With many contested state Senate and House primary election campaigns now underway, voters and candidates both are looking for ways move Michigan forward. Here are 15 specific ideas. Versions of most of these were published last fall by The Detroit News in a series titled "50 Ideas to Fix Michigan." Additional information on these and other policy suggestions can be found in "101 Recommendations to Revitalize Michigan," a collection of commentaries and studies by Mackinac Center scholars and analysts; and in a brief article called "How to Save $2.2 Billion."
Idea: Devolve Michigan State Police road patrols to county sheriff deputies, dramatically downsizing the department and reserving to it specialized functions beyond the capacity of local law enforcement agencies.
Why: The cost of employing a state trooper is substantially greater than the average cost of sheriff deputies, yet deputies can write traffic tickets and perform other routine law enforcement functions just as well. In addition, the MSP is reportedly overburdened with excessive layers of "command" and administration.
Benefit: This would save approximately $65 million annually, according to an analysis performed by Center staff in 2003.
How: Pass a law that contracts this activity out to county sheriffs, downsizes the MSP, and sells off many MSP facilities.
Obstacles: State troopers are represented by a powerful and influential union, and department spokespersons have not hesitated to use scare tactics to preserve the privileged status of these elite government employees. Legislators are particularly vulnerable to these tactics, and also fear energetic political opposition from the MSP union.
In addition, some communities "free-ride" on the presence of nearby State Police posts, shifting the cost of law enforcement services from local taxpayers to statewide ones. Many of these posts would no longer be necessary under this proposal, so those communities will exert political pressure on legislators to oppose the reform.
Finally, "That's not the way we've done things in the past" still resonates in a government establishment that hasn't come close to absorbing the full reality and magnitude of Michigan's need to dramatically "right-size" its government apparatus.
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Idea: Privatize some prisons — the more the better. Not just some functions within state-run prisons, but entire facilities.
Why: Extensive research has demonstrated that private prisons tend to be less costly than those operated by government bureaucrats. Beyond this, one study found that privatizing some prisons results in savings at the remaining public ones, because it heightens the incentives for their managers and employees to "sharpen their pencils." According to this research, placing just 5 percent of prisoners in privately run prisons saves 14 percent per prisoner systemwide.
Benefit: If these figures were applied to the approximately $1.35 billion this state spends on prison operations and administration each year, it would save almost $190 million. The relevant study also relies on labor law reforms that may not come about right away here, so the exact savings might be less. However, the state could also place more than 5 percent of its prisoners in private facilities, which would increase the savings.
How: Require the Department of Corrections to close some prisons and seek competitive bids from professional prison companies to house the displaced prisoners.
Obstacles: Michigan's prison guards are represented by a powerful and influential union. The union can be expected to threaten legislators considering privatization with funding and other support for primary and general election challengers who agree to toe the union line and preserve the status quo. The Department of Corrections will probably use scare tactics by mischaracterizing the record and "risks" of private prisons. It and status quo defenders in prison communities will cite the number of lost jobs at public prisons (while ignoring jobs gained at private ones), and pretend that prisons are a "jobs program" rather than a societal burden and necessary evil. Legislators may throw away some potential savings by granting pension "sweeteners" and "early outs" to displaced prison guards.
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Idea: Convert the current allocation formula for state funding of universities to a per-pupil "foundation grant" system where money follows the student, like the current K-12 system. Also, equalize state spending so this per-pupil grant is the same for all universities. Finally, separate state funding for university "research" into a separate budget line item, and cut it by (at least) 5 percent.
Why: Currently, state funding is allocated to universities on the basis of irrational and arbitrary formulas. The result is a bizarre system where per pupil funding ranges from a low of around $3,500 at Saginaw Valley State University to more than $13,000 at the University of Michigan.
If instead a fixed quantity of state money accompanied each Michigan resident student who was attracted to a university, it would sharpen the incentives for each school to increase value, contain costs and reduce tuition. If current funding were allocated in this way, the per-pupil grant would be approximately $6,500, regardless of which school the student selected.
Benefit: Precise determinations of savings from better incentives are impossible, but 5 percent seems a reasonable and conservative estimate. This would generate annual savings of around $88 million.
How: Cut current university appropriations by 5 percent and distribute the balance to schools on the basis of how many Michigan resident students attend in a given year. The change would have to be phased in over a few years to allow the schools to make adjustments.
Obstacles: There would be winner and loser schools, and the losers would scream bloody murder. Michigan's universities are highly skilled in manipulating the loyalties and parochial interests of legislators and the general population. A well-funded network of boosters and promoters exists to spread spurious statistics and anecdotes regarding the supposed value of universities as drivers of "economic development" and other benefits.
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Idea: Defund the "21st Century Jobs Program."
Why: This is one more program in Michigan's failed 62-year experiment substituting ineffective but politically easy government central planning for the harder work of creating a favorable business climate. It's based on the idea that giving companies targeted subsidies can do more to restart Michigan's stalled economy than just taking less money from families and businesses in the first place. The program was launched in November 2005 — some 500,000 lost jobs ago — with $400 million in borrowed money. The Legislature gives it a new cash infusion annually, including $52 million last year (after a mid-year $9 million "executive order" haircut).
More than 200 years of economic theory and actual experience going back to Adam Smith demonstrate that this kind of economic central planning makes a society poorer, not richer. No coherent economic (vs. political) rationale or systematic empirical data (vs. isolated anecdotes) have ever been produced to justify it.
Benefit: The Senate has already voted to give it another $32 million in 2010. The House voted for $62 million, and Gov. Jennifer Granholm called for another $75 million. That money instead could be used to provide essential government services.
How: Simply don't make the appropriation.
Obstacles: The hubris of government central planners, the lamentations of "rent-seeking" special interest beneficiaries, and the opportunity cost to politicians who use this spending to posture that they are "doing something" to turn around Michigan's economy (while failing to address the real business climate problems).
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Idea: Eliminate subsidies to filmmakers.
Why: This program makes no economic sense (as opposed to political sense). Politically motivated rationales ignore the costs — the wealth transferred from Michigan taxpayers — focusing only on the handful of temporary jobs created.
Because they're actual cash hand outs, these subsidies are void of the spurious justification offered for "MEGA," the flagship of the state's fleet of discriminatory tax break "incentive" programs. It goes like this: "'But for' the special tax breaks, beneficiary firms would not have located here, and so the foregone tax revenues wouldn't have been collected anyway."
In contrast, those checks written to film producers are actual cash outlays — money that could instead otherwise pay for essential government services. Because of a lack of transparency from the Michigan Film Office, we don't have exact figures, but Senate Fiscal Agency analyses suggest that the subsidies are largely checks drawn on the state treasury rather than foregone tax revenues.
Benefit: In 2008, this program cost taxpayers $48 million in return for a meager 1,100 jobs, or $43,600 per job. There is no cap on the amount of subsidies, and estimates of future costs run as high as $200 million annually.
How: Eliminate the program.
Obstacles: Although it is a relatively new program, film subsidy beneficiaries already have organized energetic lobbying and PR campaigns. They have staged Capitol rallies and produced online videos in the hope that these would go "viral." Reporters and politicians alike appear dazzled by Hollywood magic, failing to ask basic questions like, "If the money transferred to Hollywood producers hadn't been taken from Michigan families and businesses, how many jobs would that have produced?"
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Idea: Cap government and school employee benefits at private-sector averages.
Why: The premise or subtext of every budget discussion, from Lansing to school boards to municipalities, is that with one exception "everything is on the table" — cutting services, raising taxes, eliminating scholarships, cutting Medicaid doctor reimbursements, releasing prisoners, etc. That one exception, the one sacred cow that can't be touched even as all those others go under the bus, is the perks and privileges of government employees.
This is unfair to taxpayers, and it makes it impossible to discuss delivering services in ways that improve quality and lower costs, including things like competitive bidding or merit pay for teachers. So instead, politicians offer the false choice of "cuts vs. tax hikes." They never dare whisper the third option: Do more with less by reducing the abnormally generous benefits of public employees.
Benefit: The annual cost of state, local government and schools employee health care benefits is around $4.1 billion. The typical employee share among most public employers is 5 to 10 percent. Increasing that to the 25 percent private-sector average would save more than $500 million. Pensions are more complicated so are not included in these figures.
How: Place on the ballot a constitutional amendment or initiated law prohibiting government employee benefits that exceed the private-sector average.
Obstacles: Government employees are among the most politically savvy and active segment of the population and politicians who defy them often pay a price. Taxpayers may have to use their power of initiative on this one and realize their strength in numbers.
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Idea: Eliminate the Michigan State University Agricultural Experiment Station and Cooperative Extension Programs.
Why: Some of the Experiment Station's work represents a reasonable government function, such as addressing problems like the emerald ash borer. However, programs like this could be easily accomplished by the state Department of Agriculture (which in fact has received appropriations for this very function).
That said, much of the MSU program's spending is little more than a subsidy for the state's agri-business industry. Other prominent Michigan industries, including automobiles, furniture and chemicals, are responsible for conducting their own research. In addition, taxpayer funding has produced work of dubious value. For example, one project had MSU researchers working to grow "the perfect Poinsettia."
Similar arguments apply to the Cooperative Extension Service, which provides classes to Michigan residents on such topics such as sewing, gardening and pottery. This program is a luxury beyond our current means. Its classes may be nice for those who take advantage of them, but they are anything but essential functions of state government.
Benefit: Elimination would save most of the $64 million the programs consume each year — money that could be used for tax relief or to provide essential government services.
How: Simply don't appropriate most of the money, shifting a small amount to the Department of Agriculture as indicated above.
Obstacles: The extension service has offices all over the state, and will not hesitate to use these local bases to whip up resistance. Corporate beneficiaries of experimental station funding will lobby against cuts. Legislators like these wholesome-sounding, non-controversial programs, notwithstanding them being unaffordable luxuries.
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Idea: Privatize noninstructional functions in public schools.
Why: Schools can realize huge savings by privatizing transportation, food and custodial services. Many have already done so: The Mackinac Center's most recent survey of school privatization shows that 44.6 percent of districts already have a competitive contract in place for at least one of these functions.
Among the 20.1 percent of districts contracting out custodial services is Richmond Public Schools, which expects to save $823,545 annually — an effective per-pupil funding increase of $435. Dewitt Public Schools projects $255,591 in janitorial savings, or $86 per pupil.
Nearly 30 percent of all districts privatize food service. Wyoming-Godwin Heights schools will save $69 per pupil, and Troy $13.74 for each of its 12,000 students. Only 38 districts have privatized transportation services; one of them, Benton Harbor Area Schools, projects annual savings equal to $113 per pupil.
Benefit: If all school privatization opportunities were realized, it would save hundreds of millions of dollars, dwarfing a $110 per-pupil foundation grant cut currently on the table in state budget negotiations.
How: Cut the amount of state school aid by the amount districts could save by privatizing. Specifically, require every district to request bids and make a good faith effort to privatize. The potential savings vary by district; for some, privatization would not practical, so districts coming up empty could seek a waiver.
Obstacle: Despite having been known to privatize services — at times with nonunion workers — at its headquarters, the Michigan Education Association pours vast resources into fighting the same cost-cutting ideas for school districts statewide. Recently, the MEA has instigated, aided or abetted recall campaigns against school board members in a dozen districts for having the gall to defy the union on this issue. Also, many Democratic legislators, and according to MIRS News, at least 14 Republicans, have been the recipients of MEA political contributions.
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Idea: Repeal or overhaul the Public Employment Relations Act
Why: Government employee unions have come to dominate decision making at the state, school and local government levels. In Detroit, unions refuse to make concessions in spite of a complete financial meltdown. Overly generous benefits add as much as $5.7 billion annually to the overall cost of government in Michigan. Illegal strikes sometimes cripple essential government services. Member dues, supposedly collected to pay for representing workers in contract negotiations, find their way into political activism, creating a permanent lobby for bigger government.
PERA has given officials at many unions a virtual veto over many budget and administrative decisions that should be made by elected officials. Collective bargaining for government employees is a privilege, not a right, and when a privilege has been habitually abused, it should be revoked, or at least limited.
Benefit: A panel created by Gov. Jennifer Granholm found that binding arbitration alone added 5 percent to the cost of law enforcement. If PERA reforms generated comparable savings for all government employees, taxpayers would save $2 billion annually. In addition, control of important personnel decisions would be returned to local officials.
How: With repeal of PERA, the role of government employee unions would change but not end. Given their inside knowledge of government operations, unions would remain a highly influential special interest group. However, final decision-making would be back in the hands of elected officials, where it belongs. Short of repeal, PERA reform should suspend collective bargaining privileges when workers go on strike; require contracts to conform to state laws and local ordinances; and include a right-to-work provision.
Obstacles: Employee unions have excessive influence at every level of government and have accumulated large campaign war chests they will use to protect their turf.
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Idea: Eliminate local government revenue sharing not mandated by the state Constitution.
Why: Revenue sharing allows communities to provide local residents with more services while appearing to pass the costs on to everyone else in the state. This encourages the expansion of non-essential programs. If local government services were instead funded entirely by local taxes, it would limit both the demands of residents and the "empire-building" tendencies of municipal officials. Revenue sharing also reduces competition between communities, which would otherwise encourage greater government efficiency.
Benefit: Using the current allocation formula, next year the state would distribute to local governments $388 million more than is required. This money could be returned to taxpayers.
How: Eliminate "statutory" revenue sharing payments and return the $388 million to taxpayers as a refund of approximately 20 percent of their payments of the 6-mill state education tax. ($388 million is approximately 20 percent of the revenue raised by that tax.) The refund could be distributed in the same manner as Headlee excess-revenue refunds. Local governments could replace their lost revenue by "clawing back" some or all of that tax cut by raising their own property taxes if that's what residents want. In many cases, the voters' response would be, "Well, if we have to pay for these services ourselves, we'll do without." That's the way it should be.
Obstacles: Local governments like spending tax dollars levied by the state, and they use tax dollars funneled through the Michigan Municipal League, the Michigan Townships Association and the Michigan Association of Counties to lobby for ever-higher taxes and spending. Local officials are active and savvy political actors, as well as the most likely source of a serious electoral challenge to incumbent legislators.
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Idea: Cap school employee health benefits, and/or enroll them in HSAs
Why: The subtext of every budget discussion in Lansing and on school boards is that with one exception "everything is on the table" — cutting programs, raising taxes, eliminating scholarships, etc. That one exception is the perks and privileges of government employees — especially school employees.
This is unfair to taxpayers, and it makes it impossible to discuss real cost-and-quality reforms like competitive bidding for noninstructional school services or merit pay for teachers. Indeed, in more than a dozen districts recently school board members who dared advance such reforms found themselves targets of recall campaigns instigated, aided or abetted by unions.
Benefit: The state's Center for Education Performance and Information reports statewide school health insurance expenses of $1.93 billion in 2008. The typical employee share is less than 4 percent. Increasing that to the 25 percent private-sector average would save more than $290 million. Even more money could be saved by moving all school employees to high-deductable Health Savings Account plans — as much as $450 million in the first year, and $26 billion through 2021. This includes a generous $5,800 (for a family) annual contribution to the tax-free HSA owned by each employee.
How: Reduce school aid by the amount of these savings, pro-rated by district.
Obstacles: The Michigan Education Association union is perhaps the most powerful political lobby in the state. As an example, last Sept. 30 the union effectively killed a House-Senate leadership state budget agreement that would have reduced school funding by less than 3 percent — a much smaller "haircut" than many other government programs in the current fiscal maelstrom. The alternative is either tax hikes or using up federal "stimulus" money that leaders had hoped to save for next year, when even greater funding shortfalls are expected.
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Idea: Stop stealing from future taxpayers
Why: "Borrow and spend" is viewed as a Washington problem, not a Lansing one. Unfortunately, a 2005 statute has enabled Michigan legislators to undertake $875 million in deficit spending.
Here's how: The law creating the "21st Century Jobs Fund" business subsidy scheme opens with a statutory magic wand — a legislative "finding and declaration" that the 1998 tobacco lawsuit settlement revenue stream is actually an asset that can be sold ("securitized"). This is done by — borrowing against it!
Borrowing $400 million for a corporate welfare program may have been misguided, but it was at least rationalized with a long-term goal. The next use of the people's credit card in June 2007 was pure long-term debt incurred for short-term spending. Specifically, to avoid budget cuts, the Legislature borrowed another $415 million against the nearly $300 million annual revenue stream Michigan expects from tobacco companies through 2025.
Lawmakers "wet their beaks" one more time in 2008, authorizing another $60 million in debt for a tourism industry subsidy — the "Pure Michigan" and related PR campaigns.
Benefit: Those three trips to the tobacco lawsuit loan window have already resulted in around $80 million in annual debt service payments through 2025. That's money not available for government services, including ones now on the chopping block: revenue sharing, college scholarships, Medicaid and more. Incidentally, if a similar "securitization" ploy is attempted with state lottery proceeds, then they really will have "stolen the lottery money."
How: Ideally, the state Supreme Court would rule that our Constitution means what it says on deficit financing. Short of either that or a constitutional amendment, "sunshine" and shame may be all that can prevent more borrowing.
Obstacles: Lawmakers love to spend but fear asking current voters to pay more. Better to stiff future taxpayers.
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Idea: Trim the health care benefits of current and future government retirees
Why: Because taxpayers can't afford them, and at age 65 these retirees are all covered by Medicare just like the rest of us.
Unlike pensions, very little has been set aside to pay health benefits that the state, schools and local governments have said they will give their retirees. The unfunded amounts are staggering — $13 billion for state and $26 billion for public school employees. With municipal employees the statewide total certainly exceeds $50 billion.
Also, unlike pension guarantees, these are not genuine liabilities on taxpayers. As thousands of auto workers already have discovered, federal law permits trimming such benefits. In a 2005 case (Studier v Michigan Public School Employees' Retirement Board) the Michigan Supreme Court ruled 5-2 that they do not "constitute 'accrued financial benefits' subject to protection from diminishment or impairment" by the state Constitution.
Benefit: This is a ticking fiscal time bomb; paying these benefits would require tax hikes of $2 billion annually and more, or comparable service cuts. It's unfair to further burden taxpayers for exceptional benefits granted to a privileged class of public employees, many of whom can retire and start collecting in their 50s.
How: Pass a law that trims and caps the benefits. Do not adopt legislation like the bill passed in the House and recently introduced by some Senate Republicans converting these into enforceable obligations (bonds) by allowing local governments to borrow, buy stocks with the money, and (hopefully) use any profits to pay both the interest and benefits.
Obstacles: Public employee unions will go nuclear. They know these benefits can be trimmed (that's why bills have been introduced), and will use all their rippling political muscle to prevent it. To them this means war; if they win taxpayers and Michigan's future will be the casualties.
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Idea: Shut down Michigan's growing "corporate welfare" empire.
Why: Rather than undertake genuine tax, spending, regulatory and labor law reforms that anger politically powerful special interests (including public employee unions), our Legislature has engaged in a massive expansion of discriminatory tax break and subsidy "economic development" programs. These don't grow the economy, because the number of jobs they "create" is a tiny fraction of what central planners claim will be created. These programs do, however, let politicians pretend to be "doing something" about the economy.
Benefit: Creating a fair field with no favors is the best way to grow an economy. Also, winding down these programs would mean that hundreds of millions of dollars in current outlays and forgone revenues would instead be available to fund essential government services, and to allow a real economic development policy: Across-the-board tax cuts.
How: Sunset all the existing programs and stop creating new ones. Particular corporations already promised tax breaks for a fixed period of time would still get them, but no new ones would be granted.
Obstacles: It's hard for policymakers to say "No" to a particular business promising to create jobs if only it's given a few favors. Also, the Citizens Research Council lists at least 58 separate "economic development" programs already operating in Michigan, including hundreds of local favor-granting entities, with possibly thousands of politically appointed decision-makers on their managing boards. Michigan's 148 term-limited legislators are almost all political careerists whose main goal is to remain on government payrolls the rest of their working lives. To members of the political class, all these boards, commissions and authorities represent future job opportunities. The people may have to lead on this one.
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Idea: Suspend collective bargaining after an illegal public employee strike.
Why: Strikes by public employees are illegal under the state's public sector collective bargaining law, yet on numerous occasions government employees have engaged in them. This happens because the current enforcement mechanism is clumsy and ineffective, requiring fines to be levied against individual employees, who can claim not to have intended to take part in a strike.
Pursuing individual cases is a time-consuming and inappropriate way address what are actually collective actions. Contrary to the claims of union officials, collective bargaining is not an inalienable right, especially not for government employees. Suspending collective bargaining is the proper response to the abuse of collective bargaining. In the event of an unauthorized "wildcat" strike, it can be inferred that the union has lost the confidence of employees and so should no longer serve as their representative.
Benefit: A penalty directed at the union and bargaining unit will simplify enforcement, as a single trial in a single court should resolve any relevant factual questions. Because suspending collective bargaining will terminate dues-collection and force the union to recertify itself at the end of the suspension period, union officials will have a strong incentive to respond quickly and firmly to any illegal strike talk.
How: A three-year suspension of collective bargaining (the length of a typical collective bargaining agreement) can be enacted by the Legislature, and would apply whenever a court finds by a preponderance of evidence that a substantial number of employees in a bargaining unit refused to work their scheduled shifts as part of a coordinated plan. The workforce will revert to unrepresented status until the suspension expires.
Obstacles: Employee unions have excessive influence at every level of government, including the state, and have accumulated large campaign war chests they will use to protect their turf.
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Jack McHugh is senior legislative analyst at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
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