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Thinking Beyond the Current Crisis

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. Outline. Introduction Michigan: The 8-year recession Michigan: No coherent strategy; The price of negligence

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Thinking Beyond the Current Crisis

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  1. Thinking Beyond the Current Crisis Prepared forState of Michigan Board of Education October 26th, 2009Lansing, MI Patrick L. Anderson, PrincipalAnderson Economic Group, LLC

  2. Outline • Introduction • Michigan: The 8-year recession • Michigan: No coherent strategy; The price of negligence • Re-thinking Michigan Avoiding senseless debates Elements of a success plan

  3. 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).

  4. 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. • Michigannever 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%.

  5. Historical Unemployment Rate Trend Mid 1990’s: MI gets better than the US

  6. III. Michigan: No Coherent Economic Strategy • We have no coherent economic development strategy. • 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. • 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. • Structural deficit, but no structural reforms, means no sustainable spending priorities.

  7. No Coherent Strategy, continued:The price of negligence • 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.

  8. No Coherent Strategy, continued:The old order is gone • 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. • Need to re-think: • Tax policy • Education policy • Spending priorities

  9. IV. Re-thinking Michigan:1. Avoid Senseless Debates • 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. • No truth to the claim that Michigan’s tax burden is the worst in the country. • Business tax burden is about 26th in most recent 50-state survey; but perception of business investors is much worse. • No advantage in saying that discussing reforms is “education bashing.” • When your ship is sinking, you don’t shoot those that are bailing fast. • Reality: we are losing tax base, and need to reform. • Hold the senseless debates for a future date.

  10. IV. Re-Thinking Michigan:2. Identifying a Success Plan • 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.

  11. 2. Success plan elements--continued • 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.

  12. 2. Success plan elements--continued • 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.

  13. 2. Success plan elements--continued • 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 21st century is already here........and we’ve not been doing very well in it.

  14. Contact Information Patrick AndersonPrincipal & 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, 3rd 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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