The MC: The Mackinac Center Blog

Lessons from Muskegon Heights School Overhaul

Detroit can benefit from similar reforms

On July 1, a new Detroit school district was created as part of a major legislative reform package — the old district will remain but serve only as a tax collecting entity. Another new organization will be responsible for educating students. This dual-district model, however, is not a new concept.

Just four years ago, Muskegon Heights Public Schools used a similar method to deal with its financial struggles. Lessons from its experience could provide valuable insight as Detroit starts a similar journey.

Muskegon Heights seems to have successfully reduced its spending and stayed on stable fiscal ground. The old district was spending over $15,000 per pupil in 2010-2011, creating a budget deficit of over $2 million. Under new management, the district receives $11,789.59 per pupil and has so far prevented expenditures from outpacing revenues.

A financially failed school district must get its finances in balance to move on, which Muskegon Heights accomplished while under emergency management. There are certainly lessons here for Detroit.

While the district needed to overcome its financial distress, the ultimate goal of any school should be increasing student achievement. Unfortunately, state data shows that academic performance in Muskegon Heights is declining in areas such as scores on the ACT and the graduation rate. On the other hand, the district's elementary grades are a bright point. In the 2014-15 school year, 3rd and 4th graders' proficiency rates on the state math test broke into double digits — a step up from 0 percent before the change in management.

There is no doubt these test results are affected by the several challenges the district continues to battle. Data collected from MI School Data shows the share of economically disadvantaged students attending Muskegon Heights grew to 86 percent, up from 79 percent in 2010-11. And although enrollment briefly stabilized for a period, overall, the student population is down considerably since the district broke into two separate entities. What’s more, chronic absenteeism is up: MI School Data shows that in 2011-12, 34.25 percent of students were chronically absent, in 2014-15, the rate was 74.46 percent.

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Muskegon Heights has placed an emphasis on parental involvement to tackle these academic problems. In the 2013-14 school year, the district strived to reach 100 percent attendance at parent-teacher conferences. The effort to increased parent involvement is still evident today as the district tries to make it easier for parents to stay involved with newsletters and online surveys. For example, the January 2016 newsletter lays out what families can expect with the new M-STEP testing regime. It also advertises parent-teacher conferences.

The takeaway on academic performance from Muskegon Heights is that increasing achievement will certainly require more effort and a longer horizon than getting the fiscal house in order. It may take some time to adjust to new student demographics, and immediate academic excellence cannot be expected when a district needs to rebuild itself nearly from scratch.

The record of emergency management in Muskegon Heights seems to have gotten lost in Michigan’s discussions about education reform. The lack of information available might be the reason. However, it doesn’t mean that the district’s successes and weaknesses can’t provide lessons. There must be a continued effort to examine Muskegon Heights, and other schools in similar situations, to strive for more sound education policy solutions for other districts in distress.

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Recycling Pop Cans Shouldn’t Make You a Felon

The many faces of overcriminalization

Most Michiganders are familiar with the state’s bottle deposit law, which was enacted in 1976. At 10 cents a bottle or can, Michigan has one of the nation’s highest deposit rates — most of the other states that use these deposits require only five cents. But what may not be as well known is that Michigan also enforces this law with an iron fist. A recent case from Livingston County resulted in felony charges and raises the question of whether this punishment fits the crime. It also highlights Michigan’s tendency to overcriminalize undesirable behavior.

On April 27, Brian Everidge, a resident of Michigan, was pulled over for speeding while driving a rental truck in Tyrone Township. The police officer discovered that the truck was packed to the brim with empty aluminum cans — over 10,000 in all. After questioning, Everidge admitted that the cans were from Lexington, Kentucky and that he was aiming to return them for a deposit. He did not state whether he was trying to return them for Michigan’s higher deposit rate or that he knew that this was illegal. (If this storyline sounds familiar, that’s probably because it’s the basis of a famous Seinfeld episode).

Everidge was eventually charged with a felony under Michigan’s Beverage Containers Act, which prohibits individuals from returning, or attempting to return, beverage containers that they know (or should know) are from out of state. Trying to deposit more than 10,000 containers is a felony and can lead to five years in jail and a fine of $5,000. (Misdemeanor charges and civil fines are used for smaller quantities of out-of-state returns.) Grocery stores and recycling centers can also be prosecuted under this law, as it forbids any retailer from knowingly providing 10-cent deposits for out-of-state containers.

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Given Michigan’s relatively high deposit rate, it should be no surprise that people might smuggle out-of-state containers into Michigan for recycling. And, sure enough, Michigan has a fair amount of fraudulent redemptions from out-of-state returns. These out-of-state returns are difficult to prevent since most people simply walk into a grocery store, return their bottles, and leave, without any indication of where their returns came from.

While the Beverage Container Act’s criminal provisions are meant to deter out-of-state smugglers, they also demonstrate the drawbacks of using criminal law to punish behavior that most people would not consider morally objectionable and that does not threaten public safety. For example, “mens rea” (Latin for a “guilty mind”) is considered a core component of criminal law. It means that the government needs to prove that an individual at least acted with a culpable state of mind and was generally aware of his or her misconduct. Robust mens rea requirements are especially important for laws like Michigan’s Beverage Container Act, which are what legal theorists call “malum prohibitum” crimes. Such crimes involve conduct that is not inherently wrongful and is only deemed illegal because the government has passed a law saying so. Given that these types of laws do not involve inherently immoral conduct, citizens are more likely to break these laws without even knowing they exist.

Michigan’s bottle return law states that individuals must know that the containers they are attempting to return are from out of state. But the problem is that nothing in the statute explicitly requires that the person returning the containers knows that out-of-state returns are illegal. A better mens rea provision would clarify that the bottle return law’s criminal provisions only apply to those who willfully intend to break the law. In other words, harsh penalties may be appropriate for people who know they are attempting to violate the law, but there should be protections for people who are unaware that returning out-of-state bottles is a crime.

The Michigan Legislature recently passed meaningful mens rea reform. It makes it clear that when a statute is silent on this standard, an individual must at least act with “recklessness” to be found guilty of a crime. While this is a clear step in the right direction, the Beverage Container Act could still benefit from greater clarity. Although courts have not yet construed the law’s mens rea requirements in light of Michigan’s recent reforms, the Legislature could clarify that the bottle return law is only meant to target those individuals who know the law exists and are specifically trying to break it.

It can also be debated whether it’s proper at all for Michigan’s bottle return law to use harsh criminal penalties to deter conduct that most people wouldn’t view as threatening to public safety. For instance, Everidge was probably only going to net a few hundred dollars from his redemption scheme, and punishing him as a felon with jail time and a penalty as high as $5,000 may be overly punitive. One possible reform would be to enforce the bottle return law exclusively through civil penalties, as The Heritage Foundation’s John-Michael Seibler suggests. This would prevent anyone from having to serve jail time for returning out-of-state bottles.

Protecting Michigan’s environment from litter and encouraging recycling are noble goals to which Michigan’s bottle deposit law contributes. One can support these goals, but also acknowledge that criminal enforcement of bottle return laws may need reforming. The Legislature has put some focus on dealing with overcriminalization, and this law might be a good candidate for more reforms to that end.

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Couple Could Lose Their Home Through Civil Forfeiture

Government confiscates thousands of dollars without filing charges

In Traverse City, a couple could lose thousands of dollars in cash as well as their home because of the state’s loose civil forfeiture laws. Their case shows the perspective of both sides of this issue, but the solution is fairly simple – governments should not be able to take ownership of people’s assets unless they are convicted of a crime.

The Traverse City Record-Eagle does a great job laying out the situation. The Traverse Narcotics Team believes Kenneth and Mary Murray profited from what it calls “ill-gotten gains.” The law enforcement agency accuses the couple of violating the state’s medical marijuana law by selling to people who did not have a physician-granted prescription. It also says the couple has made and sold edible medical marijuana, which is illegal. 

While no charges are currently filed against the couple, Kenneth has been charged with drug crimes in the past. He pleaded guilty to two counts of delivering or manufacturing an imitation controlled substance in 2015.

The Traverse Narcotics Team and county prosecutor are accusing the Murrays of using the sale of illegal substances to gain $3,863 in cash as well as a $262,657 home. So, as is legal under current Michigan law, they’ve seized the cash and home and are attempting to forfeit (transfer) the assets to the state. As the Record Eagle reports:

Detective Sgt. Randy Graham argued the couple's home and money are "ill-gotten gains," earned through medical marijuana sales that violated Michigan's medical marijuana law.

"(Criminal forfeiture is used) so that the criminals involved in the drug trade don't benefit from their crimes financially," Graham said.

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The Murray’s attorney argues in a court filing that “there is no evidence that any of the proceeds that were in the bank are the product of any illegal activity.”

While there are many examples of major abuse of civil forfeiture laws (see here for a good list in Michigan), this situation is more typical. Law enforcement suspects someone has gained assets through illegal activity, seizes it, and then places a high burden on the person to get it back. All this can be done before the person is convicted, or, in some cases, even charged with a crime.

But the ideal system would work in the opposite direction: Law enforcement should bring charges against a person for illegal activity, obtain a conviction in court, and prove the assets were gained through proceeds from the crime. Then, and only then, could the state take possession of the property.

Forfeiture is a necessary part of the criminal justice system. People who gain money, cars, homes and other property through illegal activity should not get to keep ill-gotten gains. But law enforcement should have to convict someone of a crime before taking possession of that person’s property. The Michigan Legislature should end civil forfeiture and only allow the state to take ownership of property after going convicting someone in the criminal justice system, just as the states of New Mexico and Nebraska have recently done.

To see specifics on how Michigan can improve its forfeiture system and read our study on this issue, please visit www.mackinac.org/forfeiture.

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Survey: Most Union Members Support Worker’s Choice

Wall Street Journal features Mackinac Center concept

A new survey finds an overwhelming majority of rank-and-file union members across the country believe employees should have the freedom to represent themselves in negotiations with their employer if they choose not to be part of a union.

Mackinac Center for Public Policy’s Director of Labor Policy Vinnie Vernuccio wrote about his idea to make workplaces more fair and free environments in an op-ed published by The Hill. Along with his co-author and Mackinac Center Adjunct Scholar Jeremy Lott, Vernuccio explains that Worker’s Choice benefits individual workers, unions and employers.

Being able to bargain directly with their employer will allow these workers to get out of a one-size-fits-all contract and negotiate for wages and working conditions tailored to their individual needs. The seniority system most union contracts mandate only allows workers to receive a raise by logging another year on the job. But if a worker wants to be rewarded for how hard she works, she could use Worker’s Choice to negotiate for merit pay.

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The National Employee Freedom Week campaign — running this week to inform employees of their rights — polled union members on this concept and found that nearly 70 percent of union members think workers should be able to represent themselves if they opt out of paying union dues. When Vernuccio explained the concept to Mary Kissel on the Wall Street Journal’s Opinion Journal, she called the concept “common sense.”

Read the full op-ed at The Hill here.

Watch the full interview with the Wall Street Journal here.

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Michigan’s Highest Taxpayers Could Soon Pay More

New op-ed questions value of proposed RTA and Wayne RESA millages

Property owners in Wayne County may pay the highest effective tax rates in the state, but they will be asked to pay more this November.

On the ballot will be a proposed new property tax aimed at raising money for regional transit and public schools. Mackinac Center for Public Policy’s Vice President for Marketing and Communications John Mozena explained in an op-ed published in The Detroit News that, “For potential homebuyers or commercial property owners, it’s hard to make the argument that what we get in Wayne County is worth the additional cost.”

All told, Wayne County and municipalities for which it collects taxes brought in more than $2 billion in property taxes in 2015. This is the burden to which the RTA and Wayne RESA proposals would add, raising a 55.11 mill average property tax rate to something in the vicinity of 58.3 mills and making Wayne County even less affordable when compared to the rest of the state.

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Mozena owns a home in Wayne County, where his son also attends public school, and noted moving slightly northeast or northwest would lower his cost of living without lowering his quality of life.

Read the full op-ed in The Detroit News.

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If Michigan wants to attract high-quality, job-creating businesses to the state, it should consider removing some of the hurdles companies must face to operate.

Mackinac Center for Public Policy’s Assistant Director of Fiscal Policy James Hohman wrote about the state’s failed attempts to grow the economy through crony capitalism. Rather than offer handouts to a few favored companies that often fail to deliver on their promises, the state should look at its business climate.

Although targeted programs fail to nudge the economy in one direction or another, broad-based policies can encourage or discourage certain types of activities throughout the economy. These policies set the rules that all companies must abide by. They do things like require firms to register with the state, tax them, regulate what types of buildings they can use, and loads more. And these policies can be made more or less burdensome.

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There are plenty of policies that can make the state more attractive to start and expand a business. The state needs to continue to remove occupational barriers to entry. Around 21 percent of all jobs require workers to get a license from the state. There are other ways to protect people from harmful practitioners without licensure regimes and ways to do it without blocking people from the market.

Read the full op-ed in The Detroit News.

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August 12, 2016 MichiganVotes Weekly Roll Call Report

Key votes on guns, same-sex adoptions, pensions, nanny-statism

While the Legislature is on a summer break with no voting, the Roll Call Report begins a series that reviews key votes of the 2015-2016 session.

Senate Bill 34, Revise concealed pistol license procedures: Passed 28 to 9 in the Senate on February 3, 2015 and passed 76 to 34 in the House on Feb. 25, 2015.
To eliminate county concealed pistol licensing boards and transfer their duties to the State Police and county clerks.

Who Voted “Yes” and Who Voted “No” in the Senate
Who Voted “Yes” and Who Voted “No” in the House

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Senate Bill 69, Extend job training subsidies to some employers: Passed 35 to 1 in the Senate on February 25, 2015
To eliminate the 2018 sunset on a 2008 law that authorized state job training subsidies for particular employers provided through community colleges.

Who Voted “Yes” and Who Voted “No”


Senate Bill 69, Extend business job training subsidy program: Passed 104 to 5 in the House on June 18, 2015
The House vote on the bill described above. The House amended the bill to extend the program through 2023 rather than forever.

Who Voted “Yes” and Who Voted “No”


Senate Bill 86, Authorize more local pension obligation bonds: Passed 36 to 0 in the Senate on March 4, 2015 and passed 109 to 1 in the House on May 20, 2015.
To extend for one year a 2012 law that allows local governments to incur long term debt to cover unfunded pension liabilities, but only if they close their traditional “defined benefit” pension system to new employees. The 2012 law also allows new debt to pay for retiree health insurance, which unlike pensions is not a legal obligation.

Who Voted “Yes” and Who Voted “No” in the Senate
Who Voted “Yes” and Who Voted “No” in the House


Senate Bill 139, Push-back against school bake sale restrictions: Passed 36 to 1 in the Senate on March 19, 2015 and passed 66 to 43 in the House on May 13, 2015.
To require the Michigan Department of Education (MDOE) to “take all steps necessary to ensure maximum state and local control over” school lunch nutrition mandates. Also, to limit to three per week the number of fundraising sales of food or beverages during school hours that do not meet mandated school lunch nutritional standards. The bill was introduced in response to federal and MDOE restrictions and bans on the sales.

Who Voted “Yes” and Who Voted “No” in the Senate
Who Voted “Yes” and Who Voted “No” in the House


House Bill 4189, Let adoption agencies refuse adoptions that violate moral convictions: Passed 26 to 12 in the Senate on June 10, 2015 and passed 65 to 44 in the House on March 18, 2015
To specify in statute that a “child placing agency” (private adoption or foster care agency) is not required to assist or participate in an adoption or placement that violates its written religious or moral convictions, including adoptions of a child by a same sex couple. Also, to prohibit a state agency from discriminating or taking an “adverse action” against an agency for this reason.

Who Voted “Yes” and Who Voted “No” in the Senate
Who Voted “Yes” and Who Voted “No” in the House


House Bill 4041, Ban welfare for persistent truancy: Passed 26 to 12 in the Senate on May 26, 2015 and passed 74 to 36 in the House on March 26, 2015.
To withhold welfare benefits from a household with children who are persistently truant from school. A truant child age 16 and above could be removed from the household for this.

Who Voted “Yes” and Who Voted “No” in the Senate
Who Voted “Yes” and Who Voted “No” in the House

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Acres of shiny new Chevrolet Camaros temporarily parked outside a Lansing auto plant: temporarily because they’re being snapped up by customers almost as fast as the state-of-the-art facility can ship them out. The image may sum up the evidence assembled in a new study from the respected Fraser Institute in Canada.

Called “Ontario Versus Michigan: Lessons from the Wolverine State,” the report examines how the neighboring state and province have done economically before and after the dramatic business climate changes enacted in Michigan beginning in 2011. A state economic resurgence has followed in the wake of the reforms, which included an overhaul of the state’s business tax system, government spending restraint and adoption of a right-to-work law.

The reforms may also explain why Chevy Camaros are now being made in Lansing instead of Oshawa, Ontario, where they had been built until late 2015. Or it might have been pure coincidence that the move was announced by General Motors just eight days after right-to-work was signed into law by a Michigan governor.

Exploring possible connections like that is one good reason for Fraser examining changes between Michigan and Ontario growth rates in both overall output — GDP — and manufacturing output, based on data from 2000 to 2014. In short, Michigan has been doing better since these reforms were put in place, and it’s important for policymakers to understand whether and how much of the two things are related.

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The changes sprang from the election of 2010, which gave a reform-minded Republican caucus control of the House, and a noncareer politician named Rick Snyder the governor’s office on the same ticket. The GOP also padded its lead in the state Senate to a two-thirds supermajority.

Snyder and legislators began by scrapping a hated gross receipts-type business tax in favor of a simpler, flatter and lighter corporate income tax. Because spending was contained the state budget was kept in balance even with a net tax cut.

In addition to the business tax changes, Fraser focused on Michigan's right-to-work law that took effect in 2013. The authors reviewed the evidence in previous studies on the economic impact of right-to-work laws, including from a 2013 Mackinac Center study. The consensus of this research is that right-to-work laws are generally associated with positive changes in such things as employment, income and state economic growth.

The third policy area Fraser examined was government spending. Michigan Gov. Snyder contained growth in state spending, debt and government employment. In contrast, in recent years the provincial government of Ontario has presided over what Fraser calls “chronic budget deficits and rising public debt."

Fraser took great care in measuring the relative performances of Michigan and Ontario, making sure they weren’t comparing the U.S. and Canada as a whole. Their data show that Michigan’s positive economic changes coincided very closely with the significant state-level policy changes.

The new study’s authors use careful language to avoid making cause-and-effect assertions based on a single comparison, but there is nothing unambiguous about their impeccable scholarship, or conclusion: “If Ontario policymakers seek to generate a comparable boost to their overall economy, labour market and manufacturing sector, they should carefully study Michigan’s reform experience...”

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State 'Post and Hold' Rules Economically Unsound

Legal action may be necessary

The Mackinac Center’s mission is premised on the notion that free markets and free people make for a more prosperous and flourishing society. So it’s no surprise that we find Michigan’s alcohol control regime problematic, because it is designed to unjustly enrich a few beer and wine wholesalers at the expense of consumers everywhere. Indeed, parts of the state liquor code read as if it were written specifically for the benefit of wholesaler business interests.

Along with laws laid down by the Legislature, rules from the Michigan Liquor Control Commission protect insiders, resulting in crony capitalism at its worst. This protectionist regime may be legal, but it ought to end for the sake of sound economic policy and fairness.

To cite just one area of wholesaler protectionism, two “post and hold” mandates let wholesalers engage in tacit price collusion. These rules, defended by the wholesalers, compel manufacturers and wholesalers to submit price schedules for their products to the Liquor Control Commission in Lansing. They must then hold those prices for a certain amount of time that varies by the product. This arrangement allows all wholesalers to see what the competition is charging. That’s bad enough, but it also inhibits price competition by limiting the speed with which prices can change.

These government arrangements have real world economic consequences for consumers. One oft-cited study, “State Regulation of Alcohol Distribution: The Effect of Post & Hold Laws on Consumption and Social Harms,” estimates that such post and hold rules and laws nationwide may artificially raise the price of beer and wine anywhere from 6.4 to 30 percent.

The Mackinac Center has attempted to persuade the state’s Office of Regulatory Reinvention and Liquor Control Commission to at least partially repeal these dubious and harmful rules. The government’s response, unfortunately, has either been silence or redirection. (You can read more about each here and here.)

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With the state unwilling or unable to repeal such blatantly anti-consumer rules, perhaps it is time for a public interest lawsuit. There is a legal case to be made that post and hold rules violate antitrust laws. If lawmakers or appointees will not repeal these rules, perhaps they can be compelled to do so.

Antitrust laws, such as the Sherman Antitrust Act, seek to prevent collusion and price fixing that hurts consumers. Ever since the end of Prohibition in 1933, states have been largely exempt from the federal antitrust laws when they regulate alcohol. This began to change in 1980, however, when the Supreme Court declared that state alcohol regulation was subject to the Sherman Antitrust Act. 

The first antitrust challenge to a post and hold regime after that ruling arose in New York. It failed. Since that time, however, the trend has swung in favor of competition. Post and hold laws have been struck down one after another in Oregon, Maryland and most recently in Washington state.

The direction of the legal winds seems to be blowing in favor of competition and against price collusion in the alcohol industry. Michigan should follow this trend for the good of consumers.

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August 26, 2016 MichiganVotes Weekly Roll Call Report

Corporate Welfare’s Strange Allure for Politicians

We know that it doesn't work, but they can't help themselves

It’s not coincidence or bad luck that causes government economic development programs to so reliably fail to meet their promises — there are good reasons to expect this. So why do politicians keep returning to this dry well?

Sadly, even an unconventional, non-careerist politician like Michigan Gov. Rick Snyder is taking a turn with an executive order that appears to embrace the flawed economic central planning vision that inspires such programs. He is doing so despite having expressed skepticism about such programs in his first election campaign and reducing their scale after he was elected.

The governor's executive order creates a new “21st Century Economy Commission.” It is given the task of planning this state’s economy for the next 20 years. It would be in addition to the massive subsidy-granting agency already at the governor’s disposal, the Michigan Economic Development Corporation.

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The executive order assembles an unoriginal list of standard plays from the central planners’ playbook of the past century. One example: “Identify priorities over the next twenty (20) years, with short-term and long-term action items to achieve the vision of Michigan’s economic future.”

Twenty years? One wonders how serious the governor really is, given state officials' track record in this area. Consider this: In 2000 the state granted the retailer Kmart its second big tax incentive deal, a mere 17 months before the company filed for bankruptcy. The reorganized company ultimately moved its headquarters out of Michigan.

How can planners imagine they can peer as much as 20 years into the economic future when they couldn’t see just 17 months ahead for a single deal in which they were deeply involved?

That flub is hardly unique: During the go-go dot-com boom of the 1990s, the state offered a startup called Webvan a tax incentive package to operate in Michigan.

The online grocer was bankrupt 13 months later.

In 2003 Gov. Jennifer Granholm said of one incentive deal, “My administration wants to make Michigan a magnet for economic growth — Plastech’s expansion is evidence that we’re making it happen.”

The marketplace thought differently. Plastech closed its doors in 2008.

The list goes on, and some of the failures implicate the poor incentives of central-planning bureaucrats who have no skin in the game. Even basic due diligence can get left behind. In 2010 state economic development officials offered $9.1 million worth of tax breaks and subsidies to Richard Short, a convicted embezzler. Well attuned to the political and ideological fashions of the day, Short created a shell company he called “Renewable and Sustainable Companies LLC (RASCO).” He even appeared at a press conference with Granholm. Short was busted only because his parole officer saw him on television.

The bad forecasts, flawed assumptions and sloppy performance of state efforts to plan the economy make for a long and dreary list. Scholarly analyses typically show zero to negative impacts from Michigan’s (and other states’) activities in this area. (See “Main Forecast: Hoping for a Broken Clock Moment” and “Déjà Vu All Over Again For Auditor General Report On Select Subsidy Programs.”)

Indeed, the academic literature provides little evidence that these schemes ever succeed. There is, by contrast, much more evidence supporting the conclusion that these are at root political programs, not economic ones.

Literally billions of tax dollars have gone down the tube in failed economic development “investments” over the past decade in this state. Yet now, another governor wants to go back to the playbook, looking for doomed plays.

In the end, it’s a curious departure for Snyder. The veer toward economic central planning could almost suggest that his team has run out of ideas.

So here's one with a proven history of success: Enact a great big job-and-growth-generating personal income tax rate cut. Planners can't grow this state's economy, but an across-the-board "incentive package" like that really would kick it into overdrive.

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