Gov. Rick Snyder's first State of the State speech delivered a broad-brush assessment of Michigan's situation, and he voted that " We will not play kick the can down the road to the next year" as he addresses the state's budget and jobs issues.
But he kicked it down the trail for at least a few more weeks – and that seems pretty reasonable. Snyder promised to deliver special monthly messages through April to the Legislature to provide more details about the specifics of his solutions to the state's problems. We would have cocked a suspicious eye had the new governor proclaimed to have found solutions to Michigan’s big problems just three weeks into his administration. Still, the calls for details are beginning to grow shrill in Lansing. Those upcoming monthly messages will be very important.
First up, will be his budget addresses in February. Snyder didn't touch most budget issues in his state of the state address. He didn’t mention the size of the looming budget deficit or directly address employee compensation. He did say Michigan faces "a crisis unmatched" in the past 60 years. And he noted the state has "mortgaged our children's future" with $54 billion in pension and benefit liabilities – but he didn't suggest how his plan to reform the state's business tax in a way that will cut state spending will deal with that deficit.
Instead of offering specifics, Snyder laid out a broad agenda for "reinventing" Michigan containing numerous initiatives. The Truth Squad here examines 10 major ones:
- The Michigan Dashboard
- Replace the Michigan Business Tax with a 6 percent corporate income tax
- Improve the effectiveness of the Michigan Economic Development Corp.
- Create an Office of Urban Initiatives to aid Detroit and other cities
- Establish an initiative to encourage immigrants with advanced college degrees to locate in Michigan
- Detroit River International Crossing
- Health Care
- Emergency Financial Manager
- Item Pricing
- P-20 Education System
No, this isn't the dashboard on your old Pontiac, but the concept is similar – although a little more complicated. It's a website featuring 21 measures of how Michigan is performing over time in the areas of the economy, health and education, quality of life, public safety and "value for government." You can find it at http://www.michigan.gov/accountability.
Analysis: It's a straightforward, easy-to-use tool that gives Michigan residents some clues as to how their state is performing and holds public officials accountable.
Much of the public debate over the size of government, the performance of the state's economy and educational achievement is based on the lack of easily accessible information or, even worse, misinformation. The Michigan Dashboard could improve the quality of that debate by giving citizens access to accurate data.
It also has many "outcome" indicators. For instance, if we cut state and local spending and the state's per capita income goes up and education quality improves, the dashboard will show that.
Interestingly, the dashboard shows Michigan's overall performance is getting better. Twelve of the 21 measures are showing improvement, eight are declining and one is staying level.
We could quibble with some of the measures. For example, the dashboard shows Michigan high school juniors are performing far worse than the national average on the ACT college entrance exam. But all Michigan students are required to take the ACT, while just 47 percent of U.S. students overall took the test in high school last year. It's important to read the footnote explaining that in the college readiness chart.
The value for government chart shows Michigan's state government operating cost as a percentage of gross state product, but does not break out similar numbers for other states.
The chart compares Michigan's cost of state and local government to only Ohio, Washington and Virginia. There is no explanation why those states were chosen for comparison.
And one could argue there is much more to quality of life than population growth, surface water quality and state park visits measured on the dashboard.
Overall, the Michigan Dashboard is an innovative tool that helps citizens hold elected officials accountable. (The Center for Michigan also offers a similar scorecard.)
Background: This proposal was a centerpiece of Snyder's campaign for governor. He has said the MBT, and its 22 percent surcharge, is too costly and complex. Replacing it with a simplified corporate income tax would put the state in line with the business taxation policies of most other states.
Analysis: The only new detail Snyder offered on his business tax plan was that it would be part of his budget proposal he will present to the Legislature in mid-February. He asked that the budget be completed by May 31, four months before it takes effect.
A bill to eliminate the MBT without a replacement tax was introduced Wednesday in the state Senate. But that would result in a $2.2 billion hole in the state budget.
A House bill introduced Tuesday would eliminate the tax on gross receipts in the MBT and boost the 4.95 percent tax on profits to 6 percent, in line with Snyder's plan.
Snyder's plan would cut state tax revenues by as much as $1.5 billion. He did not say what state services he would cut to make up for this loss, or whether he might consider increases by eliminating some special credits and deductions now enjoyed by businesses and individuals.
Some business leaders say they need more details on the 6 percent income tax before they can endorse it. If its only on C corporations, and not partnerships and sole proprietorships, the majority of Michigan businesses will pay nothing – even though they will continue to receive services from the state. Will it take into account personal property tax burdens? Will it advantage companies that invest in Michigan over those that don't? None of these important details have been revealed.
Michigan Manufacturing Association officials said Tuesday that switching to a 6 percent profits tax could result in a tax increase for many of its 2,500 members, depending on how the tax is implemented and whether MBT credits are maintained.
"For those unfamiliar with economic gardening, it means we will focus first, and foremost, on building businesses that are already here in the state."
Analysis: Snyder said the MEDC will better coordinate with local economic developers on "economic gardening," work force development and support services to companies.
Those initiatives are largely in line with recommendations presented to Snyder last fall in a white paper* produced by the Michigan Economic Developers Association.
Snyder said he would put more emphasis on "economic gardening" and less effort on trying to lure businesses to the state with tax incentives.
Lawmakers heartily applauded that strategy, but some local economic developers have been circumspect. They say the state cannot afford to get a reputation for being uninterested in business attraction, particularly with so much international investment in the U.S. today. For instance, would Michigan decide not to meet with a foreign automaker interested in building a major research facility in the state?
Snyder said his thinking on emphasizing economic gardening was influenced by a report on the subject presented to him by the Small Business Association of Michigan.
He also said he would create a "statewide network of talent coordinators who are focused on connecting entrepreneurs, innovators, management talent and job seekers with established companies."
Snyder didn't offer details on the talent coordinator plan, but said it would be based on the talent development efforts at Ann Arbor Spark, which MEDC President Mike Finney previously headed.
That seems similar to Michigan's Talent Bank and Michigan Works! programs, which says it's goal is to "foster high-quality employment and training programs serving employers and workers by providing support activities and a forum for information exchange."
Snyder who has repeatedly said he would eliminate some regulations, but offered few specifics, said in his speech that he would work with the Michigan Chamber of Commerce to halt proposed workplace ergonomic regulations.
Those regulations, designed to reduce injuries such as carpal tunnel syndrome, have been discussed in the Legislature for years. But so far, Republican lawmakers have blocked them.
Snyder also said he would ask for a $25 million annual appropriation to the wildly popular Pure Michigan tourism advertising campaign.
About $20 million of that would be spent on Pure Michigan advertising. The rest would be to fund Travel Michigan's related tourism promotion expenses, such as social media, said Travel Michigan Vice President George Zimmermann.
Travel Michigan's annual promotion budget has ranged from $7.9 million to $28 million over the past six years. The predictability of appropriations that Snyder has proposed is nearly as important as the amount of funding, Zimmermann said.
*On the MEDA website scroll down to "MEDA's Whitepaper on Recommendations for Michigan's Economic Development Strategy"
Background: Snyder is the first Michigan governor since William Milliken to embrace an urban strategy, often saying Michigan will not become a great state until Detroit is great again.
He said he would establish offices in Detroit, Grand Rapids, Flint and Saginaw to address issues such as poverty, education and economic development.
Analysis: Snyder didn't offer details about his urban strategy or discuss funding. Aiding Detroit has never been popular in the Legislature and may be even less so now in the wake of a major FBI investigation into massive corruption in city contracting.
Appropriating money for Snyder's urban effort is likely to be a tough sell in the Republican-controlled Legislature – particularly since cuts in revenue sharing to all cities seems to be likely given the budget situation.
"The evidence is clear that advance college degree immigrants make a tremendous difference in creating a positive economic activity environment that benefits us all."
Background: Once again, Snyder didn't lay out details, except to say the Department of Civil Rights and the MEDC would develop the strategy for luring immigrants.
Many are already here. Forty-four percent of all engineering master's degrees and 62 percent of engineering Ph.D.s in Michigan in 2009 were awarded to foreign-born students, according to a Global Detroit study conducted by former state Rep. Steve Tobocman.
Analysis: Issuing visas and granting citizenship to immigrants are duties of the federal government. But once they're in the country, Michigan could offer incentives for immigrants to locate here. Those incentives could include things such as helping to repay student loans or offering tax credits for staying in the state for a certain number of years and starting businesses.
But such incentives at a time when many native Michigan residents can't find jobs or start businesses may not be popular among lawmakers.
“To satisfy growing demand, we must move forward towards building a bridge, a new bridge from Detroit to Windsor, The Detroit River International River Crossing (DRIC).
“… Private sector investment will be used to build the bridge itself. Canada has generously offered $550 million for the construction of the U.S. portion of the road system to connect the bridge – part of the public-private partnership for the entire project. Their investment will be fully recouped from toll revenue. During a visit last week to Washington … a unique agreement with the Federal Highway Administration to use the $550-million investment in our infrastructure towards the matching funds required for all federally funded highway projects across our state. And I assure you that Michigan taxpayers will not take on any debt related to this project.”
Background: Infrastructure tends not to be a very sexy topic, but there are few issues more controversial in the Capitol than DRIC. The Ambassador Bridge, a private bridge owned by Manuel “Matty” Moroun, connects Detroit and Windsor, Ontario, one of the nation's busiest international crossings and a critical link to an auto industry that routinely moves people, parts and finished products between the two countries. Federal, Canadian and state transportation officials back a second span for homeland security, traffic and economic reasons. It would be a public-private partnership and the Canadian government offered last year to provide Michigan’s $550 million share of the funding.
Moroun, who now has a monopoly on bridge traffic between Windsor and Detroit, wants to build his own bridge, but the U.S. Coast Guard and Canadian government have refused to issue permits, citing security and environmental concerns. He is a generous political donor, giving the Senate Republican caucus $85,000 and the House Republicans $140,000 as of June 2010, according to the Detroit Free Press, and Gongwer News Service puts his family’s contributions at $400,000. Moroun also sponsored a breakfast after the election for the Bipartisan Freshman Caucus.
The Democratic-led House passed DRIC authorizing legislation in 2010, but the GOP-led Senate never held a vote. Legislative Republicans and a handful of Detroit-area Democrats raised a number of concerns, including taxpayers being on the hook for the cost, harm to the Ambassador Bridge and whether traffic merited another bridge. Moroun can be expected to continue to lobby loudly against DRIC. Snyder was publicly noncommittal about DRIC until his address, although media reports indicated he was working on the issue behind the scenes.
“Last year, Canada was the top market for our products. In 2009, Michigan did roughly $44 billion in trade with Canada.”
That’s close. The U.S. Bureau of Labor Statistics’ Research and Innovative Technology Administration (RITA) reports Michigan did $42.5 billion in trade with Canada last year. Michigan leads all states in trade with Canada, which backs up the general point Snyder was making.
DRIC was the biggest announcement in the State of the State. The $550 million is no small chunk of change, as the fiscal 2011 Department of Transportation (MDOT) budget is $1.4 billion, with more than $1 billion of it coming from federal money. The $550 million could be used in fiscal 2011, depending on when the Legislature acts, but likely will be used in fiscal 2012 and subsequent years, according to MDOT Acting Communications Director Bill Shreck. The state is short $120 million in federal matching money for fiscal '12.
Because the $550 million can be used toward matching funds, it's worth $2.2 billion in federal transportation funding. That's roughly two years of infrastructure projects on MDOT's priority list. There's even better news: MDOT won't need to spend it all at once, Shreck notes, because there are gasoline tax revenues coming in. So Michigan will be able to meet federal matching requirements for several years.
That takes the pressure off raising the gas tax to fund road projects. For years, attempts to do so gone nowhere, despite lobbying from the Michigan Chamber of Commerce and other groups. President and CEO Rich Studley said that the $550 million takes the issue off the table in the short-term, but not in the long-term. The Chamber, however, is likely to still beat the drum for more revenue for better roads and bridges, which Studley said is a critical economic development issue.
It should be noted that the Chamber has been neutral on DRIC, deferring to the Detroit Regional Chamber of Commerce, which is a strong advocate. However, the Chamber board is set to meet this week, and Studley said he "wouldn't be surprised" if DRIC comes up.
Snyder’s negotiation with the Obama administration to use the $550 million should be a game-changer for the troubled DRIC legislation. But many GOP lawmakers still expressed skepticism after the speech. They’re going to want to flyspeck the proposal to make sure that Michigan taxpayers won’t be liable for any debt, as the governor promised. And Snyder still hasn't met with House Transportation Chair Paul Opsommer (R-DeWitt) or Senate Transportation Chair Tom Casperson (R-Escanaba). But Snyder may have boxed in Republicans who opposed the measure, as the case can be made that they're voting against road projects in their district. That appears to be what Snyder is counting on.
America’s Health Rankings, which analyzes state health data. The report found Michigan’s challenges to be: a high prevalence of obesity at 30.3 percent of the population, low public health funding at $52 per person and a high rate of deaths from cardiovascular disease at 312.7 deaths per 100,000 population.
From the Dashboard: Michigan’s infant mortality rate is 7.7 percent, up from 7.6 percent.
The 7.7 percent figure is from 2009 and the 7.6 percent figure is from 2008, according to America’s Health Rankings, which is cited on Snyder’s website.
Analysis: On first blush, this appears to be an expansion of government, especially increasing access for all citizens to preventative and primary care, as well as increasing prenatal care. It's hard to believe they wouldn’t cost the state some money, at least upfront. The healthier lifestyles part may not have a price tag for the state, but legislation might not be an easy sell with more libertarian-minded lawmakers who oppose more government intervention in what people eat and if they exercise. Consider the conservative backlash to first lady Michelle Obama’s work in that regard.
This was a very brief section of the speech. The elephant in the room Snyder didn’t touch: the Affordable Care Act signed by President Obama last year. In his campaign, Snyder went on record opposing the reform bill. However, his new community health department director is on record as pressing ahead to implement key parts of the law, particularly health insurance exchanges. Currently, Attorney General Bill Schuette is continuing the lawsuit against the law initiated by his predecessor, Mike Cox. (Snyder has not commented on this, either.)
Snyder also didn’t wade into the thorny issue of Medicaid, the government health care program for low-income families and individuals which consumes about $12 billion of the overall state budget and more than a quarter of the state’s General Fund.
“My administration will present to you changes to Public Act 72 – the Emergency Financial Manager’s Act. The current act does not allow for intervention in a school district early enough in the process. Also we must have better clarity over the powers of the financial managers. These strengthened provisions would apply to both municipalities and schools. I ask for your early review and passage of this important legislation.”
Background: In 2009, former Gov. Jennifer Granholm appointed Robert Bobb as the emergency financial manager (EFM) of Detroit Public Schools (DPS), the state’s largest district that was facing a $113 million budget deficit. Bobb argued he should have control over academics, not just finances, as the two are fundamentally interrelated. But the school board disagreed and won a recent court case blocking that. There was an effort last year to put a measure on the ballot allowing for mayors to take over failing districts, as in other cities like Chicago, but the Detroit City Council balked.
Analysis: Snyder’s statement would seem aimed squarely at DPS – some commentators have already dubbed it the “Robert Bobb Relief Act.” Presumably, EFMs would have control over academics, not just finances. But dozens of municipalities and school districts are on the brink of insolvency.
Snyder didn’t provide any details about what changes he wants to the act. But legislation could give EFMs greater authority to open up contracts with employees. A broader step would be to open up the Public Employee Relations Act (PERA) of 1965, which enables unions to negotiate contracts with school districts and local governments through the collective bargaining process. Taking away the right to collective bargaining would essentially break the public employee unions allowing schools and cities to cut pay and benefits for their workers more easily.
“Third, we will propose the elimination or modification of antiquated laws. While some laws need updating, other laws are simply relics of a time past and need to be scrapped. Michigan’s 1970 vintage item pricing law is exhibit A. Revitalizing our economy demands that we should weed out needless regulations that cost consumers and throw up barriers to competition. Michigan is only one of two states that requires almost every item on the store shelf to be individually labeled with a price tag. In today’s world of scanners, bar codes and automated inventory systems, we are simply placing an undue burden on retailers and consumers.”
“A recent economic study that said requiring these stickers over other forms of marketing costs our economy over $2 billion a year. That’s no bargain. It’s bad for business, it’s bad for consumers.”
The item pricing law includes a consumer bill of rights. Snyder was apparently referring to a study by the Anderson Economic Group, according to the Detroit News. Two of the state’s biggest retailers, Wal-Mart and Duthler’s Family Foods, say the industry could save $2.2 billion in Michigan in “unnecessary duplication.” In 2006, then-Attorney General Mike Cox negotiated a $1.5 million fine from Wal-Mart and $500,000 from Walgreens for violating the law. However, the United Food & Commercial Workers International Union in Michigan argues eliminating the law will hurt the economy in another way, by eliminating thousands of jobs, an average of one to three positions per store.
Analysis: Repealing the item pricing law has long been a Republican bugaboo, but it’s dropped off the radar screen for the most part since the John Engler era – Engler was unable to end it even when Republicans controlled the House, Senate and governor's office. Business groups, especially the Michigan Retailers Association, still want to see it disappear, so perhaps this was a gesture to them. Given the depth of Michigan’s economic crisis, it was a bit surprising that Snyder would devote time a second-tier business issue in his first State of the State. It seems a stretch to think that the cost of putting stickers on items is as much as half of one percent of the total economic output of the state
With Republicans controlling both chambers, the votes should be there to dump the law, despite historically unfavorable polling on the issue. Of all the statistics cited in the SOS, the $2 billion for item pricing repeal raised the biggest red flag with the Truth Squad, because no independent evaluations have been conducted.
“We will present a special message on education to the Legislature in April. As I said earlier, we must do more to help students achieve academic success. We’ve been spending money without delivering the results to give our young people a bright future. It is time that we view our educational system which runs from prenatal to lifelong learning. It’s time to start talking about P-20 instead of just K-12. We need to establish a system that focuses on real achievement for all of our children. We cannot leave children behind without the tools for success in their adult lives, but we also need to encourage better and faster opportunities for children that can go farther and faster in our system.”
Background: Snyder brought up the concept of P-20 education – prenatal care to postgrad – on the campaign trail. This was part of his idea to focus on improvements to education, not just funding programs. The idea is a popular one with educational advocates, as it’s a more holistic approach that emphasizes both early childhood and college education, not just K-12. States as disparate as Hawaii and Arizona have P-20 educational councils in place.
Analysis: Once again, this sounds like a government expansion and it’s hard to fathom that this won’t cost some money. Michigan spent $103.3 million on early childhood initiatives (Great Start) in fiscal year 2010. Advocates say it would take another $300 million to provide high-quality preschool to the 35,000 at-risk 4-year-olds not covered by currently funded early education programs. However, studies have shown that money spent on quality early childhood education and school preparedness programs saves money in K-12 education and other areas, so perhaps that could be offset – over time. The Early Childhood Investment Corp. (ECIC) last year issued a report showing $1.15 billion in savings to the state budget.
Higher education spending, particularly to the state’s 15 public universities, has been cut 14 percent since 2000, according to the Presidents Council, State Universities of Michigan. Michigan is one of only four states that spend more on prisons than on colleges. It’s hard to imagine that strengthening Michigan’s educational prowess in college will not take additional funding. It’s also worth noting that Sen. John Pappageorge, R-Troy has proposed a constitutional amendment cutting university employee pay by 5 percent, which could impact schools’ ability to attract top talent for research and teaching.
The bottom line: Is Snyder really ready to make the investments needed to create the quality P-20 education system he says he wants, and will the Legislature agree to go along?
MICHIGAN TRUTH SQUAD CALL:
No foul. Snyder’s first state of the state address showed his inner accountant. He has kicked off his administration with the same kind of nerdy technocrat brand he launched in his campaign. His speech generally backed up assertions with documented numbers – that kind of accountability is, indeed, the whole point of the Michigan Dashboard, for example. And he avoided the kinds of theatrical proclamations that occasionally caused big political problems for his predecessor, Jennifer Granholm: (“In five years, you’re going to be blown away.”) But, from his November acceptance speech to his inaugural address and now in his state of the state, Snyder held back from offering real details about his plans. The nerdy accountant’s real policy architecture must be clearer in his upcoming budget address. If that budget doesn’t include the full details of his tax plan and budget-cutting plan, for example, The Truth Squad will be far from the only voice calling foul.