The MC: The Mackinac Center Blog

Ballot Proposal Backers Weighing Strategy

$2 billion tax hike vote on May 5

Voters will decide May 5 on whether a $2 billion tax increase passes or fails.

(Editor’s note: Jack Spencer is capitol affairs specialist for Michigan Capitol Confidential and a veteran Lansing-based reporter. His columns do not necessarily represent the views of the Mackinac Center for Public Policy or Michigan Capitol Confidential.)

On May 5 Michigan voters will have the chance to either approve or reject the road funding deal Gov. Rick Snyder and the Legislature hashed out during the December lame duck session. All told, that deal is a $2 billion tax hike, which is considerably more than the $1.2 billion to $1.5 billion the governor had been saying is needed for roads.

Many political observers believe the May 5 ballot proposal has little chance of passing. Early polling shows support for it to be weak, indicating that those trying to “sell” the proposal will be starting out in a hole. Yet, polling ballot proposals is a tricky business and the May 5 election date could magnify that fact.

The centerpiece of Proposal 1, which is what the measure is officially called, is an increase in the sales tax from 6 to 7 percent. Other aspects of the deal the voters will be deciding upon might be only vaguely referenced in the ballot language. Ironically, because of the way the deal was structured, the ballot language will say nothing about fixing the roads. None of these characteristics would be expected to help the proposal’s chances for passage.

The ballot language, however, might end up not mattering much. It seems likely that most of the voters who participate in the May 5 election will have made up their minds about the proposal before they even see their ballots.

The voters’ perceptions about the proposal will be formed by the information they pick up through news sources, campaign messaging, word-of-mouth and social media. It’s apparent that the proposal will be promoted as providing a funding to fix the state’s roads and bridges and making sure all taxes collected at the pump are used for this purpose. Beyond that, it could prove interesting to see what strategy those who want the proposal to pass decide to employ.

One distinct possibility is that there will be an effort to downplay the proposal — say little or nothing about it publicly or in TV and radio ads — until just prior to May 5. Meanwhile, the campaign for passage would work to get the word out, through the use of mailings and on websites, to targeted voting groups that might be expected to support the proposal. In other words, avoid reminding the general public that there’s an important election on May 5, while quietly making sure voters who would probably vote “yes” are reminded of it frequently.

Under certain circumstances such a strategy could work, but its potential flaws might outweigh its advantages.

First, trying to keep voters unaware of, or to lull them into forgetting about, a statewide ballot proposal to increase taxes would not be an easy task. Voters have an uncanny ability to find out about attempted tax hikes, especially if there is any sort of effort, grass roots or otherwise, to make sure they are aware of them. Those who oppose the proposal need only repeatedly get the following words out — “tax hike” and “May 5” — to almost guarantee that the “no” voters won’t skip the election.

Second, getting large numbers of targeted likely “yes” voters to the polls on May 5 would be easier said than done. State Democrats, with the aid of well-funded labor unions and other entities, tried every up-to-date electioneering technique available to boost their base turnout in November 2014, but the results were an abysmal failure. Though the Republican turnout was nothing to boast about, the Democratic turnout was even worse.

Apparently it takes more than clever ploys and well-conceived incentives to mobilize voters when they just aren’t excited about what they’d be voting for or against. And it is very difficult to envision droves of voters getting real excited about hiking their own taxes, even if they’re sick of potholes.

Say what you will about Gov. Snyder, it is clear that he is not your average politician. When he says he’s committed to “relentless positive action” he means it. That’s why there is a real possibility that the strategy used to try to pass the May 5 ballot proposal could end up being a relatively straight-forward attempt to sell the proposal to the voters.

This would be a “positive” campaign — backed by a lot of money — that declares a “yes” vote on May 5 means all taxes paid at the pump go toward fixing the roads. If this ends up being the strategy, the governor should be credited with openly taking his case directly to the voters, rather than trying to orchestrate which voters do and don’t turn out. All things considered, this kind of strategy probably has the same chance — less than 50 percent — of succeeding as any other would.

Keep in mind that in such a “positive” campaign, there would be no mention that the proposal is a $2 billion tax hike. But, after all, pointing that out will be the job of the news media and those who oppose the proposal.

Ultimately, all that really matters is that Michigan voters are aware of the May 5 election and know what the proposal would do. If those two elements are put in place, then there will be assurance that the will of the voters is going to prevail.

Closing School Retirement System the Right Choice

MPSERS has been underfunded in 29 out of the past 30 years

Michigan House Republicans recently released a reform agenda that calls for closing the state-run school employee retirement system to new employees. Senate Majority Leader Arlan Meekhof, R-West Olive, reiterated the proposal.

The necessity of closing the current defined-benefit pension system and instead offering new employees a defined-contribution plan is simple: the state underfunds pensions.

According to the legislative auditor general, the system has been underfunded in all but one of the past 30 years. The system carries a $25.8 billion unfunded liability. Michigan taxpayers are now on the hook for 13 times more in unfunded school pension liabilities than the total amount secured by the faith and credit of the state taxpayer.

Not surprisingly, the underfunding caused the cost of the system to skyrocket. Retirement benefits now consume 34.54 percent of school payroll. Reports show that to eliminate the current unfunded liability the state would have to pay “catch up costs” starting at $1.9 billion per year and rising for the next 23 years. Even these large costs assume that benefits will not be further underfunded.

The system obviously puts taxpayers at risk, but future school retirees have the most to lose. Under the current system their economic security depends on the state continuing to make multi-billion dollar contributions over the next generation – a duty it has failed to adequately perform over the past generation.

Most of what is said by officials and politicians opposed to closing the current system are distractions that ignore the basic underfunding problem.

For example, it is claimed that a defined-contribution system would “cost more” than defined-benefit pensions. But if the state underfunds the current system, then the cost comparisons between the “normal cost” of defined-benefit plans (not counting catch up costs) and the employer costs for defined-contribution plans give misleading results.

Other questions raised about the system's influence on attracting quality employees, how to address “transition costs,” and market volatility are also important but miss the reason that pensions need to be reformed. Policymakers need to acknowledge the main problem of the pension system and be sure that they contain its ability to develop further unfunded liabilities. House Republicans and the Senate majority leader are right to make this a priority.

For more information, please see:mackinac.org/pension

House GOP Action Plan Points the Way to Real Reform

Repealing prevailing wage a top priority

House Speaker Kevin Cotter and the GOP roll out their "action plan."

The 2015-16 House Republican legislators have laid out a solid plan with many great ideas for legislative goals they want to accomplish. Many of these priorities would limit government interference in the economy, establish more freedom for citizens and align with long-time Mackinac Center goals.

Here are the most important economic policy proposals being put forth in the plan and why they would be good for the state.

  • Reforming Teacher Retirement System to Curtail Unfunded Liability: “Continued efforts to curtail long-term debt in Michigan’s largest unfunded liability warrant deliberation. Moving new teachers into a mandatory (rather than the current optional) 401(k) retirement system will be accomplished.”

Michigan’s teacher pension system has an unfunded liability of $25.8 billion, so large that 87 percent of the money going into the system now is to make up for past liabilities. Bipartisan groups of politicians have not put enough money into the system for years; this is bad for schools, educators and taxpayers. Closing the system to new employees makes the most sense for everyone.

  • Repealing Michigan's Prevailing Wage: “Prevailing wage laws hinder economic growth and create artificially high costs for building schools and government facilities, which work against job creation. From December 1994 to June 1997, prevailing wage laws were suspended because of a federal district court ruling. During that time, the U.S. Department of Labor reports 11,000 Michigan construction jobs were created. Ten states have repealed their prevailing wage laws, bringing the number to 18 states that do not have such laws on the books. The Michigan House will approve legislation to repeal this law.”

Economists across the spectrum agree that government price controls harm the economy. The current prevailing wage law costs schools and taxpayers hundreds of millions of dollars extra with little return on that investment. The cost of construction projects should be set by those bidding and those giving out the bid – not arbitrary mandates from Lansing.

  • Expanding School Choice: “Parents should have every opportunity to send their child to a school that best fits their needs. This can include charter schools, traditional public schools, home schools or even new ideas such as Education Savings Accounts, where parents of special-needs children are given private accounts with funds to use toward their child’s education. Also, course choice programs, where parents and students can tailor their curriculum to their individual needs, could be considered.”

Parents, not politicians in Lansing, should determine how their kids are educated. The best research shows that school choice is leading to better educational results in Michigan. Holding the line against those who want more central government control over education and expanding to give more options is important.

  • Reducing the Income Tax: “In 2007, as part of the legislative deal to avoid a government shutdown, Gov. Granholm signed into law an increase in the income tax from 3.9 percent to 4.35 percent. That legislation also included a phased-in reduction over a period of eight years such that, by 2015, the income-tax rate would be restored to 3.9 percent. In 2011, facing a $1.5 billion structural budget deficit, the Legislature froze the personal income tax at 4.25 percent. A reduction of the state personal income tax that is properly budgeted and accounted for remains the House Republicans' single most important tax-relief measure.”

Lansing backslid on a 2007 “promise” to roll back an income tax increase, once again reminding citizens that there is rarely such a thing as a “temporary” increase in government. Michigan’s budget is increasing hundreds of millions of dollars every year – the state can afford to be less of a burden on its citizens.

  • State Film Subsidy: “For fiscal year 2012, the state received only a 38-cent-per-dollar, two-year return on investment on film subsidies. The film subsidy program is a poor investment of taxpayer dollars. It cost taxpayers $193,333 for each job created in 2009, and there are fewer film jobs in the state overall than there were before the program started. House Republicans will explore requiring a royalty payback of the subsidy if the film grosses over a certain box office revenue figure, limiting reimbursements for out-of-state expenditures and personnel, and simply terminating the program altogether.”

It’s difficult to believe politicians when they talk about being fiscally responsible when they continue the film incentive program, probably the worst “economic development” return on investment in state government. This disastrous program should be ended once and for all.

  • Michigan’s Alcohol Laws: “Various improvements to Michigan’s Liquor Control Code have been made to open new markets and provide for limited self-distribution of alcohol by suppliers. Michigan now has the fifth-largest craft brewery market in the nation thanks in large part to these reforms. We must continue efforts to reform outdated laws and licensing regulations that hinder economic opportunities for Michigan suppliers. Ensuring that the refilling of growlers at licensed establishments is permitted by regulators is paramount, as well as reviewing opportunities for direct shipping of alcohol and unnecessary regulations affecting distilleries.”

Michigan’s liquor laws are left over from the Prohibition era and essentially require price collusion and distribution monopolies. There is no evidence that those, or other numerous silly laws related to alcohol in the state, contribute to public health and safety.

  • Civil Asset Forfeiture: “Under current law, there is little transparency or accountability on the taking of private property by law enforcement. The public should know how much property the state has taken and how it is disposed of, especially when there is not an accompanying criminal conviction. If the state isn’t willing to go through the trouble of prosecuting a person for a crime, then one must question if the state should be able to take that person's property.”

The House came up short last session on a bill that would require greater transparency for when government seizes the property of its citizens. But Michigan should go further, joining other states in preventing law enforcement from taking money and property without a criminal conviction.

  • New Transportation Services: “As new transportation services like Uber and Lyft emerge, legislation is needed to welcome entrepreneurial opportunities. We can provide uniform and predictable pathways to conduct business in Michigan and provide employment opportunities for Michigan residents.”

Ride-sharing benefits consumers, particularly the poor. These laws are fought by current entrenched interests, but there are no good reasons the legislature shouldn’t embrace innovation by freeing up how people want to travel.

  • Occupational Licensure: “In 2012, the Office of Regulatory Reinvention (ORR) released recommendations on occupational licensing. Included in the report were recommendations that various occupations be deregulated. Many of these suggested policy changes were realized last session. However, there remain certain occupations that were not deregulated and Michigan remains at a competitive disadvantage with neighboring states. Further efforts to deregulate licensed professions is necessary.”

The Legislature did good bipartisan work in rolling back some low-level licensing laws last term. But ultimately, all areas where licensing is not proven to result in greater health and safety for society should be gotten rid of.

  • Land Banks: “Michigan’s land banks face various problems across the state with sustaining the costs of the programs through property sales and development. Some county land banks have circumvented the tax foreclosure process to “cherry pick” better properties from the treasurer before they could be offered to the general public at auction. This practice shortchanges the private sector while perhaps robbing taxpayers of increased sale prices achieved through auction. Statutory reforms to make land banks more accountable will be adopted.”

Land banks in the state are cutting ahead of private investors, cherry-picking prime property, and making crony deals that are bad for taxpayers. The market does a better job determining what property is worth. At the very least, the 40 lands banks in Michigan should not be able to take over property that isn’t blighted.

  • Eliminating Local Ordinances That Hinder Job Creation: “Municipal ordinances governing wages and benefits known as ‘sick pay ordinances’ institute rules and regulations on local employers in providing sick pay to their employees. Many job providers are fearful such local actions hinder job creation. Legislative efforts will be taken to ensure local ordinances are not more restrictive than state standards.”

Local governments pass all kinds of bad laws that limit the freedom of citizens and lead to tremendous economic harm. It’s a good idea in many cases for the state to set consistent statutes.

  • School Accountability: “Parents deserve better tools to make informed decisions about which schools are best equipped to educate their children based on their child's needs and the school's academic success. Michigan uses a confusing color-coded school-accountability system. A change to letter grades, while also adding a transparency dashboard for schools, will be advanced.”

The current school rating system is flawed, essentially just measuring the poverty-level of schools and causing educators to lose their jobs almost arbitrarily. It should be changed.

  • Allowing Energy Companies to Use Out-Of-State Renewable Energy to Meet Michigan’s RPS Mandate: “Michigan’s Renewable Portfolio Standard (RPS) requires that clean energy derived from renewables (e.g. wind, solar, etc.) be located in the state of Michigan. A court found this mandate to be unconstitutional. However, this opinion is not binding and a change of the current law is necessary to allow energy companies to count out-of-state renewable energy to meet Michigan’s 10 percent RPS mandate.”

Michigan’s renewable energy mandate and mandated monopoly are a double-whammy of bad economic policy for the state and both should be repealed. But at the very least, companies and citizens should be allowed to buy energy across state lines just like they do other products. Since a federal judge ruled Michigan’s law unconstitutional, the legislature should do this before it is pushed through by a court.

The plan also mentions reviewing criminal sentencing guidelines, dealing with the liabilities of local governments, increasing the transparency and accountability of local “economic development” tools, establishing a better teacher evaluation system, limiting and sunsetting regulatory rules and reforming automobile insurance rules. These would all be good changes as well.

Overall, the action plan is filled with bold reforms that lower the cost of doing business by encouraging competition. That’s good for citizens and the economy. The legislature should take them up.

February 6, 2015, MichiganVotes Weekly Roll Call

Pension double dipping, concealed pistol rules, more.

Senate Bill 34, Revise concealed pistol license procedures: Passed 28 to 9 in the Senate

To eliminate county concealed pistol licensing boards and transfer their duties to the State Police and county clerks. A similar bill passed by the previous legislature was vetoed by Gov. Rick Snyder due to some specific provisions which have been removed from this version, including one requiring a concealed pistol license be issued to the target of a personal protection order who is otherwise eligible for a permit.

Who Voted “Yes” and Who Voted “No”

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

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

Who Voted “Yes” and Who Voted “No”

House Bill 4078, Spend $24.7 million for state land acquisitions and recreation projects: Passed 103 to 7 in the House

To appropriate $24.7 million from the state Natural Resources Trust Fund for various land acquisitions and recreation projects. State oil and gas well royalty money is earmarked to this fund.

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.

Bipartisan Effort to Reform Licensing Laws

President Obama, scholars call for rollback of rules

In his recent State of the Union address, President Obama at least called for one area in which governments should scale back their rules: licensing.

The president proposes funding for states to assess these regulations which put obstacles in the path of people trying to legally work, often in the form of fees and mandated education. According to a fact sheet from the White House, “The Budget seeks to reduce occupational licensing barriers that keep people from doing the jobs they have the skills to do by putting in place unnecessary training and high fees.”

There is recent work showing that licensing laws across the nation cause higher costs for consumers, higher unemployment for workers, and significant harm to the economy.

A study released on Jan. 28 from the Brookings Institution says states should improve occupational practices by undertaking a cost-benefit analysis for additional licensing requirements, allow people who move across state lines to retain their ability to practice, and reclassify many occupations to require a certification or no regulation. The report says, “If federal, state, and local governments were to undertake these proposals, evidence suggests that employment in these regulated occupations would grow, consumer access to goods and services would expand, and prices would fall.”

On Jan. 30, a report from the Pew Charitable Trusts took a look at licensing laws across the nation. The article shows how special interest groups lobby to gain or maintain licensing laws in order to block out competition and raise prices.

“Brookings and Pew recognize that occupational licensing offers no [overall] benefits,” said Lee McGrath of the Institute for Justice, which authored its own study “License to Work” in 2012. “It adds no incremental value over the market at weeding out incompetence and fraud. Employers and consumers are better at demanding relevant training and skills than state legislators and captured licensing boards.”

Michigan should continue its good work of removing licensure rules, which do nothing for public health and safety and largely harm moderate-income workers from finding employment.

Vernuccio Op-Ed in Washington Times

How Big Labor can solve its membership crisis

Labor Policy Director F. Vincent Vernuccio writes in The Washington Times about the recent announcement by the Bureau of Labor Statistics that union membership is on the decline, including a 7.6 percent drop in Michigan from 2013 to 2014.

Vernuccio draws on his recent study, “Unionization for the 21st Century: Solutions for the Ailing Labor Movement,” to suggest how unions can stem the tide.

Time to Uncork Beer and Wine Reforms?

Office of Regulatory Reinvention seeks input

The Office of Regulatory Reinvention granted permission to the Michigan Liquor Control Commission to open a review of alcohol control rules. The Mackinac Center for Public Policy weighed in on two (beer and wine) of them today.

The Mackinac Center has long had an interest in the state’s beer and wine rules because they, among other things, raise the cost of beer and wine in the state while enriching a handful of crony capitalists. One study indicates that these rules may raise the cost of beer and wine by 6.4 percent to 30 percent, depending on the price.

The rules mandate that beer and wine wholesalers post their prices with the Michigan Liquor Control Commission and then hold them for some length of time, depending on the product. This has the practical impact of state endorsed, legal price collusion. It allows manufacturers and wholesalers to know what their competition is charging and it limits the amount of product-specific price changes.

Both mandates suffocate competition and raise prices. We’re not the first to notice. Former Gov. William Milliken asked that these rules be eliminated in 1979. Last June the Center made its first request to have rules R.436.1625 (1-4) and R.436.1726 (1-2) partially repealed. Our request was rejected for three reasons. One of those was that the MLCC would be taking up a comprehensive review of its rules later and that would be a good time to consider the rules’ efficacy.

The ORR page is inviting recommendations now and their site for doing so reads in part:

Michigan's citizens deserve a regulatory system that fosters business growth and job creation. The Office of Regulatory Reinvention (ORR) is dedicated to working with all citizens to identify obsolete, burdensome and unnecessary regulations that are limiting economic growth.

We need your help. We would appreciate hearing your thoughts regarding which existing regulations could be changed or eliminated in order to make Michigan's regulatory system more simple, fair, efficient and transparent.

I submitted a one sentence recommendation for repeal along with a link to our previous request.

These are archaic rules that reward more than 60 beer and wine wholesale businesses in Michigan at considerable expense to consumers. They should be repealed and the sooner the better.

Difference Between Bridge and Center Report Cards

Both are superior to state's Top-to-Bottom rankings

Bridge Magazine has just announced that it will be releasing its report card grades for Michigan schools next week. Bridge's report card ranks schools in a way that is nearly identical to how the Mackinac Center ranks schools on its annual school report cards. Both report cards take into consideration a school’s poverty level when comparing their performance to other state schools. This should not be surprising, since Bridge credits the Mackinac Center for its methodology.

Despite a very similar approach, curious readers will notice that some schools received markedly different rankings in the two report cards. For example, Ashley Community Schools, a district Bridge labels an “academic champ,” received an F for its high school and C’s for its middle and elementary schools on Mackinac Center report cards.

In the development of our 2013 report card, we noticed that there was no correlation between the percentage of students eligible for reduced-price lunch and a school's test scores. Bridge Magazine uses the percentage of students eligible for both free and reduced-price lunch to control for poverty; however, since 2013, the Mackinac Center has only used the percentage of students eligible for free lunch. We believe this provides a more accurate control for student poverty.

This small difference in methodology likely explains the large difference in grades for Ashley Community Schools. Many Ashley students are eligible for reduced-price lunch. The Mackinac Center does not count those students in its poverty tally — but Bridge does. For example, close to 25 percent of students at Ashley High School were eligible for free lunch in the 2012-13 school year, and another 70 percent were eligible for reduced-price lunch.

For 2012-13, the Mackinac Center report card adjusted for 25 percent of Ashely High School students coming from poverty. In comparison, Bridge would likely have adjusted for 95 percent coming from poverty. Those adjustments can make a big difference in a school's grade.

In 2012-13, for example, Ashley High School students posted an average composite ACT score of 18.5, below the statewide average of 19.7. Approximately 25 percent of Ashley High School students were eligible for free lunch that year, a lower disadvantaged population than the statewide average of 43 percent. As a result, Ashley High School received a low report card grade from the Mackinac Center for 2012-13.

In comparison, Star International Academy, the Mackinac Center's top-ranked high school, posted an average composite ACT score of 19.9 that year, a score slightly above the state average. Close to 82 percent of Star International students are eligible for free lunch, almost twice as many as the statewide average. As a result, Star International received one of the highest report card grades from the Mackinac Center for 2012-13. However, Star International's free and reduced-price lunch percentage is 87 percent — lower than Ashley High School. 

This difference likely explains why Bridge gave Ashley Community Schools a higher grade than Star International Academy.

Despite the differences in report cards, both Bridge's and the Mackinac Center's work highlight one important thing: The state needs to change the way it ranks schools. Michigan's "Top-to-Bottom" school ranking does not adjust for student background. Indeed, the Mackinac Center has shown that the TTB list is largely a proxy for student poverty.

The fact that two independent organizations are now generating annual school report cards, both of which, despite their differences, provide parents with a better understanding of real school performance, shows that there is a great deal of interest in improving the way the state assesses its public schools.

Center Study Featured in WZZM Report

Overcriminalization a growing concern nationwide

WZZM-TV13 in Grand Rapids recently featured a Mackinac Center study on the “overcriminalization” of Michigan and the number of new laws passed each year. Michigan has a far larger penal code than surrounding states.

“Most lawmakers come into office not thinking about the laws they want to delete, but they think about the laws they want to create,” Executive Vice President Michael Reitz, who co-authored the study with the Manhattan Institute, told WZZM.

Also featured in the report was the plight of Alan Taylor, a business owner who spent $500,000 in legal fees over five years after he was accused of violating the state’s wetland law when he expanded the parking lot for his growing company. He ended up being convicted of two misdemeanors and had to pay an $8,500 fine.

The Mackinac Center, in conjunction with the Manhattan Institute and the ACLU of Michigan, is hosting a panel discussion on the findings in the study at noon on Feb. 11 in Lansing.

Michigan Adds, Loses Thousands of Jobs

More proof corporate welfare doesn't work

Michigan has thousands of businesses that are constantly responding to people’s changing wants and needs. This means that the state economy is gaining and losing jobs simultaneously. But it also means that the state’s economic development strategies are unfit to meet their stated goals of improving Michigan’s job picture.

According to the Bureau of Labor Statistics, the state added 226,224 private-sector jobs in the second quarter of 2014 and lost 192,512 private-sector jobs. Both job creation and job loss figures increased from the previous quarter.

Over the same period, the Michigan Economic Development Corp. issued press releases stating that it had offered $16 million in incentives to companies to create 3,053 jobs. These numbers ought to be taken with a grain of salt since the state’s older programs have a poor record at turning announced jobs into actual jobs. And this does not account for the economic costs of the programs.

Even if all the jobs announced were created in the quarter that they were announced, the state incentives cover 1.3 percent of the number of jobs created. The magnitude of the continuous addition and loss of jobs show that the state’s efforts to generate economic growth through select incentives will not work.

A better option would be to eliminate the state’s $300 million a year select incentive programs. The state has other budget priorities and taxpayers could use some relief.