Michigan business leaders: ‘We’re a below-average state’ with no quick fix

• Michigan’s economic development strategy is outdated, Business Leaders for Michigan said Wednesday
• As a result, other states are growing while Michigan stagnates in areas like education, population and income
• The leading business group says the state needs to broaden its approach and make it more consistent

Michigan needs less reliance on business attraction incentives and more recognition of the economic value of education, vibrant communities and entrepreneurs to turn it into a growth state, a leading business group said Wednesday.

To accomplish that, Business Leaders for Michigan released an 11-page report, embargoed until Wednesday, detailing reforms the group said Michigan must adopt.

A centerpiece of the plan is business incentive reform to ensure accountability and create a financing mechanism so future deals are supported by tax revenue increases from previous projects that received state funding.

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Other suggestions include adding a research and development tax credit to increase the number of R&D jobs in the state and expanding the large-scale transformation brownfield program to encourage redevelopment.

Fixes also will require improving outdated economic development and educational systems, such as the state’s community college and job training network, the plan says. 

“States that are succeeding are growing in educational attainment and have put aside rhetoric and internal divisions to advance their state’s interests,” the report states.

Combined, BLM said the moves could reverse the economic stagnation that is expected to get more acute as the state’s population ages — and likely declines — if the state’s demographic trends aren’t reversed. 

“The reality is, we’re a below-average state,” Jeff Donofrio, CEO of Business Leaders for Michigan, told Bridge Michigan in an interview.

Reforms identified by Business Leaders for Michigan include: 

• Talent: Prepare residents for high-wage, in-demand careers by better educating and training them, while attracting and retaining workers in the state
• Customer service: Cut red tape and make business expansion in Michigan easier
• Place: Create attractive, welcoming and safe communities 
• Entrepreneurship/innovation: Support job-creators in Michigan, including small businesses and entrepreneurs, and grow knowledge-economy jobs in part through a payroll tax credit
• Competitive incentives: Retaining some spending, but reducing it over coming years.

Among the required steps, the report said, is diversifying state investment away from manufacturing, which remains 14 percent of the state’s economy. Many of the state’s incentives over the past year have focused on manufacturing, including the largest awards that are tied to EV battery factories. 

As one example of why diversification is important, Donofrio said, two-thirds of U.S. job growth from today through 2030 will come from knowledge-based jobs, requiring some form of post-high school degree or training.

Yet since 2000, while those jobs grew by 35 percent across the U.S., they didn’t increase in Michigan. And the gap in earnings between someone with a high school diploma and a four-year college bachelor’s degree increased from 8 percentage points in the 1980s to 31 percentage points today. 

Today’s average manufacturing wage in Michigan is $45,450 per year, or $21.85 per hour, about the same as the U.S. average for a production worker. In comparison, the average wage in Michigan for someone with a bachelor’s degree is $69,388 per year, 53 percent higher.

Michigan policy still dates from the years when the state’s production workers out-earned their manufacturing peers across the country, allowing middle class lifestyles, and as a state still has “systems that were designed for a different time,” said Donofrio, a former director of the Michigan Department of Labor and Economic Opportunity under Gov. Gretchen Whitmer and Detroit’s executive director of Workforce Development.

Business Leaders for Michigan also has compiled annual Top 10 benchmarking reports for the state’s economic growth since 2009, when Michigan’s rankings fell to the bottom of the United States during the Great Recession. Climbing out of the basement took several years, but rankings in the middle of the pack persist. 

The most recent benchmarking report, released in December, showed that sluggish economic growth over the past four years has left Michigan losing ground to other states and slipping further behind in its goal to become a Top 10 state for business competitiveness.

Last year, Michigan’s top score came in business climate perception, with an 18th ranking — yet that was three places lower than a year earlier. Top states, meanwhile, included Utah, Colorado and Texas.

Wednesday’s report from BLM gets more specific about what it will take — and what elements Michigan needs to consider — in its approach to economic development. 

One reason for that timing is the record-setting incentive funding the state is using to attract large-scale advanced manufacturing as the auto industry shifts toward electrification. While the incentives fit a short-term strategy today, the $2 billion spent on a few industries and land preparation should inspire introspection on what is next and how future investments should take shape, Donofrio said.

A lot of people, including elected officials from both parties and the general public, Donofrio said, “are frustrated with the direction the state is going in.”

Though their reasons may differ, setting a long-term strategy capable of broad support that won’t be vulnerable to political changes should be the next step.

Results, Donofrio said, may not be realized for a decade or longer, but that’s how other states, like Tennessee, are improving their economies, by committing to focused, consistent policy priorities.

Education is an area for change that most in the state could support, he added. Potential executives recruited for jobs here have said their kids would be two to three years ahead of their peers here if they moved to the state, “even in the best-performing schools. That’s a problem that has to be addressed.”

The local community college system, meanwhile, “is very fractured and isn't working for many employers and many students,” he said. Too often, programs are set up for specific hiring needs instead of building a stronger overall workforce educated for anticipated needs.

Wednesday’s report notes that young, educated Michigan residents are fleeing the state for places like Tampa, Dallas, Phoenix and Denver. 

When it comes to incentives, there is a place for funding the large-scale projects that are looking for U.S. sites at an unprecedented rate, Donofrio said. Michigan set up its Strategic Outreach and Attraction Reserve (SOAR) fund to do just that in late 2021, with $1.6 billion earmarked for site acquisition and preparation, along with awards to companies that include Ford Motor Co. and General Motors as they plan to build EV battery plants in the state.

“If Michigan doesn’t get it right, it could have lasting impacts,” Donofrio said of the recruiting. “It is so important for us to make sure that we’re helping empower and support businesses who are here and want to come here.”

But the goal needs to be to “diminish or shrink the amount (of incentives)… that we have to have every year moving forward,” Donofrio said. 

Economic developers support that approach, said Jennifer Owens, CEO of Lakeshore Advantage, economic developers in West Michigan. Businesses considering the state also want highly educated talent, quality housing, and prepared sites, she said. 

Revisiting state business incentives already is a goal for Michigan’s Democratic-led legislature, including the Senate Economic and Community Development Committee. Its chair, Sen. Mallory McMorrow, D-Royal Oak, told Bridge in March that she expects reforms in the next year, likely diverting some single-business grants into transportation and education investments that will make the state more appealing for business investment.

She supports the Business Leaders for Michigan framework, she said in a statement,  “because it recognizes that economic development cannot be based only on attracting and landing business deals. It starts with investing in people.”