Analysis of Current Michigan Public Policy, written by Dr. Timothy Nash and Dr. Keith A. Pretty for the Ash Institute at Harvard University.

Dear Readers,

Below you will find some interesting solutions for troubled state economies like Michigan. Your thoughts and input and welcome and appreciated,

Published by the Harvard Kennedy School, Ash Institute for Democratic Governance and Innovation

November 16, 2009

The following is a public policy position paper on the Michigan economy written for the
Ash Institute at Harvard University. This is one in a series of papers published by the Ash
Institute regarding potential public policy solutions to the economic and political problems
facing key states across the country.

Analysis of Current Michigan Public Policy

By Timothy G. Nash and Keith A. Pretty

Introduction

As of October, 2009, Michigan had a projected budget shortfall of $2.8 billion for the
current fiscal year. In recent history, the governor and Michigan legislature have used tax
increases and service cuts as the primary approach for putting its fiscal house in order. The
following are five policy suggestions Michigan’s political leaders should consider to help
the state become more efficient and more effective.

Five Policy Suggestions

1. The tax structure in Michigan is not friendly to business and must change.
According to the Public Policy Institute of New York, Michigan ranks 48 out of 50 states in
terms of its corporate tax burden. Michigan needs to reduce its top marginal corporate
income tax rate from 9.01% to 5% or less and eliminate the 22% surcharge on the
Michigan business tax.

2. Michigan has the highest unemployment rate in the country at 15.2% and was
ranked last in economic performance by the American Legislative Exchange Council for
2009. Michigan needs to encourage labor policy that gives those employed the right to
decide whether to financially support or join a union while giving employers more freedom
to hire employees that best fit their needs. This is imperative given Michigan has lost more
than 750,000 jobs since 2000 and needs to create a more entrepreneur friendly
environment.

3. The state has 637,000 people holding public sector jobs making government the
largest single source of employment in Michigan. The Michigan economy will lose more
than 291,000 jobs in 2009 with most coming from the private sector. A 10% reduction in
public sector jobs would fuel increased innovation in government while providing
substantial cost savings to the state economy.

4. The Detroit Regional Chamber of Commerce has argued for more than a year that
the Michigan state government can realize more than $800 million dollars in savings
annually by a) privatizing prison functions like food services and b) normalizing
sentencing and parole guidelines to those of other Midwest states.

5. Change the retirement system for Michigan K‐12 public school teachers from a
defined benefit plan to a defined contribution plan. Under such a system the state would
match teachers’contributions at a set rate with the pensions owned and controlled by the
teachers and managed by a private company. Over time, the state would exit the pension
business for teachers and not have to back-fund the pension program.

Conclusion

Given the ongoing fiscal crunch facing state and local government, innovative practices
must be part of the solution. Michigan House Speaker Andy Dillon’s proposal to pool health
care for all state employees is a good start. The five reforms outlined above would serve as
a strong foundation for a state government that makes the most of its limited tax dollars.


Dr. Keith A. Pretty is president and CEO of Northwood University and Dr. Timothy G, Nash
is a vice president and holds the Fry Chair in Free Market Economics at Northwood
University.

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