Investigative
8:43 am
Tue March 15, 2011

What will the 'Michigan reinvention' look like?

It was only a few months ago that Republican Rick Snyder and the majority Republican legislature were voted into office. Snyder said on the campaign trail that he wanted to change the way state government works.

He promised to “re-invent” Michigan.  People liked the sound of that.

As he’s revealed the path to his vision of Michigan, not everyone is pleased. 

(sound of protestors in capitol)

Union members, Democrats, public employees, retirees and the poor have been holding rallies at the capitol about as often as the legislature meets in Lansing.

They’re concerned about cuts to public employee benefits and to taking away a tax credit for the working poor.  Some are not happy about eliminating a tax exemption for pensions.

There are also budget cuts… to schools, universities and municipalities.  Business tax credits are being eliminated.

At the same time, overall business taxes are being reduced.   Nearly $2- billion in tax burden is being shifted from businesses to individuals.

The Governor says this is about keeping the tax code simple, fair and efficient.  All businesses will pay a flat 6% tax on profits.  All individuals will pay a flat 4.25% in income tax. 

Supporters and opponents call the proposal “bold”--  among other things.

The Governor says this change in the Michigan tax code is long overdue.

“It’s not talking about simply balancing things.  It’s not simply talking about getting by for the next year.  This is setting the foundation for the re-invention of Michigan.  This is what I campaigned on, many of us campaigned on and we’re following through on what our citizens really want in this state.”

Governor Snyder says this is absolutely critical in order for the state to compete for business investment in Michigan. 

While campaigning, Rick Snyder also talked about investing in an educated workforce and in a quality of life that will draw business.

“He campaigned both on business tax cuts and on investments in both place and education.  And in putting this initial budget together, he made the priority the tax cuts.”

That’s Lou Glazer.  He’s President of Michigan Future, Incorporated, a non-partisan, non-profit think tank.  Glazer says he’s not thrilled with the Governor’s approach to the budget, but he’s onboard with where Governor Snyder says he wants to take the state.

“Of all the governors that I’ve known, which goes back to Milliken, Governor Snyder, I think, has the clearest vision of where Michigan needs to go to succeed in the future economy.  So, you know, and it’s what he describes as Michigan 3.0.  So, I think in terms of vision, he’s terrific.”

But Glazer says cutting things such as education and revenue sharing with cities, towns and villages seems to be going the opposite direction Snyder says we need to go. 

Many businesses in Michigan complain that they can’t find the educated workforce they need and they have a hard time recruiting talented people to Michigan.

Glazer says if Michigan is to succeed in the way that Governor Snyder has outlined, his budget doesn’t reflect that.

“Higher education in particular needs  to be a budget priority because it’s what’s been slashed for the last decade; and then secondly, so one component is preparing talent, the other component is because increasingly talent is mobile, you’ve got to  create places where talent wants to live.  So, that quality of place matters and quality of place is largely delivered by local governments.  Those are the things that you should be investing in.  We’ve had a decade in which those have been the two things that have been cut the most.  And Snyder is continuing the cuts in both of those things.”

The Snyder administration argues the state’s tax structure must be fixed first.  The current Michigan Business Tax is complicated and the business community says it’s just too high.

But Lou Glazer says taxes are not the problem.  Taxes have been dropping for the last decade and we’re in worse shape now than we were 12 years ago when unemployment was 4%.   The unemployment rate has been in double-digits for more than two years now.

“Tax rates are  --whether it’s sort of total tax rates on both individuals and companies or company tax rates--  are simply irrelevant.  They don’t correlate with anything.  So, the pattern is that you will end up finding high business tax states with good economies and bad economies and low business tax states who have good economies and bad economies.  It just doesn’t correlate with anything.”

Glazer says Michigan is hurting because the major industry in the state, making automobiles, stalled.  To re-invent a new prosperous economy, Michigan will need a better educated workforce.

“The only thing now that highly correlates with income is education attainment.  Of the 15 states with the highest proportion of adults with a four-year degree, 13 are in the top 15 of per capita income.”

So, educating people and enticing them with places they’d want to live, Glazer argues, is the goal.  Cutting higher education and cutting revenue sharing  do nothing to get us closer to the goal.

An economist at the University of Michigan and an advisor to Glazer’s think tank says Snyder’s approach could still get us there.  Don Grimes says straightening out the State of Michigan’s finances is important and the Governor’s  budget does contribute to Snyder’s idea of re-inventing the state and a bright economic future.

“I actually think he’s right, that essentially Michigan is trying to make the adjustment to the knowledge economy and we’ve struggled with it a decade or more.  I think that the--  I’m not certain that the tax structure is a key component, but once we get our house in order, we’ve lost so many auto industry jobs there aren’t just that many more to lose, so, just going forward I think Michigan does have a pretty bright future.”

Grimes agrees with the Governor’s admonishment that we can’t look behind us.  Things have changed.

“I mean, the fundamental problem is that we were a very rich state a decade ago and we offered pay and benefits to our state and local government employees, and we tried to provide services to our poorer citizens, including the Earned Income Tax Credit that was consistent with being a wealthy state and that was appropriate.  But, all of a sudden we’ve become a poor state and a lot of these perks that we were able to sustain are really sort of drying up, I’m afraid.  And that’s a real challenge for the state.  And I think we can do it.    But, that doesn’t mean there won’t be a lot of pain along the way.”

And the Snyder administration says that pain includes cuts to favored state programs and to public employee benefits.

“We needed to reset.  We needed to get the budget back into balance and we needed a strong foundation on which we can build.”

That’s Governor Snyder’s Budget Director, John Nixon. 

"It’s a real comprehensive approach that we’ve taken here, saying first, we’re going to get our budget in balance;  two, we’re going to start to address our long-term post-retirment health care liabilities; and three, we’re going to get a tax structure that’s solid upon which companies can rely, companies can come, move to Michigan, they can grow, they can expand.  And that’s really what’s going to be important because what Michigan needs more than anything right now are jobs.”

One economist says shifting the tax burden from business to individuals is a gamble to attract business and jobs to Michigan.  But then, he says any change has its risks.

The question that the Snyder administration so far has not answered in detail is this:  what does the reinvention look like?

After all the cuts, after all the shift in tax burden, assuming the economy in Michigan does strengthen, how soon will Michigan start investing more money in things such as higher education, its cities, and its schools, the other things Lou Glazer says we need to attract good jobs.