Rick Haglund: How can Michigan become a top 10 state? It may not be what you think.

February 22, 2020 9:10 am

Michigan map via Canva

Hey, average Michigan worker: How would you like to be making $13,000 a year more than you earn now?

You would if Michigan was performing at the average level of the top 10 states in key job, productivity, personal income and population indicators.

Unfortunately, we’re not even close. And we’re falling behind in most of these measures outlined in an important new report by Business Leaders for Michigan.

For example, Michigan ranks 42nd in per capita personal income growth between 2017 and 2018. 

“Our progress has slowed in the past few years,” BLM President Doug Rothwell told me. “Last year, we didn’t get road funding or a budget done on time.”

And there hasn’t been enough progress in improving education and talent attraction, he said.

BLM is a group of big-company CEOs and major university presidents that has produced annual reports on Michigan’s progress in becoming a top 10 state since its founding a decade ago. Those states have changed over the past decade. This year’s report might surprise those who think the top-performing states are all low-tax, small-government, southern states.

Doug Rothwell

It’s mostly the opposite. BLM’s top 10 are mostly cold-weather states noted for high taxes and tight regulations. They are: New Hampshire, Massachusetts, New York, Pennsylvania, Illinois, Minnesota, North Dakota, Colorado, Washington and California.

They aren’t the fastest-growing states (except for North Dakota, which is experiencing an energy boom) and don’t have the lowest living costs. But most possess attributes that are key to attracting and retaining talent: high per capita income, a good transportation infrastructure, attractive communities, high educational attainment and knowledge-based industries.

“If you’re a magnet for talent, you have a competitive advantage,” Rothwell said.

The BLM study recommends a number of strategies you’d probably expect from a group of mostly conservative business leaders to reach top 10 status.

Among them are streamlining regulations, shifting local government and public school retirees into Obamacare-like health care exchanges with stipends to reduce health care costs, and requiring the Education Department to report directly to the governor, cutting out the state Board of Education.

Rothwell, who formerly headed the Michigan Economic Development Corp. (MEDC), said the state also needs a consistent economic development program. It’s been “anything but” that in recent years, he said, as the state has cut business attraction budgets and shifted incentive strategies back and forth.

But other BLM recommendations could have come from the playbook of the progressive wing of the Democratic Party. Rothwell said Michigan needs to “modernize” its tax system to reflect an economy that’s shifting away from manufactured goods to services.

“Look at the fact that we don’t tax services,” he said. “That’s something that needs to be looked at.”

Actually, a low tax rate spread across a large tax base is a hallmark of conservative tax policy. But Republican lawmakers and some business groups went ballistic when former Democratic Gov. Jennifer Granholm proposed taxing more services as a way of balancing a state budget rocked by a cratering state economy in the 2000s.

While stopping short of saying the state needs to generate more tax revenues overall, Rothwell said there are areas where more money is needed for Michigan to become a top 10 state.

Chief among those areas is funding for roads, bridges, sewers, water systems and broadband internet. The BLM report, citing figures from former Gov. Rick Snyder’s infrastructure and water councils, said Michigan needs to spend an additional $4 billion annually in rebuilding infrastructure.

Local governments also should be allowed to raise taxes on a regional basis to fund transit systems, and recreational and cultural amenities by referendum.

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“If it looks like we’re not investing in ourselves, why would anybody want to come into our state?” he said. “It feels like we’re not taking care of our own house.”

I asked Rothwell if business is paying its fair share in paying for infrastructure and other investments required to make Michigan a more attractive state for economic growth. Snyder and the Legislature implemented a major tax shift from businesses to individuals in 2011 that gave businesses a $1.8 billion annual tax cut. 

Most small businesses are exempt from paying the state’s 6% corporate income tax, which primarily hits the type of big businesses that make up BLM’s membership.

“The tax burden was skewed the other way” toward business, Rothwell said. “Now we have a balance that’s better reflective of other states. Our 6% tax is competitive. I feel pretty good where we’re at.”

Many individual taxpayers would likely take issue with that explanation. But BLM at least deserves credit for acknowledging that it will take more than fiscal discipline and tax cuts to make Michigan a more prosperous state for all.

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Michigan also needs to become a more welcoming state. BLM’s report said the state needs to pass a law prohibiting discrimination based on sexual orientation and gender identity, and encourage immigration.

Doing so is essential to boosting the population of a slow-growing state and creating a vibrant labor force.

“We’re realists. We look at the world as it is,” Rothwell said. “Good jobs are being created and industries are growing in places where people want to live. It requires that we become more welcoming.”

Becoming a more prosperous state for all depends on it.

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Rick Haglund
Rick Haglund

Rick Haglund writes the "Micheconomy" column for the Michigan Advance. He's a former reporter and business columnist for Booth Newspapers, now the MLive Media Group, with extensive experience covering Michigan’s economy and the auto industry. He now works as a freelance writer based in Southeast Michigan.