Dry Lakes

Dry Lakes
By RiShawn Biddle on 1.14.11 @ 6:08AM

When it comes to sports these days, Michigan residents hardly have much to celebrate. Save for the Red Wings, the state has seen the recent decline of the Detroit Pistons into the cellar, the perpetual woes of the football Lions (now in its third decade in the NFL abyss) and bowl game losses by Michigan State and the University of Michigan (along with seven consecutive years of horrifying losses by the once-mighty Wolverines to the ever-loathsome Ohio State).

So the average Wolverine State resident has almost nothing to distract him from the headlines of economic malaise, fiscal collapse, and educational crisis on the front pages. And Rick Snyder, the state's new governor, will have an even harder time turning things around than Brady Hoke, the new head coach of Michigan's recently woe-begotten football team.

The U.S. Bureau of Labor Statistics' report this week that Michigan added 10,129 to its initial unemployment rolls during the first week of this year -- along with news that 72,810 homes in the state were foreclosed upon last year -- was another reminder that the state's manufacturing-(and federal bailout-dependent) economy is still in the dumps. Michigan's unemployment rate of 12.4 percent in November tied it with California for the nation's second-highest (tourism-dependent Nevada beat out the Wolverine State for the number one spot). The state's unemployment rate, in fact, is two-to-five points higher than that of its sister Midwestern states.

Two years of state budget tricks -- including $1 billion in one-shot revenues for this fiscal year alone -- have left Michigan officials scrambling to make up a $1.9 billion shortfall for 2011-2012. The state faces a longer-term crisis in the form of at least $70 billion in public pension deficits; based on estimates by Northwestern University Associate Professor Jonathan D. Rauh and Robert Novy-Marx of the University of Chicago, the busted pensions could be tapped out within the next 12 years.

State officials are still reeling from revelations two years ago that the state's two corporate welfare vehicles, the Michigan Economic Growth Authority (also called MEGA) and the Michigan Economic Development Corp., had awarded a $9 million refundable tax credit (which the state must pay to the recipient in cash) to a scheme orchestrated by Richard Allen Short, a convicted embezzler who based his operations out of a trailer park. The scandal proved particularly embarrassing to now-former governor Jennifer Granholm, who stood on stage with Short to thank him for his renewable energy plan.

While the spectacularly failing Detroit Public Schools system captures the nation's attention for its systemic academic, bureaucratic, and fiscal failure, Michigan's other elementary and secondary school districts aren't doing much better. The performance of the Wolverine State's eighth-graders from middle class homes on the 2009 National Assessment of Educational Progress trailed their peers in 37 other states, according to a report released yesterday by the Education Trust, one of the nation's leading school reform think tanks. Thirty-six percent of Michigan's fourth-graders -- and 39 percent of the state's fourth-grade boys -- read Below Basic on NAEP, higher than the already-abysmal national averages in both categories.

All in all, the decay shows. Declared the Grand Rapids Herald in an editorial last month: "Michigan is now older and poorer than it was 10 years ago."

Certainly the Great Lakes state's position as a Rust Belt bellwether in the age of a global, knowledge-based economy -- along with the dwindling fortunes of federal government dependents General Motors and Chrysler -- has put the state in a state of secular decline. But its long-term mismanagement of state government, decades of deal-making between governments and the state's public employee unions, and the reluctance to embrace school reform has made the state even less attractive to longtime residents and newcomers alike. It will take aggressive overhauls in government and in education in order for the state to recover for the long haul.

The specter of Detroit and its spectacular rise and fall into corruption and ineptitude is as much a part of Michigan's national profile as Mackinac Island. The scandal-plagued tenure of the Motor City's former mayor, Kwame Kilpatrick -- now languishing in a federal prison in the tiny Michigan town of Milan -- has recaptured the headlines after federal prosecutors indicted him (along with his father and several former aides and cronies) on 38 charges of alleged racketeering that includes collecting $360,000 in bribes from one contractor and another $300,000 in travel and other goodies from another.

But the Wolverine State's own government culture is renowned for its stunning level of fiscal incompetence. Between 1995 and 2008, the state's two economic development outfits poured at least $5 billion in subsidies into an array of job-creation deals that have yielded little; MEGA's subsidies yielded a mere 17,971 new jobs, according to a 2009 report by the Mackinac Institute. The state's motion picture tax credit scheme -- geared towards bringing television and film production to the streets of Ann Arbor and other locales -- cost the state $116 million in the 2009-2010 fiscal year for little in the way of sustainable long-term employment. None of the schemes have managed to help Michigan stave off the dubious distinction of being the only state that actually lost residents (some 58,000) between 2000 and 2010, according to the latest U.S. Census.

One underlying reason lies with a penchant for fiscal mismanagement that crosses party lines. After all, this is the state of Republican George Romney (who managed to double the state's budget during his first five years in office -- and force the state to enact personal and corporate income taxes to keep up with the spendthrifts) and Democrat James Blanchard (one of the few governors anywhere in the country in the past three decades to increase income taxes by 38 percent at the beginning of his term and being re-elected to talk about it).

Blanchard's successor, John Engler, managed to clamp down on the tax-and-spending during his 12 years in office (along with successfully advocating for one of the nation's first charter school laws in 1993 and enacting an overhaul of public assistance programs that helped foster the 1996 federal welfare reform law). But by the end of his term in 2002, he had pushed through the creation of the economic development agencies that would waste so much taxpayer money.

Granholm, who succeeded Engler, showed no willingness to significantly cut spending -- and was aided by Republican legislators unwilling to hold down spending. Although spending increased by 12 percent between the 2003 and 2009 fiscal years, she often resorted to tax increases and delays in scheduled tax cuts in order to keep the budget afloat. Save when forced (such as when the state's school superintendent forced another takeover of Detroit Public Schools), Granholm had little interest in school reform. Nor did she bother taking on the generous array of defined-benefit pensions and retiree health benefits that were helping to increase costs for the state, school districts and local governments .

Only into the last year of her term, with the state facing structural deficits, did Granholm managed to take some small measures to cut into the 11 percent increase in average public employee salaries that have contributed to increased costs. Still, being a retired public employee has its privileges. A retired teacher in Michigan who isn't eligible for Medicare picks up just 12 percent of her $1,171 monthly premium for herself and her spouse; the state picks up the rest. When she qualifies for Medicare, she will pay just five percent of her monthly premium; the remaining cost is subsidized by taxpayers.

New governor Snyder, a venture capitalist who managed to beat out better-known names such as former congressman Pete Hoekstra to win the Republican gubernatorial nomination and then the high office, has already declared that he will slice into public employee costs and embraced a more aggressive school reform agenda. On the latter, he already has some help courtesy of the Race to the Top initiative, which prompted Granholm and Michigan's legislature to allow for the expansion of charter schools and for teacher merit pay. The Republicans also control both legislative houses, for what it is worth. But with billions in long-term costs -- including $8 billion in unfunded public employee healthcare benefits -- that still must be covered, Snyder and the taxpayers will have a lot of recovery work ahead of them.