Gov. Rick Snyder signs business tax reform legislation in May, 2011, his signature economic accomplishment, with Republican legislative leaders by his side.
LANSING — In the beginning, the wins came quickly.
In May 2011, just months into his first term, Gov. Rick Snyder stood with fellow Lansing Republicans to celebrate the repeal of Michigan’s reviled business tax. As the leaders smiled for the cameras that spring day, the Michigan Chamber of Commerce was almost giddy, hailing the “bold and decisive leadership at the helm of our state” that landed the first major policy victory of the Snyder era.
With Republicans running the capital, the ambitions that yoked the state’s business establishment and political leadership seemed boundless. And for awhile, they were. There was the lightning passage of Michigan’s right-to-work law in 2012. There was reform of the state’s personal property tax, followed by Snyder’s election to a second term in 2014. Business groups believed Lansing would continue to share their vision for reviving Michigan’s economy.
But now it’s 2017, and the wins are getting harder for business leaders.
With Snyder’s final term winding down, corporate groups are aligning with the governor on several unfilled policy goals, including education reform, college affordability, creating pathways to the skilled trades and fixing the state’s roads and infrastructure — daunting investments that would cost billions more a year than the state currently spends.
Standing apart, an increasingly conservative Legislature has put budget and income tax cuts and reforming teacher pensions at the top of its to-do list. And leaders have shaved hundreds of millions of dollars from Snyder’s 2018 proposed budget in a bid to reduce, not expand, government spending.
Is business losing clout?
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While both sides deny a schism, the contrast between what the business community wants and what the Legislature has pushed so far this term is striking, raising questions about the industry’s enduring influence.
“They’re fighting an uphill current, right?” said Bill Rustem, Snyder’s former strategy adviser, of the business community’s efforts.
“A lot of these people are not chamber of commerce Republicans, not traditional Republicans. They’re just not,” Rustem said. “The business community has got to figure out how to pull some of these people back, or figure out how they get candidates elected who are supporting the agenda that they want.”
Rustem and others in Lansing say pro-business groups must find a way to effectively advocate a longer view of Michigan policy, since term limits don’t incentivize lawmakers to look beyond their few years in office. But pushing for investment when a Legislature wants rollbacks appears a fool’s errand in 2017.
“It’s very safe to say that a lot of the heavy lifting was done in (Snyder’s) first term … where there was a strong level of alignment,” said Sandy Baruah, president and CEO of the Detroit Regional Chamber, which is hosting an annual statewide policy conference this week on Mackinac Island.
Among the key themes of this year’s chamber confab: restoring civility in politics, and improving economic opportunity for all Michiganders.
Six years into Republicans’ hold on Lansing, “there’s kind of an ideological mismatch,” Baruah said. “The tea party influence is stronger. The governor himself is obviously still very much a practical-minded centrist, which is kind of a unique breed in politics these days — one might even say a rare breed in politics these days.”
Other voices, in other rooms
The ideological standoff can’t be attributed to any one factor.
Matt Grossmann, director of the Institute for Public Policy and Social Research at Michigan State University, contends that the conflict in Lansing mirrors an ideological shift in the Republican Party nationally.
Others note that Republican leaders are finding increased support for their anti-tax, public pension reform efforts from small-government and free-market groups, including the DeVos-backed Michigan Freedom Fund, the state chapter of the Koch-funded Americans for Prosperity and the Midland-based Mackinac Center for Public Policy.
The business community agrees on the need to resolve unfunded retiree legacy costs, but is less enthused about rolling back or eliminating Michigan’s 4.25 percent income tax rate, especially without a specific plan to replace lost revenue.
And business leaders have yet to convince anti-tax lawmakers that raising user fees or investing more money in infrastructure and education, or to create new tax incentives, are crucial to a state still emerging from recession.
Also at play: Highly gerrymandered legislative districts mean that primaries are the deciding race in many parts of Michigan, Rustem said, so it’s more necessary now than in the past for business leaders to be active in primary campaigns.
“There is increasing fear of primary challenges on the right,” Grossmann said, “but the broader trend is that legislators start more consistently right or left than before.”
Politicians in both parties are gravitating more to their bases than they used to, agreed Doug Rothwell, president and CEO of Business Leaders for Michigan, the state’s business roundtable. That can lead to fewer across-the-aisle compromises.
One point of disagreement is on social issues, with corporate groups sometimes finding themselves more progressive on gay rights, for instance, than conservative lawmakers in Lansing.
Couple that with the sense that the answers to today’s policy problems aren’t as obvious as they were when Snyder took office, and it becomes harder for any one interest group to break through the noise.
“We have just not made the case as compelling as really we need to,” Rothwell said. “We’ve got to do a better job.”
So it is that establishment business groups like the Detroit and Michigan chambers have backed candidates from both major political parties at times.
“As the process changes, if you want to continue to be effective and make a positive difference, you have to change and evolve in terms of strategies and tactics,” said Rich Studley, president and CEO of the Michigan Chamber. “A lot of it, frankly, is just education and information.”
A populist tilt
It’s not that business groups no longer have sway in Lansing. It’s that they increasingly find themselves competing for lawmakers’ attention.
“The Legislature is more responsive to the direct will of the grassroots now, but that is not to say that the Michigan Chamber of Commerce isn’t still probably the most influential organized voice in Lansing,” said Joe Lehman, president of the Mackinac Center.
The business lobby remains among the capital’s biggest power brokers, agreed Craig Mauger, executive director of the Michigan Campaign Finance Network, which tracks the influence of money in state politics.
Business Leaders for Michigan and the Michigan Chamber of Commerce are among the largest contributors to state legislative candidates, Mauger wrote in a recent analysis of state campaign finance records.
BLM gave $50,000 each to political action committees for House Speaker Tom Leonard and Senate Majority Leader Arlan Meekhof from Jan. 1 through April 20, state campaign finance records show.
Strikingly, BLM’s February donation to Leonard came as the lower chamber was debating an income tax rollback supported by Leonard, a proposal that was not on BLM’s agenda. The effort failed on the floor, though new efforts to reduce the tax are expected.
Kelly Chesney, spokeswoman for BLM, said the organization consistently gives money to House and Senate leaders but that contributions aren’t intended to curry favor on any particular bill or policy.
“As in years past, we want to work with the Legislature on policy that will make Michigan a Top Ten state,” she said. “We recognize that this isn’t easy and that it all won’t happen overnight. But BLM is in it for the long haul and wants to be a resource to our policymakers.”
What business wants
Chamber and pro-business advocates from Grand Rapids to Detroit agree with the governor that the Legislature should make infrastructure and education spending priorities, particularly education at the K-12 level. They say Michigan must take immediate steps to reverse its academic decline and produce more young people with college degrees or certificates in the skilled trades to meet employers’ long-term demand for talent.
Snyder-appointed commissions heavy on business expertise recommended seismic increases in how much the state devotes to reviving Michigan’s economic fortunes ‒ an estimated $4 billion more a year for infrastructure and another $2 billion for education.
But when Snyder submitted his budget earlier this year, the House and Senate balked — sharply reducing the governor’s spending priorities, including money for a statewide infrastructure fund.
On fixing Michigan’s horrible roads, business groups and the governor agree that while a $1.2 billion road-funding package in 2015 was a good down payment, it was not enough. Half of the money promised is to come from diverting general-fund spending when it’s fully implemented in 2021.
Conversely, the Michigan Freedom Fund and Americans for Prosperity say the state already has enough money for transportation infrastructure, if only it made spending on roads or bridges more of a priority.
The two interest groups call themselves grassroots advocates and share common policy goals of cutting the state’s income tax, paying into unfunded retiree benefits systems and repealing Michigan’s prevailing wage law, which requires the payment of union-scale wages and benefits on public building projects.
Tony Daunt, executive director of the Michigan Freedom Fund, said an income-tax cut would be a “bold” move that would separate Michigan from other states. He concedes the need for a broader conversation about how to offset lost revenue, but said groups like his are gaining influence because they ‒ like the current crop of state lawmakers ‒ are more closely aligned with what the public wants.
“I’m a firm believer in the market and the power of the market, and if there wasn’t a demand for work that we do, it wouldn’t exist,” Daunt said. “I do think we have influence, and I hope we continue to grow that influence.”
Pete Lund, director of Americans for Prosperity in Michigan, said he believes freshman members of the House — who helped create a 63-member Republican majority that Leonard calls more conservative than the one that left in December — are open to ideas shared by groups like his because they aren’t yet beholden to special interests.
“I think you’re seeing that these people come in with a fresh point of view,” Lund said. “They come up here and say, ‘Wait a second: I know what the people want. I just got elected here. I can tell you the people want a tax cut.’”
Lund said he suspects that if Meekhof and Leonard were in leadership positions during Snyder’s first term in office, their priorities would be more closely aligned because of the pressing nature of some of the budget and fiscal challenges Michigan faced at the time.
“It’s not necessarily that the influence is greater or lesser, it’s that our priorities are different than the administration’s,” he said. “And you can say that the House and the Senate probably have different priorities, as well.”
Americans for Prosperity spent nearly $167,000 on lobbying in Michigan in 2016, according to state records. Michigan Freedom Fund spent just $1,466. By contrast, Business Leaders for Michigan and the Michigan and Grand Rapids chambers spent close to or more than $60,000.
Gideon D’Assandro, spokesman for Leonard, challenged the narrative that there’s a split between business and Republican leadership, or that the Legislature is against spending money on infrastructure or schools.
“There’s not a reluctance against investment,” he said. “We try to go through the budget line by line, identify areas that are not working and not producing results, reduce funding there and put it toward programs that do produce results.”
According to D’Assandro, lawmakers’ slashing of Snyder’s infrastructure fund reflected “a difference in opinion about how the money would be used; it’s not a reluctance to invest.”
A few victories
Certainly, nobody is saying the business establishment has been neutered.
Last year, the Michigan Chamber of Commerce was seen as a key ally in maintaining Michigan’s 10-percent electric choice market in the debate over energy policy.
Choice customers buy electricity from an alternative supplier, not a regulated utility; proponents say it contributes to a free market and helps push down electricity prices.
Energy bills ultimately earned bipartisan support in both the House and Senate via a compromise Snyder helped to negotiate.
In May, a plan to capture state sales and income taxes to help developers finance large projects on contaminated sites, known as brownfields, headed to Snyder’s desk after clearing both chambers by wide margins. That the creation of a new tax incentive made it through the Legislature with few hang-ups speaks volumes of business’ lobbying pull, after similar bills failed last December.
BLM is spearheading a separate incentive that would allow employers to keep a share of state income taxes paid on new hires if they create hundreds of jobs in the state. It passed the Senate in March and awaits action in a House committee.
An evolving GOP
History is rife with examples of Republicans investing in major public projects, said Rustem, the former Snyder strategist who also advised moderate Republican Gov. William Milliken in the 1970s.
Abraham Lincoln was instrumental in authorizing the transcontinental railroad. Teddy Roosevelt, a conservationist, protected public land for use in the national park system. Dwight D. Eisenhower’s administration built interstate highways.
“Investing in infrastructure and investing in the future has always been a key core value of Republicanism, and I think the business community needs to help get that back,” he said. “If you’re a business person, you understand that investment matters.”
But those who want to prioritize unfunded retirement debt say they, too, are thinking of the future. It’s why legislative leaders are taking another stab at reform of the Michigan Public School Employees Retirement System, known as MPSERS, which had more than $26 billion in unfunded obligations as of 2015. Michigan cities, meanwhile, have an estimated $11 billion in unfunded promises for retiree health care.
In order to get out of this legacy hole, they say, Michigan needs to stop digging.
Meekhof told Bridge Magazine in April that he doesn’t disagree with Democratic lawmakers who say more investment is needed for education and infrastructure. The difference, he said, is that he believes the state should better use the money it has, instead of asking taxpayers for more.
Closing off teacher pensions and shoring up retirement benefit funds are ways to do that, he said.
“How do we solve this problem so that we have more money to spend on our priorities going into the future?” Meekhof said. “I think more and more that (senators) understand the smart policy of paying down debt so you have more money to invest in infrastructure, you have more money to invest in education.”
Rekindling the romance
Indeed, pension reform is one area where Lansing insiders see room for alignment between business interests and lawmakers.
The influential West Michigan Policy Forum , a business advocacy group, made public pensions a focal point of its policy conference in September. And the Grand Rapids Area Chamber of Commerce calls it the most important issue to tackle before 2018.
Bills to close off the hybrid teacher pension system — which was created in 2010 and offers new teachers a combination pension and defined-contribution retirement plan — and move new teachers into a 401k-style plan died in December, but has since been revived.
“My kids are going to be going into, essentially, an underfunded system,” said Andy Johnston, vice president of government and corporate affairs for the Grand Rapids chamber. “We need to address it so our kids in the future can have more money going into the classroom.”
But finding broader consensus with a more independent-minded, populist Republican legislature will take patience and fortitude.
“I will tell you,” said Baruah, of the Detroit chamber, “that the business community doesn’t really have a kinship with any one of the political parties anymore.”