When the new Governor and legislature take office on January 1, they will inherit a teetering economy and a state government in fiscal crisis. At the same time, there exists a new potential for much-needed change, a window of opportunity through which they must aggressively navigate the state if a more prosperous Michigan is to be assured.
Michigan sorely needs a clean break with the past. No gimmicks, no empty rhetoric, no expensive promises, no flashy photo opportunities--just bold action and a new direction.
The politics of special interests and vote-buying with public money must be curtailed. The spiral of rising government spending followed by new and higher taxes must be reversed. The private sector, burdened by the worst tax climate of the Great Lakes states, should be revitalized. State government must be downsized and streamlined so that
Michigan citizens can once again enjoy an environment conducive to work, job creation, investment, entrepreneurship, good schools, and safe streets.
As an institution committed to genuine change, The Mackinac
Center is pleased to offer this prescription for a Michigan renaissance--the
first of many advisory documents the Center expects to release in coming months.
The bulk of this document consists of 20 points presented in summary form; more
detailed work can be found in already-published Center studies or in others to
be published at a later date.
We believe that a brighter future for Michigan will not come from any business-as-usual attitude. What is required is a revolutionary approach, one that encourages private initiative and free markets and less government. Mr. Engler's victory over a two-term incumbent on a platform emphasizing lower taxes and less government creates a mandate for change. He should not squander his chance to make history by caving in to the status quo and the special interests who created it.
Any list of suggestions woefully inadequate if it did will soon inherit. Clearly, some estimates, it may exceed for our government leadership would be not address the massive deficit they it is the most pressing challenge. By $1 billion in the current fiscal year.
The worst way for the new chief executive and legislature to handle this problem would be to raise taxes. That would quickly expend the good will of the voters and it would injure the fragile Michigan economy as well. The recent federal tax hike, coupled with soaring energy prices and a pending recession, mean that the one option Michigan must implement is to reduce state spending.
President Bush promised no new taxes and later reneged under fire from congressional opponents. His credibility with the American people suffered as a result. In Virginia, newly-elected Democratic Governor Douglas Wilder attacked a deficit there this year by cutting spending and hiring and adhering to a pledge to hold the line on taxes. The model that a Governor Engler should emulate is that of Wilder, not Bush. It is encouraging that since the election, Engler has reiterated his pledge and a firm commitment to keep it.
Even without a deficit, belt-tightening is overdue in Lansing. State spending grew much faster than either inflation or personal income in the 1980s. Put another way, Lansing's outlays rose by more than 70 percent during a decade when population actually fell by almost 1 percent. Many of the following recommendations address Lansing's spending addiction and would, if adopted, help mightily to erase the looming deficit. (Please note: numbering does not infer any order of importance or priority.)
1. Rein in the Commerce Department. Under the umbrella of "economic development", the Commerce Department administers a staggering array of programs that are barely disguised boondoggles for special business interests. The Strategic Fund, the Urban Land Assembly Fund, the Rural Renaissance Fund, the Chrysler Jefferson/Oakland Technology Park grants, the Growth Margin consulting services subsidies, and much of the Detroit and Outstate Equity programs are prime examples. They, and a host of other similar rob-poor-Peter-to-pay-well-connected-Paul schemes should be axed, saving tens of millions of dollars.
2. Create a Michigan "Grace Commission." The new Governor should immediately name a special panel of largely private sector individuals to do at the state level what the "Grace Commission" did a few years ago at the federal level: search out and identify what surely must be an overdose of waste and pork barrel expenditures.
Why must the state dole out millions in subsidies to artists, wine research and festivals, equestrian programs, the Detroit Symphony, big airlines, basketball stars, displaced homemakers and auto-mechanic training programs for ex-convicts? Why shouldn't the state eliminate the $800,000 subsidy to the Silverdome and encourage Pontiac to sell the structure? A commission such as we recommend could raise the questions that have gone neglected for years about spending throughout state government.
3. Establish a Privatization Panel. Another panel should investigate the opportunities to improve the quality of services and save taxpayer dollars through privatization. Michigan currently lags behind other states in implementing this promising option.
4. Deregulate Trucking. Regulation of Michigan's intrastate trucking industry costs jobs, raises prices for consumers, and puts companies at a disadvantage vis-a-vis competitors in neighboring states. It makes no sense to require a Michigan-based firm to charge more to carry goods from Holland to Grand Rapids than a non-regulated Illinois firm charges to carry similar freight from Chicago to Grand Rapids. One state grocery firm estimates that its trucks are empty for five million of the twelve million miles they log each year. Free Michigan trucking, and review all other existing regulations on Michigan enterprise, retaining only those which stand up to rigid cost-benefit analysis.
5. Abolish the HOST program. Initially sold as a way to help first-time home buyers save for their down payments, the Home Ownership Savings Trust is an ill-conceived scheme which obligates taxpayers to pick up the difference between bond market interest rates and an arbitrary, statewide housing inflation index. It is symptomatic of the expensive and counter-productive activism that has characterized state government in recent years. The state could do a better job in assisting home buyers if it fulfilled the Engler promise to cut property taxes and cap assessments.
6. Pursue Tax Reform. In addition to following through on his property tax pledge, the new Governor should press the legislature to abolish the state's burdensome inheritance tax and decrease the Single Business Tax rate as a way to spur small business. The new Governor should resist any effort to expand the state's sales tax, particularly to services, or to increase the gasoline tax. He must also address the problem of rising property tax rates, not just assessments.
7. Privatize the Accident Fund. There is not, and never has been, any convincing case for state government to be in the workers compensation insurance business. Nothing in the Constitution requires it, and neither economic theory nor experience suggests that politics and civil servants can run a business more efficiently than private enterprise. The mistake of the Attorney General and the courts in "nationalizing" the Accident Fund in 1989 must be reversed and the Fund's status as a wholly private company assured by appropriate legislation.
8. Reconsider MET. Serious questions have been raised about the actuarial soundness of and need for the Michigan Education Trust. It needs a comprehensive and impartial audit, including a review of the trust's basic assumptions about future tuition rates and investment returns. Realistic assumptions would probably raise MET prices to levels which would not be competitive with private alternatives. In place of MET, educational investment accounts for individuals ("educational IRAs"), expanded tax credits for parents paying tuition, or a savings bond program, or some combination of these three, could be implemented. MET contracts could also be sold to financial firms in the private sector. If MET is retained, provisions should be added to prevent its political promise from ever becoming a taxpayer obligation or a bludgeon with which to threaten the autonomy of the state's universities.
9. Review State-Mandated Health Benefits. Such mandates are pricing as many as 200,000 Michiganians out of the health insurance marketplace. The state should consider abolishing some, and lowering the required dollar amount of coverage on others. For example, Michigan drivers must purchase unlimited medical benefits under the state's no-fault law, regardless of whether they need or can afford them. They should be allowed to choose lower limits of liability at lower prices under the no-fault law.
Consumers in the medical insurance marketplace should be free to pick the package of benefits which best suits their particular needs and desires. The state should refrain from adding new mandates, especially those whose benefits can be demonstrated to outweigh their costs.
10. Implement Corrections Privatization. The fastest-growing category of state government in the 1980s was corrections. Michigan must learn from the experiences of more than a dozen other states. To save money and get the job of incarceration done even more effectively, the state must clear away the legal barriers which deny counties the option to contract out the operation and management of their jails. Wayne County Executive Ed McNamara was correct two years ago when he called upon the state to allow his county to consider privatization of a new jail.
Additionally, the state should copy the success of other states and implement at least some aspects of privatization within its own prison network. We estimate this last suggestion alone could, in time, save the state more than $50 million per year.
11. Repeal Michigan's Prevailing Wage Act. This act, passed in 1965, provides that only union scale wages may be paid to construction workers on all state projects. In 1978 it was extended to all school construction receiving financial assistance from the state's Economic Development Corporation. The Department of Labor has even insisted that it be applied to privately-built construction which is to be leased to the state. Yet another extension has been Labor's fixing of apprentice ratios on state contracts.
This is costly special interest legislation, pure and simple. It has the effect of inflating construction costs, according to one study, by more than 20 percent. Wages should be freely determined in the marketplace via competitive bidding among all firms, whether they employ union labor or not. Repeal the act, and rid the state of its costly extensions, immediately.
12. Enact Tort and other Legal Reforms. The new Governor should press the legislature to set strong but reasonable limitations on non-economic damages in liability cases; introduce measures to discourage frivolous lawsuits and excessive damage awards; encourage alternative dispute resolution mechanisms such as grievance hearings, arbitration, and mediation to help avoid time-consuming and costly courtroom litigation; limit the right to sue for wrongful discharge to instances where the right is spelled out in written contracts; and make plaintiffs more responsible for their own behavior by following the lead of states where comparative negligence is not applied when the plaintiff is more than 50 percent at fault. Such changes would be a healthy start; other reforms in this area will undoubtedly be needed.
13. Dialogue, not Bail-outs, for Detroit. A new relationship is required between the state and Michigan's largest city. The new Governor should be eager to talk with Detroit's government and private sector leaders, and be empathetic with the city's problems. We do not need a new round of Detroit-bashing. However, this relationship must emphasize that the city's heavy reliance on favors and subsidies from Lansing must come to an end. Detroit cannot continue to alienate its own taxpayers with high-tax, interventionist policies and then expect to rely on the taxpayers of the rest of the state to pay for the consequences with no corresponding accountability. The city must be pressed to roll back its monstrous property tax burden, curtail its habit of spending tax dollars for businesses and other special interests, control crime in the streets, and reform its dilapidated educational system through choice and competition. City officials should also be urged to establish its own "Grace Commission."
14. Stop State Government Competition with the Private Sector. In a growing number of areas, Lansing is competing head-on with private enterprise. Sometimes this involves such things as sales of computers or recreational facility time by the universities, and in other cases it involves more direct state agency intrusions. For instance, the Commerce Department provides certain subsidized services, such as business management consulting, that private firms provide. The state should not be considering building its own truck plazas along our highways, as has been suggested. A full review is needed of all the instances where this competition is occurring.
15. Adopt "Schools of Choice." Gov.-elect Engler has expressed support for at least a limited form of "schools of choice." He should go further. Cities like Detroit would especially benefit from breaking down the district barriers between public schools and introducing a voucher plan and/or tuition tax credits incorporating private schools as well. The Milwaukee experiment now underway in that Wisconsin city serves as a modest prototype for what Michigan needs. Statewide, schools of choice and a voucher program would inject powerful new incentives for academic excellence, parental choice, market-based competition, and innovation.
Other educational reforms the new administration should undertake are alternative certification, merit pay for good teachers, empowerment of local school administrators with more authority, and a reduction of the state's 2,000-employee education bureaucracy. As Mr. Engler reorients the state's educational priorities and revamps property taxes, he should ignore any egalitarian impulse to lift up the lesser-funded schools by dragging down the better-funded ones.
16. Promote Volunteerism. The important role of voluntary action in society should be encouraged by an activist Governor, and could be useful in picking up the slack where state programs are curtailed. The Governor should never miss an opportunity to cite the ways in which people and communities can solve problems on their own, and put the spotlight on those who are actually doing it. This could be done by various means: personal appearances by the Governor, a private sector panel set up to foster and highlight voluntary action, a monthly award program for especially noteworthy cases, etc. Certain tax credit initiatives may also be viable options.
17. Expand Enterprise Zones. Currently, only one city in the state--Benton Harbor--qualifies under the state's enterprise zone law. The qualifications should be eased, so that other depressed areas (Detroit, Flint, Pontiac, Saginaw, Ypsilanti, and Inkster, for example), can take advantage of the program. Adjustments should be based not just on how high an area's unemployment is or how many businesses have closed, but also on how earnestly local government has moved to cut the burdens it imposes upon the private sector. Otherwise, a community could qualify for state tax advantages without scaling back its own damaging, high-tax policies.
18. Cut Staff Size. Michigan has the third largest Governor's office staff of the fifty states, with seven employees spending $355,840. California's governor, by comparison, has just 5 1/2 on his staff with a budget of $200,000. When Gov.-elect Engler takes office, he should set an example for state agencies by cutting his own staff by at least two employees and shaving a minimum of $100,000 from their budget. He should then do all in his power to force the bloated state payroll down, department by department.
19. Promote Welfare Reform. Michigan has a workfare program on paper but it has been substantially diluted in actual practice. It should be tightened up by enforcing the work requirements.
In all social service programs, the state must refrain from raising recipients' expectations beyond the financial ability of the state to deliver. Medicaid is an example of a program where the state has been over-promising and making up for that by short-changing providers. There is a need for more efficient use of current resources and a need to explore central staff cuts in Lansing as one way to achieve that.
Additionally, the state should encourage more local initiative in welfare programs. General Assistance should be returned to the counties where administrators are closest to the poor, so long as the counties are provided with the funding to fulfill the assignment. We recommend also that counties be given an incentive to help the poor and do it efficiently by allowing them to split any savings 50-50 with the state. In the process, they must also be given substantial discretion to spend the money as they deem it appropriate.
20. Rely on Markets and Localities, not Mandates, in Handling Certain Environmental Matters. In the area of solid waste disposal, Michigan must recognize the diversity of its communities and refrain from imposing top-down, statewide regulations which ignore that diversity. The development of genuine markets for recycled products must be encouraged as opposed to mandates from Lansing. (A comprehensive study on this will be released by the Center in mid-January.)
This also implies the possibility of the regionalization of waste management (a multi-county approach) that the state government should not discourage. The components of landfilling, composting, recycling and incineration should develop locally and/or regionally, not statewide.
Finally, we believe that watershed management, hazardous waste management, and spill response activities should also fit into a more local, or regional framework, with considerable potential for delegation of certain aspects of them to the private sector. In short, we favor a regime of "many local laboratories," as opposed to a single, state-imposed master plan.