As state government’s economy goes, so goes Lansing’s

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(This is the second in a three-part series, “Covid & the Economy,” that looks at the impact of the pandemic on the three legs of Greater Lansing’s economic “stool.” This week: state government.)

The COVID-19 pandemic blew a hole in Michigan government finances, the likes of which have rarely been seen, and it’s unlikely the governor or state Legislature will be able to balance the budget without cuts to state services and state employee rolls. With a sizeable state-employee workforce, the Lansing region is likely to realize the impact of such changes faster than other parts of the state.

The state government is still one of the three legs of the economic stool upon which the Lansing region sits. Tim Daman, president and CEO of the Lansing Regional Chamber of Commerce, said the region has tried and found some success in diversifying the economy. But when push comes to shove, the three essential legs still matter most.

“What does Michigan State look like in September, what does GM look like, and what does state government look like?” Daman said. “They are going to set the tone for us and determine what our region is going to look like.”

Michigan has had nearly four months of businesses shuttered, people ordered to stay home, and a drop in economic activity that rivals any financial difficulties the state has seen since the Great Depression.

In April alone, payrolls in Michigan plummeted nearly 23% from the prior month, according to a U.S. Labor Department report. Michigan also posted the third-largest increase in unemployment in April: an 18.4-point rise to 22.7 percent. One year ago, the unemployment rate in Michigan was 4.2%.

The lack of economic activity translates into less money for the state budget due to a loss in personal and business taxes, among other things. A recent Consensus Revenue Estimating Conference in Lansing predicted shortfalls of $3.23 billion in less General Fund and School Aid revenue in Fiscal Year 2020. And the problem continues to grow in future years, with predictions of a $3.05 billion shortfall in FY 2021 and a $2.09 billion hole in FY 2022.

Michigan is no stranger to economic ups and downs, but former Michigan Gov. Rick Snyder says this time will be different.

In posts he made to Facebook and LinkedIn, Snyder wrote, “In some downturns, the recovery is like a light switch and everything starts improving. In this one, the pandemic and its ongoing impact will cause major structural changes to our economy.”

Snyder noted that many businesses in the restaurant, lodging and travel industries might not survive, adding that retail stores will struggle even more since the pandemic has dramatically accelerated the online buying trend.

“Many already were teetering on the edge of economic survival, and this may be the end of many hometown businesses,” Snyder said. “Other areas, such as manufacturing and service businesses, will come back in a more traditional fashion. However, this crisis will cause them to have higher structural costs due to new safety measures needed for customers and employees.”

State Rep. Shane Hernandez, R-Port Huron, said Gov. Gretchen Whitmer’s stay-home orders exacerbated the problems.

“Michigan families and job providers are forced to make tough decisions on their own budgets this year because of COVID-19 and Gov. Whitmer’s ‘stay at home’ orders, which were among the longest and most restrictive in the nation,” said Hernandez, chairman of the House Appropriations Committee. “These orders forced some workers who could have safely stayed on the job into unemployment. The government is funded by Michigan’s hardworking taxpayers. When job providers are sidelined, and the workers are forced to stay home, that economic activity goes away — people aren’t making or spending money.”

Throughout the pandemic crisis, Whitmer has said she would make decisions based on science and data, although the details of what that entails haven’t always been clear.

In a recent executive order, the governor again explained why she took the actions she did regarding the lockdown.

“To suppress the spread of COVID-19, to prevent the state’s health care system from being overwhelmed, to allow time for the production of critical test kits, ventilators, and personal protective equipment, to establish the public health infrastructure necessary to contain the spread of infection, and to avoid needless deaths, it was reasonable and necessary to direct residents to remain at home or in their place of residence to the maximum extent feasible,” Whitmer wrote.

Regardless of whether the shutdown was appropriate in style or duration, it will have a lasting impact on the state budget. Hernandez said he wants to see the governor take action immediately to address that impact.

“These actions have consequences, and now it is time for state government to make tough choices. This problem exists right now, and we must address it right now. Fundamental changes to the way state government delivers services should be on the table, including remote work, downsizing the amount of state office buildings and properties, and streamlining application and permit processes to get Michigan open safely.”

The Lansing region is likely to significantly feel any pinch made to the state budget. One in four state government jobs in Michigan are located in the area, according to the state Department of Technology, Management and Budget. In April, about 35 percent of total jobs locally were government jobs, compared with 17 percent statewide. And 70 percent of government jobs in the city of Lansing were in state government.

Downtown Lansing, in particular, would look very different without so many state employees walking around on their lunch hours or scheduling meetings outside of their offices.

“It’s going to be a big impact to businesses on Washington Square during the lunch hour and really anytime between 8:30 and 4,” said Steve Japinga, vice president for public affairs at the Lansing chamber.

He noted that if employees aren’t out spending money regularly, the businesses will notice.

“You don’t really think about all the meetings and all the lunches that happen downtown,” Japinga said. “This can have a profound impact on how those businesses operate in the downtown core.”

The state’s fiscal year ends on Sept. 30, although in the past 10 years, most of the state budgets have been signed and enacted before the end of summer. That’s not likely this year, as Whitmer and the Legislature’s Republican leadership seem to be waiting for the other side to make the first move in cutting the budget.

While the budget hole is known, how to address it in a way that doesn’t rile up voters too much in an election year is still a big question mark. Nevertheless, some business leaders believe tough decisions can lead to creative solutions.

“The unknown scares us all, but the exciting thing as we emerge from here is the innovative thinking that we’re all going to be forced to do,” Daman said. “I’m still pretty confident that we’re going to re-emerge. We had a lot of momentum in our region going into this year and I think we will re-emerge well.”

This story is paid for by readers like you through contributions to the CityPulse Fund for Community Journalism. To contribute, please go to lansingcitypulse.com/donation.

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