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Peter Luke:
Eye on the Capitol

Insights into the inside workings of Michigan's state government from a veteran newspaper correspondent.

What does Michigan have to do to get a little love?

Gov. Rick Snyder has spared no effort in making Michigan "business-friendly," but the message has been slow to spread.

Gov. Rick Snyder has spared no effort in making Michigan “business-friendly,” but the message has been slow to spread.

So Michigan cuts business taxes by $2.4 billion, stages a political war (because that’s apparently what’s been lacking) that favors business over labor, more than balances the state budget and finally takes ownership of arguably its biggest challenge — which is its biggest city.

And it’s still 39 spots below Indiana?

Yup. At least according to Chief Executive magazine, which, in its evaluation of state business climates, apparently failed to include a drive from Kalamazoo to Chicago so that the aesthetic charms of the Indiana Tollway might be graded.

Then again, I-94 on this side of the state line is one long rumble strip. But you don’t notice it as much when the fruit trees are in bloom.

What might explain Indiana’s No. 5 ranking among states, with Michigan dwelling in the cellar at No. 44.

Certainly not business taxes.

The Tax Foundation’s latest business tax climate survey in October evens things up a bit. Michigan was 12th, up from 19th since the Michigan Business Tax was scrapped in 2011. Indiana was 11th.

peter-lukeBut Indiana’s edge in the ranking came from the property tax category. In December, Gov. Rick Snyder signed into law what eventually will be a $630 million personal property tax cut on business equipment, so that will change.

According to Chief Executive’s key metrics, moreover, Michigan bested Indiana in gross domestic product growth; had lower per-capita debt; had fewer government employees per 10,000 population; and had a lower state and local tax burden. At 9.3 percent versus Indiana’s 11.2 percent, Michigan’s overall tax bite was below the national average, while Indiana’s was higher.

But Indiana scored far better than Michigan because the survey of 736 CEOs was based on the respondents’ perceptions – and the national perception of Michigan remains fairly lousy. (Though there were comments from some who thought the Right-to-Work law was pretty swell.)

Where’s the ‘Snyder effect’ on economy?

Cemented biases take time to loosen. Snyder has been reticent about adopting a national sales profile. And Detroit now has fewer than 60 days to decide whether it’s going to be the largest case of municipal bankruptcy in American history.

But even if the policy changes pushed or accepted by Snyder haven’t yet changed the perception that they have made Michigan a better place to do business – and thus will attract a lot of new outside investment to the state – surely they’ll produce a discernible response from the firms already here.

Maybe. Maybe not.

The consensus view from last week’s biannual revenue estimating conference in Lansing was that payroll employment growth in the last two years of Snyder’s first term would be less than that of the first two years, before the state’s latest economy plan really took effect.

According to University of Michigan economist George Fulton’s presentation, half the payroll employment growth from fourth quarter 2011 to fourth quarter 2012 was in manufacturing.

But manufacturing makes up only 13 percent of overall Michigan employment and the Michigan Manufacturers Association complained at the time that replacing a Michigan Business Tax with the new Corporate Income Tax actually represented a tax increase for many of its members.

Professional and business services, which represent a similar share of the job market as manufacturing, arguably benefited greatly from the elimination of state business taxes on partnerships and limited liability corporations. But employment in that sector grew at half the pace of manufacturing, fourth quarter to fourth quarter.

One of the arguments you kind of have to make for new policies is that the state will be better off with them in effect than if they were not. In this case, that business tax reduction on the massive scale approved in Michigan will produce a lot of employment bang for the buck.

You can argue that without the big shift in taxes from business to individuals, Michigan would be adding fewer than the 175,000 additional jobs U-M is forecasting for the state from January through the end of 2015. But since U-M doesn’t factor state tax changes into its employment forecast – and since Snyder’s Treasury Department is forecasting fewer jobs than U-M – even the Snyder camp isn’t making that claim.

The political difficulty is that such an economic payoff would seem to be critical for the re-election fortunes of anyone who promised it. Even if, by the end of 2015, payroll employment approaches the 4.2 million mark being forecast, that would still be less than the number of jobs in the state in 2007, before everything really went haywire.

And hitting that mark in less than three years depends on whether another forecast is met: light vehicle sales hitting 16 million, with the Detroit Three’s share of sales holding steady at around 45 percent.

In Michigan, in 2013, it’s still all about the cars.

Perhaps the most important ranking remains this: For two decades, between 1990 and 2001, Michigan was a top 20 state when it came to per-capita personal income, reaching a high of no.17 in 1998, according to a compilation of state data by the Bureau of Business & Economic Research at the University of New Mexico. Michigan dropped all the way to no. 40 in 2009 and has since climbed back up to only No. 35.

There’s still a long way to go. And how best to get there is far from settled.

Peter Luke was a Lansing correspondent for Booth Newspapers for nearly 25 years, writing a weekly column for most of that time with a concentration on budget, tax and economic development policy issues. He is a graduate of Central Michigan University.

9 comments from Bridge readers.Add mine!

  1. dlb

    I suspect that the changes instituted by Snyder and the republicans to “improve the business climate” in Michigan were far less about improving the economic climate than they were about political philosophy and campaign donations. Shrinking government has been their stated objective for decades. Austerity measures are just a way to carry out this plan. They have done very little proactively to improve the lot of the many unemployed in the State.

    1. Duane

      Money seems about the most effective way to get the government’s (or the people of any organization) attention so why shouldn’t that be a tool that is used? What else should be used to change the effectiveness of government?

      What value does a larger government provide the taxpayers of Michigan? How should be measuring the value of government?

      Why are people unemployed in our State or any State? What should be done to get people employed?

  2. gr

    Snyder and the Republican legislature have done nothing to foster a cooperative spirit among Michiganders. They have alienated retirees who have funded the dubious business tax cut. They have alienated organized labor. They continue to attack public education employees. And then they wonder why no one is rallying behind them. As bad as roads are, I’m opposed to any tax increase to fix them. Snyder should have set his priorities before he gave all the pension tax dollars to his business cronies. Republicans have been so focused on their extreme, vindictive agenda, they have set the state on a downward spiral. I can’t wait till I’m able to get out.

    1. Duane

      Who in the past 10, 20, 30 years did anything to foster cooperation?

      When the unions were trying to pass a Consitutional Amendement to usurp the power of the Legislator by putting collective bargaining above laws were they trying to encourage cooperation?

      When MEA and others attack the idea of public measure of student learning achievements were they trying to encourage cooperation?

      If you want cooperation then the first thing that is needed is a well define purpose and specific/measureble goals that we can all look at and decide how we can participate in their achievement.

  3. David Waymire

    Once again, it’s worth noting that only a foolish voter (as opposed to a CEO) would want his or her state to be on this list. Of the top 10 states, only one is in the top third of per capita income — Virginia. Of the bottom 10 states, almost all are in the top 1/3 of per capita income.

    Go ahead, get on the CEO list. You will be poorer for a long time. And your unemployment rate will likely be higher, too. CEOs look out for themselves. Not for citizens. And we’ve long proven that trickle down is a myth.

    1. Duane

      Are you trying to suggest that having CEO’s want to invest their moneys in a State may
      kes the income of that State go down?

      How would those bottom 1/3 raise their per capita income if employers didn’t invest their?

  4. Mike Belzer

    Correction needed in the second-to-last paragraph. The period in the date is 1990-2012, inclusive, which is 13 years, not “two decades”. It makes the extent of the fall all the more dramatic, however, as states don’t normally change positions so quickly.

  5. Mike Belzer

    The big contraction occurred when the auto industry began a serious contraction early in the 2000s. The two are linked, and it is all exacerbated by the failure of Delphi and the decline in industry viability and employee compensation at so many of Michigan’s core supplier and machine-tool industry firms. We will not recover our rank until manufacturing and distribution recovers, and recovery will take longer than it took to fall.

  6. JRS

    I don’t think Michigan will ever be as prosperous as it was in the past, manufacturing jobs just don’t
    pay like they used to and too many companies with high tech positions don’t want to pay a decent wage
    compared to other states which means they end up having a lot of open positions. Michigan employers
    need to stop being such cheapskates in their job offers for high tech positions if they want to help themselves
    and move this state forward.

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