The MC: The Mackinac Center Blog

A Better Way to Protect Detroit Pensioners

Make it a 'contract city'

Recent press accounts describe the potential for steeper pension cuts for Detroit retirees if they reject a bankruptcy proposal made in February, and instead accept a new plan that, among other things, would insulate works in the city's art museum from potentially being sold off to satisfy both pensioners and creditors. The amended plan would also require a partial state bailout of the city.

LaFaive

Pensioners and residents would do better if Detroit took a more aggressive approach to selling assets, contracting out some services and eliminating others that are "nice to haves" rather than "need to haves."

The best outcome for retirees would probably come if Detroit dramatically downsizes city government, in effect converting itself into a "contract city" along the lines of Sandy Springs, Georgia, or Pontiac.

The Mackinac Center for Public Policy has argued it is unfair to use state dollars to once again bail out the Motor City rather than address other critical statewide needs. Moreover, the state's bailout-for-art deal doesn't actually solve Detroit's financial or infrastructure problems. And by inflicting greater losses on lenders, it may also risk increasing borrowing costs for other communities in the state.

Gov. Rick Snyder and the leaders of some large foundations want the state to commit $350 million to Detroit over 20 years. That would be enough to annually fill more than 875,000 potholes around the state for the next two decades.

That's one measure of the price a state bailout would inflict on residents in other communities who were not responsible for the well-known fiscal and managerial malpractice committed for decades by politicians Detroit voters chose.

Michigan taxpayers have already been forced for years to help fund Detroit's mismanagement through generous financial favors.

For example, a 2013 Citizens Research Council report showed that in 2010 alone Detroit received $335 per person in state support, compared to the second most generously supported city that year, Pontiac, which got $176 per person. Mackinac Center researchers James Hohman and Jarret Skorup have detailed many other ways in which Lansing politicians have previously bailed out Detroit.

The Mackinac Center has warned that a pension reckoning was inevitable without reform. It has offered many constructive proposals for this, such as a special issue of the Mackinac Center's Michigan Privatization Report back in 2000 that focused on Detroit. 

There was simply no excuse for dismissing the warning signs years ago, when the city may have been able to prevent the cuts in their long-term obligations that are being discussed now.

This should not be rewarded with yet another special deal. Indeed, doing so creates the likelihood that other municipalities will also demand bailouts.

Pensioners and creditors both stand the best chance of being kept whole by the city fundamentally rethinking how it delivers services to residents, dramatically downsizing its bureaucracy, selling off more assets, aggressively contracting out many services and ending certain others altogether. 

These steps also increase Detroit's potential to become a vibrant regional center that attracts residents and employers rather than driving them away.

March 28, 2014, MichiganVotes Weekly Vote Report

Votes on soccer, roadkill, nuke plants

Senate Bill 862, Allow alcohol at Michigan Stadium international soccer game: Passed 37 to 0 in the Senate

To allow the sale of alcohol at the University of Michigan football stadium in Ann Arbor during a potential soccer game in August 2014 between the Manchester United and Real Madrid international soccer teams.

Who Voted “Yes” and Who Voted “No”


Senate Bill 786
, Give tax breaks to aquaculture and hydroponics: Passed 36 to 1 in the Senate

To exempt aquaculture and hydroponics production facilities from property taxes. Senate Bill 787 would instead impose a new “specific” tax equal to 25 percent of the regular property tax.

Who Voted “Yes” and Who Voted “No”


House Bill 4288
, Restrict use of “indirect” tax audits: Passed 37 to 0 in the Senate

To prohibit the Department of Treasury from levying a delinquent sales tax assessment on a person or business based on an “indirect audit,” if a taxpayer has filed all the required returns and has maintained and preserved adequate records as required. The bill also establishes minimum standards for such “indirect audits.”

Who Voted “Yes” and Who Voted “No”


House Bill 5282
, Allow deadly force to defend nuclear plants: Passed 37 to 0 in the Senate

To explicitly allow an officer providing security at a nuclear generating plant to use deadly force if he or she “honestly and reasonably believes" it is necessary to prevent a person from breaking in with the intent to inflict harm, engage in radiological sabotage or steal nuclear material. This would include immunity from lawsuits.

Who Voted “Yes” and Who Voted “No”


Senate Bill 821
, Replace local revenue from reduced tax on business tools and equipment: Passed 107 to 2 in the House

To earmark enough state "use tax" revenue to local governments to fully replace (or nearly so) any revenue they lose due to related reductions in the "personal property tax" they impose on business tools and equipment. Under Senate Bills 829 and 830, some revenue the state gives up to the earmark would be replaced by imposing a new state "essential services" tax on some but not all of the businesses getting a personal property tax cut, with the political appointees on the board of the state economic development agency also empowered to grant exemptions to particular firms they select. The package still provides a net tax cut for businesses. For any of this to happen voters must approve related changes to the state use tax in an August, 2014 ballot initiative; the current proposal is intended to forestall local government opposition to that measure.

Who Voted “Yes” and Who Voted “No”


House Bill 4135
, Let foreclosing banks claim homestead tax exemption: Passed 85 to 23 in the House

To grant the 18-mill homestead property tax exemption for up to three years to a bank or other financial institution that has foreclosed and taken possession of a home because the borrower failed to make payments on the mortgage loan, as long as the property is for sale and not leased out.

Who Voted “Yes” and Who Voted “No”


Senate Bill 613
, Permit keeping road kill: Passed 37 to 0 in the Senate

To allow a driver who kills or injures a game animal other than bird on the road to keep it, and give the driver first priority if more than one person wants it. The Department of Natural Resources would be required to issue a “salvage tag” if requested, which would be required to get the carcass stuffed or tanned by a taxidermist. The driver would have to keep a record of the circumstances until the game is consumed or discarded.

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.

Michigan Education Association Misleading Voters

'Kids Not CEOs' website rife with misinformation

The Michigan Education Association has unveiled a new website that uses misleading information to try to make the case for more education funding.

Education spending is becoming an increasingly central issue to this year's gubernatorial campaign, and as a result, misinformation is rampant.

Under the catchphrase, "Kids Not CEOs," the MEA alleges that millions have been cut from public school budgets. But this allegation is not based on fact. The MEA's website ignores billions of dollars provided by state taxpayers to support public schools.

Unfortunately, the MEA is manipulating the misperception that the state foundation allowance is the total amount of money districts receive from state and local sources for educating a child.

The "Kids Not CEOs" website only considers foundation allowance money. In reality, state taxpayers provide more than $2 billion per year in additional funding. This money pays for special education costs, support for at-risk students and teacher retirement costs, among other things.

The MEA's latest effort to peddle this misinformation is not a new tactic. Michigan Capitol Confidential, the Detroit Free Press and other media outlets spent a good amount of time earlier this year fact-checking attempts by Democratic gubernatorial candidate Mark Schauer, the MEA, and some school officials claiming that school funding cuts had occurred — when they had, in fact, not.

Paul Egan, from the Detroit Free Press, called attempts like the MEA's to characterize education funding "a false accusation."

MLive reviewed both Schauer's and Gov. Rick Snyder's claims and concluded that: "Bottom line: State school aid funding is up since Snyder took office..."

"There has been an increase in the last few years, that's true...," David Arsen, a Michigan State University professor, who often is cited by the MEA, told the Michigan State Board of Education. "I've seen a commercial ... [The commercial claims] 'the governor cut a billion dollars from school funding.' Well, that's not quite right."

And yet, some continue to push the incorrect — and frequently corrected — narrative that school spending has declined.

The latest misinformation gaffe comes from MEA President Steve Cook, who recently took to the pages of The Detroit News to advertise the "Kids Not CEOs" website, saying that the Wayne-Westland school district lost $40 million in state funding in recent years.

But the people actually running the Wayne-Westland school district begged to differ. In fact, Wayne-Westland officials said that if state payments for teacher retirement costs are included, state funding for the district has increased.

The MEA is running a cynical campaign for increased education spending. Rather than argue that increased spending will result in better outcomes for Michigan children — an argument the organization likely knows it will lose on merits — the MEA is pushing misinformation.

The Michigan Senate Fiscal Agency, the Detroit Free Press, MLive, and the very school district the MEA president attempted to use as a cornerstone of his commentary, all agree: Total state funding for schools has increased.

The MEA should respect the intelligence of Michigan voters enough to shift to a fact-based campaign.

MEA President's Math in Detroit News Questioned

District says Cook's claim "cannot be substantiated"

MEA President Steve Cook in The Detroit News Wednesday repeated the myth that school funding is down $1 billion since 2011. He used the Wayne-Westland schools in suburban Detroit as an example, claiming the district’s funding is down about $40 million since 2011.

When contacted by Michigan Capitol Confidential, a spokesperson for the district said Cook’s claims “cannot be substantiated,” and in fact funding for Wayne-Westland is up $12 million since 2011.

This is not the first time Cook has made inaccurate statements in his monthly “Labor Voices” column in The News.

In December, several instances of plagiarism were found in AFL-CIO President Karla Swift’s “Labor Voices” column.

Medicaid Expansion Studies Weren't Trustworthy

Analysis reveals multiple flaws

It may be water over the dam, but one report on the potential impact to employers if Michigan did not adopt the Obamacare Medicaid expansion has been exposed as being essentially bunk due to flagrant misuse or misrepresentation of the data it cited.

This is worth noting because the claims from Jackson Hewitt were widely cited by Republican lawmakers here who supported the expansion, and probably tilted others into that camp. Its conclusion was that "employers may pay substantially higher federal tax penalties under the ACA (Affordable Care Act) in states that do not expand Medicaid." Jackson Hewitt estimated Michigan employers would pay between $42 million and $63 million in penalties without the expansion.

Not so fast.

The Foundation for Government Accountability's Jonathan Ingram took a closer look at the Jackson Hewitt report and has just released a paper describing its shocking shortcomings. Here's the gist, as distilled by a useful daily digest produced by the National Center for Policy Analysis:

  • The reports do not estimate the number of full-time employees between 100 percent and 138 percent of the FPL (federal poverty line) correctly. Rather than look at state population data, the authors make an assumption about states' low-income population distribution, leading to wildly divergent numbers. For example, the studies estimate that more than twice as many people are in the 100 percent to 138 percent FPL group in Utah than there are in reality. These miscalculations lead to incorrect calculations of employer costs.
  • The studies include individuals who are already eligible for Medicaid without the state expansion (and who therefore could not trigger employer penalties) in their calculations.
  • Seasonal workers and part-year workers do not trigger penalties either. The Jackson Hewitt calculations, however, include these workers, who constitute one-third of full-time employees within the 100 percent to 138 percent FPL group. Again, this overestimates the potential employer cost.
  • Only 14 percent of full-time employees at large employers are not offered affordable health insurance, yet Jackson Hewitt assumes that 93 percent of employees are not offered affordable health insurance, triggering penalties.
  • The reports assume that employers will subject themselves to these penalties, rather than find ways to work around them. This is unlikely. Employers will restructure their workforce and reduce their workers to part-time work to avoid penalties.
  • The Jackson Hewitt study assumes that the employer mandate will be enforced as it was enacted in 2010, but given the frequency of delays, this is doubtful.

As all Americans have since learned, beware the promises (or warnings) of Obamacare supporters and apologists

Center Scholar's Commentary at MLive.com

New Red Wings arena should not get corporate welfare

Dr. Christopher Douglas, an associate professor of economics at the University of Michigan-Flint and a member of the Center’s Board of Scholars, writes at MLive today that the proposed new arena for the Detroit Red Wings should not receive any corporate welfare.

Center analysts have written on the same topic here and here.

Right-to-Work States See Larger Gains

Personal income and population growth numbers released

The 2013 state personal income data was released recently and it has some good news for Michigan.

The state had the 9th best performance among the states from 2012 to 2013. While it's unclear how much of a role the passage of the right-to-work law had in the performance, it is worth a look at the trends between states with a right-to-work law and those without one.

In both personal income and in population growth, right-to-work states clearly have an advantage. From 2012 to 2013, right-to-work states grew their personal incomes by 2.8 percent and their populations by 0.9 percent. Non-right-to-work states grew their personal incomes by 2.4 percent and their populations by 0.4 percent.

Personal Income Growth

Population Growth

When combined, per capita personal income between the two groups of states increased at roughly the same amounts. Michigan's above average per capita personal income growth can be attributed to average personal income growth and below average population growth.

Over the long term, right-to-work laws have been associated with inflation adjusted personal income growth, population increases and job growth.

Right-to-work may or may not be an influence, but Michigan's recent performance has shown improvements in all three measures.

Happy Birthday Norman Borlaug

Credited with saving 1 billion people

Norman Borlaug

I was 21-years-old before I first heard the name Norman Borlaug. It’s a shame it took until my third year of college to learn about one of the greatest humans who ever lived.

Borlaug, who died in 2009, was an Iowa-born scientist who spent his life teaching new farming techniques in third world countries. His movement was eventually called the "Green Revolution."

Borlaug was introduced to me during a discussion about another of my heroes — the late economist Julian Simon. Simon was the author of, "The Ultimate Resource," in which he argued ferociously against Malthusian concerns about overpopulation. One of Simon's main points was that human ingenuity was the greatest of resources, able to overcome problems seemingly caused by finite resources.

This debate still exists, but it was much more strident a few decades ago, culminating with the 1968 bestseller, "The Population Bomb," by Paul Ehrlich. In the book, Ehrlich infamously predicted a coming economic crash resulting from overpopulation:

The battle to feed all of humanity is over ... In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now.
He later said, 'I have yet to meet anyone familiar with the situation who thinks India will be self-sufficient in food by 1971,' and 'India couldn't possibly feed two hundred million more people by 1980.'

The book stated that it was "a fantasy" that India would "ever" feed itself.

(Interestingly, I was introduced to Ehrlich’s book as a freshman in high school. What a sad state of education when Ehrlich, who lost a famous bet with Simon, is mandatory reading at many schools while few people are aware of Borlaug.)

In the meantime, Borlaug was putting into place what Ehrlich claimed was impossible. His work began being used in India in the early 1960s and by the mid-1970s (a few years after Ehrlich’s claims) the country was feeding itself. As noted by Ronald Bailey, the science correspondent for Reason:

In Pakistan, wheat yields rose from 4.6 million tons in 1965 to 8.4 million in 1970. In India, they rose from 12.3 million tons to 20 million. And the yields continue to increase. Last year [1999], India harvested a record 73.5 million tons of wheat, up 11.5 percent from 1998. Since Ehrlich's dire predictions in 1968, India's population has more than doubled, its wheat production has more than tripled, and its economy has grown nine-fold.

Equally remarkable feats were happening in Mexico, where the country went from importing half its food to becoming a net exporter in a mere 20 years because of Borlaug's efforts.

Borlaug is the best proof of Simon's belief in humans as "the ultimate resource," as ingenuity leads to technological advances. And this theory has aged well, evidenced by the world poverty rate declining 80 percent since 1970 as things get better and better.

Norman Borlaug lived from March 25, 1914, until Sept. 12, 2009, and is estimated to have saved the lives of 1 billion people. That's news worth spreading.

College Spending Results Questioned

More money doesn't yield better results

In praising Gov. Rick Snyder's proposed $80 million increase in aid to public universities, University of Michigan President Mary Sue Coleman said: "States that do not invest in higher education will not win in the 21st century" and spending more "is investing in job growth."

There is little evidence to back up these statements.

No matter how you look at the data, states that spend more on higher education do not have more college graduates or better economic results. Comparing states by graduate population and economic growth yields no correlation. Additionally, a 2007 study by Richard Vedder, a professor at Ohio University and an adjunct scholar with the Mackinac Center for Public Policy, found there is a negative association with spending on higher education and economic growth.

Skorup

This suggests that the nearly $1.5 billion Michigan spends every year on public universities, which would cover the amount Gov. Snyder wants to increase road funding, is being poorly spent. The massive increase in total public spending on higher education nationwide has left us with a system where the poor are even less likely to obtain a degree and have a student dropout rate near 50 percent. For those who do graduate, their degrees are often in areas unlikely to be used in the workplace.

College graduates are mobile and they will go where there are jobs. But the state should look for ways to attract all people by using the money spent on higher education in ways that will attract more jobs.

More Problems with Ferndale Teacher Contract

Ignores state laws regarding seniority, evaluations

The Ferndale school district's collective bargaining agreement made headlines recently because it gives preference to applicants of "the non-Christian faith."

Under media scrutiny, Ferndale officials said they "somehow missed" the discriminatory language. Fortunately, they have now removed it.

But large portions of Ferndale's contract still appear to be in violation of other state laws. Ferndale is one of an estimated 60 percent of Michigan districts that have worked to preserve collective bargaining language that is prohibited by state law.

A series of recent reforms were passed in an attempt to make it easier for district officials to retain and reward effective teachers. Under Public Act 103, a state law that went into effect in July 2011, districts and their unions may not collectively bargain over teacher placement, layoff, recall and evaluation policies, among other things. Public Act 102 of the same year prohibits using only seniority to make personnel decisions.

When Ferndale extended its contract in February 2014, the district made sure to remove a contract provision that violated Michigan's new right-to-work law for teachers (although it didn't do the same for adult education teachers). But district officials have also "somehow missed" large volumes of the district contract that are in violation of these earlier state laws.

Under Ferndale's contract: 

The question for Ferndale is whether the district will fix all portions of its contract that violate state law, instead of simply addressing the provision that has captured media attention.

Clearly, those negotiating on behalf of Ferndale have failed to consider at least four different state laws, including Michigan's Civil Rights Act, which banned Ferndale's discriminatory language.

By keeping prohibited and unenforceable language, Ferndale, like several other districts, has a contract in place that is effectively a meaningless document. And though district officials sit down every couple of years to renegotiate, it took nearly four decades and a deluge of media attention to spur Ferndale to remove just one of those portions.

What, exactly, will it take to motivate Ferndale and other district officials to comply fully with these other Michigan laws?