Mackinac Center President Joseph Lehman lays out a free-market approach to pay for roads
One might live a lifetime without witnessing a political trouncing like the one voters delivered to Proposal 1 on May 5. The complex measure to annually devote $1.2 billion more for roads by raising taxes $2 billion didn’t just fail, it was vaporized in an historic 20-80 rout.
Some Prop 1 proponents say they now discern a new consensus to raise taxes to fix the roads, even though that is not the most obvious interpretation of their 60-point margin of defeat. While Prop 1’s failure may have made even a small tax increase more difficult, the Mackinac Center’s ideas remain untarnished by the blowout.
So what are the Mackinac Center’s road funding principles? We point to the free-market ideal — True North, if you will — and chart a path that leads there even when it’s not yet politically possible.
We have a way of patiently helping the politically impossible become politically inevitable, to borrow Milton Friedman’s phrase. Our two-decade march for right-to-work comes to mind.
Might a consensus now form around our approach to roads?
- Advocate for high quality, well-funded roads as a public good that serves taxpayers’ interests. Taxpayers will pay for poor government roads one way or another — through excessive taxes, vehicle repairs, or an impeded economy. Even Adam Smith, the famed popularizer of the free market’s “invisible hand,” did not oppose basic government infrastructure.
- Illuminate inefficient road spending practices and recommend reforms within road agencies. Repealing the prevailing wage law is a modest start.
- Retain the user-fee principle. Those who drive more should pay more. The per-gallon fuel tax approximates a user fee. Our road tax structure should easily accommodate emerging technology, which will make pay-by-the mile, pay-by-the-ton, or both, instant and frictionless for any type of vehicle, including hybrids. Oregon is experimenting with this.
- Identify and recommend ways to assign more money out of current revenues to roads. This means reassign state spending from programs with lower priority to the roads until they are adequately funded (and we believe an additional $1.2 billion is the right number). My colleagues Mike LaFaive, James Hohman, and Jarrett Skorup have done more than anyone to identify more than $2 billion in questionable spending that could be devoted to roads. The Michigan Economic Development Corporation consumes hundreds of millions of public dollars, much of it doled out as corporate welfare in a program cloaked in secrecy and whose results hardly ever match its boastful claims. So start with the MEDC. It’s hard to think of a state asset more central to economic development than decent roads.
- Refrain from advocating for bigger government overall. Imposing new road taxes should be a last resort as long as lower priority spending remains untouched.
State House leaders recently introduced a plan that embraces most of these principles, even prioritizing future state revenue growth for roads so that they get more resources with no tax increase. If a final compromise does include a tax increase, we’ll be cheering in direct proportion to how much of the total road funding package comes from reprioritizing current spending. That would represent progress compared to the conventional mindset of seeking all the new road money from a tax hike. And it’s one step in the direction of True North.
Government spending on tourism — including the popular “Pure Michigan” commercials — do not create net new jobs for the Great Lake State. The taxpayer resources spent on tourism marketing should be redirected elsewhere, such as to repairing Michigan’s roads or cutting the personal income tax.
We developed a statistical model designed to analyze the impact of state tourism spending on economic growth as measured by employment between 1973 and 2012. We used employment and tourism spending data from the U.S. Census Bureau and the U.S. Department of Labor for the 48 contiguous states.
The model, described below, shows that while government marketing of tourism activities does generate value for some industries, the benefits were puny and outweighed by the costs to the state’s economy as a whole.
As one example, a $1 per capita increase in promotional efforts by the state leads to about a one penny increase in spending on the accommodations industry. One cannot think of this as a "return," unless it is described as a very, very negative one. For a traditional return on investment, your capital doesn’t disappear. If you invest $1 and receive 6 cents in return, you now have $1.06. In the case of tourism subsidies, your original $1 is gone forever, and you’re left with one new penny.
The policy challenge for the Michigan Legislature is that the general benefit to taxpayers of programs such as Pure Michigan is nonexistent. The new spending generated by taxpayer-funded tourism advertising is funneled to just a few sectors of the economy: retail, accommodations and amusements, where the impact is visible, but tiny. Meanwhile, the cost of these programs is spread across Michigan’s taxpayers, and the employment losses in other sectors of the economy more than offset the gains to the tourism sector.
The gains to the state economy of large tourism programs are mythical, so spending on them must be evaluated against better alternatives such as infrastructure spending, debt reduction or tax cuts.
Our study’s results should be important to the reader because Michigan’s largest component of state tourism marketing dollars currently comes from the Pure Michigan advertising campaign — begun in 2006 — which is worth about $29 million in fiscal year 2015. This program and its source of funding has been in the news lately due to the ongoing debate over how to fund roads.
Michigan House Speaker Kevin Cotter has advanced a $1 billion road funding plan that redirects Pure Michigan source funding to road repair. It does not eliminate the program as a matter of law. But it does place the Michigan Economic Development Corporation — which ultimately oversees the program — in the position of reprioritizing its remaining resources.
The MEDC is trying to halt a redirection of its funding to road repairs. It is possible that the MEDC may find a way to shift money around to keep the advertising campaign going, but no one should feel obliged. Our model shows that spending on this campaign is ineffective.
This is not the first time Michigan has run tourism-related commercials. In the early 1980s, the Blanchard administration ran a branding campaign that included state-funded television commercials promoting Michigan — the “Say Yes! to Michigan” campaign. You can view examples of those commercials below.
Our model is designed to control for inflation, tourism spending in surrounding states, geographic features that impact tourism, such as elevation or proximity to large bodies of water, as well as recessions, changes to population and changing trends in tourism. By “control” we mean that we assured the model would not falsely attribute to tourism spending what might be the influence of some other important variable, such as presence of a large body of water.
We do not doubt the good intentions of people who champion Michigan or the well-being of the people who call it home. What is open to question is the efficacy of the programs they run in order to do so. Our objective treatment of the evidence should suggest to policymakers that there may be a better use for the tourism advertising dollars currently spent marketing the Great Lake State.
Note: The data presented here comes from a forthcoming study on the Pure Michigan program by the authors, which will include a detailed description of the statistical model and data set among other items.
Majority of respondents want film money to go to roads
The Mackinac Center for Public Policy and the Michigan Chamber of Commerce last week released top-line results of a jointly commissioned poll by Mitchell Research of 600 likely voters on the subject of Michigan’s film incentive program. This program gives subsidies to people who produce movies in our state, like the upcoming Batman v Superman.
The results of the poll indicate that the more information a voter has about Michigan’s film incentive program the less appealing it appears. Our first question was the most open-ended, our last was the least so. With each succeeding question support for the film subsidy drops. The poll had a margin of error of + or – four percent.
- Based on what you’ve heard or read about the topic, which of the following two statements do you believe best describes your opinion:
A. “Michigan’s film industry jobs are worth the cost of film incentives.” (40%)
B. Michigan’s film subsidy program is actually a net loss for state taxpayers and not worth the cost of the incentives. (37%)
C. Volunteered/Don’t know/Refused (23%)
- Based on what you’ve heard or read about the topic, which of the following do you believe best describes your opinion:
A. The state should continue subsidizing the film industry (40%)
B. The state should stop subsidizing the film industry (50%)
C. Volunteered/Don’t know/Refused (10%)
3. Based on what you’ve heard or read about the topic, which of the following do you believe best describes your opinion:
A. The state should continue to spend $50 million annually subsidizing the film industry (29%)
B. The state should stop spending $50 million annually subsidizing the film industry (60%)
C. Volunteered/Don’t know/Refused (11%)
- Do you strongly support, somewhat support, somewhat oppose, or strongly oppose having the Legislature use the $50 million that was going to go to film subsidies to pay for road improvements instead?
Strongly support 48% Somewhat support 18% Somewhat oppose 8% Strongly oppose 17% Volunteered/Don't Know/Refused 10%
In other words, this last question indicates that 66 percent of voters would strongly or somewhat support the redirection of film subsidy dollars to roads while only 25 percent would strongly or somewhat oppose such a change.
The Legislature may have gotten this message. The Detroit News has reported that just this week a House-Senate conference committee voted to halve the subsidy and use $19 million of the remaining dollars to pay bond debt and repay some revenues taken from the Michigan Employment Retirement Systems on a troubled studio deal.
The Mackinac Center for Public Policy and the Michigan Chamber of Commerce have been two of the earliest and most consistent opponents of Michigan’s film incentive program.
(Author’s note: For a convenient explanation of why the film subsidy — and other industrial welfare programs — is not successful, see page four of the Mackinac Center Policy Brief, “Special Effects: Flawed Report on Film Incentive Provides Distorted Lens.”)
Good work, but more still to be done
The Michigan House Judiciary committee has passed a package of bills that would reform Michigan’s civil asset forfeiture laws. Currently, law enforcement are able to seize private property from residents and give it to government agencies without actually convicting anyone of a crime.
You can read the Mackinac Center’s past work on the issue here.
The bill package deals with mandating reporting requirements of law enforcement agencies and raising the standard of proof that must be met before property can be forfeited.
The transparency bills were passed almost unanimously by the 11-person committee. The state only has a rough idea how much property is forfeited each year by local law enforcement units, and the bills would require more reporting and greater detail.
House bills 4500, 4503, 4504, 4506, and 4507, and 4508 were supported by Representatives Klint Kesto, R-Commerce Township; Peter Lucido, R-Shelby Township; Joel Johnson, R-Clare; Triston Cole, R-Bellaire; Jim Runestad, R-White Lake; Martin Howrlyak, R-Troy; Rep. Kurt Heise, R-Plymouth Township; Jeff Irwin, D-Ann Arbor; Stephanie Chang, D-Detroit; Vanessa Guerra, D-Saginaw; Mary Rose Robinson, D-Detroit. (Rep. Heise did not vote on 4504.)
House Bill 4508, sponsored by Rep. Irwin, would limit forfeiture in cases involving less than one ounce of marijuana, if the drug was being used for personal use. In other words, someone possessing a small amount of marijuana could be charged with a crime, but law enforcement could not confiscate their vehicle or property. The bill was supported by all of the committee except Rep. Heise.
House Bill 4505, sponsored by Rep. Lucido, and HB 4499, sponsored by Rep. Gary Glenn, R-Midland, would raise the standard of proof needed to justify seizing private property. Currently, law enforcement must demonstrate that a “preponderance of the evidence” (51 percent) shows the property to be guilty of a crime. These bills would raise that to a “clear and convincing” (67 percent) standard, which is still not as high as the “beyond a reasonable doubt” standard required for criminal convictions. HB 4505 passed with all voting yes except Rep. Guerra, who voted “no” and Heise who abstained. HB 4499 passed 7-2, with Rep. Guerra and Rep. Robinson voting “no” and Reps. Heise and Howrlyak abstaining.
The Legislature should require a criminal conviction before property can be given over to the state. North Carolina has long outlawed civil asset forfeiture, and New Mexico recently voted to prohibit it in April of 2015 (requiring both people and property to be tried in criminal justice system together).
Regardless of what crime someone is alleged to have committed, residents must be convicted before they can be punished, and this standard should also apply to their private property. The Legislature should continue moving towards that ultimate protection of Constitutional rights.
Topic is 'Michigan's Road Fix—the $1.5 Billion Question'
Mackinac Center President Joseph Lehman will serve as a panelist at the Mackinac Policy Conference Friday, May 29, at 9:00am.
The topic is "Michigan's Road Fix—the $1.5 Billion Question."
Lehman will join Westland Mayor William Wild, Edw. C. Levy Co. COO S. Evan Weiner, Citizens Research Council of Michigan President Eric Lupher and ITC Holdings Corp. Vice President of Business Unit FInance and Rates Gregory Ioanidis.
You can see a replay of the panel discussion by clicking here.
If sponsors gather enough signatures in time, then legislature votes
As part of the negotiations to get Proposal 1 on the May 5 ballot, Gov. Rick Snyder reportedly promised to veto a potential repeal of the state's “prevailing wage” law. This law prohibits awarding government construction contracts to the lowest bidder, unless the contractor pays the equivalent of union wages that often exceed market rates. Studies have shown that this adds hundreds of millions of dollars annually to the cost of government infrastructure projects, including school construction and road repairs.
Snyder has not denied those reports, and even though voters turned down the proposed sales tax hike in May, there are still concerns that he may feel bound by the alleged deal and veto a prevailing wage repeal bill that has already passed the Senate.
That’s the back-story behind an announcement this week that the Bureau of Elections has approved petition language submitted by a coalition, calling itself “Protecting Michigan Taxpayers,” who wants to repeal the prevailing wage law through a process called “initiated legislation.” As prescribed by the state constitution, this allows a new law to be enacted (or an old one repealed) by a vote of the people and the Legislature, and “over the head” of a governor.
Here’s how it works:
Michigan’s constitution provides three ways for citizens to change the law, or “take the initiative.” The first is an initiative to amend the constitution itself, which requires gathering signatures from registered voters equivalent to 10 percent of the total votes cast in the last election for governor. Doing so places the proposal on the next general election ballot for an up or down vote by the people.
The second is a referendum on a law passed by the Legislature. By gathering signatures equal to 5 percent of the votes cast for governor, a controversial new law can be put “on hold” until voters decide on it in the next general election. Lawmakers have exploited a loophole that bans referendums on appropriation bills — they simply add a modest appropriation to controversial new laws, making them "referendum proof." But that’s another story.
The third method is the one being used in the effort to repeal Michigan's prevailing wage law. It requires sponsors to gather signatures in favor of a proposed statute equal to 8 percent of the votes cast in the last governor election. (According to Ballotpedia that currently means 252,523 signatures.) Sponsors have a 180-day "window" to collect signatures.
If sponsors gather this number, the measure is placed before the Legislature for an up-or-down vote within 40 days, with no amendments allowed and — critical in this instance — no approval from the governor required.
If a simple majority of those elected and serving in both the House and Senate vote in favor, the measure becomes law with no further action required. The new law can only be amended by future legislatures with a supermajority vote of three-quarters in both the House and Senate.
If the Legislature does not approve the initiated legislation, then it is put to voters in the next general election. The Legislature can also place a competing alternative on the ballot, and the one that gets the most votes over 50 percent becomes law.
Michigan’s closed state employee pension system got some good news this year: unfunded liabilities did not increase. But taxpayers are still on the hook for the $6.2 billion promised retirees that the state has failed to save enough for.
A new valuation shows the system’s liabilities grew roughly $500 million since the last report — but so did the value of assets set aside to cover those liabilities. The state carries $16.2 billion in pension liabilities, and $10.0 billion of investments. Some of the system’s previous assumptions have been updated to reflect actual experience, which added $400 million to the projected liabilities.
Retirement system managers adjust for variations in the market value of pension fund investments using a five-year average. This “smoothing” keeps contribution rates from large year-to-year fluctuations. Recent investment gains exceeded the 8 percent annual return the system assumes, and so the (unsmoothed) market value of the pension fund’s current assets exceed their (smoothed) actuarial values by roughly $1 billion.
The not-bad news is a change from recent years. Unfunded liabilities increased from $1.8 billion in 2007 to $6.2 billion in 2012. They have remained at $6.2 billion since then.
Thankfully, nearly 20 years ago the pension system was closed to state employees hired on or after March 31, 1997. These employees are granted generous contributions to individual retirement savings plans that generate no long-term taxpayer liabilities. This saved taxpayers from even larger unfunded liabilities, but the risk will not be fully extinguished until the last pension check is sent to the last surviving pre-1997 employee, many decades in the future.
ALICE report puts most past Michigan citizens below ‘survival’ budget
The United Way has released a report that says the vast majority of Michigan residents need a lot more money in order to be financially “stable.” The study has received wide media attention (sample headline: “More than 1.5 million Michigan households struggling”), but the claims paint a distorted picture.
According to the study, “1.54 million households in Michigan – fully 40 percent, and more than double the number previously thought – are struggling to support themselves.” Many of those households live at or below the federal poverty rate, but most of them are above that rate and classified by the United Way as ALICE (Asset Limited, Income Constrained, Employed). The report says, “The core of the problem is that these jobs do not pay enough to afford the basics of housing, child care, food, health care, and transportation.” It measures “a level based on the actual cost of basic household necessities in each county in Michigan.” It adds later, “ALICE households are forced to make difficult choices such as skipping preventative health care, accredited child care, healthy food or car insurance.”
The report says the “Household Survival Budget” for a Michigan family of four is $50,345 and in order to live with “stability” (“one that enables not just survival, but self-sufficiency”) in Michigan, a family of four needs $92,409.
But these figures are not composed of estimates of what families actually need to survive. Instead, they are averages of what people are already spending on child care, transportation, health care, etc. The report assumes that anyone spending less than these average figures must be below the “threshold for economic survival.” Further, it does not attempt to show that citizens can’t live happily and healthily by spending less than these averages — in fact, most Michiganders did just that a short time ago.
For instance, the report says that in order to “survive” at the “bare minimum” a household with two adults, a preschooler and an infant need to spend nearly $600 per month on food and $700 monthly on transportation (among other things). But it is, in fact, possible to live comfortably without having to spend these amounts. (My family of four lives very well and spends significantly less).
The other interesting perspective to consider about this report is that it suggests that economic stability was out of reach for the vast majority of people throughout history. Overall, Americans are getting a much better deal on food, child care, housing, transportation and health care, and devoting a much smaller portion of their income to most of these expenditures than they did in decades past.
Health care spending is the outlier here — it has increased exponentially over the decades. Not coincidentally, that is an area where taxpayers have paid more and more of the costs. But the value of this and the other four areas have increased substantially over the years.
Rising incomes and lower food prices mean the percent of personal income spent on food by Americans has fallen 60 percent since 1940, from 25 percent of family budgets to 10 percent — a steady decline for decades. Americans spent about 42 percent of their income on food in 1900.
According to the U.S. Bureau of Labor Statistics, transportation spending has declined since the 1980s (and today’s vehicles are safer, more reliable and get better gas mileage). Housing has gone from 27 percent of the average household budget in 1950 to 33 percent in the 2000s, but this is mainly because people have chosen to buy larger homes. The average house size has increased more than 1000 square feet since 1973 (with smaller families).
The cost of child care has increased, but only from 6.3 percent of the average household budget in 1984 to 7.2 percent in 2010, according to Pew Research. But there are also more women in the workforce today, so much of extra spending may come from the extra income of employed women.
And for the nonessentials, things like refrigerators, washing machines, stoves, toasters, vacuum cleaners and televisions, they are more affordable than ever. As UM-Flint economics professor and Mackinac Center Scholar Mark Perry reports, it required almost 900 hours of labor to afford these amenities in 1959 — today, it requires less than 200 hours of work.
None of this is to say that there aren’t many people in Michigan who are struggling economically, and legislators should pursue policy options that will help them. The ALICE report doesn’t call for many specific reforms, except for increasing Michigan’s minimum wage even more. Policymakers should instead remove barriers to economic opportunities, such as overbearing licensing laws, overcriminalization, auto insurance mandates and regulatory rules (such as those covering ride-sharing services such as Uber). These policies have a disproportionate effect on low-income families and should be reformed.
James Hohman discusses the numbers on the Frank Beckmann Show
Since 2009, the unemployment rate in Michigan has dropped faster than any other state in the country.
It has gone from 14.9 percent to 5.4 percent from June 2009 to April 2015.
Assistant Director for Fiscal Policy James Hohman put the numbers in perspective on the Frank Beckmann Show.
You can hear his interview here.
Now with one click you can approve or disapprove of key votes by your legislators using the VoteSpotter smart phone app. Visit Votespotter.com and download VoteSpotter today!
Senate Bill 103, Reduce “student growth” portion of teacher rating criteria: Passed 22 to 15 in the Senate
To delay until the 2018-19 school year the final deadline to establish a teacher "effectiveness" rating system, and reduce from 50 percent to 40 percent the amount of the assessments based on actual state test results of students in a teacher's classroom, with various exceptions. Rigorous evaluation standards prescribed by a 2011 law have been resisted by public schools.
Senate Bill 231, Ban selling “e-cigarettes” to minors: Passed 37 to 0 in the Senate
To ban selling or giving minors electronic vapor cigarettes, or any product or device that delivers nicotine. Violations would be a misdemeanor with a $50 fine, which also applies to giving a minor regular cigarettes.
Senate Bill 240, Ban powdered alcohol: Passed 37 to 0 in the Senate
To ban the sale, use or possession of “powdered alcohol” in Michigan.
Senate Bill 329, Authorize correction of Flint mayor election error: Passed 34 to 2 in the Senate
To revise the state election law to allow several candidates for the mayor of Flint to be placed on the ballot even though they missed the candidate filing deadline, reportedly because the Flint city clerk office posted a wrong filing deadline on the city website.
Senate Bill 86, Authorize more local pension debt: Passed 109 to 1 in the House
To extend for three years the sunset on a 2012 law that allows local governments to incur long term debt to cover unfunded pension liabilities, but only if they close their traditional “defined benefit” pension system to new employees. The 2012 law also allows new debt to pay for retiree health insurance, which unlike pensions is not a legal obligation.
House Bill 4052, Preempt local employer wage, benefit or labor law mandates: Passed 57 to 52 in the House
To preempt local governments, public schools, state colleges and universities, and other governmental authorities from imposing wage, benefit, or leave time mandates on employers that exceed state or federal law. Also, to preempt local restrictions on an employer or employee's full freedom to act under state and federal labor laws, including the right to express views on unionization, to have secret ballots on unionization votes, not compelling employers to deliver employee information to unions, and more.
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.