Michigan #1 for Economic Development?

The December 2008 edition of Business Facilities magazine announced that Michigan had won the publication's 2008 "State of the Year" contest on the basis of the five best investments in the state during the year. The projects under consideration added up to more than 10,000 new jobs and almost $14 billion in corporate investment. The magazine characterized the competition as a "blowout victory" for Michigan that was "unequivocally propelled" by a joint investment between Dow Chemical and a Kuwaiti chemical company.

The validity of this award had a healthy share of skeptics, due in part because during the same month Michigan was on its way to posting the nation's worst unemployment rate, going above 10 percent for the first time since September 1985. One media outlet, the MIRS Capitol Capsule newsletter (www.mirsnews.com — subscription required) decided to investigate the rationale behind the award after the "K-Dow" joint chemical company investment was cancelled in late December, just after Business Facilities proclaimed its "State of the Year." The loss of this single deal eliminated $11 billion of the $14 billion that the magazine was crediting to Michigan in the contest.

MIRS found out that Business Facilities ranked states based on "unverified claims a state development agency made about its top five projects." In the case of Michigan, the agency submitting the claims was the Michigan Economic Development Corporation. According to the magazine's Web site, the publication is "a dynamic community for C-level executives and economic development organizations." Effectively, this implies that the MEDC is a typical Business Facilities magazine customer.

Contacted by MIRS, the author of the "State of the Year" article explained that the magazine used the numbers "exactly as received by each state organization" and that the organizations "also supplied us press releases that verified their numbers."

"In other words," according to MIRS, "a state such as Michigan, even if it were hopelessly mired in 50th place in terms of overall business development, could still do very well in the contest."

The MEDC and many other state-based economic development agencies like it use targeted tax incentives as a means of luring specific corporate investment to a state. Critics of this approach contend that no panel of government experts can know better than the marketplace what companies are best at creating growth, and thus that cutting taxes evenly for all businesses is a far more effective — and fairer — tool than awarding special favors to a few companies deemed most worthy by the state.

Champions of targeted abatements contend that state experts can sometimes be more effective than the market at predicting who will best maximize the state's economic growth, and use the Business Facilities' ranking and other barometers to help demonstrate their prowess relative to competitors in other states.

Michael D. LaFaive is director of the Mackinac Center for Public Policy's Morey Fiscal Policy Initiative and a skeptic of targeted tax abatements. In 2005, he and Michael Hicks, an adjunct scholar with the Center, teamed up to write a historical retrospective of the first nine years of the Michigan Economic Growth Authority, the MEDC's primary tool for granting these special favors. The peer-reviewed economic analysis found that the program had no impact on Michigan's per-capita personal income, did not improve Michigan's unemployment measures, and produced nothing of lasting value. To date, the MEDC has not refuted a single claim made by LaFaive and Hicks.

When contacted regarding the anomaly in the "State of the Year" rankings, LaFaive told MIRS that magazines such as Business Facilities "hand out awards like candy on Halloween" as a means of generating publicity. Likewise, he asserted that the MEDC and similar agencies enter the contests because it "adds legitimacy to their claims, however shallow that legitimacy may be."

MIRS published this story in its Jan. 23 issue. Four days later, the Michigan Senate Finance Committee held a hearing on Senate Bills 71 and 72, proposals that would require the MEDC to submit more concrete and transparent documentation of their jobs claims to the Legislature so that lawmakers can better establish what — if any — impact targeted tax abatements have on the Michigan economy.

Kenneth M. Braun, director of the Mackinac Center's "Show Michigan the Money" transparency project, testified at the invitation of the committee chair, Sen. Nancy Cassis, R-Novi. Braun reiterated the LaFaive and Hicks findings regarding the failures of targeted tax abatements.

The MEDC did not send a representative to testify at the hearing.

The committee voted in favor of the bills and sent them to the full Senate with a recommendation that they pass. Two similar bills were overwhelmingly approved by the Senate at the end of 2008, but then died in the House of Representatives when that chamber declined to consider them.

New Lawmaker to Save State from 'Clear and Present Danger'

State Rep. Paul Scott, R-Grand Blanc, is one of 46 lawmakers joining the Michigan Legislature for the 2009-2010 session. The new legislator's first two bills are designed to slay what he characterizes as a "clear and present danger to all Michigan residents."

House Bill 4099 would make it illegal for an owner of virtually any public facility to allow smoking. House Bill 4100 would put out of business any restaurant that allows customers to smoke. Scott asserts that there would be "no exceptions" to this ban.

The Michigan Restaurant Association, representing more than 4,500 locations across Michigan, believes that its members should set their own smoking policies so as to cater to the desires of each restaurant's unique base of customers.

"We're in the business of providing customers with choices and giving them what they want," is how former MRA president Rob Gifford characterized the matter when fighting against similar legislation in 2004. "With the growing number of smoke-free restaurants across the state in recent years, the restaurant and foodservice industry has done an excellent job of regulating itself without government interference."

Scott's media release dismissed the arguments made by these job providers as the work of "naysayers." He suggests that they could learn something by visiting a local restaurant in his district that he says is thriving because it voluntarily banned smoking so as to please its customers.

The MRA says this restaurant's decision to go smoke-free voluntarily is an example of a rapidly growing trend and is precisely why government does not need to and should not impose a ban on restaurant owners who think it might hurt their particular business.

"Since 1998 the number of restaurants and taverns that offer a 100 percent smoke-free environment has increased more than 97 percent," noted the MRA while successfully resisting a bill similar to Scott's during the 2007-2008 legislative session. "In 1998, there were 2,200 smoke-free establishments. Today, there are more than 4,350."

The restaurant owners' organization also submitted evidence showing states that totally ban smoking in restaurants have seen their sales growth projections disappoint by as much as 12.4 percent following the imposition of the ban.

But Scott believes the will of the majority has spoken and that no restaurant owner anywhere in Michigan should be allowed to cater to a smoking minority that may wish to have a few places left where they can light up when eating out.

"People overwhelmingly want this ban," notes the lawmaker. "I talked with thousands of local residents during the last few months and there is steadfast support for a smoking ban."

For additional information and an opportunity to comment on these issues, please see www.mackinac.org/10207.

On Feb.12, 2009, the Michigan Senate resoundingly defeated 2009 Senate Resolution 13, a proposal urging Gov. Jennifer Granholm "to work with the Civil Service Commission to require that state employees either work on President's Day or take the day off as an unpaid holiday to reflect the state's dire financial challenges."

SR 13's sponsor, state Sen. Tom George, R-Kalamazoo, reminded his colleagues before the vote that President's Day is a real workday for state employees in other states and much of the private sector everywhere. Only four other Republicans, including Senate Majority Leader Mike Bishop, R-Rochester, voted in favor of the proposal, while 14 Republicans and 16 Democrats voted against it.

In order to fix Michigan, state employees
cannot be paid for being idle while the rest of
Michigan is yearning to go to work.
– State Sen. Tom George

On the same day, the governor introduced her fiscal 2010 budget, which included proposals to cut $670 million from a variety of state programs, including layoffs for approximately 1,500 state employees, the early release of roughly 4,000 state prisoners, a $100 million cut to state universities, a $164 million cut to K-12 spending and more.

This alarmed some of the Democratic governor's most powerful allies in the Legislature. State Rep. George Cushingberry, D-Detroit, accused the governor of "taking advantage of state workers." Cushingberry is the chair of the House of Representatives' Committee on Appropriations.

According to a 2007 analysis of state worker benefits written by the Mackinac Center's Michael D. LaFaive, each member of Michigan's classified workforce receives 12 holidays every year, and 13 during even-numbered years because Election Day is also credited as a holiday.

LaFaive also noted that employees of the state House of Representatives receive 12 official holidays and also one paid leave day for each ten days of service — a total of 26 leave days per year. The combined total is nearly 2 months of paid leave per year for each of these legislative employees.

The pay and benefits for several Michigan government jobs, such as corrections officers and receptionists, were also examined, revealing that Michigan's state workers are well compensated when compared to comparable workers in the private sector and in other state governments.

The Michiganvotes.org roll call vote for SR 13 is provided below. The text of the resolution along with Sen. George's remarks in support of it follows.

Senate Resolution No. 13

A resolution to urge the Governor to work with the Civil Service Commission to require that state employees either work on President's Day or take the day off as an unpaid holiday to reflect the state's dire financial challenges.

Whereas, Michigan's economic conditions are well documented. Our longstanding status as the state with some of the highest unemployment rates from month to month and the several years we have lagged behind the rest of the country in a host of key economic measures make it clear that significant changes must be made; and Whereas, As thousands of Michigan families cope with joblessness, the fear of unemployment, and grave uncertainty in their finances, it is important for the public sector to ake the same kinds of sacrifices many in the private sector have been making. It is an incongruous situation that 50,000 state employees enjoy paid holidays for dates when most private workers report for work the same as always; and

Whereas, As Michigan searches for new ways to revive our economy and improve the state's outlook, it is most appropriate to revisit our current practices. Assumptions and policies that may have worked well in the past, when Michigan was in a far stronger situation economically, are not so applicable today. Setting a more realistic tone by reevaluating the benefits enjoyed by state employees can send a significant message and help Michigan in both practical and symbolic ways; now, therefore, be it

Resolved by the Senate, That we urge the Governor to work with the Civil Service Commission to require that state employees either work on President's Day or take the day off as an unpaid holiday to reflect the state's dire financial challenges; and be it further

Resolved, That copies of this resolution be transmitted to the Office of the Governor.

Senator George's statement:

Monday morning, the sun will come up and alarm clocks will sound and Michiganders who are lucky enough to have jobs will rub the sleep from their eyes and will celebrate President's Day by heading off to work. Throughout Michigan, auto repair shops will open; so will restaurants, retail shops, dry cleaners, and dental offices. In my district, the public schools are open; teachers and students will report as usual. The Kalamazoo Public Library will be open; so will both Kalamazoo and Portage city halls. Most county offices will be open. Classes will be held at Western Michigan University, Michigan State University, and the University of Michigan. Across the border in Indiana, all state offices are open for business.

However, here in Michigan, where state government faces another huge budget shortfall; here in Michigan, where we don't have enough resources to pave our roads; here in Michigan, where we can no longer afford to keep our prisoners locked up; here in Michigan, where we can't find enough money to fully fund our schools; here in Michigan, on Monday, we are going to give state employees the day off with full pay.

When we lose people and jobs to the state of Indiana, we are sometimes told that it is because of our tax structure-that people and businesses pay more in Michigan. Now if that is so, shouldn't it follow that they should be receiving better services from state government? One might think that perhaps those higher taxes would result in faster services, a quicker turnaround time, or a better response from government. But sadly, on Monday that will not be the case. There will be no state services on Monday, as state government will be on vacation.

I am heartened to see that Governor Granholm and her administration will be meeting with state employee unions in the coming weeks to discuss ways to help fix Michigan through concessions. Colleagues, concessions are nothing new to workers in Michigan, as the Big Three continue to negotiate contracts with their employees to find ways to keep the companies viable and the employees employed.

My friends, if we are ever to truly turn Michigan around, we must stop paying government more and getting less in return. In order to fix Michigan, state employees cannot be paid for being idle while the rest of Michigan is yearning to go to work.

For additional information and an opportunity to comment on this issue, please see www.mackinac.org/10207.