Title: Thinking Beyond the Current Crisis
1Thinking Beyond the Current Crisis
Prepared forState of Michigan Board of
Education October 26th, 2009Lansing,
MI Patrick L. Anderson, PrincipalAnderson
Economic Group, LLC
2Outline
- 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
3I. 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 Michigans
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).
4II. 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.
- Michigans 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.
5Historical Unemployment Rate Trend
Mid 1990s MI gets better than the US
6III. 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.
7No Coherent Strategy, continuedThe 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 states top
funding priority.
8No Coherent Strategy, continuedThe 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
9IV. Re-thinking Michigan1. Avoid Senseless
Debates
- No benefit to arguing that taxes dont 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 Michigans 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 dont shoot those
that are bailing fast. - Reality we are losing tax base, and need to
reform. - Hold the senseless debates for a future date.
10IV. Re-Thinking Michigan2. 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.
112. 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.
122. Success plan elements--continued
- Thoughtful reform plans have been proposed by
experts outside of government...but ignored - Governors 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.
132. 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 weve not been doing very well
in it.
14Contact 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) - Michigans University Research Corridor (Sept.
2008) - Automation Alleys 4th Annual Technology
Industry Report (Nov. 2008)