The Case For Change


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The Case For Change

  1. 1. Summary: The Case for Change Fact: Nearly 50% of U.S. job losses A State in Crisis since 2000 have been in Michigan [see slide 8] Michigan has been getting Result: The state budget has gone from relatively poorer, smaller and less competitive. The result is a a $2 Billion surplus to a $2 Billion deficit in state with chronic budget 10 years shortfalls & the highest unemployment rate in the nation. Incremental changes to the Cause: Michigan’s economic state’s budget, tax and economic competitiveness is below average for both policies will be insufficient to manufacturing and knowledge jobs grow the state’s economy. Only a holistic, transformative strategy will do the job. Need: A holistic economic growth strategy that gets Michigan cost- competitive and leverages Michigan’s assets Michigan Turnaround Plan 6
  2. 2. Fact: Rising Unemployment 12.0 US Midwest Michigan 11.0 10.0 Unemployment Rate (percentage) 9.0 8.0 7.0 6.0 5.0 4.0 Mid 1990’s: MI’s unemployment is 3.0 lower than the US 2.0 Jan., 90' an., 91' an., 92' an., 93' an., 94' an., 95' an., 96' an., 97' an., 98' an., 99' an., 00' an., 01' an., 02' an., 03' an., 04' an., 05' an., 06' an., 07' an., 08' an., 09' J J J J J J J J J J J J J J J J J J J Source: Bureau of Labor Statistics Michigan Turnaround Plan 7
  3. 3. Fact: Severe Private Sector Employment Losses 728,000 Jobs Lost Total Private Sector % Change Number of Employment (2000- Jobs Gained (Thousands) 2000 2009* 2009) or Lost Michigan lost more private sector jobs since the year 2000 than any other state – nearly half of all private sector Michigan 3,996 3,268 -18.2% -728 jobs lost in the United States during this period. While Michigan has been severely United States 110,995 109,736 -1.1% -1,259 impacted by the loss of automotive jobs, the state has under-performed the national average in most job sectors. *2009 represented by May private sector employment Source: Bureau of Labor Statistics; Analysis: Anderson Economic Group, LLC Michigan Turnaround Plan 8
  4. 4. Fact: Not Only State with Manufacturing Job Losses Others Overcame Dislocation Other states have experienced manufacturing job losses as great or greater than Michigan, but out-paced our economic performance. Least Loss Most Loss 2000-2007 2000-2007 Michigan Turnaround Plan 9
  5. 5. Fact: Job Growth Has Lagged Across Most Sectors Michigan Is Under-Performing Across Sectors Only one of 22 industry groups had both positive Michigan growth, and grew ahead of the US average All knowledge-based industries trailed US average growth with exception of Educational Services Source: Bureau of Economic Analysis; McKinsey Michigan Turnaround Plan 10
  6. 6. Result: Relatively Smaller Michigan Is Getting Smaller ANNUAL % POPULATION GROWTH vs. US AVG Relative to US 0 1980 1990 2000 2008 Michigan has been -2 growing at a slower rate than the average US state for nearly 40 years. This -4 has resulted in Michigan becoming less desirable -6 for business investment as its share of the -8 consumer market declines. -10 -12 Source: U.S. Census Bureau Population Estimates Program Michigan Turnaround Plan 11
  7. 7. Result: Relatively Poorer Michigan Is Getting Poorer Relative to US Michigan’s per capita income has been growing below the US average for nearly 30 years. The rate of decline has accelerated dramatically in the past decade. Source: U.S. Bureau of Economic Analysis Michigan Turnaround Plan 12
  8. 8. Result: Relatively Poorer Michigan Ranks Last in GDP Growth ▪ Michigan’s GDP is $382 Billion as of June 20092 ▪ Since 2000, if Michigan’s economy had grown at the average rate of the Top 10 states, Michigan would produce $118B (31%) more GDP2 ▪ The difference translates to $12,000 more income per Michigan citizen2 1 Top 10 states in per capita GDP growth, 00-08: ND, OR, SD, NY, VT, IA, MT, WY, NE, MD 2 In June 2009 dollars States listed above from McKinsey benchmarking report: Traditional & knowledge competitors Source: Bureau of Labor Statistics; Bureau of Economic Analysis; Moody’s Michigan Turnaround Plan 13
  9. 9. Result: Declining or Flat Tax Revenue Michigan Tax Revenue: Personal Income Tax, SBT/MBT, and Revenues Slump Sales and Use Tax, 1994-2008 Personal Income SBT/MBT Sales and Use $9 During the 1990’s, state tax $8 revenues grew, especially from personal income and $7 sales/use taxes, as the economy and per capita $6 income grew. But since $5 2000, state tax revenue Billions TAX INCREASES from personal income and $4 business taxes has declined and sales/use tax $3 revenue has been flat. Tax increases to the MBT and $2 personal income in 2007 $1 resulted in short-term revenue increases. $- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Michigan Senate Fiscal Agency, “Major Sources of Tax Revenue” Michigan Turnaround Plan 14
  10. 10. Result: Further Revenue Shortfalls Projected No Let Up In Sight Change in State Tax Revenue FY08-10 ($ in Millions) Even with the MBT surcharge and personal income tax % increases, state tax revenues FY 2008 FY 2010 Change are expected to decline by at Total Tax least 11.5% between FY 2008 and FY 2010. Tax revenue Revenue $27,700 $24,518 -11.5% sources for the School Aid Fund (sales/use taxes) are GF/GP $8,986 $6,950 -22.7% more stable compared to the General Fund (GF/GP). SAF $10,773 $10,563 -1.9% Starting in FY10 either expenditures must be cut Source: Michigan Senate Fiscal Agency; AEG Projections for FY 2010 (see source notes) and/or new revenue sources must be found to balance the budget. Michigan Turnaround Plan 15
  11. 11. Result: State Spending > Revenues No More One-Time State of Michigan Total Revenue and Total Expenditures, 1999-2010 Fixes Available ($Billions) $50 Since the 2001 recession, state Total Revenue General Fund spending has $48 Total Expenditures exceeded revenues in most $46 years due to the use of mostly $44 one-time budget fixes, such as $42 tapping into the Rainy Day Fund, $40 selling assets, using the federal stimulus, liquidating other fund $38 reserves or other measures. $36 The severity of projected $34 revenue declines in FY09 and $32 FY10 will preclude the use of these practices any further. $30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Michigan Senate Fiscal Agency; Anderson Economic Group projections for FY 2010 (see source notes) Michigan Turnaround Plan 16
  12. 12. Result: State Spending > Inflation State Spending Has Out-Paced Inflation By using one-time budget fixes during the past decade, the state has out- spent inflation in most budget categories. Further, the state has spent the least in areas that would most drive economic growth – higher education and transportation. Source: State of Michigan Executive Budget FY 2009, “Historical Expenditures/Appropriations Gross” & U.S. Inflation Michigan Turnaround Plan 17
  13. 13. Fact: State Spending > “Pop-flation” Before 2009 State of Michigan Expenditures: Actual Total Expenditures, and Expenditures Grown by Inflation & State Spending Population Growth, 1999-2010 ($Billions) Outpaced “Pop- Actual Total Nominal Expenditures flation” Since 2001 $50 Total Expenditures Increased by Inflation & Population Growth $45 Nominal state expenditures grew $40 at or above the rate of inflation $35 and population growth from FY99 to FY08. However, the $30 projected drop in revenues $25 starting in FY09 will cause $20 spending to be below the rate of inflation and population growth $15 for the first time in over a $10 decade. $5 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Michigan Senate Fiscal Agency for actual expenditures; Anderson Economic Group estimates (see source notes) for “pop-flation” growth Michigan Turnaround Plan 18
  14. 14. Cause: Costs Matter Top 10 States for Job & Income Growth: 1996-2007 2 X BETTER BUSINESS COST RANKING Bottom 10 States for Job & Income Growth: 1996-2007 Source: Forbes & ALEC Michigan Turnaround Plan 19
  15. 15. Cause: Uncompetitive Business Climate Higher Tax Environment Than Competitors Companies pay on average 3-4% more on state & local taxes in Michigan than the states we most often compete against for manufacturing or knowledge jobs. In today’s global economy, that is the difference between making a profit or not to many businesses. Source: Tax Foundation 2009 Business Tax Climate Report; Anderson Economic Group “A Comparison of State Business Taxes” (2008) Michigan Turnaround Plan 20
  16. 16. Cause: Uncompetitive Business Climate Weaker Value Proposition vs. Competitors Companies assess the “total cost of doing business” when evaluating site location decisions. In Michigan, business taxes and most other costs are higher than competitor states with not enough distinct advantages to offset the higher cost premium. Source: Area Development annual company and site selection survey (2008); BLS; ACCRA; NCES; Tax Foundation; Census; NSF; Site consultant interviews Michigan Turnaround Plan 21
  17. 17. Cause: Uncompetitive Business Climate Business Decision- Makers Rank Michigan Low as Site Location Business CEO’s and site location consultants view Michigan’s business climate as among the worst of all states. These perceptions are driven by their views on the cost and ease of doing business in Michigan. Source North American Business Cost Review 2006, Moody's; Chief Executive Magazine; Site Selection magazine Michigan Turnaround Plan 22