The MC: The Mackinac Center Blog

Blown Away By Flawed Research on Jobs Program

Michigan spent millions with little to show for it

The Michigan Economic Development Corporation released a study on its 21st Century Jobs Fund, alleging that it helped create jobs in Michigan. Yet the study did not offer substantial proof. The MEDC needs to be more transparent about the shortcomings of Gov. Granholm’s “Blown Away” program.

The study, written by TEConomy Partners, was a trove of unjustified assertions. It contains such models of terrible prose as, “Now is the time for Michigan to reinvest in its commitment to transition the state’s economy into a 21st century knowledge economy driven by innovation.” Yet the study did nothing to show why putting more taxpayer dollars in the fund was a good idea. It also failed to show whether (or how) such spending could have brought about a large change in Michigan’s economy.

It did not inspect most of the programs financed by the 21st Century Jobs Fund. By my count, it covered only eight of the 16 programs the fund supported, and only a fraction of its total spending. It is tough to justify the existence of this fund’s activities if you don’t look at everything it did.

The study used a multiplier assessment as it tried to show the impact of the jobs fund. Yet it did not justify the MEDC’s claims: It did not prove that jobs were created.

Multiplier analyses only show the economic impacts of a given spending project, but they are not meant to justify the spending in the first place. They can tell whether spending on ice cream or pop would have a larger economic impact. What they can’t do is tell you whether it’s a good idea to get either ice cream or pop. And no multiplier analysis can justify the claim that government programs “led to stronger economy, increased jobs,” as a headline in a state press release read.

It is one thing for people who are benefiting from the state’s spending to try to keep the money flowing to them. As one legislator stated, “everyone loves free money.” But it is another thing for public administrators to use taxpayer dollars to try to justify that spending, and offensive that they would do so with a flawed study.

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A better assessment of the 21st Century Jobs Fund would look at what lawmakers tried to do and what they achieved. The promises got extreme — the governor even said that the fund might make “these United States independent of foreign oil.” But ten years later, the state has spent hundreds of millions with little to show for it.

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Mackinac Center Defends Resort Owner’s Free Speech Right

State media covers tourism bureau lawsuit

No one should tell individuals how to run their businesses or their advertising, but that is what is happening to resort and hotel owners in Northern Michigan.

The Indian River Area Tourist Bureau levies a 5 percent tax on each rented room in its region, violating the free speech rights of property owners like George Galbraith, who disagree with the forced speech. Last week, the Mackinac Center Legal Foundation filed a lawsuit on Galbraith’s behalf, arguing such regional taxes and the Michigan law authorizing the Indian River bureau are unconstitutional.

“The government can’t compel you to pay for speech which you don’t agree with,” Mackinac Center Senior Attorney Derk Wilcox told Michigan Public Radio.

Galbraith owns The Landings on Indian River and said he shouldn’t be forced to pay for tourism promotion that he neither wants nor needs.

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"They don't have meetings," Galbraith said in an interview with UpNorthLive/ WPBN. "They're just not accountable. I call them the tourist mafia because you have to join. They take your money and you don't get anything for it."

Reporters have noted that even they have had difficulty tracking down bureau manager Al Thompson. Mackinac’s Senior Investigative Analyst Anne Schieber told WPBN that the inaccessibility of the bureau is a problem for the resort owners who fund it.

It becomes a huge problem when one person is in charge of this and no information at all is being given back to these business owners. …We're prepared for a very big fight because there are a lot of special interests involved.

Wilcox said tourism bureaus may have made sense before social media and the internet, but now, Galbraith and other hotel operators are able to manage their own advertising, usually for a fraction of the cost. Galbraith should be free to make that decision on his own, Wilcox told the Petoskey News-Review.

It would be like if a chamber of commerce became mandatory and you had to pay. You may argue that that is great but some people want to do it on their own and not have to be forced to pay for the advertising.

Read the Petoskey News-Review’s report here.

Listen to Michigan Public Radio’s coverage of the case here.

Read the Interlochen Public Radio report here.

Watch UpNorthLive’s coverage here.

Watch 9&10 News’ coverage here.

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Workers Could Feel Pinch of Obama’s Overtime Rule

Vernuccio op-ed published in The Detroit News

President Barack Obama’s new overtime rules are likely to have unintended consequences, some of which could actually lead to less take-home pay for workers.

The president recently enacted new overtime rules that will make anyone earning up to $47,476 a year eligible for overtime pay, up from the current threshold of $23,660 a year. While the new rule is being advertised as a way to increase wages, Mackinac Center Director of Labor Policy F. Vincent Vernuccio and adjunct scholar Jeremy Lott write in a Saturday op-ed for The Detroit News that the new rules may reduce workers’ flexibility on the job and could even lead to pay cuts.

Rather than pay workers time-and-a-half, analysts and experts predict companies will reduce salaried workers’ hours and hire more part-time employees. Vernuccio and Lott explain:

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Obama may be touting the raises he hopes his rule will create, but the text of the regulations fail to mention giving workers a raise, notes Trey Kovacs, labor policy analyst for the Competitive Enterprise Institute. Rather, the two main objectives are to “spread employment ... by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours,” and to “reduce overwork and its detrimental effect on the health and well-being of workers.”

Salaried workers should also expect their hours to be watched and regulated more closely, which could lead to a loss of flexibility.

Read the full op-ed in The Detroit News

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July 1, 2016 MichiganVotes Weekly Roll Call Report

Repeal 'stand your ground,' assert 'right to drinking water,' make policy body camera images secret, more

The House and Senate are on a summer and primary election season break. Therefore, this report contains several recently introduced bills of interest.

Note: There will be no Roll Roll Report on July 8. The next report will be July 15.


Senate Bill 563: Ban “sky lanterns”

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Introduced by Sen. Dale W. Zorn (R), to ban the use or sale of “sky lanterns,” which are miniature, candle-fired hot air balloons made of paper and sold as a novelty item. Referred to committee, no further action at this time.


Senate Bill 574: Mandate specified nurse-patient ratios

Introduced by Sen. Rebekah Warren (D), to mandate that hospitals maintain detailed staff-to-patient ratios specified in the bill. Referred to committee, no further action at this time.


Senate Bill 584: Let assisted living facilities sell drinks to residents

Introduced by Sen. Peter MacGregor (R), to allow up to 20 “homes for the aged” (assisted living facilities for seniors) around the state to get a liquor license that lets them sell drinks to residents and “bona fide guests.” Referred to committee, no further action at this time.


Senate Bill 611: Repeal 2006 “stand your ground” law

Introduced by Sen. Rebekah Warren (D), to repeal the 2006 law signed into law by Gov. Jennifer Granholm establishing a “home is my castle” and “stand your ground” self defense doctrine, under which an individual need not first flee from a threatening attacker before resorting to deadly force. Referred to committee, no further action at this time.


Senate Bill 634: Exempt police body camera recordings from disclosure

Introduced by Sen. Rick Jones (R), to exempt police body camera recordings from disclosure under the Freedom of Information Act. Note: House Bill 4229 would mandate these cameras for Michigan police. Referred to committee, no further action at this time.


House Bill 5101: Assert “right” to drinking water

Introduced by Rep. Julie Plawecki (D), to assert in statute that each person has a right to “safe, clean, affordable, and accessible water” for cleaning, cooking and drinking. The bill does not specify upon whom would fall the duty to pay the water bills if a person can’t or won’t do so. Referred to committee, no further action at this time.


House Bill 5103: Prohibit and define “aggressive solicitation” (begging)

Introduced by Rep. Michael McCready (R), to prohibit various actions and behaviors by people who are begging for money or other things of value, as specified in the bill, subject to a $100 civil fine. This would replace the current criminal sanctions, which House Bill 5104 would repeal. Referred to committee, no further action at this time.


House Bill 5114: Make election days a government holiday

Introduced by Rep. Adam Zemke (D), to establish that the three regular state dates for all elections in May, August, and November are state holidays, which among other things would probably result in most government employees getting the day off. Referred to committee, no further action at this time.


House Bill 5154: Require schools provide suicide warning sign training

Introduced by Rep. Peter Lucido (R), to require that public schools provide student instruction and staff training in warning signs for suicide and depression. Referred to committee, no further action at this time.


House Bill 5160: Require high schools to provide CPR and defibrillation classes

Introduced by Rep. Thomas Hooker (R), to mandate that public and private middle and high schools provide instruction in cardiopulmonary resuscitation and awareness of automated external defibrillation, and prohibit a student from graduating unless he or she has successfully completed this instruction. Reported from committee, pending before the full House.


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.

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This week the state released the long-awaited Michigan Education Finance Study, better known as an “adequacy study.” Twice delayed from its original March 31 deadline due to errors by different parties, the report authorized by December 2014 state legislation has been greeted with an underwhelming reaction.

Colorado-based Augenblick, Palaich, & Associates secured a $399,000 taxpayer-funded contract to produce the report. The company’s 13 studies of different states’ school finance systems all concluded with a call for more money, typically, a large dollar figure clearly stated in the report.

Poring through the Michigan adequacy study’s 224 pages, one thing readers won’t find is the overall recommended price tag. For the biggest backers of spending more on schools, reading the report must have been like waiting until spring break to open a shiny wrapped Christmas present, only to find an elaborate disassembled puzzle and a thick stack of detailed instructions.

Some people have latched on to the recommended $8,667 per pupil base expenditure, without a clear understanding of what the number represents. It’s the average amount spent by 54 school districts deemed to be “notably successful,” but only after factoring out expenses and applying a series of “efficiency screens” loosely explained in the report.

Federal government data actually shows the 54 districts spent a combined $11,285 per student on operations in 2014-15. By comparison and after excluding the report’s high-spending outliers, the per pupil expenditure for districts not deemed successful was only $60 less: $11,225. Add in intermediate school districts, and the total statewide figure surpasses $12,000 per pupil.

When the highly touted adequacy report leaves attuned observers wondering what the actual figures for K-12 spending are, it’s no wonder that the average Michigander struggles to give a well-informed answer:

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(The $13,000 per student figure mentioned in the video includes all education-related spending, both operational costs and capital projects.)

The $8,667 figure doesn’t capture the total of the adequacy study’s recommended increases. APA also proposes an additional 30 percent for each low-income student and 40 percent for each student who is not a native English speaker.

Such a plan might make funding more equitable, but the recommended spending amounts offer no real hope of improved outcomes for students. Following the state’s legal guidelines for the study, APA noted that base expenditures for 19 of the 54 top-performing districts were on average 10 percent less than the recommended amount. And many unsuccessful districts already spend more.

Using a regression analysis, APA estimates that each extra $1,000 spent per student increases high school math and reading proficiency rates by 1 percent. This finding differs somewhat from the Mackinac Center’s more rigorous, multiyear, building-level analysis that found no relationship between increased spending and 27 of 28 academic indicators.

Yet even granting that APA’s estimate is true, Michigan school districts would have to more than double their spending just to ensure one-third of 11th-graders meet the math standard on the state’s new test called M-STEP.

Even if our eager gift-opener could follow the dense instructions and successfully assemble the new puzzle, a huge letdown would be all but assured. The state should shelve the adequacy study and undertake the hard work of changing the education system’s incentives to maximize results.

Reforms that engage and empower parents offer one very promising path. Most gold standard research shows that robust school choice programs tend to produce better results — not only for participating students but also for those who remain enrolled in traditional public schools. And good news for lawmakers who recently had the adequacy study cross their desks: These programs almost always save money.

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State media covers school funding study

The state has released its long-awaited, twice-delayed education funding adequacy study, which claimed the state’s average school district operating expenditure of $12,000 per pupil is not enough.

Augenblick, Palaich & Associates, the Denver-based firm paid $399,000 to produce the report, also suggested increasing education funding in the District of Columbia — which spends over $29,000 a year per student — so its findings about Michigan were not surprising. Ben DeGrow, education policy director at the Mackinac Center for Public Policy, spoke with the Detroit News this week to offer his perspective on the state-commissioned study:

“Even given the information presented in this report, it doesn’t lead us to the conclusion that money alone is going to improve Michigan’s weak educational performance,” said Mackinac Center Director of Education Policy Ben DeGrow.

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DeGrow pointed to a study he co-authored earlier this year that found no relationship between increased spending and student performance. What seemingly matters more than how much is spent is how education funds are used. Though the state’s study found a number of districts that spend less are seeing greater student achievement, it failed to explain how they are achieving such success, DeGrow told Gongwer News Service.

He also argued that the formula the study used ignores the districts that are doing more with less. “Of the 54 districts they’re looking at, they also point out that 19 of those districts spend an average of 10 percent less than that $8,667,” he said. “What they don’t answer is how some districts are able to get the higher quality results with less money.”

The study also failed to explain how it determined a $1,000 increase in per-student spending would lead to a one percent increase in math and reading proficiency. In speaking with the Detroit Free Press, DeGrow explained it seems like a high sum to pay for comparatively small results, and that lawmakers should not accept the study as a carte blanche justification to spend more.

DeGrow said Michigan residents shouldn't jump to the conclusion that increased spending equals better outcomes. He said he found the opposite in a study he released earlier this year.

Whether lawmakers in Michigan do anything about the findings remains to be seen. The 2015 state law that required the study doesn't require the state to take action on its findings.

Read the full Detroit News article here.

Read the full Gongwer article here.

Read the full Detroit Free Press article here.

Listen to Michigan Radio’s report here.

Read the Mackinac Center press release on the adequacy study here.

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I Don’t Have Answers to These Questions

There aren't always easy answers to policy questions

A big part of my job is answering policy-related questions. Some can be handled quickly, some take longer. Others require an in-depth study. But there are some that I just can’t answer.

Here are a few that came up recently.

How many jobs are actually at wind farms in Michigan? Wind energy was pitched as the next big thing, but wind farms probably don’t require many workers once they are established.

Why did lawmakers not close the school retirement system in 2012? I know that it was not the illusory transition costs issue that some claimed. Lawmakers made some major reforms — including to retiree health care benefits — but the plan remained open and I don’t know why they refrained from taking that additional step.

Why isn’t more attention being paid to the state income tax rate? The rate was supposed to be lowered after the 2007 tax hikes, but the reductions went away during the 2011 tax reforms. These rates have a much larger impact on the state budget — and each and every family budget — than the much-discussed pension tax.

How do public electric utilities actually make money? In a regulated market, it is not likely by selling more electricity to customers.

Why aren’t there more independent advocates for policies? We meet with a lot of member-driven groups to talk about our work. Their leaders seem to find it strange that the Mackinac Center has views on policy issues and connects with people who have similar views, instead of having members that determine our stances.

What is the proportion of Michigan residents who believe that agriculture is the state’s second-largest industry? Industry spokesmen have made that claim for a while, but the agriculture’s economic importance is much smaller than you would expect.

Why have there been corruption charges against Detroit Public School employees? The district’s been under state-appointed emergency managers for some time now, and the law is designed to fix mismanagement. After all, you can’t steal thousands from your employer unless your employer is mismanaging millions.

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Why don’t municipal interest groups promise something in return for more money? They’ve been asking for more money from state taxpayers as far back as I can remember, yet I don’t recall them ever saying how they would use this additional money to benefit people. Promising to improve services seems like a more effective tactic.

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Commemorating the Repeal of the Stamp Act

The history of transaction taxes in America

The United States Postal Service puts out many beautiful stamps. One current “forever stamp” isn’t as nice to look at, but you should still consider using it the next time you decide to send some snail mail. It commemorates the repeal of the Stamp Act in 1766.

If you’re like me, you probably have a vague memory of learning about the Stamp Act in grade school. Back then I wondered why it was such a big deal that the colonists had to pay more for stamps, because when I thought of stamps, I thought postage stamps. But for the American colonists, the Stamp Act was most akin to what people today call a “transactions tax.” It required the colonists to pay a tax on almost every legal transaction.

In the age before instantaneous communications, business transactions required more legal documents than they do today. Suppose you wanted to sell your crops back in the 18th century. How would a potential purchaser know that the crops actually existed, or that you had not already promised to sell them to someone else? It was not possible to pick up a phone or check online — verification could only be made by a certified document asserting both your ownership of the crops and their availability for sale.

Such documents were common and used extensively. The free flow of credit, goods and services depended on them. Land transactions, which were frequent and important in the “land of opportunity,” were particularly dependent on these legal documents.

By taxing these types of documents (requiring them to have a stamp affixed as proof of payment of the tax), the Stamp Act imposed a cost, often a high one, on most business transactions, since most transactions couldn’t happen without these certified documents.

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It not only made participating in the economy more costly, but it made the colonists more dependent on the English Crown. And this dependency was a feature, thought the Crown — not an unfortunate side effect. As legal scholars Justin DuRivage and Claire Priest recount, one colonial leader, Jared Ingersoll, mistakenly believed that if Parliament only knew how many transactions would be taxed, they would lower the tax: “I very well knew the information I must give would operate strongly in our favour, as the number of our Law Suits, Deeds, . . . & in short almost all the Objects of the intended taxation & Dutys are so very numerous in the Colony that the knowledge of them would tend to the imposing of a Duty so much the Lower as the Objects were more in Number.”

But Britain saw the imposition of this tax as a way to better control the colonies and protect against their rivaling English power. As England’s Junior Treasury Secretary said at the time, the Stamp Act would act as “some Check to those enormous Grants and Conveyances, which are so detrimental to the Colonies.” DuRivage and Priest put it this way: “Authoritarian imperial reformers in Britain had long expressed concern that colonial settlement and expansion needed to be restrained lest the colonies challenge Britain’s economic supremacy within the empire.”

So take this time to recall the importance of the Stamp Act as a transaction tax, and its centrality to the American Revolution. Then consider why people today would still want to restrain economic activity in order to control it out of fear that a successful economy poses a threat to the ruling class. Then, as nice as the planets or national parks stamps are, give a thought to using these commemorative stamps instead.

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A $4.6 Billion Transit Millage Is a Tax Too Far for Detroit

New Evidence: Film Incentives Still Don’t Work

Research from Michael Thom analyzes a variety of programs

Last year Michigan lawmakers wisely did away with what was once the most generous film incentive program in the nation. Mackinac Center research showed that despite giving film producers half a billion dollars from 2007 to 2013, there were no signs that the film industry in Michigan was actually growing. Essentially, the program amounted to a taxpayer handout to a select few movie production studios. And now there’s new research that suggests these programs aren’t benefiting other states’ economies either.

The evidence comes from an article published in the American Review of Public Administration written by Michael Thom, a professor at the University of Southern California and graduate of Michigan State University. He analyzed 15 years’ worth of data from more than 40 states and found that film incentive programs, on the whole, have no significant impact on wages, employment, gross state product or film industry concentration in a state.

Thom also carefully analyzed the different types of film incentives offered by states, such as sales tax waivers, lodging tax waivers, transferrable tax credits and refundable tax credits, and tested each of these separately. In doing this, he found some positive effects for particular types of incentives, but the impacts were tiny. For instance, transferable tax credits had a small effect on film industry employment, but no effect on wages. And refundable tax credits had a positive effect on wages for film industry workers, but it was only temporary. Corroborating Mackinac Center research, there wasn’t any evidence that these types of incentives created new jobs.

Film incentives are a relatively new experiment among taxpayer-funded economic development programs. In 2003, there were only five states with such programs — now there are more than 40, and states are handing out close to $2 billion in subsidies to movie studios. Like Michigan, other states are beginning to wise up to the futility of film incentives, and this recent research should cause more states to rethink these programs.

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A $4.6 Billion Transit Millage Is a Tax Too Far for Detroit

Time to question the benefits of the Regional Transit Authority

The other day, I attended a public hearing of the Regional Transit Authority of Southeast Michigan in Northwest Detroit. The Mackinac Center’s analysts haven’t dug deeply into the RTA’s plans and assumptions surrounding its $4.6 billion millage request on November’s ballot. But the rhetoric from the RTA leadership in attendance was troubling — even before we look at the numbers.

Longtime Detroit radio host Mildred Gaddis broadcast from the event for her show on WCHB-AM 1200, interviewing RTA representatives and taking questions from the audience and social media. Virtually all the questions focused on either service concerns — Would the buses get better in a specific neighborhood? How much will the fares be? — or questions around employment, union representation, economic benefits, choice of contractor and other job-related topics.

One question notably absent until I gave Mildred a card asking about it, was whether Detroiters need to be taxed even more than they are now to receive improved transit services. My colleague James Hohman recently pointed out that Detroiters already pay the highest effective property taxes in the nation, a burden to which the RTA’s 1.2 mill property tax would only add.

High property taxes are a challenge for homeowners and business owners in any community. But in Detroit, high tax rates combine with a deeply broken property tax assessment system to destroy neighborhoods and lives. Roughly one in three homes in Detroit has been foreclosed on in the past decade, pushing people out of their homes and creating real and pervasive human suffering. To add insult to injury, these homes too often stay vacant, become blighted and join the long list of homes to be demolished. Detroit is spending hundreds of millions of dollars to knock down houses that could and should have remained Detroiters’ homes.

We’re literally taxing people in Detroit so much that they lose their homes, then asking other taxpayers to pay to knock down those homes. How can we defend this intellectually or morally?

As we respond to the many challenges facing Detroit, it won’t do to give a simplistic response like “the answer is this, or it’s that.” But one point of agreement has to be that Detroiters are simply taxed too much and receive too little. They’re not alone in this regard, but in too many of the city’s neighborhoods, squeezing residents for tax revenues has crushed the community.

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It’s time to say: “Enough is enough.” Detroiters and others in Wayne, Oakland, Macomb and Washtenaw should look at what benefits the RTA is offering. Then they should question whether the benefits justify adding to the tax burdens of all homeowners and business owners, especially those whose burdens are already more than they can bear. Regional transit supporters point out that other metro areas spend more on transit than we do, but none of those other regions have the same challenges as Southeastern Michigan in general and the city of Detroit specifically.

Improving the coordination of our region’s transit systems doesn’t need to cost us $4.6 billion over 20 years, doesn’t need to add to the property tax-driven blight in Detroit and doesn’t need to create another layer of bureaucracy over the existing regional transit systems. Let’s be SMART — pun intended — about transit funding and whether imposing more burdens is the best way to create jobs and opportunity in our communities.

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