Michigan’s Challenge,Michigan’s Opportunity

Gov. Jennifer M. Granholm

and the Future of Local Governments

500

600

700

800

900

1,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

Mon

thly

Em

plo

ymen

t Lev

el

(100

0s)

Michigan Manufacturing Employment

Source: U.S. Department of Labor, Bureau of Labor Statistics.

Apr 2007634,500

Jan 1992780,300

Jul 1999906,200

Source: Economic and Revenue Forecasting Division, Michigan Department of Treasury, 5/30/07

Global Shift in Manufacturing Jobs Causes Loss of More Than 1 in 4Manufacturing Jobs Since Mid 1999

State GF Revenue Down 40 Percent Since 1999

$6.0

$7.0

$8.0

$9.0

$10.0

$11.0

$12.0

$13.0

$14.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Billion

s of

200

7 $

Totals exclude transfers and are adjusted to 2007 dollars using Gov’t Price Deflator.Adjusted for inflation.

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)

Subtotal State Cuts ($1,734.0)

Federal Estate Tax Repeal ($200.0)

TOTAL State and Federal Tax Cuts ($1,934.0)

Background: Spending CutsEven 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

Background: State Gov’t is Smaller Today

FiscalYear

1973

1978

1989

1999

2000

2006

Governor

Milliken

Milliken

Blanchard

Engler

Engler

Granholm

NumberState

Employees

52,673

64,456

64,560

60,066

61,493

52,259

Non-CorrectionsState

Employees

50,316

59,990

52,038

43,003

43,841

35,813

Background: Michigan Government Among

Smallest in Nation

Govt. EmployeesPer 10,000

State of Population Rank

Ohio 537 30Minnesota 527 36Indiana 527 36U.S. Average 539Wisconsin 518 39Illinois 495 44Michigan 482 46

Convened A Bipartisan Panel of Experts

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

Emergency Financial Advisory Panel

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

Comprehensive Solution: Spending CutsPut Michigan’s 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.

Comprehensive Solution: ReformsTo 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 …

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.

Michigan Taxes vs. Other StatesMichigan’s 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

Michigan’s new income tax rate of 4.35% is still the fourth lowest among states

Impact on Local Gov’ts

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…

More Reforms Will Continue to Help Local Gov’t 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

Michigan’s 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

Michigan’s 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