The MC: The Mackinac Center Blog

LaFaive: How to Cut $2.1 Billion in Spending

Guest on WILS in Lansing; ideas for road funding

Michael LaFaive, director of the Center’s Morey Fiscal Policy Initiative, was a guest on “The Tony Conley Show” on WILS-AM1320 in Lansing today, discussing his ideas to cut $2.1 billion from a state budget of more than $52 billion, allowing for tax cuts and providing money for road and infrastructure improvements.

More Money for Roads Without Raising Taxes

Center analyst cited in Detroit News

The Michigan House and Senate continue to discuss competing plans to bolster road funding, with some claiming that the House plan would decrease funding for schools.

The Detroit News cites a blog post by James Hohman, assistant director of fiscal policy, titled “When a School ‘Cut’ Is an Increase,” in which he explains: “Rep. Bolger’s plan devotes more of the state’s resources to the roads without reaching deeper into taxpayer pockets. Continued growth can ensure that you can have both more funding for schools and more funding for roads without a tax hike.”

Fiscal Policy Director Michael LaFaive has also written about the issue here and here.

Parole, Sentencing Bills Can be Better

Op-Ed in Detroit Free Press

Fiscal Policy Director Michael LaFaive and Barbara Levine, associate director of the Citizens Alliance for Prisons and Public Spending, write in the Detroit Free Press that prison sentencing and parole reform bills now before the Legislature should be revamped to save money and end the practice of warehousing people beyond their parole dates.

Gov. Snyder’s Detroit Victory Dance Premature

Whether city succeeds remains to be seen

The statue of Revolutionary War Gen. Thaddeus Kosciuszko, located on Michigan Ave. in downtown Detroit.

Gov. Rick Snyder is touting his handling of the Detroit bankruptcy to media outlets around the country. While the bankruptcy went smoothly compared to other municipal proceedings, there is a difference between emerging from bankruptcy and fixing the city government’s problems. Whether Detroit will be successful remains to be seen.

The city emerges from bankruptcy having reduced its debt burdens, including large cuts to its retiree health insurance and to its pension benefits. City debts had been looming to take two-thirds of city operating revenue.

While easing these burdens was necessary, there is a lot more that needs to be done before the city government has officially turned the corner. It needs to get its day-to-day operations in order.

The city’s plan needed to be deemed “feasible” to exit bankruptcy. The judge’s expert in determining whether the proposal meets this requirement gave it good marks, but warned about city operations. The city needed better human resources and information systems, the basics of service provision. She notes: “If the City is to counteract the vortex of underachievement that has defined Detroit, City leadership must make a long term, concerted effort to maintain the momentum needed to ensure effective City services.”

She pins the city’s hopes on successful implementation of the reform and restructuring initiatives designed to invest in needed equipment, staff and systems.

But it remains to be seen whether the state is able to implement these improvements. 

Reports highlighted that progress is being made but not complete. The strings attached to the state bailout may or may not work to ensure that Detroit gets its ship in order.

So until Detroit is able to live within its revenues and provide basic quality services to its residents, we won’t know whether Detroit has been fixed. 

Economic Freedom Gains in Michigan

But the risk of backsliding remains

The Mackinac Center exists to educate Michigan residents about the importance of sound economic policy, and what it looks like. That often means discussing whether existing or proposed laws contribute to, or detract from, freedom and prosperity.

It’s no coincidence that states with greater economic freedom tend to prosper more over time and attract more inbound migration. We know this thanks to various efforts to measure the level of economic liberty in different places. Among the more interesting of these is a new report from the Canada-based Fraser Institute called “Economic Freedom of North America.”

The 2014 edition uses data through 2012, and the bad news is that Michigan ranks a sad 37th among the 50 states. The good news is that we’ve advanced eight places since 2009, when just five states were less free than Michigan. Also, the new ranking is based on data predating any benefits Michigan may derive from its new status as a right-to-work state.

This last point is no small thing. In “Rich States, Poor States,” an economic outlook index published by the American Legislative Exchange Council, Michigan leapt from 20th to 12th place between 2013 and 2014, in large part due to our Legislature enacting a right-to-work law at the end of 2012. This index ranked Michigan’s outlook in a dismal 34th place as recently as 2009.

The 2014 ALEC report incorporates state Gross Domestic Product and related measures. Texas comes in first, and not surprisingly, Texas also occupies the top slot in the Fraser freedom index. More economic freedom yields better economic performance, and Texas is big on both.

The Fraser index uses 10 variables, including the size of government, tax policy and labor market freedom. Joining Texas among top performers are South Dakota, North Dakota, Virginia, New Hampshire, Louisiana, Nebraska, Delaware and Tennessee. Among the least free are Maine, Vermont, Mississippi, New York, Rhode Island, West Virginia, New Jersey and California. Average per-capita economic output in the most free states is about $55,000, compared to $48,000 in the least free states.

The data and methodology used by the Fraser index are published online. The report also cites more than 100 scholarly, peer-reviewed papers from academic journals that have employed data from the same sources in research ranging from the importance of tax policy to education reform.

Economic liberty is just one variable that influences economic growth and well-being. Hundreds of independent, peer-reviewed studies from a wide variety of scholars have arrived at the same general conclusion: that greater freedom is positively associated with better outcomes for people, including stronger economic growth. State-specific literature tends to find the same relationships.

In light of all this evidence, it’s distressing to see how progress toward expanding economic freedom in Michigan has stalled after the magnificent policy gains of 2011 and 2012. Threats of higher taxes, failing to close unaffordable government pension systems, the persistence of corporate welfare schemes, cost-increasing interference in the state energy market, a huge expansion in the medical welfare establishment and more all represent steps in the wrong direction.

Michigan’s government already takes too much, spends too much and interferes too much with the peaceful efforts of our people to voluntarily truck and barter to our mutual benefit. No doubt Michigan has taken positive strides in recent years, but as the Fraser index makes clear, we’re not out of the woods yet and certainly can’t afford to be taking two policy steps back from freedom for each step forward.

One Step Toward 'Reinventing' Michigan

Governor, Legislature can embrace innovation

Over the past four years, there’s been a lot of talk about “reinventing” Michigan. Gov. Rick Snyder and this Legislature have made significant strides toward that goal by improving the state’s tax structure, modernizing education policies and beginning to revamp the state’s regulatory regime. On that last item there is more to be done. House Bill 5951 would embrace innovative ride-sharing technologies used by companies such as Uber and Lyft.

HB 5951, introduced by Rep. Tim Kelly, R-Saginaw Twp., would create a state-based regulatory framework for these so-called transportation network companies. The version of the bill passed out of a House committee last week would create reasonable requirements that strive to uphold the safety of drivers and riders. For instance, all drivers would need to be at least 21, undergo a thorough background check and be covered by a $1 million insurance policy. Additionally, all vehicles would need to get annual inspections by a Michigan-licensed auto mechanic.

Although statewide regulations can sometimes thwart disruptive innovations such as these, the proposed rules appear to be an improvement over the ones developed at the local level. For instance, Ann Arbor and Detroit do not appear to have figured out how to handle Uber and Lyft yet, with Ann Arbor trying to shut them down this past summer and Detroit threatening to do likewise. Rep. Kelly’s bill would prevent local governments from further overregulating ride-sharing companies, creating an opportunity for all Michiganders to benefit from these car services.

Establishing a welcoming environment for ride-sharing companies would position Michigan uniquely as a national leader in embracing technological innovations and investments. Unfortunately, the state recently took a step backward when it created new barriers for innovative automobile companies to do business here. Some car manufacturers, such as Tesla, would like to sell directly to consumers, but a recently passed state law jeopardizes its ability to do so. It’s obvious how this benefits car dealerships but unclear how it helps consumers.

If this state really is going to be “reinvented” and become “Michigan 3.0,” it will need to embrace disruptive change and the technological innovations that drive it. The state swung and missed on Tesla, surrendering to entrenched special interests and raising the cost of Michiganders enjoying the benefits of electric cars. But Gov. Snyder and the Legislature have another at bat. Here’s hoping for a different outcome this time around.

Statewide Media Reporting on MEA Salary Hikes

Michigan Capitol Confidential first to cover issue

Media statewide are reporting on the salary increases for Michigan Education Association union officials, a story that first appeared in Michigan Capitol Confidential.

The Detroit Free Press, Lansing State Journal and Livingston Daily have covered it, as has WKZO 96.5FM in Kalamazoo and the Observer & Eccentric.

Mackinac Center spokesman Ted O’Neil also discussed the issue on “Capital City Recap” on WILS AM1320.

Civil Asset Forfeiture Laws Need Reform

Transparency, rule of law should be the focus

A Michigan medical marijuana card.

A recent CapCon story and video documented the Michigan State Police using civil asset forfeiture to freeze the bank accounts and take the property of two men for months without even charging them with a crime.

Forfeiture is a complicated process, but essentially allows for an end-run around what most people see as basic constitutional rights. Michigan should join other states, like North Carolina or Minnesota, in requiring a criminal conviction before assets can be seized. That won’t happen anytime soon, but in the meantime there are other reforms that politicians should consider during this lame-duck period.

The bill with the greatest chance is House Bill 5081, which was passed out of the House Oversight Committee last June. It now sits on the House floor. This bill would provide more transparency for the assets seized — something extremely important because law enforcement agencies use seized assets to supplement their budgets.

There are other proposals that would help change the incentives in place right now. That’s the key to respecting individual rights and a strong rule of law.

December 5, 2014, MichiganVotes Weekly Vote Report

Road funding, religious freedom, film subsidies & more

Senate Bill 1149, Authorize new state Senate office building: Passed 25 to 13 in the Senate

To authorize the sale of the Farnum Senate office building in Lansing and construction of a new building for Senators’ offices.

Who Voted “Yes” and Who Voted “No”

Senate Bill 1073, Grant medical facility rationing exception to McLaren Health Systems: Failed 11 to 26 in the Senate

To authorize a special exception to the health care facility rationing imposed by the state’s “Certificate of Need” law that would allow McLaren Health Systems to build a new facility in Clarkston. The CON program prohibits new or expanded health care facilities and technology unless providers get permission from a state commission.

Who Voted “Yes” and Who Voted “No”

Senate Bill 1150, Reduce maximum truck weights: Failed 15 to 22 in the Senate

To reduce the maximum weight of trucks allowed on Michigan roads from 164,000 to 80,000 pounds. This would not necessarily reduce the maximum weight per axle, which could mean more trucks to carry the same weight.

Who Voted “Yes” and Who Voted “No”

House Bill 5217, Limit employer liability for ex-con with state “certificate of employability”: Passed 27 to 11 in the Senate

To limit the liability of employers in personal injury, property damage and wrongful death lawsuits arising from the actions of an employee who is an ex-convict hired after the individual was granted a “certificate of employability” by the state Department of Corrections, as proposed by House Bill 5216.

Who Voted “Yes” and Who Voted “No”

Senate Bill 952, Establish new local and school budget process requirements: Passed 24 to 14 in the Senate

To prescribe procedures, notification and budget-cutting requirements, and monitoring for a public school district that experiences a gap between projected revenue and actual spending (a deficit), or is in the midst of “rapidly declining financial circumstances,” including substantial declines in enrollment. The state Department of Education could potentially assume authority over financial and academic matters, or withhold funding from a district that fails to take the required actions.

Who Voted “Yes” and Who Voted “No”

Senate Bill 953, Authorize emergency manager for school district that fail to address deficits: Passed 23 to 15 in the Senate

To authorize appointment of an emergency manager for a public school district that fails to comply with actions required to correct a deficit or address “rapidly declining financial circumstances.”

 Who Voted “Yes” and Who Voted “No”

Senate Bill 1130, Mandate Hepatitis disclosure to sex partner: Passed 28 to 10 in the Senate

To make it a felony for an individual who knows he or she has Hepatitis C to have sex without telling the sex partner about having the disease. This already applies to AIDS.

Who Voted “Yes” and Who Voted “No”

Senate Bill 247, Authorize some 4 a.m. liquor licenses: Passed 22 to 14 in the Senate

To allow bars and restaurants in a “central business district” of a city to stay open until 4:00 a.m. on weekends if they pay a $10,000 annual fee and have extra bouncers and security cameras.

 Who Voted “Yes” and Who Voted “No”

House Bill 4998, Appoint “entrepreneurs-in-residence” at Michigan Strategic Fund: Passed 30 to 6 in the Senate

To require the state agency responsible for granting and overseeing selective tax breaks and subsidies granted to particular corporations or developers to appoint up to 10 “entrepreneurs-in-residence” to recommend ways to expand and improve the these programs.

 Who Voted “Yes” and Who Voted “No”

Senate Bill 1135, Impose new child car seat mandates: Passed 36 to 1 in the Senate

To require a child who weighs less than 30 pounds to be transported in a rear-facing child seat; and a child who weighs from 30 to 50 pounds to be transported in a forward-facing child seat. Age would not be a factor in the above mandates. A child under age 10 who is less than 57 inches tall would have to be transported in a booster seat.

 Who Voted “Yes” and Who Voted “No”

House Bill 5958, Enact a “religious freedom restoration act”: Passed 59 to 50 in the House

To establish that the state or a local government “shall not substantially burden a person's exercise of religion, even if the burden results from a rule of general applicability,” unless this is done “in furtherance of a compelling governmental interest” and uses “the least restrictive means” to further that interest.

 Who Voted “Yes” and Who Voted “No”

Senate Bill 1103, Extend film producer subsidies: Passed 73 to 37 in the House

To extend the law authorizing state subsidy payments to some film productions until 2022 (under current law it ends in 2017), and make some changes to the subsidy allocation formula. This year $50 million was appropriated for these subsidies.

 Who Voted “Yes” and Who Voted “No”

House Bill 4539, Phase out sales tax on fuel sales: Passed 56 to 53 in the House

To phase out charging the 6 percent sales tax motor fuel sales over six years. House Bill 5477 would gradually increase the motor fuel tax by an equivalent amount. The bill requires the legislature to continue funding schools and local government revenue sharing at least as much as the previous year (this is where most sales tax revenue goes). If it did not, then the 6 percent sales tax would automatically be re-imposed on fuel sales. The bills would shift about $1 billion more from current state spending to roads each year when fully phased in.

Who Voted “Yes” and Who Voted “No”

House Bill 5477, Replace per-gallon fuel tax with higher wholesale tax: Passed 58 to 51 in the House

To replace the current 19-cent per gallon gas tax and 15-cent diesel tax with a 7.5 percent wholesale fuel tax, gradually increasing to 13.5 percent over six years. When fully phased-in this would represent a tax hike of around $1.0 billion at current wholesale fuel prices. However, House Bill 4539 would phase out the state sales tax on fuel sales over the same period if enacted, resulting in no net tax increase.

Who Voted “Yes” and Who Voted “No”

Prohibition Repealed 81 Years Ago Today

Similarities exist in cigarette market due to high taxes

On this date in 1933 the nation said goodbye to one of the biggest social experiments in its history: Prohibition of alcohol. The experiment was a disaster, but the remnants are still with us today in the form of archaic and unnecessary laws and regulations. (See the Mackinac Center’s work on alcohol control here.)

I’ve detailed — with co-author Todd Nesbit — Michigan’s experience with Prohibition in a 2008 appendix to a large study on cigarette smuggling. The purpose of doing so was to compare the many unintended consequences of well-meaning policy changes like Prohibition to high excise taxes on cigarettes, something we called “Prohibition by Price.” That Appendix, titled, “Prohibition in Michigan and the Avenue de Booze” can be read here.

Technically, cigarettes are perfectly legal for adults today, but the price is made so artificially high by excise taxes imposed by governments that they encourage people to buy outside the legal market. These high taxes encourage smuggling by individuals and organized crime cells to escape high taxes or to arbitrage price differentials for profit.

Through 2012 we estimate about 27.6 percent of all cigarettes consumed in Michigan were smuggled into the state. But smuggling isn’t the only parallel with the actual era of Prohibition.

Nationwide we have seen high cigarette excise taxes lead to violence against police, property and people. We have seen police and other government officials corrupted by illicit profits, truckloads of product hijacked, murder for hire scenarios, adulterated products (Bathtub gin anyone?) and — not surprisingly — ingenious distribution tactics.

The distribution of “loosies” (single sticks of untaxed cigarettes sold illegally on the street) has been in the news recently. This, too, has a Prohibition parallel to when traffickers used to sell shots of whiskey to workers leaving auto manufacturing plants in the Detroit area.

Government officials frequently have good intentions. Prohibition of alcohol is one example. Unfortunately, the law of unintended consequence is at work always and everywhere and can serve to undermine the many laudable goals they pursue. The sooner lawmakers realize this the sooner we can see them avoid bad laws and write better ones.