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(MLive file photo)

Some extremely lucrative business tax incentives, mostly approved during Gov. Jennifer Granholm's administration, are taking a big bite out of Michigan's finances.



Michigan began the 2014 fiscal year with a nearly $1.2 billion surplus in its general fund, the state's main checkbook. But mostly because businesses are still cashing in on those refundable tax credits, the checkbook will be overdrawn by $382.9 million by the end of the 2016 fiscal year unless something is done, according to the Senate Fiscal Agency.



And something will be done because, unlike the federal government, states are prohibited from running deficits.



Gov. Rick Snyder's administration already has announced spending cuts will be required to balance the 2016 fiscal year budget, which begins Oct. 1. I'm sure the governor, who is out selling the message that Michigan's fiscal management is a model for Washington, isn't happy about this.



How did we get into this mess? Blame MEGA. The Michigan Economic Growth Authority, created by Gov. John Engler in 1995, is a tax incentive program that originally was limited to aiding a handful of large economic development projects.



MEGA credits are refundable, meaning that if the credit is bigger than a company's tax liability, it gets a check from the state.



The program was greatly expanded by Granholm, with bipartisan support from the Legislature, to try to reverse a scary, decade-long exodus of jobs and businesses from Michigan.



Granholm's administration approved MEGA credits valued at $7.3 billion for more than 500 companies. Those credits were projected to create 122,800 jobs and retain another 141,000 jobs.



Snyder continued the program during the first year of his administration, which approved MEGA credits for 52 more companies. Although Snyder ended the program in 2012, companies have years to claim credits on investments that create or retain jobs in the state, greatly complicating budget planning.



And as the economy improves, many companies are expanding and claiming the credits. The Detroit News reported that an unnamed company recently cashed in a $224 million credit.



"We are paying the price now for a MEGA program that helped reduce the magnitude of Michigan's relative decline in economic strength," Tim Bartik, senior economist at the Upjohn Institute for Employment Research, told me in an email.



A 2010 study by Bartik and fellow economist George Erickcek found that MEGA "had a relatively high bang for the buck" in attracting business investment.



But he told me the state should have put a five-year time limit on the credits, which were approved for an average 15 years.



Michigan State University economist Charles Ballard said the state could try to renege on some credits, but such a move would likely trigger costly litigation.



"Even if we can't zero them out now, they will eventually be gone, and I hope they don't come back," he said.

Email Rick Haglund: haglund.rick@gmail.com