Michigan Local Governments Have Self-Inflicted Financing Problems

It’s up to them to stop adding retiree debt

It’s often been said that you get the government you pay for. This breaks down, however, when our government managers push the costs of yesterday’s government onto today’s taxpayers. One way they’ve done this by offering medical insurance to government employees and deferring its costs.

Government managers have offered in the past to keep employees on their medical insurance once they retire. They may continue to do so, but they also reserve the right to end coverage at any time. Meanwhile, they aren’t setting aside money to pay for future payments they can anticipate.

That’s not a good situation for either employees or residents. Employees have no certainty that they can count on their employers continuing this practice once they reach retirement age. Residents, meanwhile, are on the hook for services rendered long ago.

The state has already moved its state and school systems — which cover over half of all government employees in Michigan — to an approach in which benefits are paid as they are earned. New employees get a supplemental savings account to help pay for health insurance upon retirement and a boost to their retirement savings plans. In addition to changing its approach to retirement, the state has started setting aside money to pay for health benefits for legacy employees and current retirees. (State employees hired before Jan. 1, 2012, and school employees hired before Sept. 4, 2012, are considered legacy employees.)

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Local governments have a problem, however. The Michigan Treasury Department gathered data on 363 of the state’s general purpose governments — cities, villages, charter townships and counties. There are 46 governments — 13 percent of the total — that either did not offer retiree health insurance benefits to their employees or have set aside enough money to pay for them. The other 87 percent offer health benefits to retirees but have not saved enough money for them.

It would take $9 billion for those local governments to pay for the current benefits in place for employees and retirees, though the problem is more severe in some places than in others.

If governments were required to set aside enough money today to address this problem, the median cost would be only $306 for each of their residents. But there are a handful of basket cases. In River Rouge it would cost each resident $6,500 to pay off these benefits, and there are 48 governments where it would take $2,000 for each resident to set aside enough money to fund the benefits.

And Oakland County, home to 1.2 million people, deserves credit for having set aside enough money to pay for the benefits it offered.

The governments that have not set aside enough money ought to reconsider the benefits they offer. These are not strict financial liabilities. Governments can generally rescind them at their discretion. Creating retiree health care benefits whose costs get kicked onto future taxpayers was a mistake and a terrible financial practice engaged in by the bulk of our governments. It is a disservice to residents. And this is especially the case when everyone who gets those benefits is covered by Medicare in the first place.

Local officials have nobody to blame but themselves. No state mandate compels them to offer these benefits, and nothing requires them to kick the costs of today’s services onto future taxpayers. On the other hand, many of them have followed the state in offering to new employees benefits whose costs won’t get pushed to future taxpayers.

Local officials can get themselves out of this problem by requiring that employees contribute more to pay for these benefits, changing the generosity of these plans and setting aside more money to pay for any remainder.

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Wastewater Infrastructure Updates Lagging?

The market is ready to serve

Government management of Michigan’s chronic sewage system problems can often best be described as slow to improve. Municipalities across the state are engaged in long-term control plans that work to gradually – often over a period of decades – fix infrastructure problems. And while we wait for funding and constructions efforts to be completed, raw sewage and human waste continue to foul Michigan’s waters.

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Public-private partnerships may be able to help the situation. Consider South Bend, Indiana. In 2011, the EPA ordered the city to make a $509.5 million upgrade to its sewer system to stem the flow each year of 600,000 pounds of suspended solids into the St. Joseph River, a tributary of Lake Michigan. By 2016, the city’s spending on sewer systems was projected to reach $861 million. City council estimates concluded that complying with the EPA mandate would cost 20 percent of their households over 10 percent of their income. The federally required project was deemed to be too expensive, and in a September 2016 presentation on the project to city leaders, city staffers argued they would need a plan that was “cheaper, greener, more flexible, adaptive, and socially beneficial.”

Privatizing wastewater services could help meet all of South Bend’s needs by lowering overall costs, achieving regulatory compliance and improving employee and customer satisfaction. The Government Accountability Office found in a 2013 report that contracting out services results in additional capital investments, higher efficiency and faster improvements. In its review of various water services that contract for water and sewage services, the GAO credited improved efficiency to private companies’ higher flexibility and use of economies of scale.

An earlier Water Partnership Council study concurred, noting that private companies tended to have more experience and were less hampered by inefficient bureaucratic requirements. That study also found that, on average, public-private partnerships are 24 percent less expensive than their publicly operated competitors. Additionally, recently signed contracts in Bayonne, New Jersey and Rialto, California brought substantial financial benefits for those cities. A wastewater infrastructure agreement eliminated $130 million in debt for Bayonne and $27.4 million for Rialto. New Orleans is reported to have saved over $35 million for taxpayers since it signed an agreement in 1992. Those savings could all be returned to actual infrastructure spending.

Other benefits to P3s include a new form of competitive pressure on public sector managers. As private operations raise performance standards and decrease prices, public utilities are forced to step up their game – a process known as “benchmarking.” According to the National Research Council, “public water utilities … respond to the pressures of possible privatization by improving their performance.”

Numerous Mackinac Center publications have advocated for these arrangements as far back as 1992. At that time, Michigan was leading the push to privatize wastewater treatment. Cities like Alpena were demonstrating that cost-cutting was possible, even after retaining, retraining and paying higher wages to the original public works staff. In fact, after only three years, private managers were able to move the Alpena wastewater facility from the EPA’s noncompliance list to winning environmental awards. That partnership agreement is still in effect today with Suez Water.

Government has a responsibility to steward the environment and citizens’ tax dollars. Privatization of wastewater treatment has been shown to work in both theory and in practice and has been effective at improving services, improving environmental management and lowering costs in Michigan for over three decades. Local governments — especially those that are still allowing wastewater to flow into Michigan’s lakes and rivers and have not yet considered privatization — owe it to Michigan residents to investigate better options. The market is ready to serve.

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Michigan Closer to More Available Dental Care

Mackinac Center recommendation passes Senate

The Michigan Senate recently passed Senate Bill 541, which would create a new license for the dental profession, called a dental therapist. Sen. Mike Shirkey, R-Clarklake, is the lead sponsor of the bill, and it moves to the House for consideration.

The Mackinac Center published a report last year laying out the case for dental therapists, and Michael Van Beek, the Center’s director of research and author of that study, recently published an op-ed in the Oakland Press. He summed up SB 541 this way:

This bill allows dentists the freedom to expand their practices and gives hygienists an opportunity to further their training and take on more responsibility if they choose to pursue a dental therapist license. Dentists need more flexibility to better meet patients’ needs and this could be an important part of that effort. Several other states have used dental therapists or similarly licensed professionals to help meet the needs of their residents — Michigan should simply follow their lead.

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Too few Michiganders get the dental services they need, especially important preventative care, and creating a new category of dental providers will empower dentists to better meet these needs. Dental therapists would have a large scope of practice and be able to provide patients more services than dental hygienists, but would still be directly supervised by dentists. Creating this new license is a move in the right direction.

Find more coverage of this issue at WGVU.

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House Bill 4583, Use "orphaned" fuel tank cleanup revenue for other purposes: Passed 26 to 10 in the Senate

To divert money from a 7/8 cent per gallon gas tax originally levied to pay for cleanups of leaking underground fuel tanks that were abandoned decades earlier and where no known party is liable ("orphan sites"). The bill would authorize subsidies to current fuel tank owners who are liable for contamination that occurred before 2015; to developers of "brownfield" property with leaking tanks; and to local governments for cleanups related to past road work.

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Who Voted "Yes" and Who Voted "No"

House Bill 4066, Authorize limited interstate medical licensure agreement: Passed 100 to 6 in the House

To enter an agreement with other states to facilitate doctors getting licensed in more than one state. The measure would not eliminate the need for doctors to get a separate license to practice in each state, or change current restrictions on the practice of telemedicine. It would require doctors to hold one of the board certifications marketed by certain national organizations, which would have the effect of excluding most Michigan practitioners from the proposed licensure process.

Who Voted "Yes" and Who Voted "No"

House Bill 4508, Create a “cyber civilian corps": Passed 36 to 0 in the Senate

To create a state “cyber civilian corps" to organize civilian volunteers with relevant experience who would provide rapid response assistance to a municipal, educational, nonprofit or business entity that needs help dealing with a cybersecurity incident.

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 www.MichiganVotes.org.

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Don’t Push the School Funding Panic Button

Districts can adapt to federal enrollment projections

For nearly 15 years, the number of students in Michigan’s public schools has been shrinking. In recent weeks, federal data crunchers said they expect the trend to continue up through 2025. Representatives of the education establishment have already begun to exaggerate the fiscal challenges that a continued downward trend would bring.

The Michigan Department of Education counted 1.53 million students enrolled in public preschool through 12th grade last year. In a publication released last month, the U.S. Department of Education projects that number will drop to 1.41 million by fall 2025. Its formula combines existing enrollment figures with population forecasts from the U.S. Census Bureau. The predicted decline of 8 percent would be slightly greater than the previous nine years’ decline of 7 percent.

Chris Wigent, executive director of the Michigan Association of School Administrators, told both Michigan Radio and MIRS News that districts would not be able to reduce expenses quickly enough to keep up with the declining enrollments. “So they couldn’t cut teaching staff, they couldn’t cut back on bus runs. All the expenses would basically be the same,” he said.

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To be sure, school operating budgets do include some fixed costs, costs which don’t change in the short term as students come or go. But even under conservative assumptions, nearly two-thirds of Michigan K-12 spending is not fixed. And ultimately, all education costs can be adjusted over time.

The net loss of one student doesn’t necessarily reduce teaching staff needs, but districts largely have been able to keep pace with total enrollment losses. Every year between 2007-08 and 2016-17, fewer students enrolled in Michigan public schools. The total statewide number of teachers dropped eight out of the nine years, falling at a slightly higher rate than the number of students over the same period.

But non-teaching positions bucked the trend. The state still has around 12,300 administrators and around 111,000 non-instructional workers even as the student population declined. Teaching positions make up a smaller share of Michigan’s K-12 workforce than they did a decade earlier.

Available data doesn’t support Wigent’s contention about bus runs, either. From 2007-08 through 2015-16, most Michigan school districts cut student transportation dollars in real, inflation-adjusted terms. In fact, districts on average reduced their transportation spending by 11 percent per student. This decline can be explained, in part by the trend of more school districts contracting out for transportation services.

Most dollars taken in by Michigan school districts come in the form of the foundation allowance, which is mostly determined by how many students show up for October count day. If one looks only at the foundation allowance, one sees an incomplete picture of budgets, since the allowance is completely tied to fluctuating enrollments.

But more than one-third of an average district’s revenues come from other sources, such as local revenues or state and federal appropriations. Most of these extra dollars are not strictly determined by actual student counts. As Wigent’s group and others want to take up school funding reform, sound minds should resist the call to shift dollars tied to serving student needs into revenue streams that favor institutional and other political priorities.

In any case, Michigan lawmakers and education officials should not necessarily anticipate another decade of emptier classrooms. They should prepare for the possibility that the projections don’t hold true. Nine years ago the U.S. Department of Education foresaw a much smaller drop-off in student enrollment than the state has actually experienced.

Federal forecasters might end up erring in the opposite direction this time. But even if they prove correct, Michigan’s leaders should resist the urge to push the panic button.

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Criminal Justice Policy Commission Examines Raise-the-Age Proposals

Legislature wants to find out what raising the age limit for adult prosecution might cost

What’s the right age for someone to be considered as an adult, rather than a juvenile, in the court system? That’s what legislators are trying to find out as they examine proposals to change the definition of legal adulthood from 17 to 18.

The Criminal Justice Policy Commission, an official group that advises the Legislature on criminal justice matters, recently heard testimony from Midland County Probate and Juvenile Court Judge Dorene Allen and several others. The topic was a set of legislative proposals collectively referred to as “Raise the Age.” The proposals would change the definition of “adult” in Michigan’s criminal justice system to exclude 17-year-olds. (Prosecutors would still have the option to try them as adults for a variety of serious crimes.) Michigan is currently one of five states where 17-year-olds are automatically tried as adults and incarcerated with them, rather than having their cases handled in the juvenile justice system. But there isn’t enough information about how the juvenile justice system currently operates in Michigan to know what impact this reform would have.

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This is the second year in which lawmakers have considered changing the age. Advocates and some legal experts like Allen say that 17-year-olds who are treated in the adult system end up worse than those who are treated in juvenile court. That is, they relapse into criminality sooner and more frequently than those whose cases are handled in juvenile courts. Juvenile courts in Michigan receive half their funding from the Department of Health and Human Services Child Care Fund, which is used for specialty programming, psychological exams and other services. This allows juvenile judges to take a more rehabilitative approach than judges in the adult system.

Allen, who became the president of the Probate Judges Association on Oct. 1, has lead that body’s work on juvenile justice for several years. She testified before the policy commission last week in favor of raising the age but noted that adding 17-year-olds to the juvenile justice system would come at a cost. The Michigan Probate Judges Association has estimated that raising the age would cost courts 25 percent more than they are currently spending. The association opposed last year’s proposal on the grounds that the legislation did not appropriate enough money to successfully enact the reform.

Now that the reform proposal has been introduced again in 2017, the Legislature has told the advisory group to study it and estimate its costs for each court. The commission hired the Maine-based consulting firm Hornby Zeller to complete a study, starting with collecting data from counties. The study may already be off to a rocky start, however. Allen cited deficiencies in the survey it circulated to counties, such as the fact that it does not mention the Child Care Fund, a key income source for juvenile courts and a funding structure that is unique to Michigan. The survey also failed to define key terms such as “arrest” and “recidivism,” meaning that it may result in inconsistent or contradictory findings.

Sound, comprehensive data and data collection within the criminal justice system is notoriously absent or insufficient. Lawmakers and stakeholders need to find out how juvenile justice is administered at the county level. To do that, they must also call for a uniform system of collecting data about criminal activity, prosecution, and incarceration for both minors and adults. Bills such as Senate Bill 11, the Data Collection and Management Act, would make it quick and easy to compare statistics across counties and adult versus juvenile justice systems. As a result, officials could then draw the very insights that Hornby Zeller is now attempting to glean, such as which are the most effective juvenile justice practices and what costs and benefits they have.

While the outcome of the Raise-the-Age legislation is still unclear, one thing is certain: Neither this reform nor any other can be responsibly implemented without the data we need to understand how things currently stand.

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Mackinac Center FOIA Lawsuit with University of Michigan Receives Wide Coverage

Here’s how the Legislature can solve the problem going forward

“The University of Michigan is a public entity, and its president a government employee. Taxpayers, who provide more than $1 billion to UM through state and federal spending, have a right to expect the school to treat all students fairly and not discriminate based on political beliefs,” note vice president of legal affairs Patrick Wright and marketing and strategic outreach manager Jarrett Skorup in the Detroit News.

That’s why the Mackinac Center filed a Freedom of Information Act request after the U-M president made partisan remarks in a speech while defending itself in a separate lawsuit filed by conservative and libertarian students on campus. Instead of providing the requested documents — emails mentioning President Donald Trump — the university stalled in responding and then withheld select emails. We filed suit, which was recently settled. U-M agreed to pay legal fees, add new transparency workers and release the emails it tried to keep hidden.

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But this doesn’t end the problem. The state FOIA law has loopholes, and government entities exploit them.

In 2016, the Mackinac Center filed a separate lawsuit against the state of Michigan after the Department of Environmental Quality took four months to produce documents related to the Flint water crisis. This was a simple information request that, like the UM response, took very little time for the government agency to execute.

The DEQ and UM can wait months to deliver the documents because they are taking advantage of a loophole in state FOIA law. While the law states plainly that governments can take five business days to respond and ask for a 10-day extension to gather the information, the statute is silent about when they actually have to deliver the information. Other public entities around Michigan are taking advantage of this loophole and delaying the release of government data.

Wright and Skorup explain how lawmakers can take care of this problem.

Lawmakers should close this loophole and clarify the maximum amount of time taxpayers can be allowed to wait on information from their government. A reasonable amount of time — like 20 business days — should be allotted for public entities to gather the data, review and release it. State legislators should act now to enhance Michigan’s transparency laws.

Media around the state and nation also covered the results of the lawsuit. Articles were published by Fox News, the Associated Press, the Daily Caller, MLive, the Ann Arbor News, the Detroit News, CBS Detroit, WJR Radio, the Michigan Daily, Michigan Radio, the Detroit Metro Times, Accuracy in Academia, Campus Reform, the College Fix, Inside Higher Ed and more.

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Auto Insurance Reforms Worth Supporting

Bill isn’t perfect, but it’s a significant move in the right direction

The Michigan Legislature is considering reforms to this state’s auto insurance laws. The problem is clear: Michiganders pay more, on average, than drivers in just about any other state. House Bill 5013, introduced by Lana Theis, R-Brighton, offers several significant reforms that should drive down the price of premiums for all Michigan drivers.

The most significant change in the bill is that it would give drivers a choice about how much personal injury protection, or PIP, coverage they want. Current law — entirely unique in the United States — requires all drivers to purchase an unlimited amount of PIP. Under HB 5013, drivers would have a choice of coverage: $250,000, $500,000 or the current unlimited amount. Insurance companies would also have to reduce the price of PIP coverage by at least 40 percent for drivers choosing the $250,000 option.

The proposed reforms also create a “fee schedule” for medical providers, another feature of the bill aimed directly at reducing premiums. Currently there are no cost controls in place. This is why is it not uncommon to see medical providers charging five times more for procedures covered by PIP than for exactly the same services that are paid for by other insurers. HB 5013’s fee schedule would limit the amount that medical providers can charge for certain services.

There are three main critiques of the auto insurance package. First, people won’t get the coverage that they need if they choose a limited PIP option. Second, the fee schedule amounts to price fixing for medical providers. And third, the bill interferes too much in the private insurance market.

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The first critique falls flat when given the proper context. PIP coverage in Michigan would still be the most generous in the nation, even for people choosing the $250,000 option. Claiming that Michiganders will have inadequate coverage under HB 5013 is claiming that every American has inadequate coverage, too. It’s possible that’s true, but if it were, the ramifications of such a problem should have surfaced by now.

It’s important to remember that HB 5013 would still allow people to choose unlimited PIP coverage. It’s just that those drivers would have to bear the costs of that generous feature. Michigan’s current system forces everyone to pay for that expensive coverage, which is the leading reason why an estimated 20 percent of drivers don’t purchase any insurance at all. Now that’s inadequate coverage.

Concerns over the proposed fee schedule also melt away in the proper context. Every other government-mandated or government-run insurance scheme use fee schedules: Medicaid, Medicare, workers’ compensation and others. The proposed fee schedule is even largely based on an existing one: Most charges would be based on 125 percent of Medicare rates.

Some critics of the fee schedule appear concerned with interfering in the private medical market. Supporters of free markets, for example, are rightly skeptical of government price setting. But it’s important to remember that medical providers operate in a heavily regulated market and rely significantly on government-mandated services and payments. A fee schedule doesn’t inject government interference into a free market — it’s an attempt to control costs for government-mandated services in a tightly controlled industry.

The mandated premium reductions are a more legitimate concern. Ideally, market supply and demand, influenced by competition, should determine the price of auto insurance premiums. But, again, it’s important to remember that these reforms are an attempt to improve a market that’s broken because of government regulations.

Although there’s ample competition among car insurance providers, the auto insurance market in Michigan is hardly a free market. The state mandates that drivers purchase insurance and even dictates in detail the type of insurance they must buy. When government forces consumers to purchase a product, it creates artificial demand and raises prices. Given this situation, creating more options for consumers and mandating a reduction in the government-created, artificially expensive price is a positive reform.

It’s true the vast majority of the time, the best antidote to bad government regulations is freer competitive markets. But in cases where the government is heavily involved in a market and will continue to be moving forward, the best reforms can be ones that provide benefits to forced consumers of government-mandated products. HB 5013 does this by providing more choices for consumers and curbing unnecessary costs.

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It’s Time to Repeal the Bad Driver Tax

A mess that should never have been created

Editor’s note: The following is a slightly edited version of remarks that Jack McHugh gave to the Michigan Competitiveness Committee of the Michigan House on Oct. 11, 2017, regarding a package of bills that would repeal "driver responsibility fees" and forgive debt drivers owe as a result of these fees. Driver responsibility fees were created in 2003 and require drivers who have a certain number of points on their license or who have committed certain types of moving violations to pay an annual fee to the state that ranges from $100 to $2,000, depending on the violation.

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Thank you Mr. Chairman and members of the committee.

This legislation is needed to solve a problem that never should have been created in the first place.

I’m going to quickly share some background on the environment in which this “bad driver tax” was born: a desperate hunt for revenue to avoid real budget reforms, in the midst of a secular economic shift that was being treated as just a cyclical bad patch.

Eighteeen months after these fees became law, Larry Reed, the first president of the Mackinac Center for Public Policy, described both the state’s economic decline and Legislature’s response in a speech called “Michigan at the Crossroads." In it, he said:

We can no longer evade difficult decisions in the hope that we can muddle through, or that a miraculous change in our economic environment will save us.

In that speech, Reed shared some statistics to illustrate:

  • Michigan was one of just two states to lose jobs in 2004.
  • From 1993 to 1997, Michigan’s per capita state GDP was 18th in the nation, but by 2003 we had fallen to 44th place.
  • Michigan is traditionally a wealthy state, but by 2003, our per capita personal income had dropped to 19th in the nation.

Reed was more right than perhaps even he realized at the time.

In January 2000, 883,000 Michigan workers were employed in manufacturing. By July 2003 — the month the bad driver tax passed the House and Senate with substantial bipartisan majorities — that number had plummeted to 687,000. The all-time low was 432,000 in 2009.

Michigan Capitol Confidential reported this week that manufacturing employment is back up to 611,000, its highest level since 2007 — but still lower than the summer of 2003.

Back to Reed in early 2005:

(Muddle through) has been the approach in Lansing for the past few years. … State leaders have become increasingly adept at accounting gimmicks and cosmetic fixes that optimize revenues but minimize spending discipline. They are treating the symptoms, rather than the disease.

The unfair tax you are trying to repeal now was just one of those harmful gimmicks. Here are two others, one each from the year before and the year after this one was passed.

In 2002 it was, “Let’s terminate the phaseout of the Single Business Tax with sneaky maneuvers.” Here’s how MichiganVotes.org called that game:

2002 House Bill 5883: End phaseout of SBT - Public Act 504 of 2002

To withdraw $892 million from the Budget Stabilization Fund, leaving a balance of just $33 million. Under current law an ongoing phaseout of the Single Business Tax (SBT) is postponed if the BSF falls below $250 million. Senate Bill 117 would allow the SBT cuts to continue by lowering that threshold, and an earlier version of this bill was tie-barred to SB 117. But the tie-bar is no longer in this version, and Gov. Engler has said he will veto SB 117, so passage of this bill means no further SBT cuts.

In 2004, it was “Let’s ding middle class homeowners with a sneaky property tax shift-and-shaft.” Again from MichiganVotes:

2004 Senate Bill 1112: Advance county tax due-date - Public Act 357 of 2004

To require counties to collect future property tax payments in the summer only, beginning in 2004, thereby requiring taxpayers to pay county taxes five months earlier. The $183 million realized by the tax shift will replace state revenue sharing payments to counties for the next several years.

And in 2003 it was Senate Bill 509: Impose “driver responsibility fees.”

To conclude, the class of “forgotten American workers” that was being born when this “bad driver tax” law was enacted may have become self-aware on Nov. 8, 2016. They are the very people who have been most impacted by these unfair exactions, with thousands losing their license and being turned over to collection agencies. We’ll see if they notice that the Republican trifecta elected here in 2010 was a lot quicker to clean up the business tax mess, which got done in 2011.

And if this mess doesn’t get cleaned up now, that class will surely notice, and may go looking for more opportunities to flex their political muscles in 2018.

Thank you again for the opportunity to testify.

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Judge Dismisses Lawsuit after Tourism Bureau Promises Not to Charge B&B Owner

Imagine working day and night, toiling with your spouse to build a new, small business from scratch at the tail end of a brutal recession. The economy improves and your shop becomes a popular local destination. You look to expand by adding a regulated product to your inventory. You get explicit permission to do so from the government agency that oversees the distribution and sales of the new product. Then, two days after you start selling, that same agency swings by and orders you to stop, then fines you for selling the product illegally.

You don’t need to imagine it, though. This exact scenario has played out in Midland, to local entrepreneurs Mark and Michelle Bone. The product they wanted to sell was Michigan-made beer in growlers — 64-ounce jugs — at their organic grocery store. The Michigan Liquor Control Commission admitted it gave the Bones bad advice. The agency has rescinded the violation and related fine, but the couple is still out $10,000 in equipment and inventory. Despite relying on the commission’s advice when they made their purchases, the Bones won’t receive any compensation for their lost investment. The government’s attitude seems to be, “too bad.”

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The agency should find a way to make these entrepreneurs whole, or the governor and Legislature need to take a bottom-to-top look at the entire liquor control code and remove its innumerable and often confusing barriers to business. Ideally, they will do both. The Mackinac Center has long called for a liquor control code reform revolution, as the code seems almost designed to protect and reward entrenched special interests at the expense of small-business owners and consumers.

Mark Bone has been a business owner since 1997, operating an insurance company in Midland. To diversify their investments, the Bones bought some commercial real estate in 2000. When the market fell out in 2007 and 2008, they lost tenants and decided in 2010 to fill some vacant retail space by opening a business — an organic grocery store. That store, “Nature’s Gift Organic Market,” has turned out to be popular with locals who love their natural selections and unique product offerings.

Always looking for ways to serve their customers, Mark Bone hit upon selling growlers of Michigan-made beer from the store. He dutifully telephoned the Liquor Control Commission to see if the license to sell alcohol that he already possessed as a “specially designated merchant” was all he needed to sell growlers. After answering a couple perfunctory questions, he was told that it was. He proceeded to buy equipment and inventory and began selling growlers of Michigan beer.

But the liquor control code is nothing if not complicated and even the state official advising Bone got it wrong. The commission later advised him that he needed a second license, and assessed a fine on him for selling growlers without it.

When businesses make a mistake, they often get fined and lose income as well. When government makes mistakes, everyone usually still gets paid — free of any fines or related expenses.

When I asked Jim Storey, a former liquor control commissioner, about this case, he responded at length:

Seven years ago, the Snyder administration started out with an ambitious and overdue effort to remove the zealous trade barriers embedded in the Michigan liquor control code and regulations. Many were changed. But there is much more work to be done to remove outdated barriers that prevent the small business owners, who are the backbone of the industry, from prospering.

This incident illustrates perfectly how intricate and out of touch the alcohol regulatory scheme is in Michigan. Global trade renders useless the market policing that confounds both the hardworking staff of the Liquor Control Commission and many licensees. In addition, time spent by agency staff policing the marketplace distracts from that which should be their primary, full-time focus: preventing sales to underage drinkers and combating practices that promote alcohol abuse.

Regulations on how licensees market, transport and sell their product make no sense in [an] age when most anything can be obtained on the internet. Michigan wastes precious taxpayer-provided resources on combating trade practices acceptable in most states and nearly all countries.

The Mackinac Center for Public Policy has for years been arguing that the Liquor Control Commission increases costs, sometimes dramatically, without necessarily protecting consumers. The system clearly needs to be simplified if even the administrators of state rules and laws can’t dispense correct answers to their constituents.

Mark and Michelle Bone have poured a lot of sweat equity into their business since it opened. It is a shame that the liquor commission can get away with making an error and force its constituents to pay for it. The commission or Legislature needs to make the Bones whole and fix the larger alcohol control code as well.

(For more on alcohol control code reforms, see the Mackinac Center’s work on the topic.)

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