Auto Insurance Reforms Worth Supporting

Bill isn’t perfect, but it’s a significant move in the right direction

The Michigan Legislature is considering reforms to this state’s auto insurance laws. The problem is clear: Michiganders pay more, on average, than drivers in just about any other state. House Bill 5013, introduced by Lana Theis, R-Brighton, offers several significant reforms that should drive down the price of premiums for all Michigan drivers.

The most significant change in the bill is that it would give drivers a choice about how much personal injury protection, or PIP, coverage they want. Current law — entirely unique in the United States — requires all drivers to purchase an unlimited amount of PIP. Under HB 5013, drivers would have a choice of coverage: $250,000, $500,000 or the current unlimited amount. Insurance companies would also have to reduce the price of PIP coverage by at least 40 percent for drivers choosing the $250,000 option.

The proposed reforms also create a “fee schedule” for medical providers, another feature of the bill aimed directly at reducing premiums. Currently there are no cost controls in place. This is why is it not uncommon to see medical providers charging five times more for procedures covered by PIP than for exactly the same services that are paid for by other insurers. HB 5013’s fee schedule would limit the amount that medical providers can charge for certain services.

There are three main critiques of the auto insurance package. First, people won’t get the coverage that they need if they choose a limited PIP option. Second, the fee schedule amounts to price fixing for medical providers. And third, the bill interferes too much in the private insurance market.

Stay Engaged

Receive our weekly emails!

The first critique falls flat when given the proper context. PIP coverage in Michigan would still be the most generous in the nation, even for people choosing the $250,000 option. Claiming that Michiganders will have inadequate coverage under HB 5013 is claiming that every American has inadequate coverage, too. It’s possible that’s true, but if it were, the ramifications of such a problem should have surfaced by now.

It’s important to remember that HB 5013 would still allow people to choose unlimited PIP coverage. It’s just that those drivers would have to bear the costs of that generous feature. Michigan’s current system forces everyone to pay for that expensive coverage, which is the leading reason why an estimated 20 percent of drivers don’t purchase any insurance at all. Now that’s inadequate coverage.

Concerns over the proposed fee schedule also melt away in the proper context. Every other government-mandated or government-run insurance scheme use fee schedules: Medicaid, Medicare, workers’ compensation and others. The proposed fee schedule is even largely based on an existing one: Most charges would be based on 125 percent of Medicare rates.

Some critics of the fee schedule appear concerned with interfering in the private medical market. Supporters of free markets, for example, are rightly skeptical of government price setting. But it’s important to remember that medical providers operate in a heavily regulated market and rely significantly on government-mandated services and payments. A fee schedule doesn’t inject government interference into a free market — it’s an attempt to control costs for government-mandated services in a tightly controlled industry.

The mandated premium reductions are a more legitimate concern. Ideally, market supply and demand, influenced by competition, should determine the price of auto insurance premiums. But, again, it’s important to remember that these reforms are an attempt to improve a market that’s broken because of government regulations.

Although there’s ample competition among car insurance providers, the auto insurance market in Michigan is hardly a free market. The state mandates that drivers purchase insurance and even dictates in detail the type of insurance they must buy. When government forces consumers to purchase a product, it creates artificial demand and raises prices. Given this situation, creating more options for consumers and mandating a reduction in the government-created, artificially expensive price is a positive reform.

It’s true the vast majority of the time, the best antidote to bad government regulations is freer competitive markets. But in cases where the government is heavily involved in a market and will continue to be moving forward, the best reforms can be ones that provide benefits to forced consumers of government-mandated products. HB 5013 does this by providing more choices for consumers and curbing unnecessary costs.


Related Articles:

How to Fix Michigan’s Broken Auto Insurance System

Lawmakers Agree Car Insurance Too Expensive — But Not On How To Fix It

What's Wrong With Michigan's No-Fault Automobile Insurance

What’s Wrong With Auto Insurance in Michigan

It’s Time to Repeal the Bad Driver Tax

A mess that should never have been created

Editor’s note: The following is a slightly edited version of remarks that Jack McHugh gave to the Michigan Competitiveness Committee of the Michigan House on Oct. 11, 2017, regarding a package of bills that would repeal "driver responsibility fees" and forgive debt drivers owe as a result of these fees. Driver responsibility fees were created in 2003 and require drivers who have a certain number of points on their license or who have committed certain types of moving violations to pay an annual fee to the state that ranges from $100 to $2,000, depending on the violation.

Stay Engaged

Receive our weekly emails!

Thank you Mr. Chairman and members of the committee.

This legislation is needed to solve a problem that never should have been created in the first place.

I’m going to quickly share some background on the environment in which this “bad driver tax” was born: a desperate hunt for revenue to avoid real budget reforms, in the midst of a secular economic shift that was being treated as just a cyclical bad patch.

Eighteeen months after these fees became law, Larry Reed, the first president of the Mackinac Center for Public Policy, described both the state’s economic decline and Legislature’s response in a speech called “Michigan at the Crossroads." In it, he said:

We can no longer evade difficult decisions in the hope that we can muddle through, or that a miraculous change in our economic environment will save us.

In that speech, Reed shared some statistics to illustrate:

  • Michigan was one of just two states to lose jobs in 2004.
  • From 1993 to 1997, Michigan’s per capita state GDP was 18th in the nation, but by 2003 we had fallen to 44th place.
  • Michigan is traditionally a wealthy state, but by 2003, our per capita personal income had dropped to 19th in the nation.

Reed was more right than perhaps even he realized at the time.

In January 2000, 883,000 Michigan workers were employed in manufacturing. By July 2003 — the month the bad driver tax passed the House and Senate with substantial bipartisan majorities — that number had plummeted to 687,000. The all-time low was 432,000 in 2009.

Michigan Capitol Confidential reported this week that manufacturing employment is back up to 611,000, its highest level since 2007 — but still lower than the summer of 2003.

Back to Reed in early 2005:

(Muddle through) has been the approach in Lansing for the past few years. … State leaders have become increasingly adept at accounting gimmicks and cosmetic fixes that optimize revenues but minimize spending discipline. They are treating the symptoms, rather than the disease.

The unfair tax you are trying to repeal now was just one of those harmful gimmicks. Here are two others, one each from the year before and the year after this one was passed.

In 2002 it was, “Let’s terminate the phaseout of the Single Business Tax with sneaky maneuvers.” Here’s how MichiganVotes.org called that game:

2002 House Bill 5883: End phaseout of SBT - Public Act 504 of 2002

To withdraw $892 million from the Budget Stabilization Fund, leaving a balance of just $33 million. Under current law an ongoing phaseout of the Single Business Tax (SBT) is postponed if the BSF falls below $250 million. Senate Bill 117 would allow the SBT cuts to continue by lowering that threshold, and an earlier version of this bill was tie-barred to SB 117. But the tie-bar is no longer in this version, and Gov. Engler has said he will veto SB 117, so passage of this bill means no further SBT cuts.

In 2004, it was “Let’s ding middle class homeowners with a sneaky property tax shift-and-shaft.” Again from MichiganVotes:

2004 Senate Bill 1112: Advance county tax due-date - Public Act 357 of 2004

To require counties to collect future property tax payments in the summer only, beginning in 2004, thereby requiring taxpayers to pay county taxes five months earlier. The $183 million realized by the tax shift will replace state revenue sharing payments to counties for the next several years.

And in 2003 it was Senate Bill 509: Impose “driver responsibility fees.”

To conclude, the class of “forgotten American workers” that was being born when this “bad driver tax” law was enacted may have become self-aware on Nov. 8, 2016. They are the very people who have been most impacted by these unfair exactions, with thousands losing their license and being turned over to collection agencies. We’ll see if they notice that the Republican trifecta elected here in 2010 was a lot quicker to clean up the business tax mess, which got done in 2011.

And if this mess doesn’t get cleaned up now, that class will surely notice, and may go looking for more opportunities to flex their political muscles in 2018.

Thank you again for the opportunity to testify.


Related Articles:

A Plea for Fairness, Transparency and Intellectual Honesty

Commemorating the Repeal of the Stamp Act

The Value of Pipelines (and Line 5) to Michigan

Judge Dismisses Lawsuit after Tourism Bureau Promises Not to Charge B&B Owner

Legislative Testimony

Imagine working day and night, toiling with your spouse to build a new, small business from scratch at the tail end of a brutal recession. The economy improves and your shop becomes a popular local destination. You look to expand by adding a regulated product to your inventory. You get explicit permission to do so from the government agency that oversees the distribution and sales of the new product. Then, two days after you start selling, that same agency swings by and orders you to stop, then fines you for selling the product illegally.

You don’t need to imagine it, though. This exact scenario has played out in Midland, to local entrepreneurs Mark and Michelle Bone. The product they wanted to sell was Michigan-made beer in growlers — 64-ounce jugs — at their organic grocery store. The Michigan Liquor Control Commission admitted it gave the Bones bad advice. The agency has rescinded the violation and related fine, but the couple is still out $10,000 in equipment and inventory. Despite relying on the commission’s advice when they made their purchases, the Bones won’t receive any compensation for their lost investment. The government’s attitude seems to be, “too bad.”

Stay Engaged

Receive our weekly emails!

The agency should find a way to make these entrepreneurs whole, or the governor and Legislature need to take a bottom-to-top look at the entire liquor control code and remove its innumerable and often confusing barriers to business. Ideally, they will do both. The Mackinac Center has long called for a liquor control code reform revolution, as the code seems almost designed to protect and reward entrenched special interests at the expense of small-business owners and consumers.

Mark Bone has been a business owner since 1997, operating an insurance company in Midland. To diversify their investments, the Bones bought some commercial real estate in 2000. When the market fell out in 2007 and 2008, they lost tenants and decided in 2010 to fill some vacant retail space by opening a business — an organic grocery store. That store, “Nature’s Gift Organic Market,” has turned out to be popular with locals who love their natural selections and unique product offerings.

Always looking for ways to serve their customers, Mark Bone hit upon selling growlers of Michigan-made beer from the store. He dutifully telephoned the Liquor Control Commission to see if the license to sell alcohol that he already possessed as a “specially designated merchant” was all he needed to sell growlers. After answering a couple perfunctory questions, he was told that it was. He proceeded to buy equipment and inventory and began selling growlers of Michigan beer.

But the liquor control code is nothing if not complicated and even the state official advising Bone got it wrong. The commission later advised him that he needed a second license, and assessed a fine on him for selling growlers without it.

When businesses make a mistake, they often get fined and lose income as well. When government makes mistakes, everyone usually still gets paid — free of any fines or related expenses.

When I asked Jim Storey, a former liquor control commissioner, about this case, he responded at length:

Seven years ago, the Snyder administration started out with an ambitious and overdue effort to remove the zealous trade barriers embedded in the Michigan liquor control code and regulations. Many were changed. But there is much more work to be done to remove outdated barriers that prevent the small business owners, who are the backbone of the industry, from prospering.

This incident illustrates perfectly how intricate and out of touch the alcohol regulatory scheme is in Michigan. Global trade renders useless the market policing that confounds both the hardworking staff of the Liquor Control Commission and many licensees. In addition, time spent by agency staff policing the marketplace distracts from that which should be their primary, full-time focus: preventing sales to underage drinkers and combating practices that promote alcohol abuse.

Regulations on how licensees market, transport and sell their product make no sense in [an] age when most anything can be obtained on the internet. Michigan wastes precious taxpayer-provided resources on combating trade practices acceptable in most states and nearly all countries.

The Mackinac Center for Public Policy has for years been arguing that the Liquor Control Commission increases costs, sometimes dramatically, without necessarily protecting consumers. The system clearly needs to be simplified if even the administrators of state rules and laws can’t dispense correct answers to their constituents.

Mark and Michelle Bone have poured a lot of sweat equity into their business since it opened. It is a shame that the liquor commission can get away with making an error and force its constituents to pay for it. The commission or Legislature needs to make the Bones whole and fix the larger alcohol control code as well.

(For more on alcohol control code reforms, see the Mackinac Center’s work on the topic.)


Related Articles:

Maryland Brewer Tweaks Michigan's Alcohol Regulators

Consumers Don’t Need a Law to Limit Competition

Law Would Make Bringing Large Amount of Alcohol into Michigan a Felony

Political Free Speech, Cocaine Sentencing, Add Details to Liquor Control Law

State 'Post and Hold' Rules Economically Unsound

How to Strike a Balance on Short-Term Rentals

Cities should enforce existing regulations, not ban rentals all together

There’s a debate in the Legislature over what to do about short-term rentals. Identical bills in the House and Senate would allow for local regulations, but prevent cities from banning the rentals altogether. That’s a good move.

There are several sides to this issue. Those in favor of short term rentals include consumers who want to rent a vacation property for a few days cheaply and efficiently. They’re joined by homeowners who want to rent their property out to earn some extra money and some local governments that depend on tourism as a revenue source.

On the other side are some hotels and bed-and-breakfast owners who don’t like the extra competition from short-term rentals, neighbors who live near short-term rentals and some local governments that want to micromanage them out of existence.

WOOD-TV and The Detroit News both did good pieces recently on the issue. The News captured one woman who spoke of a horror story:

“Pauline Smith of White Lake Charter Township in Oakland County lives on property that has been in her family since 1925. She said her street changed two years ago when someone she does not know and rarely sees purchased a home two doors down and began to fill it with a continual stream of short-term renters.”

‘‘Some people just come for vacation, some nice couples, but that’s rare,’ Smith said. ‘Mostly it’s people that do not want to trash their own house for a party, or they’ve got a bazillion guests coming in from out of town and it’s cheaper to put up 10 people in a house than a hotel.’”

Stay Engaged

Receive our weekly emails!

The question here is how to strike a balance between the private property rights of the homeowner and the concerns of the neighbors. Identical bills introduced in the House and Senate – House Bill 4503 and Senate Bill 329 – do a good job with this balance. They prevent local governments from banning short-term rentals but allow them to regulate them in every other way, such as requiring permits and inspections and being subject to noise ordinances.

It’s true that some areas are seeing problems with short-term renters. But it’s also true that people have problems with long-term renters and with homeowners. (One very kind woman in my neighborhood has taken in a multitude of stray animals, for instance.) But the way to solve those issues is by enforcing current regulations strongly and fairly, affecting all people and property types equally. If noise from short-term renters is a problem, for example, enact or enforce a local nuisance order. Don’t just ban the entire practice of short-term rentals – it’s throwing the baby out with the bath water.

Unfortunately, this is what cities like Holland, Traverse City, Suttons Bay, and many others are doing. That’s a private property rights violation and these bills would protect that right for homeowners while still allowing local governments to create their own regulations on the practice of renting out property.

Editor's Note: Jarrett Skorup discussed this issue on WJR, which you can listen to here.


Related Articles:

Short-Term Rentals Are Good for Michigan

Home Sharing: Michigan’s Next Property Rights Battle

Home Sharing: Michigan’s Next Property Rights Battle

Let People Rent Out Their Property

Michigan Cities are Banning People From Renting Out Their Property

Why Pension Reform Is Hard for Politicians

No consequences to kicking the can down the road

Rep. Tom Leonard (R-DeWitt), Rep. Tom Albert (R-Lowell), Rep. Tim Kelly (R-Saginaw Township), Sen. Phil Pavlov (R-St. Clair), Sen. Arlan Meekhof (R-West Olive) look on as Gov. Rick Snyder signs historic pension reform this July.

State and local governments across the country owe their employees and retirees billions more in pension benefits than they’ve saved to pay for them. To fix this problem, governments should stop offering benefits that can become an albatross around their necks.

Pensions are supposed to be prefunded: When an employee earns a dollar worth of pension benefits, the employer sets aside a dollar to pay for it. That dollar is invested, grows, and is used to pay that employee’s pension upon retirement.

Managers need to figure out how much they need to set aside today to pay for future benefits. This requires assumptions about what an employee earns and how much investments will return. These assumptions, in turn, determine how much employers need to put in the pension system.

This is different from Social Security, where the government sets both the payroll tax rates that fund the program and the rules for payouts. The taxes aren’t invested; instead, they go directly to pay out retirees and others. Social Security thus requires a constant flow of new people who can provide the money that will be used to send out checks.

A prefunded system like a government pension system, however, doesn’t need new members to function. What it needs is a government that will use accurate funding assumptions and make the necessary payments into the pension fund.

But the temptation to spend money elsewhere is too strong for politicians. They can use optimistic assumptions to lowball how much they need to pay in, or they can simply not pay in what they should. Both routes free up cash that can be spent elsewhere, which can be used to political advantage. By contrast, there are few political returns to a well-funded pension system.

Stay Engaged

Receive our weekly emails!

There’s little that can be done to avoid extra costs once pensions are underwater. There are no magic solutions to write off debt. The state constitution protects promised pensions, and governments have a constitutional responsibility to properly fund those pensions.

Lawmakers can prevent further debt, though. They can offer new employees plans that don’t allow managers to play games that underfund pensions. That’s what much of the private sector has already done. Employees there don’t have to speculate about what legal protections their retirement funds have against people who make promises for political gain. Instead, they can look at their account balance.

Pension debt largely involves benefits that will be paid a decade or more from now, not this year. Since politicians have short-term concerns, they tend to make fixes that make pensions less generous. That generates some short-term savings. But it does not stop future pension debt from piling up because it doesn’t tackle a major factor behind pension underfunding: overly optimistic assumptions about investment returns.

Fortunately for Michigan residents, lawmakers here have resisted the temptation to make only token reforms to pensions systems, which has made them national leaders in preventing underfunding.

People who entered state employment since 1997 and employees in the large, state-mandated school system are offered benefits that limit government’s ability to kick the costs of current service onto future taxpayers. They can participate in plans where the government pays cash upfront into a retirement account — one that they control.

For those school employees that opt for pension benefits, the state will use less optimistic investment assumptions, and employees are responsible for paying half of any underfunding, should it arise.

There are still problems left to fix. Local government pensions and retiree health care benefits are a grab bag. Some governments have funded them; others have not. Overall, there are still billions pledged that have not been saved, and local officials should take this failing as seriously as state officials have.

Most politicians are crossing their fingers, hoping that the market will fix this problem for them. Because the future is uncertain, there is always a chance that this might happen. But hoping for tomorrow to be better is not a prudent way to manage pension funds that thousands of people rely upon. That’s why Michigan lawmakers deserve credit for moving to a system that will prevent the state from going deeper into debt to its own employees.


Related Articles:

Why Michigan Pension Reform Matters

Defined-Contribution Plans Help State Credit

Mackinac Center: Michigan a National Innovator in Pension Reform

Pension Reform Legislation Benefits Students, Teachers and Taxpayers

Union Survey: Michigan Teachers Want Pension Reform

Senate Bill 583, Ban local food and beverage taxes: Passed 31 to 5 in the Senate

To prohibit local governments and authorities from imposing a tax or fee on the manufacture, distribution, wholesaling or retail sale of food for immediate consumption or non-immediate consumption. Among other things this would prohibit local officials from imposing soda taxes.

Who Voted "Yes" and Who Voted "No"

Stay Engaged

Receive our weekly emails!


Senate Bill 375, Authorize county subsidies for methane digester generators: Passed 36 to 0 in the Senate

To permit counties to include methane digester energy systems in a program that lets the county borrow money, lend it to a property owner money for a “renewable energy system,” and levy a special assessment on the property from which the loan would be repaid.

Who Voted "Yes" and Who Voted "No"


Senate Bill 552, Increase annual ORV tax: Passed 35 to 1 in the Senate

To increase the annual off road vehicle license tax to $26.25 for a license that does not authorize operation on state ORV trails, and $36.25 for one that does. If no action is taken the tax expires in March 2018, but if the bill becomes law the tax will remain through March 2024 (unless extended by another bill before then).

Who Voted "Yes" and Who Voted "No"


Senate Bill 353, Preempt local bans on employers asking about past wages: Passed 27 to 9 in the Senate

To expand a law that prohibits local governments from imposing mandatory job interview information requirements or restrictions. Among other things the bill would ban local ordinances that prohibit a local employer or the local government itself from asking about a prospective employee's previous salary history.

Who Voted "Yes" and Who Voted "No"


Senate Bill 223, Create process for disclosing police firing to other agencies: Passed 105 to 2 in the House

To establish a process and liability exemption for a police agency disclosing information to another agency about a former officer who may have been fired. A separating officer could review the official record and make his written explanation a permanent part of it. Police job applicants would have to give prospective employers a waiver allowing them to get the separation records, and the former employer would be immune from liability for revealing this.

Who Voted "Yes" and Who Voted "No"


Senate Bill 352, Require high school coach concussion training refreshers: Passed 104 to 4 in the House

To require high school coaches to get a refresher course every three years on the “concussion awareness training program” required by a 2012 law. State health officials would have to periodically review and update the training program the law required them to create. Also, to clarify that the high school "youth athletes" for whom that law requires parental waivers do not include 17 year olds in college.

Who Voted "Yes" and Who Voted "No"


House Bill 4999, Ban local food and beverage taxes: Passed 101 to 7 in the House

To prohibit local governments or authorities from imposing a tax or fee on the manufacture, distribution, wholesaling or retail sale of food for immediate consumption or non-immediate consumption. Among other things this would prohibit local officials from imposing soda taxes.

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 www.MichiganVotes.org.


Related Articles:

Divert 'Orphaned' Fuel Tank Clean-Up Money, Limited Multi-State Physician License, More

Electric Bicycles, Lawsuits against Unlawful Local Government Gun Restrictions

Political Free Speech, Cocaine Sentencing, Add Details to Liquor Control Law

Private Harbors, Free IDs for Veterans, Fixing and Punishing City Election Goofs

Contract Preferences for Immigrants, Restrict Stop-and-Frisk, Criminalize Leaving Pet in Car

Charter Schools Face Funding, Facility Inequities

Legislation, possible legal showdown could help shrink gap

As Michigan charter schools seek to serve more families, they face some unusual challenges. A couple of recent developments highlight some of them and offer opportunities to help level the playing field for all public schools, charters included.

Michigan charters, which predominately serve low-income and minority children, abide by nearly all the same regulations as district public schools. Yet charters on average aren’t able to spend as much for each student they serve. Statewide, districts spent over $2,200 more per student than charters, according to the National Public Education Financial Survey.

Sen. Dave Hildenbrand, R-Lowell, has introduced legislation that would reduce some of that funding gap. Currently, six intermediate school districts collect extra dollars through voter-approved regional enhancement millages and share the proceeds among school districts on a per-student basis. Senate Bill 574 would ensure charter schools share equally in these local funds. Some ambiguity surrounds the proposal, but supporters say it is intended to affect only the funds raised by future property tax elections.

More than half the state’s charter school campuses are located in the six ISDs with active millages. If SB 574 were in effect, legislative staffers estimate, the funding gap would shrink by between $155 and $376 per student, depending on the ISD. The two most recently approved taxes, in Wayne County and Kent County, combine to raise an extra $100 million a year.

Stay Engaged

Receive our weekly emails!

In 2016 Kent County districts took in, on average, $2,600 more per student than their neighboring charter schools. In the city of Detroit, which covers a large share of Wayne County, the per pupil revenue gap was greater than $8,000. Detroit Public Schools spent nearly 60 percent more per student than the city’s charter schools did.

The funding gap has the biggest effect when it comes to facilities. While public school districts that seek to construct or renovate buildings can ask voters to raise taxes to finance bigger mortgage payments, charters often have to dig into operating funds to help pay for facilities. Yet even if they can raise funds to purchase suitable property, stifling legal constraints can make it difficult for charter school leaders to complete the acquisition.

Detroit Prep, a second-year offshoot of one of the city’s highest-performing charter schools, actually has to ask the local tax-collecting school district for permission to buy a building that would let it grow. The former elementary school building is owned by a private developer, but deed restrictions complicate the deal.

First, if the building is sold any time before 2019, the deed requires the buyer to pay an extra 10 percent to the Detroit Public Schools Community District. That would mean an additional $75,000 over Detroit Prep’s offer to pay $750,000 for the property, which is already 20 percent more than the developer’s purchase price.

The charter school has not objected to that deed restriction, but a second could bring the transaction to a halt. That restriction requires the approval of the reconfigured Detroit Public Schools Community District for any sale for nonresidential use. New school superintendent Nikolai Vitti initially resisted the requested exemption but later expressed willingness to consider the deal.

Should the two sides come to an agreement, Detroit Prep could expand and serve more students next year. If not, a high-profile dispute could play out in the courts, possibly delaying the expansion. But a favorable judicial ruling could lead to a positive precedent. Future operators might then face fewer legal barriers to purchasing school properties.

If the goal is to best serve students’ diverse educational needs, public school officials should not stand in the way of taking steps toward greater equity in charter funding and better access to facilities.


Related Articles:

Governor’s Cyber School Cuts Don’t Add Up

Governor’s Cyber School Cuts Don’t Add Up

Taxpayers Deserve to Know Details of Business Subsidy Deals

State officials are hiding what should be public information

Businesses that inked special deals with the state are going to collect $681 million from taxpayers this year. But residents cannot be told which businesses are cashing in and how much each gets. This is a failure of basic government transparency.

As a citizen, you are entitled to know how your government is spending your money. The state and local governments put a lot of effort into this — for instance, posting every annual financial report of every government and every contract the state agrees to.

And, with few exceptions, people can access any government document available with a Freedom of Information Act request. That includes detailed records of spending by governments, even checkbook registers and credit card statements. A simple FOIA request is all that is needed, for instance, to find out how much your school district spends on paper clips.

All of this shows how abnormal it is that the state does not disclose the recipients of a large number of business subsidy programs. Some of this information is available: There’s a report on the recipients of certain programs here, but not all of them. The subsidies that are delivered through tax credit programs are deemed to be confidential information.

They shouldn’t be. These deals allow select companies to collect dollars — in the form of refundable tax credits — from other taxpayers and have contracts with the state that determine the size of the subsidy. These are subsidies administered through the tax code.

Stay Engaged

Receive our weekly emails!

There are some obvious reasons why this information should be public. Economists can use it to determine the full costs and benefits of the program. It can be used to compare the alleged benefits of this spending to that of other state programs or government services. And it can be used to hold politicians accountable.

But there is a more important reason: Citizens should be entitled to it. This is their money that is being spent and they deserve to know who is getting it and what they are getting in return.

Thankfully, some lawmakers also think that the public has a right to know where all their taxpayer dollars are going. Rep. John Reilly, R-Oakland Township, introduced bills that would allow this information to be disclosed. It’s a simple bill that would clarify that payments through these programs are disclosable.

And that’s the kind of thing that both Republicans and Democrats should support. It’s bad enough that subsidy programs put select businesses ahead of the taxpaying public and businesses that don’t find favor with politicians. These groups ought not have to foot these bills under a veil of secrecy.


Related Articles:

Jobs Department’s Fake News: $10 Tax return for Every $1 in Subsidies

Tilt from Tax Cutting to Corporate Welfare Renews Failed Approach to Economic Growth

Cut Corporate Welfare to Help Balance State Budget

Pure Flummery: Seeing Double on Corporate Welfare Spin

Secretive Bidder Wins Pure Michigan Contract Over Transparent One

Happy Anniversary Tax Hikers

Ten years have passed since we took your bait

Mark Twain is alleged to have said, “I saw an unusual thing today; it was a politician with his hands in his own pockets.” With the start of the new fiscal year this week, voters should pause and reflect on the umpteenth time Lansing politicians reached deeper into taxpayers’ pockets.

It is the 10th anniversary of the 11.5 percent personal income tax hike imposed on Michiganders. It came with the promise that it was a temporary increase that would be rolled back when the economy got better. It was not. Taxpayers were betrayed. The full reduction never came and we are still owed a rollback to 3.9 percent, the rate of a decade ago.

It is never easy to be Charlie Brown to anyone’s Lucy. Having a football pulled away right before you kick it — despite assurances it would not be — is embarrassing. In this case, however, it is more than pride at stake, it is money families use to better their own lives. State government could not bear to tighten its belt any further in 2007, so it forced Michigan families and individuals to tighten their belt instead, and with a promise that turned out to be false.

To switch pop-culture metaphors to something predating Charlie Brown, the promise brings to mind Wimpy of Popeye fame. He was famous for saying, “I would gladly pay you Tuesday for a hamburger today.” In this case Wimpy was the state Legislature and Granholm administration and we fell for the Tuesday deal.

Taxes were raised from 3.9 percent to 4.35 percent and the promised “Tuesday” was the year 2011. That, according to the tax-hike law, is when the state would start reducing the rate, 0.1 percent per year until it reached 3.9 percent. After Rick Snyder was elected to succeed Jennifer Granholm, he allowed a single cut of 0.1 percent. He then scrapped future ones altogether. We are owed the remainder.

Stay Engaged

Receive our weekly emails!

Early this year, Rep. Lee Chatfield, R-Levering, introduced legislation to finally roll back the burden of the tax increase and go one better. It calls for a full and immediate cut from today’s rate back down to 3.9 percent and then calls for a cut of 0.1 percent every year until the tax disappears. The proposal was watered down from the start, with a 2018 cut of 0.1 percent and another in 2019 of equal size. Further cuts would depend on the size of the state’s “rainy day fund.” Even in its diluted form, the legislation died because it lacked enough votes. Even lawmakers who campaigned on tax cuts would not support honoring the 2007 promise.

We profiled these lawmakers and compared what they said on the campaign trail about taxes with their actual vote. Consider Rep. Dave Pagel, R-Berrien Springs. On the campaign trail, he said this:

The best government is the smallest and most efficient government that can get the job done. … I have always believed that we can spend a little less than we receive. … I have worked to … [roll] back the income tax to 3.9 percent saving taxpayers $2.8 billion ... These are your tax dollars and it is critically important that elected officials remember that first and foremost.

This year, though, he voted against the tax cut, saying he could not support it because no spending cuts were being proposed at the time. Read his full explanation and examples of other lawmakers here.

To add insult to injury, 11 of 12 Republicans who voted down a modest tax cut for all taxpayers would vote in favor of at least one corporate welfare subsidy that benefited only a handful of wealthy developers. These votes show that some of our state representatives believe there is enough money to give to big businesses but not enough to let people keep more of their own earnings.

Wouldn’t it be nice if Lansing politicians just let all workers keep more of their own income taxes?

The case for keeping the promise is even stronger if you consider that Michigan’s economy is better than it was in 2007, which means the state budget can make room for cutting the tax rate. Michigan taxpayers are sending $6.9 billion more to Lansing today than they were just in 2010. That is a 27.3 percent increase in revenues, or twice the rate of inflation.

State tax collections are projected to increase by more than $2 billion just four years from now. Dedicating even half that growth to a broad personal income tax cut is enough to lower the personal income tax back to 3.9 percent.

Lansing politicians still take too much from those who pay the bills of government. Adopting a tax cut now is the right thing to do. The economy is better. State government revenues are up. Taxpayers deserve to get what they were promised 10 long years ago.


Related Articles:

Michigan Income Tax Cuts Remain Affordable

Legislators Should Give Taxpayers the Income Tax Cut They Deserve

Some Small Tax Breaks, But Total State Tax Collections Rise Faster

Here's Why You Deserve a State Income Tax Cut

State Revenue Up Almost Twice The Amount Of Defeated Income Tax Cut

Sheriffs Float the Idea of a Kayak Tax

Just another example of the trough truce

Some Michigan sheriffs are calling for new laws and regulations requiring owners of small, non-motorized watercraft to register their boats and pay fees to the state. They say that they need the revenue the registration requirement, which currently does not apply to items such as inner tubes, canoes, kayaks and paddleboards, will generate. But counties should look to existing funding sources before taxing floaters and paddlers.

Boaters who are currently required to register their watercraft pay annual fees, which go into the Marine Safety Fund. County sheriffs receive grants from that fund. But as Michiganders register fewer boats, sheriffs say, the grant money is drying up. They argue that without it, they are overextended.

But a closer look at the numbers reveals that the grant funding hasn’t changed that much. At its peak years, 2007-10, the fund gave $4.3 million to counties each year. Grants dipped to $2.9 million in 2015 and 2016, and stood at $3.1 million for 2017.

But even if the fund shrinks considerably, there are alternatives to nickel-and-diming paddlers for the use of public waters and the law enforcement and other offices that serve them. First, the sheriffs could push back on the way Marine Safety Fund dollars are allocated. Fully 48 percent of the fund goes to overhead at the Secretary of State and the Department of Natural Resources. Over half of what’s left is given to the DNR’s law enforcement division. That leaves just $3 million for the 83 county sheriffs. Instead of demanding that paddlers pay taxes, the sheriffs should demand a bigger portion of the money in the Marine Safety Fund. That they haven’t challenged the current scheme suggests this “shortage” may be an example of the trough truce.

Stay Engaged

Receive our weekly emails!

Or, the sheriffs could simply do without marine safety grants. Counties with pleasant waterfront environs enjoy higher property values, resulting in greater property tax income. Revenue sharing to counties from the state sales tax has been steadily growing, too. Counties are seeing increased general fund revenue every year. Take Huron, Mackinac and Marquette counties for example. In a recent Capital News Service article, the sheriff’s department in each of these counties said it doesn’t have enough money. But their combined general fund revenues have increased by $9.2 million between 2010 and 2016, which amounts to more than the marine safety program for the entire state.

This isn’t the first time a kayak tax has been floated in Michigan. Lawmakers introduced a proposal in 2010 that would have created a registration requirement and small fee for kayaks and the like. At the time, it was touted as a public safety measure that would help rescuers locate distressed paddlers if their boats washed ashore empty. Today’s iteration is similarly misrepresentative: The sheriffs argue that taxing kayakers is the only way to ensure they have enough money to keep boaters safe. But the numbers suggest otherwise. Rather than seek to increase the pot of public dollars, counties should find ways to protect their citizens using the ample resources already at their disposal.


Related Articles:

Republican Senators Propose Sales Tax Increase for Roads

Flatten the Tax Code

Mackinac Center Joins 87 Groups and Activists Calling for Federal Tax Reform

Happy Anniversary Tax Hikers

MLive quotes James Hohman on House roads funding package