The MC: The Mackinac Center Blog

Hohman to talk at 'Detroit Rising' Panel Friday

Also, how "progressive" policies damaged the city

James Hohman, assistant director of fiscal policy, will participate in a panel discussion from 8:30 to 10 a.m. Friday as part of an event titled “Detroit Rising.” The two-day event, sponsored by the Manhattan Institute and State Budget Solutions, kicks off Thursday at 5 p.m. with a panel discussion titled “How the Motor City is Rebuilding and Returning to Greatness.” Friday’s session is titled “Learning from Detroit: Hope for Cities on the Brink.” Both panels will be streamed live.

Also in Detroit this weekend is an event known as “Netroots Nation,” self-described as a “big family reunion for the left.” One progressive Michigan website, ironically, carries this headline about the gathering: “We’re in Detroit. It’s going down.”

You can read about the “triumph” of progressive policies in Detroit here.

Pension Malpractice and Fund Raids

Everyone's doing it!

A Wall Street Journal editorial bemoans gimmicks used to “pay for” a federal road funding bill without either raising taxes or cutting other spending, which was passed by the U.S. House of Representatives yesterday:

“Ways and Means Chairman Dave Camp is paying for the additional spending with a combination of new custom fees, transfers from a fund to repair leaky underground fuel-storage tanks, and changes to pension taxes. This "pension-smoothing"—which will supply $6.4 billion of the revenue—is an especially ugly budget ruse, and thus increasingly a Congressional favorite.

“Under smoothing, employers are given permission to delay contributions to pension plans, thereby increasing corporate taxable income. That pushes immediate money to the Treasury, but at the cost of piling up pension liabilities in the longer-term, hurting employees and potentially the taxpayers who might have to bail them out. Congress used the same imaginary revenue-raiser to fund the 2012 highway bill, and the Members know most of the media won't report the boring pension details.”

Congressman Camp served one term in the Michigan House of Representatives back in 1988-1990, and as a Congressman perhaps he’s been looking to the gang at his old gig for bad ideas, because both the pension dodge and the raid on a fuel tank cleanup fund have both featured in the Michigan Legislature’s playbook over the past decade, as documented by MichiganVotes.org:

2004 House Bill 6074: Fuel tank cleanup tax "fund raid"
Public Act 390 of 2004

To extend the 7/8ths cent-per-gallon fuel sale "regulatory fee" (tax) levied for the cleanup of underground fuel tanks, and authorize a $43 million "fund raid" on the underground tank cleanup fund to avoid making spending cuts in the 2005 budget.

Passed 87 to 13 in the House on July 14, 2004 - Who Voted "Yes" and Who Voted "No"

Passed 32 to 5 in the Senate on September 29, 2004 - Who Voted "Yes" and Who Voted "No"

Signed by Gov. Jennifer Granholm on October 12, 2004.

2007 House Bill 4530: Balance budget with reduced school pension fund contribution
Public Act 15 of 2007

To allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required. One of the elements in the formula is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount.

Passed 107 to 1 in the House on April 17, 2007 - Who Voted "Yes" and Who Voted "No"
Passed 37 to 0 in the Senate on May 22, 2007 - Who Voted "Yes" and Who Voted "No"
Signed by Gov. Jennifer Granholm on June 6, 2007.

This is not to beat up too much on Mr. Camp, who as much as anyone is a captive of a growing institutional breakdown in Washington under the current administration. The Journal explains:

“Mr. Camp's hand was somewhat forced by a last-ditch Democratic effort to raise the 18.4-cents-a-gallon gas tax. With the failure of President Obama's $300 billion blowout, the House Democratic fallback was to pass a patch that would expire at the end of this year. Their betting was that they and the business community (which wants higher gas taxes) could then leverage a lame-duck session to jam Republicans into a tax hike. Mr. Camp's 10-month extension at least avoids that box canyon.”

Michigan Future Report Doesn't Add Up

Academic research favors low-tax states

A recent Michigan Future report calls into question a common economic theory: increasing taxes tends to lead to less private-sector growth. Comparing Michigan’s economic performance over the last two decades to that of Minnesota’s, the report claims that “rais[ing] taxes on the wealthy and businesses to invest even more in public services” was the Gopher State’s key to success. While this anecdote convinced the Detroit Free Press, a large body of economic research does not support this view.

For example, a new working paper published by the Mercatus Center empirically examines the relationship between state taxes and economic growth and finds evidence exactly contrary to the Minnesota anecdote. Pavel A. Yakovlev, an economics professor at Duquesne University, analyzed data from 49 states from 1977 to 2000 and controlled for differences in average age, educational attainment, federal employment, natural resources, population density and a variety of other factors. He then attempted to capture state economic performance by measuring year-to-year growth in gross state product per capita, growth in the number of businesses and net migration rates.

The results of his research support the common economic theory: higher average tax rates tend to have a negative and statistically significant relationship to state economic growth. Specifically, Yakovlev found that a 1 percent increase in average tax rate led to a 1.9 percent decrease in gross state product growth from 1977 to 2000. Similar effects were found on other measures: increases in taxation rates lead to fewer new businesses in a state and a higher probability that residents will migrate to lower taxed states.

The Michigan Future report fails to show causation for the Minnesota-based narrative that higher tax burdens and more government spending lead to increased state-level economic growth. But even if this were true for Minnesota, considering the broad economic research literature, policymakers should view the Gopher State as the exception, rather than the rule.

Michigan Education Digest

NEA prez suggests teacher assessments are "satanic"

The newest edition of Michigan Education Digest is available here. Topics include the new National Education Association president calling value-added assessments for teachers the “mark of the devil,” why the University of Michigan has to pay a student group $14,000 to settle a lawsuit, and how privatizing noninstructional services could help Flint schools reduce its overspending crisis.

Andrew Kaluza, RIP

Former Center intern, 27, passes away

The staff of the Mackinac Center for Public Policy mourns the loss of Andrew Kaluza, a 2011 summer intern, who passed away after a car accident over the weekend. Kaluza, an engineering major at the University of Texas-San Antonio, founded that school’s Young Americans for Liberty chapter and was a member of the executive board of Students for Liberty.

You can read more about the impact he had on others and the freedom movement here.

What Do Teachers Want to Support?

RTW allows them to skip union's political bent

The economic effects of state right-to-work laws are important, but these laws are significant for other reasons, too, namely the fact that employees cannot be forced to contribute money to a union they disagree with as a condition of their employment.

This is especially significant because many labor unions, particularly in forced unionism states, are political organizations that spend money on issues that most people would consider partisan and contentious.

Allysia Finley of The Wall Street Journal recently covered the National Education Association’s annual convention and explains how that union chose to spend its membership dues. The Michigan Education Association, this state’s largest teachers’ union, is an affiliate of the NEA. MEA members pay the NEA about $180 annually.

Finley reports that the union passed resolutions taking an “anti-fracking” position and encouraging members to boycott the office-supply store Staples, because the U.S. Postal Service has contracted out nonunionized work to them.

Finley adds, “Delegates debated whether the union's president should write a letter to Washington Redskins owner Daniel Snyder denouncing the NFL team name's ‘institutional racism.’ They also discussed a resolution supporting reparations for ‘the lingering impact of slavery’ and ‘subtle Jim Crow policies and thinking’ including ‘unconscious bias.’ These items were referred to a private committee for further discussion.”

Many people would find such endeavors are worthwhile. But is it in the wheelhouse of a teachers’ union? Thanks to the state’s right-to-work law, Michigan educators can now decide for themselves.

While the Legislature is adjourned for a primary election campaign break, the Roll Call Report is reviewing key votes of the 2013-2014 session.

Senate Bill 257, Expand “Business Improvement Zone” tax-and-spend entities: Passed 35 to 2 in the Senate on April 11, 2013.

To expand the items that a “Business Improvement Zone” can spend money on, revise voting rules in a way that (potentially) reduces the proportion of property owners needed to impose a zone's tax-and-spending powers, increase the proportion of owners needed to dissolve one, reduce notice and public meeting requirements required to establish one, increase penalties for not paying the "special assessments" these entities impose, and more. These zones have the power to impose levies to pay for the debt they incur to pay for projects that are supposed to benefit the property owners.

Who Voted "Yes" and Who Voted "No"

Senate Bill 38, Authorize wage garnishment for nonpayment of “administrative hearing bureau” fines: Passed 35 to 1 in the Senate on April 18, 2013

To allow a local government to garnish the wages of a property owner who has failed to pay fines imposed by “administrative hearing bureaus” that most cities are allowed to create for enforcing "blight violations" under a 2003 law.

Who Voted "Yes" and Who Voted "No"

Senate Bill 39, Authorize foreclosure for nonpayment of “administrative hearing bureau” fines: Passed 35 to 1 in the Senate on April 18, 2013

To allow a local government to foreclose on property owned by a person who has failed to pay fines imposed by “administrative hearing bureaus” that most cities are allowed to create for enforcing "blight violations" under a 2003 law.

Who Voted "Yes" and Who Voted "No"

Senate Bill 218, Expand borrow-and-spend "water resource improvement authorities": Passed 32 to 5 in the Senate on March 14, 2013

To eliminate the sunset on local governments creating new "water resource improvement authorities," which use extra property tax levies and “tax increment financing” schemes to divert other taxing units' property tax revenue to cover debt service payments on debt they incur for various recreation and development projects. The bill would also expand the scope of activities and geographic limits of these entities, letting them borrow and spend for dredging among other things.

Who Voted "Yes" and Who Voted "No"

Senate Bill 288, Give NRC duty of designating huntable game species: Passed 25 to 11 in the Senate on April 25, 2013

To give the state Natural Resources Commission (in addition to the Legislature) the power to designate a species as a huntable game species. This was widely regarded as an effort to preempt a ballot initiative to prohibit creating a wolf-hunting season.

Who Voted "Yes" and Who Voted "No"

Senate Bill 347, Expand MSHDA developer subsidies: Passed 36 to 2 in the Senate on May 16, 2013

To empower the Michigan State Housing Development Authority (MSHDA) to “invest” (buy ownership interest) in companies or nonprofits whose “primary purpose is to acquire ownership interests in multifamily housing projects” (and not necessarily build new ones).

Who Voted "Yes" and Who Voted "No"

Senate Bill 345, Authorize more state government housing subsidy debt: Passed 34 to 4 in the Senate on May 16, 2013

To repeal a requirement that the Michigan State Housing Development Authority (MSHDA) must scale back its debt from a “temporary” maximum of $4.2 billion authorized in 2012, to $3.4 billion after Nov. 1, 2014, subject to some exceptions. The borrowed money is used to provide taxpayer-backed mortgage loan guarantees, subsidies and more. The House has not taken up this bill.

Who Voted "Yes" and Who Voted "No"

Senate Bill 163, Limit DEQ wetland use restrictions: Passed 25 to 12 in the Senate on May 22, 2013

To expand certain exemptions to a state wetland permit mandate, require permit denials to document their rationale and authority, slightly increase the state's burden to justify restrictions on an owner's use of his or her property, prohibit the Department of Environmental Quality from imposing regulations that are beyond the scope those required by federal law, and make other changes to these land use restrictions.

Who Voted "Yes" and Who Voted "No"

Senate Bill 173, Ban local mandates that private employers must grant leave: Passed 25 to 13 in the Senate on June 5, 2013

To preempt local governments from adopting ordinances or policies that require private sector employers to provide paid or unpaid employee leave that is not required under state or federal law. This is related to a nationwide campaign promoted by unions to lobby for such local mandates. The House has not taken up this bill.

Who Voted "Yes" and Who Voted "No"

Senate Bill 257, Expand “Business Improvement Zone” tax-and-spend entities: Passed 77 to 31 in the House on September 12, 2013

The House vote on the bill described above. This was signed into law on Oct. 8, 2013

Who Voted "Yes" and Who Voted "No"

Senate Bill 175, Undo National Guard pension reform: Passed 37 to 0 in the Senate on May 22, 2013

To reverse a 2010 reform that eliminated "defined benefit" pensions for future Michigan National Guard commanders and their assistants, and instead provided 401k benefits. The 2010 reform was adopted following reports of these "Adjutant Generals" being granted generous state pensions based on limited state service ($78,000 to $133,000 for 1.5 years to 13 years service).

Who Voted "Yes" and Who Voted "No"

Senate Bill 38, Authorize wage garnishment for nonpayment of “administrative hearing bureau” fines: Passed 95 to 15 in the House on November 14, 2013

The House vote on the bill described above. This was signed into law on Dec. 17, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 39, Authorize foreclosure for nonpayment of “administrative hearing bureau” fines: Passed 103 to 7 in the House on November 14, 2013

The House vote on the bill described above. This was signed into law on Dec. 17, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 218, Expand borrow-and-spend "water resource improvement authorities": Passed 92 to 16 in the House on April 18, 2013

The House vote on the bill described above. This was signed into law on May 9, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 288, Give NRC duty of designating huntable game species: Passed 72 to 38 in the House on May 2, 2013

The House vote on the bill described above. This was signed into law on May 8, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 347, Expand MSHDA developer subsidies: Passed 88 to 20 in the House on September 12, 2013

The House vote on the bill described above. This was signed into law on September 24, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 163, Limit DEQ wetland use restrictions: Passed 66 to 42 in the House on June 12, 2013

The House vote on the bill described above. This was signed into law on July 2, 2013.

Who Voted "Yes" and Who Voted "No"

Senate Bill 175, Undo National Guard pension reform: Passed 91 to 14 in the House on June 6, 2013

The House vote on a revised version of the bill described above. The House slightly limited eligibility for these benefits compared to the Senate version and the pre-2010 law, but also added some exceptions to the new limits. This was signed into law by Gov. Rick Snyder on July 2, 2013.

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.

Agricultural Price Controls are the Pits

Michigan cherry farmers, others, affected

Ron French has a great article in Bridge Magazine looking at "the crazy economics of Michigan's favorite pitted fruit." The piece describes some of the federal cherry regulations that are mostly left over from the New Deal of the 1930s:

[T]he tart cherry industry is told by the U.S. government how much of their product they can put on the market. The Cherry Industry Administrative Board (CIAB), operating under the auspices of the Department of Agriculture (USDA), sets restrictions on the percentage of the tart cherry crop that can be sold. Some years the share of the market restricted from market is low, like this year, which has a 10 percent restriction. In 2009, it was a whopping 65 percent.

Michigan tart cherry growers are shackled by those restrictions more than most. There are no restrictions on sweet cherries – the kind you buy in the fresh fruit section of Meijer. The restrictions don’t even apply to all tart cherries – there are no restrictions on tart cherries grown in Oregon or Pennsylvania, or on imported cherries.

While central planners defend these policies as necessary to help manage the tart cherry market, there are few similar restrictions on other fruits and vegetable or other food. The market does a better job of setting prices than government bureaucrats.

The article is a refresher on what violating basic economic principles does to a sector of the economy: causes shortages and waste.

"Canned cherries … have a shelf life of about a year. So in a year with high restrictions … [companies] may have to import cherries for its pie filling, while cherries are rotting on the ground in orchards a few miles away," French wrote. He reported that in 2009, 30 million pounds of tart cherries were forced to be left in the ground.

That is the end result of price controls. The government is trying to force cherry prices to be high by lowering the supply. One farmer talks about people "literally dumping them alongside the road."

Unfortunately, the types of government controls were not unique but a central part of many New Deal programs. As Mackinac Center President Emeritus Larry Reed described in his essay, "Great Myths of the Great Depression":

Roosevelt secured passage of the Agricultural Adjustment Act, which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat and corn being plowed under (the mules had to be convinced to trample the crops; they had been trained, of course, to walk between the rows).
Healthy cattle, sheep and pigs were slaughtered and buried in mass graves. Secretary of Agriculture Henry Wallace personally gave the order to slaughter 6 million baby pigs before they grew to full size. The administration also paid farmers for the first time for not working at all. Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.

The bulk of the economic literature shows these policies to be extremely destructive and only politicians (and some Keynesians) could believe that destroying production is good for the economy.

It's unfortunate that some of these programs still live on.

Unions' Bark Worse Than Their Bite

Vernuccio in National Review on Midwest labor reforms

Labor Policy Director F. Vincent Vernuccio writes today at National Review about the failure of unions to overturn worker freedom reforms in the industrial Midwest — long a labor stronghold — and what reform-minded legislators in other states can learn from that lesson.

Vernuccio, Spalding on WILS in Lansing

Discussed MEA attacks on teachers, charter schools

Two Mackinac Center experts were on “The Tony Conley Show” on WILS-AM1320 in Lansing recently.

Labor Policy Director F. Vincent Vernuccio discussed the MEA’s so-called “August window” and how teachers can opt out of the union, particularly those who the MEA has sent to collections agencies.

Vernuccio also discussed the matter on "The Frank Beckmann Show" on WJR AM760.

Education Policy Director Audrey Spalding discussed charter public school student performance and the college readiness of Michigan high school graduates.