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MICHIGAN
From Site Selection magazine, July 2013
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State of Reinvention

Gov. Snyder very quickly gives Michigan's business climate an extreme makeover.

MICHIGAN
The Vista 475 is a Four Winns model made by Rec Boat Holdings, based in Cadillac, Mich. Rec Boat is expanding by adding a line of boats powered by jet propulsion.
Photo courtesy of Rec Boat Holdings

by RON STARNER
T

he state that invented the Model T Ford, HP printer and Gerber baby food is now reinventing itself.

Long perceived as a high-tax, union-dominated state, Michigan - under the leadership of Gov. Rick Snyder - is rolling back taxes and regulations and freeing up the labor force to respond to the challenges posed by a rapidly changing global economy.

Just three years ago, such progress would have been unthinkable, as Michigan was locked in a battle to save itself from marginalization in the rush to outsource virtually all kinds of manufacturing jobs to China, Mexico, India, Thailand, Vietnam and other low-cost locations.

But a lot can change in a short amount of time, if a state's electorate is willing to replace old-school thinking with new-world economics.

Enter Snyder, the maverick reformer who made his fortune in the Gateway computer empire in Sioux City, Iowa, before plying the trade of politics in Lansing, Mich.

Convinced that Michiganders could do better than sit by idly and watch their most important industries die a slow and painful death of "flat-world" offshoring, Snyder propelled himself into the governor's office with bold talk of scaling back corporate tax rates and liberating the most competent manufacturing work force in the country.

Just two and a half years later, the results speak for themselves. Since Snyder took office in January 2011, Michigan has experienced a remarkable turnaround. Consider the numbers:

  • RecBoatHoldings_AssemblyLine

    Rec Boat Holdings is expanding its plant in Cadillac, Mich., to facilitate the assembly of a new line of jet-propelled watercraft.
    Photo courtesy of Rec Boat Holdings

  • Michigan ranks No. 1 for states that recovered the most from the Great Recession, according to 24/7 Wall Street.
  • Site Selection ranked Michigan No. 4 in the nation with 337 corporate facility projects in 2012 and No. 8 in overall economic competitiveness.
  • Michigan's corporate tax ranking is now ranked the third-most business-friendly among the country's 12 largest states, according to the Tax Foundation.
  • Michigan's credit rating has been upgraded to AA, marking the first time that Michigan has rated above AA- since January of 2007, according to Fitch Ratings.
  • Michigan's unemployment rate is at the lowest it has been in four years.
  • Michigan ranks third in the nation in high-tech job growth, according to Engine Advocacy.
  • Michigan's economy was the sixth-fastest-growing in the U.S. in 2011, according to the U.S. Bureau of Economic Analysis.
  • Michigan is now the fastest-growing venture capital state in the country, with VC funding up 69 percent in the state since 2008. VC funding grew from $3.0 billion in 2011 in Michigan to $3.7 billion last year.

Optimism Hits the Corner Office

By rolling back business tax rates - including phasing out the personal property tax - and eliminating more than 1,200 burdensome regulations, Snyder has unleashed not only a flood of capital investment, but also a tidal wave of optimism among business leaders.

"The main contribution of Gov. Snyder is that business in Michigan has got its confidence back," says Doug Rothwell, CEO of Business Leaders for Michigan - a highly influential organization comprised of the chief executive officers of the largest Michigan-based companies.

RickSnyder_MichGov

Gov. Rick Snyder

"The decade that we went through shook our confidence in ourselves and our future," Rothwell says. "The governor has restored that by taking a number of well-thought-out, pro-business measures. He has brought fiscal sanity back to government, passing a balanced budget on time two years in a row. He has made the state's tax environment fair and made the regulatory environment much friendlier. In short, he has brought a positive, friendly attitude back toward business."

As a result, Michigan's business leaders are optimistic about the future once again.

David Sowerby, portfolio manager for Loomis, Sayles & Company in Bloomfield Hills, Mich., says the proof is in the pudding - or what he calls his "Prosperity Index."

"I have a measure I call prosperity - job growth plus income growth," he says. "For ten-plus quarters, Michigan has been growing much faster than the U.S. and generally has for the past three years."

According to Sowerby, Michigan's Prosperity Index (job growth plus income growth ) was 3.55 percent in the first quarter of 2013, compared to 2.83 percent for the U.S. - and in 11 of the past 13 quarters, Michigan's PI has outpaced the nation's.

This follows a decade (2000-2009) in which the average prosperity spread for Michigan, relative to the U.S., was a negative 3.50 percent.

"The primary reason for our economic turnaround is the fact that the current Michigan business climate is moving in the right direction," says Sowerby. "The best yardstick is the Tax Foundation's State Tax Climate Index. Nationally, we are now at number 12, up from number 19 just a year ago."

Sowerby notes that Michigan's rapid turnaround is unprecedented. "Over the last two years, Michigan has witnessed the greatest improvement of any state relative to the corporate tax environment, individual income taxes, sales taxes, unemployment insurance and property taxes," he says.

Sowerby says he has followed the Michigan economy closely for more than 20 years, and this is the biggest improvement he has witnessed.

"Michigan used to rank in the bottom five states in the Tax Foundation's ranking based on corporate income tax," he adds. "We now rank in the top ten."

VC Funds Like What They See

Rothwell says he believes the comeback is sustainable as long as the legislature continues to follow the basic tenets of the Michigan Turnaround Plan that was adopted in 2009.

"We put together that plan because the state lacked a holistic strategy for turning the state around," says Rothwell. "Nearly a third of the 10-year plan has been accomplished already."

Built on a foundation of fiscal, budgetary and tax reforms, the Turnaround Plan also includes investing in higher education and infrastructure, "making sure we do not double-tax entrepreneurs," a comprehensive funding plan for transportation, and funding early-childhood education, says Rothwell.

"For the first few years, our top priority was to fix the basics," notes Rothwell. "Now we are beginning to take a much more forward-looking agenda for the future."

ChrisRizik_Renaissance

" We are seeing a dramatic increase in the number of startup companies, and we are seeing younger people stay in Michigan when they come out of school."
— Christopher Rizik, CEO and fund manager of Renaissance Venture Capital Fund

Venture capitalists around the country are taking note of Michigan's progress and voting with their checkbooks, says Christopher Rizik, CEO and fund manager of the Renaissance Venture Capital Fund in Ann Arbor, Mich.

RochLambert

Roch Lambert is group president of Rec Boat Holdings, the parent company of Four Winns, Glastron and Wellcraft boats.
Photo courtesy of Rec Boat Holdings

"There has been a pretty big cultural change here in the last five years," Rizik says. "As a big company area, the automotive companies took all the oxygen for many years and we became a risk-averse state. It was difficult to get people to do entrepreneurial things at the rate they should be doing them."

The onset of the recession in 2008 "changed all that," he says. "We found older, talented people moving into entrepreneurial opportunities and younger people coming out of school and jumping right into entrepreneurial ventures."

Armed with $100 million in venture capital from Michigan's largest companies, Renaissance invests in other venture capital funds around the country "under the condition that they begin to actively look at ventures in Michigan," notes Rizik. "Ours was the first fund to do this privately."

The model has proven so successful that it has since been replicated by Procter & Gamble in Cincinnati. "We now get calls regularly from around the country from other business groups that want to re-create this program in their state," says Rizik.

And it's no wonder why. For every dollar that Renaissance has invested, $17 in new venture capital has returned to Michigan.

"We are seeing a dramatic increase in the number of startup companies, and we are seeing younger people stay in Michigan when they come out of school," Rizik says. "We are seeing the research coming out of our universities being commercialized in a way we have never seen before. The number of startup companies in Michigan today is at least double what it was four years ago."

The Motor City Gets a Tune-up

Nowhere is this newfound energy more palpable than in downtown Detroit.

Sick of being the punch line of late-night comics, Detroit has embarked on a comeback that resonates with investors, young people and civic-minded business leaders.

Matt Cullen, president and CEO of Rock Ventures, is coordinating the downtown Detroit real estate strategy for Dan Gilbert, the founder and chairman of Quicken Loans Inc.

"Fundamentally, we made a decision to come down here and affect the outcome of Detroit," says Cullen. "We are all hometown Detroit folks. There is a great opportunity do good work here."

Over the past two years, Gilbert has invested $1 billion to purchase in excess of 7.5 million sq. ft. of real estate in Detroit, and more than 80 companies have moved into Gilbert-owned properties downtown.

"We now have 10,000 team members working in the city of Detroit," Cullen says. "We are buying beautiful buildings that are underpriced and turning them into places where people want to be today. We are creating great street life and a great working campus."

The migration of workers to downtown dwellings has created a CBD residential market that is now 98 percent occupied. "It is essentially full," notes Cullen. "We have hired 3,000 new employees in Detroit, and we have brought 1,000 interns to the city. Our strategy is to recruit other companies down here."

Chrysler and Twitter are among the larger firms that have moved downtown, and others are following. In fact, says Cullen, the build-it-and-they-will-come plan is working to perfection.

"The main contribution of Gov. Snyder is that business in Michigan has got its confidence back."
— Doug Rothwell, CEO of Business Leaders for Michigan

"Without any advertising, we had 15,000 applicants to do internships with us," he says. "That is good for us. It is a great way to showcase our companies."

With a high probability that the municipal government will go into official bankruptcy, Cullen sees a parallel between Detroit and the fortunes of the Big Three automakers.

"The city of Detroit is very much in the same situation that GM, Ford and Chrysler were in several years ago," he says. "Getting this city back on a sustainable financial foundation is critical. But the Michigan business climate has improved significantly, and that will greatly enhance the comeback of Detroit."

An Industrial Shopping Spree

All around Michigan, evidence of business expansion is picking up.

The BASF Corp. Midwest Hub in Wyandotte added 190 workers in advanced material sciences last year. Both Consumers Energy in Jackson, and DTE Energy in Detroit, announced that they will each purchase an additional $1 billion in goods and services from Michigan companies over the next five years. And the Whirlpool Corp. continues work on its $100-million global headquarters campus in Benton Harbor.

TomMoran

Tom Moran is president of Moran Iron Works in Onaway, Mich. Moran received a $19-million contract with Consumers Energy through an MEDC program called Pure Michigan Business Connect - an online buyer-supplier database that connects Michigan-based companies with opportunities to buy and sell to each other.
Photo courtesy of Moran Iron Works

"We think that Gov. Snyder has made some significant improvements to the Michigan business climate," says Jeff Noel, corporate vice president for communications and public affairs for Whirlpool. "Whirlpool wants a good quality of life for our company and our employees, and on top of that Michigan is becoming a 'best costs state' for businesses to operate."

Noel adds that "businesses need to realize the unbelievable infrastructure that exists in Michigan. People tend to overlook assets like Grand Valley State University and Hope College. These are some of the best schools in the entire country. Michigan allows you to have access to the best and brightest talent, and Michigan is very supportive of technical training and all types of worker training."

Recently, Whirlpool made the decision to bring its refrigeration technology group to Benton Harbor. The $25-million investment brings 200-plus technically oriented positions to Michigan. "We looked at other locations in the U.S. and Mexico for that group before deciding to locate it right here," says Noel.

"We are very proud to have our global design team right here in Southwest Michigan," he adds. "They could choose to go anywhere in the world, and they have chosen to come here."

Common Sense Pays Dividends

Tom Moran, president of Moran Iron Works in Onaway, Mich., says he is personally sold on the Michigan business environment after meeting with the governor.

"In general, Rick Snyder is the brightest man in the room and he has nothing but the best people around him - like Mike Finney of the Michigan Economic Development Corp. They are the best of the best," says Moran, whose company hired 40 new workers recently to take its total work force to 115. "We plan to be at 200 employees by 2015."

Moran says that "this rebound has really started to take hold. Michigan has become friendlier to all kinds of businesses, not just manufacturing. It has more to do with good business practices and common sense than anything else."

Moran calls the turnaround he has seen in Michigan "unbelievable. I have never seen a situation where both business and government were parallel in working hand in hand as a team."

Roch Lambert, group president for Rec Boat Holdings in Cadillac, Mich., echoes those sentiments.

"I feel very good about the Michigan economy moving forward," he says. "The governor is taking the right steps. I believe he will attract additional industries and more companies to the state."

Rec Boat - parent company of Four Winns, Glastron and Wellcraft - is expanding its manufacturing operation in Cadillac by launching a line of boats powered by jet propulsion. "These are high-performance boats with a more aggressive look," says Lambert, who retired from Bombardier in Quebec in 2009 before moving to Michigan in 2010.

"There is no doubt in my mind that Gov. Snyder is very business-minded," he adds. "For the launch of our new Scarab line - an investment that is very significant and adds 135 jobs - we received incentives from the state. We had discussions with MEDC, and they are very focused on finding solutions that meet our needs as a business. I have been very impressed with their responsiveness."

This Investment Profile was prepared under the auspices of the Michigan Economic Development Corp. For more information, contact Leslie Hornung at 517-373-6217 or by email at leslie@michigan.org. On the Web, go to www.michigan.org.


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