The MC: The Mackinac Center Blog

December 9, 2016 MichiganVotes Weekly Roll Call Report

Speed limits, corporate subsidies, ‘photo-cop,’ Israel and more

House Bill 4423, Increase speed limits: Passed 28 to 8 in the Senate

To increase speed limits on rural freeways to 75 mph where engineering studies and traffic patterns indicate this is safe. General speed limits elsewhere would be 70 mph on other freeways, 65 mph on state trunkline highways with light traffic, 55 mph on county roads, and 55 mph on unpaved roads except in Oakland and Wayne Counties, where they would be 45 mph. The speed limit on subdivision streets would remain at 25 mph.

Who Voted "Yes" and Who Voted "No"


House Bill 4426, Lower drivers licence points for barely speeding: Passed 35 to 2 in the Senate

To reduce the drivers license points imposed for exceeding speed limits. The bill would prescribe: Four points more than 15 miles per hour over the limit; three points between 10 and 15 mph over; two points for between five and 10 mph over, and one point for less than 5 mph over.

Who Voted "Yes" and Who Voted "No"


Senate Bill 1163, Give multi-million dollar subsidy to AK Steel owners: Passed 30 to 7 in the Senate

To revise a state business subsidy program in a manner that would allow the current owner of the former River Rouge steel plant (AK Steel) to collect refundable tax credits (which are often paid as cash subsidies). According to the House Fiscal Agency this could result in the state giving tens of millions to the company's owners.

Who Voted "Yes" and Who Voted "No"


Senate Bill 852, Let Detroit issue automated "photo cop" school bus tickets: Passed 34 to 3 in the Senate

To allow the Detroit public school district to contract with a private vendor to install and operate an automated traffic citation system to ticket motorists who illegally pass a stopped school bus, based on images collected by cameras attached to school buses. Fines would start at $300, rising to $1,000 for a third offense, and the money would go to the Detroit public school district (less the amount collected by the private vendor).

Who Voted "Yes" and Who Voted "No"


House Bill 5484, Authorize “hunters pink” alongside “hunter’s orange" for safety: Passed 36 to 1 in the Senate

To revise the law that requires hunters in the field to wear some high-visibility “hunters orange” apparel for safety purposes. The bill would also permit “hunters pink” as an alternative, and possibly other colors, but only if the state Natural Resources Commission determined a color is effective at enhancing safety.

Who Voted "Yes" and Who Voted "No"


Senate Bill 332, Reduce minor-in-possession of alcohol sanctions: Passed 105 to 1 in the House

To remove the misdemeanor penalties for a first violation of the minor-in-possession of alcohol law, but not on second or third violation, which carry potential 30 and 60 day jail sentences. First-time offenders would instead be subject to a $100 civil fine. The bill also revises certain permissible police actions such as requiring a minor to take a chemical breath test. Senate Bill 333 also removes drivers license suspension as a first-offense sanction.

Who Voted "Yes" and Who Voted "No"


House Bill 5821, Ban state contracts with entities boycotting Israel or other trade partner: Passed 99 to 8 in the House

To prohibit the state from contracting for products or services from a person, company, agency or other entity that boycotts a "strategic partner" (like Israel), unless it is done in a non-discriminatory manner and based on "bona fide business or economic reasons."

Who Voted "Yes" and Who Voted "No"


Senate Bill 291, Authorize wrongful imprisonment compensation: Passed 104 to 2 in the House

To authorize payment by the state of civil damages to a person wrongfully imprisoned for a crime he or she did not commit. The damages would be $50,000 for each year of wrongful imprisonment.

Who Voted "Yes" and Who Voted "No"


Senate Bill 510, Restrict commercial use of student data: Passed 83 to 23 in the House

To prohibit websites or apps designed for K–12 school purposes to sell, share or use for targeted advertising any information in a student’s educational record.

Who Voted "Yes" and Who Voted "No"


House Bill 6066, Require voters with no ID to prove identity within 10 days: Passed 57 to 50 in the House

To require a person who does not have a photo identification card when voting to verify their identification with local election clerks within 10 days or the vote will not be counted. Related bills facilitate poor individuals obtaining free IDs and necessary documentation.

Who Voted "Yes" and Who Voted "No"


House Bill 4643, Establish legal recourse for target of illegal union picket: Passed 57 to 50 in the House

To revise a law that makes it illegal to picket a business for purposes of blocking access to individuals doing or seeking work there. The bill would allow an employer to ask for a court injunction to stop the picketing, and a union that disobeyed the injunction could be fined $10,000 per day, and $1,000 for individuals.

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.

Critic Still Misses Mark on Detroit Charter Research

The trouble with doubling down on anti-DeVos criticism

In a recent New York Times op-ed, economics professor and Brookings Institution fellow Douglas Harris declared that Secretary of Education-Designate Betsy DeVos “devised Detroit’s [charter] system to run like the Wild West.” He interpreted the best available research on Detroit charters to say they “performed at about the same dismal level as [the city’s] traditional public schools.”

Critics, including the Manhattan Institute’s Max Eden, sharply challenged the claim. The 2015 CREDO study actually cites Detroit as one of four urban charter sectors that “provide essential examples of school-level and system-level commitments to quality that can serve as models to other communities.”

Impelled to respond to the criticism, Harris revised and extended his remarks. He conceded in the second piece that, according to the 2015 CREDO study, Detroit charters “do look somewhat better than the comparison traditional public schools.” He then sought to explain why the empirically tested finding should not be trusted.

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The University of Arkansas’s Dr. Jay Greene wasted little time in thoroughly exposing most of the assumptions in Harris’s follow-up piece. But a couple points deserve further elaboration.

First, not only does Harris speculate Detroit charters “cherry-pick” the best students from the local district with no evidence, but that speculation assumes charters are willingly breaking the law. No Michigan charter is allowed to “discriminate in its pupil admissions policies or practices on the basis of intellectual or athletic ability, measures of achievement or aptitude.” Meanwhile, traditional schools in Detroit can and do: four DPS schools have selective admissions based on academic ability.

Second, Harris suggests that not operating under a proposed system that would have given city leaders the power to restrict choice means Detroit charters operate without accountability. In fact, the legislative package that accompanied bailout dollars to Detroit requires the adoption of an A-to-F school grading system, national accreditation for authorizers to open charter schools in the city and more stringent closure guidelines for failing charter schools.

In terms of raw scores, too many students in the Motor City still lag behind. But CREDO’s measures show that enrolling in a charter school on average yields two to three months of extra learning in math and reading. By the time Detroit school district leaders expect to see any academic progress, a student who opts to enroll in just an average-performing charter today should expect to be years ahead of their peers by the time they’re ready to graduate.

Forthcoming publications from the University of Michigan’s Charter School Research Project may shed further light on the results of educational choice in the city. But for now, the current evidence gives every reason to believe that charter schools provide a net benefit for children and families in Detroit.

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Michigan House Rejects Cronyism Bills

‘TIF on steroids’ legislation dead for now

As Michigan continues to recover economically, a Michigan House committee rejected bills that would have taken us back to the “lost decade” way of doing business.

Legislation that would give private developers taxpayer cash died in Lansing today. Senate bills 1061 through 1065, which had passed the Senate, found opposition in the House Local Government Committee. While it is common practice to resurrect lame-duck legislation in a new year, these bills should remain buried.

The reasons are multiple. These bills are unfair to those who are not lucky enough to obtain such a deal and are ineffective as economic growth generators. They also take revenue that might be put to better use somewhere else in government and make it harder to roll back taxes for everyone who is not part of the favored few. Members of the House were clearly unimpressed with the legislation.

The bills were designed to mimic Tax Increment Financing (TIF) programs that traditionally have allowed some units of government to capture new property tax revenues purportedly generated from some new development. That revenue can be used to pay off bonds floated on behalf of a private, for-profit business by, say, a city.

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The obvious first use of this law, had it passed, may have been a new soccer stadium and related construction in southeast Michigan. Detroit developers were particularly big backers of the legislation.

Lee Chatfield, chair of the committee, told Gongwer News, “I didn’t feel like it was the best direction for our state to take.”

The bills died on a day of great news about Michigan’s growing economy, underscoring just one reason that such bills are unneeded. The Bureau of Economic Analysis reported that Michigan had the fastest economic growth (as measured by its gross domestic product) of any Midwest state in the second quarter of 2016.

This type of legislation does not necessarily foster economic growth, and academic literature has painted an unflattering portrait of its effectiveness. A 2015 study out of Indiana’s Ball State University, as one example, reported that “TIF districts in Indiana were actually associated with less employment, less taxable income and slightly higher tax rates.”

The deals are also unfair. Those developers not lucky enough to strike such deals are put at a competitive disadvantage. Their own tax dollars, paid on income generated from their unsubsidized investments, are used against them.

The end to this legislation is Christmas come early for most taxpayers and developers alike.

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Bad Santa: Trump Risks Cronyist Blowout with Carrier Incentives

Draining the swamp by creating new ones

President-elect Donald Trump took a victory lap last week after convincing Carrier to keep more than 700 jobs in Indiana instead of moving them to Mexico. Trump’s unique style of braggadocio and tough-sounding talk lends itself to such exercises.

But Trump should beware of making special corporate “incentive” promises lest he trigger a flight to the border by other companies seeking handouts from Washington — or from Lansing and Michigan taxpayers.

A prominent warning came not from a free-market think tank but from the Vermont socialist who nearly captured the 2016 Democratic presidential nomination. Writing about Trump, Sen. Bernie Sanders said, “He has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives.”

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Sanders is right that America will only be great when state and national policies promote a fair field with no special favors for particular firms or industries.

Moreover, while corporate favors from Washington were the focus of news stories, Carrier itself suggested that state taxpayers would be the ones shelling-out. “The incentives offered by the state were an important consideration,” said the company in a statement. A Fortune report suggests Indiana taxpayers are on the hook for $700,000 a year to Carrier.

No governor or legislature wants to see employers leave. But making them want to stay with across-the-board tax and regulatory reforms is hard work, so too many elected officials instead pursue a self-serving shortcut. They leave the hostile business climate in place and just offer taxpayer-funded handouts to bribe a few high-profile companies to stay.

Corporate executives have become skilled at playing the game. Former auto industry executive Lee Iacocca described it this way, as captured in the book “Poletown: Community Betrayed.” Iacocca said, “We would pit Canada versus the U.S. We’d get outright grants and subsidies in Spain, in Mexico, in Brazil — all kinds of grants. ... I have played the states against each other over here.”

Giveaways, whether granted to Iacocca’s employers in decades past or to companies today, rarely get even the minimal media scrutiny Trump’s involvement in the Carrier deal generated. Yet scholars who have examined such programs find they are largely a waste.

The state of Michigan runs a number of such programs before and it may soon create another for well-connected developers including, but not limited to, Dan Gilbert of Quicken Loans.

One set of newly proposed subsidy bills would transfer $250 million a year or more from Michigan families and small businesses in just 15 deals a year.

One old program still costing us money is called the Michigan Economic Growth Authority. Even after being replaced with a different corporate welfare programs in 2011, it is still shelling out hundreds of millions of dollars annually to a handful of corporations granted long-term subsidies. 

There is no free lunch: The taxpayers from whom the MEGA loot was taken probably would have generated more economic growth and jobs with those resources than the handful of big players who collected the boodle.

The programs are also expensive to run. The agency in charge of granting those huge MEGA subsidies had 31 individuals on its payroll who collected more than $100,000 a year.

Then there’s what Nobel economist Friedrich Hayek dubbed “the fatal conceit,” that government central planners can accurately pick economic winners. Unlike real investors who put their own money at risk, such officials have no skin in the game and their dismal record shows why that fact matters.

Finally, even an unconventional politician like Trump is not immune to trading short-term political gains for long-term economic damage. The risk is even greater for the younger and less affluent political careerists who populate Michigan’s legislature. Approving handouts to a class of potential employers is an attractive nuisance for term-limited pols with an eye out for post-legislative opportunities.

In contrast — and where socialists like Bernie Sanders are utterly wrong — broad-based supply-side tax cuts and regulatory reform would be a boon for every company, worker and aspiring job-seeker. Trump and state politicians alike will see faster economic growth and development if they just leave everyone alone instead of chasing a few corporations with bags of taxpayer cash.

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Michigan Senate Passes Sensible Transportation Reforms

Uber, Lyft and taxis to play by the same rules

On December 1, the Michigan Senate passed a package of bills that would dramatically improve the ability of Michiganders to get around.

The package was originally written to provide a statewide regulatory framework for ridesharing companies like Uber and Lyft, which have been operating in Michigan in a legal gray area. Some cities embraced the services, others banned them. The uncertainty has made it difficult for ridesharing companies to expand beyond a handful of areas in Michigan, and has caused major headaches for drivers, who have received tickets for not having commercial licenses.

The latest bills provide not just a solution to this problem, but to another wrinkle the expansion of ridesharing presents: competition with taxis and limousine services. These traditional transportation companies are understandably threatened by the disruptive innovation of Uber and Lyft, but they are right to object to any regulatory advantage state law might have provided ridesharing companies. Because Uber and Lyft are not traditional transportation companies, it doesn’t make sense to force them to operate under the same rules and regulations placed on taxi companies, some of which are onerous and irrelevant to ridesharing.

The bills recently passed by the Michigan Senate address this problem by extending the new rules not just to Uber and Lyft, but to taxis and limousine services as well, significantly lessening their regulatory burden and leveling the playing field.

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The House is expected to pass the package, which will provide reasonable standards for insurance, driver qualifications and vehicle inspections. The standards will apply equally to taxi companies, limousine services and ridesharing companies. Perhaps most importantly, the bills apply these rules evenly across the entire state, which means no municipality will have the option to create more burdensome regulations or restrict choice by banning a company altogether.

For more information, read a recent Mackinac Center Viewpoint on this topic, or visit www.mackinac.org/ridesharing to hear from Uber and Lyft drivers themselves.

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Michigan Legislature Set to End Union Schemes

Special ‘release time’ and pension spiking arrangements unfair to taxpayers

A free ride for union officials would be ended if the Michigan House passes two bills that are up for consideration this week. Under the bills, union heads could no longer rely on taxpayers to pay for their private release time or pensions.

House Bill 279 would “prohibit public school districts from adopting arrangements in which a school employee goes to work full time for a teachers union but remains a school employee for purposes of collecting a government pension.”

At least the past three presidents of the Michigan Education Association, and a dozen or so other union officials, have been using school districts to spike their taxpayer-guaranteed pension. In these arrangements, the school employee leaves a government job to work for a private union. But the district continues to pay that person and then gets reimbursed by the union. This means the union official, who works for a private organization and not the public, receives a taxpayer-provided pension that is higher than it would have otherwise been.

In the case of current MEA President Steve Cook, he was a paraprofessional for the Lansing school district making an hourly wage that would have given him an estimated pension for less than $8,000 per year. Instead, the union and district made an agreement that laundered his salary through a public entity to get him a pension estimated at over $100,000 annually for life. Past union presidents Luigi Battaglieri and Iris Salters had similar arrangements with other districts. The bill would end this scam.

Senate Bill 280 would “prohibit the state and local governments including public schools from carrying union officials on their payroll for doing union work, on either a full time or part time basis.”

Many school districts in Michigan, at least 70 currently, have provisions in their contracts by which they pay the salary and benefits of employees who are “released” to a union. In other words, districts have “ghost” teachers, bus drivers, secretaries, and more on their payroll — former workers who instead do work for the union. This practice directly costs taxpayers $3 million per year in salary and much more in pensions, health benefits, and more.

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When taxpayers fund release time for government employees, they are paying them to work for a private entity rather than the public. This scheme costs taxpayers twice — once to pay for the union official’s salary and again to pay for a replacement in the classroom.

Both of these issues were broken by Michigan Capitol Confidential. The bills were submitted by Sen. Marty Knollenberg, R-Troy, and have passed the full Senate. The House is taking them up this week. It should make these unfair deals a thing of history.

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Why School Choice is So Valuable

Detroit Schools doesn’t expect academic progress for a decade

The head of the public school district in Detroit doesn’t expect academic progress for up to 10 years. It’s a good thing students in the city have other options.

The district had to be bailed out by state taxpayers and recently its chief executive testified before legislators. The Detroit News noted the remarks from Alycia Meriweather, interim superintendent for the Detroit Public Schools Community District:

Meriweather said the Legislature’s debt relief for the school system has helped educators turn their attention back to improving academic achievement. But she warned it could be years before lawmakers see progress in test scores and academic growth.

“It will take us eight to 10 years to get there,” she said. “We have a lot of work to do.”

As a colleague noted: “If I'm a parent with a second-grader in DPS, I'm really glad there's plenty of school choice options available so I don't have to accept that decade of failure for my child.”

The traditional public school system in the city has performed the worst in the nation on every one of the “nation’s report card” tests (National Assessment of Education Progress) for about a decade. At one point, the executive director of the council that administered the assessment said this about Detroit Public Schools: “There is no jurisdiction of any kind, at any level, at any time in the 30-year history of NAEP that has ever registered such low numbers. They are barely above what one would expect simply by chance, as if the kids simply guessed at the answers.”

For this reason and others, about half the students in Detroit have fled the traditional public school system, mostly to charters or nearby districts.

Infrastructure Funding Principles

Eight things the governor’s 21st Century Infrastructure Commission should remember

As I write this, Gov. Snyder’s 21st Century Infrastructure Commission is releasing its recommendation at a news conference in Dearborn. I was honored to be invited but am unable to attend. Over the next days and weeks, we will have more to say as we compare the commission’s recommendations with the Mackinac Center’s free-market principles.

Here’s a recap of five road funding principles that we published months ago, plus three more guidelines in light of today’s announcement by the commission. (These principles apply to virtually all public infrastructure, not just roads.)

  1. Advocate for high-quality, well-funded roads as a public good that serves taxpayers’ interests. Taxpayers will pay for poor government roads one way or another — through excessive taxes, vehicle repairs or an impeded economy.
  2. Illuminate and eliminate inefficient road spending practices and recommend reforms within road agencies.
  3. Retain the user-fee principle. Those who drive more should pay more.
  4. Identify and recommend ways to direct more money from current revenues to roads. This means reassigning state spending from lower-priority programs to the roads until they are adequately funded. It isn’t as if people aren’t taxed enough, and it isn’t as if government lacks sufficient revenue to have decent infrastructure. The problem is that government has prioritized relatively low-value things above some of its core priorities like infrastructure. For example, no amount of spending on Pure Michigan ads or MEDC business subsidies will undo the public relations damage (not to mention the more important public health damage) caused by poisoning Flint’s water supply with lead. Fulfillment of core government functions shouldn’t result in new taxes; it should result in reprioritizing existing spending. Corporate welfare is a great place to start the reprioritization.
  5. Refrain from advocating for bigger government overall. Imposing new road taxes should be a last resort as long as lower-priority spending remains untouched.

Three additional principles:

  1. Define infrastructure as narrowly and precisely as possible. To do so sustains trust with the public, keeps infrastructure dollars focused, reduces politicization and encourages competition. Broadband internet and other services already provided by the private sector shouldn’t be included. Goods within the definition should fit the criteria for true public use, not merely public benefit. Government infrastructure should be limited to things that the private sector cannot supply.
  2. Revenue raised for infrastructure should be spent on infrastructure. This is so obvious it hardly needs stating. It’s not only foremost a matter of integrity, it’s politically smart. Part of the reason Proposal 1 of 2015 (promoted primarily as a road funding measure) got drubbed in an historic rout was that voters perceived that a huge chunk of the $2 billion tax increase wasn’t going to fund roads.
  3. To the extent infrastructure taxes cannot be based on the user-fee principle, they should be consumption-based. Once every dollar spent on lower-priority programs has been shifted to infrastructure, if a shortfall remains, consumption taxes are generally preferred over income taxes for reasons of economic efficiency.

Last year, lawmakers increased funding for roads with a combination of tax increases and a redirection of projected revenue. Limiting the size of the tax increase was a step in the right direction. Plenty more of our $50 billion state budget could be profitably dedicated to roads without having to ask taxpayers to dig deeper to support core functions of government.

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Don’t Impose Granholm-era Mandates on Michigan Energy

With new federal regulations likely, legislators should wait on energy reform

Electric utility legislation recently passed by the Michigan Senate and now before the House continues to capture the attention of elected officials, media and energy producers.

Supporters claim the bill will save the state from energy shortfalls, protect a small amount of customer choice in the current system and expand the use of renewable sources. Opponents argue that the bill will actually kill customer choice, raise Michigan’s electric rates and expand Granholm-era mandates on electricity generation.

The bill’s supporters say its main virtue is that it ensures a reliable supply of electricity. For example, Sen. Curtis Hertel Jr., D-East Lansing, defended his Nov. 11 vote as a “good compromise.” He argued that out-of-state alternative electric suppliers that currently make up the choice market actually harm system reliability.

The Senate-passed version of Senate Bill 437 would solve this problem, Hertel said, by forcing electricity providers to build in-state generation and transmission facilities, using in-state workers. He argued, “An out-of-state company can leave at any time. And if the grid doesn’t work, it doesn’t really matter to them once they leave.”

DTE CEO Gerry Anderson echoed his concerns, claiming electricity choice providers could create system instability if they’re not required to keep several years of supply under contract.

Unfortunately, both arguments fall short for two key reasons. First, the incoming Trump administration is publicly committed to removing climate-focused regulations and taking a skeptical approach to international climate agreements. Thus, demands to close and replace Michigan’s coal-fueled generation stations — a key component of the rationale about system stability — are, at the very least, substantially limited.

Nevertheless Anderson has publicly stated his intention to push forward with closing the coal plants regardless of what happens on the regulatory front. Utilities claim that other regulations and market pressures are still forcing the closures, and that new natural gas and renewable generation can supply Michiganders with all their electricity needs.

But such heavy reliance on natural gas makes Michigan customers vulnerable to price swings, with volatile pricing that can at times make it a far more expensive option for generating electricity.

For example, in March of this year, NYMEX natural gas settlements were as low as $1.71 per million BTU (MMBtu), making gas an economical fuel. But as of Nov. 30, December gas settlements were $3.23/MMBtu, an 89 percent jump in price in less than one year. Industry experts confirm that coal can compete with natural gas when gas is as low as $2.50/MMBtu, which means that gas is currently a more expensive option.

Moreover, if system stability is a concern, that should raise questions about plans to shutter existing — and already paid for — generation plants. The question becomes doubly salient now that that regulatory pressures against coal plants have abated, and natural gas prices have not. Maintaining a diverse mix of fuels is the best means of ensuring system stability and low prices for Michigan residents.

The second reason these arguments fail lies in a fundamental premise of the American free-market system. People are best served when they have the freedom to choose between a variety of providers and products — even essential products like energy — as they see fit. Competition provides customers with lower prices, improved service and choice.

Michigan Rep. Gary Glenn, R-Midland, confirmed that competition better serves Michiganders by recounting testimony employees of Clarkston public schools gave to the House Energy Committee. Teachers testified that access to the state’s electricity choice program saves their district $350,000 per year and that without the program, five teachers would be laid off.

As Glenn recounted in a recent interview, the same program saves Bay City schools $200,000 per year, but the “Midland, Meridian, Pinconning, and Bullock Creek public schools are prohibited by law from doing the same thing.”

Lastly, supporters of SB 437 argue that for all its confusing language, the bill will protect the electricity choice that exists in the state's commercial market, and ensure the existing 10 percent of that market open to customer choice remains. Opponents argue the bill will protect choice in name only.

They point to a new "capacity charge" the bill would impose on competitors of DTE and Consumers  — effectively a new tax —  making  it difficult if not impossible for them to compete. That means that, if SB 437 passes the House, choice participants — like Clarkston Community Schools — could technically continue to “choose” an alternative energy supplier, but doing so would mean they pay much higher rates. Not much of a choice.

The Nov. 8 election dramatically shifted the national energy policy lanscape. Members of the Michigan House should listen to the voters and step back from locking the state further into Granholm-era mandates and 1930s-era electric monopolies. Concerns about reliability and shortages would be best addressed by keeping Michigan’s electricity system open to choice.

Pension Officials Mislead Lawmakers

Bureaucrats attempt to scuttle pension reform with inaccurate and irrelevant information

Michigan’s Office of Retirement Services did a disservice to state lawmakers and the public in a Senate appropriations committee meeting on Nov. 30. Testifying on Senate Bill 102, which would close the state’s massively unfunded school pension system to new enrollees, ORS repeatedly told lawmakers that the proposed bills would generate hundreds of millions of dollars in new costs to the state. The bills would do no such thing, however, meaning that ORS experts either did not read the bills before testifying or just don’t understand them and shouldn’t have weighed in.

A couple of years ago, when a similar bill was being debated in Lansing, ORS testified that closing the pension system would require huge, upfront “transition costs.” The bill the Legislature took up this year would close the current pension system to new enrollees and explicitly require the state to avoid paying these optional costs. Yet, ORS officials recommended following so-called best practices of pension financing that are entirely irrelevant to these bills, because those practices would be against state statutes if the legislation were implemented. ORS maintained, however, that the state still should incur these phantom costs if the law were approved.

In addition, ORS cited in its testimony extra projected costs of this reform that would not be triggered by the legislation. These costs may occur if the administrators of the retirement system would like to trigger them, but that would be an administrative decision that would happen outside the scope of the legislation.

Because ORS insisted on the importance of following best practices in funding and managing a retirement service, lawmakers ought to note a number of activities — clearly not best practices — that ORS has itself engaged in or otherwise completely ignored. Here is an incomplete list:

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  • Carried unfunded liabilities in the pension system for 33 of the past 34 years. This requires extra payments that have inflated the cost of the system;
  • Racked up $26.7 billion in unfunded liabilities over the past 20 years;
  • Continued to assume that payroll will grow 3.5 percent annually when it has steadily decreased; from 2008 to 2014, school payroll fell 15 percent, though ORS assumed it would increase by 23 percent over this period and has not changed this assumption moving forward;
  • Pledged retirement assets to guarantee the bonds on a speculative movie studio;
  • Maintained a policy to not pay the required amount of annual interest due on the system’s unfunded liabilities;
  • Failed to pay the annual required contributions of the pension system 14 out of last 20 years;
  • Rejected state auditor's recommendation to lower payroll growth assumptions and ignored warnings about optimistic investment return assumptions;
  • Marked assets to market during good times to shortchange annual costs of the system. The last time the system had enough assets to pay for liabilities was due to this change in 1997. And lawmakers did so again in 2006 to artificially lower annual required costs.

Based on its testimony, it seems like ORS is more interested in protecting the status quo — the $26.7 billion underfunded, defined benefit school pension system that is ruining school district budgets and promising pensions that the state cannot afford — than it is in providing lawmakers and the public with an accurate and thorough analysis of proposed legislation. Legislators should be skeptical of ORS’s sudden interest in ensuring pension-funding “best practices” and pension system solvency.

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