By Mike Turner
As he leads visitors into his office in the Romney Building across from the state Capitol in Lansing, Gov. Rick Snyder explains that he is not completely settled in. He points to framed photographs that still sit on ledges, waiting to be hung on the walls.
But even if he were to receive an “incomplete” in office decorating since becoming governor in January, Snyder would earn high marks from Michigan’s business community, which has generally praised his economic, budget and tax proposals.
“Gov. Snyder is extremely prepared, thorough, straightforward and very considerate of all the issues,” says Chris Fisher, president of Associated Builders and Contractors of Michigan. “He’s a fiscal hawk, and he’s surrounded himself with experts who mean business. We know where they stand and what to expect, and we know that they’re serious. It’s refreshing to see a professional team that’s ready to do whatever it takes to get Michigan back on track.”
For his part, Snyder has a message for Michigan businesses: “Their success is the key, because government doesn’t create jobs,” he says. “It creates the environment where jobs can flourish, and that’s what we’re doing with the reinvention that we’re talking about.”
And Snyder believes he took a first step toward reinventing Michigan’s economy with the tax and budget proposal he unveiled in February.
“Fundamentally, we’ve had a broken tax and budget system in our state for a long time. And so, the way I view it and I hope everyone will view it that way, is this (tax and budget proposal) is about the big picture, about a fundamental opportunity to reset how we do tax and budgeting in our state,” he says.
“There are better ways of doing things. If you had a new state and you had a clean sheet, how would you design a tax and budget system in terms of major reforms? We didn’t address everything in this. There are still areas that need help, like personal property taxes - they’re primarily at the local level. But I’m very proud of what we put together; it can really make a difference for Michigan’s future.”
Projected $1.4 billion shortfall
The plan for the fiscal year that starts in October would address a projected $1.4 billion budget shortfall by, among a slew of other things, cutting revenue sharing to Michigan municipalities, eliminating most business tax incentives and ending Michigan’s tax exemption on pensions.
Snyder’s plan also calls for replacing the Michigan Business Tax with a flat corporate income tax of 6 percent - a measure that will lower business taxes by $1.5 billion. That proposal provided political fodder for critics of Snyder’s budget plan, who accused him of favoring business interests. But the complicated MBT, which taxes gross receipts as well as income, is hugely unpopular among Michigan small businesses, which face tax liabilities even if they lose money. Under the new plan, small businesses such as those organized as S corporations or partnerships would be exempt from any corporate tax, leaving just C corporations to pay a flat 6 percent rate.
Michigan State University Economics Professor Charles Ballard says such measures as eliminating the MBT, business tax credits and the tax exemption on pensions creates a fairer, more efficient way for the state to collect revenues. However, he’s also concerned about reductions in state expenditures.
“Letting the roads deteriorate is not good economic development strategy,” he says. “Letting the education system deteriorate is not good economic development strategy.
“If you’re a business and you have your taxes cut but you can’t find the skilled workers to do what you do, you don’t have a viable business,” Ballard says.
Among those applauding Snyder’s call to end the MBT is the Small Business Association of Michigan.
“The Small Business Association of Michigan has long been at the forefront of advocating an end to the double taxation that currently exists in Michigan’s current business tax structure,” says Rob Fowler, the organization’s president and CEO. “It’s estimated that over 95,000 job providers would be relieved of the burden of paying both the Michigan Business Tax and personal income tax on business income.”
Indeed, Snyder says eliminating the MBT is a matter of fairness - and he believes average citizens who are informed about the tax would agree.
“It’s not that hard to understand (the case for eliminating it) if you look at it,” he says. “We’re essentially taking the double tax off our business community.
“If you think about it, you have someone who owns their own business - they have business income, they’re paying the personal income tax on their income. In addition, they’re paying the Michigan Business Tax, and if you look at how that tax works, it could have been as much as 6 percent or more additional tax liability,” Snyder says. “So literally you could have companies that were paying over 10 percent of their income between the personal business tax and the MBT when you and I, if we make a salary, we’re paying the 4 percent rate. Is that right? That’s not right. And what that does to stopping job creation looms very large. So it’s like, ask them to pay the same rate we’re paying. That’s a fair answer.”
Opposition to changes
Snyder’s budget proposal predictably drew immediate criticism. Labor activists rallied at the Capitol days after the governor unveiled his plan, and a gathering in Livonia about Snyder’s call to slash refundable tax credits for the film industry drew hundreds of people, including actor Jeff Daniels. But the governor says he was generally encouraged by the statewide reaction.
“A lot of the reception, particularly in the papers and the editorials, was very positive,” he says. “There’s an understanding that we do need to fundamentally change how we’re doing things in a positive, constructive way.
“In terms of individual reactions, there were people who were upset, and I expected that and I appreciate where they’re coming from. There were some tough decisions here. I am asking people to make a shared sacrifice. But the context is it’s about making a short-term sacrifice for a long-term benefit, that there’s a positive outcome by doing this reset in a positive way. So as time passes, I hope what they’ll look at it is not just what they’ve been asked to give up, but where they’ve been asked to go and is it a very fair arrangement where there’s an opportunity for all of us to do better together.”
“Shared sacrifice” is a consistent Snyder mantra. “I call it relentless positive action, because it’s not just doing a little bit,” he says. “We just need to keep pushing hard on the positive side.”
Ballard agrees that Snyder is spreading the pain around. “Certainly, there are sacrifices that are being asked of various groups,” he says. But he contends that Snyder’s call to eliminate the state’s Earned Income Tax Credit would further hurt the working poor, who have been disproportionately battered by the decline in Michigan’s manufacturing sector. “That’s an area where I don’t want to ask folks to sacrifice, because they’ve already sacrificed a great deal,” he says.
Although Snyder is vowing to create an environment in which businesses can thrive, he’s not promising to deliver everything they want - including directly confronting labor unions on a variety of contentious issues, as many business and Republican leaders have long advocated.
For example, although he’s seeking $180 million in concessions from state workers, Snyder says he has no intention of trying to strip them of their collective bargaining rights, as Wisconsin Gov. Scott Walker has proposed in his state - sparking well-publicized protests.
“That’s not Michigan,” Snyder says. “We’re going to succeed on our agenda, which is about getting people to work together and understand there’s common ground and we can solve problems together and succeed together.”
Snyder also is not pushing other hot-button labor issues, such as making Michigan a right-to-work state or banning project labor agreements (PLAs) on public construction projects. ABC of Michigan, which represents mostly nonunionized construction firms, is pushing hard to end PLAs, which require all contractors - unionized or not - bidding on a public building project to abide by collective bargaining agreements.
“I don’t put them on my agenda, because there are so many other things that we need to work on that I think can make a fundamental difference, and those include what we’ve been talking about - this budget and tax reform,” Snyder says. “In the State of the State address, we had a number of things that we had to address that are going through the legislative process right now - funding Pure Michigan, -¦ putting in the MAEP program - the Michigan Agriculture Environmental Assurance Program - that helps deal with the regulatory environment and encourages best practice. So there are a number of things there. And in March we’re doing government reform, and April is education reform. We have a very full agenda.”
When asked if he would sign bills addressing right to work or PLAs that could possibly emerge from the Republican-controlled Legislature, Snyder replied, “I don’t do hypotheticals.”
Ballard says it will be interesting to see Snyder’s response if contentious anti-labor legislation does land on his desk. But for now, Snyder is wise “to pick his battles,” Ballard says. “The kind of notoriety that Wisconsin is getting is not the type of notoriety I would like my state to get.”
Snyder is tackling one issue near the top of the business community’s wish list: regulatory reform. In February, Snyder announced that he was reorganizing the Department of Energy, Labor and Economic Growth with the aim of reforming the state’s regulatory process. The department’s new name is the Department of Licensing and Regulatory Affairs, and within it is an Office of Regulatory Reinvention responsible for reviewing and changing the state’s rulemaking system.
“If you look at it, I believe we’ve had too much of the attitude out of Lansing and other places in government that people are bad and should be controlled,” Snyder says. “It’s been more of a way to raise revenue or punish people instead of a way to help people succeed. I want to change that culture and that attitude to say how can we help people to succeed while still performing our fiduciary duty of providing good standards for how things get done.”
Another break from the past is how the state will approach economic development under the Snyder administration. Rather than going hunting for out-of-state companies and trying to lure them here through various incentives, the Michigan Economic Development Corp. will now focus on “economic gardening,” which involves nurturing small but growing Michigan-based businesses.
“My view of it is that gardening’s the biggest piece of our comeback, because it’s Michiganders creating growing companies right here in the near term,” Snyder says. “My view is what are the best ways to bring companies in from out of state? It’s not some ad, it’s not some incentive, but having companies here doing really well. It’s that word-of-mouth. And that will come over time as Michigan companies are flourishing and people will say, ‘Hey, this is a great place to do business.'”
Snyder says the state is not totally abandoning its hunting efforts, however. “If there’s a good opportunity because of our strength in automotive or manufacturing, yeah, we’ll look to bring those companies in,” he says. “But let’s not do it based on buying them into our state. It’ll be because we have the best talent and we have the best infrastructure and supply base.
“You add all those up, and that’s good gardening,” Snyder continues. “The nice part is that I did that for a living, so it’s not a hypothetical. I mean, really, being a venture capitalist in Michigan for a number of years gave me a pretty good background on what it takes to make a company succeed, because we had some very good successes.”
SBAM’s Fowler, an advocate of economic gardening, agrees that the key is for Michigan to be a good place to do business.
“The economic gardening metaphor works because small business success depends on having good ‘soil,'” he says. “Our premise starts that Michigan first has to develop a more competitive business climate.”
Whatever Michigan’s economic future, manufacturing is sure to be part of it, Snyder says.
“I don’t want to walk away from it at all,” he says. “I want to embrace it. We just need to keep continuing to add to it, because it’s a good foundation. One of the things that’s interesting is that we’ve got several other major industries - tourism is very large. That’s part of the reason to support Pure Michigan in the way we are. And in a lot of ways, our agriculture industry has gotten overlooked. It’s been one of our true success stories over the last decade or so.
“But a lot of it comes back to entrepreneurship and innovation. It’s not picking one industry. It’s just encouraging people to be innovative. The key to Michigan’s comeback is making us truly a place of innovation, and we’re on a path to do that.”
One innovation that Snyder is bringing to state government is his Michigan Dashboard, a website that sets 21 measures of how the state is performing in such broad areas as the economy, health and education, public safety and quality of life. The dashboard’s purpose, Snyder says, is to hold public officials accountable.
“Accountability, transparency, openness is all good stuff to me. It gives you a way to celebrate some success. It’s basic management,” says Snyder, who worked as a venture capitalist in Michigan after a prominent career at Gateway Computers. “People looked surprised when I came up with the dashboard for government. Well, in business, how long have people been using the dashboard concept? It’s been decades. The ironic part is that this should have come to government a long time ago. It’s way overdue.”
A couple of months into the job, Snyder says he has unearthed few surprises about the state’s fiscal shape. He says the challenge before him is pretty much what he expected.
“I knew this would be a difficult position, and that’s one reason I wanted the position,” he says. “My problem was there were a lot of tough issues that needed to be addressed, and I had a difficult time seeing a career politician taking on these issues. Fixing Michigan is not good enough. We need to reinvent Michigan.”
Snyder says he can’t put a timetable on how long the reinvention will take or when it will begin to return results, but he senses the state has already created some positive momentum.
“We’re creating a really competitive, exciting place to be for businesses by this tax reform, this budget reform -¦ all these other economic development activities,” he says. “It’s really going to make Michigan a great, exciting place to be.”
A first step is to change Michigan’s national image, he says.
“One of the challenges is -¦ Michigan wasn’t getting much attention nationally. We were sort of viewed as the place that was down in the dumps,” Snyder says. “And we need to change that and turn it around and say we’re the value place, because we’ve gone through these difficult times. If you look at our home prices, our real estate prices, if you look at the quality of talent we have in relationship to our wage costs -¦ if you look at our government structure with these reforms, this is going to be a great environment to come do business in Michigan.
“That’s exciting, and it will be a gradual thing. I think some of it is already starting, and I think it will reach inflection points where it will really take off,” Snyder says. “But the positive path has already begun, I believe. That’s what helped get me elected. I think people looked at that and said it’s time for a new way of doing things. We’ve got to get out of the rearview-mirror mode and move into forward gear.”