The MC: The Mackinac Center Blog

Local Governments Cry Poor but Act Rich

If the fiscal stress is so great, why keep doling out uncompetitive benefits?

For over a decade local governments in Michigan have been complaining they need more money from state taxpayers. A recent push by Wayne County Executive Warren Evans is only the most recent example.

That is what they say, but how they act suggests their fiscal complaints are exaggerated. For example, providing post-retirement health care benefits to employees is an expense that should be the first to go if there is a real financial problem.

Many local governments in Michigan pay for retired employees’ health insurance costs, a type of benefit that is rare in the private sector. Unlike pension promises, these other post-employment benefits, or OPEBs, may possibly be trimmed or even rescinded later, subject to collective bargaining in some cases. For example, state retirees recently experienced an 11 percent cut in this benefit.

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Yet how governments pay for these benefits is a problem. They do not pay for them at all until the bills come due years later when an employee has retired and starts receiving the benefit.

That is because unlike pensions, OPEBs do not have to be prefunded at the time they are earned, but can be covered on a “pay as you go” basis. This pledges a (rescindable) benefit now and pays for it later. It makes future taxpayers responsible for today’s government employees.

Nevertheless, most Michigan local governments continue to promise these benefits to new employees. Offering a premium benefit that wracks up millions in unfunded quasi-promises is not how an employer experiencing genuine financial stress would behave.

Consider the City of Warren, where retiree health care benefits are underfunded by $275.1 million. If Warren ceased all operations for two full years and dedicated all its tax revenue to back-filling this unfunded liability, it still would not be enough to cover it.

It is unclear that taxpayers and residents get any benefit from back-loading current employee compensation costs. And given that the benefits may be rescinded later, it is hard to see what value they provide to government workers.

Some proponents of larger government have recently been arguing that Michigan should be a “high tax/high service” state. But granting extra benefits that have all but disappeared from private sector workplaces — and the related problem of regular pension underfunding — illustrates that higher services do not necessarily follow from higher taxes.

The gap between what local officials say and what they do suggests that state policymakers need look upon their poor-mouthing with skepticism. To the extent that complaints of financial stress are valid, local governments should clean up their own act before looking to reach more deeply into the pockets of state taxpayers.

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May 20, 2016 MichiganVotes Weekly Roll Call Report

Automaker protectionism, who’s the repo man, ballot initiative signatures and more

House Bill 4344, Mandate auto repair shops use vehicle maker's own parts: Passed 33 to 4 in the Senate

To codify into law a comprehensive regulatory regime that is currently imposed on vehicle repair facilities through administrative regulations, including a state registration mandate. Among other things, the bill would prohibit a repair shop from replacing a major part on a newer vehicle with one not made by the vehicle's maker, which has been criticized as protectionism benefiting the Big Three and other car makers.

Who Voted “Yes” and Who Voted “No”

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Senate Bill 671, Expand scope of wine and grape council mission: Passed 37 to 0 in the Senate

To revise the particular interests that must be represented on a government grape and wine industry council, by adding brewers and distillers. Also, to revise this entity's mission to include providing the same kind of indirect subsidies to those industries that it provides to wine making interests. In 2014 this operation reportedly received $927,898 from certain liquor license fees (taxes) and spent $797,000 on things that are supposed to benefit the industry, including $373,000 on compensation for its staff.

Who Voted “Yes” and Who Voted “No”


Senate Bill 818, Exempt yoga instruction schools from licensure mandate: Passed 92 to 17 in the House

To exempt yoga teacher training schools from a state licensure mandate imposed on private trade-schools, with annual fees, government inspections, regulations and more. A Senate Fiscal Agency analysis notes that many take the classes just for the experience, and "the regulations reportedly have created a business environment that deters...offering or expanding instruction programs."

Who Voted “Yes” and Who Voted “No”


House Bill 4588, Expand private college security force powers: Passed 87 to 22 in the House

To permit private college security force personnel who have the same license as regular police to exercise full “peace officer” (police officer) powers outside the college’s grounds, including cases of “hot pursuit” of an individual suspected of violating the law, or in cooperation with regular police officers. The House also passed a similar bill for airport security force personnel (HB 5181).

Who Voted “Yes” and Who Voted “No”


Senate Bill 656, Clarify that hiring repossession agency not same as being one: Passed 74 to 35 in the House

To clarify that the act of hiring and turning over uncollected bills to a bill collection agency for possible repossession actions do not come under the regulations, restrictions, licensure requirements and more that apply to the actual repo process.

Who Voted “Yes” and Who Voted “No”


House Bill 5401, Revise pollution equipment tax break detail: Passed 70 to 39 in the House

To revise the requirements for getting a property tax exemption that is allowed for industrial pollution control equipment. The bill would require applications to include an affidavit from an environmental engineer that the equipment meets the rules. Under current law, the Department of Environmental Quality must certify the rules are met for getting a tax break, and this would be repealed.

Who Voted “Yes” and Who Voted “No”


House Bill 4338, Let local school districts not state select retirement plan managers: Passed 66 to 43 in the House

To allow individual school districts rather than the state to select management companies to administer the 401(k)-type defined contribution component of a so-called “hybrid” retirement plan for new school employees. This gives these employees tax deferred contributions to a savings account they own, but also creates additional long term taxpayer liabilities by enrolling new hires in a slightly more modest conventional defined benefit pension plan than existing employees.

Who Voted “Yes” and Who Voted “No”


Senate Bill 776, Limit time period for collecting ballot initiative signatures: Passed 57 to 52 in the House

To establish that signatures on a petition to amend the constitution must be collected within the 180 days before the measure is submitted, and repeal the ability to challenge whether older signatures may be valid. The House concurred with the Senate on giving the bill immediate effect, which would mean marijuana legalization and anti-fracking petition drives underway in the spring of 2016 would be impacted.

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.

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An Uber Driver Shares His Story

Op-ed explains efforts to permit and restrict ridesharing

A ridesharing entrepreneur who recently participated in a panel discussion at a Mackinac Center Issues and Ideas Forum in Lansing shared his story with Lansing State Journal readers in a recent op-ed.

Tim VanDongen began driving for Uber and Lyft as a way to make extra money, but eventually was earning enough to leave his primary job and make a career out of driving. Now, he has started a company, Ryde Media, which puts advertisements in Uber and Lyft vehicles.

VanDongen has experienced first-hand the many benefits ridesharing companies offer to drivers and riders, but is concerned that onerous regulations might crush such opportunity.

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Although this new service has the potential to provide thousands of new job opportunities to drivers and added convenience and reduced transportation costs to riders, it is limited in Michigan by government regulations that were developed when taxicabs were the only car-for-hire option and before smartphones even existed. As a result, consumers can only use Uber’s services in the six cities in Michigan that have explicitly given drivers permission to offer rides.

VanDongen, who is featured on the Mackinac Center’s Ridesharing webpage, explained that a package of “responsible and reasonable” bills moving through the House would allow drivers and riders to benefit from ridesharing services statewide. Unfortunately, bills making their way through the Senate would protect the taxicab industry at the expense of emerging technology.

A statewide approach to regulating this new industry makes sense. If regulations help promote safe ridesharing, then they should be as applicable in Detroit as they are in Traverse City. Further, drivers shouldn’t have to wait until their local municipality gives them permission to earn a living. In fact, last December Ohio created similar statewide regulations.

Read VanDongen’s entire op-ed at the Lansing State Journal.

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Sports writer and commentator Bill Simmons is transitioning from ESPN to a new show on HBO. In his promotional, “I Believe,” the never-gun-shy Simmons lays out some of his positions.

His last statement is the most notable: “I believe billionaires should pay for their own [expletive] stadiums.”

Michigan has a bad track record in this area. State and local taxpayers have coughed up huge for stadiums for the Lions in Pontiac (and then back to Detroit), for the Tigers at Comerica, and most recently for the Red Wings’ new arena. (Well-deserved praise is due for Bill Davidson, who owned the Pistons in 1988 and financed the Palace of Auburn Hills with no tax dollars).

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Stadiums are almost universally panned as bad economic development tools. Andrew Zimbalist, a professor of economics at Smith College and one of the leading experts on stadium financing, writes, “All of the independent, scholarly research on the issue of whether sports teams and facilities have a positive economic impact has come to the same conclusion: One should not anticipate that a team or a facility by itself will either increase employment or raise per capita income in a metropolitan area.”

It’s too late for these past projects, but Michigan should learn its lesson for the future.

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Contracting Non-Instructional Services Can Help Students

Op-ed published in Chicago Daily Herald

Michigan’s success in contracting non-instructional services to keep money in the classroom was highlighted in a recent op-ed arguing the benefits of allowing districts to use private companies for janitorial, busing and food services.

The Chicago Daily Herald op-ed, co-authored by Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center, and Kristina Rasmussen, executive vice president of the Illinois Policy Institute, explains why an Illinois law that makes it difficult for schools to use contractors for non-instructional services hurts children:

Michigan, for example, has more than 500 school districts. Thirty-one percent of school districts contracted out for busing, janitorial or food service in 2001. But it's worked so well that today that number is above 70 percent. …

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Surveys completed in four other states last year found similar acceptance of this trend. School districts estimated their savings from competitive contracting, which ran from $34 per student for food contracts to $110 per student for busing and $191 per student for custodial services.

Who would turn down another $191 per student in these tough economic times? Probably no one, which is why we need to put these savings back on the table.

Contractors, who specialize in offering their service, can also provide better quality, LaFaive and Rasmussen said.

Read the full op-ed in the Daily Herald.

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LaFaive Cited by Fox News

It is a common trope in Michigan and elsewhere that the path to state prosperity is to have high taxes and quality services, with Minnesota pointed to as the paragon. Yet high taxes do not guarantee quality services, as Detroit can attest.

Detroit has the highest effective property taxes in the country, according to the Minnesota Center for Fiscal Excellence’s 2014 property tax study. For commercial property at all different values, Detroit is No. 1 in the nation. For homesteaded property, only Bridgeport, Connecticut surpasses Detroit. Detroit also has the highest property taxes for most values of industrial property. Only New York City has higher property taxes on apartments than Detroit. All of these rates are higher than those in Minneapolis. The one saving grace for property taxpayers in Detroit is that the net tax burden has decreased with the collapse in real estate values in the city.

Minnesota does not allow a city income tax, so Minneapolitans are subject to the state’s progressive income tax rates that begin at 5.35 percent and increase to 9.85 percent. Michigan not only has an income tax, but it lets cities adopt their own as well. The highest rates for Detroit are 2.4 percent for residents and 1.2 percent for commuters. That pushes a low-income Detroit resident above the lowest rates in Minneapolis.

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Sales in Minneapolis are taxed at 7.7 percent with state, county, city and special levies included. Michigan doesn’t allow local governments to have a local option so purchases in Detroit are at 6 percent.

There are other taxes that these cities enact that may fall on at least some of their residents. Detroit has casino taxes that account for nearly 20 percent of its tax revenue. Minneapolis has a 3 percent liquor and restaurant tax. Detroit has a utility tax while Minneapolis has a utility franchise fee. There are assorted other fees and fines and taxes that will influence how much residents owe their various levels of government.

But a comparison of the two areas doesn’t show Detroit to be a low-tax area. Property taxes are higher and sales taxes are lower. Greater emphasis should be placed on how the resources are managed rather than whether they should increase from already-high rates.

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LaFaive Op-Ed Published in The Detroit News

More does not always mean better, especially when it comes to education funding.

This finding was the subject of a recent op-ed co-authored by Mackinac Center Education Policy Director Ben DeGrow and Edward Hoang, assistant professor of economics at the University of Colorado-Colorado Springs, who co-authored a study examining the relationship between education funding and student performance.

Out of the 28 academic indicators we analyzed, only one (seventh-grade math scores) showed a statistically significant correlation with spending more money. … And for the other 27 indicators, there was no statistically significant correlation between how much schools spent and how well their students performed.

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The Mackinac Center’s study comes in advance of a $400,000 state-funded study commissioned to determine if Michigan is spending enough to adequately educate its students. However, DeGrow and Hoang note the group doing the study has recommended spending increases in each of the 13 such studies it has completed.

They even concluded that schools in Washington, D.C., needed more resources, despite its schools already spending a whopping $29,000 per student.

They conclude:

Rather than double down on standard approaches with more dollars, Michigan needs a major education overhaul.

Read the full op-ed in the Lansing State Journal.

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Ridesharing Drivers Tell Their Stories

Why simple regulations are important to so many Michiganders

Ridesharing companies operate in six cities in Michigan and have provided job opportunities and rides to thousands of Michiganders. But they currently operate in a legal gray area, putting drivers at risk. We recently spoke to a handful of drivers for Uber about their experiences and why it is important to establish statewide regulations to protect the service.

“Uber saves lives,” said Rebecca and Babacar. Both drive in Grand Rapids and discussed how the ease and convenience of ridesharing apps provide an attractive alternative to driving drunk. But Larry, who drives on the other side of the state, recalled a different experience: “I got a ticket in Ann Arbor for operating a limousine without state certification,” he said.

Kevin, a father of four whose extra income from Uber saved his family’s house, had a question for lawmakers: “Are you going to be a state that companies look towards expanding to, or are they going to be a last resort because they know it’s going to take so much money to get in here and do things?”

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Related Articles:

The Many Benefits of Ridesharing

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Can I Catch a Ride?: Regulating Uber and Lyft in Michigan

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How Forfeiture Should Work in Michigan

New Mexico and Nebraska limit forfeiture to criminal cases

The federal government is seizing a historic Detroit recording studio under its forfeiture laws. It appears to be a case where forfeiture may be justified, but provides us with an example to talk about how forfeiture should be used.

The Detroit Free Press sums up the case:

United Sound Systems may be the country’s oldest independent recording studio and has hosted legendary artists such as Miles Davis, George Clinton and The Rolling Stones.

Yet the downtown property on Second Avenue may end up seized by federal prosecutors, who say it was purchased with funding from a known cocaine trafficker. They also claim the studio has been the site of drug deals.

The allegations are part of a forfeiture complaint filed in federal court on April 25, which says that Dwayne Richards, a “known drug trafficker and money launderer” who distributed cocaine through metro Detroit, paid for the studio years before he was convicted of conspiring to distribute more than five kilos of cocaine.

The studio is owned by Danielle Scott, the cousin of a convicted drug trafficker. According to prosecutors, “It appears that Dwayne Richards, a known cocaine trafficker, used Danielle Scott to try to conceal the movement of money and property that are the proceeds of his drug trafficking activities by purchasing the (studio).”

Though this forfeiture case will be pursued under federal laws, it provides a way to think about Michigan’s current forfeiture laws if this case were to be handled under state law, as it should be.

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Under Michigan's forfeiture law, state or local law enforcement officials could seize the recording studio while they investigate the alleged crime. State prosecutors could then have the property transferred to the government under current civil forfeiture laws.

Before a court case, Scott would be required to pay a bond of up to $5,000 within 20 days if she wished to challenge the forfeiture. The prosecutors would then have to prove with “clear and convincing” evidence that the property was garnered with illegal drug money. (Before laws passed last year, the standard would have been merely a “preponderance of the evidence”).

This could all happen even if Scott were not convicted of or charged with any crime. Ten states and the District of Columbia require a conviction before the property could be transferred to the government.

But New Mexico and Nebraska have the ideal system. In both states, state legislators eliminated civil forfeiture and only allow criminal forfeiture. That means that when prosecutors convicted Richards of drug crimes in criminal court, they would then have to show in the same court that Scott’s ownership of the property was involved in a money laundering scheme and purchased with profits from illegal drug sales. If the court agreed, then the state could take ownership of the property.

Those states also adopted rules that limit the federal government’s program called “equitable sharing,” which has been problematic. This program enables the federal law enforcement agencies to “share” the proceeds of their forfeiture cases with local and state agencies. Under the model adopted by New Mexico and Nebraska, law enforcement agencies still have sufficient tools to arrest, charge, convict, seize and forfeit property under state law. Michigan policymakers should impose similar restrictions so that law enforcement agencies here do not outsource forfeiture activities to the federal government.

Michigan has been making great strides on the issue of forfeiture. Last year, legislators passed laws requiring a higher standard of evidence and increased transparency. Recently, House and Senate committees passed a bill that would outlaw a bonding requirement for forfeiture. The state is moving in the right direction, but there’s still work to be done, with the best models still being New Mexico and Nebraska.

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Mackinac Center and Sierra Club Call For More Transparency in Michigan Government

Joint Free Press op-ed explains transparency efforts

The Mackinac Center and Sierra Club often hold different positions on policy, but have come together to call for a more transparent and accountable government. The Detroit Free Press recently published an op-ed written by David Holtz, chairman of the Sierra Club Michigan Chapter, and Michael Reitz, executive vice president of the Mackinac Center for Public Policy.

In the piece, the authors discuss a package of bills moving through the Michigan Legislature that would make state government more accountable to the people and remove hurdles that have hindered journalists and activists from gaining a complete picture of what created the Flint water crisis. House Bills 5477 and 5478, introduced by Reps. Ed McBroom and Jeremy Moss, respectively, would make the governor subject to the Freedom of Information Act.

A separate set of bills would establish the Legislative Open Records Act, to which Holtz and Reitz offered some recommendations to “improve the review process, clarify the definition of a 'public record,' and eliminate new loopholes.”

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First, the current bill draft provides a review process if the Legislature denies a person access to records or if it charges an exorbitant fee. … We believe a robust public records law for the Legislature will give people the ability to take their case before a judge just as the current FOIA law provides for access to records of state agencies.

Second, the LORA language defines the term “public record” in a unique manner: It is “a writing … that has been in the possession of the public body for 15 days or more.” … Public records shouldn’t have a maturation period. Under FOIA, agencies are already permitted to take up to 15 days to provide a public record. The Legislature should adopt a similar approach.

Read the full op-ed in the Detroit Free Press.

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