Rick Haglund: COVID relief cash could help Michigan stop ‘treading water’

Michigan’s economic development strategy over the past 50 years mostly has focused on cutting business taxes and offering companies a variety of financial incentives to expand or locate here.

It hasn’t worked.

Forty years ago, Michigan was in the top third of states in per-capita income and slightly above overall U.S. income. Today we’re in the bottom third of states, a stunning 11.3% below the nation’s per capita income. 

Michigan’s labor force, including those employed and those looking for work, peaked at 5.2 million in 2000 and never recovered from the state’s “lost decade” in which struggling Detroit automakers crashed the state economy. 

There were about 214,000 fewer payroll jobs in February of 2020 — the last month before the COVID pandemic hit Michigan — than there were 20 years ago. And the state’s population, stuck for decades at around 10 million, is the lowest it’s been as a percentage of the U.S. population since at least 1970.

In essence, Michigan hasn’t added people or jobs in decades. They’ve just moved around the state like pieces on a chessboard. 

“What we have been doing has not progressed us,” said Dan Gilmartin, executive director of the Michigan Municipal League. “It has kept us at best treading water.”

He and others believe President Joe Biden’s $1.9 trillion American Rescue Plan could lead to transformational economic growth and a better quality of life for Michigan’s nearly 10 million residents.

Michigan local governments will soon be getting $4.4 billion from that package to help them financially recover from the worst public health crisis in a century. 

The money can be used for a variety of purposes, including hazard pay for workers, replacing lost city income tax revenue, assisting local businesses and households, and upgrading infrastructure. That includes water and sewer systems, and internet broadband.

In addition, the state will receive nearly $5.7 billion, some of which will likely go to aid local units.

“I think it’s really an opportunity like we haven’t seen for a long time in this state,” Gilmartin said at a recent forum sponsored by Michigan State University’s Institute for Public Policy and Social Research.

He and others said smart cities will use the money not just to shore up finances, but to improve housing stock, revitalize downtowns, rebuild depleted public health resources, provide clean water and undertake other measures to set the stage for future growth.

But experts at the MSU forum said the federal money isn’t a panacea. It can’t be used to shore up underfunded pension plans, which are a major problem in many cities.

It’s also a short-term infusion of cash that doesn’t fix what local governments have long claimed to be a broken municipal finance system in the state.

“Don’t build your budget on having this money long term,” said Eric Lupher, president of the Citizens Research Council of Michigan.

Local units are expected to receive the first half of the money over the next few weeks and the second half next year. The funds must be spent by the end of 2024.

“Slow down and consider the best uses of these funds,” said Eric Scorsone, a local government finance expert at MSU. “You have three-and-a-half years to spend them.”

Some say they’d like to see communities come together and take a regional approach in using the billions in federal funds. 

Pontiac Mayor Deirdre Waterman noted that one reason Amazon rejected metro Detroit for its second headquarters was the lack of a regional transit system.

Lupher said he’d like to see the state provide incentives to local governments to work collaboratively on providing services that could lead to economic vitality beyond the artificial lines drawn on a map.

“The idea of working with other governments doesn’t come naturally,” he said in a gross understatement.

Gilmartin said struggling Flint and surrounding communities could pool their federal rescue dollars to leverage as much as $400 million for a variety of investments that would improve life in a region hard hit by the devastating loss of auto industry jobs.

But Lupher and others fear local governments, decimated by years of downsizings, lack the capacity to do all the technical work needed to effectively spend the federal stimulus money.

Waterman said Pontiac employs about half the number of workers the city had 20 years ago. When she took office in 2014, her impoverished city of 60,000 residents had just 28 city hall employees.

“We’re the poster child for under-capacity,” she said.

Gilmartin said he’s been troubled by some of the reactions he’s received about the federal rescue plan from his member communities. Some don’t even want the money.

“In Michigan, no matter where you’re at . . . we’ve been dealing from a position of scarcity in this state throughout our entire lives,” he said. “Folks are almost afraid to get out there and think big again.”

But our past strategies for achieving growth haven’t worked. Michigan’s state and local leaders need to think differently about how to make the state a more attractive place for newcomers and improve life for existing residents. The American Rescue Plan gives them a rare opportunity to do so.

Disclosure: Haglund writes about municipal finance for the Michigan Municipal League magazine, The Review.