Michigan’s Challenge, Michigan’s Opportunity

1
Michigans Challenge,Michigans Opportunity
and the Future of Local Governments
Gov. Jennifer M. Granholm
2
Michigan Manufacturing Employment
Global Shift in Manufacturing Jobs Causes Loss of
More Than 1 in 4Manufacturing Jobs Since Mid 1999

Jul 1999 906,200
Jan 1992 780,300
Apr 2007 634,500
Source U.S. Department of Labor, Bureau of
Labor Statistics.
Source Economic and Revenue Forecasting
Division, Michigan Department of Treasury, 5/30/07
3
State GF Revenue Down 40 Percent Since 1999

Totals exclude transfers and are adjusted to 2007
dollars using Govt Price Deflator. Adjusted for
inflation.
4
Tax Cuts Since 1999 Reduce Revenue 1.9 billion
SBT rate cut (Begun in 1999) (419.0) Other
SBT cuts (206.5) Income Tax Rate Cut (Begun
in 2000) (901.4) Other tax changes (207.1) S
ubtotal State Cuts (1,734.0) Federal
Estate Tax Repeal (200.0) TOTAL State and
Federal Tax Cuts (1,934.0)
5
Background Spending Cuts

• Even Before Latest Round, Already Made
  Significant Cuts Including

• 585M cut from our local cities and townships in
  5 years (29) now there are 1,600 fewer cops,
  2,400 fewer firefighters on the street
• 275M cut from our Universities and Community
  Colleges in 4 years tuition has increased 34.5
• 172M cut from the Department of Human Services
  in 5 years 4,000 fewer employees are helping
  more citizens in need and protecting more
  children than five yrs ago
• Cut state fleet by 2,500 cars, sold 4 state
  airplanes, eliminated travel, ended
  subscriptions, ended personal use of state cars
• Adult Education was cut, cuts to K-12, including
  talented and gifted programs, now total more than
  500 million
• General Fund support for the MEDC our job
  creation agency has been cut by 72
• Arts and cultural funding in Michigan cut by 75
  - we are now at the bottom of the heap

6
Background State Govt is Smaller Today
Number State Employees 52,673 64,456 64,560 60,066
61,493 52,259
Non-Corrections State Employees 50,316 59,990 52,0
38 43,003 43,841 35,813
Fiscal Year 1973 1978 1989 1999 2000 2006
Governor Milliken Milliken Blanchard Engler Engle
r Granholm
7
Background Michigan Government Among Smallest
in Nation
8
Convened A Bipartisan Panel of Experts
Emergency Financial Advisory Panel

• Hon. James J. Blanchard
• Hon. William G. Milliken
• Dan L. DeGrow, Superintendent of St. Clair County
  RESA, frmr Republican State Senate Majority
  Leader
• Don Gilmer, Kzoo County Administrator, frmr
  Budget Director under Gov. Engler
• Paul Hillegonds, Senior VP of DTE Energy, frmr
  Speaker of Republican-led House of
  Representatives
• Sr. Douglas B. Roberts, frmr State Treasurer
  under Gov. Engler
• John J. H. Schwarz, frmr Republican U.S.
  Congressman

9
Emergency Financial Advisory Panel A
Comprehensive Solution

• .Michigan must develop a fiscal plan that
  includes a combination of revenue increases,
  spending cuts and reform of how public services
  are delivered
• - Emergency Financial Advisory Panel
  Report

10
Comprehensive Solution Spending Cuts

• Put Michigans Fiscal House In Order Now,
  Prevent Massive Cuts to Health Care, Education,
  Public Safety

• 440 million more in cuts for FY 2008 spending
  targets set, details to be determined in
  appropriations bills before the end of the month.

11
Comprehensive Solution Reforms

• To Save Taxpayer Money in the Long Term, Keeping
  Michigan Competitive and Keeping Future Spending
  in Line With Revenue

SO FAR Allows school districts to shop for
competitive and quality health insurance
plans. Tightens vesting requirements, eliminates
loopholes, increases contributions to pension for
new teachers Creates incentives for healthy
behavior for Medicaid recipients Requires a
common calendar for school districts within each
intermediate school district. Eliminates double
dipping More to do
12
Comprehensive Solution New Revenues

• Income Tax temporarily restored to 4.35,
  slightly lower than the rate in 1999. Starts to
  phase out in 2011.
• Sales tax extended to certain non-essential
  services.
• The result of political compromise costs the
  typical Michigan family just 1 per person each
  week.

13
Michigan Taxes vs. Other States

• Michigans State and Local Tax Burden Ranked
  32nd(as a percent of personal income)

• Michigan is now ranked 27th overall in the number
  of services taxed.
• SERVICES TAXED
• Michigan 53
• Minnesota 67
• Ohio taxes 68
• Wisconsin 74

Michigans new income tax rate of 4.35 is still
the fourth lowest among states
14
Impact on Local Govts

• Freeze in revenue sharing (Original budget
  proposal recommended 2.5 increase with
  consolidation plan) avoided massive cuts.
• Your local government costs continue to increase,
  driven by health care (CRC)
• Local governments will continue to face
  structural deficits (due in part to the cap on
  property tax assessment increases and Headlee
  amendment limitations reducing local revenue
  growth) (CRC)Reforms, investments on the
  state level can help

15
More Reforms Will Continue to Help Local Govt

• Continue to consolidate and collaborate on
  services at the local level
• Health care rein in costs, expand accessibility
  of private plans to move people off of Medicaid
  and reduce hidden tax in insurance premiums
  that subsidize uninsured push for federal
  solution.
• Budget agreement created government efficiency
  commission to further target waste and red tape.
• Prison reforms to bring state incarceration rates
  and corrections spending in line with our
  neighbors
• Continued reform of civil service eliminate
  layers of management
• Legislative pay and benefits must be cut too
• State employee health care savings
• Reform the way we fund universities to reward
  degree completion, type, and commercialization

16
Michigans Economic Plan

• DIVERSIFY ECONOMY Focus on Alternative Energy,
  Advanced Manufacturing, Homeland Security, Life
  Sciences
• MARKET MICHIGAN INTERNATIONALLY Show MBT/other
  tools to Companies in Other States, Countries
• DOUBLE COLLEGE GRADUATES Prepare Displaced
  Workers and Students for the Knowledge-Based
  Economy
• UNIVERSAL ACCESS TO AFFORDABLE HEALTH CARE Make
  Workers and Businesses Competitive By Fighting
  For Health Care For All
• GROWTH IN COMMUNITIES Cities Are Partners
  Vibrant Cities Drive Growth, Keep Young People

17
Michigans Economic Future Diversify, Innovate,
Invest

• The typical response, which is to retrench and
  focus just on efficiency and cost-cutting by
  eliminating jobs, reducing programming,
  streamlining operations might not be really the
  best approach once business picks back up again.
  Across industries, companies that have continued
  to pursue innovation during tough times often
  achieve a significant competitive advantage, and
  position themselves far more effectively for
  growth.
• Steve Ballmer, CEO of Microsoft