2011 Individual Income Tax Policy Change Will Cause Individual Income Tax Burden to Rise in 2013

Posted on February 22, 2012 by Mike King

The Citizens Research Council of Michigan recently published 2009 Tax Revenue Comparison: Michigan and the U.S. Average, an analysis of state and local government finance data recently released by the U.S. Census Bureau for 2009.  The report shows that Michigan’s 2009 state and local individual income tax revenue of $18.91 per $1,000 of personal income ranked 35th highest in the nation.  Only 6 states who levy an individual income tax generated less individual income tax revenue per $1,000 of personal income than Michigan, which was challenged more by the Great Recession than most states.

Michigan’s individual income tax revenue per $1,000 of personal income fell from 11 percent below the U.S. average in 2008 to 17 percent below the average in 2009.  The decline was due to several of the wealthier states, including New York and Maryland, implementing tax policy changes in 2009 that prevented their individual income tax revenues from falling as severely as other wealthy states, such as California and Massachusetts, which kept the U.S. average from falling even further from 2008.  Notably, New York’s tax burden (relative to the U.S. average) increased by 17 percentage points from 2008 to 2009.

Due to changes in individual income tax policy in May 2011, Michigan’s individual income tax burden will increase by 2013.  Michigan’s individual income tax rate was frozen at 4.25 percent and the tax base was expanded by eliminating a number of reductions and exemptions and repealing or reducing a large number of credits.  These tax policy changes are expected to increase revenue by $1.3 billion in fiscal year 2013,which will cause Michigan’s individual income tax revenue per $1,000 of personal income to rise relative to the U.S. average (from 35th highest in 2009 to 31st highest in 2013).  Michigan’s individual income tax burden will be 2 percent above the U.S. average in 2013 compared to 17 percent below the average in 2009.

These individual income tax policy changes, combined with replacement of the Michigan Business Tax (MBT) with a state corporate income tax (CIT) in January 2012, will shift the tax burden from businesses to individuals by 2013 in an attempt to make the state more economically competitive.

 

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Rising School Retirement Contribution Rate Erodes Value of Foundation Grant

Posted on February 21, 2012 by Craig Thiel

Among other things, Governor Snyder’s fiscal year 2013 (FY2013) budget proposal confirms the increases in the required retirement contribution rate that local school districts will face in the coming years.  To help districts plan, the FY2012 budget included a projected rate of 27.4 percent of payroll for FY2013.  The FY2013 budget confirms the earlier projected figure and provides an estimate for FY2014 (31.2 percent of payroll).  The rate increases for FY2013 and FY2014 will further erode the value of the per-pupil foundation allowance, which is frozen at the FY2012 level for the next two years under the Governor’s budget recommendation.  While the new budget provides additional per-pupil revenues to help offset the rising retirement costs that districts will face, these are insufficient to fully cover the incremental retirement obligations.  CRC highlighted this in a recent summary presentation of the Governor’s budget recommendation.

All traditional public school districts, community colleges, a few charter schools, and a handful other entities participate in the Michigan Public School Employees Retirement System (MPSERS), a state-administered defined benefit pension plan.  In addition to traditional pension benefits, the system provides members with other post employment benefits (OPEB), mainly health insurance, during retirement.  (Schools and others are responsible for providing health insurance to members during their working years.)  MPSERS benefits (pension and OPEB) are largely financed by assessments charged, as a percentage of active payrolls, to schools and others.  Pension benefits are prefunded (meaning resources are set aside today to pay benefits in the future), while OPEB are currently financed on a pay-as-you-go basis (meaning there is no prefunding and the system pays for the retiree benefits as they occur from current dollars).

The required contribution rate to finance MPSERS benefits rose in FY2012 to 24.5 percent of payroll from 20.7 percent of payroll in FY2011.  The Governor’s budget sets the FY2013 rate at 27.4 percent, an increase of 2.9 percentage points.  Also, the new budget provides notice that the rate will increase again in FY2014 to 31.2 percent.  Compared to the current year assessment, the FY2013 rate increase equates to a per-pupil cost of $166 and the FY2014 rate bump equals a $215 per-pupil increase.  These increases are not a complete surprise to local districts as the retirement rate has been rising steadily for some time and the recent early retirement program for school employees contributes to the increases.

While the specific reasons for the rate increases can be complex and a function of a number of different things, generally three factors account for what is taking place currently.  As previously mentioned, an early retirement program offered in 2010 to school employees increases the rate as costs of the program are being amortized over a five-year period.  Also, the performance of the retirement system’s investment portfolio has not consistently met assumed rates of returns.  Also, reductions in school employment levels in recent years causes the unfunded obligations of the system to be spread across a declining payroll base, adding to the retirement rate.   

The retirement contributions to MPSERS are largely financed by the per-pupil foundation grant.  The FY2013 budget does not include an increase in the foundation grant for districts (which varies by district).  The minimum grant is frozen at the FY2012 level of $6,846, $300 below the FY2011 amount.  The Governor does not recommend changing the grant in FY2014.

The Governor’s budget recommendation includes increases in per-pupil funding (outside of the foundation) that districts can use to cover the MPSERS rate increase, but the amounts are insufficient to fully finance the incremental costs arising from the retirement contribution rate increase.  Districts will be eligible to receive, in addition to their foundation grant, up to $178 per pupil in student performance/”best practices” incentive-based funding in FY2013, up from $100 per pupil in FY2012.  It is likely that that not all districts will receive the full amount.  Also, districts will receive funding, estimated at $115 per-pupil, specifically to help them offset the MPSERS rate increase in FY2013.  Districts received a similar allocation in FY2012 in the amount of $100 per pupil.  In total, and compared to the current year budget, districts will receive an additional $93 per pupil (outside of the foundation grant).  However, the MPSERS rate increase requires districts, on average, to spend an additional $166.  Therefore, on net, districts will realize a reduction in per-pupil funding of 1 percent, as reflected in the table below.

 Per-Pupil Funding Changes Compared to FY2012

 

FY2012

FY2013

FY2014
Foundation (minimum)

 $   6,846

 $   6,846

 $   6,846

Best Practice/Performance Funding

 $      100

 $      178

 $       65

Retirement Contribution Incr. Cost Offset

 $      100

 $      115

 $      115

  Subtotal

 $   7,046

 $   7,139

 $   7,026

  % Change from FY2012

 

1.3%

-0.3%

 

 
Retirement Contribution Incr. (compared to ’12)

 $        -  

 $     (166)

 $     (215)
  Net Change

 $   7,046

 $   6,973 (-1.0%)

 $   6,811 (-3.3%) 

The financial costs associated with the retirement rate increases for FY2013 and FY2014 represent further erosion of the foundation grant for districts.  The chart below examines the inflation-adjusted foundation grant (FY2012$) with and without changes in the retirement rate since FY1995 (when districts first became responsible for financing the contributions to MPSERS).  Holding the retirement rate constant, the real value of the grant in FY2004 was $8,100 and factoring in the rate changes between FY1995 and FY2004, the value of the grant was $8,170.  Since that time and projecting things to FY2014 shows that the value of grant, after MPSERS rate adjustments, would fall to $5,821 (or $5,932 with the additional non-foundation per-pupil resources provided in FY2012 to FY2014).  In contrast, the real value of the grant, holding the MPSERS rate constant, would be $6,593 in FY2014.

..

 

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Comparing CRC’s Tax Burden Rankings with the Tax Foundation’s Index

Posted on February 15, 2012 by Mike King

The Citizens Research Council of Michigan recently published 2009 Tax Revenue Comparison: Michigan and the U.S. Average, an analysis of state and local government finance data recently released by the U.S. Census Bureau for 2009.  On January 25, 2012, the Tax Foundation, a nonpartisan tax research group based in Washington, D.C., released its own tax burden analysis, 2012 State Business Tax Climate Index.

In CRC’s analysis, Michigan ranked 6th highest in corporate income tax revenue per $1,000 of personal income; 35th highest in individual income tax revenue per $1,000 of personal income; 31st highest in general sales tax revenue per $1,000 of personal income; and 11th highest in property tax revenue per $1,000 of personal income compared to the rest of the country in 2009.

In the Tax Foundation Index, Michigan ranks 2nd highest in corporate tax; 40th highest in individual income tax; 44th highest in sales tax; and 21st highest in property tax compared to the rest of the country in 2012.  Besides comparing two different tax years, the differences in comparative tax rankings between CRC’s analysis and the Tax Foundation Index can be explained by differences in what the two groups are trying to measure.

CRC’s analysis compares tax burdens by state for each of the major state and local government tax revenue sources in 2009.  It uses 2009 combined state and local government tax revenue data from the U.S. Census Bureau, and tax revenue as a percent of personal income as the chosen measure of tax burden.  Using revenue projections for tax policy changes enacted in Michigan in 2011, the analysis projects Michigan’s comparative tax ranking in 2013 (as it would be reported by the U.S. Census Bureau).

The Tax Foundation Index, however, compares business tax climate by state, not the tax burden of individual tax revenue sources.  In its Index, the Tax Foundation does not use tax revenue data from the U.S. Census Bureau or from any other source.  Instead, they have devised a weighted scale based on five components: corporate tax, individual income tax, sales tax, property tax, and unemployment insurance tax.  Each component issues a score for each state’s business tax climate on a scale from zero (worst) to ten (best).

A heavier weighting is applied to those components with the greatest variability in scoring.  Individual income tax is weighted the heaviest (33.1 percent) and unemployment insurance tax is weighted the least heavy (11.1 percent).  Within each component there are two equally-weighted sub-indexes that measure the impact of tax rates and tax base.  These sub-indexes contain both scalar (0 to 10) and dummy variables (0 to 1).  Component scores are normalized to create final scores to compare between states.  For a more in-depth description of the Tax Foundation’s methodology, please read the Methodology section of their report.

In summary, the CRC analysis and the Tax Foundation Index are measuring different things.  The Tax Foundation uses a combination of tax rate and tax base to determine a score (and subsequent ranking) for each component of taxation to measure the overall business tax climate, while CRC uses tax revenue and personal income to determine tax burden (and subsequent rankings).

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Michigan Estimated to Have Lowest Corporate Income Tax Burden in 2013

Posted on February 14, 2012 by Mike King

The Citizens Research Council of Michigan recently published 2009 Tax Revenue Comparison: Michigan and the U.S. Average, an analysis of state and local government finance data recently released by the U.S. Census Bureau for 2009.  The report shows that with corporate income tax revenue of $2.12 per $1,000 of personal income Michigan ranked 38th highest in the nation.  Since four states do not levy a corporate income tax, there were only 9 states with lower corporate income tax burdens than Michigan.  Michigan corporate income taxes were 45 percent below the U.S. average relative to personal income in 2009.

However, the 2009 corporate income tax burden as reported by the Census Bureau is misleading.  Since the Michigan Business Tax (MBT), the direct business tax in Michigan in 2009, was comprised of both an income component and a modified gross receipts component, the Census Bureau assigned a majority of MBT revenue in 2009 to its general sales tax designation instead of the entirety of revenue to its corporate income tax designation.  Seventy percent of MBT revenue was assigned to the general sales tax and 30 percent was assigned to the corporate income tax to mirror the revenue generated by the gross receipts component compared to the income component, respectively.

The Census Bureau assignment of 2009 MBT revenue resulted in an inflated general sales tax burden and an undervalued corporate income tax burden.  If 100 percent of MBT revenues had been assigned to the corporate income tax category, Michigan would have ranked 6th highest instead of 38th highest in corporate income tax revenue per $1,000 of personal income in 2009; that adjusted ranking reflects a corporate income tax burden 83 percent above the U.S. average (compared to 45 percent below the average using the Census data).

The Census Bureau report is instructive in estimating future comparative tax burdens resulting from changes in tax policy and their estimated effect on revenue.  In Michigan, the MBT was replaced in January 2012 by a state corporate income tax (CIT) that taxes a narrower base and fewer firms and is expected to generate substantially less revenue than the MBT.  The Senate Fiscal Agency estimates a loss of roughly $1.6 billion in fiscal year 2013 once the CIT has been fully phased-in.  With this substantial reduction in corporate income tax revenues, even a 100 percent assignment of CIT revenues to corporate income taxes by the Census Bureau instead of the 30 percent assignment of MBT revenue will not prevent Michigan’s corporate income tax burden (as reported by the Census Bureau) from decreasing significantly in 2013.

If estimated CIT revenues in fiscal year 2013 were substituted for MBT revenues in 2009, Michigan would rank 46th highest in corporate income tax revenue per $1,000 of personal income (62 percent below the U.S. average) and 47th highest in corporate income tax revenue per capita (67 percent below the U.S. average and last among states that levy a corporate income tax), down from 38th and 41st in 2009, respectively.  Only Hawaii would have a lower corporate income tax as a percent of personal income than Michigan among states that levy the tax.

If the CIT was enacted to place Michigan’s corporate tax climate in a more competitive position compared to the rest of the country, the Census report data and SFA revenue estimates show that it will accomplish that and then some by fiscal year 2013.

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K-12 Employment Declines Exceed Private Sector Declines

Posted on February 10, 2012 by Jeff Guilfoyle

Preliminary employment totals for 2011 suggest that Michigan finally ended its long streak of annual employment declines.  Michigan lost jobs for 10 consecutive years, before finally adding 61,000 jobs in 2011.  Much of this decline was driven by significant job losses in the private sector.  Michigan’s private sector shed 769,000 jobs between 2001 and 2010, a 19.3 percent employment decline.  In 2011, Michigan’s private sector added 76,900 jobs, a 2.4 percent increase.

Michigan has also lost jobs in many sectors of the government.  Last week CRC reported on employment declines in state government.  Many other sectors of government have also seen significant declines, including K-12 education. 

Employment in local K-12 public schools is classified by the U.S. Bureau of Labor Statistics as “Local Government Elementary and Secondary.”  Employment in this sector peaked in 2003 at 250,900 jobs.  Since 2003, K-12 education has seen significant employment declines, with employment in 2011 averaging just 189,900.

In fact, in percentage terms, the decline in K-12 employment exceeds the decline in the private sector.  In 2011, private sector employment averaged 17.3 percent below the peak employment level of 2000.  K-12 employment did not peak until 2003, but 2011 employment averaged 24.3 percent below that level (and 22.3 percent below the 2000 level).  In addition, while private sector employment increased by 2.4 percent in 2011, jobs losses for K-12 continued with employment falling by 3.2 percent. 

Much of the employment decline is presumably due to budget cuts made by local school districts that are struggling with reductions in state aid and rising health and retirement costs.  Part of the K-12 employment decline can be explained by a drop in the number of pupils.  The number of pupils in Michigan peaked in 2003 at 1.71 million.  Between 2003 and 2011, the number of pupils declined by 8.5 percent to 1.57 million.  In addition, if a school district replaces employees of the district with private sector employees, this shows up in the data as a drop in K-12 employment even though these individuals may still be working in a school.  An example of this would be a school district contracting with a private firm to provide food service.  Under this scenario, K-12 employment would drop and private sector employment would increase. 

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State Government Employment Continues to Shrink

Posted on February 3, 2012 by Craig Thiel

The Michigan Civil Service Commission recently released it 32nd annual workforce report for fiscal year 2011 (FY2011).  The report shows that the Michigan state government classified workforce continues to shrink and that it currently stands at levels last seen 40 years ago in the early 1970s.  The recent update also provides insight into more current trends involving employee pay and fringe benefits as well as the state’s overall payroll.  In many respects the FY2011 data represents another data point in a consistent long-term trend.  However, the new release also shows the effects of recent decisions designed to further reduce the workforce and address escalating payroll costs.

After rising steadily throughout the 1970s and then falling slightly in the 1980s, state government classified employment levels have been trending downward since the early 1990s, with some brief periods of volatility.  The pace of decline sped up considerably during the 2000s.  Civil Service Commission data shows one of the largest year-over-year declines during the last decade occurred in FY2011.  The workforce shrank by 5.5 percent (from 50,615 employees to 47,818 employees); only the annual change in FY2002 (5.7 percent) was larger.

The sizeable contraction of the state workforce in FY2011 was mirrored by a healthy reduction in the total state payroll; the first of its kind since the early 2000s.  Overall, the aggregate state payroll (salaries and fringe benefits) fell from $4.79 billion to $4.68 billion, a 2.3 percent decline.  A decline of similar magnitude occurred in FY2003 (2.6 percent), when the workforce also fell by 5.5 percent.  Measured against the amount of total state expenditures (which also declined in FY2011), the state payroll accounted for 10.4 percent; slightly below the percentage in FY2010 and well below the recent high in FY2008 (11.1 percent of total expenditures).  As a slice of state government spending, payrolls are shrinking.

The workforce drop, and the attendant payroll decline, partially resulted from an early retirement incentive offered to state employees in late 2010.  The effects of this early retirement package are seen in the FY2011 update of the average salary figure, which declined from $54,121 to $54,048.  Older (higher paid) workers were replaced by newer employees that are paid less.

Other policies also helped control the growth of the overall payroll figure in FY2011.  For example, non-represented classified employees (about 16,000) did not receive a previously agreed-to base pay increase in FY2011 (unionized workers received a 3 percent pay hike per the collective bargaining agreements).  Also, changes in the employer/employee health insurance premium-sharing were made to require employees to pick up a larger share of the costs.  Combining the salary and fringe benefit changes reveals that average total compensation (per employee) in FY2011 only increased by 1.1 percent, well below the 4.3 percent annualized rate of growth that occurred from FY2000 to FY2010.

While state government was successful in FY2011 achieving state payroll savings through a combination of reductions in force and changes in employee compensation, these strategies are not likely to be replicated each year.  The FY2011 state workforce contraction (and savings) was largely aided by an early retirement incentive and other reductions to employee compensation, which will be difficult to reproduce frequently with the same effect.

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Detroit Income Tax Rate Rollback Scheduled for July

Posted on January 20, 2012 by Craig Thiel

Barring a legislative change, the City of Detroit’s municipal income tax rates (resident and nonresident) will be rolled back in July for the first time since 2003.  These reductions will occur because the City failed to meet three of the four criteria in state law that would prevent the rollback from occurring.  The rate reductions are estimated to cost the City $8.5 million on a full-year basis.  The estimated revenue loss, while minor in the big picture of Detroit’s finances, comes at a time of considerable fiscal stress for the City.

State law (City Income Tax Act) authorizes Michigan cities to levy a municipal income tax on resident individuals, non resident individuals working in the city, and corporations.  Twenty-two cities have availed themselves of this revenue option to supplement property taxes to support municipal finances.  Generally, the Act limits the rate levied on resident individuals and corporations to 1%, and 0.5% on nonresident individuals.  However, certain exceptions are allowed under the law, including for cities with a population of 600,000 or more (Detroit is the only city that qualifies).  A special provision allows Detroit to levy the tax at a rate of 3% on resident individuals, 2% on corporations, and 1.5% on nonresident individuals.  Prior to 1999, Detroit taxed individuals at the maximum rates allowed and corporations at 1%.

Public Act 500 of 1998 amended the City Income Tax Act to reduce the income tax rates for resident and nonresident taxpayers in Detroit.  Beginning with a tax rate of 3% on residents (1.5% on nonresidents) in 1999, the law provides that the resident tax rate is to be reduced by one-tenth of a percentage point per year, with the nonresident rate reset to one-half of the resident rate. The City’s income tax rates were reduced each year from 1999 until 2003, until the rates were 2.5% for residents and  1.25% for nonresidents.    

The reductions were to occur each year for a ten-year period until the new rates were 2% and 1% respectively, provided certain unfavorable financial conditions related to the city, as defined in the law, did not occur.  The scheduled rate reductions were part of an agreement related to major changes in the state revenue sharing formula contained in PA 532 of 1998, which guaranteed Detroit a fixed sum of state-shared revenues for 8 years.

Under PA 500 of 1998, the scheduled rate reductions can be halted if the City applies to the State Administrative Board and demonstrates that any three of four conditions are met:

  • Two consecutive years of withdrawals from the city’s budget stabilization fund or exhaustion of the fund balance;
  • A year-to-year decline in income tax revenue, after adjusting for inflation, of more than 5%;
  • A city unemployment rate of 10% or higher; or
  • A provision which compares the growth ratio of the city’s taxable value with the comparable statewide figure and computes a ratio which must fall below .80.

The City met at least three of the criteria to halt the scheduled rate rollbacks for 2004 through 2007 and for 2010 through 2011.  For 2008 and 2009, Detroit did not meet the criteria, but the City Income Tax Act was amended to freeze the rates at the 2007 level.  Therefore, Detroit’s income tax rates have been effectively frozen at 2.5% and 1.25% since 2003.

The Citizens Research Council of Michigan recently did the calculations involved to see if the City of Detroit will meet the requisite conditions to pause the scheduled rate rollbacks for 2012 (scheduled to occur in July).  The Citizens Research Council determined that the City only meets two of the criteria (budget stabilization fund and unemployment rate).  From 2010 to 2011, Detroit income tax collections increased from $217 million to $228 million.  Also, the property value change in Detroit from 2010 to 2011 was the same as the statewide average for the period.

Therefore, unless state law is amended, the municipal income tax rates for residents and nonresidents will fall from 2.5% to 2.4% and from 1.25% to 1.2%, respectively, in July 2012.  The rate reduction will be the first of its kind since 2003.  This will cost Detroit about $8.5 million in lost revenue on a full-year basis if the rates are not frozen at 2011 levels through a statutory intervention (similar to what occurred in 2008 and 2009).  Although $8.5 million represents only a fraction of the nearly $1.2 billion General Fund revenue generated by the City in 2011, it does add to the current fiscal challenges facing the City.

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CRC continuing to help Onekama Village residents understand implications of disincorporation

Posted on January 20, 2012 by crcforum

Over the course of the past couple years the residents of Onekama, a small community on the shore of Lake Michigan in Manistee County, have expressed an interest in exploring consolidation of their two governments – the township and the village.  A 2011 CRC report (http://tinyurl.com/3ha4xnu) recommended that because villages overlap township governments – village residents are parts of both the village and the township – eliminating the village would best serve Onekama’s goal of consolidation or reducing the amount of local government.

The process was initiated in Onekama by circulating a citizen-initiated petition among village residents asking for the question of disincorporation to be placed on the ballot.  When the petition was turned in to and certified by the township clerk to have sufficient (at least 57) signatures to warrant advancing the question, the process was handed off to the village.

Upon receipt of the petition, village officials had the choice of letting the question go right to the ballot or creating a commission to recommend an orderly course of action in the event that the ballot question is approved by the voters.  Onekama village officials chose to create a disincorporation commission.

The disincorporation commission members have been named and is comprised of equal representation – three members from the village (appointed by the village president) and three members from the township outside of the village (appointed by the township supervisor).

Although Onekama’s disincorporation commission could have begun meeting immediately after members were named, the process was delayed to allow the Michigan Department of Treasury to process a grant request.  The new Economic Vitality Incentive Program includes funding to help local governments pay the costs associated with collaboration and consolidation.  Funding will provide help with the cost of the commission’s work and with actions that could be needed to transition property and responsibilities to the township if the ballot question is approved by the voters.  The grant to the township allows the cost of certain expenses incurred by either the village or township as part of the process to be reimbursed by the state.

CRC is working with the disincorporation commission to assess the issues that arise with this question and to prepare a report to the township and village boards.  The commission is charged only with recommending to the village and township boards a course of action to follow if the voters approve the question of disincorporation.  The commission does not have the authority to determine actions, to appropriate funds, or to take other actions.  The village and township boards – if they each approve the commission’s recommendations that are submitted to them – must take the necessary actions to carry out disincorporation if the voters support the question.  The report produced by the commission will also serve to give voters greater certainty of what actions the village and townships boards are expected to take and what local government will look like after the village is disincorporated.

The disincorporation commission is specifically directed to address a number of issues, including: Who becomes responsible for planning and zoning in the village? What will happen to the indebtedness that has been incurred by the village? What will happen to the village’s real and personal property and assets? What will happen to the village’s records? What will happen to the village’s employees? Who, if anyone, will become responsible for the village roads? What happens to the village sewer system? How will the township’s finances be affected by dissolution of the village?  The commission may address other issues.  Adoption of the final report requires approval by at least two of the three commission members representing the village, and at least two of the three members representing the township.

The disincorporation commission began meeting on January 10, 2012.  It is holding weekly meetings on Mondays at 3 p.m. at the Farr Center.  At least one evening meeting has been scheduled and others may be moved from the afternoon to the evening if needed.  All meetings are open to the public.  The names of commission members, meeting minutes, and other information can be found online at www.onekama.info and www.allianceforeconomicsuccess.com.

The question is scheduled to appear on the August 7 ballot when Onekama (and Michigan) residents will be voting in primary elections for state representatives (and county or other offices if needed).  The question of approving disincorporation of the village must be approved by a majority of electors voting in the village, and by a majority of township electors outside the village voting on a separate (concurrent) question.

It can be expected that the township and village will hold public forums in the period leading up to the election to explain the question and answer voters concerns.

The eyes of Michigan’s smaller governments will be on Onekama for the next couple of months.  CRC has been contacted by a number of representatives from other villages interested in pursuing the same goals.  Contact Eric Lupher (734.542.8001 elupher@crcmich.org) to learn more about how CRC can work with your community.

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Does Michigan’s Unemployment Rate Drop Mean Anything?

Posted on January 18, 2012 by Jeff Guilfoyle

The state reported today that Michigan’s seasonally adjusted unemployment rate for December was 9.3 percent, down 1.8 percentage points from last December’s rate of 11.1 percent.  While a drop in the unemployment rate is generally considered good news, does the drop in Michigan’s rate really tell us anything?

 The unemployment rate is equal to the number of people defined as unemployed divided by the state’s labor force.  The state labor force is the number of people currently unemployed plus the number of people employed.  To be counted as unemployed in this definition, you must be currently looking for work.  If a person is not looking for work because they are retired, a stay home parent, or they are not looking because they do not think any jobs are available, they are not counted in the unemployment rate.  People exiting the labor force for any of these reasons (or any other reason) can affect the rate.

 What constitutes Michigan’s change from last year?  In December of 2010, the state’s labor force totaled 4,746,000, with 4,217,000 employed and 529,000 unemployed.  Dividing the number of unemployed (529,000) by the labor force (4,746,000) gives you last December’s unemployment rate of 11.1 percent.

 This December, the labor force totaled 4,646,000, with 4,214,000 employed and 431,000 unemployed.  Dividing the number of unemployed by the labor force gives you the current rate of 9.3 percent.  While this rate is clearly lower, it is also misleading to interpret it as a sign of an improved economy.  According to this measure the actual number of people employed in December of 2011 was 3,000 fewer than in December of 2010, hardly a sign of an improved economy.  The entire drop in the unemployment rate is due to people exiting the labor force.

 The data released by the state contain two counts of employment.  The count that is used in the unemployment rate calculation is based on a survey of households.  The state also released a count based on a survey of employers.  The employer survey shows December employment up by 67,000 compared to last year, a healthy growth rate of 1.7 percent.

 Therefore, the state released two measures of employment, one showing employment essentially unchanged from last year and one showing a 1.7 percent improvement.  Which measure is better?  Economists generally consider the payroll survey to be the better one, so the positive 1.7 percent growth rate is probably the more accurate of the two.  In addition, recent positive news on state revenues plus anecdotal evidence all point to an improving economy.  Therefore, Michigan’s economy does seem to be stronger than it was a year ago.  However, do not cite the declining unemployment rate as the evidence for the improvement.

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3rd Quarter State Income Released

Posted on December 19, 2011 by Jeff Guilfoyle

The U.S. Bureau of Economic Analysis released 3rd quarter state personal income today.  Nationally, income growth was slow in the third quarter, increasing just 0.1% over the second quarter.  Michigan income growth ranked 14th highest in the third quarter with growth of 0.2% (including Washington D.C. in the rankings). 

Michigan’s income growth was stronger in the first quarter, ranking 4th highest, but then fell to 51st highest in the second quarter.  This volatility was due in part to the payout of auto bonuses in the first quarter, with wages and salaries in the durable goods manufacturing sector growing 12% in the first quarter and then falling by 3.7% in the second quarter.  Durable goods manufacturing wages were virtually unchanged in the third quarter.

Year over year, Michigan personal income was up 3.7% in the third quarter, ranking 31st highest and trailing U.S. growth of 4.1%.  Wage and salary earnings, a component of total personal income, were up sharply year over year in the categories management of enterprises (+9.8%), professional, scientific, and technical services (+6.9%), durable goods manufacturing (+6.8%), transportation and warehousing (+6.7%), and administrative and waste management services (+6.5%).  Manufacturing as a whole was up 5.4% and healthcare and social assistance was up 4.2%, important contributors to state income growth since these sectors represented 17% and 13% of total wage and salary disbursements respectively.

Sectors showing year-over-year declines included forestry (-3.0%), government (-3.3%), information (-5.4%), mining (-6.6%), utilities (-9.3%), and arts and entertainment (-10.1%).  Excepting government, each of these sectors accounted for less than 2% of wage and salary disbursements. 

Government accounted for 15.9% of wage and salary disbursements, with state and local government accounting for 85% of the government total.  State and local government wage and salary disbursements were down 3.8% compared to a year ago.

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