Howes: Cracks, risks loom for Michigan and Detroit revival
As Gov.-elect Gretchen Whitmer prepares to take office Jan. 1, a new pair of reports is implicitly giving her a tough assignment: do what you can to keep the economic momentum going.
In its latest "Economic Competitiveness Benchmarking Report," Business Leaders for Michigan says the state continues to "make up ground since the Great Recession, but has a lot further to go." The state's tax climate ranks among the nation's best. It's a national leader in exports and research and development, but its infrastructure and ability to keep and attract talent badly lag Top 10 states.
And Moody's Investors Service is offering a bracing assessment of Detroit's reinvention, concluding that all's not rosy in America's self-described comeback town. It predicts that downtown redevelopment will continue to drive the city's recovery, but not enough to stem overall population loss or to strengthen a tax base needed to support looming debt and pension obligations.
The message is unambiguous: eight years of recovery, a restructured auto industry earning solid profits and billions in private capital invested in the city are necessary to fuel revival. But they're not enough to reverse entirely a decline of roughly 50 years in the making, or to shield the archetype of the industrial heartland from the vagaries of the national economy.
The cold-eyed assessments offered by Moody's and Business Leaders should serve as economic road maps for the new governor, her still-to-be-named economic team and the Republican-controlled Legislature. "Our state faces two great risks right now," Business Leaders CEO Doug Rothwell said in a statement, "inconsistency and complacency."
Both are potentially dangerous to the arc of revival. Especially dangerous is the kind of complacency that assumes consistently good times are the new normal; that restructuring in bankruptcy ensures there will be no more of it; that a half century of decline, marked by disinvestment, deindustrialization and spasms of political corruption, don't have legacies of their own.
They do. As politically tempting as it may be for a Democratic governor-elect to downplay, even overturn, the economic policies of her Republican predecessor, the simple fact is that both Detroit and Michigan are more competitive for jobs-creating investment than they were in 2010. But risks remain, embedded in numbers often too arcane for the average person.
"Detroit is left with a combustible brew: a reliance on volatile revenue sources and growing fixed costs," Moody's said. "Property taxes, which are more stable and generated throughout the city, are recovering very slowly as the property tax base remains weak."
Population in the seven square miles encompassing downtown is up 28 percent, or roughly 9,000 residents, since 2010, and per-capita income in rising in that same quarter. But "the current pace of growth in downtown is not sufficient to stem the overall citywide population decline," Moody's said.
The city's historic bankruptcy, the largest Chapter 9 case in American history, eased substantially Detroit's municipal debt burden and reduced its fixed costs. But because the city's property values and taxes collected from them are recovering slowly, nearly 60 percent of its revenue comes from city income taxes, wagering taxes and state revenue sharing.
"While the income tax allows the city to generate revenue from an affluent population of commuters working in the city, it also leaves the city vulnerable to economic cycles — a risk heightened by the city's close ties to the persistently volatile automotive sector," Moody's said. "Property taxes, the bedrock of stability for many local governments, comprise less than 20 percent of the city's revenue base."
Across Michigan, Business Leaders found, Michigan's unemployment rate still lags the average of both its peer states and "Top 10" states. Per-capita income is growing, but it tracks below peer states and Top 10 states. Population has stabilized, following the exodus of the "Lost Decade," but peers and Top 10 states are growing faster.
Weighing on the state are talent, educational performance and the sorry state of Michigan's infrastructure — "Fix the damn roads," as Whitmer reminded pretty much daily from the campaign trail. And all of those impact the state's ability to attract job-creating investment.
New leadership in the governor's office, and in the GOP-controlled Legislature, ignores the warnings from Moody's and the CEO group at their peril. Competing states and rival cities aren't standing still. Michigan and its largest city shouldn't, either, because both have something to prove.
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.