Enough is Enough: Business Tax Cuts Fail to Grow Michigan’s Economy, Hurt Budget

| Executive Summary

Cutting business taxes has not been an effective way to grow jobs and the Michigan economy as promised. This is particularly true when combined with increased taxes on individuals, disproportionately affecting low- and middle-income people and families. In 2011, the Legislature and governor gave businesses a generous $1.6 billion tax cut by repealing a business tax paid by all types of businesses and levied on gross receipts and income, and replacing it with a flat 6% income tax on C Corporations. At the same time, the state raised taxes on individuals by about $1.4 billion. Instead of business tax cuts, we need investments in education, transportation and infrastructure, local communities and job training to create an economy that works for all in Michigan. The current road funding dispute and other budget dilemmas were caused by these business tax cuts, and Michigan has not reaped any economic rewards from them.

Unique Situation in Michigan—Recovery Not Tied to Business Tax Cuts

With a decade-long downturn that began well before all other states, Michigan lost approximately 850,000 total jobs, saw personal income decline and poverty increase. Since coming out of the Great Recession, all states, including Michigan, have seen their economies improve and job growth return. However, although Michigan has returned to pre-2008 job levels, it has not recovered to its peak, and the evidence does not support that the business tax cuts in 2011 facilitated economic growth. In fact, a leading economist at the University of Michigan maintains that the improvement in the job market can almost entirely be attributed to the effects of a national recovery and the improvement of the auto industry.1 Following the Great Recession, Michigan’s employment rebounded sharply but has grown at about the same rate as national employment since 2012, which is when the business tax cuts took effect. In fact, an argument can be made that the economic recovery—in terms of job creation, employment and personal income growth—would have been faster without cuts to business taxes, which ultimately led to both increased taxes for individuals and steep cuts to public services.


Michigan’s recession was unique, and its recovery has been as well. The nation slipped into a short, eight-month recession in early 2001. While most states recovered after this downturn, the Midwest struggled. Four of the six Midwest states—Illinois, Indiana, Michigan and Ohio—actually had private job figures peak during 2000 rather than late 2007 to early 2008 as most of the nation. However, of these states, Michigan was alone in that it never even partially recovered before bottoming out in 2009.

Coming out of the recession, Michigan’s economy has made strides, as has the rest of the nation. However, no state in the Midwest, even Ohio or Indiana which are considered low-tax states, has recovered faster than Minnesota, a high-tax state. Minnesota’s unemployment rate is the lowest of the region, and its private job growth is the highest. Ohio, which gave major tax breaks to businesses just before the onset of the recession,2 has a lower unemployment rate than the national average but has barely seen any private job growth. The only state in the region to have a higher unemployment rate than Michigan is Illinois. While all Midwest states except Illinois have seen net job growth since the Great Recession, Michigan, along with Ohio and Illinois, has seen net job losses since its 2000 peak. In fact, Michigan is more than 7.5% below its private job peak.

Michigan’s job situation began to turn around in mid-2010 with the improvement of the auto industry aided by federal assistance. Michigan actually saw a few private jobs return in 2010, with 3,900 in private job growth. In 2011, before the business tax cuts occurred, 106,600 jobs were added, the most per year of the recovery. In 2012, the first year that business tax cuts went into effect, only 90,500 jobs were added and even fewer new jobs were added in 2013 and 2014 (86,000 and 73,500, respectively). Over the past year, Michigan businesses reported adding 84,600 jobs,3 but total Michigan private employment is still roughly 7.5% below January 2000. Had the business tax cuts truly spurred job creation in the state, we should have seen more jobs being added in 2012 and 2013. Instead, job growth actually slowed following the tax cuts.

Even with employment increases expected, the unemployment rate is projected to drop mostly due to a shrinking workforce. Michigan’s workforce participation rate, which measures the percentage of working-aged persons who are employed or looking for work, peaked in 2000, and has stagnated around 60-61% since 2011, below the national average. As of July 2015, Michigan ranked 40th in the nation. Also of concern is long-term unemployment, with Michigan’s unemployed workers being out of a job for approximately 37 weeks on average in 2014. And Michigan’s labor underutilization rate was 13.9% in 2014, the 5th highest in the nation. This includes the total unemployed, those who are not looking because they believe there are no jobs, those that want a job but have not looked in four weeks for any reason, such as lack of transportation, and those employed part-time for economic reasons. The evidence does not suggest that implementing cuts for businesses has improved the job market in Michigan.

Michigan’s per capita income, another indicator of economic recovery, while growing, has lagged behind both the U.S. and regional averages. In 2014, Michigan’s per capita income level was $40,740, 11.5% lower than the U.S. average and 5.9% lower than the average for the Great Lakes Region, which includes Michigan, Ohio, Indiana, Illinois and Wisconsin. The gap between Michigan and the national average has been relatively stable since 2007, varying only a little over a percentage point during that time frame. When Minnesota is included in this region, the gap between Michigan and the regional average grows to 7.1%. Michigan’s per capita personal income ranking was 38th in 2010, improved to 36th in 2011, and then slightly worsened to 38th in 2012, after the business tax cuts occurred. But overall, our ranking has been relatively stagnant.4 The last time Michigan ranked better than 30th in per capita personal income was over a decade ago.

Even more startling is wage growth, where Michigan is also failing. Between 2011, the last year of the MBT, and 2012, the first year of the CIT, the average weekly wage of an employee of a private employer grew by just over 2%. This was the slowest growing state in this period in the region. In comparison, Minnesota’s average weekly wage grew by almost 3.5%. The rate of wage growth beginning with the period just prior to the enactment of cuts to business taxes through 2014 shows Michigan is one of the slowest growing states in the Midwest, tied with Indiana.

Increased Demand, Not Increased Profits, Create Jobs

Michigan’s business tax cuts have not produced the promised jobs. Signing the new law in 2011, Gov. Rick Snyder stated, “…the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”5 Theoretically, in the majority of policymakers’ perspectives, cutting taxes would attract new businesses to create jobs in the state and put more money in the hands of current Michigan employers to enable them to hire additional workers. Indeed, many state business climate rankings seem to argue that low tax burdens make the state more attractive to job creators.6

In actuality, businesses do not hire or expand unless there is an increased demand for their goods or services. According to the Congressional Budget Office, a nonpartisan policy agency for Congress, increasing after-tax income of businesses in the form of tax cuts does not create an incentive to hire or produce more, because adding more goods and services depends on their ability to sell them.7 A company will not need additional workers if there is not a need for more of its goods or services. Instead, those extra profits are pocketed.

In the most recent Michigan Future Business Index, a survey of small- to medium-sized business owners in Michigan, the number of respondents hiring more individuals follows more closely along with the number expecting increased sales than with those expecting increased profits. This correlation is even stronger when looking at the years immediately following the enactment of the Corporate Income Tax. Therefore, we can see that anticipated increases in sales do more to drive business hiring practices than profits, which have been helped by recent business tax cuts.

Michigan’s New Job Market

Prior to the recession, manufacturing jobs related to the auto industry were the largest share of Michigan’s job market. And while manufacturing jobs have made a comeback, accounting for over 35% of the total jobs gained since June 2009, Michigan’s economy needs to diversify. Almost every industry in Michigan has seen growth since the bottom of the recession, with significant gains also in professional and business services, education and healthcare services, and leisure and hospitality, with jobs in the first two sectors anticipated to dominate job growth long term. Low-wage, low-skill jobs are still the predominant employment opportunity for Michigan residents, making up 46% of Michigan’s employment by occupation skill level.8 Middle- to high-skill jobs, which provide the opportunity for higher wages,9 generally require postsecondary education or training, and are being threatened by the state’s lack of a skilled workforce.

Low-Wage Jobs Dominated Post-Recession

Low-wage jobs dominate Michigan’s economy. Currently,10 63% of all Michigan jobs pay less than $20 per hour, which is approximately $40,000 annually for a full-time job.11 It is projected that most new jobs will be in the service industry with wages below $15 an hour and will only require a high school diploma or less.12 Additionally, it is estimated that new hire wages were approximately half of what incumbent workers made between 2002 and 2014,13 which makes it even harder for new employees in low- to mid-wage jobs to make enough to meet basic needs.

Over the past 35 years, wages for low- and middle-income workers have dropped significantly. From 1979 to 2013, real hourly wages for low-income workers fell by 13.4% and 12.7% for mid-wage workers.14 When compared to other Midwest states, Michigan’s wages fell the most (12.7%). Minnesota, considered a high-tax state, experienced an increase of 11% and Indiana, a low-tax state, had an almost 1% decrease in real median wages over the same time period.15

Many families are struggling to make ends meet because of low wages. The continued upsurge in these types of jobs will not benefit the state economy. The most recent U.S. Census data show that from 2009 to 2013, the share of households making less than $10,000 a year grew the fastest. Very simply, when wages are low, workers are unable to meet basic needs, let alone save, often leaving them one financial emergency away from slipping into poverty, which harms the economy.

Talent Disconnect Hurts Growth

Higher wage, higher skill jobs, including jobs in the fast-growing high-tech area, are left unfilled in Michigan due to a talent or skills gap. These are the types of jobs that once supported the middle class; however, they require education and training beyond a high school diploma. A recent report determined that the metro Detroit area has jobs for these middle-skilled employees but many go unfilled for weeks or months due to the lack of a skilled workforce, which needs to be changed in order to grow our economy.16

In Michigan, about 1 in 3 people are employed in a middleskill job. An analysis of projections from the Economic Modeling Specialists International shows that demand in Michigan for jobs in the health profession is expected, with nurses, medical secretaries, dental hygienists, paramedics and lab technicians topping the list.17 Generally, these jobs pay between $30,000 and $80,000.18 Although a bachelor’s degree may not be necessary for these positions, additional training and education beyond high school, such as an associate’s degree or certification, are required. A recent study determined that by 2020, 70% of jobs in Michigan will require some postsecondary education, with 37% of these in “middle skills.”19

Jobs in Michigan’s high-tech fields have grown in every year since the end of the recession, at times faster than nationwide. A now rebounding industry, manufacturers are creating high-tech jobs that also require more than a high school diploma. In 2014, automotive manufacturing contributed the most jobs in high-tech employment followed by engineering and other consulting services.20 Wages for high-tech jobs average around $82,180 in Michigan21 and all will require workers to obtain more than a high school diploma—at least a bachelor’s degree in some cases.

Michigan’s workforce, however, is lagging behind other states in educational attainment, creating a drain on economic growth both in terms of business expansion leading to new hires and in companies’ ability to fill current and future openings. Former president and COO of Alro Steel Corp., Mark Alyea, cites the lack of skilled workers as the reason their manufacturing customers are limited in growth and also why the state has been unable to raise per capita income.22

Compared with other states considered to have low business taxes, such as Indiana and Ohio, Michigan has about the same percentage of its population 25 years or older with postsecondary education. However, when compared with Minnesota, a high-tax state with low unemployment and high per capita income, there is a significant difference in educational attainment. In 2013, Minnesota spent about $242 per capita on higher education while Michigan spent only $172 per capita.23 Minnesota’s decision to invest in higher education and retain those graduates has clearly helped grow its skilled workforce, and fill and grow jobs in a knowledge-based economy. It is this workforce investment that helped Minnesota secure the No. 1 slot in a recent state economic climate scorecard.24

There is a talent disconnect in our state resulting from a lack of education attainment: 16% of small- and mid-sized Michigan businesses recently surveyed reported that this is their No. 1 concern, 64% say they have had difficulty filling open positions, and 69% of those hiring say there are not enough qualified applicants.25 For the first time since the start of the survey in 2006, there were more negative responses than positive when asked to rate access to qualified personnel. This has been a significant concern for the past few surveys. In a survey from a year earlier, one business owner responded that “Michigan has systematically underfunded schools, municipalities and infrastructure to the point that young people and talented people are unlikely to make Michigan their first choice to live and locate their families.”26 This lack of skilled talent contributes to the drag on our economic recovery.

Business Tax Cuts Hurt Roads, Schools, Communities and Michiganians

When the governor and Legislature reduced taxes on businesses, it created a significant hole in the state budget. Some of this lost state revenue was replaced by increasing taxes on individuals; however, not all of it was recovered which led to cuts in other programs and services for people. Cutting business taxes through the repeal of the Michigan Business Tax and phase-out of the Personal Property Tax left fewer funds available for Michigan to invest in our people through education, transportation and public safety, stunting economic growth and recovery from the Great Recession.

While businesses benefit from state investments in schools, roads and local services, the share contributed by businesses to support these programs has dropped significantly. Historically, under the Single Business Tax (SBT) business tax revenue as a proportion of General Fund dollars varied from a low of 14% to a high of 26%.27 Likewise, the short-lived Michigan Business Tax (MBT) made up between 15% and 19% of GF/GP funds.28 It is estimated that the new Corporate Income Tax (CIT) will only contribute around 10% to 11% of GF/GP revenues.29 Since Fiscal Year 2010, the amount of net business taxes going to state General Funds has been cut nearly in half. Cutting business taxes may have cushioned profits, but it resulted in disinvestment in the resource that businesses rely most upon: people.

There have been many disputes over whether Michigan has cut funding for education; however, there have been significant disinvestments in K-12 education which are only exacerbated by the business tax cut. The MBT contained a $600 million School Aid Fund earmark that dedicated business tax revenue to schools and the CIT did not carry it forward; without the business tax cut, the School Aid Fund would have had more to spend on educating students. Per-pupil K-12 spending declined significantly following cuts to taxes for businesses. Per-pupil spending through the foundation allowance, the largest unrestricted funding source for school districts, in 2011 was $7,146 dropping to $6,846 in 2012, and has slowly climbed.30 It took seven years for per-pupil funding to fully rebound as it will finally be above the 2009 peak in 2016.

Compared with other states, Michigan ranked 13th worst in the country for the amount of spending per student that decreased over Fiscal Year 2008 to Fiscal Year 2015.31 Minnesota, the Midwest state that has experienced the most job growth and lowest unemployment rate over the same time period, has invested the most in education in the region and is 4th best in the country in terms of dollar increases.

There have been clear consequences from Michigan’s decision not to invest more in education. Schools have been forced to cut spending on programs that are beneficial to student learning, reducing the number of teachers and support staff, thereby increasing classroom sizes and inhibiting student progress. Nationally, Michigan students are falling behind their peers in math, reading and science—the core areas needed by employers to fill jobs and grow their businesses in a global economy.32

As much as people do, Michigan businesses also rely on the state’s roads as a way to transport their goods. According to a national report on Michigan’s roads, in 2009, trucking accounted for 67% of the freight tonnage moved while rail (19%), water (14%) and air (<1%) were used much less.33 Michigan is at the bottom of the Midwest states in per capita spending on roads, making road conditions unsafe, causing unnecessary damage and wasting fuel. Michigan lawmakers have struggled for the last decade to solve the transportation funding shortage. Business tax cuts have only added to the problem. Good, safe roads are critical to helping people get to work, children to school and products delivered. Increased revenue—rather than cutting revenue—is needed, because one-time funding solutions are not working.

Also suffering from a lack of state revenue and investment are Michigan’s local communities. Over the last 15 years, statutory revenue sharing to Michigan’s cities, villages and townships has declined from over $600 million annually to approximately $250 million.34 Counties have experienced reductions in state aid in recent years as well. These revenues are used to support local services, such as public safety, water and sewers, and roads. The last year Michigan fully funded statutory revenue sharing was budget year 2001. The Legislature’s constant diversion of revenue sharing to fill the state’s budget holes has caused local governments to postpone capital projects, scale back or eliminate recreational and library programs, and significantly reduce police and fire protection.

An educated workforce, good roads and local services are things that businesses rely upon to not only be successful and grow, but also in deciding where to locate. Michigan lawmakers may believe that providing tax cuts to businesses is the only incentive needed; however, without an investment in its people and communities, the state will continue to experience slower economic growth.

Increased Taxes and Poverty for the Rest

In their effort to promote business growth and job creation, Michigan lawmakers and the governor significantly shifted taxes to individuals. In 2011, taxes on individuals were increased by 23%, or $1.4 billion, while taxes for businesses were cut by 83%, or $1.6 billion. Several tax credits that were intended to provide tax relief for Michigan’s lowest earners were either reduced or eliminated. These tax increases on people came at a time of high poverty, high unemployment rates and a still recovering economy, making it even more difficult for people to make ends meet.

In general, most people believe that low- and middle-income people should not have to pay more of their income in taxes than others. However, the tax increases in Michigan have disproportionately harmed low- and middle-income people. With the changes fully implemented, the lowest income taxpayers (annual incomes under $19,000) experience the largest tax increases: 1% of their incomes; top earners (annual incomes $392,000 or more) experience no increase.35

With high poverty and unemployment levels, families were already struggling before their taxes were increased to benefit businesses. Poverty remains high in Michigan with nearly 1 in 6 living below the poverty level ($24,000 a year for a family of four). Deep spending cuts over the last decade, exacerbated by decisions to cut taxes for businesses, have taken a toll on the people in this state who need the most help. Since 2011, significant policy changes to public assistance ranging from implementing lifetime limits and asset limits to creating bureaucratic barriers to receive aid have reduced caseloads, but not poverty.

In the most recent Kids Count Data Book, Michigan falls behind all other Midwest states on child well-being; Minnesota is ranked first in the nation while Michigan’s overall rank is 33rd. In 2013, 1 in 4 Michigan children lived in poverty, and 1 in 3 children lived in a household where neither parent held a full-time job or they were forced to piece together part-time jobs that do not provide stable employment.36 Research shows that reducing income for already struggling families can have a particularly negative effect on children related to their educational attainment, future earnings and health, and thereby driving down economic growth.37

Policymakers in the state have shifted taxes onto working families. They have asked individuals to pay more, businesses to pay less, and have not chosen to use state revenues to invest in people. These decisions have led to families having smaller amounts left of their earnings, causing them to spend less and struggle more, all of which negatively impact the economy. Raising taxes on low earners slows economic growth; for every dollar lost due to a tax increase, total spending drops by about a dollar.38


Michigan has had a much larger climb out of the recession than other states. At its worst, Michigan had the highest unemployment rate in the nation. Michigan has still seen lags in personal income gains and poverty rates stagnated. Tax cuts for businesses have not proven to be a wise investment, especially in a state budget environment with historically low revenues, and have slowed the state’s economic recovery. To restart Michigan’s economic growth, lawmakers should:

Resist the temptation to cut business taxes even further. The recent tax cuts for businesses went too far and have not been the drivers for new job investment. Additionally, as part of the tax shift in 2011, businesses that had entered into agreements to receive generous tax credits for retaining and creating jobs and making capital investments in the state were allowed to keep these agreements. These credits have provided some uncertainty and instability in our budgeting and revenue streams, in terms of both amounts of the credits and when the credits are going to be claimed. While the state is attempting to provide some clarity to these credits and to better estimate revenue losses due to them, these credits will continue to reduce available revenue for investments in things that will grow our economy for decades.

Additional tax cuts would mean less revenue available for the state, which either means increasing taxes on families again or decreasing spending, hindering both the creation of communities that people and businesses want and the development of a workforce that can compete in a global economy. As costs of providing vital state services, such as Medicaid and the Healthy Michigan Plan, grow, lawmakers are already faced with a tight budget situation. Further cuts would only exacerbate that problem. Instead, policy- makers should revisit the 2011 tax shift to ensure the state has enough revenue to invest in Michigan’s priorities.

Explore new avenues for revenue to invest in things that people and businesses value. The state must invest in its people, workforce, infrastructure and communities. If Michigan is to truly recover it needs to become a place where people want to stay, live and raise families. Businesses use these factors much more when determining where to locate as do recent college graduates when determining whether to leave or relocate to a state. To do so will require raising additional state revenue. Options include:

    • Reviewing and eliminating ineffective tax expenditures. A tax expenditure is a broad term for preferential tax treatments, such as credits, deductions and exemptions, that reduce tax revenue. In other words, it is spending through our tax code. In Michigan, tax expenditures cost the state roughly $34-35 billion per year. While some of these continue to suit the purpose for which they were intended, many go unchecked and simply cost the state money. The state already provides a thorough list of tax expenditures, but does not have a process for reviewing these spending measures to ensure that they accomplish set goals.
    • Increasing the Corporate Income Tax rate or expanding the base. Michigan’s Corporate Income Tax (CIT) rate is below the national average and if increased, could help to recover lost revenue that occurred with the change.39 While the move from the Michigan Business Tax to the CIT was to eliminate the “double taxation” of pass-through entities, such as LLCs or partnerships, currently the business income of business entities is taxed at different rates depending on how they are formed. This left a highly volatile revenue stream from business taxes. If the base were broadened, the rate could be lowered and still bring in more revenue.
    • Adopting a fairer income tax structure. Michigan is one of only seven states that still relies on a flat income tax structure, which leaves low- and middle-income families having to pay a greater share of their incomes for taxes than the wealthy. Modernizing the income tax structure to a graduated tax could generate additional revenue and ensure more fairness for all earners.
    • Diversifying our sales tax base. Michigan’s sales tax is levied on the purchase of goods. Economists and policy experts have long argued that as the economy evolves from a goods-based economy to a service-based economy, sales and use taxes should reflect those changes. Otherwise, sales and use tax revenues will be continually reduced because they only capture a shrinking portion of economic activity. In addition, taxing goods and not services creates an unfair advantage for service-based sectors of the economy. Expanding the sales or use tax base to services also makes the tax more progressive because wealthier individuals tend to spend a greater percentage of their income on services.

Restore tax credits that help low- and middle-income people, and the economy. In the great tax shift of 2011, policymakers reduced the Michigan Earned Income Tax Credit (EITC) by 70%, increasing taxes on the workers earning the least in Michigan by $261.6 million. The EITC is one of the most effective ways to support working families and lift them from poverty. The EITC has a two-generation benefit, helping children in these families become healthier, do better and stay longer in school, and earn higher wages in adulthood. Research shows that the budgetary savings from cutting low-income tax credits has significant economic costs, making it more difficult to develop the highly skilled workforce needed in today’s economy. However, lawmakers should not take this recommendation to support a broad based income tax rate reduction. While the EITC provides targeted relief to the working families who need it most, a rate reduction disproportionately benefits those who make the most while hurting Michigan’s budget.

  1. Lester Graham, How much can a governor really affect job creation?, Michigan Radio, October 13, 2014.
  2. In 2005, the Ohio Legislature eliminated its Corporate Income Tax and began to phase out local taxes on business tangible property. These were replaced with a Commercial Activity Tax (CAT) on gross receipts. The CAT has collected approximately half of the revenue of the taxes it replaced. The evidence does not support any economic benefit for the state or individuals. (Michael Mazerov, Cutting State Corporate Income Taxes is Unlikely to Create Many Jobs, Center on Budget and Policy Priorities, September 14, 2010.)
  3. Joint Economic Committee of the United States Congress, Vice Chair, State-By-State Snapshots, October 2015.
  4. Michigan Department of Technology, Management & Budget, Bureau of Labor Market Information & Strategic Initiatives, Michigan Economic and Workforce Indicators and Insights, Summer 2015.
  5. Snyder signs tax reform bills to fuel state’s turnaround, Press Release, Office of Governor Rick Snyder, May 25, 2011.
  6. The Tax Foundation’s 2015 State Business Tax Climate Index looks solely on various tax systems in ranking states. Indiana and Michigan are the two top ranked Midwest states, coming in at 8th and 13th respectively, while Minnesota ranks 47th. (Scott Drenkard, Joseph Henchman, 2015 State Business Tax Climate Index, Tax Foundation, October 28, 2014.) ALEC’s state economic outlook weighs 15 different policy variables equally, but 8 of those 15 deal with taxes or tax changes. For the most recent document, Indiana, a low-tax state, is the top ranked Midwest state at 3rd, and Minnesota comes in at 48th (Michigan at 24th). Interestingly, when looking how states have performed over a 10-year period in terms of GDP, domestic migration, and non-farm payroll, Michigan and Ohio come in 50th and 49th in each ranking over the past 8 editions, while Minnesota has been the top performing Midwest state. (Dr. Arthur B. Laffer, Stephen Moore, Jonathan Williams, Rich States Poor States, American Legislative Exchange Council, April 2015.)
  7. Congressional Budget Office, Options for Responding to Short-Term Economic Weakness, January 2008.
  8. Michigan Department of Technology, Management & Budget, Bureau of Labor Market Information & Strategic Initiatives, Michigan Economic and Workforce Indicators and Insights, Winter 2015.
  9. Michigan residents with postsecondary education or training, such as an associate’s degree, have significantly higher earnings and are less likely to be in poverty. (Peter Ruark, Willing to Work and Ready to Learn: More Adult Education Would Strengthen Michigan’s Economy, Michigan League for Public Policy, March 2015.)
  10. ALICE – Asset Limited, Income Constrained, Employed – Michigan: A Study of Financial Hardship, Michigan Association of United Ways, September 2014.
  11. Ibid
  12. Ibid
  13. Michigan Department of Technology, Management & Budget (Summer 2015), op. cit.
  14. Yannet Lathrop, Labor Day in Michigan Report: Pay Falls for Low-Wage Men yet Women Still Far Behind, Michigan League for Public Policy, August 2014.
  15. Ibid
  16. JPMorgan Chase, Driving Opportunity in Detroit: Building a Middle-Skill Workforce to Strengthen Economic Recovery and Expand the Middle Class, April 2015.
  17. John Wisely, What will the future of Michigan’s job market look like?, Detroit Free Press, October 1, 2014.
  18. According to a recent analysis, over 40% of those employed in a middle-skill job make a median wage of $15 to $19 per hour, and one-third make between $20 and $30 per hour. (Michigan Department of Technology, Management & Budget, Bureau of Labor Market Information & Strategic Initiatives, Michigan Economic and Workforce Indicators and Insights, Winter 2015.)
  19. Anthony P. Carnevale, Nicole Smith and Jeff Strohl, Recovery: Job Growth and Education Requirements through 2020, Georgetown University Center on Education and the Workforce, June 2013.
  20. Michigan Department of Technology, Management & Budget (Summer 2015), op. cit.
  21. Cyberstates 2015: The Definitive State-by-State Analysis of the U.S. Tech Industry, Tech America Foundation, 2015.
  22. John Wisely, op. cit.
  23. Rick Haglund, State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help It Achieve the Best Economy Among Great Lakes States, Michigan Future Inc., June 2014.
  24. “Never since we began rating the states in 2007 has a high-tax, high-wage, union-friendly state made it to the top of our rankings. But Minnesota does so well in so many other areas – like education and quality of life – that its cost disadvantages fade away.” (Scott Cohn, Minnesota is 2015’s Top State for Business, CNBC, June 24, 2015.)
  25. Michigan Future Business Index, Phoenix Innovate, Michigan Business Network, and Accident Fund Insurance Company of America, June 2015.
  26. Michigan Future Business Index, Phoenix Innovate, Michigan Business Network, and Accident Fund Insurance Company of America, June 2014.
  27. Senate Fiscal Agency, General Fund/General Purpose Revenue: FY 1978-79 to Estimated FY 2015-2016, January 16, 2015 Consensus Revenue Estimates,
  28. Ibid
  29. Ibid
  30. Pat Sorenson, Preschool Boosted, Per-Pupil Funding Increased in Education Budgets Signed by Governor, Michigan League for Public Policy, July 23, 2014.
  31. Michael Leachman and Chris Mai, Most States Still Funding Schools Less Than Before the Recession, Center on Budget and Policy Priorities, October 16, 2014.
  32. Based on 2013 National Assessment of Education Progress data on fourth and eighth grade reading, math, and science scores as outlined in Stalled to Soaring: Michigan’s Path to Educational Recovery. 2014 State of Michigan Education Report, The Education Trust-Midwest.
  33. TRIP, Michigan Transportation by the Numbers: Meeting the State’s Need for Safe and Efficient Mobility, January 2014.
  34. Jim Stansell, Revenue Sharing, House Fiscal Agency Budget Background Briefing, October 2014.
  35. Impact of 2011 Personal Income Tax Changes Enacted into Law, if Fully Phased?in for Tax Year 2013, All Michiganders, 2013 income levels, Institute on Taxation and Economic Policy, January 2015. 
  36. Annie E. Casey Foundation, Kids Count 2015 Data Book, August 2015.
  37. Kate W. Strully, David H. Rehkopf, and Ziming Xuan, Effects of Prenatal Poverty on Infant Health: State Earned Income Tax Credits and Birth Weight, American Sociological Review, XX(X)1?29, 2010. 
  38. Nicholas Johnson, Budget Cuts or Tax Increases at the State Level: Which Is Preferable When the Economy Is Weak?, Center on Budget and Policy Priorities,
  39. Andrew Phillips, Caroline Sallee, Katie Ballard, and Daniel Sufrankski, Total State and Local Business Taxes. State-by-State Estimates for Fiscal Year 2013, Council on State Taxation, August 2014.






Enough is Enough: Business Tax Cuts Fail to Grow Michigan’s Economy, Hurt Budget–Executive Summary

| Report

The $1.6 billion tax cut handed out to businesses in 2011 hasn’t grown the economy or created the jobs as promised, and is a significant culprit in the lack of revenue for roads and other state priorities. Instead, Michigan’s residents saw their taxes rise sharply, disproportionately hurting low- to middle-income families and seniors, and Michigan drastically disinvested in its roads, students and communities. Michigan businesses’ contribution to state revenue is estimated to fall by nearly 80% between 2011 and 2016; at the same time Michigan’s reliance on individual income taxes grew by nearly 40%. Meanwhile, a lack of state revenue has debilitated the state’s efforts to find funding for roads. Instead of tax cuts, Michigan needs to make investments in things Michigan residents and businesses value in order to create a Michigan that works for all.

Tax Cuts Hurt the State’s Budget, Roads

When these business tax cuts were enacted in 2011, it left the state without enough revenue to fund its basic needs, even when taking into account the huge tax increase on individuals. Michigan lawmakers have struggled to solve the road funding shortage over the last decade, a problem caused in part by the $1.6 billion drop in business tax revenue. The debate continues over the use of the state’s already-strained General Fund or raising new funds. Per-pupil funding through the foundation allowance, the largest unrestricted funding source for school districts, dropped significantly following the business tax cuts and has taken seven years to fully rebound above its 2009 peak. And Michigan communities have seen statutory revenue sharing cut significantly; cities, villages and townships have seen revenue sharing payments decline from over $600 million to approximately $250 million, and counties have seen reductions in state aid as well.

People Are Not Feeling the Recovery

Simply put, not all Michigan people are feeling the recovery. Michigan’s per capita income has lagged behind the nation and region. Michigan is roughly 12% below the national average, and 7% behind the region, including Minnesota. Additionally, when looking at the period just prior to the enactment of the business tax cuts through 2014, Michigan is one of the slowest growing states in terms of wage growth in the region, tied with Indiana.

Poverty remains high in Michigan. Nearly 1 in 6 Michigan residents, and 1 in 4 children, live below the poverty level ($24,000 a year for a family of four). One in three children lives in a household where neither parent holds a full-time job or is forced to piece together part-time jobs that do not provide stable employment. Reducing income for already struggling families can have adverse effects on children related to educational attainment, future earnings and health, thereby driving down economic growth.

Recovery Not Spurred by Tax Cuts

The jobs Michigan was promised when these business tax cuts passed have never materialized. Private job growth returned in 2010, and had its biggest increase in 2011, before the tax cuts took effect, with growth slowing after the tax cuts were implemented. Following the initial surge, Michigan jobs have grown at about the national rate since 2012. And while Michigan has seen net job growth since the official start of the national Great Recession, Michigan is still roughly 7.5% below its private job peak in 2000.

While the unemployment rate is near the national average, it is still one of the highest rates in the region, and it’s dropping in part because of a shrinking workforce. Michigan’s labor underutilization rate, which essentially includes all of those unemployed and underemployed, for 2014 was the 5th highest in the nation at 13.9% and its labor participation rate continues to remain below the national average.

Where to Go From Here?

The business tax cut “reform” hasn’t worked. In order to enjoy a robust economy and grow jobs, Michigan needs to invest in its people and its communities. To do so, Michigan policymakers should:

Resist the urge to cut business taxes any further. The business tax cuts in 2011, and the ensuing phase out of most personal property taxes, were too deep.

Explore new revenues that will allow the state to make strategic investments in the things people and businesses want. Policymakers could review and eliminate ineffective tax expenditures; revisit the tax shift of 2011 to determine if the Corporate Income Tax rate and base are sufficient; adopt a fairer income tax structure, which could cut taxes on most individual taxpayers and still bring in more revenue; or diversify the sales tax base.

Restore the targeted credits that help low- to middle-income people and the economy. A number of credits were reduced or fully eliminated as part of the 2011 tax shift. These credits are immediately used in the economy, being spent on transportation, childcare or household items. However, this shouldn’t be used as validation for a broad income tax rollback. Overall rate reductions help the wealthy more than lower income taxpayers and simply reduce state revenue that is necessary to pay for our vital services.


Earned Paid Sick Time Benefits Workers, Businesses and Customers

Questions and Answers

What is earned paid sick time?

The earned paid sick time proposal being considered would allow employees to earn 1 hour of paid time off for every 30 hours worked. Persons working for businesses with fewer than 10 employees would be able to take up to 40 hours of paid sick leave in a calendar year while all other employees would be allowed to use up to 72 hours. Leave could be used to take care of an aging parent or spouse, attend to a sick child or family member, or allow an employee to recover from a physical or mental illness, domestic violence, sexual assault or other violent crime.

Who does and does not receive earned paid sick time now?

In Michigan, 47% of private sector workers, or about 1.6 million people, do not have paid sick time, forcing them to work sick or go without pay. Those who do not receive earned paid sick time are disproportionately low income with 70% of workers in the lowest paying jobs not receiving paid sick time. The lack of paid sick time also disproportionately affects people of color who are more likely to be employed in lower paying jobs and less likely to have access to paid sick leave when compared to white workers. Single mothers are also largely at risk of losing out on access to earned paid benefits.

Why isn’t the federal Family and Medical Leave Act (FMLA) enough?

The FMLA provides job protections for many individuals needing long term leaves; however it excludes any worker whose place of employment has fewer than 50 employees, works less than full time, or has been working at their current position for less than one year. This ultimately excludes about 40% of the workforce nationwide from FMLA benefits.

The FMLA does not require employers to provide paid leave, which often forces those who need time off to not take it for fear of financial instability. The U.S. is one of only a few countries with no national policy requiring employers to provide earned paid sick time.

Does earned paid sick time hurt businesses’ bottom line?

Without access to earned paid sick time, workers will often show up to work even when sick. This is counterproductive and costly to businesses. Research shows that offering paid sick days reduces employers’ costs by improving employee retention and lessening the costs of hiring and training new employees.

In places where earned paid sick time has been adopted it has had either positive effects or no effects on workplace productivity.

What other states have laws on earned paid sick time?

Four states, California, Connecticut, Massachusetts and Oregon, have enacted laws addressing earned paid sick time, as well as 19 cities and one county across the United States, including Washington, D.C. These state laws all increase access, but coverage is not always universal. Oakland County is considering an earned paid sick time policy for county employees, and there is legislation in both the state House and Senate to implement earned paid sick time in Michigan. Out of concern that the Legislature won’t act, a statewide campaign is underway to place an earned paid sick time proposal on the ballot in Michigan.

What can I do to promote earned paid sick time in Michigan?

More information on earned paid sick time and the campaign to secure it for all Michigan workers can be found at You can sign up to volunteer and get involved. You can also contact your state legislators and tell them to support earned paid sick time legislation in Michigan (House Bill 4167 and Senate Bill 101).


Survivors of Violence and Sexual Assault Need Earned Paid Sick Time


In the United States, more than 12 million women and men suffer from domestic violence, sexual violence or stalking by intimate partners each year. In Michigan alone, 87,871 domestic violence offenses were reported to Michigan Incident Crime Reporting in 2014.

As we continue to work to reduce domestic, sexual and other violence, we must also look at policies that can help survivors recover and heal physically, mentally, emotionally and financially.

Survivors of domestic violence often cite financial stability as a reason for staying in abusive relationships. When survivors do try to escape an abuser, keeping a job to provide economic independence can be difficult when they need time off to pursue services to relocate or seek medical attention. Low-wage workers disproportionately do not have earned paid sick leave to access these resources and have to choose between putting their lives or their jobs in jeopardy. An earned paid sick leave policy that includes safe time for domestic violence and sexual assault would provide survivors with the economic stability they need to get by.

A Policy Solution that Helps Survivors

Domestic violence survivors often urgently need to take time away from work to seek help and leave their abusive situation. An earned paid sick leave standard that would guarantee job-protected, paid “safe days” would keep survivors who are seeking assistance from having to risk their jobs or financial security.

Michigan’s earned sick leave referendum would allow workers to earn paid sick time at the rate of one hour of paid leave for every 30 hours of paid work. Accrued leave could be used for a worker’s own healthcare needs, to care for a family member’s health, or to seek medical care, victim services, or counseling, or move or take legal action, related to domestic abuse, sexual assault or stalking. Workers in businesses with 10 or more employees could take up to 72 hours of earned sick time in a year; those in smaller firms could use up to 40 hours paid leave and thereafter 32 hours of unpaid leave totaling 72 hours annually.

To stand up for victims of domestic and sexual violence and fight for “safe days” through earned paid sick time, go to



Who pays more? The case for a fairer income tax


A fairer tax system in Michigan could reduce taxes for 95% of filers while bringing in additional revenue to fund our vital services, invest in roads and schools and create an economy that works for all Michigan residents. It’s time for Michigan to join the other 33 states that have a fair income tax structure (some-times called graduated or progressive).

What is a graduated income tax? In a graduated income tax structure, like the federal income tax, those with higher levels of income are taxed at a higher rate and those with lower incomes pay less. Under such a structure, taxpayers in similar economic circumstances pay similar amounts of tax.

Michigan’s Tax System  = Unfair

Michigan currently has a “flat tax” of 4.25%. People say our income tax is “fair” because everyone pays the same percentage of their income. But when coupled with other taxes, such as sales taxes, our tax system unfairly punishes those at lower incomes by making them pay more while those at the top pay less.

Why is the Fair Income Tax Smart?

It could give most people a tax cut while providing additional funding for essential state services.

Cutting taxes for workers with lower incomes helps local businesses as these people spend their tax savings, putting money back into the economy.

Taxes should be based on the ability to pay, with those at the top able to pay a greater share without suffering.

A fairer income tax would help offset other taxes in which those at the bottom pay more than those at the top.

Michigan’s Constitution requires a flat tax; to get a fairer tax system, the Constitution must be changed through a ballot proposal. A graduated income tax has been on the ballot three times in the past, 1968, 1972 and 1976, but it has failed each time. However, new polling suggests that views have changed, with Michigan residents supporting a graduated income tax 66% to 25%, with support from nearly every demographic. Michigan voters should have another opportunity to support this fairer tax.

Poverty is still too high in Michigan


















The 2016 State Budget: Gains for some Children and Families but Deep Disparities Persist

The 2016 Michigan budget includes a number of important investments in children and families that should be celebrated, but there is still much work to be done. The state needs to address initiatives to ensure that children are lifted out of poverty and provided the level playing field needed to overcome persistently deep and discouraging disparities based on income, race and place.

The positive budget outcomes include an initiative to improve reading by third grade, increased funding for schools with high numbers of children from low-income families, and an expansion of dental care to children in three of the state’s most populous counties. Unfortunately, the budget falls short in key areas related to economic growth and opportunity, and many investments are not on a scale that will make Michigan a comeback state for all of its residents.

There are measurement tools in place to monitor the impact of budget decisions over time. The governor has established a set of performance measures through the MI Dashboard. The League, in conjunction with the Annie E. Casey and Skillman foundations, annually publishes KIDS COUNT data that can be used as a barometer of the state’s success in addressing the needs of children. Together, these performance measures give Michigan residents the opportunity to compare decisions by state lawmakers with outcomes for families, children, schools and communities.


Outcomes for Children and Families

Child poverty: Despite overall improvements in the state’s economy since the Great Recession, child poverty—a key indicator on the governor’s dashboard—remains high, especially for certain racial and ethnic groups. Nearly 1 of every 4 Michigan children—493,000 children statewide—lives in poverty, with child poverty rates increasing from 19% to 23% between 2007 and 2014.1

Child poverty rates vary dramatically based on race and ethnicity. In 2014, nearly half (47%) of all African-American children and one-third (32%) of Hispanic children lived in poverty (family income below $18,850 for a family of three), compared to 16% of non-Hispanic white children.2 Nearly 1 million (968,000) children lived in families with relatively low incomes of below 200% of poverty, or $37,700 for a family of three. Sadly, 230,000 Michigan children live in extreme poverty with family incomes of 50% of the federal poverty level or less—under $9,425 for a family of three.3

Very young children are even more likely to live in poverty. More than half (54%) of African-American children under the age of 6 and 34% of young Hispanic children live in poverty in 2013, compared to 18% of non-Hispanic white children.

Parents without secure employment: In 2013, 751,000 children, one-third of all Michigan children, lived in families where no parent had fulltime, year-round employment. African-American and Hispanic children are much more likely to have all parents unemployed or underemployed (at 57% and 42%, respectively).4

Inadequate food: In 2012, 370,000 children, or 16% of all Michigan children, lived in households facing the possibility of not having adequate food. And, despite overall economic growth since the recession, the percentage of children receiving free- and reduced-priced school meals has grown from 46% in 2009 to 49% in 2013.5

Lack of affordable housing: Housing costs consume a large proportion of family income for many families, but particularly for families from certain racial and ethnic groups. In 2013, nearly one-third of Michigan children lived in households where housing costs exceeded 30% of monthly pretax income. More than half (54%) of African-American children and 36% of Hispanic children lived in households with high housing costs.

Since 2000, rents have risen while the number of renters who need low-priced housing has increased. Nationwide, only 28 adequate and affordable units are available for every 100 renter households with incomes at or below 30% of the area median income.6 In Michigan’s 10 largest counties, the rates range from 22 units per 100 very low-income families in Macomb County to 31 per 100 in Kalamazoo County. Between 2000 and 2011-13, the number of rental units available per 100 very low-income households fell by over 50% in Wayne County, 45% in Macomb County and 30% in both Oakland and Saginaw counties.

Children living in areas of concentrated poverty: Statewide, in the period of 2009-2013, 393,000 Michigan children lived in areas with poverty rates of 30% or more. Children of color are much more likely to be concentrated in highpoverty neighborhoods, including 55% of African-American children and 30% of Hispanic children, compared to only 7% of non-Hispanic white children.

Budget and Policy Changes Affecting Income Security

Despite high child poverty rates, access to income assistance continues to be restricted. Changes in Family Independence Program (FIP) policies and eligibility over the last several years have resulted in thousands of very poor Michigan children losing basic income assistance. Restrictive policies include changes in lifetime limits for assistance, sanctions for families receiving FIP based on the truancy of a single child, and the strict enforcement of sanctions for failure to fully comply with work and training requirements.

Between 2007 and the current budget year, spending on income assistance declined by 66%, and the number of families receiving income assistance is now at its lowest level since the Kennedy administration. Approximately 7 of every 10 FIP recipients are children, and 60% of those children are under the age of 9. Of the adult grantees, over 90% are women and half are African-American.7

The 2016 budget continues this decline, with FIP funding reduced by over $25 million because fewer families are expected to be eligible. In addition, lifetime limits and sanction policies are continued in 2016, and current state policy regarding school truancy was recently codified into state law.

One positive change in the 2016 budget is the elimination of the Extended FIP. The program gives households that are no longer eligible for income assistance due to increased earnings a nominal $10 per month in assistance for six months. This minimal assistance has, however, counted against the state’s more stringent lifetime limits, hurting children in the long run.

Continued reductions in tax credits for low- or moderate-income working families have forced more children into poverty. In 2011, the Michigan Legislature adopted an unprecedented tax shift that reduced taxes on businesses by over 80% while increasing taxes on individuals by more than 20%. As part of that shift, Michigan’s Earned Income Tax Credit (EITC), an effective anti-poverty tool that helps hardworking families with incomes below or moderately above the federal poverty line, was cut by 70%.

Late last year, Michigan lawmakers agreed to restore the EITC from its current level of 6% of the federal credit to 20% as part of Proposal 1 that was also intended to increase the sales tax to pay for needed road repairs. With the rejection by voters of Proposal 1, the Michigan House of Representatives has voted to eliminate the state EITC entirely.


Outcomes for Children and Families

Reading by fourth grade: Early reading proficiency is a critical predictor of academic success and is a core indicator on the governor’s dashboard. Roughly 3 of every 4 third-graders without the requisite literacy skills will still have reading difficulties as high school students and are at higher risk of retention, behavioral problems and ultimately school dropout.

The percentage of students who are reading proficiently by the end of third grade, as measured by the Michigan Educational Assessment Program, has been increasing but there are unacceptable disparities based on race and ethnicity. While more than three-quarters of white fourth-graders read proficiently, less than half of African-American students are proficient.8

High school completion: Although fewer young people have been dropping out of high school, great disparities still exist based on race, ethnicity and economic status. Dropout rates range from 5% for Asian-American students in Michigan to 25% for children in migrant families. African-American students are 2 1/2 times more likely to leave school without a diploma, while Hispanic children are twice as likely to drop out.9

Disconnected youths and young adults: Disconnected youths are teenagers ages 16 to 19 who are not in school and not working. In Michigan, African-American teens are 2 1/2 times more likely to not be in school or working, while Hispanic teens are twice as likely to be disconnected.

The teen years are critical for young people—a time when they have the chance to gain the skills needed to move into higher education or training and ultimately succeed in the workforce. For Michigan’s economy, the risks associated with high numbers of disconnected youths are obvious, including a shortage of skilled workers to compete in today’s knowledge-based economy, greater dependence on public assistance, poorer physical and mental health, and potentially the cost of increased crime and incarceration.

A new national study that looked at teens and young adults (ages 16 to 24) who are neither working nor in school found that 1 of 7 are disconnected, with staggering variations in some cities based on race and ethnicity. Their conclusion was that both place and race matter, with continued residential segregation by race disproportionately harming African-American teenagers and young adults, and particularly boys and young men.10 In their study of the most populous U.S. metropolitan areas, Michigan had youth and young adult disconnection rates ranging from 11.3% in the Grand Rapids/Wyoming area to 17.7% in the Detroit/Warren/Dearborn area. In the Detroit metropolitan area, 1 of every 4 young African-American youths was disconnected, compared to 1 of 10 for white youths.11

College access and completion: African-American and Hispanic students in Michigan are less likely to enroll in college than their white peers and more likely to be required to take at least one remedial course. In 2012–13, only 42% of African-American high school graduates in Michigan enrolled in college, and more than half of those were taking at least one remedial course. By contrast, 51% of white students were enrolled in college, with 23% in remedial courses.

Taking remedial courses is a financial burden for students and slows down the time it takes to earn a degree. One study shows that the longer it takes for students to move through college—because they are attending part-time or because of remedial classes—the less likely they are to earn a degree. Referring to remediation as the “Bermuda Triangle” of higher education, the study finds that 35% of students who take remedial courses graduate with a four-year bachelor’s degree in six years compared to 56% of those without remediation.12

Of equal concern are disparities in college graduation. Nationwide, African-Americans are catching up in terms of college enrollments but are still less likely to finish with a degree. While Michigan’s overall six-year university graduation rates exceed the national average,13 there are wide graduation gaps based on race and ethnicity in many Michigan colleges, and some are growing.14

The result of inequalities in college graduation rates are differences in educational attainment, earnings and economic opportunity for parents, and greater hardship for families and their children. The overall impact for Michigan’s economy is the loss of potential for a more skilled workforce and greater economic growth.

Budget and Policy Changes Affecting Educational Outcomes

New funds provided to improve reading by the end of third grade. The 2016 budget includes $31.5 million for a new third-grade reading initiative, along with child care enhancements that ensure higher-quality early learning experiences for young children. A key change made by the Legislature to the governor’s original proposal was an increase in funding for additional instructional time for children needing special assistance from $10 million to $17.5 million. In addition, $2.5 million will be available through Intermediate School Districts for home visits to encourage early literacy, and funding for access to highquality child care was increased. Investments in the earliest years can improve reading by third grade, which is a key predictor of school success. Given the wide gap in fourth-grade reading proficiency based on race and ethnicity in Michigan, these early investments are a necessary step in creating equity and opportunity.

Increased funding for adult education. The 2016 budget includes a $3 million increase for adult education. While small in comparison to the cuts the state has made to adult education over the past 20 years (from a high of $185 million in 1996 to $22 million this year), it is a significant recognition of the importance of building the skills of Michigan workers to prepare them for the realities of the current economy. Given the high number of African-American and Hispanic youths who are not in school or working and racial and ethnic disparities in high school graduation rates and college attainment, additional investments in adult education are critical.

Increased funding for public schools of between $70 and $140 per pupil, offset by the loss of special grants for some districts. The 2016 budget provides a range of per-pupil funding increases for districts, using a funding formula that gives those receiving less from the state this year a larger increase in 2016. The Legislature also eliminated grants that are currently available to districts based on their adherence to educational best practices or their ability to meet performance outcomes. The loss of those grants will reduce the per-pupil increase to a minimum of $25 for some districts.

An increase in funding for districts with high numbers of students who are at risk of educational failure. After more than a decade of flat funding, the 2016 budget includes an additional $70 million for at-risk school programs, bringing total funding to $379 million. These funds are provided to school districts for a range of instructional and noninstructional services for at-risk students based on the number of children qualifying for free school meals. Funds are to be used to improve reading proficiency by the end of third grade, and to ensure that high school graduates are career- and college-ready. The 2016 budget requires districts to implement a multitiered system of supports, instruction and intervention at least for kindergarten through third grade, based on a model already adopted in some areas of the state.

Given the relationship between poverty and educational outcomes, as well as disproportionately high poverty rates for children of color, the targeting of state funds to districts with high numbers of low-income children is a good approach to addressing inequities in education. In 2016, a significant percentage of the expected increase in per-pupil funding for many urban districts will be from expanded at-risk program dollars.

A small increase in funding for Michigan universities and community colleges. While universities and community colleges in Michigan will receive small increases in state funding in 2016, postsecondary education is becoming increasingly unaffordable for many residents. At most Michigan public universities, tuition more than doubled in the past 10 years, and in 2013-14, the state had the sixth highest university tuition in the country.15 Tuition has also increased at the state’s more affordable two-year colleges but not as dramatically.16

The governor’s dashboard includes college affordability as a core indicator of Michigan’s progress. Unfortunately, the cost of a postsecondary education, as measured by tuition and fees as a percent of median family income, is becoming more unaffordable. In Michigan, community college tuition rose from 3.5% of median income in 2006-07 to 4.7% in 201314, and university tuition climbed from 12.5% of median income to 18.1%. While the cost of Michigan community colleges is comparable to the national average, university costs, as a percent of median income, substantially exceed the national average.17

The 2016 budget includes $20 million for a 1.5% increase for university operations and $4.3 million for a 1.4% increase for Michigan’s 28 community colleges. University funding comes as performance funding based on undergraduate completions in critical skills areas, research expenditures, six-year graduation rates, total completions, administrative costs as a percentage of core expenditures, and the percentage of students receiving Pell Grants. Universities are also required to limit tuition increases to 2.8% in order to receive performance funding, and one Michigan university has already declined the additional funding in favor of a larger increase in tuition.

No new funds for needs-based scholarships for low-income students interested in a postsecondary education. For the first time in many years, there was no increase in funding for the Tuition Incentive Program or the other major financial aid and grant programs for postsecondary students. The governor had recommended $6 million for Part-Time Independent Student Grants that help older students—the first time the grants would have been funded since 2009. Grants would only be available at community colleges, and priority was to be given to former postsecondary students who left prior to completing a degree or certificate.

Unfortunately, the Legislature did not include funding for the Part-Time Independent Student Grants program in the final 2016 state budget. Given the importance of a postsecondary degree in today’s economy and the lower rates of college graduation for some racial and ethnic groups, investments in financial aid for older students are critical in creating opportunity for all residents, and this decision moves Michigan in the wrong direction.


Outcomes for Children and Families

Health insurance coverage for children and families: Michigan has a history of effectively covering children through the Medicaid and MIChild programs, with the percentage of children uninsured consistently below the national average. The percentage of children uninsured still varies by race and ethnicity, with higher rates for American Indian and Hispanic children.

The Healthy Michigan Plan, which was implemented in 2014, has changed the health insurance landscape. In the first year of the expansion, the number of Michigan residents reporting they were uninsured, struggling to pay medical bills or delaying needed medical care dropped significantly. The percentage of adults reporting they were uninsured was cut in half (from 14% in 2012 to 7% in 2014) and half as many said that cost was the reason for not seeking needed medical care (dropping from 42% in 2012 to 21% in 2014). Access to specialty care remains a problem, with one-third of Medicaid recipients indicating that they had difficulties accessing such care, and shortages of care reported in many rural areas.18

Enrollments in the Healthy Michigan Plan have exceeded expectations. The first-year projection of 320,000 participants was surpassed within four months, and nearly 600,000 Michigan residents are now enrolled. Michigan’s program was enacted with a federal waiver and a second, more complicated waiver must be approved yet this year for the program to continue. If the waiver is denied, these newly insured residents will lose their coverage.19

Mental health and substance abuse services: With the launching of the Healthy Michigan Plan, dramatic reductions were made in state funding for mental health and substance abuse services. The assumption was that the vast majority of individuals who were not eligible for Medicaid but were receiving state-supported mental health and substance abuse services would be eligible for the new Healthy Michigan Plan, which is currently 100% federally funded. The transition has not been smooth, and concerns have been raised that state funding reductions were too large and too fast, resulting in reduced access to needed services.

In 2013, over 248,000 consumers were served by Michigan’s community mental health system. Of those, 52,000 were children and youths under the age of 19.20

Infant mortality: Michigan’s infant mortality rate has consistently hovered above the national average, which is substantially higher than other developed nations, but the state is making progress. Michigan’s infant mortality rate dropped from 7.6 to 6.9 per 1,000 births between 2006 and 2012, with almost 200 fewer infants dying before their first birthday in 2012 as a result. Nonetheless, the gap between the state’s two largest racial groups persists, with current rates of 11.9 per 1,000 for African-American infants compared to 5.6 per 1,000 for white newborns.21

Access to hospital obstetrical services: Over the last several years, a number of Michigan hospitals have closed their obstetrical (OB) units due to low Medicaid reimbursements. There are currently 18 contiguous counties in northern and mid-Michigan with no hospital OB units. To prevent further closures, the Michigan Legislature approved a special hospital OB payment for the first time this budget year.22

The need for access to delivery and emergency OB services for pregnant women and their babies is critical. More than 4 of every 10 births in Michigan was paid for by the state’s Medicaid program in 2013, and the percentage has been rising. In 2012, some Michigan cities had more than half of all births paid by Medicaid including Battle Creek (66%), Bay City (59%), Burton (61%), Dearborn (57%), Flint (86%), Grand Rapids (55%), Inkster (74%), Kalamazoo (64%), Lansing (58%), Lincoln Park (65%), Muskegon (79%), Pontiac (81%), Port Huron (68%), Saginaw (85%) and Taylor (63%).23

Access to dental care: Michigan currently provides preventive dental services to more than 600,000 children in 80 counties through the Healthy Kids Dental program. Access to dental services is essential to prevent tooth decay, the No. 1 chronic disease in children. Children with dental disease are more likely to suffer from infections, miss school, have difficulty concentrating in school because of dental pain, and ultimately suffer poorer health as adults, including an increased risk of heart disease. Untreated dental problems are more significant in children growing up in low-income families and in communities of color. Children living in deep poverty (family incomes less than $10,000 per year) were found to have missed 12 times the number of school days compared with wealthier children due to dental problems.24

Healthy Kids Dental improves access to care through a partnership with Delta Dental of Michigan that includes increased provider reimbursement rates. Although further expansions of the Healthy Kids Dental program have been approved for the 2016 budget year, in the current year Wayne, Kent and Oakland counties are not yet covered. Together, these counties are the homes of large numbers of children of color as well as Medicaid-eligible children. As of October 2014, just over one-quarter (28%) of white children eligible for Medicaid lived in a county without the Healthy Kids Dental plan, compared with almost two-thirds (63%) of Medicaid-eligible African-American children.25

Childhood immunization: Childhood vaccines are the safest and most effective way to protect children from preventable diseases, yet during the 2013-14 school year, Michigan had the 4th highest vaccine waiver rate for kindergartners in the country.26 The governor has made immunization rates part of his performance scorecard, and the most recent data show that Michigan has missed its targets for pediatric and adolescent immunizations. In April 2015, 74% of 19-36-month-old children had complete vaccinations, along with 67% of adolescents.27

New rules adopted by the state in December 2014 tighten procedures for parents seeking immunization waivers, and many public schools are working to reduce elevated vaccine waiver rates. In 2014, 71% of waivers were for medical reasons, with the remainder based on religious and philosophical preferences.28

Budget and Policy Changes Affecting Health Outcomes

Additional funding for Medicaid and the Healthy Michigan Plan. The Legislature included over $190 million ($47 million in state funds) in additional funding for the Medicaid program for the 2016 budget year, based on current projections of the number of persons who will be enrolled. In addition, $4.1 billion was appropriated for the Healthy Michigan Plan (including behavioral health services), which is financed with all federal funds for the final year. Beginning in the 2017 budget year, the state will be responsible for 5% of Healthy Michigan Plan spending, phasing up to 10% by 2020.

Included in the budget for next year is $24.2 million ($8.3 million in state funds) for full-year funding to continue approximately half of the rate increase previously provided to primary care providers to encourage them to serve persons insured by Medicaid. Access to a primary care physician is critical to ensuring continuous and high-quality medical care, as well as a gateway to specialty care.

Michigan’s supply of primary care providers only meets twothirds (66.3%) of the need for primary care services, and demand is expected to rise based on the state’s aging population and insurance expansion through the Affordable Care Act. Lower compensation for primary care providers who treat Medicaid patients is a significant factor, as a higher proportion of Medicaid patients typically results in lower overall compensation.29

The Healthy Michigan Plan covers individuals between the ages of 19 and 64 who are not currently eligible for Medicaid or Medicare. To be eligible, incomes must be less than 133% of the federal poverty level (up to $15,654 for an individual or $32,253 for a family of four). Enrollment in the Healthy Michigan Plan began in April of 2014. As of July 2015, nearly half of all enrollees are between the ages of 19 and 34.

Nearly 1.8 million Michigan residents are insured by traditional Medicaid, including more than 900,000 children. Children account for 55% of all Medicaid enrollees, but only 24% of total Medicaid costs.

In the current budget year, nearly $14 billion is allocated for medical services, including the Healthy Michigan Plan, representing over three-quarters of all spending in the former Department of Community Health budget. Other major expenditures are for behavioral health ($3.4 billion or 18.7%), and public health/maternal and child health ($618 million or 3.4%).30

Continued funding to prevent the closure of more hospital OB units in rural areas. The Legislature approved $11 million ($3.8 million in state funds) for rural hospitals for the special payments begun this year to help stop the ongoing closure of hospital OB units in rural areas. The governor had recommended that the special payments be eliminated.

Continued partial restoration of funding for mental health services for persons not eligible for Medicaid or the Healthy Michigan Plan. The Legislature approved a $20 million increase in state funds in the current budget year to help cover services for persons not eligible for Medicaid or the Healthy Michigan Plan. The budget for next year continues that small restoration of $20 million.

Funding to continue to follow through with the recommendations of the Mental Health and Wellness Commission. The final budget includes $12.7 million in state funds to implement recommendations of the governor’s commission. Of that total, $1.5 million in one-time funding is available in the last quarter of budget year 2016 to establish a transition program for children who have had multiple hospitalizations at Hawthorn Center, the state’s mental health facility for children.

Restoration of funding for autism services. For budget year 2016, the Legislature approved $36.8 million for autism services, restoring a cut made in 2015 because of the slow start-up of the program. Children and young adults through age 21 will be covered in 2016. Currently, children up to age 6 are covered. In addition, funding for a number of Michigan universities to train autism service providers is reduced from $7 million to $2.5 million.

Continued expansion of the Healthy Kids Dental program. For the 2016 budget year, the Legislature included $37 million ($12.7 million in state funds) to expand the Healthy Kids Dental program to 290,000 children ages 0 through 12 in Kent, Oakland and Wayne counties. With this expansion, approximately 130,000 children and youths ages 13-20 in these three large urban counties will still be left without care. It is estimated that a modest investment of $8.8 million in state funds would cover the remaining Medicaid-eligible children in Michigan, bringing in nearly $17 million in federal funds.

Rejection of the governor’s proposal to expand dental services for adult Medicaid enrollees. The Legislature rejected the governor’s recommendation to invest $23 million ($7.9 million in state funds) to develop a statewide managed care contract for dental services for adult Medicaid enrollees, an approach that would have increased dental care access for underserved adults. The total annual cost of the program was projected to be $92 million ($31.7 million in state funds).

Local public health services remain underfunded. The 2016 budget restores $1.5 million in funding for local public health departments for essential services which was eliminated by a budget-cutting Executive Order this year. This restoration brings funding for local public health services to the level it was 10 years ago.

Incentives for vaccine and immunization education and promotion were approved. For 2016, the Legislature approved $500,000 in state funds as a match for private donations for vaccine and immunization promotion for infants and toddlers. State funds could be spent only if private donations are received, with a match rate of $1 of state funds for every $4 of private funds.


Outcomes for Children and Families

Suspected and confirmed child abuse and neglect: The number of children who are in families suspected of child abuse and neglect, as well as the number of confirmed victims, has been rising in Michigan. In 2013, nearly 1 of every 10 children in Michigan lived in a family investigated for suspected child abuse or neglect—a total of almost 200,000 children. Between 2006 and 2013, the rate of children in investigated families in the state rose by 41%.31

In 2013, almost 34,000 children ages 0-17 in Michigan were confirmed victims of abuse or neglect, an increase of almost one-third since 2006. The majority of the cases involved neglect, often a byproduct of poverty, which escalated throughout Michigan during that same period. Sadly, national data show that 1 of every 8 children in the U.S. will experience confirmed maltreatment by age 18, with the risk of maltreatment highest in the first few years of life and elevated rates for African-American and American Indian children.32

Studies have documented that poverty and unemployment, problems more prevalent in communities of color, increase the risk of child maltreatment and particularly neglect. While most parents with incomes below the poverty level do not maltreat their children, poverty, especially when compounded by parental depression, untreated substance abuse and social isolation, can increase the risk of child abuse and neglect.33

Children in out-of-home care: Despite increases in suspected and confirmed child abuse and neglect, the rate of out-of-home placements with relatives or foster parents dropped by one-third between 2006 and 2013. Almost 10,000 children were placed outside their home at the end of the 2013 budget year, down from 16,700 in 2006. Infants are three times more likely to be removed compared to young children ages 1-5.

After an extensive review of child welfare data and policies in Michigan, the Michigan Race Equity Coalition confirmed in its 2014 report that children of color in the state are more likely to live in families investigated for abuse/neglect, and to be removed from their homes. In addition, African-American youths in Michigan are twice as likely as their white counterparts to age out of foster care, and less likely to be reunited with their families.34

Access to prevention services: One of the key findings of the Michigan Race Equity Coalition is that to reduce child welfare disparities, Michigan needs to place a greater emphasis on child abuse and neglect prevention and early intervention, as well as expansions of community-based services. While a national lawsuit against the state for its failure to protect children resulted in increased funding for staffing, training and other child welfare improvements, the litigation did not mandate improvements in efforts to prevent child abuse and neglect.

Juvenile justice services: African-American juveniles in Michigan are more likely to enter the juvenile justice system and are overrepresented at most stages, including arrests, detentions and waivers to the adult court. Between 2003 and 2013, over 20,000 Michigan youths were placed on adult probation, detained in jail or imprisoned for crimes committed before they were 18 years old, and the majority of the crimes were nonviolent offenses.35

The Department of Health and Human Services (DHHS) provides for the care and supervision of state wards ages 12 to 21 who are referred by the courts due to delinquency. The DHHS currently operates three residential facilities: W.J. Maxey Training School in Whitmore Lake, the Shawono Center in Grayling and the Bay Pines Center in Escanaba.

Budget and Policy Changes Affecting Child Safety

Funding for a performance-based contracting model for public and private child welfare services was continued. In the 2016 budget, the Michigan Legislature continued to provide funding for the Department of Health and Human Services to develop a performance-based model for funding child welfare services, with an analysis of the unit costs for out-of-home services expected by September 30, 2015. The model is being tested in Kent County, with all child welfare services delivered by private agencies.36

A special payment for parents who adopt a child who is later determined to have special needs was eliminated. For 2016, the Legislature eliminated a supplemental payment to parents whose children had medical needs that existed before an adoption, but were not identified until after the adoption was completed. The payment was cut in the current budget year through an Executive Order, and was not restored for next year. Adoption subsidies are provided to families who are adopting children with special needs, and include both cash and medical assistance. The supplemental payment had been an effort to address the concerns of adoptive parents dealing with health and mental health needs that were more serious than they anticipated during the adoption process.

Prevention and family support services continue to be underfunded. Funding for services to strengthen and reunify families continues to be woefully inadequate, with serious repercussions for the low-income families that are more likely to be identified as needing support. The Legislature provided continuation funding for prevention services for 2016, including $12.4 million for Strong Families/Safe Children, $17 million for Families First, $12.9 million for Child Protection and Permanency and $6.5 million for Family Reunification programs.

The W.J. Maxey Training School will be closed. The Legislature elected to close the W.J. Maxey Training School for a savings of $7.5 million ($2.5 million in state funds) in 2016. The budget includes $1 million for closing costs for the facility, and $1.8 million to transfer the approximately 40 youths currently housed there to new facilities.

Funding for juvenile justice facilities operated by the Department of Health and Human Services dropped from $58 million in 2006 to $19 million in 2014, largely the result of the closure of training schools and community juvenile justice centers, as well as declining numbers of youths.37 Between the 2003 and 2013 budget years, the caseload dropped by two-thirds, with declines attributed to additional community-based diversion programs in Wayne and other counties.38



  1. Kids Count Data Center at, Annie E. Casey Foundation.
  2. Ibid.
  3. Ibid.
  4. Ibid.
  5. Ibid.
  6. Leopold, J., Getsinger, L., Blumenthal, P., Abazajian, K., and Jordan, R., The Housing Affordability Gap for Extremely Low-Income Renters in 2013, Urban Institute (June 2015).
  7. Michigan Department of Human Services Information Packet (May 2012).
  8. 2013-14 MEAP Snapshot, MI School Data, Center for Education Performance and Information.
  9. 2013-14 Graduation Dropout Snapshot, MI School Data, Center for Educational Performance and Information.
  10. Lewis, K. and S. Burd-Sharp, S., Zeroing in on Place and Race: Youth Disconnection in America’s Cities, Measure of America (June 2015) at
  11. Ibid.
  12. Time is the Enemy, Complete College America (2011) at Data is based on a survey of 33 participating states (not including Michigan) using the Complete College America/National Governors Association Common Completion Metrics.
  13. Michigan Dashboard at
  14. College Results Online at
  15. The College Board, Annual Survey of Colleges (October 2013) at
  16. Ruark, P., Keeping It Affordable in Michigan: Disinvestment in Financial Aid Grants Hurts Students and Their Families, Michigan League for Public Policy (November 2012).
  17. Michigan Dashboard, op. cit.
  18. Smiley, M.L., Riba, M., Ndukwe, E.G., and Udow-Phillips, M., Cover Michigan Survey: Coverage and Health Care Access, Center for Healthcare Research and Transformation (March 2015).
  19. Ibid.
  20. FY 2002-FY 2013 Quality Improvement and Encounter Data, Michigan Department of Health and Human Services (September 4, 2014).
  21. Kids Count in Michigan Data Book 2015: Child and Family Well-Being in Michigan, Its Counties and Detroit, Michigan League for Public Policy.
  22. Hudson, J., The House and Senate Appropriations Committees Retain Special Rural Hospital Obstetrical Payment, Michigan League for Public Policy (May 2015).
  23. Data currently not available for Detroit.
  24. Fox, J., The Epidemic of Children’s Dental Diseases: Putting Teeth into the Law, Yale Journal of Health Policy, Law, and Ethics, Vol. 11 (March 3, 2013).
  25. Kids Count in Michigan Data Book 2015, op. cit.
  26. Immunization Status of School Children in Michigan, 2014, Michigan Department of Health and Human Services (March 6, 2015).
  27. MiScorecard Performance Summary, Michigan Department of Health and Human Services (April 2015).
  28. Immunization Status of School Children in Michigan, op. cit.
  29. Where Are the Primary Care Doctors: A look at Michigan’s Primary Care Physician Shortage, Citizens Research Council (June 2015).
  30. Frey, S., Koorstra, K., Stauff, S. and Jen, K., Community Health Background Briefing, House Fiscal Agency (December 2014).
  31. Kids Count in Michigan Data Book 2015, op. cit.
  32. Wildeman, C., Emanuel, N., Leventhal, J., Putnam-Hornstein, E., Waldfogel, J., and Lee, H. “The Prevalence of Confirmed Maltreatment Among US Children, 2004-2011,” Journal of the American Medical Association Pediatrics (June 2, 2014).
  33. Kids Count in Michigan Data Book 2015, op. cit.
  34. Zehnder-Merrell, J., Michigan League for Public Policy, Coalition for Race Equity in Child Welfare and Juvenile Justice Data Group Chair, Key Data Findings (May 21, 2014).
  35. Weemhoff, M., and Staley, K., Youth Behind Bars, Michigan Council on Crime and Delinquency (May 2014).
  36. Letter from Susan Kangas, Chief Financial Officer, Michigan Department of Health and Human Services, to the Senate and House Appropriations Subcommittees on DHHS (April 21, 2015).
  37. Wild, V. Department of Human Services Background Briefing, House Fiscal Agency (December 2014).
  38. Michigan Department of Human Services Information Packet (May 2014).


The 2016 State Budget: Gains for Some Children and Families but Deep Disparities Persist — Executive Summary


The 2016 Michigan budget includes many important investments in children and families, but left undone are focused efforts to lift children out of poverty and reverse deep and discouraging disparities based on income, race and place.

With nearly half of all African-American children and onethird of Hispanic children living in poverty, the state has a long way to go in ensuring economic opportunity for all Michiganians.

2016 Budget Wins

    • More than $30 million in new funding to improve reading by third grade. More than threequarters of white fourth-graders read proficiently, compared to less than half of African-American children. New funds for third-grade reading are a good step forward, but do not adequately address the earliest years of life (ages 0 to 3) when brain growth and learning are at their peak and the foundation for reading is built.
    • A $70 million increase in funding for districts serving high numbers of low-income children who are struggling in school. At-risk program funds are allocated based on the number of children receiving free lunches, and are used to improve third-grade reading and help high school students become career and college-ready. The evidence is clear: the number of children eligible for free- and reducedpriced meals in schools is the most reliable predictor of outcomes on achievement tests, yet education reform efforts have largely left poverty out of the equation. While this increase is sorely needed, it is the first in more than a decade and the program is still not fully funded.
    • Changes in child care eligibility and payments. At 121% of poverty, Michigan’s eligibility level for subsidized child care is one of the most restrictive in the country. The 2016 budget does not increase the eligibility level, but does allow families who are eligible to keep their child care until their incomes reach 250% of poverty—a major step forward in making sure children have stable care and parents can keep working. Also included in the budget are small increases for providers based on the state’s quality rating system. Unfortunately, more than three-quarters of the state’s child care providers do not meet the quality standards and receive the very lowest rates, placing higher-quality child care out of the reach of many low-wage families. In Michigan, more than half of the children in care using a state subsidy are African-American, and low state provider rates limit their options for the type of care that could help children’s emotional and intellectual development.
    • A small expansion in funding for adult education. The 2016 budget includes a $3 million increase for adult education. While the increase is needed, it falls short. Overall funding for adult education was cut from $185 million in 1996 to $22 million this year.
    • An expansion of the Healthy Kids Dental program. The 2016 budget expands the Healthy Kids Dental program to 290,000 more children ages 0 through 12 in Kent, Oakland and Wayne counties. With this expansion, 130,000 children and youths ages 13-20 are still uncovered, disproportionately affecting children of color.

Budget Losses

    • State investments in its youngest learners (ages 0 to 3) remain woefully inadequate. Michigan became a national leader by doubling its investment in preschool for at-risk 4-year-olds over the last two years. However, given the unassailable scientific evidence that it is during the first three years of life that the very architecture of the brain is developed, it is time to invest in the earliest years. Early interventions are the best tools we have to reduce lifelong disparities in health, achievement and opportunity.
    • Targeted efforts to ensure low-income children and children of color get a high school diploma are insufficient. African-American and Hispanic teens are more than twice as likely to be out of school and not working, and dropout rates are extremely high for very low-income students and youths of color.
    • Postsecondary education is becoming increasingly unaffordable for many students. While Michigan’s public university tuition is the sixth highest in the nation, funding for scholarships and grants for low-income students has not kept pace. For 2016, the governor recommended the restoration of grants for older students—the first time they would have been funded since 2009—but the Legislature rejected his proposal. African-American and Hispanic students in Michigan are less likely to enroll in or graduate from college and cost is likely a significant factor.
    • Reduced tax credits for low- and moderate-income workers have forced more children into poverty. In 2011, the Michigan Legislature reduced the state’s Earned Income Tax Credit—a proven anti-poverty tool—by 70%. Restoring the EITC would lift an estimated 15,000 families above poverty and lessen the impact of poverty on 800,000 families, including more than 1 million children.
    • Fewer children have access to the income assistance needed to avoid deep poverty and homelessness. Since 2007, income assistance caseloads in Michigan have dropped by two-thirds, and the number of families receiving assistance is now at its lowest level since the Kennedy administration. Changes in Family Independence Program policies—including restrictive lifetime limits for assistance and sanctions for families based on the truancy of a single child—have resulted in deeper child poverty.

For more information on the 2016 state budget and disparities in outcomes for Michigan children and families, see our Budget Briefs.



Labor Day Report: Economic Recovery Eludes Many Michigan Families

While Michigan’s unemployment numbers have returned to pre-recession levels, and jobs continue to be added, economic recovery is still extremely far-off for the 17% of Michigan individuals and 23.4% of Michigan children living in poverty.1

There are a number of factors that help explain why economic improvements have not reached all families in the state, including continuing high underemployment, the persistence of long-term unemployment and racial disparities in unemployment. Addressing long-term unemployment and supporting workers who are stuck in part-time or low-wage work remains crucial. Understanding and reducing racial disparities in unemployment is also key. State policymakers must adopt policies that will support families working toward economic security. These include reasonable unemployment insurance and a living wage, as well as investment in adult education and postsecondary training that connect workers to jobs that enable them to support their families.

Many Workers in Michigan Are Still Not Back to Work

Michigan’s unemployment rate dropped to 5.3% in July 2015, the lowest it’s been since 2001.2 While this is something to celebrate, it masks the fact that labor force participation is low and that many workers have simply stopped looking for work. The unemployment rate measures the percentage of the labor force that wants to work but is not working; it does not measure the percentage of the working-age population that is unemployed or has left the labor force entirely. It also says nothing about the loss of workers from the labor force over time. The good news about Michigan’s unemployment rate must be seen in light of a significantly shrinking labor force and an increasing share of the state’s working-age population that is no longer in the labor force.

In 2000, when Michigan’s economy was at its best in many decades, the unemployment rate was 3.6% and 69% of working-age adults in Michigan were working or actively looking for jobs. In 2009, when Michigan had its highest annual unemployment rate in recent years (13.7%), its labor force participation rate had fallen to 63%. Since then, despite the unemployment rate improving each year, the labor participation rate has fallen to less than 61% in Michigan. Michigan’s labor force participation rate was 60.5% in 2014 despite its lowest unemployment rate in many years, and was far below the Midwest labor force participation rate of 65% (Figure 1).3

In addition to the labor force participation rate being low, Michigan’s labor force itself is shrinking. Michigan’s workforce has lost many workers in the past 15 years. In 2000, there were 5.16 million workers in the labor force (this includes all adults currently employed and unemployed), but by 2014, Michigan’s labor force was comprised of slightly more than 4.75 million workers—a loss of more than 412,000 workers since 2000 (Figure 2).4

Workers leave the workforce for a variety of reasons: retirement, moving out of state (in some cases to look for or accept work), incarcera-tion, full-time parenting, attending school full-time and death. Using 2000 as a baseline, in 2011, the number of Michigan’s lost workers surpassed the number of currently unem-ployed workers. Although by 2014 the state regained some of its workforce, the number of lost workers continues to exceed the number of unemployed workers (Figure 3).

It is in this context of a shrinking labor force and a low labor force participation rate that we must view the decreasing unemployment rate. The state’s unemployment rate alone is not a sufficient measuring stick and Michigan certainly has a long way to go to recover from the past 12 years of a poor economy.

Underemployment and Long-Term Unemployment

While the number of jobs has increased and there are fewer unemployed workers, many of the jobs that were created in recent years have been low-wage, part-time jobs that do not bring families out of poverty. Currently, 25% of workers over 18 are in low-wage jobs and almost a third (32.4%) of working families in Michigan are low-income (below 200% of the federal poverty line).5

It should be no surprise, then, that despite the decreasing unemployment rate, Michigan poverty remained high in 2013 at 17% total and 23.4% for children. This is made clearer when taking into account marginally-attached and involuntary part-time workers.6 These workers are not counted in the unemployment rate, but are factored along with unemployed workers into Michigan’s underemployment rate of 13.9%, the fifth highest in the nation (Figure 4).7

Michigan’s long-term unemployment share (the percent of jobless workers who have been unemployed for more than half a year) was at 6.5% during Michigan’s economic boom in 2000, but was 34.8% in 2014.8 While this is an improvement from 49.8% at its height in 2010, the current rate remains a cause for concern. It is unclear whether the decline is due to a true reduction in long-term unemployment or to workers dropping out of the labor force entirely. With labor force participation dropping from 63% when the unemployment rate was at its peak to 60% in 2014, there is reason to believe that the effects of the Great Recession remain, and many workers have simply given up searching due to limited supply of stable, living-wage employment.

Racial Disparities in Unemployment and Wages

Unemployment in Michigan is generally higher and median wages lower for people of color. African-American and Hispanic workers in Michigan have much higher rates of unemployment than white workers. Although all three races of workers have benefited from reduced unemployment rates since 2010, in 2014 the unemployment rate for African-Americans was almost three times as high as the rate for whites, worse than in 2010 when the rate was just over two times as high. (Figure 5).

While wages have remained generally flat over several decades for workers at large, there is a wide gap between whites and African-Americans due to a significant decline in wages for African-Americans. Economists offer several explanations for this, mostly resting on the greater impact the recession had on African-American communities due to more limited assets compared to whites.9 Since 2010, while the median wage of white Michigan workers changed very little (-$.09), that of African-American workers declined by a significant amount (-$2.23).10 It is clear that African-Americans have not shared in Michigan’s economic recovery to the degree that whites have (Figure 6).

Policies to Help Families Recover

A number of decisions by policymakers over the last five years have made it harder for families to make ends meet and move out of poverty. The length of time needy families can receive cash assistance has been cut dramatically, an asset test for food assistance has limited those who have access to food, and a cut to the Michigan Earned Income Tax Credit has raised taxes on low-income working families. In light of persistent long-term unemployment and racial disparities in unemployment, policy changes are needed to help promote economic security.

Modernize Michigan’s Unemployment Insurance Program

Unemployment insurance is a safety net for workers who have become unemployed, but in Michigan, it is not as effective as it could be. Currently, many Michigan workers are ineligible to access unemployment insurance benefits, and except in situations of work-sharing, the benefits are not available to workers when an employer needs to reduce hours during low-profit periods. Modernizing the system to allow workers who through no fault of their own have their hours cut, allowing part-time workers to receive benefits, and restoring the 26-week maximum (from the current 20-week maximum) are ways to improve Michigan’s current system. Michigan can also make unemployment benefits available for workers who choose to leave work based on scheduling issues if the worker is unable to accept the position after an agreed-upon trial period. These steps will give unemployed and underemployed workers the support they need as they look for work.11,12

Adequately Fund Adult Education for Low-Skilled Workers

Adult education serves the segment of the population that does not have the basic skills necessary to gain secure, family-supporting employment, or to succeed in occupational training that leads to such employment. Yet year after year, state policymakers neglect to adequately fund this key workforce development program, making it less accessible for low-skilled workers who want to build their skills, become financially self-sufficient and contribute to Michigan’s economy. Better funding for adult education, along with expanding it into places such as community colleges and Head Start programs, will enable it to meet the demand more effectively.13

Restore Postsecondary Financial Aid Grants for Older Students

The decision to get trained in new skills is often made more than 10 years after graduation from high school. While state financial aid helps many students of traditional college age, there are no state financial aid programs to help students attend public community colleges or universities if they have been out of high school for more than 10 years. Two of the three existing state grant programs explicitly exclude such individuals from eligibility, and the third is available only to those attending private, not-for-profit institutions. In 2009, grants specifically for older students were cut from the state budget. The Michigan Legislature had an opportunity to restore these grants during the budget process in 2015, but declined to do so.

Raise the Minimum Wage

Due to the nature of the recent economic recovery and the reality of many newly created jobs being low wage and part time, maintaining the current four-step minimum wage increase as enacted by law is essential. Indexing the minimum wage each year thereafter based on either inflation or wage averages also has the potential to lift a significant number of families and children out of poverty. Ensuring that jobs pay a fair wage is an opportunity to provide workers with the financial support they need to succeed.


  1. Michigan League for Public Policy, Michigan Families Continue to Struggle Since Recession, December 2014.
  2. Bureau of Labor Statistics.
  3. Economic Policy Institute Analysis of Current Population Survey data.
  4. Bureau of Labor Statistics.
  5. Working Poor Families Project data generated by the Population Reference Bureau from the American Community Survey.
  6. Marginally-attached workers are individuals not in the labor force who want and are available for work and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey. (Discouraged workers and conditionally interested workers are a subset of the marginally attached.) Involuntary part-time workers are individuals who work fewer than 35 hours due to inability to find full-time work or seasonal declines in demand and who want and are available for full-time work.
  7. Economic Policy Institute, op.cit.
  8. Ibid.
  9. Pew Research Center, Wealth Inequality Has Widened along Racial, Ethnic Lines since End of Great Recession, December 2014.
  10. Economic Policy Institute, op.cit.
  11. Ben-Ishai, Liz, Rick McHugh and Claire McKenna, Out of Sync: How Unemployment Insurance Rules Fail Workers with Volatile Job Schedules, National Employment Law Project, August 4, 2015.
  12. Michigan League for Public Policy, Falling Short: Michigan’s Unemployment Insurance Compares Poorly with Other Midwestern States, November 2011.
  13. For more information, see Michigan League for Public Policy, Willing to Work and Ready to Learn: More Adult Education Would Strengthen Michigan’s Economy, March 2015.




Healthy Michigan Plan: A Great Deal for the State and Its Residents


The Healthy Michigan Plan, an expansion and modification of the Medicaid program, provides comprehensive healthcare coverage to Michigan’s low-income, uninsured residents. The program was implemented April 1, 2014, and by the end of the first year achieved an unprecedented enrollment of 600,000 residents, surpassing all projections.

For calendar years 2014, 2015 and 2016, the federal government pays 100% of the cost of the program. In calendar year 2017, the state must contribute 5% of the cost, still a great deal for the state.

The program is currently operating under a federal waiver, and state law specifies a second, more difficult waiver must be approved for the program to continue after April 2016.



Individuals between the ages of 19 and 64, not currently eligible for Medicaid or Medicare, who:

  • Are citizens or lawfully admitted to the U.S.,
  • Are not pregnant at the time of application, and
  • Have incomes less than 133% of the federal poverty level (up to $15,521 for an individual or $31,721 for a family of four).


The comprehensive services required by the Affordable Care Act, including doctor visits, prescriptions, hospital services, lab services, X-rays and maternity services—plus additional key services such as dental, vision, hearing, and enhanced mental health and substance use disorder services are covered. Most people will select and be enrolled in the managed care plan of their choice.


After the first six months, nearly everyone enrolled in the program will be responsible for copays, for certain services such as doctor visits ($2), prescriptions ($1 or $3) or dental services ($3). Copay amounts are the same as the current Medicaid program. There are no copay requirements for preventive services or emergency services. Copays can be waived for services that allow enrollees to better manage chronic diseases or prevent complications.

(Note: Calculation of the monthly copay amount starting in the seventh month of participation will be based on usage over the prior six months.)

Individuals with incomes between 100% ($11,770 for an individual, $24,250 for a family of four) and 133% of the federal poverty level are required to make an income-based contribution to a MI Health Account. This amount will be up to 2% of annual family income, and must be contributed on a monthly basis beginning the seventh month of enrollment. Contributions are not required during the first six months of enrollment. Contributions can be made by the enrollee, by an employer, charitable organization, family member or other entity on the enrollee’s behalf.

Both the copay amounts and the 2% contributions can be reduced with “healthy behaviors,” which include completing an annual health risk assessment and agreeing to address or maintain healthier behaviors, such as weight loss, smoking cessation, obtaining immunizations, follow-up and managing chronic diseases. Together the cost-sharing cannot exceed 5% of family income.


The plan approved by the federal government specifies that no enrollee will be terminated from the program for failure to pay copays or contributions into the MI Health Account. However, those who do not make required payments could lose their “healthy behavior” reductions, or be referred to the Michigan Department of Treasury for collection from tax refunds.


Required copays and contributions are detailed on the MI Health Account statement and can be paid by U.S. mail or through the online payment system. Copays will not be made at the time a service is provided; they will be paid monthly based on the prior six months’ service usage.


A streamlined application and eligibility process, using the new tax-related income methodology and no asset test, is used. Applications are available online, by phone or in-person.











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