The MC: The Mackinac Center Blog

Members of the Michigan House of Representatives today announced efforts to reform the state’s criminal laws. The efforts will be spearheaded by a working group, co-chaired by Rep. Chris Afendoulis, R-Grand Rapids Township, and Rep. Kurt Heise, R-Plymouth.

The group will identify antiquated or unnecessary criminal statutes that can be repealed, and will recommend penalties that fit the severity of the crime. A package of bills introduced would repeal numerous outdated laws. The announced reforms are part of the House Republican Action Plan.

A 2014 study published by the Mackinac Center and the Manhattan Institute found that Michigan has more than 3,100 laws on the books and has created an average of 45 new crimes in each of the last six years.

Legislators are taking an encouraging first step toward a comprehensive review of Michigan’s criminal code. Its criminal law is overgrown with prohibitions that do little to protect personal safety or property. The House would do well to review even more criminal laws, particularly where the law harshly penalizes activity that most residents would consider harmless. In addition to repealing silly or outdated laws, the Legislature should enact a “default mens rea” bill, which would clarify the criminal intent required for the commission of a crime.

LaFaive in National Media

Mackinac Center experts' analysis on cigarette smuggling cited in national reports

The work of Michael D. LaFaive, Todd Nesbit, Ph. D. and Scott Drenkard is used as the basis of a reports by the Wall Street Journal, Reason, New York Post, The Sacramento Bee, The Wichita Eagle, SILive.com, CSPnet.com and several radio stations in Kansas: WHBL, WSAU, WNCY, WTAQ, WYDR. An op-ed by Dr. Nesbit also appeared in the Columbus Dispatch.

These experts show how high excise taxes on cigarettes lead to counterfeit products and tax stamps; smuggling; violence against police, people and property; and other unintended consequences.

Recommendations include cutting taxes or improving police tactics or both to reduce the smuggling problem.

LaFaive is director of the Morey Fiscal Policy Initiative.

Media Covers McHugh's Committee Testimony

Few jobs, little transparency for Michigan corporate welfare machine

Senior Legislative Analyst Jack McHugh’s Feb. 18 testimony to a House committee received attention in media outlets including WOODTV, Detroit Free Press, The Detroit News, Grand Rapids Press, Lansing State Journal, WZZM 13, Battle Creek Enquirer and HometownLife.com. Members of the House Tax Policy committee expressed concern about the $9.38 billion tax credit liability estimate from Michigan Economic Development Corp (MEDC), a nearly $3 billion increase from previous estimates. McHugh’s testimony also questioned the lack of economic development and transparency from the MEDC.

The Mackinac Center has done hundreds of news articles and commentaries about the lack of jobs generated by the MEDC's Michigan Economic Growth Authority (MEGA) tax credit program, which was eliminated in 2011 but is in the news because the state budget is taking a hit due to past deals.

A 2009 study and 2005 study found that state corporate welfare programs exaggerated job claims and cost more money than they were worth. Numerous reports from the Michigan Auditor General found similar results.

(Editor's note: Jack McHugh, senior legislative analyst, delivered this testimony to the Michigan House Committee on Tax Policy on Feb. 18, 2015.)

I’m going to touch on three issues in the next few minutes. First, some recent history on Michigan’s government economic development programs. Second, characterizing what an extensive body of scholarly research on such efforts has found. And third, offering some reform recommendations.

In the modern era Michigan first began systematically trying to influence the direction of the economy under Gov. Kim Sigler in 1947. Since then every governor has put his or her stamp on the activity, with several major expansions along the way.

Fast forward to 1995, when Gov. John Engler created the Michigan Economic Growth Authority. This granted select firms Single Business Tax credits in in return for agreements to create a specified number of jobs — initially there was a minimum of 75 or 150 jobs.

The program was used sparingly at first, with only 15 deals during its first full year. However, by mid-2009 the statute had been amended 20 times, mostly with eligibility expansions and weakening of once-tight requirements.

As rigorous performance thresholds and standards for companies were eroded, use of the program steadily grew. In 2010, 110 MEGA deals were announced.

A graphic illustrates the rise in MEGA deals overlaid with Michigan’s unemployment rate. To many observers it appeared that MEDC’s main response to plummeting state employment was ever increasing job press releases. The reality was, even with its MEGA powers, the MEDC presided over arguably the worst economic decline in Michigan’s history.

MEGA has been around long enough that several institutions have performed systematic studies. None of these gave a full-throated endorsement, though one had a more positive take.

  • In 2010 the Michigan Auditor General reported that MEGA agreements “have a combined success rate (excluding retention credits) of 28 percent ...” relative to stated goals.

The figure overstated the impact because it did not control for how the firms without special favors fare. Studies published by the Mackinac Center in 2005 and 2009 did control for this, and found lower job creation impact.

  • In 2010 the Anderson Economic Group found that the opportunity cost of running the program versus comparable across-the-board business tax cuts cost Michigan 8,200 jobs.

This is the only positive assessment I am aware of. Upjohn scholars argued MEGA had created 18,000 jobs over 11 years, a very modest 1,600-plus per year.

  • The Mackinac Center’s 2005 MEGA study found that for every $123,000 in tax credits offered just one construction job was created, all of which disappeared within two years. The program had zero net impact on manufacturing or warehousing employment.
  • In 2009 we did a second MEGA study that found a statistically significant link between MEGA and manufacturing jobs — but it was negative. For every $1 million in credits actually earned there was a loss of 95 manufacturing jobs in counties with MEGA firms.

More broadly, a great deal of academic literature exists on selective business incentive programs. Overall, the assessments are unflattering. The title of one 2004 compilation of findings tells the tale: “The Failures of Economic Development Incentives.” Here’s an excerpt:

Since these programs probably cost state and local governments about $40-$50 billion a year, one would expect some clear and undisputed evidence of their success. This is not the case. In fact, there are very good reasons … to believe that economic development incentives have little or no impact on firm location and investment decisions.

Why doesn’t it work? In a 2009 Mackinac Center Policy Brief on Michigan’s film incentive program, my colleague Mike LaFaive laid out four reasons:

  • First, government has nothing to give anyone it doesn’t take from someone else. At best these programs just redistribute income.
  • Second, doing that costs money. Just the MEDC staff expense amounts to tens of millions annually.
  • Third, it also misallocates scarce resources. MEDC employees are not imbued with Warren Buffet-like ability to pick winners and losers in the marketplace. If they were, they would be billionaire hedge fund owners, not civil servants.
  • Lastly, bureaucrats are inherently inclined to make decisions based on political rather than economic factors. That’s a recipe for bad performance in a competitive marketplace.

What’s the solution?

The truth is these are mostly political development programs, not economic development programs. They’re a perennially attractive nuisance for elected officials, but the public is catching on. The political costs of supporting these programs are starting to catch up with the perceived political benefits. 

The solution is actually quite simple: Just say no, starting with the appropriations process. We estimated last year that “just say no” would save at least $300 million in the current budget. Next year it will be more. The usual counter-argument is that since other states do it this would amount to “unilateral disarmament.” My response is, let the other states keep their expensive and ineffective pop-guns — we will surpass them by offering all opportunity seekers a fair field with no favors.

In the meantime, while the agency still remains, it absolutely must be made more transparent. The MEDC is almost certainly Michigan’s least transparent government agency. A 2009 Mackinac Center Policy Brief gave startling details of this dismal record.

The current administration has tried to change this. Still, as the budget drama of the past few weeks has shown, the liabilities created by past MEGA deals are still surrounded in mystery, secrecy and uncertainty.

Actually, the MEDC wasn’t always quite so secretive. From 1995 through part of 2009, when asked it routinely provided breakdowns of the value of credits claimed and the companies claiming them up.

However, our 2009 study of MEGA could not be replicated today because since then officials have asserted “administration of a tax” confidentiality. To the extent this is anything more than a specious effort to dodge accountability, the assertion raises troubling questions:

  1. If the state violated the law by publishing such data in the past was anyone called to account? Did anyone lose their job?
  1. Who at Treasury or the MEDC decided that such data was now off limits, and why didn’t they make this determination sooner?

What we do know is that after being criticized many times with rigorous specificity for poor outcomes MEDC became aggressively less transparent. Less available data means a lower likelihood that rigorous analysis of alleged “job creation” abilities would reveal these to be lacking.

We recommend the following transparency solutions:

  1. Demand that the MEDC or Treasury explain why “administration of a tax” secrecy applies now but not in the past.
  1. Require that current claims of any past MEGA credits must be accompanied by public disclosure of their value by company, agreement, and when the credits were claimed.
  1. Require the MEDC identify which MEGA projects are no longer active.
  1. Going forward, any company that accepts tax credits, abatements or subsidies should waive any right to privacy related to its transactions with the state, including cash disbursements and taxes foregone by the state.
  1. For the MEDC, mandate a rigorous and independent “opportunity cost” estimate of every program, similar to the one performed by Patrick Anderson. Don’t let the MEDC choose the consultant! Maybe the Auditor General could do that.

Impact and How They Voted on May 5 Sales Tax Increase Ballot Measure

Who voted “yes” and who voted “no” for $2 billion tax increase

Approximately two billion dollars in additional taxes will be collected if voters approve a May 5 ballot proposal, based on figures projected by Michigan's legislative fiscal agencies. Here is the breakdown:

The May 5 ballot measure would increase the state sales tax from 6 percent to 7 percent. If approved by voters it would by itself collect an additional $1.427 billion in sales tax each year, and also automatically trigger an additional $523.9 million tax increase in the first year, and $663 million annually when all tax changes are fully realized (not counting inflation indexing provisions that could make the number higher in future years).

If voters say “no” to the ballot measure these other tax hikes will not go into effect. They include:

  • A net gas and diesel tax hike of $463 million. The actual increase will depend on the price of fuel.
  • Vehicle registration tax changes that will raise $10.9 million in the first year, and $150 million when fully realized.
  • A $50 million increase in truck registration taxes.

This is on top of a $60 million Internet sales tax that goes into effect regardless of the May 5 vote, reportedly enacted as part of the deal to put the sales tax increase on the ballot. The package also increases by $260 million state spending on low-wage household income enhancement subsidies distributed as tax credits, which is contingent on a “yes” vote.

The House Fiscal Agency has published a detailed analysis of the entire package. All told it is projected to collect around an additional $2 billion each year, of which $1.2 billion will go to road funding.

~~~~~~~~~

Here are the December 2014 votes that placed the sales tax increase on the ballot, and authorized other tax hikes, most of which are contingent on its passage:

2014 House Joint Resolution UU: Place sales tax increase to 7 percent on May 5 ballot

Passed 94 to 16 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 26 to 12 in the Senate on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

2014 House Bill 5477: Increase gas tax
To replace the current 19-cent per gallon gas tax to 41.7 cents, and the 15-cent diesel tax to 46.4 cents, and index these taxes to inflation. This would be partially offset by exempting fuel sales from the state sales tax (House Bill 4539). However, neither bill will go into law unless voters approve House Joint Resolution UU in a May 5, 2015 vote, which would increase the state sales tax from 6 percent to 7 percent. When combined with other tax hike bills in the package it represents a net tax increase of around $2 billion.

Passed 23 to 15 in the Senate on December 19, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 93 to 17 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

2013 House Bill 4539: Exempt fuel sales from sales tax
To exempt gasoline and diesel purchases from sales tax. This will not go into effect if voters do not approve the sales tax hike in a May 5, 2015 election.

Passed 88 to 22 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 23 to 15 in the Senate on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

2013 House Bill 4630: Increase vehicle registration taxes
To increase vehicle registration taxes on trucks, on cars more than three years old, and on electric vehicles. This will not go into effect if voters do not approve the sales tax hike in a May 5, 2015 election.

Passed 67 to 43 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 23 to 15 in the Senate on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

2013 Senate Bill 659: Impose “Amazon tax” on internet purchases
To impose the state use tax on catalog or internet purchases made from sellers outside the state with affiliates inside the state, in the manner pioneered by internet retailer Amazon.com. This goes into effect regardless of the May 5 ballot measure.

Passed 21 to 16 in the Senate on December 11, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 83 to 27 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

2014 Senate Bill 847: Increase Earned Income Tax Credit
To increase the state earned income tax credit from an amount equal to 6 percent of the federal EITC to 20 percent, which will distribute around $260 million annually to low income wage households in the form of a “refundable” tax credit, where a check is sent to households who owe no income tax. This will not go into effect if voters do not approve the sales tax hike in a May 5, 2015 election.

Passed 78 to 32 in the House on December 19, 2014.
Who Voted "Yes" and Who Voted "No"
Passed 23 to 15 in the Senate on December 19, 2014.
Who Voted "Yes" and Who Voted "No"

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Last year, the Legislature passed a bill that blocks the direct sale of automobiles in Michigan. This makes it significantly more difficult for innovative car manufacturers, such as Tesla and Elio, to do business in Michigan, and limits the choices of consumers. Although cars dealers benefit from having their competition curbed, a 2009 study by the U.S. Department of Justice claims that this policy, according to the best available estimate, costs consumers about $2,000 extra per vehicle, or about 9 percent of the average cost of a new car.

The Mackinac Center has signed on to a public letter which explains, from many different perspectives, why this policy is harmful. We are co-signers with the Sierra Club, Institute for Justice, Consumer Federation of America, Americans for Prosperity, Environment America and the American Antitrust Institute, among others.

You can read the full letter below.

Sign-on Statement to State Government Leaders About the Anti-Consumer Effects of Laws Prohibiting Direct Distribution of Automobiles

We, the signatories of this letter, represent a broad range of public interest organizations.  Our individual interests include such diverse matters as environmental protection, economic freedom, fair competition, consumer protection, and technology and innovation.  Some of us frequently find ourselves on different sides of public policy debates. However, we now find common ground on an issue of considerable public importance concerning state laws that restrict the purchase and sale of automobiles. In short, we oppose efforts by state legislatures or regulatory commissions to forbid car manufacturers from opening their own stores or service centers in order to deal directly with consumers. Such laws are unnecessary for consumer protection, interfere with competition and efficient distribution, increase costs to consumers, and mount barriers to the introduction of innovative and beneficial new technologies.

At present, many states have on their books decades-old laws addressing the relationship between car manufacturers and their franchised dealers. These laws were ostensibly designed to protect dealers from unfair practices by their franchising manufacturers.  Among the provisions in many of these state laws are prohibitions on automobile manufacturers opening their own showrooms and service centers and dealing directly with consumers. At the time these laws were passed many decades ago, the car dealers argued that manufacturers should not be allowed to compete directly with their own franchised dealers, since they might then be able unfairly to undercut their dealers on price.

However valid these concerns may or may not have been at a time when the “Big Three” manufacturers dominated the market, it is important that the law keep up with the changes that have occurred in the automobile market today. The automobile industry is far more competitive today than it was in the 1950s, with many more manufacturers participating on a significant scale. This increased competition gives dealers more choices in franchising relationships and greater bargaining power to protect themselves against unfair trade practices by manufacturers, thus undercutting the original rationales for these laws. More fundamentally, there are no valid reasons to use these laws that were intended to protect dealers in franchising relationships to thwart new market entry and competition from companies that do not seek to use franchised dealers at all. While we take no position in this letter on the appropriateness of many other aspects of dealer protection laws, we are strongly opposed to efforts to use these laws to block direct distribution.

Much of the recent public debate on this issue has centered on Tesla Motors, which makes all-electric vehicles, and seeks to distribute and service its cars directly to consumers. Tesla has explained that its direct distribution model is necessary because traditional car dealerships have been unwilling or unable to promote electric vehicle sales with sufficient expertise or vigor. Tesla’s market entry through direct distribution is providing consumers with beneficial new choices on what vehicles they buy and how they buy them. Moreover, our concerns are not limited to Tesla, as these laws have similarly negative effects on any company seeking to distribute their cars directly to consumers.

These laws have negative consequences for the entire automotive industry—including what kinds of cars are built and sold, how they are powered, and what innovative new technologies can reach the market.  Direct distribution could significantly reduce costs for consumers and increase customer satisfaction. These laws retard innovation by making it harder for new technologies to achieve wide distribution and hence reach an adequate scale to be sustainable in the market. They put one more obstacle between consumers and the technologies that can help reduce carbon emissions and prevent consumers from accessing clean cars. Finally, these laws do not rest on a legitimate public policy basis for constraining the ability of a company to choose how to operate its business.

The diversity of perspectives represented in the coalition signing this letter reflects the importance of this issue on multiple fronts. We call on legislators, governors, and other public servants across the political spectrum to take a stand against laws that block direct automotive distribution to the detriment of innovation, the economy, consumers, and the environment.

Respectfully,

Signatories:

American Antitrust Institute

Americans for Prosperity

Consumer Federation of America

Consumer Action

Consumers for Auto Reliability and Safety (“C.A.R.S.”)

Environment America

Institute for Justice

The Information Technology & Innovation Foundation

Mackinac Center

Sierra Club – National

February 13, 2015, MichiganVotes Weekly Roll Call

Presidential primary, absent voting, subsidies ate the budget.

Only two roll call votes occurred in the full House and Senate this week. Two substantive committee votes are also described in this report.

Senate Bill 44, Hold GOP presidential primary on March 15, 2016: Passed 38 to 0 in the Senate

To require the Republican presidential primary election to be conducted on March 15, 2016, rather than Feb. 23 as currently required.

Who Voted “Yes” and Who Voted “No”

Senate Bill 44, Bieda “no reason absentee voting” amendment: Failed 26 to 12 in the Senate

To tie-bar the presidential primary bill to Senate Bill 59, meaning it cannot become law unless SB 59 does also. SB 59 would eliminate the requirement that a person give one of the reasons specified in statute for requesting an absentee ballot.

Who Voted “Yes” and Who Voted “No”

Budget Shortfall Executive Order Vote

This week Gov. Rick Snyder issued an executive order trimming $102.9 million of state spending in the current fiscal year, as required by the state constitution when spending exceeds projected revenue. The House and Senate Appropriations Committees approved the order, which is also required by the constitution for it to go into effect.

Although state revenue collections are actually rising faster than spending in the current year, a shortfall occurred because corporations and developers who were granted selective “tax credit” deals by the previous two administrations are reportedly “cashing in” $351 million more of these this year than originally projected. These deals extend as much as 20 years into the future, and in many cases the “credits” are actually taken as cash payments from the state. (Government secrecy prevents discovering the amount taken in cash.)

The largest cut in the executive order isn’t really a “cut” but is removing $16 million from the budget that had been appropriated for disaster relief but not spent. The largest real cut is reducing state subsidies paid to film producers this year from $50 million to $38 million. Another $17.8 million will be saved by trimming a number of Department of Corrections programs and prison expenses. The rest of the cuts are smaller amounts spread across a broad range of government programs.

Here are the House and Senate Appropriation Committees roll call votes on the executive order:

House
Republicans in favor:
Jon Bumstead, Chris Afendoulis, John Bizon, Edward Canfield, Laura Cox, Cindy Gamrat, Larry Inman, Nancy Jenkins, Tim Kelly, Michael McCready, Aaron Miller, Paul Muxlow, Dave Pagel, Al Pscholka, Earl Poleski, Greg Potvin, Rob VerHeulen, Roger Victory
Republicans opposed: None
Democrats in favor: Harvey Santana
Democrats opposed: Brian Banks, Brandon Dillon, Fred Durhal III, Jon Hoadley, Jeff Irwin, Kristy Pagan, Sarah Roberts, Sam Singh, Henry Yanez, Adam Zemke

Senate
Republicans in favor:
Dave Hildenbrand, Peter MacGregor, Goeff Hansen, Jim Stamas, Tonya Schuitmaker, Marty Knollenberg, Darwin L Booher, John Proos, Mike Nofs, Mike Green, Jim Marleau
Republicans opposed: None
Democrats in favor: David Knezek
Democrats opposed: Vincent Gregory, Hoon-Yung Hopgood, Curtis Hertel Jr., Coleman Young II

Republican Mike Shirkey was absent.

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.

Reitz on Overcriminalization

Media coverage and MCPP, ACLU and Manhattan Institute panel discussion

Executive Vice President Mike Reitz and Miriam Aukerman, a staff attorney with the ACLU of Michigan, recently co-authored an Op-Ed in the Lansing State Journal outlining the “overcriminalization” of Michigan and how the Legislature can take steps to correct the problem.

Reitz in October co-authored a study on the issue with James Copland and Isaac Gorodetski of the Manhattan Institute. Reitz, Copland and Aukerman took part in a panel discussion at noon Wednesday in Lansing.

An article based on the study appeared on Friday in The Detroit News.

Ballot Proposal Backers Weighing Strategy

$2 billion tax hike vote on May 5

Voters will decide May 5 on whether a $2 billion tax increase passes or fails.

(Editor’s note: Jack Spencer is capitol affairs specialist for Michigan Capitol Confidential and a veteran Lansing-based reporter. His columns do not necessarily represent the views of the Mackinac Center for Public Policy or Michigan Capitol Confidential.)

On May 5 Michigan voters will have the chance to either approve or reject the road funding deal Gov. Rick Snyder and the Legislature hashed out during the December lame duck session. All told, that deal is a $2 billion tax hike, which is considerably more than the $1.2 billion to $1.5 billion the governor had been saying is needed for roads.

Many political observers believe the May 5 ballot proposal has little chance of passing. Early polling shows support for it to be weak, indicating that those trying to “sell” the proposal will be starting out in a hole. Yet, polling ballot proposals is a tricky business and the May 5 election date could magnify that fact.

The centerpiece of Proposal 1, which is what the measure is officially called, is an increase in the sales tax from 6 to 7 percent. Other aspects of the deal the voters will be deciding upon might be only vaguely referenced in the ballot language. Ironically, because of the way the deal was structured, the ballot language will say nothing about fixing the roads. None of these characteristics would be expected to help the proposal’s chances for passage.

The ballot language, however, might end up not mattering much. It seems likely that most of the voters who participate in the May 5 election will have made up their minds about the proposal before they even see their ballots.

The voters’ perceptions about the proposal will be formed by the information they pick up through news sources, campaign messaging, word-of-mouth and social media. It’s apparent that the proposal will be promoted as providing a funding to fix the state’s roads and bridges and making sure all taxes collected at the pump are used for this purpose. Beyond that, it could prove interesting to see what strategy those who want the proposal to pass decide to employ.

One distinct possibility is that there will be an effort to downplay the proposal — say little or nothing about it publicly or in TV and radio ads — until just prior to May 5. Meanwhile, the campaign for passage would work to get the word out, through the use of mailings and on websites, to targeted voting groups that might be expected to support the proposal. In other words, avoid reminding the general public that there’s an important election on May 5, while quietly making sure voters who would probably vote “yes” are reminded of it frequently.

Under certain circumstances such a strategy could work, but its potential flaws might outweigh its advantages.

First, trying to keep voters unaware of, or to lull them into forgetting about, a statewide ballot proposal to increase taxes would not be an easy task. Voters have an uncanny ability to find out about attempted tax hikes, especially if there is any sort of effort, grass roots or otherwise, to make sure they are aware of them. Those who oppose the proposal need only repeatedly get the following words out — “tax hike” and “May 5” — to almost guarantee that the “no” voters won’t skip the election.

Second, getting large numbers of targeted likely “yes” voters to the polls on May 5 would be easier said than done. State Democrats, with the aid of well-funded labor unions and other entities, tried every up-to-date electioneering technique available to boost their base turnout in November 2014, but the results were an abysmal failure. Though the Republican turnout was nothing to boast about, the Democratic turnout was even worse.

Apparently it takes more than clever ploys and well-conceived incentives to mobilize voters when they just aren’t excited about what they’d be voting for or against. And it is very difficult to envision droves of voters getting real excited about hiking their own taxes, even if they’re sick of potholes.

Say what you will about Gov. Snyder, it is clear that he is not your average politician. When he says he’s committed to “relentless positive action” he means it. That’s why there is a real possibility that the strategy used to try to pass the May 5 ballot proposal could end up being a relatively straight-forward attempt to sell the proposal to the voters.

This would be a “positive” campaign — backed by a lot of money — that declares a “yes” vote on May 5 means all taxes paid at the pump go toward fixing the roads. If this ends up being the strategy, the governor should be credited with openly taking his case directly to the voters, rather than trying to orchestrate which voters do and don’t turn out. All things considered, this kind of strategy probably has the same chance — less than 50 percent — of succeeding as any other would.

Keep in mind that in such a “positive” campaign, there would be no mention that the proposal is a $2 billion tax hike. But, after all, pointing that out will be the job of the news media and those who oppose the proposal.

Ultimately, all that really matters is that Michigan voters are aware of the May 5 election and know what the proposal would do. If those two elements are put in place, then there will be assurance that the will of the voters is going to prevail.

Closing School Retirement System the Right Choice

MPSERS has been underfunded in 29 out of the past 30 years

Michigan House Republicans recently released a reform agenda that calls for closing the state-run school employee retirement system to new employees. Senate Majority Leader Arlan Meekhof, R-West Olive, reiterated the proposal.

The necessity of closing the current defined-benefit pension system and instead offering new employees a defined-contribution plan is simple: the state underfunds pensions.

According to the legislative auditor general, the system has been underfunded in all but one of the past 30 years. The system carries a $25.8 billion unfunded liability. Michigan taxpayers are now on the hook for 13 times more in unfunded school pension liabilities than the total amount secured by the faith and credit of the state taxpayer.

Not surprisingly, the underfunding caused the cost of the system to skyrocket. Retirement benefits now consume 34.54 percent of school payroll. Reports show that to eliminate the current unfunded liability the state would have to pay “catch up costs” starting at $1.9 billion per year and rising for the next 23 years. Even these large costs assume that benefits will not be further underfunded.

The system obviously puts taxpayers at risk, but future school retirees have the most to lose. Under the current system their economic security depends on the state continuing to make multi-billion dollar contributions over the next generation – a duty it has failed to adequately perform over the past generation.

Most of what is said by officials and politicians opposed to closing the current system are distractions that ignore the basic underfunding problem.

For example, it is claimed that a defined-contribution system would “cost more” than defined-benefit pensions. But if the state underfunds the current system, then the cost comparisons between the “normal cost” of defined-benefit plans (not counting catch up costs) and the employer costs for defined-contribution plans give misleading results.

Other questions raised about the system's influence on attracting quality employees, how to address “transition costs,” and market volatility are also important but miss the reason that pensions need to be reformed. Policymakers need to acknowledge the main problem of the pension system and be sure that they contain its ability to develop further unfunded liabilities. House Republicans and the Senate majority leader are right to make this a priority.

For more information, please see:mackinac.org/pension