(Permission to rebroadcast in whole or in part is hereby granted. A courtesy super or CG crediting the Mackinac Center would be appreciated.)
Full transcript below:
Thank you for inviting me. I’m Ken Braun, a policy analyst for the Mackinac Center for Public Policy, and I’ve given you a couple handouts here with some of our ideas. The article forms the basis of quite a few of the remarks in the “101 Recommendations.” I’ll touch on a couple of those, but obviously we’re not going to go through a hundred items today.
Your committee is charged with how it should reform, restructure and reinvent state government. Another document that I hope you all do have somewhere in your office that I didn’t hand out to you is the state Constitution, and it’s a good place to start with what you should be doing. It’s not a perfect document — I’d make some changes to it if I could wave a magic wand, and I’m sure all of you would, too — but generally speaking, it charges state government with protecting life, property and individual liberty and individual rights from aggression. It says government should enforce contracts, pave roads, fund schools and do a few other very limited things. It does not say what is the method to provide these things, and it does not assume that one method is superior at all times and all places. And most profoundly, it does not equate high costs with superior outcomes.
It doesn’t say, for example, that you should take the tax dollars of Michigan citizens and fund film studios. We’re the Mackinac Center for Public Policy; pur mission is to come here and remind you what the purpose of state government is. And that is to stick to those core constitutional functions that I just mentioned — and to do no more.
Find out what those missions are and do them well, do them as efficiently as possible. And when you’re done, go back again and try to find how to do them more efficiently. This is our advice to you in any era, but right now you don’t have a choice in the matter. Measured in terms of gross domestic product, Michigan was ranked 21st in 2000, about a decade ago. Today we’re 41st, literally one of the 10 poorest states in America.
The reason isn’t hard to see; we all know the numbers, we’ve lost more than 15 percent of our employment base during that decade. That’s around 800,000 jobs lost. Our new governor believes we must ask ourselves what we can afford as we try to reinvent and restructure state government. Well, it’s pretty clear that we can’t afford the government that we’ve had, and we can’t afford to adopt tax policies that are going to cost us any more jobs.
Some may come before this committee as you go through these issues and remind you that the state is well under the Headlee revenue cap, or that the general fund is down, or any number of supposed arguments for how you can fix some of these problems simply by throwing more cash at them. I’m sure you’ve read their opinions in newspapers, and they’ve doubtlessly sent advice to your offices as well.
Well, unless they come before you with a way that they’re going to bring those 800,000 jobs back real fast, then you should probably ignore a lot of that advice. Because you can’t blast that huge of a hole through this state’s economy, and then expect to bring more money out of it to fund state government. That perverse thinking is what Ronald Reagan used to call the status quo, which he defined as Latin for “the mess we’re in.”
The largest single expenditure of state government is K-12 education. We spent about $11 billion on it last year. Nearly three-quarters of that cash went to pay for public school employees — or their compensation, I should say. It’s no exaggeration to say that the people who work in your local schools represent the most expensive thing that state government does. You have no choice: You must take a hard look at this expenditure and make your biggest reforms right here.
The most recent data from the U.S. Department of Education shows that Michigan’s public school teachers have the 10th highest average salaries in the nation, and there are 96,000 of them here. And that’s before you talk about the 50,000 support staff that go on top of that. (By the way, what I’m going through now is in the article that has been passed out before you.)
Remember what I said about GDP per capita? Michigan is a top 10 state for teacher pay, and a bottom 10 state for its ability to pay those teachers. Walk any further down this dark tunnel, and you won’t be seeing light at the end of it, and you should be running in the other direction. Here’s what that other direction looks like.
As noted, Michigan is now ranked as the 10th poorest state in the nation. You should ask yourselves, what are the states ranked closest to us in GDP per capita doing about their teacher salaries? They’re the ones whose ability to pay their teachers is most comparable to ours. If you look at that, you’ll find that they’re all paying considerably less. And nearly all of them are getting better results, according to one commonly used standardized test.
The average annual teacher pay of those 10 other states ranked closest to us in ability to pay is $10,584 per teacher annually less money. This is a public versus public comparison. Ten other states, similar in wealth to Michigan, buying the same government service and getting the same or better results for less. If we just took the average of the way those 10 other states do it and paid at that rate, we have $1 billion less per year in spending. Rich states have the option of paying that extra billion dollars, poor states don’t.
And incidentally, consider the case of South Dakota, dead last in average teacher salary in the nation, but now the 18th wealthiest state in the union in the terms of GDP per capita. A richer state than we are, paying a lot less for the same educational service. South Dakota’s fourth graders who are eligible for free or reduced priced meals scored above the national average in reading on national standardized tests. Michigan’s fourth graders on the same test scored below the national average.
South Dakota is spending a lot less and getting more from it. If we paid the average South Dakota teacher’s salary, the annual savings to the state budget would be $1.8 billion. Paying for public education is in the Constitution. Paying more than you can afford for it — than just about everybody else — isn’t in here.
We have famously identified at the Mackinac Center, a $5.7 billion gap between what the average public-sector worker receives for their fringe benefits and what private-sector workers are given. And that’s in that “101” ideas brochure — and more of it is on our website, by the way. That’s just benefits, incidentally — it’s not salary. Public school employees account for $2.5 billion of that $5.7 billion difference.
So you need not even look to just teacher salaries to find a billion dollars in this budget; there are other options you can go after. Those benefits, for example: Increase the co-pays on the health insurance policies — they pay significantly less than private sector workers do; allow for more competition in health insurance benefits — some of that is already done by the previous Legislature.
And go after much more. For example, think about the 50,000 support staff. Contracting out for non-instructional services, such as busing, food and custodial work, is saving significant amounts of money in many districts, yet only about half of the districts in the state seek outside help for even one of these three services. Yet based on savings we have seen and documented in other districts, these savings could be well into nine figures if every district in Michigan were required to competitively bid for all of these services. $100 million or more in savings just there.
I’ll move on from public schools to a few other reforms in a moment, but I want to leave you with an idea that applies to this and every other area that you look at. Don’t be shy about exploring your legal options and pushing for them in making these reforms.
For example, regarding the teacher salaries, is it possible for the Legislature to mandate a cut to every collective bargaining contract in every school district in the state, if you just walk in and say, “We can only afford to pay you so much, and your collective bargaining contract will be reduced across the board by X percent in order to meet that cost” — can you tell them that? Can you tell them this is how much money you’ll get and pay will be reduced accordingly? I’m not sure what the answer is to that. I have a lawyer that thinks it’s a distinct possibility. You’ve all got more lawyers at your disposal than I do. You should find out, because it offers you an intriguing opportunity.
You could give the districts the choice of two options: that first one I just named, simply cut the collective bargaining contract by a percentage necessary to reach the new revenue level, or, district, if you don’t want to take that option, I bet this would cause a lot of districts and their unions to get together and begin looking at a lot of other options — ideas like outsourcing their food services, their busing services and their custodial services. Or reforming those benefit costs, or many other options.
And if they don’t want to do this, then you’ve made the choice for them and saved the taxpayers a ton of money without laying off a single teacher, or closing a single building or changing really anything about the way they operate. If you can be creative with your solutions with things like this — and you doubtlessly have other ideas to explore on how to push these reforms through — it will inspire more creative solutions from school districts and many of the other local governments down-line from your spending.
Prisoners in Michigan are another huge expense of state government. I’ve heard some of the groups you’ve had before me up here, so I’m sure you’ve heard this before, but this is another place where the costs and results don’t align for a poor state that can’t afford to over-pay any longer. It is a significant cost of state government, and even modest percentage changes can yield great big savings. States that get on the wrong side of their corrections costs generally get there for one of two reasons: reason A, they lock up too many people or they do it for too long; reason B, they pay too much for each person they lock up. In Michigan, we’ve been very creative — we chose option C, all of the above.
Addressing the first side of this while working for a previous governor, the “lock up too many people side,” the spokesman for the Michigan Department of Corrections made the following wise observation: He said we need to decide whether we lock people up because we’re afraid of them, or because we’re mad at them. The point of this is that not every crime needs a very costly cage as punishment. Non-violent crimes can be addressed in other ways and less costly ways. And even in ways that create better restitution for the victim. Those should be aggressively considered by you. Locking people up because we’re afraid of them, that’s definitely in the Constitution. That’s a public safety issue. Locking them up because we’re mad at them, isn’t in there, and you should think about a different way of doing it.
To costly option B, the cost per prisoner, I will note that the previous governor essentially ended Michigan’s experiment with privatizing prisons. The evidence from other states indicates that this is a significant cost-saver. If you can just privatize one prison, it encourages the other public prisons and their unionized employees to adjust their costs, so as to compete and prevent further privatizations. Competition can wonderfully concentrate the mind regarding what the Constitution requires and what it does not.
Whether corrections or schools or much else, one unavoidable consideration behind much of what I’m saying today is the influence of public-sector unions. We have civil service protections in place already, but also collective bargaining for public employees. It doesn’t have to be like this. In fact, it isn’t in other places.
You should be exceptionally bold in reforming the Public Employee Relations Act, and even consider repealing it. Likewise for Public Act 312 — if you don’t want to go aggressively at removing public-sector unions, then perhaps you should require arbitrators to consider, first and foremost, the ability of municipal governments to pay their bills when mediating disputes with public-sector unions.
Emergency financial managers need more teeth in their authority when they’re dealing with distressed cities and bankrupt cities. Teacher tenure should be boldly reformed, allowing administrators and school boards to get rid of really bad teachers, to mandate improvements for modestly bad ones and to provide rewards for the many good ones. Teachers themselves, who understandably wish to be thought of as professionals, should have the right, like most of the rest of us, to negotiate their own individual employment terms and not be forced to join a union and pay its dues.
And when one of those unions calls an illegal teacher strike, as the Detroit Federation of Teachers did a few years ago, the law prohibiting those strikes that we already have on the books, needs real teeth and real punishments. That union didn’t even get a slap on the wrist under the current law, even though the future of their students got slugged with a baseball bat and the future of that district was put in even greater peril that it still hasn’t recovered from.
There’s a common theme to much what I’ve said already: These are areas where Michigan is doing the same things as other states, but doing them worse or and more costly. If the name of this new committee means anything at all, it is that you will all be held, when this is done, individually responsible for whether you make an effort to correct this imbalance and whether you succeed.
There are a few other items representative of the challenge that you need to aggressively pursue. Abolish the Michigan business tax and replace it with some of the cuts that we’re talking about here that are in that “101 Recommendations.” I won’t belabor this point, because our fiscal policy director, Michael LaFaive, is going to carry that message to the Senate Finance Committee this afternoon.
The Department of Environmental Quality — regulations are also taxes, and this particular department has been allowed too many over-steps to count over the last eight years — many of those over-steps made possible by this Legislature. For example, just a few days ago, on our news website, Michigan Capitol Confidential, we posted a story about a Michigan entrepreneur who is in a bunch of other businesses, but for the last several years, he’s been wanting to start a new business based on the idea of pulling logs out of lakes — big, huge trunks of trees out of lakes, which he sells the wood for furniture and musical instruments and whatnot.
The DEQ has been blocking the creation this business because they were insisting that this man give them a GPS coordinate for every single log that he pulled out of every single lake. They were literally demanding messages from space before he could try to make a buck. When our reporter started asking questions about this for that story, the DEQ told us that they were getting rid of this regulation. And that’s good, and it’s about time; the man’s been waiting for years to start a business.
It shouldn’t take a new governor and a nosy news website to make them do the right thing. A Michigan entrepreneur with a dream and a willingness to take a risk, should be enough. And this is just one example of stupid rules and regulations that are special to Michigan. Repeal of the item-pricing law is already on your agenda, and that is laughably overdue for similar reasons. We should become the kind of state where entrepreneurial risk-takers with capital, like that guy who wants to pull the logs out of the lakes, can say: “I can make money here. And this government isn’t going to drive me nuts when I try and do it.” If you get that done, then those 800,000 jobs, they might start coming back.
These are some of the biggest items that should be on your agenda, and examples of some of the many smaller ones. There are too many of them to name them all in the time we have, because Michigan government has unfortunately become very special for a lot of very bad reasons.
The big point that I want to get across is: You can’t be too bold in addressing these issues. No matter how far you go, history will probably judge you as not having done all that you could have. That’s the nature of representative democracy. You may even hear me criticize you in a few years. But it shouldn’t be an excuse for you to hide from taking big chances at big reforms.
Speaking of excuses I’d like to leave you with this. When I’m done, there will be those who will find reasons to say that some of what I’ve said isn’t a fair comparison of this or a fair comparison of that, or that this state isn’t this, or that or whatnot. And you’re seeing the governor get some of this criticism already with his public employment document in the “apples to apples” matter that’s going forth right now.
Well here’s an example of what you need to remember when you look at that. I have two teenage sons, one of whom doesn’t bring home the grades that he should, and he’s always got an excuse. The geometry teacher didn’t do this fairly, or the kids in his science group didn’t turn in their joint assignment or his English teacher doesn’t explain the book properly, and so forth.
He’s a really clever kid, and each individual excuse sounds quite plausible and reasonable on its own merits. But I wouldn’t be doing my job as a parent if I didn’t back up and look at the big picture, and recognize that Kyle has a vested interest in coming up with the best excuses possible for why his grades aren’t where they should be.
This government is broke. We don’t have the economy to pay anything close to what we once did for this government. There are countless examples of how to do things better that we could have tried to emulate and didn’t.
Those are some bad grades. You’re not doing your job listening to the excuses being made for them.
With that, thank you very much for having me, and I’ll try to answer any questions.