05/22/2007

Economic doldrums hover over Michigan, with no end in sight

LOS ANGELES TIMES

WEST BLOOMFIELD — When Ronald Griggs was looking for his family's dream home in Michigan nearly a decade ago, he focused his search on this affluent suburb of Detroit, where the Motor City's middle-class was migrating.

But after a decade of grim economic news, and with the Michigan state government now poised to shut down as legislators face an estimated $800 million deficit, Ronald and his wife, Shirley, want out — out of West Bloomfield, and out of Michigan.

"It just got to the point where I said, 'What am I? Am I stupid living here?' ” said Griggs, 65. "I need to get out of here as fast as I can."

Michigan has long been the poster-child for the disappearance of manufacturing jobs and the country's dwindling industrial base, but state leaders say its financial plight hasn't been this bad in decades.

It is suffering through the longest stretch of job losses since the Great Depression, driven by the downward spiral of the domestic auto industry. The big three — Ford Motor Co., General Motors and DaimlerChrysler — are laying off tens of thousands of workers, and the outlook for autoworkers is expected to remain grim.

This week, DaimlerChrysler announced that it plans to sell its troubled U.S. auto division to a New York private equity firm. Chrysler, which had already announced plans to cut 13,000 jobs, or 16 percent of its workforce, is expected to seek even more steep concessions from the United Auto Workers when talks on a new contract begin this summer.

The state's economic news grew darker on Friday: Michigan lost 53,000 jobs last year — nearly 28 percent in manufacturing — and will likely lose at least another 46,000 this year, according to findings by the University of Michigan's Research Seminar in Quantitative Economics.

The state's unemployment rate, estimated to average 6.9 percent this year, is anticipated to reach 7.5 percent in 2008.

Add to that weaker tax revenue — particularly in business, personal income and sales — and a growing welfare, Medicaid and prison population, and "our economy is the most challenged in the nation," Gov. Jennifer Granholm said in an interview.

The fall-out of the budget crisis — and the state's broader economic woes — is being felt acutely in the housing market, particularly by people such as the Griggs.

From the neo-Classical mansions of Bloomfield Hills to the modest suburban tract homes in south Warren, residents of nearly every economic level are having trouble making their house payments.

When homeowners who have lost jobs try to sell, houses often sit on the market for a year, without a single offer.

Last week, the Griggs put their 7,000 square-foot home on the market for about $1.4 million — about 15 percent less than it could have sold for two years ago. But even listing it at that price may not be enough.

They're not alone.

Jean Nielsen, owner of Hayes Self Storage in Shelby, a suburb north of Detroit, said about 240 of 383 of her company's storage units are rented — nearly a 20 percent increase from the same time last year, she said. To the east of her shop, where sprawling farmland is dotted with red barns and dirt roads, entire swaths of upscale new subdivisions stand empty.

"Lots of people are downsizing, lots of people are moving to other states," Nielsen said.

That kind of a sentiment chills state leaders, who agree that losing population would only speed up the state's problems.

For weeks, the issue of how to bridge the deep budget gap has divided state leaders along party lines, who are racing to find a solution before June 1, when deep cuts to Medicaid and schools are poised to take effect.

Granholm and fellow Democrats are pressing for tax increases as well as budget cuts, including as much as $122 per pupil in state school funds. Republicans, who control the state Senate, insist the shortfall can be overcome by cuts alone.

"The idea that tax cuts alone is going to propel a state to greatness has been proved untrue" all across the country, Granholm said. "No state in this country is going to be a lower-cost place to do business than China." Republican state senate majority leader Michael Bishop disagrees. "If you ask citizens about what needs to be done, the last thing out of their mouth is that they should pay more to live in Michigan," Bishop said.

One morning last week, Griggs stood tentatively in his study as a procession of real estate agents rushed through the French doors of his home's two-story entrance. They politely noted the 12-foot ceilings, the stainless steel kitchen appliances, the arched windows, the four fireplaces, the exercise room, the master bathroom's Jacuzzi tub.

It's all luxurious. But so are other homes, whose owners are equally desperate to sell.

"That's the market," Griggs said. But if his home doesn't sell, Griggs wondered, "what can I do?"