Opinion: Whitmer must chart a clear path to recovery
As governor, Rick Snyder took years to restore the Michigan economy, with new jobs, capital investment and fiscal responsibility for our state’s finances. Gov. Gretchen Whitmer is now faced with decisions that gravely threaten our hard-fought momentum. The pandemic is not her fault, yet the fortitude to be responsible and strategic in repositioning our economy rests at her doorstep.
The state faces $1-4 billion in budget deficits this year as income, sales, property and casino taxes are significantly down and unemployment is at all-time highs. As state funds dissipate, the unemployed are facing no benefits in upcoming months. The Michigan Strategic Fund, which depends on casino taxes to seed economic stimulus, has seen almost no tax dollars in March and April.
There is no money tree in Lansing. The future ability of the state government to stimulate the economy with cash collateral support and economic development loans to assist Michigan businesses is becoming exhausted.
Small business owners and entrepreneurs fuel our economy. Yet, the heartland of America is told to stay home. In Owosso, Karl Manke has sought to work and pay his bills in light of no government subsidies. The local militia showed up to support his interests and those of hope, industriousness and self-reliance in the face of desperation.
This demonstration was over the right to give a haircut. What happens when people can’t pay for food, shelter and other basic needs? In Lansing, the exercise over “the data” which is undescribed, with no key metric demonstrating next steps, is destructive.
The goal posts have moved from flattening the curve to finding a cure. Uncertainty lowers the value of everything. There seems to be no sense of responsible and thoughtful urgency. The impact for business is dire:
►Automotive manufacturing plants can’t operate profitably at 50-70% capacity. They face an inability to profitably perform on contracts and potentially face massive lawsuits for nonperformance.
►Restaurants require at least 80% capacity to be profitable. To think a restaurant will operate at 25% capacity is a directive formulated by someone that has never run a business.
►Hotels need 60-65% occupancy to make money. Many have been at an unsustainable 0-10%. Hotels in Northern Michigan operate hand to mouth at 50-55% levels because of the short season. Taking away the robust summer months will bring ominous consequences for tourism.
Unlike the home mortgage crisis and auto industry collapse, this pandemic does not discriminate by industry. All are being severely impacted. Consequently, the reform required will start with federal regulations governing our capital markets. While those agencies gave financial institutions the ability to grant forbearance on principal payments up to six months in March, most banks only granted three months relief. By mid-June, companies will have more losses, need more working capital and have eroded receivables from which to borrow. It is a recipe for further slowing economic recovery, bankruptcies and going out of business sales.
An economic restart is complicated and the longer we wait, the more expensive it will become — if it succeeds at all. The economy doesn’t turn on like a light. As unemployment benefits end and consumer confidence further declines, will anyone buy cars or homes? Some estimate at least 50 major retailers will soon reorganize, creating a wave of unpaid creditors and employment loss. Sixty percent of America’s malls could shutter bringing commercial mortgage failures. The capital markets may crumble due to their instability, even with negative interest rates.
We are fast approaching a point of no return. The governor must put forth a path for recovery that more effectively and swiftly puts our economy back in motion. Michigan residents deserve hope and future prosperity for our children. We simply cannot afford failure.
Pat O’Keefe is founder and CEO of O’Keefe Consulting, a Bloomfield Hills-based restructuring firm.