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© Anderson Economic Group, 2009 Thinking Beyond the Current Crisis Prepared for State of Michigan Board of Education October 26 th, 2009 Lansing, MI Patrick L. Anderson, Principal Anderson Economic Group, LLC
© Anderson Economic Group, 2009 Outline I.Introduction II.Michigan: The 8-year recession III.Michigan: No coherent strategy; The price of negligence IV.Re-thinking Michigan Avoiding senseless debates Elements of a success plan
© Anderson Economic Group, 2009 I. Introduction: Anderson Economic Group LLC Consulting firm headquartered in East Lansing, with offices in Chicago and Los Angeles. Clients include businesses, associations, non-profits, state and local governments throughout the United States. Recent AEG projects include: –Assessing the technology and life sciences industries in Michigan and in West Virginia –Estimate the economic impact of Michigan’s University Research Corridor and benchmarking it against competitors in NC, CA, IL, and MA –Helping MSU win federal funding for the FRIB –Surveying business tax incentives in Michigan for the Michigan Education Association –Completing the third annual 50-state business tax burden study published in the State Economic Handbook –Extensive business tax reform analyses for Detroit Renaissance Past efforts have resulted in: change in sales tax law (1998); reform of laws on reversion (1999); creation of an IPPT credit (2005); repeal of the SBT (2006); the creation of a Michigan EITC (2008).
© Anderson Economic Group, 2009 II. Michigan: The 8-year Recession The United States emerged from brief recession in 2001, and grew steadily until the “Great Recession” began in early 2008. Michigan never emerged from the 2001 recession. Michigan’s unemployment was already at 7% when the Great Recession began; it has now exceeded 15% for months. Numerous Michigan cities have unemployment rates over 20%, and at least two have unemployment over 30%. By comparison, other Midwestern cities with manufacturing industries (Milwaukee, Cleveland, Chicago, Indianapolis) have unemployment rates near 9%.
© Anderson Economic Group, 2009 Historical Unemployment Rate Trend Mid 1990’s: MI gets better than the US
© Anderson Economic Group, 2009 III. Michigan: No Coherent Economic Strategy 1.We have no coherent economic development strategy. 2.Our tax policies are confusing, and actively discourage business investment. Since 2005: repeal SBT repeal; create new MBT increasing tax burdens; impose bizarre “excise tax”; repeal that and impose MBT “surcharge”; increase individual income taxes; but create film-industry-only tax credit. 3.Our base tax revenue has been declining even as we increased business and personal tax rates. Hard to squeeze more tax revenue from a shrinking stone. 4.Structural deficit, but no structural reforms, means no sustainable spending priorities.
© Anderson Economic Group, 2009 No Coherent Strategy, continued: The price of negligence 3.We are paying the price for our negligence We cannot assume that K-12 education funding, organization structure, or pay and benefits can be sustained over the next few years...or even the current fiscal year. The 2000-2009 period for the state represents a “lost decade” during which we failed to address structural problems. Unfortunately, no sector can escape the damage from this negligence...including K-12 education, which has historically been the state’s top funding priority.
© Anderson Economic Group, 2009 No Coherent Strategy, continued: The old order is gone 4.The Old Order is irrevocably gone. No “Big 3” anymore; we are trying to hold on to a “Detroit 2” and currently have only one unencumbered OEM. Huge drop in manufacturing employment. Losing valuable professional & technical employees. 5.Need to re-think: Tax policy Education policy Spending priorities
© Anderson Economic Group, 2009 IV. Re-thinking Michigan: 1. Avoid Senseless Debates 1.No benefit to arguing that “taxes don’t matter.” Everyone that hires workers and pays taxes thinks they do...and they are the ones that really matter. 2.No truth to the claim that Michigan’s tax burden is the worst in the country. Business tax burden is about 26 th in most recent 50-state survey; but perception of business investors is much worse. 3.No advantage in saying that discussing reforms is “education bashing.” When your ship is sinking, you don’t shoot those that are bailing fast. 4.Reality: we are losing tax base, and need to reform. Hold the senseless debates for a future date.
© Anderson Economic Group, 2009 IV. Re-Thinking Michigan: 2. Identifying a Success Plan 1.Emphasize valuable assets Technical knowledge for manufacturing, life sciences, chemicals, electronics, defense, other high-tech industries... Excellent colleges and universities, starting with University Research Corridor and extending to other private and public colleges Excellent quality of life; outstanding beauty; incredible natural assets Michigan is really good at certain things...start with those.
© Anderson Economic Group, 2009 2. Success plan elements--continued 2.Must reform to survive Tax revenue of the past will not return any time in near future; must choose path or have disaster thrust upon us. Need to re-think redundancies in the school system; need to reconsider governance; maintenance of 500+ units; contracts; unfunded liabilities; accountability measures. Need to continue effort to create, maintain, and enforce performance standards. No coherent success plan avoids reform; ignores K-12 education; or treats education as primarily a funding question.
© Anderson Economic Group, 2009 2. Success plan elements--continued 3.Thoughtful reform plans have been proposed by experts outside of government...but ignored Governor’s emergency financial panel Center for Michigan Detroit Renaissance (Business Leaders for Michigan) Other reform plans have concentrated on tax policy, education governance structure, economic strategy...those mostly ignored, too. Much better to pick a coherent plan than to watch ship sink further.
© Anderson Economic Group, 2009 2. Success plan elements--continued 4.Any success plan must develop an educated workforce because the 21st century economy demands it. Without improving its education system, Michigan will decline. By the way, the 21 st century is already here........and we’ve not been doing very well in it.
© Anderson Economic Group, 2009 Contact Information Patrick Anderson Principal & CEO, Anderson Economic Group, LLC East Lansing | Chicago | Los Angeles Reports and company information may be found at: www.AndersonEconomicGroup.com Reports Cited in Presentation: “2008 State Business Tax Burden Rankings, 3 rd Annual Report” (Mar. 2009) “Michigan’s University Research Corridor” (Sept. 2008) “Automation Alley’s 4th Annual Technology Industry Report” (Nov. 2008)
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