Part Two in a Two-Part Series

As explained in Part One, business taxes are receiving a lot of attention as a leading factor in Michigan’s economic malaise, but excessive government regulations are an equally important element in a state’s business climate.

Unfortunately, Michigan is moving rapidly in the wrong direction on this front. Here are further examples, compiled from news reports, and Mackinac Center articles and analyses:

DEQ out of control?

Horror stories are proliferating about the Department of Environment Quality subjecting businesses to enforcement actions that appear to violate all standards of common sense. The Legislature has granted this department tremendous power, giving the DEQ broad discretion in where, when and how to bring that authority to bear. Without close supervision by managers who appreciate the larger challenges facing Michigan, lower level DEQ employees can sometimes fail to exercise discretion in a way that reasonably balances costs and benefits. Evidence is growing that such supervisory perspective is lacking in the department today.

Water withdrawal legislation

The harmful regulation binge is not limited to the executive branch, however. Indeed, all regulations ultimately originate in the Legislature, which has improperly delegated its lawmaking authority to administrative agencies by empowering them to write, enforce and adjudicate rules — a clear violation of the separation of powers doctrine. Creating a huge body of "administrative law" — what Supreme Court Justice Felix Frankfurter called "this exotic illegitimate" — has been a bipartisan legislative surrender to the executive branch at both the state and federal levels.

The most egregious recent example here is legislation passed this winter to regulate commercial and industrial groundwater withdrawals. The law sets up a new regulatory regime that creates tremendous uncertainty for business. Rather than establish a clear and consistent standard, like "you can’t lower the water table more than six inches," this law enshrines a fuzzy standard related to the "interface" between ground and surface water. The result is likely to be a full employment for lawyers and a potential deal killer for many enterprises considering locating in Michigan.

Proposed mercury regulations

As described by Mackinac Center Senior Environmental Policy Analyst Russ Harding in a recent article, Gov. Jennifer Granholm has proposed regulations mandating mercury emissions from Michigan’s coal-fired utilities. These regulations exceed the federal government’s strict new baseline emissions standard, which may create perverse incentives. Without question, it will cost families and businesses dearly. An analysis from the working group created by the governor to devise the new rules indicates the regulations would increase homeowners’ electricity costs by $59 million annually and commercial users’ costs by $153 million annually.

When added to the reversal of electricity competition, this new burden has the potential to seriously erode what’s left of Michigan’s industrial base. Great Lakes mercury levels are declining, and to the extent that mercury remains a human health threat in Michigan, the federal program is a more sensible way to address it. The necessity and effectiveness of state mercury regulations is uncertain, but the high cost the regulations would impose on Michigan’s economy is not.

Licensure madness

Currently, Michigan imposes a licensure mandate on more than 200 occupations. In another example of bipartisan folly, the list keeps getting longer. Former Gov. John Engler had declared a moratorium on all new licensure mandates during his last few years in office, but that roadblock has been removed. These new mandates have all become law in the past two years:

In addition, these proposed mandates passed the House this session:

  • 2005 House Bill 4312, to impose registration requirements on interior designers.

  • 2006 House Bill 5955, to regulate eBay trading assistants.

  • 2006 House Bill 5875, which is poised for final passage in the House, would authorize $10,000-per-day fines, asset forfeiture and up to four years in prison for a person who violates one of the scores of licensure mandates.

Another licensure bill passed the Senate between the time this article was submitted for editing and actually posted to the Web:

  • 2005 Senate Bill 826, which would authorize criminal penalties of up to one year in jail and a $25,000 fine on a residential builder or alterations contractor who works without first obtaining a license from the state, as well as civil fines of up to $25,000, and the seizure and forfeiture of property from an individual who does building or renovations for pay without a license.

Dozens of similar licensure bills have been introduced. Most people believe licensure is about protecting the public by screening applicants and providing oversight. The dirty little secret is that those who lobby for licensure are usually entrenched special interests seeking not to protect the public, but instead to raise barriers to new competitors who might eat into their profits.

Other bad bills

Perhaps the most pernicious aspect of being one of just nine states with full-time legislatures is that lawmakers have too much time to dream up new ways for government to meddle in the economy. Here are just a few of the bad bills already moving through the Legislature or pending in various House and Senate committees:

  • House Bill 4949, which has passed in the House, would make it unlawful to sell gasoline above or below a certain price range determined by the state, subject to civil fines of up to $10,000 per day. The bill is a response to complaints by gas station owners that large retail chain stores like Meijer and Wal-Mart are selling gasoline below cost.

  • Senate Bill 734 would impose a new "Medicaid tax" on employers with more than 10,000 full-time and part-time employees in Michigan. The tax would be 8 percent of the firm’s annual aggregate Michigan payroll, minus employee health insurance expenditures. This is the same bill that passed in Maryland a few months ago.

  • House Bill 4849 has already passed the House, and would effectively eliminate the ability of real estate brokers to offer "unbundled" services, including innovative internet-based marketing services that can save home sellers thousands of dollars.

Conclusion

The list of burdensome new regulations cited here is not comprehensive. Many more have already been issued by the administration or proposed by legislators of both parties. The Mackinac Center's Russ Harding wrote recently, "If businesses have reason to think they will face unreasonable regulators should they need an environmental permit in this state, then correcting our tax, labor and other business climate impediments won't matter: Companies will bypass Michigan, and create jobs in states offering less regulatory uncertainty."

These words apply to every area of regulation, and the picture is looking increasingly gloomy on this front. Over-regulation is a threat to the American dream, not just because it makes us poorer (although it does), but because it often diminishes individuals’ property rights and the right to earn an honest living; in other words, the right to pursue happiness.

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Jack McHugh is a legislative analyst for 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.