Reports


Chelsea Lewis

Chelsealewis88by132

Chelsea Lewis

Chelsea Lewis, communications associate, joined the League in 2016. She works with the communication department assisting with a variety of tasks. Prior to joining the League, she worked for Michigan Consumers for Healthcare since 2013, serving as the Communication Director.

Chelsea holds a Bachelor of Arts in journalism from Michigan State University. She is currently attending Grand Valley State University working towards a Master of Science in communication.

Contact: clewis@mlpp.org

 

 

From Safety Net to Springboard: Using the Family Independence Program to Help More Parents Build Their Skills

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Approximately 25,500 families in Michigan receive cash assistance through the Family Independence Program (FIP), including approximately 15,500 adult parents.1 Most parents receiving cash assistance are required to work in order to receive benefits. Due to the low household income limit for FIP eligibility, many families leave the program because parents earn too much to remain eligible. These parents often then find themselves stuck in low-paying, unskilled jobs that do not provide a secure economic future for their families and which cannot adequately cover costs such as child care.

Without in-demand occupational skills signified by a postsecondary credential such as a degree, certificate or license, it is difficult for FIP recipients to become economically self-sufficient. The Partnership, Accountability, Training, Hope (PATH) program, established in January 2013, encourages training as a strategy for achieving economic security, but federal restrictions prohibit the state from making full use of training opportunities for some FIP recipients. Because of Michigan’s high level of work participation, however, the state can implement several changes despite these limitations that would increase participants’ likelihood of success in training programs.2

Children who grow up in poverty are more likely to be poor as adults than those not raised in poverty, and the educational level of parents is an indicator of how far their children will go in education and skill building.3 For this reason, increasing the skills of FIP recipients is a sound, long-term two-generation strategy: by helping parents in the present, Michigan will help their children to become skilled adults, reducing their likelihood of being in poverty and needing public assistance in the future.

Background: Brief History and Structure of TANF

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (informally called welfare reform) that changed the structure of federally-funded cash assistance in the United States. This act replaced the federal cash assistance program Aid to Families with Dependent Children (AFDC) with the Temporary Assistance to Needy Families (TANF) block grant to states, through which each state would set up its own program within broad guidelines. While federal AFDC money to states was based on the number of cases the state had, going up or down with respective caseload increases and decreases, TANF set each state’s annual block grant according to the state’s 1994 AFDC spending levels. Nineteen years later, Congress has still not raised the amount of the block grant to each state. Michigan continues to receive $775 million per year, the same amount it received in 1997.

The two central features of TANF that marked a major change from AFDC are the establishment of a 60-month lifetime limit and stricter federal work requirements. States may not use TANF funds for families that include an adult who has received federal cash assistance for 60 months (consecutive or nonconsecutive) since the implementation of TANF. States are free to use their own funds to continue benefits to such families and to set their own time limits for those benefits. States are allowed to set time limits on federal benefits that are shorter than the 60-month limit, and many do. Michigan’s lifetime limit for receiving FIP assistance, established in 2006 and made stricter in 2011, is 48 months, a full year less than the federal amount. The federal limit does provide some flexibility to states through the hardship exemption, which allows a state to exempt up to 20% of its cases from the 60-month limit for reasons of hardship as defined by the state.

The other major change with TANF is the federal work requirement. A single parent with at least one child under 6 years old must participate in approved work activities for 20 hours per week; if the single parent’s children are between the ages of 6 and 17, the parent must participate in 30 hours per week of work activities. For two-parent families, the combined work hours must total at least 35 hours per week (55 hours per week if a family receives a federally-funded child care subsidy).

The 1996 law set forth 12 categories of work activities that can count toward the work requirement (some of the categories were further defined when TANF was reauthorized in 2005). Nine of these 12 categories are core activities that can count toward any number of hours of participation, and many recipients fulfill their entire work requirement through one core activity, usually unsubsi-dized employment. Participation in the three secondary activities can count only if the individual also participates in core activities for at least 20 hours per week (single parents) or 30 hours per week (two-parent families).

The allowable core and secondary activities are shown in Figure 1.

The percent of a state’s cash assistance caseload that is meeting the work requirements is known as the work participation rate (WPR). Each state has a WPR target of 50%, but that target can be adjusted by applying a caseload reduction credit—subtracting a percentage point from the work participation target for each percentage point that the state reduced its caseload since the baseline year of 2005 (Figure 2). Prior to 2006, the baseline year was 1995, and due to the large reduction following welfare reform, many states had an adjusted target of 0%. TANF imposes penalties on states whose WPR falls short of their adjusted target.

TANF policy states that no more than 30% of the families that a state counts toward its federal work rates may do so through vocational educational training or, for parents under age 20, school attendance or education directly related to employment. Most years, only 1-3% of Michigan’s caseload meeting the requirements consists of parents under 20 finishing high school, so this is not a concern when trying to bring up the number and percentage of recipients participating in vocational educational training.

The Importance of Postsecondary Credentials for FIP Recipients

Nearly all FIP recipients have no education beyond high school. About 25% do not have a high school diploma compared with 10% of Michigan’s general population, while about 75% have only a high school diploma (no postsecondary education) compared to less than 30% of Michigan’s general population. A very small percentage (1-3% most years) has some level of education beyond high school, though likely many or most of those did not finish a postsecondary program or attain a credential (Figure 3).

In past decades, helping a parent go from welfare to family-supporting work with only a high school diploma would not be a problem. As recently as the 1980s, a Michigan individual could find gainful employment (often in the manufacturing sector) immediately after high school graduation and begin a lifelong career. Since then, many jobs have been moved out of the country or automated, and many of the remaining entry-level jobs that lead to a career track require a higher skill level than before. As a result, workers with only a high school diploma are likely to remain stuck in low-paying work with little chance of promotion; real wages for Michigan workers with only a high school diploma have fallen from $36,234 in 1979 to $28,288 in 2014 (Figure 4).4

Of Michigan’s 969,565 working families, 12% have incomes below the poverty threshold (considered poor) and 32% have incomes below two times the poverty threshold (considered low income).5 Of the working families that are below the poverty threshold, 44% do not have a parent with any education beyond high school, and it is safe to assume that there are also many working poor families in which a parent enrolled in at least one postsecondary class but did not finish the program or receive a credential.6 Even some working families above the “low income” level experience difficulty meeting basic needs.7

For most people, becoming employed in jobs with a career track and livable wages requires some level of postsecondary training leading to a credential—a two- or four-year college degree, a certificate or a license. Such training pays off; from 2005 to 2012, Michigan workers with an associate degree earned an average of $8,139 per year more than those with only a high school diploma.8

Many cash assistance recipients are in a very economically precarious position. The FIP monthly grant will bring a family with no other income to less than one-third of the federal poverty threshold, though the grant is supplemented by Food Assistance Program benefits, which bring the percentage a little bit higher. When a parent begins to earn enough to bring his or her family to 75% of the poverty level, their family is no longer eligible for cash assistance and is likely to remain poor despite the parent working full time. If a recipient can become skilled and earn a credential before losing assistance, the chances of needing public assistance in the future will be greatly reduced and the family’s economic well-being more likely to improve.

As Figure 5 shows, each year through Fiscal Year 2012, Michigan has consistently had far below 30% of its FIP recipients who fulfill the federal work requirements do so through vocational education. If this pattern has continued since the launch of PATH in January 2013 (data is not yet available for fiscal years after 2012), then Michigan is not making full use of its ability to use FIP as a springboard to economic security.

In addition to underutilizing its ability to have up to 30% of its FIP population in education and training, Michigan also currently does not track the academic and work success of those who leave cash assistance. It is developing a P-20 educational data system, however, that tracks the educational progress of all students in all public (and some private) K-12 schools and postsecondary institutions, in adult education and in the workforce development organizations.9 If this data system would aggregate welfare recipients and those who have left assistance and track their progress through these systems, Michigan would be able to compile data to show what strategies work to help those on public assistance become more economically self-sufficient.

Recommendations

Because Michigan’s work participation rate (WPR) is so far above its target, the state can afford to have more of its recipients not meeting the federal work requirements and not counted toward the rate. There are a number of ways that Michigan can take advantage of this flexibility in order to help recipients attain postsecondary credentials and move into employment that pays a livable wage.10

Actively promote the vocational educational training option to recipients who are likely to succeed. Many FIP recipients are not ready for vocational educational training due to complicated family situations, learning disabilities or other barriers, or a lack of desire. However, for the many who would benefit and are considered likely to persist and complete a program, local Michigan Department of Health and Human Services (DHHS) offices should actively promote this option and facilitate its participants’ success. If in a future year higher percentages of FIP recipients successfully participate in vocational training, Michigan can make use of the flexibility provided by its high WPR to lift the 30% cap on counting this activity rather than turn away recipients who wish to participate.

Allow FIP recipients who successfully complete one year of a two-year vocational educational training program to complete their second year without additional work requirements. Because of the importance of attaining a postsecondary credential to increase success in the labor market, FIP policies should be improved to ensure that recipients who have made significant progress in their training programs can continue to study and receive cash assistance seamlessly, without new work requirements added on. These recipients will not be able to be counted as fulfilling work requirements in Michigan’s WPR for those 12 months.

Apply months of vocational educational training against a recipient’s 12-month limit only when the recipient completes enough hours in that category to satisfy the entire month’s federal work requirements. There is a 12-month limit on a recipient fulfilling all monthly work requirement hours through vocational educational training. Participation in this activity that exceeds the 12-month limitation may not be counted in the state’s work participation rate. According to federal TANF policy, if a recipient participates in vocational educational training even just one day in a given month and the state counts that activity in its WPR for the month, that month must count against the recipient’s 12-month limit for vocational education.

Recipients in vocational training programs may have some months in which they do not have enough vocational training hours to fulfill federal work requirements. In these months, Michigan should not count those hours as vocational educational training. If the recipient has enough combined hours in vocational educational training AND other countable activities to fulfill the work requirement in a given month, then the vocational program should be counted as “job skills training,” which does not have a time limit. If the recipient does not have enough countable work hours in any activity to fulfill work requirements, then that recipient cannot be counted in the state’s WPR for that month anyway and the hours spent in vocational educational training should not be documented as such against the recipient’s 12-month time limit.

Allow FIP recipients over 20 years old who have not completed high school to do so by taking adult education classes without additional work requirements, provided they take a minimum number of classes concurrently and maintain satisfactory academic performance. Michigan would not be able to count these cases toward its WPR. However, adult education is a crucial link to postsecondary education for low-skilled parents, and the longer the time needed to complete adult education classes and pass the General Educational Development (GED) exam, the more likely such parents will drop out. Allowing the parent to “speed up” the process by taking more than one class at a time with no other requirements makes it more likely that the parent will continue education into the postsecondary level. This is especially important for parents who need to take Adult Basic Education (ABE) classes before GED classes, as the longer time required in adult education increases the likelihood that they will drop out before completion.11

Allow FIP recipients who are participating in adult education or vocational training programs and are close to exhausting their 48-month lifetime limit to receive an additional year of FIP. Although the state has imposed a 48-month/four-year lifetime limit on families receiving FIP, the federal lifetime limit for supporting families with cash assistance through TANF is five years. This enables Michigan to continue giving assistance to parents who have not yet finished their education and training. Adult education students who are meeting their work requirements could continue to count toward the WPR, as would vocational educational training participants who have not exceeded the 12-month limit. (Extending FIP for these families beyond 48 months can only be done if the Legislature modifies Public Act 131 of 2011.)

Allow English as a Second Language (ESL) to count as a core or secondary activity. Although TANF allows other forms of adult education (ABE and GED classes) to count toward work requirements, it does not allow states to count time that recipients spend in ESL. Such recipients must learn English in addition to participating in their required weekly work hours. As the flexibility provided by Michigan’s high WPR allows, the state should permit recipients who are making satisfactory progress in ESL classes to count class and study time toward their weekly work requirements.

Use the statewide P-20 education system to measure the workforce success of those who leave cash assistance, with and without training. It is very difficult to track and measure the economic well-being of those who leave cash assistance in Michigan. In the past, the responsible state agency would send out voluntary surveys to former recipients that would have a very low response rate. Today, however, the state has a P-20 data system in place that measures education and workforce success and the system is being expanded. While preserving recipient privacy, Michigan should link this system with the DHHS data system in order to track parents when they leave FIP, measuring the success of those who have participated in education and training while receiving FIP compared to those who have not. This will help the state know what kind of programs and policies have been successful at facilitating the transition from cash assistance to family-supporting wages and job security.12

Conclusion

Cash assistance is a necessary safety net for parents who have barriers to finding or maintaining a job that enables them to meet their family’s needs, and the PATH program provides a three-week screening process to pinpoint such barriers. For many recipients, the barriers include a low level of marketable occupational skills, and a subset of these recipients lack basic skills in at least one academic area that are needed to attain occupational skills through postsecondary training. Without such skills, parents often remain either unemployed or stuck in low-paying jobs that do not pull them out of poverty or help them meet their children’s needs.

In keeping with its name, the Family Independence Program ought to use every available means to enable cash assistance recipients to acquire credentials leading to gainful employment and economic security. While not all recipients are able to do this, for the ones who are, FIP can be not only a temporary safety net but a springboard to skills, career and economic security—for the parents now and their children when they become adults.

skilling up michigan

 

Endnotes

  1. Michigan Department of Health and Human Services, Trend Report of Key Program Statistics, September 2015.
  2. The PATH program ended the prior program for work participation known as JET (Jobs, Education and Training). One of the main features of PATH is that it requires a 21-day application eligibility period in which recipients are screened for work readiness and barriers.
  3. Bassett, Meegan D., Considering Two Generation Strategies in the States, Working Poor Families Project, Summer 2014.
  4. Economic Policy Institute analysis of Current Population Survey data.
  5. Working Poor Families Project data generated by Population Reference Bureau from the American Community Survey, 2013.
  6. Working Poor Families Project, ibid.
  7. For more on the level of income that Michigan families must have in order to meet their basic needs without public or charitable assistance, see the Michigan League for Public Policy’s Making Ends Meet in Michigan: A Basic Needs Income Level for Family Well-Being, March 2014.
  8. Economic Policy Institute, ibid.
  9. P-20 is shorthand for an integrated educational system that extends from preschool to higher education and the workforce. For more on Michigan’s P-20 data collection system, go to: http://www.michigan.gov/cepi/0,4546,7-113-56472—,00.html.
  10. For further discussion on many of these recommendations, see Lower-Basch, Elizabeth, Amy Ellen Duke-Benfield and Lavanya Mohan, Ensuring Full Credit Under TANF’s Work Participation Rate, Center for Law and Social Policy, March 2014.
  11. Adult Basic Education (ABE) classes are those that bring the student to a ninth grade level in a given academic area, while General Educational Development (GED) classes bring students to a high school graduation level. For the very low-skilled, ABE classes are often a necessary prerequisite to GED classes and the necessity of completing them before GED classes prolongs their time in adult education, increasing the likelihood of dropping out.
  12. For more information on this subject, see Michigan League for Public Policy, The Key Ingredient: Data is Crucial to Building Michigan’s Workforce System, July 2011.

 

 

 

 

Michigan Road Funding Plan 2015 at a Glance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Road Funding Plan Benefits Wealthy Most

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$800M Budget Squeeze Looms With 2015 Road Funding Plan

 

Hard Hit to the General Fund

The roads plan REDUCES General Fund (GF) revenues by $806 million in budget year 2021 alone, because of diversion of GF and the expansion of the Homestead Property Tax Credit.

Additional REDUCTIONS in GF revenues will occur if and when GF growth triggers a rate reduction in the individual income tax. This has the long-term impact of capping GF growth, even as the costs of providing the most basic services increase.

Potential Budget Impacts:

    • Health and Human Services: Medicaid/human services account for the largest portion of the state’s General Fund at 42%, which means it will have the biggest bull’s-eye on it when budget cuts have to be made. Some of the programs that help our most vulnerable would be negatively affected.
    • Postsecondary Education: Cuts—or lacking sufficient increases—to higher education and community colleges would mean higher tuition and fees for students, making it difficult for many of our residents to attend college. Lawmakers could also shift some of these costs to the School Aid Fund, resulting in less money available for K-12 education.
    • Statutory revenue sharing that supports local communities and public safety has been cut by 58% since 2000, and as legislators have grown comfortable with it, it’s an area ripe for future cuts. Additionally, statutory revenue sharing is vastly underfunded. It’s not enough to merely hold it harmless, which is difficult to do when diverting $600 million for roads.
    • As lawmakers look for cuts, and as cuts become difficult, some may suggest looking at small revenue enhancements. One of the fears is that the Earned Income Tax Credit, one of the state’s most effective tools for encouraging work, reducing poverty and building economic security, could be targeted as it has in the past. This would raise taxes on about 780,500 families, who are raising over 1 million children.

Earned Paid Sick Days Support Public Health for All Children and Families

 

The Centers for Disease Control and Prevention says children and adults should stay home 24 hours after fevers subside. But most workers are not able to stay home when they’re obviously ill, let alone when they may still be contagious despite feeling physically better. In doing so, they put their coworkers, their customers and the general public at risk. Unfortunately, that does not outweigh the risks of losing a paycheck or even a job.

In a 2013 survey commissioned by Oxfam America, 1 out of 7 low-wage workers and 1 out of 5 low-wage mothers reported losing a job because they were sick or needed to care for a family member. Too many workers lose pay and risk workplace discipline and even termination when they take time off, so they often choose to go to work sick. Adults without earned paid sick days are 1.5 times more likely than adults with paid sick days to report going to work with a contagious illness like the flu or a viral infection. Moreover, these adults are also more likely to delay needed medical care which can lead to greater health complications that cost more money.

When working people have no choice but to go to work sick, they risk infecting others and delay seeking care. The lack of earned paid sick days is especially risky in food service and other jobs requiring frequent contact with the public:

  • More than 310,000 people in Michigan work in restaurants, an industry where most workers lack paid sick days. This puts workers and customers at risk for contagious illnesses like the flu or norovirus also known as “stomach flu.”
  • Child care and nursing home workers also often lack paid sick time putting the most vulnerable populations at risk.
  • In 2013, roughly 56,979 people died from influenza and pneumonia.

Earned paid sick days enable working parents to care for children and other loved ones when they are sick.

  • Nearly 1,500,000 children in Michigan live in families in which all parents work, including 2 of every 3 young children ages 0-5.
  • Earned paid sick days keep children healthy, prevent absences among teachers and students, and limit the spread of contagious diseases.
It’s a Win Win

Earned paid sick days benefit our economy . . .

Earned paid sick days decrease unnecessary healthcare costs. Universal access to paid sick days would eliminate an estimated 1.3 million emergency room visits each year, saving $1.1 billion annually in costs to individuals, private insurers, and public programs such as Medicare and Medicaid.

AND benefit public health.

People who are able to stay home when they’re sick prevent the spread of illness and keep us all healthier.

When parents can take time off, long-term health outcomes improve for themselves and their loved ones.

Having earned paid sick leave for all workers improves the health of individuals, children and families and the public at large. Support the move to secure paid sick leave in Michigan by taking action today! Visit http://mitimetocare.org.

 

 

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

Recommendations

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, http://www.senate.michigan.gov/sfa/Revenue/GFGPRevDistrib.PDF.
  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, http://www.cbpp.org/cms/?fa=view&id=1032.
  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 mitimetocare.org. 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 www.mitimetocare.org.

 

 

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