Step 4: Michigan Turnaround Plan - Strategically Investing in Michigan's Future

Michigan’s higher education institutions are not just the academic centers of our state, they are also important economic drivers of its economy.  Step 4 of the Michigan Turnaround Plan (MTP) calls for Michigan to prioritize state investments in the areas that will promote the greatest economic growth, so it’s no surprise that higher education has a prominent place in our 2012 Michigan Turnaround Plan. In fact, higher education is also included in the New Michigan strategy (Step 6 of the MTP), as one of Michigan’s six distinctive assets that can drive future economic growth.

Our universities, considered some of the finest in the world, drive talent production.  Here in Michigan, we graduate a higher percentage of students than the national average in science, technology, engineering and math (STEM) disciplines.

Our higher education institutions are also driving innovation. In 2009, Michigan’s universities ranked 10^thin the nation in research and development spending at $1.7 billion.  This level of investment is important because it fuels patent development, business start-ups and ultimately more jobs. In fact, between 2004 and 2008, Michigan ranked in the top 5 for patent activity and business start-ups.

Our universities spur economic growth. A 2002 study by the Michigan Economic Development Corporation put the total economic impact of Michigan’s public universities at almost $40 billion – at that time representing 12.6% of Michigan’s gross state product. In 2010, Michigan’s major research universities alone had an estimated economic impact of $15.2 billion, equal to 4% of our gross state product.

We believe these numbers will grow if we invest in our universities and increase their ability to attract more research dollars, increase innovation, and create more businesses. To realize this potential, we need a long-term, shared commitment to higher education from both the state and our public higher education institutions.

From the state, we are seeking a commitment to make higher education a higher priority in the budget. This will help make college more affordable for hundreds of thousands of Michigan young people.

From our universities, we are looking for dedicated efforts to control costs, leading to   more affordable tuition bills. Our universities also need to increase research and development efforts to best-in-class status and partner with businesses to increase industry-supported research and development, so we can put that ingenuity to work right here in Michigan.

The goal of the MTP is to make Michigan a “Top Ten” state for job, economic and personal income growth. Thanks in great part to the difficult work done by our leaders in Lansing over the past year, much of the original plan has been fully or partially achieved. We have begun to see some evidence of an economic turnaround with lower unemployment, higher economic growth and rising incomes.

While work remains on fiscal, budget, tax and business climate reforms, those measures alone are insufficient for Michigan to become a “Top Ten” state in today's economy.  The regions around the nation and the globe that have been most economically successful leverage their unique assets to drive economic growth.

As our chief producer of talent, one of our main sources of innovation, and as a powerful driver of Michigan’s economy, our higher education system is one of Michigan’s MOST valuable assets.

Step 2 of the Michigan Turnaround Plan: Effectively & Efficiently Providing Public Services

In 2011 significant progress was made in addressing the first three steps of the Michigan Turnaround Plan (MTP). These recommendations represented “fixing the basics” – common sense actions needed to set Michigan on sound financial footing and put in place practices to make Michigan competitive over the long-term.

Step 2 of the MTP focuses on providing state and local government and local public school services in an effective and efficient manner. Several key measures were enacted last year to advance this area, including:

• Legislation to bring school employees’ share of health care costs in line with the private sector
• Contract negotiations that brought state employees’ share of health care costs in line with the private sector
• Legislation to make a local community’s ability to pay the primary consideration in contract arbitration with local police and fire services
• Legislation amending several state statutes to remove barriers that had previously made it difficult for local governments to consolidate services

In 2012 and beyond, our focus needs to turn to the following at the state level:

• Improve the cost & productivity of our state workforce by adopting a total compensation system that enables the state to compete for talent in highly competitive fields and rewards performance at a cost comparable to the average state
• Reduce corrections costs to the Great Lakes average
• Improve the efficiency of state government by investing in programs that have a proven track-record of reducing long-term costs (e.g., prisoner re-entry, home health care) and adopting best practices to provide self-directed citizen and business transactions through the use of technology.

For our public schools, we need to improve our return on investment by accelerating the sharing of school services and the consolidation of schools where appropriate, and by fully transitioning school employees to a defined contribution retirement system. These measures will direct more resources to improving student learning through proven methods, including:

• Providing access to quality early childhood education
• Maintaining rigorous standards in reading, math and science
• Maximizing the time students spend on academic learning
• Attracting, training and retaining excellent teachers
• Attracting and training excellent school leaders
• Measuring and rewarding schools, teachers and school leaders that perform at a high level

Our local governments should adopt their own Turnaround plans that include steps to “fix the basics” by ensuring:

• Sound fiscal management practices
• Cost-effective, reliable basic services
• Strong ethics standards
• Effective public safety
• Competitive tax & regulatory standards
• Results-oriented redevelopment strategies
• Professional communications that improve perceptions
• Support for regional solutions

State government can enable improvements in local service delivery by:

• Providing incentives & disincentives in all state programs that recognize local service sharing
• Aligning federal & state program boundaries with regional economies
• Accelerating efforts to consolidate local administrative services and increase regional service delivery

In 2011, great strides were made toward getting the state on sound financial footing and improve the tax and regulatory environment. In 2012 we need to build on those efforts at state and local levels to help make Michigan as competitive as possible.

Step 1 of the Michigan Turnaround Plan: Getting our fiscal house in order

There is a lot of discussion in the world today about the debt being racked up by many nations.  In most cases, this debt was accumulated after years of not following sound fiscal and accounting practices.  America is a good example.  For years we’ve failed to balance our budget, based budgets on overly optimistic revenue forecasts and did not take into consideration the long-term costs of our policy actions.  Our growing debt obligations has led to a great deal of uncertainty about the future.  This has caused job providers to slow investment and consumers to cut back on spending.  Michigan experienced much the same situation during the past decade and this has contributed to our “one state, decade long” recession.

This is why Business Leaders for Michigan made the first step of the Michigan Turnaround Plan about responsibly managing finances.  The Plan is a holistic, fact-based strategy to make Michigan a Top Ten state for job, economic and personal income growth. 

Our original plan called for the state to manage its money the way a responsible household or business would – by balancing the budget without one-time gimmicks, projecting revenues using sound information and projecting spending needs over the long-term.  Fortunately, the state has implemented many of these suggestions during the past year and as a result has been able to start paying down debt and generating a small budget surplus.  As a result, business confidence is up and Michigan’s economy is turning around.

We must build on the solid foundation laid this past year by memorializing in policy or law the practices outlined above so we don’t slip back into bad habits after this Governor and legislature leave office.  We need to continue paying down the billions of debt we racked up the past decade and require that every piece of proposed legislation have a “price tag” attached to it so policy makers understand the consequences of their actions.  We also recommend the state adopt a long-term strategic plan that clearly identifies what we should expect from state government to guide annual budgets.   

Adopting sound accounting practices and fiscal policies don’t get much attention in the news.  But we’ve seen around the world what happens when we ignore these basics.

There is no single solution for turning Michigan around

When you’re down, you often look for role models to inspire your growth or a simple way to fix whatever is holding you back.  In Michigan’s case, this has meant searching for the “ideal state” we can emulate or a “silver bullet” policy prescription we can adopt in an attempt to improve our economy. 

When searching for role model states, some point to Indiana because it’s a bordering state that has grown at a better rate than we have for years.  Others point to North Carolina or Texas as states that have diversified their economies and have been consistently ranked as some of the best states for business. Some even say we should aspire to be like California because they have Silicon Valley! 

The latest role model being suggested is Minnesota.  Why?  Because Minnesota has a higher per capita income than Michigan and it’s a “mid-west” state.  But comparing Michigan to Minnesota demonstrates the difficulty of comparing us to any other state.  Minnesota’s population is half our size and about one-third less diverse.  In Minnesota, one city drives over half its economy, versus Michigan’s more diverse economic geography.  But what’s more significant is that since 2002, Minnesota’s per capita income and employment rates have been falling.  In fact employment growth has ranked 39^th worst since 2002 according to non-partisan think-tank Minnesota 2020. 

Similarly, Michigan has often searched for the "silver bullet" that would grow jobs.  For years we tried a number of different tactics to spur growth such as targeting certain industries or diversifying away from manufacturing.  We tried building big projects with the thinking that more development will naturally follow the anchor investment.  We’ve even tried eliminating taxes entirely in places to jump start growth.   Recent theories suggest the best way to grow Michigan's economy would either be to just increase the number of college graduates or invest more money in community amenities, like parks, transit, cultural centers, etc. to make them more attractive places to live and work. 

All of these ideas can be part of a well-rounded economic growth strategy.  But Michigan runs the risk of delaying real economic progress if we look at them as stand-alone solutions.

The truth is there is no one state we can emulate or one solution we can adopt that is going to lead to sustainable growth.  In practice, the places that offer the best value for the money are the ones that grow the most.  Like a customer shopping for a product, businesses both large and small generally select locations that offer a wealth of amenities for a reasonable cost.  It’s the reason why Ford sells more cars than Porsche.  It’s a better value proposition. 

That means Michigan has to have competitive costs, reasonable regulations, functional government, excellent service, a strong infrastructure, nice communities and lots of amenities - not one more than the other.  Business Leaders for Michigan developed the Michigan Turnaround Plan because Michigan needs a holistic strategy to get back to being a Top Ten state again for job, economic and personal income growth. 

So rather than look to one state for the answers let’s focus on getting as competitive as we can in today’s global economy.  Rather than focusing on one dimensional policy solutions, let’s recognize we need to work on multiple fronts concurrently to grow our economy.   But perhaps most importantly, let’s focus on growing a new Michigan that builds on our competitive assets and unique strengths and doesn’t try to copy some other place. 

Michigan’s economy began turning around this year because we have begun to follow a uniquely Michigan path to economic success.  Unlike other states, we are improving the business climate without pitting one group against the other.  We are recognizing that our automotive and manufacturing sectors not only distinguish us, but are keys to our long-term success.  And we’re taking pride in what defines us – a state, like the commercial says, “that has been to hell and back” but embodies grit, determination and stamina. 

Michigan doesn’t need to be like some other state or search for the next silver bullet to grow again.  We need to be who we are – a state that works hard doing some things extraordinarily well and offers good value for the money.

Finally, the Nation Starts to Recognize the Michigan “Turnaround"

Over the past week or two, the national media has finally started to notice that Michigan is getting its act together.  Fueled by the recent success of the Detroit Tigers and Lions, the articles also focus on the recovery of the auto industry, redevelopment in Detroit and dynamism of places like Ann Arbor.  If you missed them, check out these great stories on how our state is turning around: 

USA Today, Wall Street Journal, New York Times,  Detroit Free Press