The MC: The Mackinac Center Blog

April 24, 2015, MichiganVotes Weekly Roll Call

“Early Warning System” for overspending school districts

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 233, Revise vehicle trade in tax break detail: Passed 37 to 1 in the Senate

To revise a 2013 law that exempts from sales tax the value of a trade-in when buying a motor vehicle, titled watercraft or recreational vehicle, so that it also applies to purchases made from out of state dealers. Under the 2013 law the tax exemption will supposedly be phased in over 24 years.

Who Voted “Yes” and Who Voted “No”


House Bill 4325, Establish overspending public school “early warning system”: Passed 60 to 49 in the House

To require school districts to submit their annual budget projections and assumptions to the state each July, and require intermediate school districts to declare whether they concur with the projections and assumptions. Non-concurrence would trigger a detailed reporting and oversight process. The intention of this and related bills is to create an “early warning system” for school districts with financial problems.

Who Voted “Yes” and Who Voted “No”


House Bill 4328, Authorize withholding state money from overspending school districts: Passed 58 to 51 in the House

To give the Department of Treasury the authority to withhold state school aid payments from an overspending school district that fails to submit an acceptable “deficit elimination plan,” or that then falls more deeply into financial trouble.

Who Voted “Yes” and Who Voted “No”


House Bill 4329, Authorize emergency manager for chronically overspending school district: Passed 59 to 50 in the House

To authorize appointment of an Emergency Manager for a public school district that fails to comply with an “enhanced deficit elimination plan” required by House Bill 4327 for a district whose regular deficit elimination plan failed to fix the problem.

Who Voted “Yes” and Who Voted “No”


House Bill 4331, Increase municipal and school “emergency loan” funding: Passed 64 to 45 in the House

To increase from $50 million to $100 million the amount allocated through 2018 for “financial emergency” loans from the state to public school districts, and increase from $35 million to $85 million the amount of such loans to local governments.

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.

Film Incentive Supporters Ignore the Facts

No evidence that Michigan's program is worth the cost

Ken Droz, former director of communications for the Michigan Film Office, responded to an op-ed I co-authored about Michigan's film incentive program. Unfortunately, he levels criticisms and makes claims without citing any facts.

The block quotes below are the assertions he makes in a MLive article, and are followed by my response:

I have seen and studied all the data published, including that much-cited Tax Foundation treatise and can tell you it consists mainly of ideology driven rhetoric and cherry picked facts to support pre-existing opinions.

There are many independent studies on film incentive programs; nearly all find negative economic effects. Dr. Robert Tannenwald, a professor at Brandeis University, reviewed the literature in 2010 for the left-leaning Center on Budget and Policy Priorities, finding “not much bang for too many bucks.”

It's true the program does not pay for itself from tax revenue generated. One major point overlooked however, is that like other public assets such as schools, state parks, and transportation — all money losers — the film incentives were not designed as a fiscal tool to create revenue.

Film incentive programs are not “public assets.” They are a transfer of wealth from taxpayers to the film industry.

[Film subsidies] benefit the state in other ways by a) stemming the massive brain drain of our youth, b) diversifying the state's economy, lessening automotive dependency, c) creating jobs, and d) enhancing tourism. And guess what? It was succeeding on every front.

Droz provides no evidence for any of these claims. Altogether, there are only about 1,500 film jobs in Michigan, according to the Bureau of Labor Statistics. Even if all of these jobs were a direct result of the program and all film employees came from other states, it would amount to a drop in the bucket for the state's economy.

[A]s conceived, the rebate percentages would come down — as they have been — as infrastructure developed and a capable indigenous workforce grew, thereby increasing revenue toward neutral status.

This is a leap — government reports consistently show the film incentive programs falling well short of "neutral status."

As I noted recently: “A few years ago, Michigan’s Senate Fiscal Agency found that the program returned only 11 cents per dollar spent to taxpayers. Louisiana spent $198.6 million and got back $27 million in tax revenue according to the state (13.6 cents per dollar spent). The Massachusetts Department of Revenue found that their incentive generated less than 14 cents on the dollar in 2012 (the latest year figures were available).”

The fact is most movies produced with incentive funds are made independently without studio backing, without which would never even get made.

This one is true, and often cited by subsidy proponents. But while there are more smaller films receiving money, the bulk of the spending from the program goes to the big studio projects. In 2014, most of Michigan’s film incentive budget ($35 million) went to Batman v. Superman. In 2013, most of the funding ($40 million) went to Oz: The Great and Powerful.

Michigan taxpayers have spent half a billion ($500,000,000) on a transient industry that takes the money and runs. With a tight budget and the need for more road funding, Michiganders can no longer afford this expensive luxury.

Michigan’s Obamacare Medicaid Expansion Exceeds Projections by 22 Percent

Cost may be much more expensive than originally assumed

The Foundation for Government Accountability has just published a report on state enrollments under the Obamacare Medicaid expansion. Here’s what the authors say about Michigan:

When Republican Governor Rick Snyder lobbied the Michigan legislature to adopt his ObamaCare Medicaid expansion plan, he too sold it on the promise of low and predictable enrollment. His office predicted no more than 477,000 able-bodied adults would ever sign up, with 323,000 signing up in the first year.

But more able-bodied adults enrolled in ObamaCare expansion in the first three months than the state thought would sign up during the entire year. Despite the fact that Michigan did not expand Medicaid eligibility until April, nearly 508,000 adults signed up by the end of 2014, far more than the state thought would ever enroll. Enrollment continues to climb, with nearly 582,000 able-bodied adults signing up by April 2015.

Like Michigan, many states accepted the Medicaid expansion because lawmakers were afraid to stand between their local hospital cartels and hundreds of millions of dollars in “free” federal money (statewide more than $3 billion annually for Michigan).

But starting in 2020 Michigan will have to pick up 10 percent of the total cost. The newly compiled figures suggest that this may cost a lot more than members of the House and Senate anticipated when they voted to take the money.

In 2013 the Senate Fiscal Agency, using similar assumptions to those of the Snyder Administration, projected that the state would have to come up with $385 million in 2021 to cover its share. Supposedly this would be partially offset by savings realized from offloading some mental health and prisoner health care costs onto the federal budget, but given the actual enrollment figures reported by FGA, those plans may need to be revised.

Policy analyst Jarrett Skorup notes today in Bridge Michigan that the state funding gap between Michigan’s 15 public universities ranges from $2,747 to $11,561 per pupil. Eliminating this gap would save taxpayers more than $600 million. Skorup writes about the arbitrary process by which colleges are funded:

Grand Valley State University scores second-highest on the state’s “performance funding” measurements and Wayne State University scores the lowest. By most objective measures, the former is doing a better job than the latter — but WSU still gets far more money from taxpayers.

Consider that Wayne State (20,108) and Grand Valley (20,825) have nearly the same number of resident full-time students — but the former receives more than three times as much money ($191.1 million compared to $64.4 million).

The six-year graduation rate at GVSU is 66 percent compared to 28 percent at WSU. The average student tuition paid per degree awarded at GVSU is $63,722 while Wayne State takes in over $108,000 in tuition per bachelor’s degree.

When the university the state says is doing the second-best in providing value to students is receiving among the least amount of funding per student, there’s something wrong with the formula.

Read the rest of the piece at Bridge.

Michigan Supreme Court: Pension Reforms were Constitutional

Teacher unions fail challenge to 2012 law

On April 8, 2015, the Michigan Supreme Court handed down an important decision upholding reforms to healthcare benefits for Michigan’s retired public school employees. Although it was specific to just healthcare, it bodes well for any future reforms to public pensions in Michigan

In 2010, the Legislature passed a reform that was signed into law by Gov. Jennifer Granholm. This law required all current school employees to pay 3 percent of their salaries to fund health benefits for both current and future retirees. This policy contained a fatal flaw — it required current teachers to pay into a fund to benefit other teachers. The Court of Appeals struck this law down as an unconstitutional “taking” of property from certain individuals to give to other individuals. With that in mind, another reform measure was passed in 2012 which was crafted to avoid the important shortcomings of the 2010 law.

The 2012 reform, the Supreme Court recently found, was not unconstitutional, because it did not mandate a 3 percent employee contribution. Rather, it allowed teachers to contribute, or refrain from contributing, to a choice of retirement plans. If they refrained from contributing, they would accrue future pension benefits at a lower rate. The reform has no effect on benefits that have already accrued. Nevertheless, the law was challenged by the state’s two largest teachers’ unions, the Michigan Education Association and the American Federation of Teachers-Michigan. 

The unions objected to the employees having to contribute anything to their own retirement health benefits — and instead sought to make the full cost of the retirement benefits fall directly on taxpayers. They wanted to duplicate the successful challenge to the 2010 reform, but the court unanimously (with the exception of the newest justice, Justice Richard H. Bernstein, who did not participate) found that the 2012 reforms passed constitutional muster, as they did not require public school employees to contribute, and it did not require a transfer of money from one group to another.

Although the justices were not called on to decide the wisdom of the reform, they did have to examine whether the retirement reforms were reasonably related to a “legitimate government purpose.” The Court answered:

“It is entirely proper for the state to seek the continuation of an important retirement benefit for its public school employees while simultaneously balancing and limiting a strained public budget. … The state is not generally constrained from modifying its own employee benefits programs to accommodate its fiscal needs.” 

In describing the state’s need, the Court cited the accounting numbers produced by the state’s auditors:

“At the close of the 2010 fiscal year, the [state’s public school employees’ retirement system] was underfunded by an estimated $45.2 billion. Of that amount, the retiree healthcare benefits program accounted for approximately $27.6 billion in unfunded liability. … It was hardly unreasonable for the state to have concluded at the time that the [state’s public school employees’ retirement system] was in need of reform and modification.”

With public pension systems crowding out other state spending and teetering on the edge of insolvency (or even bankruptcy, as in the case of Detroit), the Michigan Supreme Court upheld a modest pension reform, which allowed the system to start becoming better funded. And the Supreme Court showed at least one way to enact future, more meaningful, reforms without falling into the unconstitutional pitfalls that befell the 2010 reform attempt.

The case is AFT Michigan and Michigan Education Association v State of Michigan, Case No. 148748.

The total value of property taxes collected in Michigan increased slightly from $12.8 billion in 2013 to $13.0 billion in 2014, a 1.7 percent increase, according to the state’s annual property tax report. This exceeded the 1.0 percent inflation growth for the Detroit metropolitan statistical area over the same period.

While property tax revenue decreased from 2007 to 2012, revenue increased in both 2013 and 2014. Average tax rates increased from 40.47 mills in 2013 to 40.79 mills in 2014 and the aggregate taxable value of all property increased a small amount, from $316.7 billion to $319.5 billion.

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April 17, 2015, MichiganVotes Weekly Roll Call

Auto insurance, double-dipping pensions, investor guarantees

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 248, Revise mandated no-fault auto insurance personal injury coverage

To replace the Michigan Catastrophic Claims Association (MCCA) with a new state authority that would provide reinsurance to insurance companies for the unlimited personal injury coverage mandated by Michigan’s no-fault law. The bill would place some price controls on services provided to injured individuals under this coverage, and expand a state automobile theft prevention authority to include insurance fraud.


Senate Bill 191, Expand government power to extract more costs from violators: Passed 36 to 1 in the Senate

To add retail fraud and failing to appear in court to the crimes for which a court may order a violator to reimburse the government for expenses related to the incident (such as police wages). Also, to add “transportation costs” to the list of reimbursable costs.

Who Voted “Yes” and Who Voted “No”


Senate Bill 170, Authorize high school “STEM” diploma: Passed 38 to 0 in the Senate

To authorize granting a high school diploma “endorsement” to a student who completes a specified number of science, technology, engineering and math courses (STEM).

Who Voted “Yes” and Who Voted “No”


House Bill 4195, Cap government “venture capital investment” program: Passed 107 to 3 in the House on

To prohibit the state from pledging any more future tax revenue to guarantee investor returns under an “early stage venture capital investment” scheme authorized by a 2003 law.

Who Voted “Yes” and Who Voted “No”


House Bill 4273, Eliminate February election date: Passed 93 to 17 in the House

To eliminate the February election date authorized by a 2003 election consolidation law which required all regular elections in the state to be held on either the last Tuesday in February, or the Tuesday after the first Monday in either May, August, or November.

Who Voted “Yes” and Who Voted “No”


Senate Bill 12, Allow pension double-dipping by “retired” Attorney General employees: Passed 37 to 0 in the Senate

To allow a retired state employee to simultaneously collect pension benefits and a paycheck for work performed as an Attorney General consultant or expert witness.

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.

Open Letter to Steve Inskeep of National Public Radio

National Public Radio wrong about Mackinac Center study

Editor’s Note: The author made several attempts to contact Steve Inskeep and to request a follow-up story that might provide a fairer treatment of the Mackinac Center’s right-to-work study. We received no response.

April 6, 2015

Mr. Steve Inskeep

In a March 27 on-air exchange with David Wessel of the Brookings Institution on the impact of right-to-work laws, you focused on a “single phrase that was mentioned in a news story earlier this week” (transcript here). This phrase was sourced in the NPR story to a 2013 study coauthored by Dr. Michael Hicks and myself.

Unfortunately, your conversation proceeded to completely mischaracterize this study.

The “single phrase” was this: “Actually, since World War II, income and job growth have increased faster in right-to-work states.”

Wessel initially confirmed this observation with his own look at the data over the last two years. But he then falsely insinuated that our study simplistically asserted causal relationships between RTW and economic outcomes with no effort to control for other factors that may drive economic growth.

David Wessel: “But those correlations do not prove that right-to-work laws are the reason or even a reason that some states added more jobs than others.”

No kidding!

Wessel inferred that several bulleted observations in our opening discussion (see page four) amounted to us claiming conclusive evidence of causation. But even a casual look at our study would reveal these observations as part of the narrative introducing the RTW impact questions the study’s statistical model sought to test.

To be explicit, we sought to test these questions while controlling for “the other things going on,” in Wessel’s words.

Yet the idea that other factors may explain all or part of these economic phenomena was presented by Wessel as if this is a new concept and criticism. Perhaps he skimmed past the section of our study called “The Research Challenges of Right-to-Work,” where among other things we wrote:

A study which examines the role of right-to-work absent such issues as tax policy, weather and other variables that may impact a state’s aggregate economic performance will be unable to tease out the influence of right-to-work laws specifically.

Nevertheless, neither Mr. Wessel nor yourself bothered to mention any of this, much less the carefully constructed model we designed specifically to control for those other variables.

Adding insult to injury you asked Mr. Wessel if there is any “impartial scholarship” on right-to-work laws, as if Dr. Hicks and I had failed to produce as much. This offense was compounded by his throwing the misleading “conservative” label at us.

In answering that question Wessel pointed to two other studies — but neglected to mention both were highlighted in our study’s literature review.

In addition, our empirical research was peer reviewed twice. The second review was done by economists for an academic journal in which our model and its findings are soon to be published.

One would hope that an NPR interview of a Brookings scholar about (alleged) omitted variables would not actually omit important variables itself.

I am disappointed in your coverage and treatment of our right-to-work study. It deserved better and so did your listeners.

Sincerely,

Michael LaFaive
Director
Morey Fiscal Policy Initiative

Editor’s note: This article originally appeared in Duluth News Tribune on April 15, 2015.

Minnesota raised its excise tax by 130 percent in 2013, the consequences of which may not be fully understood. The large increase in price from that tax hike has created a yawning gap between the cost of cigarettes in Minnesota and elsewhere, spurring rampant smuggling, according to research conducted by my colleague Todd Nesbit and me.

We built a statistical model to measure the degree to which cigarettes are smuggled in 47 of the 48 contiguous states. We estimate that the 2013 excise tax hike on cigarettes helped lift Minnesota’s cigarette smuggling rate to more than 33 percent of the total market.

The good news is that lawmakers have recognized that an increase in smuggling is a real issue. The bad news is that their attempts to thwart it — including hiring more auditors — will not be very effective. The reason is simple. The profits (or savings) from tax evasion and avoidance are too great. Consumers and large-scale smugglers will find ways to avoid the higher taxes.

We expect legal paid sales of cigarettes to decline as a result of the last and forthcoming tax increases; however, the majority of the drop will not be a function of quitting smoking. This is important to recognize because health advocates and too many politicians point to these drops as evidence that their sin taxes have “worked.” That is only true to a small degree. A 2004 paper by economist Mark Stehr and published in the Journal of Health Economics found that up to 85 percent of the change in cigarette sales may be from tax avoidance and evasion and not from “kicking the habit.”

Taxpayers, be they smokers or otherwise, are not sheep queuing up to be sheared. Many will work to evade taxation. Even then, many people may think they are buying a legal product when they have in fact been smuggled. No amount of new bean counters or police officers will stop this trade.

In 2010, a corrections officer in Minnesota was sentenced to prison for taking $6,500 from a prisoner in exchange for smuggling cigarettes and other contraband items into the prison at which he worked, according to Minnesota Public Radio.

Even if Minnesota becomes a veritable police state, smuggled cigarettes still can get through its porous borders and into the hands of smokers.

A better solution to Minnesota’s smuggling problem is to either cut the current excise tax rate or not raise it any further, allowing the real price of smokes to drop back to more reasonable levels.

The Detroit News reports on the lack of transparency from Michigan’s corporate welfare program.

“Michigan taxpayers are on the hook for giving 96 percent of nearly $9.4 billion in tax credits to companies in the vaguely named ‘transportation’ sector, but a state agency that doles out the job-retaining incentives refuses to disclose the revised amounts owed to individual companies,” the article notes.

Reporter Chad Livengood notes that deals in the past were more open to the public than today and quotes the Mackinac Center's James Hohman:

"It's a huge expenditure of taxpayer dollars of which no one is allowed any details," said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, a [free market] think tank in Midland. "A company's estimated tax credit amount has always been disclosable."

The Mackinac Center has documented the lack of openness from the MEDC about how they spend taxpayer money with nearly 200 articles, including in a 2009 policy brief “MEGA, the MEDC and the Loss of Sunshine.”