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December 14th, 2011
Michigan has at times had the highest unemployment rate in the nation, peaking above 14 percent in 2009. But today, state officials said the November rate dropped below 10 percent for the first time in three years, although the decline is primarily due to fewer people seeking jobs.
The jobless rate was 9.8 percent last month, according to the state Department of Technology, Management and Budget. A year ago, the jobless rate was 11.4 percent.
Michigan’s unemployment rate compares with a national rate of 8.6 percent, but state officials say the unemployment rate in Michigan has dropped by a full percentage point since this past August.
It was the lowest rate for Michigan since October, 2008, when the rate stood at 9.4 percent. The following month, the state unemployment rate rose above 10 percent, and has been in double digits ever since.
But as with the national situation, fewer people in Michigan are seeking full-time employment. State officials said the labor force dropped by 88,000 workers in November, the eighth straight month in which the number of people employed had dropped.
Ten years ago, Michigan’s workforce (including those employed and unemployed) stood at nearly 5.2 million people, and the unemployment rate was 4.6 percent. Last month, the state’s total workforce stood at 4.6 million, with 9.8 percent out of work.
However, Michigan officials said recent job growth has taken place in business services, manufacturing and health care.
Detroit’s unemployment rate fell to to 11.2 percent, the lowest for the area since March. State officials said the workforce declined by 11,000 workers between October and November. In the past year, 37,000 people have left the workforce.
December 14th, 2011
The incentives war between the Midwestern states has heated up over the past few months, especially between Illinois, Indiana and Ohio, which, are fighting over Sears and the CME Group. Here is a look at how states use incentives to keep or steal companies, and how that effects overall economic development.
Remember the ending? (No? Keep reading.) The movie’s star, Matthew Broderick, wants to show Joshua, the computer, that there’s no way to win a zero-sum game. He gets the computer to play itself, first Tic Tac Toe, then a simulation of a nuclear war between the then-Soviet Union and the United States. In the end, Joshua realizes no one can win.
Keep game theory in mind, because we’ll come back to it later. But that’s kind of what’s happening between Illinois, Ohio and Indiana. These states have spent the past few months waging an economic incentives war worth millions of dollars and thousands of jobs.
The most recent round ended yesterday, when the Illinois Senate approved more than $200 million in tax breaks – specifically designed to keep Sears and the Chicago Mercantile Exchange from leaving Illinois.
The CME Group owns the Chicago Board of Trade, the Chicago Mercantile Exchange, as well as the Chicago Board Options Exchange.
Last week, at a news conference with Gov. Pat Quinn and Senate President John Cullerton, Chicago Mayor Rahm Emanuel echoed their sentiments that much is at stake.
“Chicago Mercantile Exchange allows Chicago and the state of Illinois to be a leader in the futures and risk management industry,” said Emanuel.
Indiana offered CME a reported $100 million to leave Illinois. Ohio offered four times as much to try to lure Sears.
But it doesn’t just happen with big companies. Indiana’s Economic Development Corporation earlier this year spent $50,000 on ads asking lllinois businesses if they were “Illinoyed” by the state’s taxes.
States find themselves over a barrel when officials feel the need to offer millions to lure and retain companies.
That’s a mistake, said Jennifer Bradley, a fellow with The Brookings Institution’s Metropolitan Policy Program.
Bradley said that in the case of incentives, governors and public officials face a classic “prisoner’s dilemma”.
“Governors would probably all be better off, or state economic development authorities would probably all be better off, if nobody got into these kinds of bidding wars,” she said.
In Illinois, the current tax package for Sears was set to expire. The legislation has extended those credits for 10 years for one set of credits, as well as 15 years for a special taxing district in regards to property taxes.
But Bradley says the effort to win jobs from other states may be misguided. She says most research indicates that 95 percent of a state’s typical job growth comes from existing or new businesses.
And here we’re back to the prisoner’s dilemma: with the current game of incentives, though, no one wants to budge.
“If you can’t count on everybody to do the right thing, then nobody’s going to do the right thing,” she said. “So companies have incentives to ask and individual states have incentives, temporarily, to make the offer.”
But some states are playing differently. Michigan is trying something that might break the Midwest out of this prisoner’s dilemma. In his first State of the State speech in January, Gov. Rick Syner rejected the “up the ante” mindset.
“We need to put more emphasis on economic gardening as opposed to hunting,” he said to much applause. “For those unfamiliar with economic gardening, it means we’ll focus first and foremost on building businesses that are already in the state.”
Since that address, Michigan has eliminated almost all of its tax credit incentives – including its much publicized film incentives.
“We’re really trying to provide key access to tools that will help a business’s customer base grow as opposed to just providing them money and hoping that they will be able to grow their business,” said Michael Finney, president of the Michigan Economic Development Corp.
For Finney, that means the focus is more on providing help with accessing export markets, debt financing, and the like. He hopes this approach will also make it easier for the Midwest to work together.
“I happen to think if we worked together as a Midwestern region we’d be much more successful,” he said.
It’s not unprecedented for states within a region to cooperate. Take the South.
“Our former director used the term ‘coop-er-tition’,” said Kathy Geltson, Deputy Director of the Mississippi Development Authority. “We cooperate in instances where it makes sense, but there are instances when it’s a true competition.”
She’s talking about several specific alliances Mississippi and several southern states have formed for industries like the automotive or aerospace center. There, the states work together to bring companies to the region, and don’t try to compete, at least in this case, with incentives.
For Michigan, cutting those hundreds of millions of dollars out was a necessity given its fiscal state. But it works – if Michigan can show that this new strategy will still lead to comparable job growth –maybe other Midwestern states will start to follow suit.
What do you think about incentives? Should it be every state for itself? Or would the region be better served following other models?
And because I can’t resist, in case you’re nostaglic: that final scene from War Games:
In a fight over mittens, the gloves have come off.
Michigan and Wisconsin are tussling over which state can rightly lay claim to using mittens in their public-relations and tourism campaigns.
Michiganders, who have long nicknamed the state’s lower peninsula “The Mitten,” for its similar shape to a hand, have taken good-natured umbrage to a new campaign launched by Wisconsin’s Department of Tourism, which uses a knit-brown mitten to represent the shape of the state.
Wisconsin began using the new image in tourism campaigns on Dec. 1, and tells the Detroit Free Press it follows up on an earlier seasonal campaign that used an image of a leaf shaped like the state in the fall. A Wisconsin Department of Tourism spokesperson tells the newspaper that people in Wisconsin consider their state mitten-shaped as well.
Dave Lorenz, who manages public relations for the state of Michigan, tells the Free Press that, “We understand their mitten envy. But there is only one mitten state, only one Great Lakes state.”
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December 7th, 2011
Detroit faces the possibility that its elected officials will be superseded by a state-appointed emergency manager. It’s happened in four other Michigan cities and there also is an emergency manager for the Detroit Public Schools.
Our partners at Michigan Radio compiled a list of Seven Things You Should Know about Michigan’s law. It’s a complicated situation that’s different from other places in the Midwest, but there are some similarities with what’s been done elsewhere in the United States.
Here are the answers to some questions about Michigan’s law.
Q. Why does Michigan have an emergency manager law?
A: The original process was put in place in 1988, in response to deep financial problems in Hamtramck, an enclave of Detroit . (You may know Hamtramck best as the home of a General Motors plant.) In 1990, the law was strengthened to provide “emergency financial managers” for municipalities as well as school systems that were facing bankruptcy.
Earlier this year, the 1990 law was amended to strengthen the powers of what are now called emergency managers. These managers, who would be appointed by State Treasurer Andy Dillon in consultation with Gov. Rick Snyder, essentially replace elected officials during the term of their appointment.
Q: Can communities still seek bankruptcy?
A: Yes. An emergency manager is considered to be a step taken before a community defaults and seeks reorganization. The state must approve a bankruptcy filing; an emergency manager essentially puts the community or school system into state receivership.
Q: Who has emergency managers now?
A. The cities of Benton Harbor, Pontiac, Ecorse and Flint, and the Detroit public schools. Emergency managers also could be added in Detroit, Inkster and for the Benton Harbor public schools, pending reviews.
Q: What can an emergency manager do?
A: Almost everything but raise taxes. The emergency manager’s most controversial powers include the ability to renegotiate, modify or terminate collective bargaining agreements, with the approval of the state treasurer. The emergency manager also can sell assets, revise local budgets, and hire and fire employees. While elected officials don’t go away, they only have the powers that an emergency manager gives them.
Q: Does an emergency manager serve indefinitely?
A: Emergency managers who govern municipalities are appointed to open-ended terms. Emergency managers for school districts serve one-year terms, subject to reappointment. Once the state deems the city ready to handle its own affairs, the emergency manager is terminated. Flint, for instance, had an emergency manager from 2002-2006; Hamtramck had one from 2000-2006.
Q: How is an emergency manager appointed?
A: Cities considered to be in financial distress are put through a review process. The city can ask for the review, or the governor can ask the state treasurer to begin the review, as Snyder requested for Detroit last week.
Generally, the state asks for a review because of concerns that a municipality will not be able to pay its taxes for state-provided services. The city also may face the possibility that it can’t make payrolls, cover interest payments on debt, or make pension payments.
After an initial review, there may be a second review. Cities and school districts can present plans to the state showing the steps they will take in order to avoid an emergency manager. Detroit Mayor Dave Bing has laid out a program he says will avoid the need for an emergency manager.
Q: Is there anything else like Michigan’s law?
A: The process is something like the review process put in place in 1975 in New York City. (It sparked the famous New York Daily News headline reading, “Ford to City: Drop Dead” — something President Gerald R. Ford never said.)
But there’s a key difference. The Municipal Assistance Corporation was an oversight board; the emergency manager has sole authority.
For more on the emergency manager law, including potential legal challenges, read Michigan Radio’s Seven Things To Know.
Do you think an emergency manager is needed in Detroit? Weigh in.
December 6th, 2011
The industrial Midwest might not be the industrial Midwest if it weren’t for the iron-rich regions of northern Minnesota and Michigan. These iron ranges have long supplied domestic steelmakers, depleting the highest quality ore along the way. Now, a plant in Minnesota is testing a process to dramatically upgrade the low-grade ore that remains.
To understand why this matters, keep in mind how steelmaking has changed. The old recipe for steel calls for iron ore, coke and a blast furnace. But now, more than half of American steel is made in electric arc furnaces, which use electricity to melt scrap steel into new steel.
You can find those ingredients in your own kitchen or garage.
“Anything from bicycles to barbeque pits, refrigerators, washing machines,” says David Guz, listing the kinds of scrap metal his customers bring in.
Guz runs a scrap yard called H &H Metals in Inkster, Michigan. There’s a mountain of metal out back. Dan Letinski parks beneath it and starts tossing out junk.
“There’s a sink, there’s shock absorbers, there’s engine blocks, there’s crank shafts,” he says. “I have an automotive shop and this is a lot of scrap that we just have no use for anymore.”
The US produces lots of scrap. It’s actually one of the country’s big exports.
But scrap contains impurities. So to make high quality steel, electric furnace steelmakers often add clean iron to the mix. That’s meant relying on imported pig iron from countries like Brazil.
“We’re the only facility in the world that does what we do, so we’re pioneers of sorts,” says plant manager Jeff Hansen.
This plant cost more than 300 million dollars and took years of development with Kobe Steel of Japan. All to produce a tiny nugget of iron.
“It’s very dense, it’s very heavy,” Hansen says. “If you were to look at it you’d say it very closely resembles a Junior Mint.”
A Junior Mint that’s 96 percent iron. Remember, this started as low-grade ore. That ore is usually upgraded into pellets that are about 65 percent iron. The pellets work in traditional mills but don’t serve the growing electric market.
Nuggets do. They’re pure enough and metallic enough to mix with scrap.
Jeff Hansen’s face glows orange as he peers into the plant’s vast furnace. He says it’s the largest of its kind in the world.
“We bring the temperatures up to 2400, 2500, upwards of 2800 degrees Fahrenheit,” he says. “As you look inside the furnace, you’re gonna see the pellets giving off volatiles and actually giving off some fire.”
Pellets float by almost like lava, on their way to becoming pure metallic iron. Mesabi Nugget produced about 200,000 tons of nuggets over its first two years. The goal is 500,000 tons a year.
Still, nuggets are already helping change the rules of the game. Steel Dynamics has stopped importing pig iron for use in its electric furnaces, because of the nuggets made in Minnesota as well as other domestic efforts. It acquired its own scrap company as well.
John Anton is a steel analyst with IHS Global Insight. He says Steel Dynamics isn’t the only company that wants to supply its own raw materials and buffer itself from the market.
“Raw material costs – and iron ore and scrap are key here – used to be very steady,” he says. “In the past seven or eight years they have become incredibly volatile. They’re one of the most volatile things in the entire commodities, more volatile than oil.”
Michael Locker is president of the business consulting firm Locker Associates. He says the new nugget technology means the Minnesota Iron Range can now supply the growing part of the steel industry.
“It will mean employment. It will mean the mines are gonna work again. It will mean transportation and it’ll strengthen the steel industry of the United States,” he says.
There’s a ways to go before the Mesabi Nugget plant is pronounced a success. If it is, the hope is it could attract more electric furnace steelmakers to the region.
Michigan’s economy benefited from a surge throughout the auto industry in September, according to a monthly economic report from Comerica Bank.
The bank’s Michigan Economic Activity Index ticked up one point to a level of 88. U.S. auto sales increased to 13.6 million units in November year to date, emboldening hopes of continued improvement. But Comerica’s chief economist, Robert Dye, cautioned against taking too optimistic a position.
“The climb out of the depths of the recession still looks very uneven, though, as hard hit areas within Michigan are stuck with very high unemployment rates,” he said.
Michigan’s unemployment rate fell to 10.6 percent in October, the first time it’s fallen under 11 percent since June. But Dye said the fall has as much to do with job growth as it does a decline in the labor force.
“Housing markets in Michigan and elsewhere are still a drag to economic growth and will likely be soft through 2012,” he said.
The Michigan Economic Activity Index weighs nine indicators that reflect construction, manufacturing and service activity, as well as job growth and consumer spending.
Pete Bigelow · Midwest Memo: Michigan Mining Company Lays Off 600, Chinese Students Wisconsin Bound, Iconic Cleveland Building Sold
December 5th, 2011
Three stories making news across the Midwest today:
1. Mining company lays off 600 workers. A mining company in Michigan’s Upper Peninsula will temporarily shut down part of its operations and lay off approximately 600 employees. Cliffs Natural Resources, which operates the Empire Mine in Marquette County, said production is expected to drop from 4.6 million tons in 2011 to 2.7 million tons in 2012, according to the Marquette Mining Journal. The drop comes because steel producer ArcelorMittal will take a blast furnace down for maintenance in the second quarter. A company spokesperson said the layoffs will last “several months” until the furnace goes online again.
2. Historic Cleveland property has new owner. One of Cleveland’s historic downtown landmarks was purchased today by a Canadian hotel and resort company during a foreclosure auction. Skyline International Development Inc. was the sole bidder for the Arcade, and purchased it for $7.7 million – the minimum bid, according to The Plain Dealer. The current site was renovated a decade ago for $60 million, but went into foreclosure in April 2009 when its Chicago-based owner defaulted on a $33.3 million mortgage. An attorney for the new owners said this is Skyline’s first U.S. real estate holding, but did not comment on the firm’s plans for the Arcade. With the property selling for the minimum, its creditors, including Bank of America, the city of Cleveland and Cuyahoga County, will not recoup any of their investments.
3. Chinese students Milwaukee bound. Hundreds of Chinese students could attend the University of Wisconsin-Milwaukee in coming years thanks to a recruiting agreement the school’s chancellor signed today in Beijing. An agreement with a Chinese education network will boost the university’s international profile and help lure Chinese companies to Milwaukee, according to the Milwaukee Journal Sentinel. It would also boost the school’s out-of-state tuition coffers. China is the city’s third-largest trading partner, according to the newspaper. The agreement runs for five years. “You could think of myriad ways these students could connect to help Milwaukee employers in China,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce.
Pete Bigelow · Midwest Memo: Detroit Mayor Dave Bing Defiant, Milwaukee Courts Chinese Investment, U.K. Investigates Groupon
December 2nd, 2011
Three stories making news across the Midwest today:
1. Bing defiant over looming Detroit takeover. A state takeover of Detroit and its ruinous financial situation has seemed imminent for weeks, if not months. On Thursday, Michigan Gov. Rick Snyder told Mayor Dave Bing he would initiate a 30-day review of the city’s finances, a precursor to the appointment of an emergency manager. Bing then gathered the city council and other leaders and declared his opposition. “We are Detroit,” he told the Detroit Free Press. “Detroit needs to be run by Detroiters.” Free Press columnist Rochelle Riley wonders whether the unified front is too little, too late. She asks, “Why does it always take a crisis?” before city leaders finally work together.
2. Milwaukee mayor China bound. Milwaukee Mayor Tom Barrett leaves Sunday for his second trade mission to China. He’ll spend a week visiting Beijing and the growing port of Ningbo, which already has an informal sister-city relationship with Milwaukee, according to the Milwaukee Journal Sentinel. Barrett tells the newspaper he’ll pitch the city’s strengths in manufacturing and industries related to water, food and beverages in hopes of luring more jobs and investment. He’ll also talk to Ningbo police commanders about purchasing Harley-Davidson motorcycles for officers. The Metropolitan Milwaukee Association of Commerce’s China Council will pay for the trip. In a related item, Chinese officials tell the Associated Press they want to convert some of the country’s U.S. government debt into investment in renovating American roads and subways.
3. U.K. investigates Groupon practices. Chicago-based Groupon Inc. is being investigated by Britain’s Office of Fair Trading over concerns about unfair promotions and exaggerated savings, Bloomberg reports today. The investigation commenced in July and expanded after receiving a complaint. “Given Groupon’s track record, we have serious concerns about its ability to adhere to the advertising code,” the U.K.’s Advertising Standards Authority said in a statement. In a written response, Groupon said it is “constantly evolving business process” and cooperating with the probe.
Local laws serve as the blueprints for their communities.
Zoning codes and other local ordinances control nearly every aspect of how we function in our environments – how we shop, live and move. Those local laws are being increasingly rethought as cities around the industrial Midwest look to reinvent themselves.
Earlier this year, Changing Gears brought you a story from Streetsboro, Ohio, where town officials scrutinized the way zoning laws affected economic development and created a car-centric culture that favored big-box stores.
Now comes another story, perhaps of once city’s overreach in an earnest effort to become more friendly for pedestrians. Council members in Ann Arbor, Michigan passed an ordinance last year that mandated motorists stop if they think pedestrians are approaching the street, even if they haven’t yet entered the road.
The change doesn’t jibe with state law, and has resulted in confusion, a fierce backlash and, in at least eight cases, rear-end crashes at crosswalks.
Writing for The Atlantic Cities, Changing Gears senior editor Micki Maynard examines the ongoing debate in her hometown and possible revisions to the ordinance. She writes, “The ordinance might seem like a trivial matter in a place where 72 percent of adults have bachelor’s degrees. But the debate may exemplify John Fowle’s view that duty largely consists of pretending the trivial is critical.”
Pete Bigelow · Midwest Economy Improves, Emergency Manager Appointed in Flint, Lawmakers Reject Incentives For Chicago Mainstays
November 30th, 2011
Three stories making news across the Midwest today:
1. Midwest Economy Gains Ground. The Midwest Economy Index showed improvement in the regional economy in October for the first time in six months, according to the Federal Reserve Bank of Chicago. The monthly index, a combination of 134 state and regional indicators, ticked upward from -0.37 to -0.33. Manufacturing was the only sector measured to make a positive contribution to the index at +0.20, although it had ebbed from +0.23 in September. The pace of manufacturing activity decreased in Iowa and Wisconsin, but increased in Illinois and Michigan. Indiana held steady. The service sector and consumer spending showed improvements overall, while construction and mining activity fell.
2. Emergency Manager Takes Over Flint. Michigan Gov. Rick Snyder appointed an emergency financial manager for the city of Flint on Tuesday. On Thursday, Flint’s former mayor, Michael Brown, will begin serving in the position. Under the state’s revamped emergency manager law, Brown will have authority to control the city’s operations and finances, including the power to terminate employee contracts, merge departments and reduce pay. It’s the second time an emergency manager has been appointed in Flint, which had a $15 million deficit in the 2010 fiscal year. Emergency managers are already in place in Benton Harbor, Pontiac, Ecorse and Detroit Public Schools.
3. Illinois Lawmakers Reject Incentives Bill. Two of Chicago’s most visible companies, CME Group and Sears Holdings Corp., have threated to move elsewhere if they weren’t given tax incentives to stay. Illinois lawmakers are calling their bluffs. The Illinois House of Representatives rejected a bill, 99-8, that would have provided $200 million in incentives Tuesday, the final day of the legislature’s fall session. House Republicans wanted the bill to focus solely on tax breaks for businesses they hoped would lead to job growth, while Democrats wanted tax relief for workers and low-income families included, according to the Chicago Tribune. Gov. Pat Quinn said “ample” time remained to reach a deal, but in a written statement, a Sears spokesperson said, “Our timeline for making a decision about our future by the end of the year has not changed.”