opportunities.

Coincidentally, Lakeshore Advantage’s territory was the beneficiary of previous incentive programs that helped to lure billions in investment to Holland from LG Energy Solution Michigan Inc. and Johnson Controls International, which later spun off its battery division as Clarios LLC.

Both leveraged Department of Energy grants and other federal subsidies stemming from 2009’s American Recovery and Reinvestment Act to get off the ground. Then-Gov. Jennifer Granholm also courted the industry in a targeted manner with battery cell manufacturing tax credits.

Coming out of the pandemic with an excess of federal dollars, Owens said that the state has a chance to make a transformational move, but it must use both one-time programs in addition to measuring and benchmarking itself to stay competitive with other states.

For instance, site development proved to be a differentiating factor in the Ford deal, with both Kentucky and Tennessee offering large, shovel-ready sites that proved attractive to the automaker. To that end, Gov. Gretchen Whitmer recently called for the state to invest $100 million in the MEDC to prepare large sites for future opportunities.

“The Ford announcement was something where we didn’t lose that deal last week. We didn’t lose it this year. We probably lost it 10 to 15 years ago given the long-term planning Teneesee and Kentucky took to planning these mega sites,” said Britany Affolter-Caine, who serves as executive director of the University Research Corridor in Lansing and is a member of the Michigan Strategic Fund’s board, which authorizes grants from the MEDC.

“That’s one strategy,” Affolter-Caine said. “I think what we want to focus on here in Michigan is taking a long-term approach that is strategic that targets the kind of deals we want to have here, the kinds of companies we want to have here.”

Affolter-Caine identified not only site readiness as a point of emphasis, but also an effort to increase the number of working adults in the state with a four-year degree.

She also said Michigan needs to embrace some of its inherent strengths, like the favorable climate.

“Our state has a lot to offer,” she said. 

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