State of the State: Blown Away

(Note: During her 2006 State of the State address, former Gov. Jennifer Granholm predicted that within five years Michigan residents would be "blown away" by the success of the economic plans she was unveiling that night. This month marks the fifth anniversary of that speech. The following was written last year, just prior to her final State of the State address.)

As Gov. Jennifer Granholm approaches her final State of the State address this evening, it is worth taking an unvarnished look at the economic well-being of Michigan. Since she took office, Michigan has experienced:

• A precipitous decline in the relative wealth of its residents. Since January 2003, Michigan's per-capita personal income rank among the states has dropped from 23rd to 37th. Our personal income is now $5,259 (13.1 percent) below the national average.

• A large decline in economic output as measured by state Gross Domestic Product, dropping from 26th at the start of the Granholm administration to 41st through 2008.

• A dramatic increase in unemployment. Michigan's unemployment rate leapt from 6.7 percent in January 2003 to 14.6 percent through December 2009. The state has had the highest unemployment rate in the nation for 46 consecutive months.

• Record setting out-migration. The U.S. Census Bureau reports that Michigan has lost population for the last four years in a row and was only one of two states to lose population last year. More than 87,000 people migrated from the state between July 2008 and July 2009 alone. United Van Lines — a household moving company — reports that 68 percent of all its Michigan-related traffic is outbound.

Remarkably, Michigan suffered economic decline even during the last national expansion, from 2002 through 2007.

Despite extreme budget pressures, the state has been able to maintain a fairly high level of total spending thanks to policy changes such as a) a 75 cent cigarette tax hike; b) a shift in property tax payment dates; c) new and higher fees; and d) the October 2007 $1.4 billion tax hike. Recall that state officials promised the public that this tax hike would put the government on firmer fiscal footing. It did not, and today the governor has publicly advocated for another tax hike - this one would take another $600 million.

It was not always like this. When Gov. Granholm first took office I wrote a tribute to her titled "Profile in Budget Courage" for her willingness to balance the state budget without hiking taxes. Specifically, I said, "If Granholm keeps going on the course she has set for herself, she could well become the model for the New 21st Century Democrat; one with feet planted firmly enough in fiscal reality to begin taking back the upper hand Republicans have gained on the national political scene, especially in Washington. But only if she keeps going. After so much talk about "living within our means," the governor must emerge from the inevitable legislative battle with a budget that is balanced."

Unfortunately, Granholm did not "keep going" as we had hoped and she turned — with the help of the Legislature — to countless policies that raised the cost of living, working and creating jobs in the Great Lake State. She has talked a lot about creating jobs, but her policies have not succeeded. Indeed, in her 2006 State of the State address she promised the Michigan would be "blown away" in five years (when she's conveniently out of office) by all of the jobs she would create with her proposed economic development programs. Specifically, she said:

In a few months, we will begin making prudent investments in the diverse companies that will grow jobs in Michigan. And by this time next year, we'll see new businesses doing just that. In five years, you're going to be blown away by the strength and diversity of Michigan's transformed economy.

Four full years later the economy is a mess. Unemployment recently peaked at 15.3 percent, the state lost 552,200 jobs from 2005 through 2008 alone, and economic output has declined by 4 percent statewide. Worse, Lansing's careerist political class — led by Gov. Granholm — is giving serious consideration to another tax hike, protecting the very government that has contributed to Michigan's malaise.

As the governor gives her last State of the State speech, I hope she realizes that there is no amount of soaring (or dramatic) rhetoric that will wash away the damage she and the Legislature have done to Michigan by choosing the wrong policy path at almost every juncture.

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Michael LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.