Good for politicians and well-connected businesses, bad for Michigan
April 18 is tax day in America, and in Michigan it’s also the 22nd anniversary of a failed corporate subsidy program known as MEGA, or the Michigan Economic Growth Authority. Although it was repealed in 2011, MEGA continues to raid the state Treasury every year, wasting shockingly high amounts of taxpayer money in the process.
The previous administrations used MEGA to give some companies, including some of the largest corporations in the state, multiyear subsidy deals that cost Michigan taxpayers $1 billion in 2016 alone. The cash payouts for this year are projected to be $660 million, with little to show for any of it.
The state officially stopped handing out new tax credit deals in 2012, replacing it with a budgeted direct subsidy program. The MEGA program had a horrendous record, too. Now friends of corporate welfare are back and raring for more. This new scheme has many features of the old program. The essence of both programs is that they take state tax dollars collected from families and small businesses and give them to a tiny handful of politically well-connected developers and big businesses.
The new program would give away up to $250 million more over 10 years. Wasting money more slowly doesn’t make it any better an idea.
The new proposal (Senate Bills 242 to 244) is called “Good Jobs for Michigan,” and is dressed up to appear costless and a net benefit for all. But like all such selective corporate subsidy programs, it is designed to transfer money from small businesses and working families to a favored few developers and company owners, some of whom may already be millionaires and billionaires.
Recipients would have to promise that the subsidized developments would never exist “but for” getting state cash. But there are many examples and empirical studies that show much of these developments would have occurred sans subsidies.
MEGA also demanded this and had other stipulations too, but it still failed to create net new jobs and wealth. Now some of the same individuals are involved in the new scheme, so perhaps, not surprisingly, there are yet more similarities between it and the proposed Good Jobs for Michigan (GJFM).* For example:
- MEGA statute: “The plans for the expansion, retention, or location are economically sound.”
- The “Good Jobs” bills: “The plans for the expansion or location are economically sound.”
The nonpartisan Senate Fiscal Agency points out the new bills do not define “economically sound.” It could mean anything, and in MEGA’s case, it meant nothing.
That’s no exaggeration: MEGA once approved a deal for a company that apparently existed only on paper, created by a convicted felon on parole for a financial crime. This company may have been fictional but it was still considered economically sound at one point by state bureaucrats. The MEGA never paid out, but that was in part due to the felon’s parole officer spotting him in press coverage related to the deal.
- MEGA statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
- The “Good Jobs” bills: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”
These “but for” provisions invite abuse, because such counter-factuals are ultimately unprovable. The provision is a cover story for politicians pretending the subsidies will create whole new jobs, businesses or industries that wouldn’t exist “but for” their favoritism. Subsidies to build electric vehicle batteries and produce films were recent Michigan programs that showed not even huge handouts can overcome economic reality.
- MEGA statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state. [Emphasis added.] (See identical language below.)
- The “Good jobs” bills: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.” [Emphasis added.]
These analyses are purchased by economic development agencies from a cottage industry of consultants who exist the serve the agencies’ “budget justification” needs. They are generally not worth the paper they are written on, with methods and inputs that are easily gamed to generate whatever results the client seeks.
Their products are crafted to give the appearance of independent scholarly research, but in fact they frequently violate its canons. The methods are sometimes secretive, not transparent; they sometimes do not use public data sources; and rather than being independent, they have an inherent conflict of interest.
In some cases, the products are quickly dismissible. For example, an arm of Michigan State University was paid by the agency that runs most of these programs here, the Michigan Economic Development Corporation, to produce a paper on its film subsidy program. The university’s sure-fire method to demonstrate the program was a “big hit” was to exclude all its costs from the analysis. The summary might as well have read: “No cost; all benefits.”
Similarly, the MEDC also pays a consultant to calculate an alleged “return on investment” for millions of dollars spent on state tourism ads. Yet the claims are empty because the vendor refuses to disclose the details of precisely how it arrives at the fabulous figures it reports. Nevertheless, MEDC bureaucrats implicitly demand that legislators, the public and media just take their word.
But with millions of dollars in subsidies (and agency) salaries involved, the MEDC also uses sophisticated tools itself to paint a false picture of its programs’ outcomes. One is a software program called REMI, used by the agency to predict the supposed impact of the Michigan Business Development Program. No matter how big their computer, however, the model’s output is entirely invalid when the agency refuses to make public the assumptions their analyses are based on.
Such behavior should win these analyses scorn, derision and a hand-waving dismissal. Few serious policy analysts would take secretive and questionable products seriously, yet they are woven into the state laws authorizing business subsidy programs as if their conclusions have some real meaning. The reality is that such products produced by and for the MEDC are basically empty public relations gimmicks.
The MEGA law that appears to be the inspiration for the new proposal was originally intended as a narrow device to bring new industries that “but for” that subsidy might not come. In fact, some supporters of the old MEGA program are back and blurring the line between big business and big government in the name of “economic development.”
It’s not only the re-emergence of the same cheerleaders but also the symbiotic relationship between business and government they favor that should make Michiganders reject the recycled MEGA model. When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Even with the best intentions from the people in charge, the signal that the Michigan’s economic development aristocracy sends to entrepreneurs is that their paths to success lie through lobbying government for subsidies, rather than serving customers.
This is both disturbing and sad. Selective business subsidy programs like MEGA have been extensively studied by academic economists who have found much evidence and offered many explanations for why they waste money and don’t work.
MEGA itself has been the focus of five independent analyses. Four of them (two by the Mackinac Center in 2005 and 2009) found a zero-to-negative impact. One study found a positive impact but it was small. A 2014 jobs count of the program by Michigan Capitol Confidential found that just 2.3 percent of MEGA subsidy agreements met their expectations, making the “company to add one hundred jobs” press releases an exercise in fiction.
Adding injury to insult, the program continues to cost Michigan taxpayers hundreds of millions of dollars a year, blowing unpredictable holes in our state’s budget
These programs are less about economic development than political development. They represent government elites working hand-in-glove with well-heeled business owners to advance the interests of both sides, not the public interest.
Senate Bills 242-244 have already passed the Michigan Senate and are now pending before the House Tax Policy Committee, which may take them up soon.
House Tax Policy Committee Members and Contact Information
Jim Tedder, R-Clarkston
David Maturen, R-Vicksburg
Martin Howrylak, R-Troy
Klint Kesto, R-Commerce Township
Peter Lucido, R-Shelby Township
Hank Vaupel, R-Fowlerville
Steven Johnson, R-Wayland
Bronna Kahle, R-Clinton
James Lower, R-Ionia
Wendell Byrd, D-Detroit
Sheldon Neely, D-Flint
Jim Ellison, D-Royal Oak
Abdullah Hammoud, D-Dearborn.
April 14, 2017 MichiganVotes weekly roll call report
The House and Senate are out for a two-week spring break. Therefore, this report contains no votes but several recently introduced bills of general interest.
Introduced by Sen. Curtis Hertel, Jr. (D) and Rep. Andy Schor (D), respectively, to authorize an income tax credit equal to 50 percent of the amount of student loan payments made by a resident (subject to some caps) who got a degree from a college or university in Michigan and is employed in the state. The credit would not be “refundable,” but would reduce an individual’s tax liability on a dollar-for-dollar basis. Referred to committee, no further action at this time.
Senate Bill 81: Scrap national “Common Core” curriculum and tests
Introduced by Sen. Phil Pavlov (R), to cease all planning and actions related to adopting the national “common core” curriculum in Michigan schools and tests, and replace this with the curriculum that was in effect in Massachusetts during the 2008-2009 school year. This would be an interim step pending creation of Michigan content standards, which the bill proposes be adopted in five years. Referred to committee, no further action at this time.
Senate Bill 84: Ban discrimination based on not having a residence
Introduced by Sen. Bert Johnson (D), to establish in statute that the privileges and immunities associated with being a resident and citizen of this state and country apply equally to an individual who has no permanent mailing address. This would include the right “to use and move freely in public spaces, including sidewalks, parks, transportation and public buildings.” Referred to committee, no further action at this time.
Senate Bill 88: Let Detroit issue automated "photo cop" school bus citations
Introduced by Sen. Bert Johnson (D), to allow the Detroit public school district to contract with a private vendor to install and operate an automated traffic citation system to ticket motorists who illegally pass a stopped school bus, based on images collected by cameras attached to school buses. Fines would start at $300, rising to $1,000 for a third offense, and the money would go to the Detroit public school district (less the amount collected by the private vendor). The Senate passed a version of this bill last year with just three opposing votes, but the House did not take it up. Referred to committee, no further action at this time.
Introduced by Sen. Rebekah Warren (D), Rep. Rep. Brian Elder (D) and Rep, Scott Dianda (D), to exempt feminine hygiene products from sales tax.
Senate Bill 151: Ban "photo-cop” traffic tickets
Introduced by Sen. Mike Shirkey (R), to prohibit the use of automated, unmanned traffic monitoring devices for issuing traffic law tickets. A Michigan driver who was issued an automated ticket in another state would not get “points” on his or her license for automated traffic tickets issued there. Referred to committee, no further action at this time.
Introduced by Rep. Robert Kosowski (D) and Rep. Aaron Miller (R), respectively, To allow school districts to levy a 3-mill “sinking fund” property tax for 10 years to buy school buses. These are a permanent funds that originally could only be used only for land purchases and the construction or (major) repair of school buildings, but a 2016 law expanded this to include school security measures and “technology” purchases. Referred to committee, no further action at this time.
House Bill 4053: Establish English as official state language
Introduced by Rep. Tom Barrett (R), to establish English as the official state language. This would apply to government activities, but not to private sector activity. It would require governmental documents, records, meetings, actions, or policies to be in English, but would not prohibit them from also being in another language. Referred to committee, no further action at this time.
House Bill 4105: Withhold state money from so-called “sanctuary cities"
Introduced by Rep. Pamela Hornberger (R), to prohibit local governments from adopting or enforcing a policy that limits officials or police from communicating or cooperating with appropriate federal officials concerning the status of illegal aliens. Cities would have notify police and other staff of their duty under the law, and notify the state they have done so. Jurisdictions in violation would not receive the optional, non-constitutional portion of state revenue sharing dollars. Referred to committee, no further action at this time.
House Bill 4108: Allow temporary speeding to pass
Introduced by Rep. Beau LaFave (R), to allow drivers who are passing another car on a highway to exceed the speed limit by up to 10 miles per hour while passing, except in a city or school zone. Drivers would have 10 seconds after passing to slow back down. See also House Bill 4062, which would require left lane drivers to get over for passing cars. Referred to committee, no further action at this time.
House Bill 4134: Prohibit mandating that licensed doctors also be “board certified”
Introduced by Rep. Edward Canfield (R), to prohibit state licensure authorities from requiring a physician to hold one of the various professional association board certifications. Some national organizations that make money from these certifications have been advocating that states mandate them. Referred to committee, no further action at this time.
House Bill 4146: Repeal Michigan’s Right to Work law
Introduced by Rep. John Chirkun and 32 other Democrats, to repeal the state’s right to work law for government and public school employees. Specifically, the bill would allow public employers to require employees to pay dues or fees to a union as a condition of employment. Similarly, House Bill 4147 would allow private sector employers to make workers pay the union. Referred to committee, no further action at this time.
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.
Bloomingdale leaves state watch list
A state label served as a wake-up call for one rural Southwest Michigan district. Today, its high school stands out as one of the top academic performers in the state.
In August 2010, the Michigan Department of Education released its first list of underachieving schools under a new law that created a school reform office with the power to take over the worst schools.
Bloomingdale High School was one of 92 schools designated as “persistently low-achieving.” Troubled by the stigma, district and school leaders wasted little time in taking action, even though the state education department shied away from its newfound power to impose reforms. “Some other schools on the list didn’t seem too concerned, but we took it seriously,” principal Rick Reo said.
When the announcement came, Reo’s role had just expanded from leading the high school to taking over the middle school, too – a realignment caused by a period of tight budgets. He and Superintendent Deb Paquette decided to roll up their sleeves rather than fall back on excuses. Educators across the district, including those at the two elementary schools, became important partners.
The threat of declining enrollment was very real for the rural campus. Bloomingdale had already lost more students than it gained through Schools of Choice, which enables families to more easily enroll in districts outside the ones they live in. The district’s Hispanic population has grown in recent years, and a majority of kids are eligible for federally subsidized free lunch because of family poverty.
Rather than just stem the tide, the district made noticeable improvement within a matter of a few years. Bloomingdale has earned a strong A on the two most recent editions of the Mackinac Center’s Public High School Context and Performance Report Card, which adjusts several years of 11th-grade state test scores for expectations based on student poverty. Most recently, the school finished 11th out of 639 schools statewide and narrowly missed being the top-rated conventional district high school in Michigan.
In 2012, Bloomingdale rated 10th out of 11 Van Buren County high schools in the share of students who met state benchmarks for college and career readiness. Two years later, it had ascended to second and also ditched the negative state designation. Senior students had begun applying positive peer pressure to underclassmen: “We got us off the list, now you have to keep us off.”
Key to turning things around were intentional changes in the school culture. The school rewarded academic goals with student assemblies that featured teachers taking dares or acting out humorous scenes on videos. Individual student incentives for good behavior included trips to watch a Detroit Tigers or Detroit Pistons game — a long drive across the state for a special treat.
The creation of advisory groups — small communities of 15 to 25 kids paired with a mentor teacher —reinforced the message through service projects and a focused development of study skills. The attitude took root early on as one group of students produced a powerful video in which they directly conveyed the message: “We will defy the label” from the state’s 2010 list.
Defying the label required classroom changes that ensured students were learning more knowledge and skills. The district embraced new curriculum and teaching methods that promote higher-order thinking rather than rote memorization. Teacher Kevin Farmer was instrumental in helping to lead professional development for his math department and elementary school colleagues. By promising them a free iPad as part of the training, the district was able to entice nearly all of them to participate.
Switching to a trimester schedule has let teachers dedicate more time to core subject instruction and has given students more opportunities to master needed skills in math and language arts. Bloomingdale also benefited from the insights of outside expert Mark Wahlstrom, who made the data from assessment results meaningful and useful to faculty and staff, and helped them refocus on important material students needed to learn.
“We wanted to end the negativity associated with teaching to the test,” Reo said.
Bloomingdale’s final key to improvement was to patiently communicate with parents and other local residents, highlighted by special evening events. The community forums Reo led in the wake of the initial bad news proved especially critical. “People wanted to know we had a plan, and we reassured them,” superintendent Paquette said.
Local education leaders delivered on that reassurance. The challenge that now faces Bloomingdale is sustaining and building off that success.
Auditor General, not MEDC, should hire reviews of corporate welfare programs
For many years, the Michigan Economic Development Corporation has always selected a friendly vendor to calculate the return on investment of its state tourism promotion funding effort (Pure Michigan), rather than seek bids from several possible choices. Last year, it finally requested proposals from other vendors for the right to make these estimates. The winner of the new contract — and the costliest bidder, too — was … wait for it … the very same firm (Longwoods International) the agency had for many years simply selected on a no-bid basis.
The second place finisher, Valient Market Research, distinguished itself in two major ways from the winning bidder. Valient offered to do the job for $44,500 less than Longwoods, which bid at $164,000. And perhaps more importantly, Valient made “100 percent transparency” a centerpiece of its proposal. The MEDC has a reputation for obfuscation and secrecy and its winning vendor, Longwoods, provides an assist by refusing to reveal precisely how it assesses claims of success for the Pure Michigan program.
The Michigan Legislature should strip from the MEDC the right to review its own purported successes — or hire a third party to do so. It should ask the Office of the Auditor General to take responsibility for doing so under some simple guidelines.
State documents show that the winning bidder, Longwoods, was selected on a no-bid basis years ago because state officials believed the vendor would tell them what they wanted to hear. In fact, the company once bragged on its website about its ability to help tourism officials engage in “budget justification.” This alone suggests a government-business relationship that is a little too cozy.
Worse, Longwoods uses a dark methodology to calculate Pure Michigan’s ROI. It refuses to precisely explain how it generates credulity-straining figures on the return on investment from Pure Michigan. The MEDC has appeared perfectly comfortable with the secrecy and this is all the more true now. It is akin to the agency and its hired gun saying, “Hey, taxpayers and lawmakers, we know we’re right and you’ll just have to take our word for it. Now spend $34 million again this year on the Pure Michigan program.”
At least the losing bidder was prepared to have its approach questioned by others. In addition to the promised transparency of survey design and data sets, Valient had promised to “provide press briefings to improve transparency and public understanding of the return on investment (ROI) results of this important campaign.”
Valient was apparently unaware of the MEDC’s reputation for preferring to buy studies that comport with its views as well as its secretive nature. Both qualities of the agency’s officials make it difficult to review their work, offer criticism based on programs they champion and suggest less expensive alternatives, including shuttering ineffective incentive tools or the department itself.
Because MEDC officials have incentives to make what they do appear relevant and useful — their own employment and prestige — no one should take their braggadocio as an objective assessment of their successes. This is particularly important when it comes to the agency hiring its own consultants who generate alleged evidence of programmatic success but refuse to demonstrate their methods. The Pure Michigan program, after all, costs $34 million a year, money that might be better put to use somewhere else.
Lawmakers should offer guidance by mandating 100 percent transparency and that all costs associated with programs be included in future assessments. They also should require that program evaluations can be independently replicated and verified. Finally, evaluations should calculate the opportunity costs of each program so that the MEDC’s programs can be compared to some alternative, such as cutting taxes across-the-board.
The MEDC has a history of secrecy and every incentive to puff up its own image by buying studies that comport with its own vision. It should no longer be allowed to do so.
But only when they serve bureaucrat Interests
Last year, the state’s Office of Retirement Services testified against a plan that would offer new employees in the school retirement system 401(k)-style benefits. The office claimed that shifting employees would require increased costs in order to follow industry best practices. But state officials are already ignoring a large number of best practices when it suits them.
In a memo on the issue, the state’s actuaries note that the Government Finance Officers Association recommends, “[F]or plans that are closed plans that still have active members, the continued use of a level percent of member compensation remains appropriate, but not for a long period (i.e. as the number of active members decreases).”
Given that the state is paying off the retirement system’s unfunded liabilities over the next 22 years, this seems to imply that it ought to pay more of the costs upfront. But this isn’t the only best practice that the organization recommends. The report includes a number of practices that the state has ignored. These include:
The actuarially determined contribution should be calculated in a manner that fully funds the long-term costs of promised benefits while balancing the goals of 1) keeping contributions relatively stable and 2) equitably allocating the costs over the employees’ period of active service.
ORS is not doing this for the school retirement system. Contribution rates have not been stable and the costs of service are spread beyond employees’ working years. Contribution rates have steadily increased between 2000 and now, going from 12 percent up to 37 percent.
The average employee in the system is 46 years old, but the state is paying off unfunded liabilities over the next 22 years. This means that costs would be spread over the working lifetimes of the current workforce if its members worked until they were 68. But they won’t: The state assumes that most employees will retire when they are between 57 and 62. In other words, the state is taking longer to pay off the costs of retirement than industry best practices recommend.
This is not the only best practice that the state ignores. The association of finance officials further recommends:
Every government employer that offers defined benefit pensions or other post-employment benefits should make a commitment to fund the full amount of the ADC each period.
In contrast, Michigan has put in less than the actuarially determined calculations in 7 out of the past 10 years and 20 out of the past 29. Sometimes this is due to decisions made directly by policymakers, and those overseeing the pension system do little to influence lawmakers violating these best practices.
The method used for asset smoothing should: Be unbiased relative to market. For example: The same smoothing period should be used for both gains and losses[.]
The state reset its 5-year smoothing of pension assets in 2007 so it could put fewer dollars into the pension system that year. It did the same in 1997.
Amortization of the unfunded actuarial accrued liability should: Use fixed (closed) periods that … never exceed 25 years, but ideally fall in the 15-20 year range.
Michigan’s current schedule pays unfunded liabilities off over 22 years, which is a little above the recommendation. But when the state adopted this schedule in 1996, it was a 40-year schedule.
The evidence is clear: The state’s Office of Retirement Services ignores or claims best practices when it suits its interests. That attitude is why Michigan’s pension systems are tens of billions of dollars in debt.
Trump’s Regulatory Affairs Director appears serious, and she has a record
President Donald Trump has nominated George Mason University law professor Neomi Rao to head the White House Office of Information and Regulatory Affairs within the Office of Management and Budget. This is a radical departure for the office, because for years Rao’s scholarship has challenged the legitimacy of the regulatory state and how it takes decision making away from Congress.
The pervasiveness of what is called “the administrative state” is a relatively new development in this country. The term refers to an entire bureaucratic apparatus that operates separately from elected officials, and over which the courts exercise very little oversight.
Rao’s appointment suggests that Trump intends a serious effort to break through the long-standing regulatory morass. She is the founding director of George Mason University’s Center for the Study of the Administrative State, and represents a huge departure from previous Regulatory Affairs directors.
For example, President George W. Bush appointed a Harvard scholar named John Graham. Graham's specialty was applying cost-benefit analysis to somewhat constrain regulations. While that approach is useful, he never challenged the basic legitimacy or pervasiveness of the regulatory state.
The same stance was adopted by President Barack Obama’s appointee, Cass Sunstein, a legal polymath who had offered some reasonable critiques of the existing regulatory state. But Sunstein was nevertheless a full-fledged booster of what he calls “nudging” people and firms into regulatory-directed outcomes.
Rao starts from a very different position, and changes in another branch of government could deepen the challenge to “deep state.” Newly seated Supreme Court Justice Neil Gorsuch is said to be “Scalia without the deference to administrative agencies.” Justice Clarence Thomas has been a long-time critic of the administrative state, and has been joined by Justice Samuel Alito. Observers expect Trump to be able to appoint at least one or two more justices in this mold in his first term, and possibly more in a second term.
Nobel-prize winning economist Edmund Phelps has written extensively about the negative effects of overly developed regulatory power. Since the 1970s, when the alphabet soup of federal agencies sprang up and accumulated power, the general dynamism and innovation of the economy has slowed considerably. Phelps calls the entire apparatus of regulation, corporate protection and insider favoritism “corporatism’s managerial state.” He wrote:
“The new corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusion. [It] does that by maintaining lethargic, wasteful, unproductive and well-connected firms at the expense of dynamic newcomers and outsiders and by pursuing goals such as consumption, social insurance, and rescue of companies and industries nourishing lives of engagement, creating, and exploring. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, and much more have at some point been deemed too important to weather the free market on their own, receiving a helping hand in the name of the ‘public good.’” (Ammous and Phelps (2012), quoted in Phelps’ “Mass Flourishing,” 2013 Princeton University Press.)
So it matters that for the first time since the 1970s, the prospect exists for serious change in the regulatory state — starting with the and the unelected administrators who control it.
Enacting some long-overdue reforms should pave the way to pass several others this year
A set of 18 bills recently signed into law will improve public safety and put Michigan on the track to administer criminal justice more efficiently, but there is still more work to do. The bills, championed by Sen. John Proos, R-St. Joseph and signed by Gov. Rick Snyder on March 30, are part of 21 proposals lawmakers have been discussing since last May.
The wide-ranging bills aim to collect more data about Michigan’s corrections system, reduce an offender’s likelihood of re-offending after leaving prison and cap the jail time that probationers can serve for violating the terms of their release. They also establish a parole system built on accountability and consistency and create special housing and programs for younger prison inmates, among other things.
Of the 20 reform proposals that made it to his desk, Snyder vetoed two. One would have created a program for collecting and managing data about the criminal justice system, a program that Michigan needs. Proos said that he had a commitment from the governor’s office to continue working on the issue. The other vetoed bill would have required the Michigan Department of Corrections to implement a program that might have landed state prisoners in county jails. Snyder noted that he vetoed that bill because jails do not generally have the same tools that the department uses to help ex-offenders successfully re-enter into society.
The reform bills enjoyed wide bipartisan support in both legislative houses. Only one, a misguided proposal to give taxpayer-funded grants to encourage employers to hire ex-offenders, did not pass. The idea may come up again, according to sources in the House, but legislators should let it die. Government should not be a third party to an employer-employee relationship, dangling a benefit to induce the employer to make certain hiring decisions. This skews the labor market and is unfair to people who have not broken the law.
The Legislature should not stop with the 18 bills that are now law, however. Instead, lawmakers should use the new consensus about the need for reform to work on other changes.
Michigan needs to create a sophisticated data collection program that gives reformers a complete picture of the jail and prison system in Michigan. That kind of program can follow people from the time they get ready for trial to when they go back into society, and it can show where government needs to make changes.
Lawmakers should also reform policies that disproportionately harm low-income people. Michigan imposes more categories of fines and fees on criminal and juvenile defendants than other states, and it is more likely to suspend someone’s driver’s license for an offense that has nothing to do with traffic law. These penalties can present insurmountable challenges to people who are on a fixed income or working an entry-level job, and they may even prompt offenders to engage in more wrongdoing in order to make ends meet.
Our state also imprisons poor defendants who can’t make bail and are detained pending trial, which produces worse outcomes for their individual cases while disrupting employment and housing markets as workers and tenants are pulled out of the community. Lawmakers should address the shortcomings of this system as well, which basically ensures that defendants who lack means will remain behind bars.
Finally, although the state has made strides on civil asset forfeiture, it still has not reformed the law so that police are required to secure a criminal conviction before seizing a person’s private property and selling it for profit. This practice, along with requiring bail, devastates poor communities while doing little to advance public safety.
The Legislature and governor should respond to the overwhelming support for smart justice and commonsense reforms to Michigan’s system to make other improvements. They should use the energy created by passing these new laws to make sure the state has a smart, fair, efficient system of fighting crime and helping people who commit crime get on the right path.
Legislators are considering it
Michigan legislators are considering creating new targeted tax credit programs, a key part of former Gov. Jennifer Granholm's economic strategy. For much of Michigan's “lost decade,” her plan for economic growth was centered on giving tax credits and other favors to politically preferred businesses and industries – combined with higher taxes for everyone else. There’s no evidence that any of this worked to grow the economy, and Michigan’s Legislature should learn from that lesson.
During Granholm’s tenure, the Democratic-led House and Republican-led Senate passed multiple bills that gave large tax breaks and subsidies to specific industries, primarily auto companies, battery firms, film studios, and companies involved in so-called green energy. In the meantime, taxes were raised on individuals and other businesses.
Most of those favors were funneled through the Michigan Economic Growth Authority. From 2003 to 2010, the amount of money promised under MEGA skyrocketed. Most of it was in the form of refundable tax credits, essentially direct subsidies. In 2009 alone, more than $1.2 billion was pledged to companies selected by state politicians and bureaucrats.
The empirical work done on this program largely agrees on this point: There is little evidence that these targeted tax breaks and corporate subsidies did any good for Michigan’s economy. Studies done by the Mackinac Center for Public Policy, the Anderson Economic Group and the W.E. Upjohn Institute for Employment Research all found the program to be economically destructive, or, at best, ineffective.
Another analysis of the program found that fewer than 20 percent of the jobs promised by participating projects ever materialized. It also revealed that only 2.3 percent of businesses achieved the investment and job creation targets that won them these special favors in the first place. But the tax credits are good for up to 20 years, which means Michigan taxpayers will still be on the hook for these failed programs for several more years. The program cost the state budget about $1 billion last year.
Under the direction of Gov. Rick Snyder, the state stopped handing out tax credits and subsidies through MEGA after Republicans took over the Legislature. For the past five years, no new select tax credits have been handed out to corporations. But some legislators are pushing to give Granholm’s economic strategy another go.
In fact, the state Senate has passed a bill package of new targeted tax credits for select businesses. Senate Bills 111-115 would give certain developers the ability to divert tax payments from workers and homeowners to their own pockets. The Senate also passed another package of bills that would give 10-year tax abatements to 15 large companies per year if they expand or relocate in Michigan. Smaller companies and other taxpayers would still pay full freight.
Proponents say these proposals are not like past tax credit programs and promise that this time things will be different. But there’s no escaping the fact that these schemes rely on the belief that politicians can make wise “investments” with taxpayers’ money. Empirical research and historical evidence strongly suggest that politicians (no matter their party affiliation) are not good central planners. It’s easy enough for private investors to make poor decisions with their own money — how much easier it must be for politicians to do the same with other people’s money. Recent grassroots coalitions understand this: Both the Tea Party and the Occupy movement sprung up in large part to fight select favors for the politically well-connected.
So far, the Republicans in the state House have resisted the allure of these tax incentives. But the big businesses that stand to gain from these select favors are, to no one’s surprise, pushing for the bills, and Capitol-watchers think they stand a good chance of success. Legislators should resist these special corporate subsidies and instead work on what empirical evidence suggests really does work: lower taxes for everyone.
What would you say you do around here?
The state government spends a lot of money trying to create jobs in Michigan. There are dozens of programs in place with over $100 million in annual appropriations, and billions of tax dollars have been pledged to the purpose. Despite all of this spending, though, the programs don’t work and are rarely held accountable when they fail.
These business subsidies are not designed to improve the economy as a whole, but rather to chase a handful of business projects that are looking for state favors. If the project meets the state’s criteria, it gets the favor, often subject to negotiation with state administrators. Supporters argue that the favors are necessary because these kinds of projects shop around other states for further support.
The supporters want these projects to be important, and say that they would not happen without their work. Both the presumption of their importance and the presumption that incentives are required are doubtful.
The importance of these projects can be evaluated by looking at the recent job creation picture. There are 207,000 private sector jobs created in Michigan every three months and 192,000 jobs lost. Only a handful of those new jobs can be in firms that get state deals. Forget for a moment that the state has a poor record of turning job announcements into real jobs, the scope of state deals is simply not large enough to influence these figures.
The claim that these projects will not happen without state assistance also has problems, the obvious one being that it’s a claim that is impossible to prove. It would be interesting if the state rejected a handful of deals to see what happens, but that is not likely to occur. We’re left with the rare instances where evidence does appear, something we explored in our 2005 study, showing a number of projects that did happen or likely were going to happen without state money.
But there are also some academic papers on the issue. At a Michigan House tax policy committee, economist Tim Bartik of the Upjohn Institute pointed out that 94 percent of the business projects he studied would happen without special deals. His work doesn’t apply to all incentives everywhere, but it ought to raise concerns about what actually will happen without special business deals.
Are the projects that benefit from state deals important? If these are your projects, then, yes, they are important to you. But what is good for you isn’t necessarily good for the state. And there ought to be a strong burden of proof necessary to claim that they are.
State-favored deals don’t meet that burden. Even so, some business interests and their allies are pitching two new programs to lawmakers in hopes of getting more and different favors. Proponents argue that we need these to compete with other states and that the numbers for these projects don’t work without state money.
Michigan already has a number of incentive programs, and Bartik’s report puts Michigan slightly above the national average when it comes to doling out favors. The Citizens Research Council has a 160-page report on all of Michigan’s programs. Apparently, they are failing in their promise to develop the economy, since lawmakers say that they need new ones to compete with other states.
The issue is that these projects do not develop the economy: They develop examples. Economic development is about data; the state’s job creation activities are about anecdotes. And unfortunately, the anecdotes are not symbols of real growth. The state was developing heaps of examples from 2000 to 2009, but was also shedding more jobs and production than any other state.
Perhaps that explains why the state does not require that economic development programs actually develop the economy. They can concentrate benefits to particular firms, but lawmakers do not require them to demonstrate their effectiveness. Administrators even get away with sketchy reporting on their activities.
There is a large amount of pressure being applied on lawmakers to pass these new favors, even though the evidence they will help the state is flimsy. But the political pressure is about granting favors, not about using real ways to improve the state economy.
New documentary closely follows major Arizona choice law
As the ink finishes drying on the nation’s widest-reaching educational choice law, Americans can tune in to see what’s behind such programs and why they work.
On April 6, Arizona Gov. Doug Ducey signed into law an expansion of the state’s Empowerment Scholarship Account program. At the end of four years, parents of every public school student statewide will be able to use state funds to customize his or her education, subject to enrollment caps. This level of choice nearly had been achieved in neighboring Nevada, but a 2016 state Supreme Court ruling left the program in limbo, frustrating families seeking educational alternatives.
Developments in Arizona have school choice supporters smiling today, a fitting launch to the three-hour documentary “School Inc. – A Personal Journey with Andrew Coulson.” The first part of the televised series is scheduled to debut this coming week in cities across the United States. Viewers in the Detroit area can find the episode on WTVS-TV, this coming Monday, April 10, at 7 p.m. The first episode re-airs Tuesday at 8 a.m. and 2 p.m. Parts 2 and 3 will appear at the same times in the weeks that follow.
In the newly released Free to Choose Media documentary, the one-time Mackinac Center senior fellow in education policy brings the audience along on his far-ranging travels to help answer the question: “If you build a better way to teach a subject, why doesn’t the world beat a path to your door, like they do in other industries?”
School Inc. is the culmination of the late Andrew Coulson’s dream of reaching a broad audience with the powerful case for transforming learning through choice and innovation. The dream finally comes to life before Andrew, who lost his battle with brain cancer in February 2016, was able to see it reach the airwaves. Tom Shull, another former Mackinac Center staffer, aptly eulogized his one-time colleague as “a generous and talented human being who worked for freedom of choice for all children in education.”
Now that work has reached the biggest stage yet. As groundbreaking as Andrew’s book “Market Education: An Unknown History” was, the documentary makes the message and insights more accessible. Nor have most people heard of James Tooley’s “The Beautiful Tree,” which to this day remains the most compelling book on education I’ve ever read. But the School Inc. journey includes a visit to the slums of India, where the low-tuition private schools featured in Tooley’s book have yielded amazing results.
The timing of the documentary’s release proves impeccable, almost as if it had been intended for this moment so it might reach an American audience highly attuned to the debate over educational choice. The election of Donald Trump has generated much discussion about the possibility of federal tax credit scholarship legislation.
And Michigan’s Betsy DeVos has a megaphone as the new secretary of education to promote the value of favoring families over education employees and bureaucracies by giving them the power to choose. The way she quickly touted the new Arizona legislation as “a big win for students and parents” represents a breath of fresh air from the federal bureaucracy, and further helps to raise awareness of choice programs.
As Arizona opens up a host of learning options and opportunities to its families, maybe School Inc. will open many Michigan viewers’ eyes to the possibilities that lie ahead.