DEARBORN—Mark P. Haas, Michigan's chief deputy treasurer, has thousands of statistics recounting this state’s woeful economic condition. But the one that best describes the current dilemma turns out to be personal: Mr. Haas has two 20-something daughters, and both have left the state.

Mr. Haas shared that fact with this reporter last Friday, after a meeting that brought him and more than 100 business and civic leaders, educators, healthcare workers, and elected officials together for what was dubbed the Community Leadership Forum. The half-day conference at the University of Michigan-Dearborn was intended to assess the condition of Michigan’s economy and state budget, and look for solutions.

But the forum evolved into something more than that. Many who attended insisted that reducing taxes and cutting the state budget—the preferred solution to the state’s fiscal emergency offered by Republican and some Democratic state lawmakers—is damaging Michigan’s economy, reputation, and quality of life. What’s needed, they said, is a new strategy that attracts and holds onto young workers and tells national and international markets that Michigan is adept, strong, and ready to compete in the global race for new jobs. The key, they said, is state investments that make Michigan a great place to live and work.

Those views mesh neatly with the conclusions of a number of recent in-depth economic studies of Michigan’s damaged economy. For instance, The Search for the Silver Bullet, part four of a 2007 report by the Citizens Research Council of Michigan, a non-profit, non-partisan organization, found that, as it gets easier for businesses to set up shop anywhere, it’s unrealistic for the state to compete to be the cheapest place to do business. There will always be countries with lower wages or more tax concessions to large businesses.

But you don’t need to read reports to understand why draining state funding for schooling our kids, keeping families safe, protecting natural resources, investing in cities, and building regional transit systems—the essence of the tax- and services-cutting strategy—is counterproductive. You just need to look at young people like me, who want to live in exciting places that are full of economic, social, cultural, and educational opportunities that add value to our lives.

That is why I stood up at the conference and said that I, for one, want to live where I can bike to pick up groceries, walk by bookstores and other shops on the way home from work, catch the bus or the subway at night, and take the train to leave town for a weekend. I want peers who have interesting jobs, and places that have quality cultural scenes and vibrant, music-filled nightlife.

If young people saw Michigan revitalizing its cities, keeping college tuition down and college quality up, preserving its natural resources, and investing in quality transit, they might well stay. In my case, I said, I might have chosen to attend law school in Ann Arbor, instead of Manhattan.

As I sat down, a nearby woman turned and whispered, "That’s why my kids left."

Outward Bound
After the forum, a U of M-Dearborn journalism student said that she, too, was thinking about leaving the state. She had just been to Portland, Ore., where jobs were more abundant, the public transportation system was easy to navigate, and the quality of life was high. It was a few minutes later that Mr. Haas told me about his daughters: Both, he said, had left Michigan for the reasons that I and others had talked about during the forum.

In fact, an informal survey confirmed that many participants had friends, family, or grown children who left Michigan for those reasons. No wonder Vicki Barnett, the mayor of Farmington Hills and the president of the Michigan Municipal League, drew warm applause when she touted the new, 21^st-century approach that many states and cities are using to attract and retain young people and grow their economies. It is the same approach that Governor Jennifer M. Granholm’s bipartisan Michigan Land Use Leadership Council recommended almost four years ago, and that the state Legislature has largely ignored.

"Right now, we are failing to provide the 24/7 buzz that young people need," said Ms. Barnett, who cited urban sprawl and disinvestment in cities as a key factor in Michigan’s brain drain.

"Urban sprawl costs every tax payer," she continued. "We can’t afford to do that anymore. We need to develop an urban agenda."

Undercutting the Future
Michigan has been cutting taxes and spending for more than a decade. It began doing so in the mid-1990s, during former Republican Governor John Engler’s administration when his party controlled the state Legislature. The tax cuts made Michigan’s business taxes considerably lower than the national average, and began reducing general fund revenues.

Those revenues have fallen 15 percent since 2000, and the size of state government has shrunk dramatically. Michigan now has fewer employees than in 1974.

Over the past six years, the full measure of Engler-era tax cuts kicked in, accelerating the fall in state revenues caused by soaring unemployment. Since becoming governor in 2003, Ms. Granholm and state lawmakers cut support for higher education by 11 percent and K-12 school aid has not kept up with inflation. Lansing abolished the bulk of state arts funding, sharply reduced budgets for the state’s environmental and natural resources departments, and cut state revenue sharing, which helps townships, villages, cities, and counties pay for essential services, by an unprecedented 56.3 percent.

The results: Universities are hiking tuition. Rural and urban school districts are pink-slipping staff or closing schools. Enforcement of environmental laws is plummeting. Cities, towns, and villages are scrambling to avoid their own budgetary crashes. Public transit is floundering, particularly in the Detroit area, the largest metropolitan region in the country without regional rapid transit.

The experts whose reports are trying to point Michigan in a new, economically sustainable direction say that these are unmistakable signs of a state that is undercutting, not building, the foundations of 21st-century prosperity. Many believe that if it changed its development strategy, Michigan could compete with other states and win on the 21st century’s all-important quality-of-life playing field.

After all, Michigan has some terrific assets: It is surrounded by the Great Lakes, home to some of the country’s top universities, blessed with a strong Midwestern work ethic, and studded with cities that still have intact, albeit greatly underutilized infrastructure. The land use council urged the state to leverage those priceless assets with common-sense investments that provide quality education, rebuild fallen cities, provide effective public transit, and protect the state’s land, air, and water.

But Michigan is doing exactly the opposite: It is squeezing schools and colleges, cutting revenue-sharing for cities, ignoring transit, spending less than three percent of its general fund on environmental protection, and all the while subsidizing sprawl.

Wanted: Political Courage
The recent economic studies and reports emphasize that breaking out of the 20th-century policies that are holding Michigan back—and instead investing in, cultivating, and retaining human capital— requires Michigan’s elected leaders to change a tax system designed for the 1950s, ‘60s, and ‘70s. The Legislature did some of that work when it took the politically easy step last year to eliminate the Single Business Tax and, with it, $1.9 billion or 22 percent of the state’s General Fund revenue.

Since then, a debate has raged over not only how to replace that giant revenue drop, but how much of it to replace. The most obvious replacement, many tax experts say, is expanding Michigan’s sales tax to include services, not just goods. Forty years ago, buying and selling goods generated 59 percent of Michigan’s gross state product. Those numbers had essentially reversed themselves by 1997, when services accounted for more than 63 percent of the gross state production, and have only grown since then. Most tax experts say that, even in an expanding economy, Michigan’s current tax structure would not generate the dollars needed to properly fund government. Economists call this a structural deficit.

The day of reckoning for Michigan’s beleaguered budget is now nine months away: The Single Business Tax expires in December, but wrangling between the governor and the Legislature over replacing it continues. Most lawmakers say they agree that the revenue must be replaced, yet fiscal experts and political observers worry that delays are making it more difficult to put new taxes in place by October, when the new fiscal year begins. They add that the delays generate still more fiscal uncertainty, something businesses shun.

Governor Granholm’s Michigan Emergency Financial Advisory Panel flatly stated in February that the state cannot cut its way out of the budgetary mess. All of the deep cuts have been made to all of the core programs, the panel said, and Michigan simply can’t afford to further weaken education or its communities.

The report recommended basic changes to Michigan’s tax structure that raise revenues and replace the Single Business Tax with a sales tax on services. It also urged reining in prison and health care costs for state employees.

The governor’s own 2008 budget proposal reflects some of the panel’s key recommendations. Ms. Granholm wants a small tax on certain services to replace the Single Business Tax, and a few more cuts to balance the 2008 budget. The Republican-controlled Senate’s proposal, on the other hand, ignores the structural deficit, replaces only some of the single business tax revenue, and would balance the budget through further spending cuts. The House has not yet put forth a proposal for the 2008 budget.

But the debate in Lansing still largely ignores what so many nonpartisan and bipartisan reports and blue ribbon panels are trying to say: These days, you’ve got to pay to play in America’s 21st-century economy. Even the kids know that.