Rolling back progress

The Senate Finance Committee Wednesday approved a bill to reduce the state’s personal income tax rate from 4.25% to 3.9% by 2017, a move that would reduce state revenues by up to $874 million when fully implemented in Fiscal Year 2018.

While the purely political appeal of a tax cut during an election season is obvious, the League testified, based on a recently released report, that the risks to Michigan’s economy far outweigh any benefits. Low- and moderate-income workers will see little in return while the wealthiest taxpayers would benefit the most. (more…)

Tax cuts won’t grow the economy

A new report by the League demonstrates that across-the-board cuts in the state’s personal income tax would not boost Michigan’s economy, but could affect long-term prosperity by locking in cuts in funding for public schools, community colleges, universities, health care and public safety—the very services that fuel economic growth.

Despite the claims of several legislative leaders advocating for a tax cut, there is no evidence that income tax cuts generate good jobs or economic growth. In fact, a study of 65 years of data by the Congressional Research Service found that top income tax rates have had no discernible impact on economic growth, and states that cut taxes the most during the 1990s and 2000s saw their economies fall behind in job creation, as well as production and income growth. (more…)

A gift for the future

From the First Tuesday newsletter
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 The holidays are upon us, and I’d like to offer Michigan the gift that keeps on giving – 10 ways to invest in our future.

The generations that came before us knew what it took to build a Mighty Mac, freeways and strong universities. Yet today, when you hear about economic development, you often hear about tax cuts, not investments. We can’t cut our way to prosperity. We simply must pay it forward for future generations and give them the investments they need for a strong economy.

A recent report by Senior Policy Analyst Pat Sorenson offers 10 ways to invest in our economy. It’s the League’s gift for the future:

In early childhood.
2. Make sure all kids get
a great education – and a diploma!
3. Make college affordable 4. Encourage good health
with access to physical and mental health treatment 5. Offer help
with basic needs to those who cannot work or who cannot find
a job. 6. Invest in community services to attract businesses and young
professionals. 7. Generate revenue by strengthening the personal income tax,
based on the ability to pay. 8. Make sure businesses pay their fair share 9. Bring sales tax
into the modern age by taxing services and Internet sales. 10. End ineffective tax breaks
and put funds
into what works.

Happy holidays, and make sure to sign up for our Dec. 9 policy forum!

– Gilda Z. Jacobs

The Path to Prosperity: Ten Steps Michigan Must Take to Strengthen Its Economy

Full report in PDF | 10 Steps fact sheet

Michigan Cannot Cut Its Way to Prosperity

Over the last decade, Michigan policymakers have addressed the state’s economic and fiscal problems largely through a combination of budget cuts, tax shifts and reliance on one-time revenues–under the mistaken assumption that the state could cut its way to prosperity, and create jobs and economic growth through reduced business taxes. In fact, the path to economic prosperity requires a broader investment strategy, starting with the following 10 steps:

  1. Increase investments in early childhood education and care—beginning prenatally through school entry.
  2. Ensure that all children have access to a high-quality public education and receive a high school diploma.
  3. Make higher education an option for more residents.
  4. Provide access to the health and mental health services needed for healthy children, families and workers.
  5. Provide basic economic security for those who cannot work or find jobs.
  6. Invest in the community services needed to attract and retain business investments and young professionals.
  7. Strengthen the personal income tax to ensure it generates sufficient revenue and is based on the ability to pay.
  8. Make sure businesses are paying their share of taxes for the public services they rely on.
  9. Modernize the sales tax by expanding it to selected services and internet sales.
  10. Annually scrutinize all forms of spending, including tax expenditures or breaks, and reinvest funds into services and infrastructure that have been shown to create economic growth.

A Shared Interest in Economic Growth and Prosperity

Economic prosperity for all Michiganians is a goal that is shared by lawmakers on both sides of the aisle and their constituents. We want Michigan’s economy to grow, giving all residents the opportunity to find jobs that will support themselves and their families. We want our young people to stay in Michigan, rather than leave the state to find economic opportunity.

While the goal is shared, the best path to that prosperity has been disputed. Michigan, like the rest of the country, is trying to recover from the most severe recession in seven decades—one that sharply reduced state revenues and resulted in cuts to public services. State lawmakers responded to that crisis with a range of one-time budgeting strategies, budget cuts, and reliance on federal stimulus funds.

Economic development strategies during this fiscal crisis focused on “competitiveness,” narrowly defined as reductions in state and local taxes—despite the reality that research fails to support claims that lower state and local taxes are always better for state economies. In fact, higher taxes are often associated with better economic performance when they finance the engines of the economy, including high-quality education and better infrastructure.1

The Path to Prosperity

Michigan’s fiscal problems began before the national Great Recession, and its recovery from that recession has been slow. While the drop in auto jobs drove Michigan’s high jobless rate during the last decade, tax and budget policy decisions left state government with few options to soften the economic blows.

To address its growing fiscal problems, over the last decade Michigan relied heavily on reserved funds, one-time budget fixes and temporary federal funding. Between June of 2001 and December of 2002, the state relied on nearly $3.2 billion in one-time revenues to balance its budget, including a withdrawal of $1.3 billion from its “rainy day” fund. By 2011, the state was still relying on $1.4 billion in temporary revenues, including federal funds, tax amnesty programs, and debt service restructuring, along with budget cuts and reductions in the number of public employees.2

Michigan lawmakers also enacted tax policies that had the net effect of reducing state revenues available for vital public services. Michigan has two major state funds: the General Fund and the School Aid Fund. Over the last 15 years, significant changes were made in the state’s personal income tax—the primary source of revenue for the General Fund, and a major source of revenue for the School Aid Fund—as well as business taxes. These tax changes, along with Michigan’s declining economy and the national Great Recession, resulted in a drop in state General Funds of more than one-third (adjusted for inflation) since Fiscal Year 2000.3

Included in the tax changes were the following:

  • In 1994, Michigan’s personal income tax rate was decreased from 4.5% to 4.4%.
  • Beginning in tax year 2000, the personal income tax rate was reduced by one-tenth of a percentage point per year, with the final reduction to 3.9% occurring in 2004.
  • In 2007, in response to budget deficits, the personal income tax rate was increased to 4.35%, with a scheduled phase-out of 0.1% annually until October 2015, when the rate would have reached 3.9%.
  • In 2011, as part of a major state tax shift that reduced business taxes by 83%, while increasing personal income taxes by eliminating a range of tax credits and deductions, the personal income tax rate was maintained at 4.35%, with a rate reduction to 4.25% in January of this year. The net effect of the 2011 legislation was a state tax cut of $550 million annually, along with a shift in tax responsibility from businesses to lower- and middle-income families and retirees.4

Experiences in Michigan and other states—supported by the research—show that tax cuts cannot create economic growth or generate sufficient jobs to ensure economic opportunity for all. Studies conducted by economists over the last 40 years largely concluded that interstate differences in tax levels have little, if any, effect on relative rates of state economic growth.5 In fact, the five states that cut taxes the most in the 1990s had slower job growth than other states over the next economic cycle, with average annual growth in employment between 2000 and 2007 of only .3% compared with 1% for other states.6 Overwhelmingly, thriving, high-wage states are those with well-educated workforces, pointing to the need to invest in education and the types of services and quality of life that would attract well-educated workers.7

Michigan cannot afford to lock in the damage to public services that occurred over the last decade, accepting growing school deficits and city bankruptcies, reduced public safety, and crumbling roads and bridges as the “new normal.” To grow Michigan’s economy and ensure opportunity for all residents, state lawmakers must:

  • Invest in the services and infrastructure needed to create jobs and fuel economic growth, including effective public schools, community colleges and universities; healthcare services needed to ensure healthy children and workers; roads, bridges and public transportation needed to attract businesses; police and firefighters; and the libraries, parks and other community services needed to attract and retain a well-trained workforce.
  • Modernize and strengthen the state’s revenue system to generate sufficient funding for economic development priorities. While the pay-off of these investments is clear, Michigan has tied its hands by both failing to update its tax system to reflect current economic realities and consumer spending, and by dramatically reducing taxes on businesses.

The Ten Steps to Economic Prosperity

Prioritize Spending

1. Expand investments in early childhood development and care, including supports for families with children ages 0 to 3.

The research is clear: The single best predictor of economic prosperity is a state’s success in educating and preparing its workforce, and the path that holds the greatest promise for education achievement is the investment in young children. Leading economists, including Nobel Laureate James Heckman, have shown the high return on investment in high-quality early learning and care programs–in excess of 14% for the Michigan-based Perry Preschool Program.8

As part of the fiscal year 2014 state budget, Gov. Snyder and lawmakers increased funding for the Michigan Great Start Readiness Program by $65 million. Michigan’s expanded investment in preschool programs for at-risk 4-year-olds is a major step forward, but there is still much to be done to ensure that children are ready for school, including more attention to the first three years of life when the very architecture of children’s brains is being built in ways that affect lifelong learning. Greater investments in prenatal care, high-quality child care, and proven home visiting programs are critical.

Fast Facts:

  • The High Scope Research Foundation has documented that children who participate in the GSRP are more ready for school, perform better on MEAP tests four years later, are less likely to be held back a grade, and more often graduate from high school on time. Forty years later, GSRP graduates are more likely to hold jobs, earn more, rely less on public assistance, and are not as likely to be involved in criminal activity.
  • Each month, an average of 41,411 low-income or high needs Michigan children are in child care settings subsidized by the state, yet the state’s investment in child care has dropped precipitously over the last decade. As a result, Michigan ranks fifth lowest in the nation in its child care eligibility income limit, and ninth lowest in its average monthly reimbursement for center care for preschoolers.9
  • Michigan’s investments in children ages 0 to 3 are woefully inadequate. In addition to an underfunded child care system, over the last decade, Michigan has reduced funding for child abuse and neglect prevention programs for children ages 0 to 3, limited access to income and food assistance benefits, and provided minimal state funds for evidence-based home visiting programs.

2. Ensure that all children have access to a high-quality public education and receive a high school diploma.

Strong and effective public schools are the foundation for economic development in Michigan, ensuring a well-educated workforce and economic opportunity for all residents. In fact, a recent report by the Economic Policy Institute concluded that providing access to a high-quality education will likely do more to strengthen the overall state economy than anything else a state government can do.10

Despite broad public support for schools, state support has dropped, and debate rages about how to best improve educational outcomes. Between Fiscal Years 2003 and 2013, the minimum per pupil foundation allowance for K-12 public schools increased by only 4%, in the face of a 21% increase in inflation.11 The result has been deep budget cuts in Michigan schools, with 55 school districts across the state grappling with budget deficits, and school closures.12

One of the most concerning failures is persistently high dropout rates, particularly for African American, Hispanic, low-income and homeless youths. The prospects for Michigan residents without high school diplomas are bleak, and their failure to graduate has both personal and societal costs. A Michigan study of the personal and social consequences of dropping out of school found that dropouts face increasing labor market difficulties, including steep declines in the employment rates, real wages and annual earnings. In addition, dropouts are less likely to marry, form independent households, and be able to support their children.13 The implications for state government and taxpayers are significant. High school dropouts are more likely to live in poverty, turn to public assistance and become incarcerated. Further, because of their bleak job prospects and wages, they cannot bolster the economy through their contributions to the state’s personal, sales and incomes tax revenues.14

Fast Facts:

  • Statewide, for the class of 2012, of a total cohort of 129,689 students, 98,881 (76.2%) graduated on time, 12,884 (10.7%) dropped out, and 15,203 (11.7%) were not able to complete on schedule, but were still engaged in their high school education.
  • If the students who dropped out of the Class of 2011 in Michigan had graduated, the state’s economy would likely benefit from over $5 billion in additional income over the course of their lifetimes.15
  • In Michigan, the chances of dropping out of high school vary by race, ethnicity and economic status, with the highest dropout rates found among African American (19%), Hispanic (18%), and homeless students (18%).16

3. Make higher education an option for more residents.

In Michigan’s new knowledge-based economy, a college degree is key to economic prosperity. Unfortunately, average wages are lower in Michigan than the national average, along with the proportion of adults with a 4-year degree.17

There are many barriers to higher education in Michigan, including rapidly rising costs and cuts in needs-based scholarships. State support for public university operations has been reduced by $350 million (22%) since Fiscal year 2002, and is still $155 million (11%) below Fiscal Year 2011 levels.18 State support for community college operations has remained roughly flat since Fiscal Year 2001, while total college enrollments have increased by approximately 50%.19

Further, over the past decade, tuition rates at Michigan’s public universities doubled, yet Michigan policymakers cut need-based grants by 20%, while other states increased their need-based scholarships by 84%.20 Only 14% of Michigan students are offered needs-based scholarships, ranking Michigan 40th nationwide.

Failure to make higher education more accessible will stymie the state’s efforts to expand the economy and build the talent needed to draw business investments. Nationwide, young adults with less education face high unemployment and underemployment rates, particularly for certain racial and ethnic minority populations. According to the Economic Policy Institute, unemployment rates for young high school graduates jumped from 17.5% in 2007 to 32.7% in 2010, dwarfing the increases in prior recessions. Since that time (April 2011-March 2012) unemployment rates for high school graduates have declined only slightly to an average of 31.1%.21

Unemployment rates for African American and Hispanic high school graduates ages 17-20 have also skyrocketed, rising nearly 50% for African American graduates, and more than doubling for Hispanic students.22

Fast Facts:

  • In Michigan’s three largest metropolitan areas, the employment rate for adults ages 25-64 with a four-year degree or more exceeds 80%, compared with 38%-48% for persons without a high school diploma.23
  • Young high school graduates who do find jobs are earning less. Between 2000 and 2011, the real (inflation-adjusted) wages of young graduates nationwide declined by 11.1%.24
  • Because of cuts in funding for higher education, two-thirds of college students nationwide now graduate with an average student loan debt of nearly $27,000—up 41% since 1989. This debt results in a lifetime wealth loss of nearly $208,000 from lower retirement savings and home equity.25

4. Provide access to the health and mental health services needed for healthy children, families and workers.

Access to healthcare is an important and often overlooked contributor to the economic vitality of a community and state. A healthy workforce is a critical foundation for economic productivity, and helps to improve the state’s competitive advantage.

The Medicaid program is designed to meet the needs of low-income people who often have poorer health statuses and greater healthcare needs that could make it difficult for them to sustain employment. In approving the Medicaid expansion called for in the Affordable Care Act, the Michigan Legislature has taken a major step forward in improving the health of Michigan’s workforce.

A healthier workforce benefits both low-wage workers and their employers, and access to medical, mental health and preventive services is the key to improving workforce health and productivity. In addition, with employer-sponsored coverage continuing to decline, the expansion of Medicaid to those with incomes up to 133% of poverty can fill a growing void.26

Fast Facts:

  • Expanding Medicaid to 133% of the federal poverty line ($15,282 per year for a single person, $25,975 for a family of 3) will provide physical and mental health care coverage to an estimated 320,000 low-income Michiganians, and reduce the number of uninsured adults by 46%.27
  • Approximately 1.9 million Michigan residents (19%) now rely on Medicaid for health and mental health services.
  • Michigan has reduced spending for mental health services for low-income persons not eligible for Medicaid. It is estimated that half of the people seeking mental health treatment in Michigan are not eligible for Medicaid, and because Michigan does not provide mental health parity, many cannot afford services in the private sector. Between Fiscal Years 2008 and 2013, state funding for non-Medicaid mental health services decreased by 9%, resulting in waiting lists, a need to focus only on crisis services, and the elimination of programs such as school-based prevention.28

5. Provide basic economic security for those who cannot work or find jobs.

During economic downturns, many families find themselves facing layoffs or reduced work hours, a fact that is particularly true for families with the lowest educational and skill levels, or those with chronic health issues. State and federal programs that provide for such basic needs as food, clothing and shelter during times of high unemployment are a critical base for ensuring economic stability.

Without a basic safety net, families can lose their grounding in the economy altogether, experiencing homelessness, hunger, energy crises, or lack of access to transportation or other supports needed to seek work and hold jobs. Sadly, the impact of this complete destitution on children—including the likelihood of succeeding in school—can affect the next generation of families and workers.

In 1996, national welfare reforms resulted in the Temporary Assistance for Needy Families block grant to states, along with stronger work requirements for persons receiving basic income assistance, and time limits on assistance. Federal and state safety net policies are now more focused on the laudable goals of encouraging work and helping low-income working families, but are less effective at providing the basic supports children and families need when parents cannot work or find jobs.

Fast Facts:

  • During the national recession and into the recovery (December 2007 to December 2011), Family Independence Program caseloads fell by 17% in Michigan, while the number of unemployed rose by 20%.29
  • In March 2013, the number of Michigan households receiving FIP fell to its lowest level in 45 years—since February 1968—when it was 45,930.30
  • Falling caseloads, and declines in total TANF spending for FIP cannot be explained solely by improvements in the economy. According to the House Fiscal Agency, gross TANF spending for FIP has declined by $210.1 million or 54%, with the most significant policy change causing this decline being the adoption of more stringent state and federal lifetime limits for FIP which began Oct. 1, 2012.31
  • The maximum FIP benefit is $492 per month, representing less than one-third of the federal poverty line. Between 1996 and 2012, FIP benefits, adjusted for inflation, fell nearly 27%.32
  • After years of steady growth, the number of families receiving federally funded food assistance has begun to drop,in part because of a state policy decision to impose an asset test. Between Fiscal Years 2011 and 2013 (through March of 2013), caseloads fell from 967,566 to 912,755—a decline of 6%.33
  • Between December 2009 and 2011, TANF income assistance caseloads in five states, including Michigan fell by a total of approximately 84,000 families—more than the net national caseload decline over that period. 34

6. Invest in the community services needed to attract and retain business investments and young professionals.

In order to attract the highly educated workforce needed in the 21st century economy, businesses must consider the quality of local services and amenities, including public schools, libraries, parks, the arts and recreational opportunities. In addition, corporations rely on strong public services in order to conduct their business, including police and fire protection, and public transportation.

One of the significant ways that state government has supported counties, cities, villages and townships has been through state revenue sharing payments, which have been cut dramatically in the last decade. While the budget for the upcoming fiscal year includes a 4.8% increase in revenue sharing payments to local governments, it does not begin to offset the losses suffered. Over the last 12 years, local revenue sharing has been cut by more than $6 billion, with funds used to plug holes in the state budget and pay for state tax reductions. The result has been cuts in desperately needed services, including local police and fire protection, road and bridge maintenance, and supports for seniors.35

Fast Facts:

  • If Michigan’s statutory local revenue sharing allocation had been fully implemented, payments to local governments in Fiscal Year 2011 would have been approximately $914 million, instead of the $416 million that was actually provided.36
  • Fewer than one-third of the local governments that received statutory payments in the early 2000s receive them today, and funding to cities, villages and townships, which peaked at $684 million in Fiscal Year 2001, dropped to $225 million in Fiscal Year 2013—a 67% cut.37
  • State cuts in revenue sharing have cost Detroit nearly $200 million, helping to push the city into bankruptcy.38

Modernize the Revenue System

7. Strengthen the personal income tax to ensure it generates sufficient revenue and is based on the ability to pay.

The state income tax is a fundamental pillar of the state’s revenue system, generating approximately $7.9 billion in Fiscal Year 2013. Revenue from the income tax represents 63% of the state’s General Fund of $9.3 billion, and 18% of the School Aid Fund.39

Michigan is one of only seven states with flat rate taxes for personal income.40 With the credits and deductions allowed under Michigan law for lower-income earners, Michigan’s personal income tax is moderately progressive overall, but certainly not as progressive as states that have adopted graduated income taxes that impose a higher tax rate on the highest-income earners.

Further, with the 2011 tax shift, credits and deductions intended to reduce the income tax burden on low-income families were lost, the most significant being the Michigan Earned Income Tax Credit and the Homestead Property Tax Credit.

The reduction in the state EITC—from 20% of the federal EITC to 6%–has reduced the progressivity of Michigan’s personal income tax. With that tax policy change, Michigan’s lowest-income families are now paying a higher effective tax rate (for all state and local taxes) than any other income group.41

8. Make sure businesses are paying their share of taxes for the public services they rely on.

A number of states, like Michigan, have cut business taxes deeply, selling the cuts as a quick path to economic and job growth. In Fiscal Year 2007, taxes on Michigan businesses generated $1.9 billion or 22% of the state’s General Fund. In Fiscal Year 2013, business taxes are expected to generate approximately $352 million, or less than 4% of state General Fund revenue.42

Unfortunately, business tax cuts are unlikely to produce what they claim, and can actually thwart growth by reducing state revenues to the point that the state cannot invest in schools, roads, and public services that are fundamental to the economy in the long run.

Corporate income tax cuts are unlikely to have a positive impact on a state’s rate of economic growth or the pace at which it generates private sector jobs. Business tax cuts generally produce no net short-term economic stimulus because Michigan, like most states, is required to balance its budget each year, so it must offset revenue losses from corporate tax cuts by cutting services or increasing household taxes.43

To balance the state budget in an economic downturn while reducing business taxes, Michigan both cut services deeply and increased taxes on low- and moderate-income individual taxpayers. The budget cuts could adversely affect long-term growth in the state by weakening the public services businesses need and rely on–including high-quality educational systems, good police and fire protection, and access to well-maintained roads and transportation. Budget cuts and tax increases also affect Michigan’s economy by taking money out of the hands of consumers.

Fast Facts:

  • Tax changes passed by the Michigan Legislature in 2011 made Michigan’s overall tax system significantly more regressive by cutting business taxes by 83%, while increasing taxes for individual taxpayers by 23%.
  • As a result of the 2011 tax shift, approximately two?thirds of all businesses no longer have to file a state business tax return, and most businesses are enjoying a net tax reduction.

9. Modernize the sales tax by expanding it to selected services and internet sales.

Michigan’s sales and use taxes generated approximately $8.3 billion in Fiscal Year 2013. Michigan’s 6% sales tax rate ranks it (along with four other states) 11th lowest among the 45 states with a sales tax.44 In the current fiscal year, most Michigan sales tax revenue is dedicated to the School Aid Fund (73%), the General Fund (16%) and local government revenue sharing (10%).45

Even with a 1974 Constitutional amendment to eliminate sales and use taxes on food and prescription drugs, Michigan’s sales tax is regressive because low-income residents pay substantially more in sales tax as a share of their income than do higher-income taxpayers. In fact, sales taxes make up 60% of low-income families’ total tax bill, and the bottom 20% of earners in the state pay 6.7% of their family incomes on sales and excise taxes, compared with less than 1% for the top 1% of earners.46

Since Michigan’s sales and use taxes were adopted in the 1930s, consumer spending habits have changed dramatically, shifting from the purchase of goods, which are taxed in Michigan, to services, which largely are not. In addition, the growth of Internet sales has resulted in lost revenues, and placed “main street” businesses at a competitive disadvantage.

Fast Facts:

  • Michigan manufacturing employment fell by 37% between 1990 and 2011, compared with 32% nationally. Knowledge-based services (healthcare, social assistance, information, finance and insurance, professional services and management of companies) grew by 30% during that same time.47
  • In 2007, Michigan taxed only 26 services, fewer than 38 states and the District of Columbia.48 The estimated loss of sales tax revenue due to the exemption of most services was $10 billion in Fiscal Year 2010.49
  • The total amount of revenue loss from catalog, e-commerce and remote sales is expected to grow to $451 million in the current fiscal year.50

10. Annually scrutinize all forms of spending, including tax expenditures or breaks, and reinvest funds into services and infrastructure that have been shown to create economic growth.

Tax expenditures are often described as “silent spending,” and include tax deductions, deferrals, exclusions and credits given to individuals or businesses. Tax expenditures are considered a form of spending because they allocate funds for specific public purposes, but are not debated and approved during the annual budget process. They have a significant impact on state revenues because they reduce or eliminate revenues that would have otherwise been collected and available for needed public services. Currently there is no formal process in place to evaluate the effectiveness of tax expenditures in Michigan. Unlike direct appropriations that are part of the annual budget process, most tax expenditures are put in place and never reviewed.

A 1991 state task force reviewing the impact of tax expenditures recommended the following to ensure that tax expenditures are effective and achieving their intended purpose:

  • Include a tax expenditure report as part of every Executive Budget.
  • Conduct a fiscal impact analysis of all tax expenditure bills,and include a sunset on tax expenditures to ensure that they are evaluated.
  • Create a formal process for the review of all tax expenditures,including a joint subcommittee of the taxation and appropriations committees.
  • Establish criteria for evaluating tax expenditures.

More than two decades later, only the first recommendation has been adopted, and tax expenditures are now included in annual Executive Budgets. Still missing is a formal process for evaluating whether or not tax expenditures are serving an important public purpose or are simply unnecessary and costly giveaways.

Fast Facts:

  • The Treasury Department forecasts that tax expenditures from state business and individual income taxes, sales and use taxes, and transportation taxes alone will be $21.6 billion in 2014, $1 billion more than the $20.6 billion the state is expected to collect in revenues from those taxes. Over 70% of those tax breaks will be for goods and services that are currently exempt from state sales and use taxes.51
  • The 2011 tax shift legislation repealed many of the credits allowed in the former Michigan Business Tax, as well as the EITC and other personal income tax credits, so tax expenditures are expected to fall by 8.6% between fiscal years 2012 and 2013.52


1.   Michael Mazerov, Academic Research Lacks Consensus on the Impact of State Tax Cuts on Economic Growth: A Reply to the Tax Foundation, Center on Budget and Policy Priorities (June 17, 2013).

2.   Mitchell E. Bean, A Problem 10 Years in the Making, House Fiscal Agency (April 6, 2011).

3.   Kyle I. Jen, State Budget Update, House Fiscal Agency presentation prepared for Rep. Genetski (June 21, 2013).

4.   Outline of the Michigan Tax System, Citizens Research Council of Michigan (March 2012).

5.    Michael Leachman, Michael Mazerov, Vincent Palacios, and Chris Mai, State Personal Income Tax Cuts: A Poor Strategy for Economic Growth, Center on Budget and Policy Priorities (March 21, 2013).

6.    Ibid.

7.   Noah Berger and Peter Fisher, A Well-Educated Workforce is Key to State Prosperity, Economic Analysis and Research Network (August 22, 2013).

8.   James J. Heckman, Ph.D., The Case for Investing in Disadvantaged Young Children, Big Ideas for Children: Investing in our Nation’s Future, First Focus (September 15, 2008).

9.   Child Development and Care, Presentation to the House Appropriations Subcommittees on School Aid and Education Committee, Michigan Department of Education (August 6, 2013).

10. Noah Berger and Peter Fisher, A Well-Educated Workforce is Key to State Prosperity, Economic Policy Institute (August 20, 2013).

11.  K-12 Schools Minimum Foundation Allowance, Senate Fiscal Agency (updated September 18, 2012).

12.  Michigan Public Schools with Deficits for Fiscal Year Ending June 30, 2012 and Projections for Fiscal Year 2013, Michigan Department of Education (May 30, 2013). Also Kathleen Gray, Record 55 School Districts in Michigan Facing Deficits, Detroit Free Press (August 13, 2013).

13.  Andrew Sum, et al. An Assessment of the Labor Market, Income, Social, Health, Civic, Incarceration, and Fiscal Consequences of Dropping Out of High School: Findings for Michigan Adults in the 21st Century, Center for Labor Market Studies, Northeastern University (January 2008).

14.  Ibid.

15.  The High Cost of High School Dropouts: What the Nation Pays for Inadequate High Schools, Issue Brief, Alliance for Excellent Education (November 2011).

16.  Patricia Sorenson, The FY 2014 Budget: Gains for Some Children & Families but Deep Disparities Persist, Michigan League for Public Policy (July 2013), utilizing data from the Michigan Department of Education.

17.  Lou Glazer and Don Grimes, Michigan’s Transition to a Knowledge-Based Economy: Fifth Annual Progress Report, Michigan Future, Inc. (October 2012).

18. Kyle I. Jen, State Budget Update, House Fiscal Agency presentation prepared for Rep. Genetski (June 21, 2013). Reflects only operational funding, omitting funds contributed by the state to prefund retiree health benefits through payments to MPSERS.

19. Ibid.

20. Peter Ruark, Keeping It Affordable in Michigan: Disinvestment in Financial Aid Grants Hurts Students and Their Families, Michigan League for Public Policy (November 2012).

21. Heidi Shierholz, Natalie Sabadish, and Hilary Wething, The Class of 2012: Labor Market for Young Graduates Remains Grim, Economic Policy Institute (May 3, 2012). Data are for high school graduates ages 17-20 who are not enrolled in further schooling.

22. Ibid.

23. Lou Glazer, Michigan Employment by Education Attainment II, Michigan Future, Inc. (June 17, 2013).

24. Heidi Shierholz, Natalie Sabadish, and Hilary Wething, The Class of 2012: Labor Market for Young Graduates Remains Grim, Economic Policy Institute (May 3, 2012).

25. Robert Hiltonsmith, At What Cost? How Student Debt Reduces Lifetime Wealth, Demos (August 2013).

26. Jan Hudson, Affordable Care Act Medicaid Expansion: A Win for the State and Its Low-income Residents, Michigan League for Public Policy (September 2012).

27. Ibid.

28. Jan Hudson, Shoring Up Mental Health Services, Michigan League for Public Policy (January 28, 2013), and Margaret Alston, Susan Frey and Steve Stauff, Mental Health Spending, Community Health Background Briefing, House Fiscal Agency (December 2012).

29. LaDonna Pavetti, Ife Finch, and Liz Schott, TANF Emerging from the Downturn a Weaker Safety net, Center on Budget and Policy Priorities (March 1, 2013).

30. Michigan Department of Human Services Information Packet, DHS Budget and Grant Management Division (June 2013). Excludes Extended Benefit FIP (EFIP).

31. Kevin Koorstra, Temporary Assistance for Needy Families (TANF), Fiscal Focus, House Fiscal Agency (November 2012).

32. Ife Finch and Liz Schott, The Value of TANF Cash Benefits Continued to Erode in 2012, Center on Budget and Policy Priorities (March 28, 2013).

33. Michigan Department of Human Services Information Packet, DHS Budget and Grant Management Division (June 2013).

34. LaDonna Pavetti, Ife Finch, and Liz Schott, TANF Emerging from the Downturn a Weaker Safety net, Center on Budget and Policy Priorities (March 1, 2013).

35. Letter to the Michigan Legislature from David Lossing, President, Michigan Municipal League (May 21, 2013).

36. Revenue Sharing Keeps Our Economic Engines Running, Michigan Municipal League (February 2011).

37. Using State Shared Revenues to Incentivize Local Government Behavior, State Budget Notes, Citizens Research Council of Michigan (July 2012).

38. Robert Kleine, How the State of Michigan Helped Bankrupt Detroit, Detroit Free Press (August 4, 2013).

39. State of Michigan Revenue Source and Distribution, House Fiscal Agency (March 2012).

40. “The ITEP Guide to Fair State and Local Taxes,” Institute on Taxation and Economic Policy, 2011.

41. Data provided to the Michigan League for Public Policy by the Institute on Taxation and Economic Policy. ITEP data reflects permanent law in Michigan enacted through January 2, 2013 at 2010 income levels. Includes total state and local taxes as a share of personal income, post-federal deduction offset.

42. State of Michigan Revenue Source and Distribution, House Fiscal Agency (June 2006 and March 2012).

43. Michael Mazerov, Cutting State Corporate Income Taxes is Unlikely to Create Many Jobs, Center on Budget and Policy Priorities (September 14, 2010).

44. “Michigan’s Sales and Use Taxes, 2010,” Michigan Department of Treasury, August 2011.

45. “State of Michigan Revenue Source and Distribution,” House Fiscal Agency, July 2012.

46. Fact Sheet: The Michigan EITC and Taxes Paid by Working Families, Michigan League for Human Services, February 2011, data from the Institute on Taxation and Economic Policy; and data provided to the Michigan League for Public Policy by the Institute on Taxation and Economic Policy. ITEP data reflects permanent law in Michigan enacted through January 2, 2013 at 2010 income levels.

47. Lou Glazer, From Factories to Knowledge-based II, Michigan Future, Inc. (July 29, 2013).

48. Eric Scorsone and David Zin, The Michigan Economy and State Revenue: A 10-Year History (1999-2009), Senate Fiscal Agency (April 2010). Data based on data from a Federation of Tax Administrators survey.

49. Michigan’s Sales and Use Taxes, 2010, Michigan Department of Treasury (August 2011).

50. Ibid.

51. Rick Haglund, State Government ‘Spends’ $30 Billion More This Year than You Think, Bridge Magazine, Center for Michigan (June 25, 2013).

52. Michigan Department of Treasury Executive Budget Appendix on Tax Credits, Deductions and Exemptions, fiscal years 2005 through 2012-2013, and State Spending from State Resources Appropriation History, Senate Fiscal Agency, Updated August 31, 2012.


Michigan lags 33 other states in education spending

Michigan is failing to invest in its future by shortchanging education. In fact it’s spending $572 per student less than it did in 2008, according to a report out today by the Center on Budget and Policy Priorities.

Since 2008, Michigan has cut 9% in per-pupil funding, adjusted for inflation, putting it behind 33 other states that cut less or invested more in education. The report found that states have not restored the education spending cuts made during the Great Recession. (more…)

Michigan funding for schools lower than pre-recession

Contact: Judy Putnam (517) 487-5436

Michigan’s Funding for Schools Much Lower Than Before Recession
Cuts Hurt Economy in Short- and Long-Term

Michigan has made extensive cuts to school funding since the start of the recession. These unnecessary cuts deepened the recession, slowed the recovery, and will make Michigan less prosperous in the future.

Michigan has cut investment in K-12 schools by 9 percent since 2008, a deeper cut than 33 other states, according to a report released by the Center on Budget and Policy Priorities, a nonpartisan policy research organization based in Washington, D.C.

“It’s very clear that states that have good schools and educated workforces reap the benefits through stronger economic growth. We are moving in the wrong direction by reducing our investment in our schools and students,” said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “These cuts have weakened our ability to educate our state’s kids. There will be consequences for Michigan’s economy.”  (more…)

Labor Day Report: Michigan’s Paycheck Blues

 Full report in PDF 

While wages  have gone up for higher earners in Michigan, the majority of Michigan workers earn less than workers earned 30 years ago after adjusting for inflation. This is especially true for African American workers. It is also clear that for many workers, one job is not enough to meet the needs of themselves and their families. Raising the minimum wage and making postsecondary education and skills training more accessible are two ways that the state can address the consequences of low-wage work.

Michigan’s Declining Wage

Most Michigan workers have seen a decline in the earning power of their wages over the past 30 years. Those earning the median wage in 2012 ($15.89 per hour) can purchase 7% less with their earnings than median wage earners could in 1982, while those earning the 90th percentile wage ($38.25 per hour) can purchase 22% more than their 1982 counterparts. (Figs. 1 and 2)

In 1982, Michigan had the 4th highest median wage in the country, but following the loss of high-paying manufacturing jobs, it fell to 24th highest in 2012. While most states, including six of the eight Midwest states, experienced gains in their median wage even when adjusted for inflation, Michigan’s median wage fell by 7%. This drop means that when measuring median wage change from 1982 to 2012, Michigan ranks second to worst among the 50 states and District of Columbia. (Only Alaska had a  bigger wage drop.) (Fig. 3)

The Racial Wage Gap

The decline of Michigan’s median wage has been more pronounced for African American workers than white workers.1 The data reveals two startling gaps. First, the difference between Michigan’s median wage for white workers ($16.85 per hour) and that of African American workers ($12.65 per hour) is the widest for the 34 years for which data is available. While median wages tracked about equally for the two races during 1979-1982 and the African American wage even exceeded the white in 1983 and 1984 (likely due to massive layoffs in automobile manufacturing), the gap between the respective median wages began to widen in 1988. The gap became widest in 2012, when the white median wage was $4.20 an hour (25%) higher than the African American median wage. (Fig. 4)

The other startling gap when comparing median wage by race is the decline in the African American median wage itself, compared with that of white workers. Between 1982 and 2012, the white median wage declined by only 1% when adjusted for inflation, while the African American median wage declined by 24%. Most of the gap during those 30 years occurred between 1992 and 2002, when white workers made great wage gains and African American workers’ wages remained flat. The celebrated prosperity for Michigan workers during the 1990s did not include African American workers. (Fig. 5 )

The median wage gap between white and African American workers in Michigan is likely due to a complicated mix of reasons. The following factors may be contributing to the gap:

1) Gaps in the educational level of Michigan’s white and African American workers. The percentage of African Americans without a high school diploma is twice as high as the percentage of whites without one. Conversely, 40% of white Michigan residents have an associate degree or higher compared with 23% of African Americans. The median wage for someone with an associate degree is 60% higher than that of someone without a high school diploma, and for someone with a bachelor’s degree, 164% higher. (Fig. 6)

2) Wage disparities between white and African American workers with similar academic credentials. A recent report from the George-town University Center on Education and the Workforce shows startling differences in the median wages for several selected majors (electrical engineering, for example, has a $90,000 median wage for whites and a $68,000 median wage for African Americans).2 Although the report does not explore the reasons for the disparity, it does indicate that while attaining a postsecondary credential can greatly increase earnings for African American workers, some racial disparity will continue to exist.

3) Residential segregation by race. Although formal segregation was abolished in the 1960s, the metropolitan Detroit area remains one of the most segregated in the country. A paper from the Rutgers University School of Management and Labor Relations finds a link between occupational and residential segregation, saying that “residential patterns that segregate black and white youth increase the likelihood that these whites will find better-paying jobs in overwhelmingly white occupations and that blacks will end up in lower-paying occupations filled mostly by other blacks.”3

Michigan Wages and Poverty

In 2011, 28.5% of Michigan workers did not earn a wage high enough to lift a family of four out of poverty.4 That was the highest level of “poverty wage” workers since 1993.  The percentage earning poverty wage decreased steadily for several years following 1993, as the economy grew and the state prospered. After 2003, the only year in which the percentage dipped below one-fifth of workers, it began to rise steadily as Michigan’s unemployment began to grow and workers began to experience financial hardship. (Fig. 7)

Michigan is out of sync with most of the country on this, however. While most states reduced the percent of workers that were earning below the poverty wage between 1982 and 2011, Michigan had a 14% increase, ranking 46th in the nation  in progress in this area. (Fig. 8) 

Six of the 10 occupations in Michigan with the highest employment have a median wage that will not lift a family of four out of poverty. The workers are retail salespersons, cashiers, restaurant workers, janitors and stock clerks. The median wages of 12 of the top 50 occupations will not lift a family of four out of poverty, and the median wages of 37 of the top 50 occupations pay less than what is needed to bring a single parent

with two children to economic self-sufficiency. (The self-sufficiency level for a single parent with two children is estimated by the Michigan League for Public Policy to be $44,365 in total household income.) (Appendix A)

Accounting for more than 704,000 jobs in the state, the 50 lowest-paying occupations in Michigan do not pay enough to bring a family of four out of poverty, nor come anywhere near to bringing a single parent with two children up to self-sufficiency level. (Appendix B)

Some Consequences of the Prevalence of Low-Wage Jobs

A recent paper by the Center for Economic Policy Research shows that low-wage work does not necessarily lead to higher-wage work, and can in fact have adverse effects for workers’ future employment prospects. As with long periods of unemployment, long periods of low-wage work may be associated with the erosion of accumulated skills and may also suggest to potential employers that a worker has low productivity. The paper points out that in light of this, a worker’s long-term earning potential would be better enhanced by a period of education and training than by working in a low-wage job.5

Having so many workers in jobs that do not pay enough to meet their families’ needs also puts a strain on public assistance programs such as Food Assistance, State Emergency Relief and the Family Independence Program (although most low-wage workers earn too much to qualify for FIP even if their families are below the poverty line). As there is a shortage of child care that is affordable to low-wage workers, some may be forced to have their children cared for in environments that are not ideal, or to miss work because of child care needs.

Finally, when wages are low, the economy suffers. Workers spend less in their communities when they have less, and the state pulls in less tax revenue for maintaining public infrastructure and services. Taking steps to both increase wages at the lower level and to give workers the skills they need to advance to higher wage levels will have a ripple effect as businesses and units of government see increased revenues.

Policy Recommendations

While there is no silver bullet to solving the state’s economic challenges, there are things that Michigan can do to help low-wage workers. One is to raise the minimum wage to make up its erosion in recent years due to inflation. There is currently a bill in the Michigan Legislature to increase the minimum wage to $10 per hour by 2016 and index it to inflation in the years after that. This would help to ensure that the workers at the lowest wage levels do not continue to experience heavy erosion in their wages and buying power. An increase to $10 would raise the wages of 1 million Michigan workers, 85% of whom would be 20 years old or over.6

Keeping postsecondary training accessible will also help low-wage workers. A recent report by the Michigan League for Public Policy shows that as college tuition is rising, state financial aid is being cut.7 There are also many barriers for low-wage, low-skill workers who want to acquire skills through postsecondary education to increase their success in the labor market, such as the need for remediation and child care. Increasing investment in workforce and training programs, and in wrap-around services for parents who need to balance school with work and child care, can help many low-wage workers get the skills they need to increase their success in the labor market.


1. Data is unavailable for other racial categories such as Latino, Asian or Native American.
2. Carnevale, Anthony.P., Jeff Strohle and Michelle Melton, What’s It Worth: The Economic Value of College Majors, Georgetown University Center on Education and the Workforce, 2011, (, accessed August 20, 2013.)
3. Von Lockette, Niki D., Occupational and Residential Segregration: The Confluence of Two Systems of Inequality, Rutgers University School of Management and Labor Relations, (no date). (, accessed August 20, 2013.)
4. 2011 is the latest year of data available for this measure.
5. Schmitt, John, Low-Wage Lessons, Center for Economic Policy Research, January 2012. (, accessed August 20, 2013.)
6. Cooper, David and Doug Hall, Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost, Economic Policy Institute, March 2013. (, accessed August 20, 2013.)
7. Michigan League for Public Policy, Keeping It Affordable in Michigan: Disinvestment in Financial Aid Grants Hurts Students and Their Families, November 2012.

The key to prosperity — education or tax cuts?

If low taxes were the key to prosperity, South Dakota, Tennessee and Alabama would be the most prosperous states in the nation.

Unfortunately, helping a state to become prosperous is not that simple, but the canard persists anyway.

As a new report by the Economic Policy Institute shows, there is no correlation between a state’s taxes (including local taxes) as a share of personal income and the prosperity of the state as indicated by the state’s median wage. South Dakota, Tennessee and Alabama remain among the least prosperous states in the nation. (more…)

Let’s make high-quality education a priority

This week, United Ways, their partners and caring citizens are engaged in a nationwide campaign—United Way Education Action Week —to raise awareness about the need to prioritize investments leading to a high quality education for all children, including the critical milestone of reading proficiency by fourth grade.

A quick scan of the latest Michigan Kids Count data book makes it clear that Michigan has a long way to go to make sure that children have the reading skills they need by the end of third grade to succeed in school, earn a high school diploma, and move on to the postsecondary studies and training needed to prosper in our changing economy. (more…)

The FY 2014 Budget: Gains for Some Children & Families but Deep Disparities Persist

Full report in PDF | Executive Summary

The Fiscal Year 2014 budget has been signed by the governor, and despite some exciting wins for children and families, there were several critical issues left undone, including improvements in economic security. Of great concern is the reality that even where some progress was made, many children were left behind, with disparities based on race and ethnicity continuing to be deep and discouraging.

The governor has established a set of performance measures through the MI Dashboard ( In addition, the Michigan League for Public Policy, in conjunction with the Annie E. Casey Foundation and the Skillman Foundation, 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 the decisions made by policymakers with outcomes for Michigan families, children, schools and communities.


Performance outcomes:

  • Child poverty: Child poverty, a key indicator in the governor’s dashboard, is rising dramatically, with especially high rates for certain racial and ethnic groups. One in four Michigan children—nearly 560,000 statewide—now live in poverty. Michigan’s child poverty rate is up 32% since 2007, when less than one in five children were poor.1 Half of all black or African American children, and 38% of all Hispanic or Latino children, now live in poverty.
  • Parents without secure employment. More than one-third of Michigan children (35%) live in families where no parent has full-time, year-round employment—up 13% since 2008.2 In 2011, 61% of black or African American children, 44% of Hispanic or Latino children, and 49% of children identifying with two or more races lived in families where no parent had full-time, year-round employment.
  • Food insecurity. More children are now facing the possibility of not having adequate food. The percentage of Michigan children who in the previous 12 months faced an uncertainty of having enough food increased by 25% between 2006 and 2010, with over 450,000 children facing food insecurity.

The Legislature took the following actions affecting economic security for families with children:

  • Cut tax credits for many low- or moderate-income working families. In 2011, the Michigan Legislature adopted an unprecedented tax shift that reduced taxes on businesses by 83%, while increasing taxes on individuals by 23%. As part of that shift, Michigan’s Earned Income Tax Credit, an effective anti-poverty tool that helps hard-working families with incomes below or moderately above the federal poverty line, was cut by 70%. As a result, nearly 12,000 more children are at risk of falling into poverty, as their parents lose the struggle to cover work-related costs and make ends meet. Also lost were credits to offset high housing costs for families and the child deduction. Despite the EITC’s proven success and past bipartisan support, lawmakers failed to restore the credit even in the face of an unexpected $702 million in revenue for fiscal years 2013 and 2014.
  • Limited access to Family Independence Program benefits. Changes in FIP policies and eligibility have resulted in thousands of very poor Michigan children losing basic income assistance. The Fiscal Year 2014 budget reduces funding for the FIP by $41 million to a total of $214.3 million, projecting caseloads will fall 14% in the upcoming fiscal year. FIP caseloads have been declining dramatically in recent years, in large part the result of policy decisions, including the adoption in 2011 of changes in lifetime limits for assistance. Approximately seven of every 10 FIP recipients are children, and 60% of those children are under the age of 9. In the face of rising child poverty, FIP caseloads will have fallen 42% in the five-year period between fiscal years 2010 and 2014.
  • Partially restored the clothing allowance for children in families receiving FIP. The Michigan Legislature included $2.9 million in the Fiscal Year 2014 budget to partially restore the clothing allowance provided to 21,000 children in FIP cases that do not include an adult in the 2013-14 school year. The Snyder Administration chose to eliminate the clothing allowance this fall—the only direct client benefit cut as a result of federal sequestration cuts. Because of earlier cuts, an additional 120,000 children who had previously received a fall clothing allowance will still be left behind.
  • Reduced unemployment insurance. In 2011, the Michigan Legislature became the first in the country to cut state unemployment benefits for families from 26 to 20 weeks—at a time when Michigan’s unemployment rate was fifth highest in the nation. And, the 75,000 unemployed Michigan families who have exhausted their 20 weeks of state unemploy-ment benefits and are relying on federally funded Emergency Unemployment Compensation had their federal benefits cut by 11% as part of federal sequestration.
  • Restricted access to food assistance. In the Fiscal Year 2014 budget, Michigan legislators cut funding for the Food Assistance Program by $683.7 million in recognition of the loss of temporary federal funds, as well as caseload reductions—largely based on changes in FAP eligibility. The budget assumes that caseloads will fall from the appropriated level for this year of 1.1 million cases, to 876,650 in 2014—a 19.4% drop. Until the adoption in 2011 of an asset limit for families receiving FAP, caseloads had been rising rapidly, along with the need for food assistance.


Performance outcomes:

  • Insurance coverage for children for health and mental health services. Michigan has a history of effectively covering children through the Medicaid and MIChild programs. In 2011, only 4% of Michigan children were uninsured, compared with 7% nationwide. However, uninsured rates were significantly higher for American Indian, Asian and Pacific Islander, and Hispanic and Latino children.
    Poorly covered are low-income adults, including low-income women of childbearing age who are at high risk for poor birth outcomes because of pre-existing and untreated health conditions, and the lack of access to preconception care.
  • Infant mortality. Despite being a key indicator on the governor’s dashboard, Michigan’s infant mortality rate continues to be higher than most states, with Michigan ranking 37th among the states. While overall infant mortality rates fell slightly recently, too many Michigan infants, and particularly infants of color, continue to die unnecessarily. Death rates for African American infants are more than two-and-onehalf times higher than white babies.
  • Preventive dental care. Currently more than 440,000 low-income children are covered by the Healthy Kids Dental Program in 75 of Michigan’s 83 counties. Many of the state’s most populated areas are not yet covered, including Oakland, Macomb and Wayne counties—with a disproportionate impact on children of color.
  • Lead poisoning. While the number of children with confirmed elevated lead blood levels has declined dramatically in Michigan, some areas of the state still have very high rates of lead poisoning, disproportionately affecting children of color. The city of Detroit had over half the state’s lead poisoning cases in 2012; the second highest was in Grand Rapids. The highest percentage of lead poisoning cases in 2012 was in Highland Park.3


The Legislature took the following actions affecting children’s health:

  • Approved, following the signing of the final budget for Fiscal Year 2014, a bill to expand Medicaid to low-income parents and individuals. The passage of Medicaid expansion in Michigan will extend healthcare and mental health services to 320,000 low-income parents and individuals, including women of childbearing age. By giving more women access to healthcare before and between pregnancies, Medicaid expansion will improve both the preconception health of mothers and birth outcomes, including reductions in infant mortality.
  • Expanded funding for preventive dental care for children. The Legislature approved the governor’s proposal to add $11.6 million to expand the Healthy Kids Dental program to cover an additional 70,500 children in three Michigan counties, including Ingham, Ottawa and Washtenaw.
  • Approved a small increase in funding to prevent infant mortality. The Legislature approved—at a reduced level of $2 million—the governor’s recommendation for new funding to continue to implement Michigan’s infant mortality reduction plan.
  • Expanded funding to remove lead hazards in areas with high incidences of lead-poisoned children. The final 2014 budget includes $1.25 million in state General Funds to remove lead hazards from homes in areas with high incidences of lead-poisoned children—funding that was not included in the governor’s budget. This increase brings total funding to $4.15 million, an increase of 43%.


Performance outcomes:

  • Third grade reading. Reading proficiency by third grade is a critical predictor of academic success, and is a core indicator in the governor’s dashboard. Roughly three of every four 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 proficient at reading by third grade, as measured by the Michigan Educational Assessment Program, has increased from 63% in 2007-08 to 68% in 2012-13.4 However, based on national standards—the National Assessment for Education Progress—the percentage of Michigan fourth-graders with reading skills below proficiency level is more than double the state percentage calculated on the MEAP.

Of even more concern is the fact that reading proficiency among fourth-graders varies so dramatically by race/ethnicity and family income. Among Michigan fourth-graders, nine of every 10 African Americans and almost eight of every 10 Hispanic or low-income students cannot demonstrate proficiency compared with slightly over half of white non-Hispanic students and slightly under half of higher-income students.5

  • High school completion. Although fewer young people have been dropping out of high school, great disparities still ex-ist based on race, ethnicity and economic status. Statewide, for the class of 2012, of a total cohort of 129,689 students, 98,881 (76.2%) graduated on time, 13,884 (10.7%), dropped out, and 15,203 (11.7%) were not able to complete on schedule, but were still engaged in their high school education.6

Overall, young men are more likely to drop out (12.7%) than women (8.6%). The highest dropout rates are among African American (19.4%), Hispanic (18.3%), and homeless (17.8%) students, as well as English Language learners (17%).

  • College access. The governor’s dashboard includes as a core indicator for postsecondary education the cost of higher education as measured by tuition and fees as a percent of median family income. MI Dashboard shows the state moving in the wrong direction on this indicator, with the cost of Michigan four-year colleges and universities increasing from 15.9% of median family income in 2008-09, to 17.1% in 2010-11—an increase of nearly 8% in just two years. By contrast, the national average for tuition and fees at four-year institutions was only 12% of median family income in 2010-11.

At most Michigan public universities, tuition has more than doubled in the past 10 years. Tuition also climbed at the state’s more affordable two-year colleges, but not as dramatically. Still, many community college students are low income and have struggled to foot the bill without tuition assistance. Unfortunately, Michigan ranks 40th in the nation in the percentage of full-time students receiving need-based grants, and over the last 10 years, while states across the country increased investments in need-based grants by an average of 84%, Michigan decreased its funding by 20%.7

The Legislature took the following actions related to a high quality education for all children:

  • Significantly expanded state-funded preschool for at-risk 4-year-olds. The final 2014 budget increases funding for Michigan’s Great Start Readiness Program by $65 million, for total funding next year of $174.3 million. This increase opens up approximately 16,000 new half-day slots for 4-year-olds. As part of the increase, the Legislature also raised the payment for a half-day slot and targeted funds to the lowest income children.
  • Provided a small increase to K-12 public schools. The Legislature, in contrast to the governor, included a partial restoration of the per-pupil foundation allowance for public schools, although the increase was not enough to make up for the cuts already suffered by school districts. Also approved was $36 million (up from the governor’s recommendation of $24 million) for equity payments to districts with foundation allowances of less than $7,076.
  • Increased funding for university operations slightly. The Legislature approved a 1.8% increase for university operations, slightly under the governor’s recommendation of 2.0%. This small increase does little to rectify the deep cuts taken in higher education over the last decade, including a 15% cut in Fiscal Year 2012. Total Fiscal Year 2013 university appropriations per student in Michigan are 31.4% lower than they were in Fiscal Year 2001 in real dollars, and 48% lower on an inflation-adjusted basis.8
  • Provided a small increase for financial aid for low-income students. The Fiscal Year 2014 budget includes an increase of 7% (from $43.8 million to $47 million) for the state’s Tuition Incentive Program, which provides financial aid to students who are Medicaid-eligible.


Performance outcomes:

  • Suspected and confirmed child abuse or neglect. Between 2005 and 2011, child abuse and neglect investigations and confirmed victims rose in Michigan. In 2011, 7% of all children in Michigan lived in a family investigated for alleged abuse or neglect—a total of 171,200 children. Children in Michigan were 14% more likely to live in a family investigated for abuse or neglect in 2011 than in 2005. The number of confirmed victims of child abuse and neglect rose by over one-quarter (29%) during that time, with over 33,000 confirmed victims in 2011. Over 80% of the cases involved neglect, often a by-product of poverty, which escalated dramatically throughout Michigan during that same period.
  • Children in out-of-home care. Despite increases in suspected child abuse and neglect and confirmed victims, the rate of out-of-home care placement (in the homes of foster parents or relatives) due to maltreatment dropped by almost one-third in Michigan between 2005 and 2011. African American or black children are disproportionately over-represented in Michigan’s child welfare system, and are more likely to be placed in foster care.9

The Legislature took the following actions related to child safety:

  • Reduced funding for foster care services based on caseloads, but increased payments to private agencies. The final budget includes $181.1 million for foster care payments, a reduction of 12% over the current year, and 5% below the governor’s recommendation for Fiscal Year 2014. Foster care caseloads are expected to continue to fall to 6,250 next year. Foster care administrative rates for private child placing agencies will increase by $3 to a total of $40 per child per day.
  • Recognized increased subsidies for adoptive parents. Lawmakers included $28 million for a $3 per child per day rate increase for all adoption subsidy cases. The increase was implemented this year, but funding had only been included for new adoption subsidy cases.
  • Reduced funding for child welfare staffing expansions related to the settlement agreement from a lawsuit against the state by Children’s Rights, Inc., a national advocacy organization. Michigan entered into a settlement agreement related to a lawsuit claiming that DHS was unable to move children quickly into safe, stable and permanent homes, provide children with adequate services, provide safe and stable foster homes, or prepare children who “age out” of the child welfare system. To address the settlement, the governor in May 2012 requested a total of 577 new child welfare workers for the current fiscal year. The governor’s Fiscal Year 2014 budget cut the recommended number of workers by 81 positions to a total 496. The Legislature cut another 80 positions, for a total staffing cut of 161.
  • Continued to underfund prevention and family support services. While funding for some child welfare services has increased in recent years as a result of the litigation against the state, resources for services to prevent maltreatment, and to strengthen and reunify families, continues to be woefully inadequate. Lawmakers:
    • Provided $2.5 million in federal funds for pilot programs in Kalamazoo, Macomb and Muskegon counties to prevent children from birth through age 5 from entering foster care.
    • Reduced funding for other family preservation programs by $4.2 million, including cuts in Families First, Child Protection and Permanency, and Family Reunification.
    • Cut contracts for runaway youth services by 10%.



1. KIDS COUNT data center, the Annie E. Casey Foundation at
2. Ibid.
3. 2012 Annual Data Report on Blood Lead Levels of Children in Michigan, Michigan Department of Community Health (April 30, 2013)
4. Education Dashboard Data File, Michigan Education Dashboard.
5. Kids Count in Michigan 2012 Data Book, Michigan League for Public Policy. Higher income is defined as family income above 185% of the federal poverty level ($42,200 for a family of 4.)
6. 2011-12 Graduation Dropout Snapshot, MI School Data, Michigan Department of Education (6/12/2013).
7. Ruark, P., Keeping It Affordable in Michigan:  Disinvestment in Financial Aid Grants Hurts Students and Their Families, Michigan League for Public Policy (November 2012).
8. Jen, K.I., Higher Education Background Briefing, House Fiscal Agency (February 2013). Calculations are based on fiscal year equated students.
9. Kids Count in Michigan 2012 Data Book, Michigan League for Public Policy; and KIDS COUNT data center, the Annie E. Casey Foundation, using a Child Trends analysis of data from the Adoption and Foster Care Analysis and Reporting System (AFCARS), made available through the National Data Archive on Child Abuse and Neglect, at




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