Michigan vies for top 10 status in economic competitiveness

The Detroit News

State concentrates on fundamentals as it seeks to claw its way back to competitiveness

Once-powerhouse University of Michigan basketball is back, flirting with upending Duke as the No. 1 team in college basketball. So can once-powerhouse Michigan compete against economic giants like California and Massachusetts for jobs in the 21st century? Impossible, you say? Think again.

After a lost decade that saw it miss the NCAA tournament for six consecutive seasons, U-M has thrived under Coach Jim Beilein’s leadership and focus on fundamentals. He took Big Blue back to the NCAA tournament in 2010, and this year — Beilein’s sixth as head coach — the team is competing for round-ball supremacy.

The state of Michigan has suffered through its own lost decade. But if it maintains its renewed commitment to leadership and fundamentals, it too is poised for greatness. Meanwhile, the perennial No. 1s are showing signs of vulnerability.

Last week, Business Leaders for Michigan discussed its 2012 Economic Competitiveness Benchmarking Plan, which confirms the progress the state has made in reinventing itself as an economic contender. The report focuses on key metrics that make a “top 10” state, and thanks to the fiscal focus of Coach — er, Gov. — Rick Snyder and the Legislature the last two years, Michigan is improving.

In particular, the state has got its arms around unfunded liabilities that have been among the nation’s highest. Snyder’s Relentless Positive Action has reduced the cost of pension and other benefits and plugged chronic budget deficits.

In economics as in basketball, however, the best defense is a good offense. In addition to defending the state treasury, Michigan is now better positioned to attract business and entrepreneurs thanks to reforms in the state’s business tax, personal property tax, income tax and game-changing legislation making Michigan a right-to-work state.

The Business Leaders note that there is still much to be done on education, venture capital attraction and road infrastructure, but the state’s world-class university system is an incubator for entrepreneurs. Given a more attractive business climate — in two years, Michigan has jumped from 49th to seventh in business tax environment — it can keep more of those ambitious minds as they graduate.

Benchmark top 10 states like California and Massachusetts should watch their back.

Expensive California had already hemorrhaged more jobs than any other state in the last five years before passing Proposition 30 last fall. The measure punishes higher incomes and small business with a 3 percent rate hike on top of an already oppressive 10 percent top rate (more than double Michigan). Golfer Phil Michelson has became the poster child for successful Californians threatening to leave, a sentiment widespread among state job creators.

“If you have excessive regulations and excessive tax, that’s just not where you want to be,” says Peter Farrell, president of a large, San Diego-based medical-device maker looking to leave the left coast. “California is unfriendly. It’s become an unfriendly business environment.”

Gov. Jerry Brown claims the higher taxes will balance California’s chronically underwater budget. But like Michigan Gov. Jennifer Granholm in 2007, that promise is unlikely to be kept as tax hikes haven’t been tied to spending reforms.

Massachusetts has ridden decades of tech growth and great universities to a place among the economic elite. But its government charge card is threatening to kill the golden goose. Gov. Deval Patrick this month proposed a 20 percent income tax hike — to 6.25 percent from 5.25 percent — to plug the hole blown in the state budget by Romneycare (a warning for a nation embarking on Obamacare). Since the act’s passage in 2006, health care spending as a percentage of Massachusetts’s budget has ballooned to 41 percent (on course for 50 percent by 2020), gobbling up dollars the state once spent on roads, police and schools.

On his office wall, Snyder keeps a chart showing the steady decline of Michigan output to 2.5 percent of the U.S. economy from 5.5 percent in the years before he took office. That line is now headed up thanks to Lansing’s newfound commitment to fundamentals.

Look out, California & Co. — Michigan is back in the game.