Rising costs and limited options
While many are familiar with the federal Affordable Care Act’s impact on small businesses, the law is also imposing hardships on public school districts. None more so than rural school districts, where low population densities and fewer insurance providers limit options for complying with the law’s employer health insurance mandate.
Faced with crippling costs, rural schools are forced to consider ways to avoid the health insurance mandate. These options include privatization, payment of the ACA employer mandate penalties, and reduction of staff size and hours.
Privatization is a hard option
Privatizing non-core services is an increasingly popular way for school districts to reduce costs. It is also a way to reduce the impact of the health care law’s employer mandate. Unfortunately for rural districts, their remoteness and lower student counts make it more difficult to take advantage of this alternative. Baraga School District Superintendent Jennifer Lynn stated in an interview that privatization was not really an option given the limited number of potential service providers in the area.
In contrast, larger urban districts have more cost-saving opportunities. Deborah Abel, president of the Pennsylvania-based Abel Personnel Inc., stated in a private interview with the Mackinac Center that, while health care is expensive, “group rates are more competitive” for districts financially capable to afford such staffing companies.
Reduction in staff hours
Forced to find other options, the Baraga district concluded that its best bet was to cut the work hours of more staff to fewer than thirty per week. As it stands, the ACA requires an employer to provide insurance for its employees, providing that the employer has at least 50 full-time employees.
This is not an uncommon move for districts needing to avoid the extra costs coming from this new health care mandate. Yet this places a strain on the rest of the staff.
Leaders in other Michigan districts, such as the Elkton-Pigeon-Bay Port Laker or Cass City, agreed that the mandate poses a risk to the quality of services they can provide. However, they were quick to note that they believe they have mitigated much of the harm resulting from larger classroom sizes or decreases in student support services
Accepting the risks of self-insuring
Mike Jones, director of finance at the Topeka, Kansas school districts observed in a report by a local nonprofit that having smaller staffs places rural districts at a disadvantage when it comes to insurance costs.
So despite the added risks, some school districts have chosen to self-insure. Baraga chose this alternative because of a lack of health insurance providers in the area. This option can be more cost-effective than paying premiums to an insurance company, but the costs are less predictable and the district bears a larger portion of the risks that come with unforeseen medical expenses.
Rural districts have also explored saving costs through co-ops and intergovernmental partnerships, but for a number of rural districts in Kansas this did not really solve the challenge posed by the ACA’s costly employer mandate. In Michigan, more than 250 school districts also share support services through intermediate school districts according to a 2011 Mackinac Center study, but for reasons that have little or nothing to do with the federal health care law.
Due to a combination of low enrollment and remote locations, rural school districts may be bearing the brunt in the public sector of the ACA’s employer mandate. These districts have limited options for coping, and in many cases, compliance means they must stop providing other benefits for both students and staff.
Why college costs are exploding
A news article in The Wall Street Journal notes that a view long held by most economists is increasingly being accepted by other scholars and policymakers across the board. Increasing federal aid for higher education, intended to make college more affordable, is driving up prices and making it more unaffordable.
The federal government has boosted aid to families in recent decades to make college more affordable. A new study from the New York Federal Reserve faults these policies for enabling college institutions to aggressively raise tuitions.
The implication is the federal government is fueling a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what some economists contend happened with the housing bubble.
The new Federal Reserve study found that every $1 in federal grants and loans increased tuition by between 55 and 65 cents.
Michigan spends over $1.5 billion for its 15 public universities – most of it appropriated straight from the general fund. Like federal aid, this spending likely leads to tuition hikes, which provide little return for the average Michigan resident. State policymakers should heed a simple economic lesson: Government subsidies increase costs.
Grand Rapids election could be referendum on financial health
Summer elections are somewhat of an afterthought for voters but there is one in Grand Rapids today that is bound to get some attention — the race for mayor.
Mayors in the city are part-time and nonpartisan, so elections tend to be noncombative. But in this runoff, more may be at stake than usual. For the first time, the mayor and commissioners are restricted by term limits and it is the first mayoral election after an extension of the city’s income tax increase, which could make this election a referendum on the city’s fiscal health.
Had term limits not been enacted last November, Mayor George Heartwell could have been elected to a fourth four-year term, something achieved by none of his predecessors. Commissioner Rosalynn Bliss would not have been able to run in 2017 for a third term but she is allowed to run for mayor, and she is.
Given the fact that voters approved a citizen-initiative to enact term limits, it would seem any current officeholder would downplay time spent on the city commission. That’s not how Bliss has chosen to run. She has been touting the city’s “solid financial ground,” claiming that under her “financial stewardship,” the city has seen seven years of declining debt.
In a campaign flier, she shows a line graph using data from the city’s online dashboard, using information submitted by the city.
The current city comptroller as well as a former one say that to get a better picture of financial health, voters must look at the city’s comprehensive annual financial report, which shows an unpaid pension liability of over $133 million, an amount that taxpayers are legally obligated to pay under the state’s constitution. To its credit, the city closed its pension program to most new workers last year, though it kept pensions open for public safety employees. This year, the city expects to have its pension program for police and fire workers fully funded. Grand Rapids should be lauded for those efforts. For perspective, Detroit went through bankruptcy and still has not closed its pension program.
More troublesome, though, is the city’s decision to pay retiree health benefits. These are not constitutionally required or protected, and they put enormous pressure on spending priorities. That's because the money for them comes from the general fund — not from money previously set aside and invested to pay for these promises. That liability amounts to over $135 million. Paying retiree health benefits entitles city employees, who can retire while in their fifties, to health insurance until they are eligible for Medicare. Few private sector workers enjoy such an arrangement.
In the last several years, the city has gone back to the taxpayers to ask for more money for various needs. In May 2014, with potholes in evidence everywhere, the city claimed it had no money to repair streets. It asked voters for and got a 15-year extension of an income-tax increase from 1.3 to 1.5 percent for residents, bringing Grand Rapids up to the maximum amount allowed under state law. The original increase was for five years. Nonresidents who work in the city must also pay a higher tax as a result of the increase and its extension, but as nonresidents, are not allowed a vote.
In 2013, the city asked property owners for more money to repair parks.
Each of these increases were billed as temporary. But as taxpayers know too well, few taxes or tax increases are temporary. When millages or income tax increases expire, politicians have a way of repackaging spending requests, asking for renewals for this or that, with the benefit of arguing that approving an extension will not increase taxes.
Today, voters will get make choices that help answer questions such as whether "temporary" tax increases will be a frequently used tool of management and how city officials will deal with problems such as pension and retiree liabilities that have little impact in moving the city forward.
Studies show a lack of positive economic impact
Neal Rubin laments the elimination of Michigan’s film incentive at The Detroit News. But he paints a false picture of the scholarship on this subsidy.
The incentives work — 37 other states currently have them — but at a cost. What cost, and what value, depends on who’s crunching the numbers.
There are plenty of policies where economists can find different effects, but the studies of film incentives are clear. As Dr. Michael Thom, a professor at the University of Southern California, recently wrote:
Think tanks from across the political spectrum — including the liberal Center on Budget and Policy Priorities, conservative American Enterprise Institute, libertarian Reason Foundation, and nonpartisan Tax Foundation — have argued that [film incentives] don’t succeed at creating jobs or growing the economy.
Scholars tend to agree. Multiple peer-reviewed studies suggest that tax incentives targeted at specific industries do not generate long-term growth. They do little more than lure states into a competitive bidding war, where each state tries to outdo the others by spending more and more on tax incentives.
Michigan policymakers closed down a program that cost taxpayers millions. They should look to the state's other so-called economic development programs.
Public money funds union activities in many states
Many public unions have negotiated release time into their contracts, allowing publicly employed union officials to receive a salary to spend all or part of their time on union business. A bill that would prevent taxpayers from funding release time was recently introduced in the Michigan Senate.
Release time is not unique to Michigan — it takes place in other states, as well as at the national level, as Fox News recently reported. Mackinac Center Director of Labor Policy F. Vincent Vernuccio commented for their story:
Release time costs local, state and federal governments hundreds of millions of dollars. Figures for states, counties and municipalities are not known, but at the federal level, release time costs taxpayers an estimated $122 million annually, according to the Michigan-based Mackinac Center for Public Policy. While no one disputes there is union business to be conducted, and release time is part of collective bargaining agreements, critics say the practice allows for waste and should be funded by union dues, not taxpayers.…
“It’s extremely troubling to see, when you have examples like union officials say there is not enough money going to public works yet they have teachers collect salaries from districts they don't even work for," Vernuccio said. "This does not help the taxpayer at all.”
The full article is available at the Fox News website.
Examining the future of road funding and income tax cuts
Since the colossal failure of Proposal 1, the state House and state Senate have each released road funding proposals of their own. We now have a debate bounded by two high profile proposals, each with components worthy of applause.
We have written much about both plans but feel compelled to linger over one component in the Senate plan: the income tax cuts.
The Senate plan basically allows for a rollback in personal income taxes every year state revenues exceed inflation. Theoretically at least that means that what we pay in income taxes could drop to zero or near zero over time. This is a commendable goal. (If you’re wondering where the state would get money for its operations, don’t worry; there would still be sales, excise taxes and other sources of revenue.)
The qualification we must offer is that past legislatures also have made promises of future tax cuts, only to prevent them from occurring. One need look back no further than 2007 for an example.
That year, the Granholm administration and the Legislature conspired to raise the personal income tax by 11.5 percent. That increase came with the promise that — in 2011, when the state was expected to be on firmer fiscal footing — Lansing would begin rolling back the tax hike. The rollback never really came to pass. Then the Snyder administration, after cutting the personal income tax by a grudging 0.1 percentage point, prevented more of those promised cuts from occurring.
There are all sorts of ways Lansing politicians could undermine the promise of future income tax cuts. Take for instance the point made by David Zin of the Senate Fiscal Agency. He argued — and was cited by the Gongwer News Service — that any money lawmakers transfer to the state’s rainy day fund from the General Fund wouldn’t count in the calculation of how much the General Fund had grown. Legislators who wished to forestall an income tax cut could simply transfer the cash to the rainy day fund.
There are better and simpler ideas. Why not simply mandate a rollback in the personal income tax rate immediately instead of installing a complex tax-cut formula that may never actually produce a tax cut?
Or the Legislature could link the gas tax increase in the road plan to the proposed personal income tax cuts. That is, if a personal income tax cut does not occur then any road tax increase is reversed. Linking the two might help assure voters that Lansing lawmakers are serious about tax relief and road repair.
Another idea — though more challenging and time consuming — is to enshrine personal income tax cuts in the state constitution, along with the necessary prohibitions on raiding dollars that flow to the treasury faster than, say, a combination of population growth and the inflation rate.
I congratulate each chamber of the Legislature for developing boundary lines in the debate over road finance. Their plans reveal some very good intentions, but more can be done to win back the trust of taxpayers who ultimately foot the road bill.
If this Legislature could prove to taxpayers that its proposed tax cuts are real, maybe Michigan voters will accept its road funding ideas as passionately as they rejected the tax hike offered by Proposal 1.
A millennial reflects on the Legacy Society
I am a child of the liberty movement, blessed with the good fortune to have been born into a close-knit extended family of devout, hard-working and patriotic people, many of whom served as leaders in their communities and heroes our armed forces. My parents and grandparents left my sister, my cousins and me an example of self-reliance, generosity, and financial prudence.
Today, my work at the Mackinac Center acquaints me with many people who remind me of my family. The Center’s friends work conscientiously, prioritize family dinners, vote and pay taxes and keep a budget and plan ahead. They are abreast of current events and are not happy with certain political and cultural trends, but have faith that by imparting good values to their children, the freedoms they have enjoyed will still be available to future generations.
A good number of these friends have taken additional steps to assure themselves of more than just a hope for the future. They have formulated a plan that gives them certainty that there will always be a champion for liberty, even when they have passed on. They do not need to worry whether their children will have time to try to impact the political process. They do not need to worry whether their grandchildren will have resources to counter the liberal bias at their universities. They do not need to worry whether their voice has been loud enough during their lifetime. They have made a bequest for liberty in their will, and have amplified the impact of that bequest by entrusting it to the Mackinac Center for Public Policy.
It is inspiring to meet and talk with these friends, whom we call our Legacy Society. These freedom fighters are dedicated to helping us achieve a freer and more prosperous Michigan for everyone, and are so proud of the many accomplishments that this partnership has made possible, and will make possible. They have taken some of what they have been able to achieve in their lifetime and set it on a path to perpetuate their values into the future with the full force of one of the most powerful state-based think tanks in the country behind it. My gratitude for and admiration of this commitment are surpassed only by the visible sense of fulfillment of the Legacy Society members themselves. They are a truly commendable group.
I never realized how good I had it growing up; I supposed that everyone thought and lived the way we did. Now, as an adult actively engaged in the battle of ideas, I am determined to preserve the best of the past as we find our way into the uncertain future. Government deadlocks and political scandals will come and go, but the commitments of our Legacy Society members ensure that the Mackinac Center will always be ready to defend freedom in my generation and for many to come.
To discuss a bequest to the Mackinac Center, please contact us at (989) 631-0900.
Employer mandate forces schools to privatize services and cut hours
The Affordable Care Act, aka Obamacare, has forced many public schools to cut employee hours or privatize noncore services. At issue is the ACA’s mandate that employers with 50 or more full-time workers provide health insurance to any who work 30 or more hours per week.
The Baraga Area Schools in the western Upper Peninsula is among the many districts in Michigan that are feeling the effects of the law. Superintendent Jennifer Lynn says her district had employed more full-time support staff, but has been forced to cut hours due to the prohibitive cost of the ACA mandate.
Baraga is no outlier. A 2014 survey commissioned by the Association of School Business Officials International found that nearly 50 percent of school districts were concerned about the impact of the ACA’s employer mandate.
An example of the costs involved can be seen in the Parsippany school district in New Jersey, which estimated that providing health insurance for 185 paraprofessionals would cost $4.5 million per year. The school district in Vigo County, Indiana would have to pay $6 million annually to provide coverage for support staff.
These rising costs can have ripple effects. At Michigan’s rural Elkton-Pigeon-Bay Port Laker school district, officials report the health insurance mandate generated cost increases approaching six figures, which forced them to lay off certain staff members. Consequently, classroom sizes rose.
School districts can also avoid the mandate’s costs by shifting more employees to part-time status. That’s how Indiana’s Vigo district managed the problem. It avoided layoffs by trimming more than 500 support staff workers to less than 30 hours per week. Michigan’s Cass City school district hired part-time paraprofessionals and bus drivers.
That’s less of an option with instructional staff, though. School officials say that it’s hard for students to adjust to having multiple part-time educators throughout the day. Chris Johnson, an administrator with the Penn Manor school district in Pennsylvania, told a publication there that, “If you start doing a half day with this person and then a half day with that person, those students don't react well.”
In schools across the country, outsourcing noninstructional services has been on the rise over the last decade. This cost-cutting tool has become even more attractive since the rollout of the ACA mandate, because it lets school officials shift the burdens of compliance to private contractors.
To minimize teacher layoffs, Michigan’s Elkton-Pigeon-Bay Port Laker district privatized some services. Pennsylvania’s Penn Manor district had about 30 part-time aides who worked with special needs students. Rather than cut those aides’ hours further, school officials have chosen to contract out this function to a private firm that will also fill its need for substitute teachers.
An article posted on the Kansas Health Institute news service suggests that for some districts it would be cheaper to just eliminate employee health insurance and pay the $2,000 to $3,000 per employee penalty the law would impose for doing so. Officials at Michigan’s Cass City district say this is not their preference, and privatizing some functions helps them avoid it. Other school districts have formed co-ops with neighboring districts to spread the brunt of the cost, according to Holly Murphy of the Texas Association of School Boards.
There is no one-size-fits-all solution for school districts trying to cope with the ACA, which like many government programs has had consequences not foreseen by its authors, and costs that, in the eyes of many, far exceed the benefits.
Responding to allegations made earlier this week
In a letter to the editor titled "Think tank's efforts to discredit union fails" published earlier this week by The Detroit News, MEA President Steve Cook attacked the Mackinac Center's position as an advocate for worker freedom and educational choice in Michigan.
Mackinac Center Executive Vice President Michael Reitz published a rebuttal in The Detroit News on July 31, reminding readers of Cook's pension spiking deal (a story broken earlier this year by Michigan Capitol Confidential) and explaining reasons why teachers might wish to leave the MEA:
…Steve Cook writes that “public school employees have not been treated well by … special interest groups in recent years.”
Thousands of Michigan teachers agree, but the group they feel mistreated by is Cook’s own union. The MEA is ruining the personal credit scores of the very employees he represents by sending them to collection agencies for exercising their right to opt out of their union. For some who exercised their rights, MEA affiliates published their names in an attempt to publicly shame them and pressure them into paying again.
The full letter to the editor is available at The Detroit News.
Bills on school “adequacy,” secret corporate welfare, police shootings and more
The House and Senate are out for several weeks. Therefore, this report contains several recently introduced bills of interest.
Senate Bill 291: Authorize wrongful imprisonment compensation
Introduced by Sen. Steve Bieda (D), to authorize payment by the state of civil damages to a person wrongfully imprisoned for a crime he or she did not commit. The damages would be $60,000 for each year of wrongful imprisonment, plus “economic damages” including lost wages, plus reasonable attorney fees. Versions of this bill have been introduced in every legislature since at least 2005. Referred to committee, no further action at this time.
Senate Bill 292: Disclose unfunded liabilities in state budget
Introduced by Sen. John Proos (R), to require the constitutionally required executive budget the governor must submit each year to include an accounting by department of the unfunded liabilities incurred to pay future pension and post-retirement health benefits promised to retired employees (legacy costs). Referred to committee, no further action at this time.
Senate Bill 308: Authorize black "Greek letter organizations” specialty plate
Introduced by Sen. Coleman Young, II (D), to authorize a specialty license plate honoring several African American fraternities and sororities specified in the bill, with the premium revenue going to the United Negro College Fund. Referred to committee, no further action at this time.
Senate Bill 311: Ban new charter schools without “certificate of need”
Introduced by Sen. Hoon-Yung Hopgood (D), to prohibit any new charter schools from opening unless the state Board of Education grants a “certificate of need” as defined in the bill. Among other things this would require consideration of a new charter’s “impact on existing public schools” nearby, and impose more rigorous performance and oversight regulations on charter schools and their authorizers (usually state universities). Referred to committee, no further action at this time.
Senate Bill 319: Repeal school “adequacy study” mandate
Introduced by Sen. Mike Shirkey (R), to repeal a law passed as part of the “log-rolling” to get Democratic votes on the since-defeated Proposal 1 tax increase initiative, that requires the state to pay a contractor to study and report on how much money per student is needed to teach public school students sufficiently well to meet state graduation requirements. Referred to committee, no further action at this time.
House Bill 4419: Repeal mandatory minimum sentence for firearms felonies
Introduced by Rep. Kurt Heise (R), to repeal a law that mandates a minimum sentence of two years in prison for a felony firearms conviction, with no chance for parole or probation. Reported from committee, pending on the House floor.
House Bill 4422: Authorize Woodward streetcar property owner subsidies
Introduced by Rep. Andy Schor (D), to authorize “business improvement zone district” subsidies financed by a tax increment financing scheme for property owners near a proposed Woodward Avenue streetcar line in Detroit. This would “capture” from local governments the extra local property tax revenue that (supposedly) results from property value increases generated by the scheme’s selective subsidies and other spending, and use the money to repay the debt incurred by spending. Referred to committee, no further action at this time.
House Bill 4428: Require biannual recertification for government employee unions
Introduced by Rep. Gary Glenn (R), to require government employee unions to be recertified by a majority of the employees in a workplace bargaining unit at least once every two years, as determined by a vote with a secret ballot. Referred to committee, no further action at this time.
House Bill 4429: Exempt schools from "prevailing wage" mandate
Introduced by Rep. Gary Glenn (R), to exempt school construction projects from the state “prevailing wage” law, which prohibits awarding contracts to contractors who submit the lowest bid unless the contractor pays "prevailing wages," which are based on union pay scale reports in a particular geographic region. Referred to committee, no further action at this time.
House Bill 4435: Mandate restaurant allergy notices
Introduced by Rep. Peter Lucido (R), to require restaurants to post a notice that is visible to the public and says, "Before placing your order, please inform your server if a person in your party has a food allergy”. Referred to committee, no further action at this time.
House Bill 4466: Require detailed police shooting and use-of-force reports
Introduced by Rep. Stephanie Chang (D), to revise the monthly crime reports local police agencies are required to submit to the state police so that they include the number and type of use of force complaints made against officers; the number of shooting incidents involving officers; the disposition of use of force and shooting incident investigations; the racial, ethnic, and gender demographic data of individuals who made use of force complaints and individuals involved in police shooting incidents. Referred to committee, no further action at this time.
House Bill 4475: Require disclosure of corporate “economic development” subsidy recipients
Introduced by Rep. Bill LaVoy (D), to require the Department of Treasury to disclose the names of particular businesses and developers granted subsidies and tax breaks under the Michigan Economic Growth Authority law repealed in 2011, and how much they’re getting.
The bill was introduced after it was revealed that these deals have generated $9 billion in unfunded taxpayer liabilities, payable over the next 20 years. Under current law, the identity of these corporate subsidy recipients is kept secret. 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 visithttp://www.MichiganVotes.org.