Civic leaders address how to repair ailing Michigan economy

Related story:
U-M becomes part of Solution>

Fixing the state's ailing economy will require an overhaul of tax and budget policy, a serious investment in knowledge-based industries, development of an urban agenda that will allow Michigan to attract knowledgeable workers, and a deep commitment to education—particularly higher education and lifelong learning.

These were among the conclusions from a daylong conference March 14 in which leaders from education, government, business and the non-profit sector came together to brainstorm about current economic problems facing Michigan and begin to propose an agenda for change.

Richard Thibodeau of the Cruisin' America Group discusses comparative advantage during the "Where Do We Go from Here?" conference March 14. (Photo by Scott Galvin, U-M Photo Services)

During the event titled, "Where Do We Go From Here?"—sponsored by the Gerald R. Ford School of Public Policy, the Center for Local, State, and Urban Policy, and The Center for Michigan—more than 225 leaders analyzed what has led to the longest economic slump in the state since World War II, and what will be necessary to pull Michigan out of it.

Experts on tax and economic policy began the conference by setting the record straight on the state's situation. Among their messages:

• Michigan taxes have been cut for 30 years and cannot be reduced any more without recouping the revenues elsewhere;

• Once considered a high-tax state—ranking 13th on the list in 1972—Michigan was 29th out of 50 states in 2002 in terms of how much it taxed residents. Michigan State University Economics professor Charles Ballard said if census data were available today the state likely would be shown to have further reduced the percentage of income residents are paying in state and local taxes;

• In 1979 wages of low-skilled workers were considered high compared with the national average. Today they rank with the rest of the nation;

• As tax levels have changed during the years in Michigan and on the federal level, more burden has been shifted to those who least can afford to pay;

• The cost of health care and the corrections system continue to escalate. At present 1/3 of state expenditures go to health care, including Medicaid, health insurance for school and state active and retired employees, and health services for a growing prison population, said Tom Clay, director of state affairs, Citizens Research Council of Michigan. The state's corrections budget overall is more expensive than other states, he said, with nearly 1/3 of state workers employed in the system, and incarceration rates more than 40 percent higher than nearby states;

• Michigan is above the national average in the number of high school graduates whose overall standardized test scores are better than the rest of the country, but the state lags behind in share of students that go on to college, said Ford School Dean Rebecca Blank. Furthermore, more young adult college-educated workers leave the state each year than enter it, she said.

Leaders said the most recent round of job losses won't be recovered quickly without a sharp turn in another direction. In fact, George Fulton, U-M research professor in the Institute of Labor and Industrial Relations, predicts under the current course the economy won't recoup from the losses until at least 2013.

"It's not that our winter is so severe, it just that it never ends," Fulton said. "Clearly there's a crisis here that requires significant adjustments."

Conference participants took this and other information into various breakout sessions to discuss a strategy for turning the state around. At the end of the day, the group had several recommendations ranging from where the state needs to focus its future job attraction efforts to what to do with the much-maligned Single Business Tax (SBT).

"There is only one reliable pathway to economic prosperity and that's to be over-concentrated in knowledge-based industries, said Lou Glazer, president of Michigan Future Inc. "Smart people are key to the new economy. They are mobile, and where they go, growth will follow," he said, attributing a recent article in Forbes magazine.

Blank agreed, saying state, municipal, higher education and local school district leaders need to work together to create vibrant urban areas with outstanding educational systems.

"It's not good enough to bring everyone up to the average. You have to create really excellent schools to attract the parents," Blank said.

Life sciences, including stem cell research, biotechnology, nanotechnology and energy are where the jobs of the future lie, President Mary Sue Coleman told the group. And she said the researchers who will make the next great discoveries in these areas not only are current faculty and staff in university and private labs, but they are yet-to-be-identified future leaders who must be encouraged to earn advanced degrees.

"We're never going to get there if we don't have creative young people to get us there," Coleman said. "It isn't going to happen overnight. Maybe in five years we'll see some difference—and in 10 years a real difference," Coleman said, adding that it will take collaboration from higher education, business and the state to affect major change.

Former President James Duderstadt said a focus on education should go beyond earning a university degree.

"Access to lifelong learning should be a right—rather a civil right—for all, rather than a privilege for a few," Duderstadt said, adding that this should be a priority for the entire nation.

Participants concluded that Michigan's tax and budget system are "irrational and counterproductive to economic development." A number of experts said the controversial SBT, a tax on a business's labor compensation expenses and profits, needs revision but need not be thrown out.

"A cleaned-up version is worth retaining," Joel Slemrod, the Paul W. McCracken Collegiate Professor of Business Economics and Public Policy in the Stephen M. Ross School of Business, wrote in his presentation as one of the recommended guidelines for improving the state tax system. Slemrod and a number of other speakers said it also may be time to consider a tax on services, which, if implemented, could result in an overall decrease in the sales tax on goods. Participants suggested a Blue Ribbon Commission be formed to look into the tax structure and make recommendations for change.

At the conclusion, former U-M Regent Phil Power, in his role as chairman of The Center for Michigan and one of the organizers of the event, said the conference represented a start for creating an agenda for economic recovery.

"We're in this thing for the long run," Power said, noting that next steps would include expanding the discussion across the state to encourage a more diverse geographic and demographic representation than was present in the first session.