Some Insights to Economic Development Programs in Michigan and Observations of the Michigan Economy Presented to By: Steven Miller August 13, 2008

Rural Economic Development

Why is Rural Economic Development Important? Nearly 80% of Michigan is rural and hosts nearly 20% of its population Decreasing share of rural income earned on the farm Rural income lags urban income High rate of income earned off-farm High rates of unemployment Farm and rural population is increasingly depending on non-farm economy

Challenges and Opportunities for Rural Economic Development Access to venture capital Low education attainment and skills gaps Consolidation of Community Reinvestment Act (CRA) funds Decreasing share of total population “In-sourcing” and “Rural sourcing” High gasoline prices will likely increase retail demand in non-central regions

What is Economic Development? Economic development is a local phenomenon Economic development is not economic growth –Economic Development entails qualitative changes that impact the quality of life –Economic Growth entails quantitative changes measured in dollars

Local and Regional Development is a Two-Part Equation Development = c · r c = capacity economic, social, technological, and political capacity – the level of functioning of social, political, and organizational structures and leadership r = resources natural resources, location, labor, capital investment, entrepreneurial climate, transportation, communications, industrial composition, technology, size and linkages to export markets

Landscape of ED Approaches Business attraction “Smokestack Chasing” Strategic planning Promoting the development of new products and services - Entrepreneurship Business retention Workforce development Support services and technical assistance Quality of life investments

Entrepreneurship as an Economic Development Strategy “Smokestack Chasing” has lost favor as an ED approach especially in rural communities. Rural emphasis is on developing the economy from within through business facilitation –Locally owned businesses are more likely to purchase from local suppliers –Locally owned businesses tend to share community values –Multitude of smaller employers provides more job stability than a single large employer –Contributes to the quality of life of residents

Quality of Life as an Economic Development Strategy It is well documented that quality of life measures impact regional economic development –Wildlife –Recreation –Historic tourism –Creative economy –Agricultural tourism –Retirement destinations

Conclusions Economic development is about increasing the quality of life measures within a community. Business attraction models of ED are no longer favored and greater focus is on developing growth from within. Much focus has been directed at increasing the quality of life and supporting local entrepreneurs.

Scan of the Michigan Economy

Employment By Industry Breakout 2007* MichiganU.S. *Source: Bureau of Labor Statistics

U.S. and Michigan Unemployment Rates and GDP Growth Source: Bureau of Economic Analysis

Michigan’s Employment Situation Appears Bleak

Michigan’s Tax Base Remains Flat

Population Growth Rates % % -4.9% - 0.0% 0.1% - 5.0% 5.1% % 10.1% % 20.1% % Source: U.S. Bureau of the Census Population Growth Rates

Is a Recession on the Horizon? Source: Federal Reserve Board

Energy Concerns High energy costs, –Reduce consumer discretionary spending –Absorb government budgets –Decrease local margins at the pump –Reduce tourism –Impact rural areas with longer travel distances to destinations –Require industries to retool toward less energy intensive production methods

How Important is Energy to the Economy? While expenditures on energy continue to rise, energy expenditure’s share of total GDP is much lower than late 1970’s and early 1980’s Source: Energy Information Administration

CPI versus Energy Prices

Rural Tourism Destinations Will Need Re-tooling

The Exchange Rate Impacts the Price at the Pump Source: Federal Reserve Board

Manufacturing Jobs Manufacturing makes up a sizeable portion of a region’s economic base One lost manufacturing job is likely to lead to more than one lost job in the region The largest manufacturing sectors in distress is the auto and auto-related sectors

Manufacturing Job Growth

Manufacturing Continues to Shrink, but… Source: Bureau of Economic Analysis

Relative Manufacturing Employment Concentrations MSA County No Data Available Less Manufacturing Intensive More Manufacturing Intensive Source: U.S. Department of Commerce, Bureau of Economic Analysis based on Wage and Salary Employment Employment concentrations are relative to non-metro proportion of total W&S employment in manufacturing Distribution of Rural Manufacturing Centers

Michigan Unemployment Rates Between 2000 and 2006 –Population 18 to 65 has increased by 234,196 –Labor force has declined by 70,833 –Essentially, 305,029 nearly 5%, of working age residents have left the labor force in Michigan since 2000 It is expected that young Michigan workers are most impacted –Michigan lost 22,515 people aged between 2000 and 2005 Sources: Census and Bureau of Labor Statistics

Michigan Unemployment Rates Continue to Exceed the Nation’s Source: Bureau of Labor Statistics

Unemployment Rates 2007 Annual Average Source: Bureau of Labor Statistics: Local Area Unemployment Statistics Unemployment Rates by County

Housing Housing is a store of wealth The current mortgage crises has so far been isolated to the subprime market, but there are signs that it is creeping into the prime mortgage markets Michigan is less exposed to subprime risk than many states but delinquency rates and foreclosure remain high

Housing Price Indices

Mortgage Stressed States Source: Wall Street Journal

Rural Health Care and the Elderly Rural seniors tend to have lower financial resources than their urban peers. Rural seniors self-report lower health quality than urban peers. Retiree attraction has been pushed as an economic development strategy.

Percent of Population Over 65 Years of Age: % % 11.1% % 14.1% % 16.1% % 20.1% % Source: U.S. Bureau of the Census, Decennial Census Distribution of Population Over 65-Years of Age

Retirement Destination 15% Growth Retirement Destination 20% Growth Metropolitan County Nonmetropolitan Counties with 15 or 20% or more growth in population aged 65 or older 1990 – 2000 U.S. average rate is 12 percent growth Nonmetropolitan Retirement- Destination Counties 2000 Source: Woods and Poole using Census Data Not a Retirement Destination

Source: EMSI: 2005 Estimates Number of Healthcare Employees per 1,000 Residents Over Urban County Healthcare Providers versus Needs of Elder-Care

Conclusions Evidence points to a forthcoming national recession. Michigan remains steeped in an industrial sector that has a clear negative growth bias. Recent statistics indicate that Michigan’s economic growth tails the nation. Michigan’s employment sector has experienced declines since 2001 failing to benefit from the post-2001 national expansion. Michigan is loosing a substantial portion of its young population.

Conclusions Cont’d Decline of the dollar makes US produced goods more attractive in overseas markets. It also makes the US a more attractive tourist destination for foreign tourists. Michigan may be partially shielded against the forthcoming ARM resets, but the state of the economy threatens the economic health of Michigan’s home owners. Michigan provides the amenities sought by retirees. However, fully capitalizing on this strength calls for investment in rural healthcare.

Federal Agencies that Invest in Rural Development USDA Small Business Administration Environmental Protection Agency Department of Housing and Urban Development Department of Labor Department of Commerce Department of Health and Human Services Department of Homeland Security

USDA Business and Cooperative Programs Business and industry guaranteed loans (B&I) Intermediary relending program (IRP) Rural business enterprise grants (RBEG) program Rural economic development loan and grant (REDLG) Rural business opportunity grants (RBOG)

Michigan’s Slack Labor Markets are Driving Down Wages

U.S. Auto Sales are in Decline

Option Adjustable Rate Mortgages Will Reset in the Next 3 Years

Michigan’s Retiree Population is Expected to Grow at a Slower Pace than the U.S.

Branded Economic Development Programs Asset Based Community Development Civic Engagement and Social Capital Economic Gardening BoomTown Energizing Entrepreneurs

Branded Economic Development Programs, Cont’d Generation E (not directly tied to ED) Enterprise Facilitation Cluster Development HomeTown Competitiveness Reinventing Rural Regions

Michigan-Based Initiatives Creating Entrepreneurial Communities (CEC) AgriCultural Tourism Michigan Coolcities Cities of Promise (Urban Focus)