The MC: The Mackinac Center Blog

September 4, 2015 MichiganVotes Weekly Roll Call

New bills on road debt, child deaths, squatters, gender bending, more

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!

The House and Senate have not cast any votes in recent weeks. Therefore, this report contains several recently introduced bills of interest.


Senate Bill 432: Ban drones near Mackinac Bridge

Introduced by Sen. Tom Casperson (R), to make it a criminal misdemeanor to fly a drone within 1,000 feet of the Mackinac Bridge. Referred to committee, no further action at this time.


Senate Bill 436: Borrow to pay for road repairs

Introduced by Sen. Marty Knollenberg (R), to authorize state borrowing of an unspecified amount to augment the amount of regular gas tax, vehicle registration tax and related tax revenue spent on new road projects. Note: Approximately $200 million from the current annual road budget is needed to repay debt incurred for routine road work in the 1990s and 2000s. Referred to committee, no further action at this time.


House Bill 4635: Extend “commercial rehabilitation” tax break law

Introduced by Rep. Kathy Crawford (R), to extend for another five years a Dec. 31, 2015 sunset on a “commercial rehabilitation act” that authorizes property tax breaks for the developers of commercial redevelopment projects selected by local government officials. Referred to committee, no further action at this time.


House Bill 4643: Establish legal recourse for illegal union picket victims

Introduced by Rep. Gary Glenn (R), to revise a law that makes it illegal to picket a business for purposes of blocking access to individuals doing or seeking work there. The bill would allow an employer to ask for a court injunction to stop the picketing, and a union that disobeyed the injunction could be fined $10,000 per day, and $1,000 for individuals. Referred to committee, no further action at this time.


House Bill 4646: Ban local government contracts to campaign contributors

Introduced by Rep. Jim Townsend (D), to prohibit local governments from awarding contracts worth $25,000 or more to a vendor who made a political contribution of at least $100 in the previous 12-month period to an elected officeholder. Referred to committee, no further action at this time.


House Bill 4672: Ban smoking in car with minor

Introduced by Rep. Sam Singh (D), to ban smoking in a vehicle with a minor present, subject to a $500 fine. Referred to committee, no further action at this time.


House Bill 4673: Prescribe requirements for removing “squatters” from property

Introduced by Rep. LaTanya Garrett (D), to prohibit a property owner from attempting to evict “squatters” from the property unless he or she is accompanied by a law enforcement officer who has been provided with proof that the person entering the premises is the owner. Referred to committee, no further action at this time.


House Bill 4678: Give state flag to deceased legislators' survivors

Introduced by Rep. Fred Durhal, III (D), to create a new law called the "Legislative Funeral Act” that would require the state to give a state flag to the survivor of a current or former legislator who dies. Referred to committee, no further action at this time.


House Bill 4688: Authorize penalties for not reporting child’s death

Introduced by Rep. John Bizon (R), to make it a felony punishable by up to four years in prison to fail to immediately report the death of a child for which a person is responsible, or fail to report that a child is missing within 48 hours. Referred to committee, no further action at this time.


House Bill 4697: Ban no-exception school expulsion policies

Introduced by Rep. Jeff Irwin (D), to prohibit school districts from adopting a policy that requires a student to be expelled for certain violations and does not give school officials discretion in enforcing it, except as required by state law. Referred to committee, no further action at this time.


House Bill 4698: Authorize drivers license, state ID gender change

Introduced by Rep. Brian Banks (D), to require the Secretary of State to change the gender indicated on the drivers license of a person who requests this if the individual has obtained a “sex change” operation, or produces a court order authorizing the change in designation, or other official identification to that effect. Referred to committee, no further action at this time.


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.

Watch Vernuccio Discuss Labor Reform at Heritage

Panel discussion on right-to-work and wages

On Sept. 1, Mackinac Center Director of Labor Policy F. Vincent Vernuccio joined the Heritage Foundation as a panelist for their event "Do Right-to-Work Laws Really Reduce Wages? Examining the Evidence." He compared and contrasted Michigan and other right-to-work states against without right-to-work policies:

The full video is available at the Heritage Foundation's website.

New Survey Says Texas Schools Behind Contracting Curve

Only 22.8 percent of conventional public school districts contract out

This commentary originally appeared in the Austin American-Statesman on September 1, 2015.

Money that could be spent on classroom supplies and textbooks is being lost to the educational bureaucracy, according to a new survey of Texas school districts.

The new statewide survey of Texas’ 1,025 independent school districts, prepared by the Mackinac Center for Public Policy, a Michigan-based research institute, sought to find out how many school districts — if any — are getting the most bang for their buck by contracting out noninstructional services, like transportation, food, and custodial work. What the survey found is that there’s a almost-universal need for improvement in the current spending structure, with lots of potential upside for classroom kids.

Done right, competitive contracting, whereby government invites competition into the bidding process from qualified service providers, can help the school districts realize cost savings, relieve district leaders of management headaches, and improve service delivery by finding the best providers at the best possible price. This tactic is one that’s already proven effective in other states.

In Michigan, as one example, many of the state’s 542 school districts have come to widely embrace the competitive contracting concept — and have realized some impressive gains as a result.

In 2005, the number of Michigan school districts contracting out for transportation services was a mere 3.8 percent, almost exactly where Texas is today. Today, Michigan’s figure is closer to 27 percent, a 598 percent increase. What’s more, contracting out for custodial and food services has also risen dramatically, growing from 9.4 percent and 28.6 percent of districts in 2005 to 52.2 percent and 42.8 percent today, respectively.

Part of the reason that Michigan school districts have come to rely so heavily on competitive contracting is that it frees up valuable resources for the classroom. It’s something of a win-win for administrators and students.

Competitive contracting has so much potential that Texas school districts, always vocal about the perceived lack of available funding, can no longer afford to ignore it.

The Mackinac Center found that only 153 districts, or 15 percent of those surveyed, contracted out for food services, the highest contracting rate of all three areas. Custodial and transportation contracting topped out at just 9.8 percent and 3.8 percent, respectively.

Statewide, 22.8 percent of all conventional public school districts in Texas contract out for at least one of the three major noninstructional services. Only nine districts, or less than one percent, contracted out for all three noninstructional categories, transportation, food, and custodial services.

Texas school districts’ reluctance to adopt competitive contracting practices means that a whole lot of money is being left on the table. In recent years, the Mackinac Center has found per-pupil savings ranged from $34 for food contracts, $110 for transportation and as high as $191 for a custodial services. If even a fraction of those savings can be realized in Texas, then that’s a whole lot of money that can be better spent providing pencils and paper to kids and incentives to good teachers.

It’s time that Texas school districts learned a thing or two about competitive contracting from Michigan schools.

California Tax Bills Asking for Trouble

Lawmakers raising cigarette excise taxes are well-intentioned but misguided

Legislation permitting counties to increase the excise tax on cigarettes was approved by the California Senate Thursday, Aug. 27. Another bill — introduced the day before — would hike the state excise tax by $2.00 per pack. The state legislature should prevent both bills from passing.

If the local excise tax option is adopted, the law will almost assuredly lead to higher excise tax burdens in some if not most counties. (Counties would need to have to submit an increase to a public vote.) This will increase price differentials between counties (and differentials with other states and nations) and invariably be followed by the lawlessness associated with cigarette tax avoidance and evasion, among other unintended consequences. Local excise taxes will only compound the damage done by a statewide hike. Worse, research shows that the health benefits of excise tax hikes are weak, and perhaps even counterproductive.

Local excise taxes on cigarettes are not a new invention. We see them used prominently in New York City ($1.50) and Chicago ($1.18) and by Cook County ($3.00), Illinois to name a few. Scholarly research on contraband smokes in these jurisdictions — and others — should serve as a warning to the California Legislature.

A 2013 study of cigarette consumers in South Bronx, New York by university scholars found that 76.2 percent of discarded cigarette packs there did not bear tax stamps from both New York state and New York City, suggesting massive local tax evasion.

A 2007 study of cigarette packs discarded around the Chicago area — this before recent excise tax hikes — indicated that many came from other jurisdictions. Indeed, the study’s author notes that “Chicago littered packs were slightly more likely to have an Indiana stamp than a Chicago stamp.”

In 2008 we looked at wholesale cigarette sales on a county-by-county basis in Michigan, Wisconsin and Indiana. With information we received from a major Midwestern wholesaler, we examined changes in purchases by Michigan retailers before and after cigarette excise tax increases in each state.

We found that sales to Michigan retailers increased by 53.2 percent when Indiana raised its excise tax by nearly $1.00 or 79 percent. This change in sales is explained by the fact that Michigan retailers understand customer sensitivity to tax-induced price changes. The incentive for Michigan smokers in border counties to smuggle cigarettes in from Indiana dropped when Indiana raised its taxes.

If SBX2–9 is adopted, many counties may vote for higher taxes and will be giving their local residents an incentive to cross into another county for cheaper cigarettes.

Lost in the debate is the cost of enforcing countywide excise tax hikes in the face of large-scale smuggling. The federal government can’t prevent people from illegally crossing into California; how will government at any level keep illicit smokes from crossing the state’s porous county borders and entering through its busy ports? Suppose Los Angeles County imposes a countywide excise-tax increase of $2.00 per pack but Orange County declines to lift its rate. Does anyone rationally believe that illicit cigarettes will not roll into LA en masse from Anaheim or another city?

We have also built a statistical model designed to estimate statewide cigarette smuggling rates. We estimate that California’s state smuggling rate through 2013 was equal to 31.5 percent of the total market already. If a $2.00 statewide per-pack hike is adopted, it will rocket to 63.0 percent of the total market, easily eclipsing New York as the state with the most smuggled cigarettes.

The irony of the excise tax hikes — sold as a way to improve health — is that the illicit behavior resulting from high cigarette taxes may actually undermine the health benefits lawmakers hope to achieve.

A 2008 study by economist Michael Lovenheim looked at casual smuggling of cigarettes and found that the percentage of cigarette consumers who smuggle is between 13 and 25 percent. He concludes that “the central implication of this study is cross-border smuggling confounds many of the potential health and revenue gains from cigarette taxation.” He is not the only scholar to come to such a conclusion.

Lawmakers bent on raising excise taxes are well-intentioned but misguided. Raising excise tax rates will increase lawlessness without necessarily bringing meaningful public health benefits.

You’re in the 1 Percent

We can have policy differences while keeping perspective

The Washington Post’s “Wonkblog” recently ran a piece titled, “What it’s like to be a part of the world’s richest 1 percent, in 15 incredible photos.” This features photos of a man floating in a swimming pool on top of a skyscraper, an in-home cinema, maids, the Opéra de Monte-Carlo, the Hollywood Walk of Fame, a patient about to undergo plastic surgery, a personal chef at a luxury lodge and a gated community.

The article is about a new photo collection which is attempting to draw more attention to wealth inequality. But those protesting about this issue in America may be surprised to find that they too are part of the 1 percent, that is, in terms of worldwide income distribution. Yes, the average "one-percenter" in the U.S. is exceedingly wealthy, but so is the average American compared to the rest of the world.

According to data from the World Bank, the annual income putting someone in the top 1 percent worldwide is $32,400. The author of the piece could have saved a lot of time by simply taking photos of people eating at Applebee's, strolling through Central Park, shopping at Wal-Mart or watching college football on their flat-screen TVs.

There has been a lot written in recent years on inequality and the wealth gap — some good and some not so good. Many people in America still struggle to get by and we should all work to create policies that improve their situation.

But at the same time, we should keep in mind a quote from the late science fiction writer, Robert A. Heinlein: “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people."

On a worldwide scale, it is countries that embrace free markets, entrepreneurship and private property rights that succeed in creating large amounts of wealth for people fortunate enough to be citizens of these countries (the same often goes for noncitizen residents, too). Let’s count the blessings we have and appreciate living in a country that provides opportunities for nearly all of its citizens to be counted among the world's one-percenters.

Survey: Pennsylvania is School Contracting Leader

Of five states surveyed, Keystone State ranks highest

A recent survey of Pennsylvania’s conventional public school districts by a Michigan-based research institute indicates that 75.2 percent of those districts contract out with private vendors for at least one of the three major noninstructional services.

This makes the state a leader among five surveyed this year by the Mackinac Center for Public Policy. The reason for the Keystone State’s high overall contracting rate is its frequent use of private school bus transportation providers. While it is a leader among other states surveyed, many Pennsylvania school districts can and need to do more.

Of Pennsylvania’s 500 districts, officials from 499 of them were successfully interviewed by researchers at the Mackinac Center for Public Policy, which also surveyed four other states throughout the summer. The other states: Michigan, Georgia, Texas and Ohio have overall contracting rates of 70.8 percent, 38.3 percent, 22.8 percent and 16.6 percent, respectively. The laggard here — our neighbor, Ohio — may be a national champion in college football, but it falls short in K-12 competitive contracting.

Private transportation providers can be found in 66.3 percent of Pennsylvania districts, far more than second place Michigan, which has otherwise made dramatic contracting gains. High contracting rates for bus services are not uncommon for eastern states but they are rare nationally. Of Georgia’s 180 districts, only three (1.7 percent) contract out for bus services. In Allegheny County, we have surveyed all 43 of the 43 districts. Of those surveyed, 67.4 percent report contracting out for transportation services.

It is worth mentioning that the Mount Carmel school district is the only district in the entire state that has failed to respond to the Mackinac Center survey, and has thus far ignored an official Right-to-Know request. The Mackinac Center intends to pursue the information to which it is legally entitled.

Eastern states’ comfort with competitive contracting may simply be a function of history. In several states, districts that began providing transportation services did so privately and never looked back. As far back as 1840, schools in Massachusetts hired farmers under contract to transport children to school. Not only does Pennsylvania have many districts that contract for these services, they do so with multiple vendors. The Tuscarora school district alone has 17 bus contractors with whom it works. There are others with a high number of contractors as well.

Pennsylvania also has the highest rate for contracting out food service of any state in this year’s survey, at 44.5 percent. The next highest is again Michigan (42.8 percent) and the lowest is again Georgia (2.2 percent).

Pennsylvania custodial contracting rate is only 8.8 percent, which is especially low compared to Michigan’s 52.2 percent rate. Among the five states surveyed by the Mackinac Center this year Pennsylvania’s rate bests the Buckeyes (4.2 percent) only. Done correctly, competitive contracting of existing, in-house noninstructional functions such as transportation, food and janitorial services can save money and relieve management of some headaches. In Michigan — where the Mackinac Center has done school contracting surveys for more than 10 years — districts reported savings of $35 per pupil for contracting out food service and a savings of $191 per pupil for contracting custodial service.

Is there a school leader in the state that would turn down that kind of additional money if it had been offered by the state? Probably not. But the equivalent of that may be what is happening in districts that choose to keep such services in-house. There may be very legitimate cost and quality reasons for letting district employees provide the services, but until a district seeks out legitimate requests for proposals from private vendors, it is difficult to know.

Congratulations are in order for district officials across Pennsylvania. They are leaders in the use of this proven cost-containment technique. More needs to be done, however. Every dollar that is squandered on unnecessarily expensive support services is a dollar that can’t be driven back into the classroom.

Schoolchildren, Teachers, Taxpayers Harmed When Pension Managers Assume Too Much

The realities of Michigan's $26.5 billion pension liability

State law requires the managers of Michigan’s school employee retirement system to base annual pension contributions on an assumption that its investments will generate an average return of around 8 percent per year. If the actual returns don’t reliably meet or beat that level over time, it means contributions into the pension fund will be insufficient to pay for the retirement benefits of employees. The result is a long term unfunded liability that taxpayers eventually have to pay.

Michigan’s school pension system has put taxpayers on the hook for a $26.5 billion unfunded liability. The 6.5 percent return earned by its investments over the 12 months that ended June 30 means the hole got a little deeper last year.

Several state pension officials quoted in a recent MIRS News article about the shortfall noted that missing investment targets for one year is not a big deal.

They’re right, but what they didn’t mention is that this is not just a one-year problem. A 2014 auditor general report examined and found problems in some of the key assumptions used to estimate how much is needed each year to adequately fund the pension system. Failing to reach assumed investment return rates was the largest contributor to pension underfunding over the 10-year period examined.

This is hardly a surprise. Even before the 2008 recession, funding assumptions were not working to fully fund pensions. In fact, in 2003 Warren Buffett suggested that 6 percent is more realistic, and others routinely recommend 5 percent.

At their current $26.5 billion level, Michigan’s unfunded school pension liabilities are 13-times the total amount of state government debt owed to every general obligation bond holder. It’s equivalent to 88 percent of all the money the state will spend this year on schools, prisons, welfare and everything else (not including federal dollars). It would require an additional payment of $6,900 from every household in Michigan to satisfy this liability.

However, don’t expect state and school political leaders to say much about failing to meet the system’s Pollyanna funding assumptions, which were placed in statute by their predecessors in previous legislatures. Realistic assumptions would expose the entire system as an increasingly unsustainable house of cards. More to the point, current legislators would then have to find more money to cover the much higher annual contributions that better assumptions would make necessary.

The system is still a mess even with overly optimistic assumptions helping to mask the gaps. The state has only saved enough to cover 60 percent of every dollar’s worth of pension benefit that employees have earned. The underfunding has caused annual contribution rates to swell to 33.41 percent of school payroll, with 86 percent of this needed just to catch up on the past underfunding — underfunding enabled by the unrealistic assumptions.

In other words, taxpayers today are devoting more than a billion dollars each year to pay for previously earned pension benefits — money that would otherwise be available for other important needs.

To put that 33.41 percent figure in text, private-sector retirement benefits tend to cost 5 to 7 percent of payroll.

Going forward, the problem and solution are clear: Governments cannot be trusted to run a defined-benefit pension system, and Michigan’s should be wound down as quickly as possible.

For starters, that means closing the system to new employees, who would instead receive employer contributions to individual retirement savings accounts. This would contain the underfunding problem.

Unfortunately, whenever this is proposed pension managers are the first to object. In addition to downplaying missed assumptions, they bring up illusory “transition costs” as a barrier to converting.

Missing funding assumptions is a big deal and state officials should not shrug off this failure. Pension underfunding hurts taxpayers and threatens the retirement of hundreds of thousands of people. It harms schoolchildren by draining other classroom resources. The underfunding problem cannot be quickly or easily solved but the damage can be contained by not enrolling new employees in the current plan.

August 28, 2015 MichiganVotes Weekly Roll Call

Recently introduced bills of interest

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!

The House and Senate are not in session until Sept. 9 and Sept. 1, respectively. Therefore, this report contains several recently introduced bills of interest.


Senate Bill 371: Ban intent to sell ivory and rhinoceros horn products

Introduced by Sen. Steve Bieda (D), to ban the importation, sale, purchase, barter, or possession with intent to sell of ivory or rhinoceros horns and products, subject to fines $5,000 or double the value of the products for second offenses. Referred to committee, no further action at this time.


2015 Senate Bill 383: Impose licensure on midwives

Introduced by Sen. Michael Green (R), to impose a state licensure mandate on midwives (as distinct from “nurse midwives”), including regulations and license fees. Referred to committee, no further action at this time.


Senate Bill 387: Restrict injection well placement

Introduced by Sen. Dale W. Zorn (R), to prohibit locating an “injection” well for disposing of hazardous material, or for storing other material (potentially including carbon dioxide), in a region determined to have “Karst geology.” Referred to committee, no further action at this time.


Senate Bill 398: Create government sickle cell awareness campaign

Introduced by Sen. Jim Ananich (D), to require the Department of Community Health to create a sickle cell disease public awareness campaign and to “coordinate services available” from state, federal, and voluntary sickle cell disease programs. Referred to committee, no further action at this time.


Senate Bill 409: Expand meth-related pseudoephedrine restrictions

Introduced by Sen. Margaret O'Brien (R), to authorize up to one year in prison and a $1,000 fine for attempting to persuade a person to purchase ephedrine or pseudoephedrine while knowing that it will be used to manufacture methamphetamine. Current penalties apply only if the attempt succeeds in persuading someone. Referred to committee, no further action at this time.


Senate Bill 431: Establish process for removing elected official for mismanagement

Introduced by Sen. Rick Jones (R), to establish a process by which the governing body of a city, village, or county can file a petition in circuit court to remove from office an elected official for misfeasance, malfeasance or nonfeasance related to the custody and accounting of public money, or for failing to obtain or maintain a performance bond that is statutorily required for the office. Referred to committee, no further action at this time.


House Bill 4567: Let public schools engage in commercial business

Introduced by Rep. Bradford Jacobsen (R), to establish that property owned or leased by a public school is considered “exempt and immune” from local zoning ordinances, and establish very broad definitions of “school building” and “school purpose.” “School purpose" would be defined as “any purpose that may provide a benefit to a public school or its governing board, including…a benefit of a commercial or financial nature.” Referred to committee, no further action at this time.


House Bill 4578: Authorize school recreation millages

Introduced by Rep. Phil Potvin (R), to revise the law which authorizes recreational authorities to be created by several local governments, so that the districts could be organized by a school district. The authorities have the power to levy up to one-mill of property tax for swimming pools, recreation centers, public auditoriums, public conference centers, and parks, upon the approval of voters in each municipality in which the school district is located. The law itself is silent on whether the recreational facilities of an authority may be located at a school, or may be school facilities themselves, but it does require them to be open to the public. Referred to committee, no further action at this time.


House Bill 4580: Let local governments selectively revoke selective property tax breaks

Introduced by Rep. Andy Schor (D), to allow local governments to revoke certain property tax breaks selectively granted to particular corporations or developers if the beneficiary does not abide by the terms of the tax break agreement, or is judged to no longer meet the criteria under which the tax break was authorized. Referred to committee, no further action at this time.


House Bill 4585: Authorize a state “free speech defense act”

Introduced by Rep. Thomas Hooker (R), to adopt a “free speech defense act” that would prohibit Michigan courts from enforcing a libel judgement issued by a court in a country that does not practice specified due process safeguards, or that upholds a cause deemed “repugnant to the public policy of this state.” Similar laws adopted by other states are seen as a response to so-called “libel tourism,” and in particular to perceived Islamicist persecution. Referred to committee, no further action at this time.


House Bill 4619: Ban state contracts with firms that collect bulk “metadata” on residents

Introduced by Rep. Cindy Gamrat (R), to prohibit giving state contracts to companies that participate in the bulk collection of electronic data and “metadata” on residents without informed consent or a warrant. Referred to committee, no further action at this time.


House Bill 4629: Repeal “bond” requirement to contest civil asset forfeiture

Introduced by Rep. Peter Lucido (R), to repeal a requirement for property owner whose property has been seized by police and is subject to “civil forfeiture” to provide a cash “bond” to contest the taking, and if unsuccessful to pay all the expenses of the proceedings. Under civil forfeiture laws, police can seize any property that may be associated with a crime using extremely broad definition, and then keep the property even if the owner is never convicted or even charged with a crime. Referred to committee, no further action at this time.


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.

Authors’ note: The following was first posted by the Georgia Public Policy Foundation August 27, 2015.The Mackinac Center’s annual survey of conventional public school district contracting was expanded this year to include four other states.

More than a third of all conventional pubic school districts in Georgia contract out one of the three major noninstructional services, according to survey data collected this summer by a the Mackinac Center for Public Policy, a Michigan-based research institute.

The Mackinac Center survey of Georgia and four other states found that 38 percent of Georgia districts contract out for at least one of the “big three” noninstructional services: food, transportation and custodial services.

Done right, contracting out can save money and relieve management headaches, too. But Mackinac found a curious pattern in Georgia: Just three districts — 1.7 percent — contract out transportation (bus) services, and only four, or 2.2 percent, contract out for food services.

These are the lowest food and transportation outsourcing rates among the states surveyed: Georgia, Michigan, Pennsylvania, Ohio and Texas.

While this finding might suggest hostility to competitive contracting, such a conclusion belies the fact that 36.7 percent of Georgia school districts use private vendors to provide custodial services.

So why do districts appear comfortable contracting in one area but not others?

When done correctly, privatization can both improve service and reduce costs by 10-20 percent or more. In research going back more than 10 years, the Mackinac Center has found that privatization saved Michigan school districts from $35 to as much as $191 per pupil, depending on various factors.

The Mackinac Center also found nothing inherently problematic about contracting for transportation or food services compared to custodians. Ten years ago, only 3.8 percent of Michigan school districts contracted out for transportation services; today, that figure stands at 26.6 percent, and 42.8 percent for food services (see graph). In Pennsylvania, 66.5 percent of districts contract out some or all of their bus services, and 44.4 percent do so for food.

The Mackinac Center sought answers for the divergence in two places. First, it asked school district officials in their survey interviews. They provided no particular reason to explain why so many districts outsourced janitors but not the other services.

It also investigated whether some provision of state law may be responsible. The research, while not exhaustive, revealed no obvious obstacles.

All this suggests that competitive contracting for food and bus services could be ripe for expansion in Georgia schools. Few district superintendents would turn down an extra $100 per pupil in savings, which is essentially what happens when districts forego this opportunity.

If competitive contracting was not a useful management tool, far fewer schools in states like Michigan and Pennsylvania would embrace it. By their actions, school superintendents there have demonstrated that the practice that can save money and improve quality.

As Georgia continues to investigate education funding, this timely survey by the Mackinac Center highlights an opportunity ripe for school systems to create savings and shift more funding into Georgia classrooms.

Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy in Michigan and Kelly McCutchen is president and CEO of the Georgia Public Policy Foundation.

Raiding Car Crash Victim Insurance Reserves No Way to Fund Roads

A one-time funding blip won't solve Michigan's road funding problem

Perhaps no two human activities are more antithetical to each other than politics and the business of insurance. Insurance is all about prudence and taking the long view, while politics is — not.

An example is House Bill 4560, introduced by Rep. Peter Lucido, R-Shelby Township. To provide a one-time infusion of road repair money this would authorize a $1 billion raid on the reserve fund that the Michigan Catastrophic Claims Association draws on to reimburse auto crash victims for very expensive medical costs.

The MCCA is the entity created by Michigan’s no-fault auto insurance law to cover those expensive claims, under a provision that requires drivers to carry personal injury protection coverage with no cap on benefits. The medical service reimbursements are financed by an annual assessment tacked on to auto insurance bills, in amounts determined by the association’s board.

The current assessment is $150 per year for each vehicle, which was set last March. The document announcing this reported that in the fiscal year ending June 30, 2014, the MCCA had paid out slightly more than $1 billion in claims, which is up sharply from $765 million five years earlier. Also, actuarial projections indicate it has a $292 million reserve fund deficit for outstanding claims. Many of these claims are for medical costs that will extend decades into the future, because they include providing lifetime care for individuals permanently disabled in tragic car crashes.

House Bill 4560 essentially directs the MCCA to recover from the fund raid by increasing future customer assessments and with magic — increasing returns on the fund’s investments. Presumably the association’s fund managers already work to maximize those returns within the bounds of prudent investment practices, so this provision is pure eyewash.

The future rate hike potential is real though. As Michigan Department of Insurance and Financial Services (DIFS) Director Patrick McPharlin put it in a statement on the department’s website, “[R]educing money in the fund could result in the need for the MCCA to increase its assessment on insurance companies — further driving up the cost of auto insurance in our state.”

The bill recalls a previous MCCA fund raid, which occurred in 1998. In contrast to the current reserve fund deficit, at that time the association had accumulated a $2.5 billion surplus above the amounts projected to cover medical claims then outstanding. Politicians saw an opportunity to pander, and the House passed a bill mandating that the MCCA rebate $1.2 billion to auto insurance customers. Rather than wait for the Senate to enshrine this bit of political opportunism into statute, the MCCA agreed to send out checks without a legislative fiat.

Various factors had caused MCCA assessments to fall dramatically. Among other things, these include lower than projected medical costs, a strong state economy and a booming U.S. stock market. Having ample reserves also contributed. After the rebate, customer assessments remained low for a few more years, but in 2002 they were back up to $71 per vehicle, and by the middle of the decade they were close to the current $150 level. It is likely that rates would have stayed lower for longer without the 1998 fund raid, and the temporary customer windfall probably ended up being a net loss for insurance buyers over time.

Taking money that is set aside to pay the medical expenses of people severely injured or disabled in car crashes to provide a one-time funding blip won’t solve Michigan’s road funding problem. But it will cause new problems, and probably subject vehicle owners to higher insurance rates in coming years. This is no way to run a state, a road budget or an insurance plan.