The below analysis was based on the originally proposed project. Ford announced a scaled-back project on November 21; current information suggests the incentives may also be scaled back. Our preliminary analysis indicates that the qualitative conclusions of the analysis remained unchanged. For further information, contact Tim Bartik
Kalamazoo, Michigan — To encourage Ford Motor Company to build a large electric vehicle battery factory near Marshall, Michigan, the state offered significant incentives through the Strategic Outreach Attraction and Reserve Fund (SOAR). Will those large incentives yield a positive economic payback for the people of Michigan? The answer is yes, but due to very specific factors, according to an analysis by Tim Bartik, a senior researcher at the Upjohn Institute for Employment Research.
According to Bartik's evaluation, the incentives for the project have a present value of approximately $1.4 billion. The expected gross benefits have a present value for Michigan residents of $2.6 billion. That leads to a net benefit of approximately $1.2 billion.
“A benefit-to-cost ratio of 1.8, if realized, would be solid for an incentive project, and is particularly surprising given this project’s large incentives per job,” Bartik said. “So should we give ‘three cheers for SOAR’ and expand it to as many other projects as possible? No. My conclusion is ‘two cheers for SOAR’ as the Ford project’s anticipated benefits are due to three crucial assumptions, which may not extend to other projects supported by a major SOAR expansion.”
The three key assumptions driving the positive forecast for the incentives are:
- The Marshall plant is expected to have a very high multiplier of 4.38. This means that for every one person employed directly at the plant, an additional 3.38 jobs should be created in related businesses, increasing the project’s impact on the local job market and boosting earnings per capita. Bartik says the state needs to monitor the project to ensure these additional jobs develop in Michigan. For example, if the Ford project had a more typical multiplier—2.5 rather than 4.38—the project’s gross benefits would be less than the incentive costs.
- The project’s location, Calhoun County, is an area that is considerably short of full employment. If this project were in a more booming area, such as Grand Rapids/Kent County, the project would still have net benefits, but its benefit-cost ratio would be lowered by more than 20 percent.
- The project’s business incentives are unlikely to significantly undermine investments in public education. The SOAR incentives for the Ford project are paid for by business taxes, and the state’s School Aid Fund is reimbursed by the state’s General Fund for any funding losses from the project’s property tax abatements. If the project was paid for by reducing K-12 funding, its long-term economic costs would be more than ten times as high as the incentive costs.
“The bottom line is that state incentive programs like SOAR—featuring large incentives per job for megaprojects—can have benefits greater than costs,” said Bartik, “but only if they are designed to be highly targeted by industry, focused on distressed locations, and limited in their impacts on productive public spending.”
Bartik’s analysis of the incentive package that Ford is receiving is based on the Bartik Benefit-Cost Model of Incentives. The model uses information on anticipated job creation and incentives over the life of the project. It also considers the project’s multiplier effect and how the incentives are paid for. Finally, the model considers local labor markets and housing market conditions. The model then simulates the project’s benefits and costs and examines how they affect people with differing income levels.
<The new Ford plant, located about 100 miles west of Detroit, is scheduled to begin production of lithium iron phosphate batteries for electric vehicles in 2026. The project is estimated to require $3.5 billion in investment by Ford, and the plant is expected to eventually employ 2,500 people.
Click below for Bartik's full analysis, titled "Scoring SOAR."
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