The MC: The Mackinac Center Blog

In May, the Idaho Legislature unanimously passed a bill to increase transparency in collective bargaining. House Bill 167 amended the Idaho Open Meetings Act to bring negotiations between cities and unions into the daylight.

Mackinac’s sister think tank, the Idaho Freedom Foundation says “the collective bargaining law might be the best in the nation.”

The reform expanded Idaho’s OMA to cover all governing bodies, including school boards, cities, counties and fire districts, as well as their designated representatives. The change was specifically targeted to police and fire union negotiations, closing loopholes under previous law.

Since 2011 school boards have had to open their labor negotiations meetings to the public, but some were able to close negotiations by designating bargaining to a subcommittee. The new legislation extended OMA provisions to governing boards’ “designated representatives,” meaning the school boards could no longer close negotiations by delegating them out to subcommittees.

Along with the open meeting requirements, any documents in private conversations between government officials and unions are now open to public disclosure.

The main exception is when negotiations are “about a specific employee, when the information has a direct bearing on the issues being negotiated and a reasonable person would conclude that the release of that information would violate that employee's right to privacy.”

Wayne Hoffman, president of the Idaho Freedom Foundation, wrote:

“Nothing good grows under the cover of darkness. Closed negotiations for labor contracts means the public has no way to know what was being negotiated away. Taxpayers would never be able to weigh in when salary schedules, health care benefits and vacation and sick leave were up for grabs. City and school district patrons were shut out of a process that decided the fate of large swaths of government expenditures.”

Hoffman also noted that opening the meetings would be good for unions too. “On the flip side, labor unions complained that they were mistreated behind closed doors, that frank discussions turned into hostile and confrontational bullying sessions by people in official, powerful positions.”

Unlike Idaho, Michigan allows closed meetings for collective bargaining. Section 8c of Michigan’s OMA allows a governing board to meet in a closed session “[f]or strategy and negotiation sessions connected with the negotiation of a collective bargaining agreement if either negotiating party requests a closed hearing.”

When it comes to Michigan transparency on unions and collective bargaining, the state has a long way to go. According to the recently released Mackinac study Bringing Financial Transparency to Michigan's Public Sector Unions “under current Michigan law, [government] union members cannot easily assess whether their union is making good use of their money to effectively represent their interests, because the state lacks effective financial reporting requirements for public sector unions.”

The study includes model legislation to require government unions to provide the same detailed transparency for finances as their private sector counterparts.

While policymakers look into the problem of government union financial transparency they may also want to consider Idaho’s reforms concerning open meetings.

Skorup Film Subsidy Op-Ed Published in Wall Street Journal

Celebrating the death of a corporate welfare program

Since 2008, Michigan taxpayers have subsidized movies to the tune of nearly $500 million. The film incentives program was supposed to create jobs and bring a new industry to the state, but failed to do either. Fortunately, the demise of film incentives seems imminent, with Gov. Rick Snyder expected to sign a bill eliminating them this week.

Jarrett Skorup, a Mackinac Center policy analyst who has written extensively on the film subsidy program, has an op-ed in the Wall Street Journal about their history and downfall.

When it comes to choosing a school in Detroit, families are faced with a wide variety of school applications. Making it more difficult for parents, these applications require different information and are due at different times. To make it easier for families, some are advocating for a "common enrollment" system. With common enrollment, families would fill out a single application to apply at any school in Detroit.

But efforts to create a common enrollment system should not merely be about creating a centralized process to make school administration easier. The first priority should be to make the school enrollment process in Detroit as inclusive and transparent as possible.

An Inclusive Process
Many critics of school choice voice the concern that only more affluent parents will be able take the time to research schools and be willing to transport their child to a better school. The less affluent parents, these critics say, will stay at their assigned conventional school — leaving the conventional school with the responsibility of educating students who often struggle more with coursework.

With regards to charter schools in Michigan, this does not appear to be the case, as these schools serve a larger share of low-income families compared to their conventional school counterparts. Evidence from Denver, however, suggests that there may be some merit to this argument when it comes to common enrollment applications. Denver's common enrollment system is opt-in — students are assigned to a conventional school based on where they live, but that they can fill out a common application to attend any other school in the city.

The Center for Reinventing Public Education reports that students from white  families (tending to be wealthier on average) are more likely to participate in common enrollment than students from minority families (tending to be lower income on average). According to the CRPE, in 2014, 85 percent of white students participated in the common enrollment process, compared to 63 percent of black students, and 71 percent of Hispanic students.

In comparison, the New Orleans common enrollment system does not assign students to any default schools — making a choice about where to go to school is mandatory. The CRPE concluded:

[W]hen parents must opt-in to a choice system, as is the case in Denver, more advantaged parents may be more likely to participate in common enrollment than less advantaged parents.

If a common enrollment system preserves the status quo, where the nearby district school is a student's default school, and that a student can only attend a charter school by opting in to the common enrollment system, students with less involved parents may be less likely to participate in the choice process and less likely to attend charter schools. Invariably, this will lead to a disproportionate share of students from less involved families attending address-based, default district schools.

To make the common enrollment process as inclusive as possible, Detroit should follow the example of New Orleans and use the common enrollment system for all families.

Place choice directly in Detroit families' hands

Noted throughout CRPE's research was the perception of some families that the common enrollment system was rigged — or could be manipulated by strategy. CRPE emphasized that this was not the case in either New Orleans or Denver; however, it is important to make the process as transparent and responsive to parents as possible. Detroit's common enrollment system should give parents the final say in where their children go to school.

A black box system where parents rate schools in order of preference and then receive a school match from a central authority would be prioritizing administrative efficiency over parental control. A system that puts parents first would have schools adhere to a common enrollment application and a single common enrollment timeline. As a general example, Detroit schools could follow a schedule like the following:

  • Detroit families would fill out a common application and rank the district and charter schools they prefer. This application would be due on the same date for all schools.
  • Schools would receive a list of students who have applied to their school, and if too many students applied, the schools would hold lotteries to determine seats to offer. All schools would have to hold lotteries within a set time period. Lotteries could use a weighted system so that families who listed the school as a first choice would have more of a chance than families that listed the school as a last choice.
  • Families would receive back their list of chosen schools, with information about whether they had received an open seat, or were placed on the waiting list for each school to which they had applied. Parents would have a set time period to decide on a school and whether to stay on a waiting list.
  • Enrollment information would be transmitted back to the schools. If schools have additional seats available after families make their first decision, schools would have another round of lotteries for the newly open seats.
  • Wait-listed families would receive notification from schools, and make a final enrollment decision. 

Feedback for Schools and Families
A comprehensive common enrollment process and resulting public school choice system in Detroit would provide valuable information to families and school officials. In New Orleans, for example, information is published each year about how many students applied to each school, and whether the school was able to fill all of its available seats. Information is also published about the most popular educational problems. Language immersion programs, for example, were especially popular for kindergartners, The Times-Picayune reports. This type of feedback can be especially helpful for school officials seeking to offer new programs or to revise existing ones.

Further, making it easier for parents to participate in a school choice system will likely result in more parents choosing better schools. In an analysis of school enrollment data, the CRPE found that school performance was "a powerful predictor" of how highly families rated schools. In fact, when reviewing Denver choice data, the CRPE found that school performance was a more important factor for black and Hispanic families than white families.

There is a need in Detroit to make the school choice process as accessible as possible for all Detroit families, and to make sure the choice process places parental needs first. Preserving default schools under a common enrollment system may result in fewer parents choosing the best school for their children, and may lead to students from less-involved families remaining in district-run schools. To make a common enrollment system as inclusive and effective as possible, the default, address-based school enrollment system should be eliminated altogether, and parents should have the ultimate say over where their children go to school.

Mackinac Legal Expert Quoted in Detroit News

Examining the implications of new Supreme Court case

The Mackinac Center Legal Foundation filed an amicus brief in the case of Friedrichs v California Teachers Association, a case recently taken up by the Supreme Court. Their decision could extend the right to work to all public sector employees in the country.

The Detroit News discussed the case in the June 30 edition, quoting Mackinac Center Vice President for Legal Affairs Patrick Wright.

Michigan House Wise to Shift Corporate Welfare Spending to Roads

Programs shown to be ineffective and wasteful

The state House of Representatives recently cut funding for the Michigan Economic Development Corporation with the goal of freeing up money for roads. This reprioritization of spending is prudent, but it faces opposition in the state Senate.

A good deal of empirical evidence supports the case that government economic development policies — otherwise known as corporate welfare — are ineffective at achieving their goals of faster economic growth, increased employment and greater diversification.

For example, a 2004 study titled, “The Failure of Economic Development Incentives” was a review and analysis of the academic literature on the subject of MEDC-type programs. The authors categorized and reviewed hundreds of other academic studies on the subject. Their conclusion is worth repeating:

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering [policymakers'] expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government. …

A few years back one of the study’s authors (Peter Fisher) was asked by The Detroit News whether eliminating the Michigan Economic Growth Authority, then the state’s flagship business subsidy program, would amount to “unilateral disarmament” given that other states have similar programs. “Of course you can unilaterally disarm when you’re talking about an incentive — like the MEGA tax credit — that isn’t very effective anyway,” he said.

Before it was repealed in 2011, MEGA was arguably the most costly economic development program in this state’s history. Over the past decade the program was the subject of four methodologically rigorous studies. The empirical evidence on its performance is not, on balance, positive, and it suggests that the smaller subsidy programs that remain are unlikely to do better.

Two of these studies were performed by the Mackinac Center for Public Policy. One of these found in 2005 that for every $123,000 in tax credits offered by the program, just one construction job was created — and that all of jobs created by the credits disappeared within two years. The other study, published in 2009, found that for every $1 million in tax credits delivered to a project there was a decrease of 95 manufacturing jobs in the county where it was located.

In 2010 the Anderson Economic Group ran the numbers on MEGA. It found that had Lansing cut business taxes across-the-board rather than doling out MEGA favors to a lucky few firms, Michigan businesses would have created 8,200 more jobs.

Only one of the four studies purported to show a positive impact from MEGA, and even then the impact was very small. It was authored by economists at the W. E. Upjohn Institute for Employment Research, and disagreed with the Mackinac Center’s interpretation of the data on MEGA. You can read the Mackinac Center’s rejoinder here.

If MEGA’s massive subsidies and selective tax breaks were ineffective, there is little basis to expect different outcomes from its small-fry brethren. One of these is the indirect tourism subsidies offered through the state’s “Pure Michigan” ads.

The title of a Mackinac Center analysis on the subject (2015) tells the tale: State Tourism Spending Ineffective. The study’s authors developed a statistical model using tourism promotion spending in 48 states to measure the impact that such subsidies have on tourism businesses and employment. The model reported that every $1.00 increase in state dollars promoting tourism yields around one penny of extra business for firms in Michigan’s lodging industry. When the net costs are considered, the program actually does more economic harm than good.

Another study worth mentioning was performed in 2002 by economist Harold Brumm on selective favor-seeking activity by businesses (called “rent-seeking” by economists). Brumm examined data from the lower 48 states and found that “Rent-seeking activity retards economic growth, because it merely redistributes wealth; rent seekers (unlike profit seekers in a competitive market) do not create wealth.” He concluded that the more rent-seeking occurs, the slower the rate of real economic growth.

One conclusion from Brumm’s findings is that when a state department like the MEDC encourages corporate rent-seeking, it may actually limit a state’s growth prospects.

Given all these findings, the Michigan House made a prudent and rational choice in moving state tax dollars out of corporate welfare and into road repairs. The Senate should do the same. If senators hesitate then the burden of proof should be on them to produce systematic evidence —not fluffy agency brochures and anecdotes —­ that corporate welfare programs are a more effective use of taxpayer dollars than road repairs.

Union Transparency Study Featured in Daily Caller

Article details how disclosure can help members and expose corruption

Bringing Financial Transparency to Michigan's Public Sector Unions, a recent study published by the Mackinac Center, explains how holding public sector unions to the same standards as their private sector counterparts could result in less corruption and transparency for members and the general public. The study outlines several examples of private sector union corruption exposed by disclosure laws and offers a way to implement the same laws for public unions.

The Daily Caller featured excerpts and ideas from the study authored by Nathan Mehrens in a June 28 article.

June 25, 2015 MichiganVotes Weekly Roll Call

More subsidies and higher fees; knives and founding documents

House Bill 4226, Expand technology business subsidies: Passed 33 to 4 in the Senate

To increase from three to nine the number of areas in which “certified technology parks” (previously dubbed "smart zones") are allowed to expand by creating a "satellite" zone. These entities use “tax increment financing” schemes to provide infrastructure or other subsidies to technology-based businesses.

Who Voted “Yes” and Who Voted “No”


Senate Bill 22, Increase some State Police pensions: Passed 38 to 0 in the Senate

To increase the annual pension benefits to at least $16,000 for certain State Police employees who retired and were collecting pension payments as of 1986.

Who Voted “Yes” and Who Voted “No”


Senate Bill 211, Authorize uncensored public school American heritage instruction: Passed 30 to 8 in the Senate

To require public school boards to “permit” instruction and reading of “America's founding documents” including those related to the country’s “representative form of limited government, the Bill of Rights, our free-market economic system, and patriotism.” School districts would be prohibited from censoring or restraining reading that includes “religious references in original source documents, writings, speeches, proclamations, or records.”

Who Voted “Yes” and Who Voted “No”


Senate Bill 305, Preempt local knife regulations: Passed 27 to 10 in the Senate

To preempt local government ordinances or rules on the transportation, possession, carrying, sale, purchase, manufacturing, etc. of a knife or knife-making components. A similar preemption restricts local gun regulations.

Who Voted “Yes” and Who Voted “No”


Senate Bill 351, Ban divorce lawyer “ambulance chasing”: Passed 36 to 2 in the Senate

To prohibit a lawyer from soliciting business from a party to a divorce action within 21 days of its initiation, punishable by fines of $1,000, and $5,000 for subsequent violations.

Who Voted “Yes” and Who Voted “No”


House Bill 4470, Increase food business license fees: Passed 21 to 17 in the Senate

To increase various state license fees imposed on food establishments including grocery stores, warehouses, processors, etc. This is projected to extract an additional $2.5 million annually from food-related businesses.

Who Voted “Yes” and Who Voted “No”


House Bill 4470, Increase food business license fees: Passed 79 to 30 in the House

The House vote on the fee increase bill described above.

Who Voted “Yes” and Who Voted “No”


Senate Bill 69, Extend business job training subsidy program: Passed 104 to 5 in the House

To extend until 2023 the sunset on a 2008 law that authorized state job training subsidies for particular employers, provided through community colleges. Also, to revise details of a minimum wage condition on the subsidies. The House removed a provision prohibiting the beneficiary companies from also collecting certain other state subsidies and tax breaks. A Senate-passed bill would eliminate an $50 million annual debt cap on the program.

Who Voted “Yes” and Who Voted “No”


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

Skorup Quoted on Release Time

Release time costs public schools millions each year

For the past several years, the Mackinac Center has written about policies written into school contracts that allow teachers to work for the union full- or part-time, despite being paid with public funds. Research conducted in 2011 showed that release time cost tax payers over $2.7 million.

Now the legislature is considering a bill that would end publicly funded release time. Senate Bill 280 would still allow teachers to conduct union business, but would require the union to pay for time spent on union business.

Jarrett Skorup, a policy analyst at the Mackinac Center, discussed the bill in a June 26 article at the Daily Caller.

A Possible Uber Setback for Ride-sharing in California

Examining the distinction between a contractor and an employee

A recent ruling by the California Labor Commissioner’s Office could change the way that popular ride-sharing services such as Uber operate. The Seattle Times noted the decision that classified one of Uber’s drivers as an employee “may turn out to be an even bigger roadblock to the company’s business than regulatory changes because it could change Uber’s cost structure, requiring it to offer health insurance and other benefits, as well as paying salaries.”

What does this mean to those who love the low-cost, innovative, and job creating service? Most likely, if courts uphold the decision, higher costs and possibly less opportunity for those who want to work for themselves.

In early June the commissioner’s office ordered Uber to reimburse Barbara Berwick, a driver using its service, roughly $4,000 in expenses for tolls and mileage, ruling that she was an employee, and not an independent contractor, as Uber maintained.

Independent Contractor vs. Employee

Workers can fall into several categories, but the two most common are independent contractor and employee.

Independent contractors are essentially small business owners. They generally determine their own hours, provide their own equipment, have specific expertise, and have control over their working environment. Like other small business owners, their “salary” is really the profits they earn from their work for clients. Think a homeowner hiring a plumber to fix a toilet, or someone coming weekly to mow the lawn. The plumber and lawn mower are not the homeowner’s employees.

Clients of independent contractors pay a fee to the contractor as they would for any service. The client is not responsible for taxes, health insurance, or the myriad state and federal labor laws applying to employees. Unless stipulated in the contract, clients are not responsible for reimbursing the contractor’s expenses.

Employees, on the other hand, have much less flexibility. They truly work at the behest of someone else. The employer usually determines the hours of the employee, provides work-related equipment and dictates how the employee performs the job. Employers must comply with all labor laws, may reimburse expenses, pay half the Social Security and Medicare taxes of employees, and because of Obamacare, most must provide medical insurance.

In this type of arrangement both the employer and the employee have much less freedom than they would as a client or an independent contractor.

Uber’s contract

Uber’s contract allows drivers to “accept, reject, and select among the requests received via the service.” The drivers have “no obligation” to accept any request and have no set or required hours. In other words, drivers can work as much or as little as they want. The only parameter Uber sets for the amount of work is that it may suspend its account with a driver who has been inactive for 180 days, though the driver can reapply in person or via email.

For passenger safety and to maintain the loyalty of the users, Uber does set some standards. It requires drivers to maintain their own equipment (cars). Uber also sets standard pricing for drivers so that users know how much their trips will cost. Uber collects payments from the user and then pays the drivers. All of this occurs after the driver voluntarily chooses to use the app to pick up a user.

Uber vs. Berwick

Berwick, who according to The New York Times “has a history of being litigious,” has filed at least 20 lawsuits in the last 25 years, including one in which she sued “an employee of a pizza parlor for $500 in damages for leaving restaurant menus on her gate.” Berwick sued Uber for back wages, the repayment of expenses, and damages for her time as a driver during 2014, claiming she was an employee.

Uber asserts it is simply a platform (mobile app) to allow two parties to arrange transportation — commonly called “ride-booking” or “ride-sharing.” Uber connects drivers with “users” requesting transportation. Since Uber does not control the hours worked by the drivers nor does it provide equipment, it is generally outside the definition of an employer. Uber maintains that drivers are independent contractors and not employees.

Berwick is no stranger to entrepreneurship. In the late 1980s she started a phone sex company called Berwick Enterprises, which she later expanded into money management and apparently ride-sharing. Uber honored a request by Berwick to pay all the money she earned as a driver to that company.

The arrangement between Uber and Berwick Enterprises helps illustrate that Uber’s model is a service for other companies and not an employer of employees.

Looking at it another way, Berwick could have signed up her money management company for advertising in a magazine whose goal was to connect its readers with quality financial advisors. If the magazine had strict quality controls for advertisers and required standard pricing to keep the loyalty of its discerning readers, then Berwick might have claimed to be an employee of the magazine she was advertising in.

When put in this context, though, it is clear that the arrangement would be for advertising for Berwick’s company, and that she would not be an employee of the magazine.

The situation between Berwick and Uber is not much different. It is providing a service that allows drivers, as independent contractors or small business owners, to find clients in need of transportation. The relationship fosters competition and as many regular Uber users may attest, this competition results in high quality service at competitive rates.

For drivers using Uber’s service, it results in more freedom and opportunity.

For now, the California ruling affects only one driver. But if courts uphold and apply it to the company as a whole, Uber’s business model may fundamentally change, losing the flexibility and innovations that have made it great.

(Editor’s note: A version of this article appeared on the Illinois Policy Institute Blog.)

DPS Emergency Manager Could Make Big Changes

Steps in the right direction are possible without changing laws

Almost everyone has a plan for fixing what ails Detroit Public Schools: the governor, a coalition of special interest groups, and several advocacy groups. While each group differs in its approach — the governor's proposal would split the district in two, while the coalition's plan would limit school choice — every plan would require creating a new law specifically for DPS and Detroit-area charter schools.

But significant steps could be taken without any legal change. With a state emergency manager already overseeing DPS, some actions could be taken immediately to reform the district.

Split the district in two to contain debts

To address DPS' sprawling financial collapse, the governor's plan would split the district in two, with the old district paying off the debts of DPS, and the new district tasked with educating students. Emergency managers of both the Highland Park and Muskegon Heights school districts have already taken similar actions to improve district finances.

In Highland Park, the emergency manager's operating plan for the district included turning over educational responsibilities to a charter school, while using existing property tax revenue to pay down accumulated debt.

Muskegon Heights put a similar arrangement in place: Again, the district converted its schools into charter schools, and revenues from the district's 18-mill nonhomestead property tax were dedicated to paying off Muskegon Heights' debt.

Technically, these arrangements are a form of a state bailout: By using the districts' property tax revenue to pay off accumulated debt, less money is available from the state’s School Aid Fund, which funds districts throughout the state. This means that less state funding is available for other school districts and charter schools than would have otherwise been.

Both Muskegon Heights and Highland Park have been able to dramatically reduce their deficits as a result of this arrangement, with Muskegon Heights reducing almost all of its $11.9 million deficit in just two years.

It seems that if Highland Park and Muskegon Heights emergency managers were able to make such changes, DPS could as well. Rather than converting the district wholly into a single charter school district, the emergency manager could convert single schools individually, focusing on converting schools in need of the greatest educational and financial turnaround.

Instead of having a single charter school operator run these schools, the emergency manager could contract with several operators to offer different programs and different management throughout the district. Indeed, the emergency manager could use converting schools as an opportunity to empower some of DPS' best school leaders to head new, independent charter schools.

A side benefit of charter conversion would be to contain burgeoning teacher pension costs. Teachers hired on by new DPS charter schools would not have to participate in the state teacher pension fund, as is the case of most charter school employees. The Michigan Public School Employees Retirement System is dramatically underfunded, meaning that every employee removed from the system helps reduce long-term liabilities for taxpayers.

Nonetheless, converting DPS schools to charter schools would involve some sort of taxpayer bailout. As with Highland Park and Muskegon Heights, less money would be available in the State School Aid Fund. However, it appears that state legislators are already open to this, with $50 million set aside in the school aid budget to help DPS pay off its debts.

Charter conversion offers best safeguard for state taxpayers

A state bailout of some kind for DPS is likely unavoidable. The district has been under emergency management for years, and yet has failed to get its finances in order. For DPS to recover, the district would have to attract back tens of thousands of students — a highly unlikely scenario in the foreseeable future. With DPS’ dramatic decreases in enrollment, there may be no way for the district to pay off debt it accumulated as a larger district.

The harsh reality is that DPS has taken on more than $1.6 billion in general obligation debt, and has run a deficit for the past seven years. In fiscal year 2014, according to the Citizens Research Council, DPS overspent by $172 million. In light of past overspending, any proposal that entails giving an outsize award to DPS should also take care to protect state taxpayers. Converting DPS schools to independent charter schools provides the best safeguard for several reasons.

First, while some conventional districts have run deficits for years (and will continue to for years more), charter schools have a track record of responding quickly. Past experience shows charter schools that fail to deliver academic success or are poorly managed fiscally are eventually closed. Conversion protects state taxpayers from being approached repeatedly for additional bailout money.

Second, DPS has lost more than 100,000 students in the past decade, as families have left the city or have chosen to place their children at a school that best fits their needs. Converting the large district to smaller independent schools is a quick way to reduce administrative and educational infrastructure that are no longer needed.

Finally, charter conversion will allow many independent charter school operators to try varying models for converted DPS schools. Not every one will be successful, but splitting up the district will create a wide variety of schools, run by new operators and former DPS leaders. Creating an independent network of schools will create more opportunities for success than simply placing a large, expensive bet on a single sprawling district.