Howes: Strong economy poses risks for next governor -- whoever it is
Michigan’s next governor will inherit something the state’s last three CEOs didn’t — the strongest economy in close to 50 years.
Job creation is up, unemployment is plumbing record lows and per-capita income is rising. State tax policy is once again deemed competitive. And for the first time in decades, Detroit is on generally solid financial footing, attracting billions in private capital and fundamentally changing the narrative of America's poorest major city.
The challenge for Gov. Rick Snyder’s successor: don’t screw it up. Whatever you think of the Republican incumbent, he used the lessons of the "Lost Decade" over the past eight years to assemble a record of disciplined financial management and pragmatic problem-solving that reassured business and often transcended the partisan divide in a hyper-partisan era.
With the notable exception of the Flint water crisis, Michigan is on sounder economic ground than any time in at least a generation. Its auto industry is restructured and, for now, profitable. Its tech sector is growing. And its metrics of performance are consistently improving instead of declining as they did in the run-up to the Great Recession.
If history is any guide — and it usually is in this state — the most likely outcome of Tuesday's election won't so much mean more of the same, even if Republican Bill Schuette proves the polls wrong and wins. It'll be what Business Leaders for Michigan's CEO, Doug Rothwell, calls the state's "consistent inconsistency" on the priorities and policy-making that impact investment, growth and job creation.
Meaning that whenever the out-of-power party regains the governor's office, control of the Legislature or both, Michigan's political tradition pretty much ensures that tax, spending and economic development policies are overturned summarily, whipsawing business by rewarding friends and punishing enemies. It's not helpful.
"The Lost Decade was not an accident," said Patrick Anderson, CEO of the East Lansing-based Anderson Economic Group. "We lost that decade. It was a self-inflicted wound. It wasn't just bad conditions. It was bad management."
His counsel for whoever succeeds Snyder: first, do not undermine the dramatic improvement in Michigan's business-tax climate, now ranked in the top 10 nationwide. Second, do not succumb to the budget brinksmanship of the Granholm years, including the occasional middle-of-the-night tax increase. And keep the momentum going on Detroit.
"Don't fall back into the old, poisonous ways," Anderson added. "Then we're going to be signaling that we're slipping back into the kind of incompetence and self-defeating activity that marred some of Michigan during the Lost Decade."
Detroit is undergoing an unmistakable rebound. Credit the city’s Chapter 9 bankruptcy, which Snyder ordered. Credit business and political leaders in both parties who coalesced behind an agenda of reinvention. Credit private capital driving the resurgence — billions of dollars invested in the old bones of downtown and Midtown under a pragmatic mayor who understands business as well as politics.
And that’s precisely the balance Schuette or Democrat Gretchen Whitmer should emulate upon taking office. They can either build on the bipartisan economic consensus crafted by business, by philanthropy, by Snyder and Mike Duggan — two comparatively nominal partisans with a bias for focusing on what works.
Or the next governor can muck up Michigan's mojo and alienate half the state and much of the business community by reversing reforms to reward their favorite constituencies and score ideological points, whatever the dollars-and-cents impact to Michigan's budget and business climate.
Case in point: Whitmer and fellow Democrats running for legislative seats vow to repeal the state's right-to-work law, to repeal the so-called "pension tax" levied on defined-benefit payouts of public-sector retirees, to reinstate the Prevailing Wage Law. And Schuette promises yet another tax cut, even as Michigan's roads crumble and education funding mostly flatlines.
An alternative favored by some of the state's leading business groups is to continue practicing the fiscal discipline favored by Michigan's current CEO-turned-governor. To continue paying down long-term debt; to continue delivering balanced budgets on time and without drama; to maximize the tax base without discouraging investment.
"That positive flywheel is working," said Sandy Baruah, CEO of the Detroit Regional Chamber. "We certainly don't want that tinkered with."
And continue to avoid the Trump-era polarization defining politics in too many parts of the country. Snyder eschewed such extreme partisanship, preferring to practice a "relentless positive action" that enabled big things (see the Detroit bankruptcy) considered too hard to tackle.
Michigan's next governor should take care to avoid breaking what's already fixed. The second half of the past 16 years proved two things: that governors don't cause macro-economic recessions, and that undisciplined, anti-business financial management at the state level tends to make the predicament worse.
Business cycles don't conform to electoral cycles, as Granholm could attest. Her successor's tenure coincided with the longest year-over-year sales and profit expansion for the Detroit auto industry since the 1960s, as well as the longest national economic recovery the country has seen in decades.
Snyder's successor may not be so fortunate. Even as it reported surprisingly strong third-quarter results, General Motors Co. last week confirmed plans to offer buyouts to 18,000 salaried employees and signaled that rising interest rates and trade uncertainty are combining to create an industry slowdown.
Ford Motor Co. is deep in a global restructuring that is expected to claim a slice of its global salaried workforce. As the Federal Reserve continues to raise rates, equity markets are telegraphing uncertainty and worries that corporate earnings mostly have nowhere to go but down.
Major challenges loom for the state. The educational attainment of its public school students is a national embarrassment, worsening as most other states improve. Repairs to its roads and transportation infrastructure are desperately needed, but the legislators in the state that put America on wheels can't — won't — figure out how to pay for it.
Making headway on those and other serious issues won't be accomplished unilaterally, no matter who prevails in this election. It'll take consensus and a lot less worrying about who gets the credit.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.