Michigan’s Challenge, Michigan’s Opportunity Gov. Jennifer M. Granholm and the Future of Local Governments

Michigan Manufacturing Employment Source: U.S. Department of Labor, Bureau of Labor Statistics. Apr ,500 Jan ,300 Jul ,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 4 Manufacturing Jobs Since Mid 1999

State GF Revenue Down 40 Percent Since 1999 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 Cuts Even 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 Fiscal Year Governor Milliken Blanchard Engler Granholm Number State Employees 52,673 64,456 64,560 60,066 61,493 52,259 Non-Corrections State Employees 50,316 59,990 52,038 43,003 43,841 35,813

Background: Michigan Government Among Smallest in Nation

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 Cuts Put 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: Reforms To 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 Starts to phase out in  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 States Michigan’s State and Local Tax Burden Ranked 32 nd (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