Will the Governor’s New Budget Bring Jobs Back to Michigan?

Governor Rick Snyder unveiled his budget plan yesterday that includes $1.5 billion in budget cuts and calls for a number of changes in the current tax structure in Michigan.  The Governor also proposed that he is willing to work for only $1 in 2011, and will return his $159,300 salary back to the state for the year.

Michigan Governor Rick Snyder

Along with Snyder’s salary, low-income workers, retirees, local governments, students, and communities will bear much of the burden in the new budget plan.

In a presentation yesterday on the state’s economic situation and budget woes at Northern Michigan University, Jeffrey Guilfoyle, president of the Citizens Research Council of Michigan (a prominent think tank in the state), helped area-residents and students  understand the new budget plan with a brief overview.

“We are lowering the business tax weight and shifting it onto individuals,” said Guilfoyle.

For example, the new budget eliminates the Earned Income Credit, enacted in 2008, which benefits citizens of low-income.

“I represent the working poor,” Ramona Spencer told TV-10 WILX.com News. Spencer made about $13,000 last year and received about $600 from the credit.

“With that money I pay for my utilities, and … keep warm water running in my tub,” said Spencer.

According to Michigan Messenger, House Democrats are not pleased with the new budget.

“His plan makes it harder for our kids to get the quality education they need to compete for jobs, puts a college education farther out of reach for middle-class students, increases taxes on seniors and working families, and takes more police and firefighters off the street. It gives huge tax breaks to corporations while shifting the burden to others who can least afford it,” said Rep. Richard Hammel, (D-Mt. Morris Township) and House Democratic Leader.”

The Governor’s plan proposes to slash $1.8 billion from business taxes in the state, and only replace it with a six percent corporate tax.  The proposed plan includes spending cuts for schools, communities, and universities; a 48-month limit on welfare payments for recipients; the privatization of some prison services; and a tax on income earned from pensions at the same rate as other income.  The plan also reduces local revenue sharing, and funding for local communities to help pay for services including police, firefighters, libraries and public transportation.

Map Showing Michigan with the Highest Unemployment in the Country: Bureau of Labor Statistics

According to Guilfoyle’s explanation of the new budget, the argument for the shift of burden from business to individual, “… is clearly the belief that is going to spur economic growth … That will mean you’re lowering the rate of taxation of capital.  That’ll cause more capital to be invested in Michigan and increase economic growth.  That is what they are attempting to do.  It’s hard to say for sure if that’ll work or not.”

In a press release the Governor stated, “This is a comprehensive plan to lay a new, sound foundation for Michigan’s reinvention and put an end to the significant budget deficits that state has experienced for the past decade,” Snyder said. “It reflects difficult but necessary decisions that will result in a shared sacrifice, but ultimately will benefit citizens…through economic growth and job creation …”

At the height of the recession, in early 2009, the United States was losing nearly 750,000 jobs per month and Michigan has lost over half of its manufacturing jobs.

Jobs Rally, July 2010 Marquette, MI

Michigan has suffered from severe budget problems for years and was not able to fully  recover from a 2001 recession when it entered into the 2008 recession, “So, the last ten years, the only way to describe it is an economic disaster for the state, ” said Guilfoyle.

The recession officially, and technically, ended in June of 2009.  Why then doesn’t it feel like the recession ended in Michigan?  Even though the recession has technically ended, the state has not recovered the jobs it has lost.

So what’s the bright spot?  Basically, aside from some unknown external force, we’ve fallen so low there’s no where to go but up.

“We will grow by nature…over the last 10 years.  That external force has been the rapid contraction of the auto industry.  Without the rapid contraction of the auto industry we will grow no matter what the government does … we will grow regardless,” said Guilfoyle.

Even if the Governor’s new budget is successful, the way back up will be slow moving said Guilfoyle:

“… there’s no rapid recovery from 18% employment decline.  Even in our best years in the 90s we were at a 2% a year decline, so even if we went back to the 1990s it would take us ten years to gain back these jobs,” explained Dr. Guilfoyle.

In addition to slow growth and the need to create new jobs, the state healthcare costs are a rising issue the government will be forced to deal with even if it is able to balance the budget.

Government consumes a lot of healthcare, especially with an aging demographic.  Healthcare expenditures have been growing more rapidly than anything else in the economy and is creating major pressure on public budgets.  These healthcare costs are found in many places within the state’s budget, including Medicaid, healthcare for state employees, and healthcare for an aging corrections population.  The jobs that are opening in Michigan do not always pay enough to cover increasing  healthcare costs.

"Big Three" Ford, General Motors, Chrysler

Although the automobile industry is stabilizing, once again thanks to US citizens for bearing the burden in the bailout, they are cutting paychecks in order to remain competitive and afloat in the global market.   Jobs just don’t pay like they use to; a citizen can no longer walk in off the street and make 50-100,000 a year.  The auto industry now has a “two-tier” wage system where a worker that once made $45 an hour is now only making $15.

So what’s going to replace the auto industry in Michigan?

“You don’t replace the auto industry …  what you need is diverse economic growth all over the place.  This is the Governor’s metaphor for gardening, but we need to grow all sorts of sectors,” explained Guilfoyle.

Will the new budget and the shift of burden from business to the individual help invigorate Michigan’s economy?

A difficult road lies ahead for Michigan, which  is 37^th in the country based on per capita income and many think it will fall to 40^th.  But according to Guilfoyle it’s not all doom and gloom.  Jobs are picking up and at least these days, “we’re not talking about we’re falling and are we ever going to stop? Now, we’re talking about how quickly are the jobs going to come back?”

This post was written by

Teresa Bertossi – who has written 22 posts on Headwaters - Community Journalism for the Great Lakes.

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