Fake news, meet settled science
Editor's Note: A version of this article ran in The Detroit News on February 22, 2017.
Throughout 2015 and 2016, Michigan’s electric utility executives warned us that upcoming closures of coal-fired generation plants meant the state faced impending electricity shortfalls. This is mostly because coal plants are closing as a result of increasingly strict federal environmental regulations, like the Clean Power Plan.
Last year, EPA Administrator Gina McCarthy told Americans that 2016 was “on pace to be the hottest year ever recorded. … The latest climate indicators report confirmed that the impacts of climate change are getting stronger and stronger.” In response, the EPA created the Clean Power Plan to set national standards for reducing carbon dioxide emissions from America’s coal plants.
But a just-released whistleblower report, reminiscent of the 2009 and 2011 “Climategate” scandal, has raised serious questions about the accuracy and transparency of climate change research federal agencies used to justify new greenhouse gas regulations.
Known as the “Pausebuster,” the research in question appeared to show that past measurements had overestimated land and sea temperatures, putting into doubt the two-decade long pause in global temperature increases that climate scientists thought began in 1998. This new research appeared to imply that global temperatures have increased more than previously thought, making climate change an even greater threat.
Thomas Karl, a scientist with the National Oceanic and Atmospheric Administration (NOAA) and lead author of the Pausebuster paper, relied heavily on data described as updated and corrected temperature observations. But these observations were actually criticized by other scientists as unverified.
Even so, Karl published his paper in the journal Science before the Obama administration’s presentation of the Clean Power Plan before a United Nations-sponsored event, the 21st Conference of the Parties meeting, in Paris in December 2015.
Cited widely in the media, Karl’s work played a key role in influencing international decisions to ratify the 2015 Paris Agreement, which called for drastic reductions in worldwide greenhouse gas emissions. EPA greenhouse gas regulations were also influenced by this research, as the agency cited the unverified temperature data in its 2016 Climate Change Indicators report.
Those EPA regulations were a key factor in the decision to close Michigan’s coal plants. At the time, Skiles Boyd, vice president of environmental management and resources at DTE, stated, “there is no piece of control equipment we can put on (existing coal plants) to meet carbon rules under the Clean Power Plan.” Boyle added that by 2030, a single plant in Monroe will be the company’s only coal-fired facility remaining.
Enter Dr. John Bates, a recently retired climate scientist who for the past decade has been responsible for maintaining NOAA’s climate archive. Bates designed the formal review and archiving process used by the agency to preserve historical climate data. His work was recognized by the U.S. Department of Commerce when it gave him its Gold Medal award in 2014 for his innovative work.
In a recent article published in the U.K.-based Daily Mail, Bates described Karl’s Pausebuster research as “the most serious example of a climate scientist not archiving or documenting a critical climate dataset” he had seen. Bates noted that he had objected to Karl’s use of unverified data, but that NOAA senior officials had ignored his concerns.
Bates claimed Karl had refused to follow established data archiving protocols. Karl, he said, “constantly had his thumb on the scale —in the documentation, scientific choices, and release of datasets — in an effort to discredit the notion of a global warming hiatus and to rush to time the publication of the (Pausebuster paper) to influence national and international deliberations on climate policy.”
Nearly two years after Karl’s paper was published, the temperature data he used remains unverified and unapproved for inclusion in the vetted NOAA climate database. In fact, the raw data that Karl used for the Pausebuster paper was never properly archived, and the computer on which it was stored actually suffered a complete failure.
Serious questions have been raised about the validity of research that is foundational to expansive new federal regulations. Furthermore, utility executives stated that the plans to shut down Michigan’s coal power plants were based on those potentially flawed regulations and questionable research.
Recognizing this, Michigan should ask if it is reasonable for utilities to warn of impending energy shortfalls while they rush to replace generation plants that reliably and affordably provided over 35 percent of our electricity in 2016. Science is still showing that a pause in warming over the past two decades has occurred. Perhaps Michigan’s utilities should take this pause into account and pause their plans to close our coal plants until this issue can be fully investigated.
February 24, 2017, MichiganVotes weekly roll call report
House Bill 4001, Cut state income tax rate by 0.2 percent: Failed 52 to 55 in the House
To cut the state income tax rate from the current 4.25 percent to 4.05 percent over two years. The tax could go down another .15 percent later but only if the state rainy day fund is allowed to exceed $1 billion. Twelve Republicans voted 'no' and one Democrat voted 'yes.'
Senate Bill 111, Transfer state revenue to big developers: Passed 27 to 6 in the Senate
To give a number of developers and business owners selected by state and local political appointees up to $1.8 billion state tax dollars over 20 years. The beneficiaries would be allowed to keep the state income tax payments they withhold from employee pay checks. The cost estimate comes from the Senate Fiscal Agency and applies to Senate Bills 111 to 115 together.
Senate Bill 113, Let some big developers keep sales tax they collect: Passed 28 to 6 in the Senate
To allow certain developers and business owners selected by state and local political appointees to keep the sales tax they collect on retail sales. This would be a new way of giving cash subsidies to certain developers, and would reduce state revenue available for other purposes. This is part of the same proposal as Senate Bill 111 above.
Senate Bill 97, Authorize facility development deals between governments and private businesses: Passed 32 to 4 in the Senate
To give state and local government agencies the power to enter joint operating arrangements with a particular developer to build a hospital or transportation facilities. The private operator would benefit from tax exemptions and its governmental partner's power to impose property taxes, borrow, take private property using eminent domain and more. The government agency involved could choose the private sector actor without necessarily having to accept the lowest bid. The projects could be proposals from a private developer.
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.
Wisconsin study highlights benefits of performance pay
Over seven years ago, Michigan passed a law calling for teachers to be paid based on performance. The law has been largely ignored, despite evidence that the old compensation system doesn’t work.
The traditional way of paying teachers according to seniority and academic credentials does not benefit student learning. Research has shown that having a teacher with a master’s degree offers a student no advantages. A Brookings Institution report calls it “one of the most consistent findings in education research.” Yet in Michigan, hundreds of millions of dollars go to funding these “master’s bumps” rather than recognizing teachers for merit.
Resistance to reforming educator compensation comes from many places. The more teachers are judged and rewarded as individuals, the less clout labor unions have in representing teachers as groups. Overhauling the compensation system also entails major changes to school’s HR departments. School officials accustomed to operating in the compliance mode have no natural inclination to do otherwise.
The political will needed to overcome the challenges is weakened by the mixed research on merit pay reforms in the U.S. Ineffective teacher incentive programs in Nashville and New York City garnered splashy headlines about how merit pay doesn’t work either. Positive results from Little Rock and Washington, D.C. tell a more nuanced story. And a forward-thinking Colorado Springs school district program has given evidence of success, but it demands more rigorous study.
A 2009 Michigan law requires local public schools to recognize “job performance and job accomplishments as a significant factor in determining compensation.” Student academic growth data, according to the law, has to be a factor. Yet seven years after the law took effect, nearly all of the state’s 20 largest school districts have no real merit pay policy. Some districts do have a policy, but they give nominal bonuses of $50 or $75 to every teacher who clears a low bar in the evaluation process.
Merit pay doesn’t have to be about simply rewarding teachers for test scores, as some opponents have argued. Detroit Public Schools provides a $5,000 incentive to teachers with strong evaluations and low absence rates. Kalamazoo offers extra pay for teachers who earn a certificate from the National Board for Professional Teaching Standards or opt to work in high-poverty, low-performing schools.
The relatively simple and modest departures of Detroit and Kalamazoo show the way for the districts that have opted to disregard the law. The Legislature should consider adding its own incentive to ensure districts at least attempt to follow state policy.
New evidence from a neighboring state strengthens the case for Michigan to step up and change the teacher pay paradigm. Stanford University economist Barbara Biasi studied what happened in Wisconsin after its major 2011 labor reforms. The law allowed districts to negotiate performance-based compensation with individual teachers. She tested what happens when these districts compete for teachers with districts that stuck to the old salary schedule.
Biasi found the quality of the teaching workforce in the reform-minded districts improved. She attributed at least some of the improvement to top-notch teachers migrating to employers that let them negotiate better individual salaries, and to lower-quality teachers leaving the profession. The combined result was a boon to students’ math and reading scores.
Biasi’s analysis further suggests that if all Wisconsin school districts adopted the merit-based approach, there would be a smaller but more widespread benefit. More ineffective instructors would leave classrooms, and better teachers take their place.
Wisconsin’s example shows that giving school districts freedom to negotiate rewards for excellent teachers can make a real impact on student learning. Michigan’s drop-to-the-bottom decline in academic achievement should make the state especially attuned to our neighbor’s compelling example.
But recent history shows us that many Michigan districts will need some serious encouragement before they improve teacher quality through smarter pay systems.
Why ending Florida’s 'Pure Michigan' counterpart would benefit residents and visitors
One state may be getting wise to the fact that government-funded tourism promotion is a bad bet for taxpayers and do away with two state agencies tasked with economic development and tourism promotion.
Recently, Florida House’s Careers and Competition subcommittee voted in favor of a bill that would end Visit Florida and Enterprise Florida. Those government entities are similar to the Pure Michigan advertising campaign and the Michigan Economic Development Corporation, respectively.
Mackinac Center for Public Policy’s Michael LaFaive, who co-authored a study last year examining the efficacy of state-funded tourism promotion, told the Naples Daily News that Florida doesn’t need to spend some $76 million in tax dollars to get people coming to the Sunshine State.
“Well, look at it this way. People were coming to Florida before it started its tourism program, and they’ll continue coming after it’s gone. You have warm weather, beaches and the mouse (Walt Disney World),” LaFaive said. “Our study found that instead of pouring all of that money into promotion, they could use that money to make it cheaper for residents and visitors to travel around the state.”
But what about states, like Michigan, that don’t have the appeal of year-round warm weather or an internationally known theme park to draw visitors?
It turns out, taxpayer-funded tourism promotions – like Pure Michigan – are a waste of money there, too. LaFaive and co-author Michael Hicks, director of the Center for Business and Economic Research at Ball State University, examined data from 48 states gathered over a 39-year period and found that such expenditures are a net loss to taxpayers.
In an op-ed for the Tampa Bay Times, LaFaive and Hicks explained their findings:
We found that when a state spent $1 million in taxpayer funds to promote itself, its accommodations industry saw its economic activity go up by $20,000. That's no typo. It's not $200,000 or $2 million, nor does it refer to the total taxes that flow to state treasuries as a result of the promotional efforts. We also found that such work does not translate into higher incomes for industry employees. When you compare the outlay with the increase in economic activity, it's clear that state subsidies for tourism promotion produce huge negative returns on investment.
The Mackinac study examines the impact of state-funded tourism promotion on the three industries most likely to benefit: hotels and accommodations, amusement and recreation, and arts and entertainment.
“We chose the three industries we did because they are the most likely to be affected by tourism promotion,” LaFaive and Hicks explained. “If an impact can’t be found in the most directly affected industries, the ripple effects elsewhere are unlikely to matter much.”
In both Florida and Michigan, tourism officials claim a much higher return on investment, but neither are transparent with their research so those claims cannot be verified, WFLA-TV News 8 explained. They refuse to disclose the methodology used to determine return on investment, despite being funded by taxpayers.
In Michigan, taxpayers have spent over $261 million on tourism promotion over the past decade; this year, the state could spend $34 million on Pure Michigan and other tourism promotion. In an interview with The Ron Jolly Show, LaFaive discussed how state-funded tourism promotion campaigns are examples of cronyism and corporate welfare.
“It’s so ineffective you could spend the money instead on the new infrastructure investments the governor wants to make and get a higher return on investment for all taxpayers, rather than this attempt to do it for a favored few and have it not be effective,” he said. “It’s not only ineffective but fundamentally unfair because you’re making someone else pay full freight for what appears to be a benefit for your industry.”
An Analysis of State-Funded Tourism Promotion
Naples Daily News: State Tourism Contracts Went to Former Chief of Visit Florida and ‘Emeril’ Cooking Show
Tampa Bay Times: Column: Visit Florida Not Critical to State’s Economy or Tourism
Studies of State-Funded Tourism Promotion Withstand Criticism
WFLA-TV News 8: You Paid For It: New Study Concludes Tourism Spending a Loser For Taxpayers
Ron Jolly Interviews Michael LaFaive About Pure Michigan
An update through 2015
Editor's Note: This piece was originally published by The Hill on February 22, 2017.
People change their behavior based on incentives and higher taxes create a strong motivation to find ways to avoid paying them. Just look at cigarettes.
While the goal of many who wish to raise taxes on cigarettes is noble — improving public health — new research confirms what decades of previous studies have shown: much of the decline in legal paid sales of cigarettes is due not to people kicking the habit, but to an increase in smuggling.
Since 2008 the Mackinac Center has published estimates — now jointly with the Tax Foundation — about the degree to which cigarettes are smuggled into and out of states. High excise taxes are a key variable in our statistical analysis. The lure of saving or making a buck in the acquisition of cheaper cigarettes is strong and encourages every type of mischief.
The statistical model we use for all of our estimates compares legal paid sales by state and smoking rates by state. The difference between the two must be explained, and we believe it is a function of smuggling.
In 2015, New York State had the highest inbound smuggling rate at 57 percent. In other words, more than half of all the cigarettes consumed there were not properly taxed. Directly following New York is Arizona, Washington state (up from fourth place last year) New Mexico and Minnesota.
Many other states found themselves exporting cigarettes to their higher taxed neighbors. New Hampshire was the top export state, with 72 percent of the cigarettes sold there eventually wound up smuggled into other states. New Hampshire was followed by Idaho, Virginia, Delaware and West Virginia.
Our analysis attempts to estimate the primary source of illicit traffic in two categories: casual and commercial. Casual smuggling typically involves small purchases made by individuals for personal use and would include buying cigarettes in one state and smoking them in another or buying small amounts on the Internet. Commercial smuggling is notable for its organized, large and long-haul shipments, such as moving van loads of cigarettes from North Carolina to Michigan for resale, for example. North Carolina, Missouri, Virginia, Georgia and Louisiana appear to be leading commercial smuggling exporters.
The states with the highest amount of casual smuggling were New York (more than 25 percent of the total consumed), Washington, Minnesota, Montana and Michigan. Casual smuggling depends a great deal on border county populations, as well as tax differences between nearby states and the presence of Indian reservations — which often get special tax treatment. Top outbound, casual smuggling states are New Hampshire, Delaware, Vermont, Idaho, and Indiana.
Our research suggests that if tax hikes are adopted in Indiana and Ohio, for example, it will be a huge boon to Michigan retailers and its state treasury. Currently, both Indiana and Ohio have lower cigarette taxes than Michigan, with Hoosiers paying 50 percent less in taxes for smokes than Michiganders. Hiking taxes by $1.00 and 65 cents per pack, respectively, will reverse the flow of casual smuggling across borders. Michigan retailers will see an influx of Buckeyes and Hoosiers buying smokes and more Wolverines will bite the at-home tax bullet and buy locally or, ideally, kick the habit.
That’s not just a theoretical observation. For our 2008 study cigarette smuggling study we obtained private cigarette wholesaler data for sales to Michigan retailers that bordered Indiana. We measured a 50 percent increase in sales in the months leading up to and after an excise tax hike in Indiana. Why such a leap? Retailers knew crossing into the Hoosier state to buy smokes would get more expensive with a tax hike and local smokers would no longer make the drive.
In the last two months serious proposals to hike cigarette excise taxes have been floated in Indiana, Ohio, Nebraska and Delaware. Smokers may be an easy tax target because many view them as sinners and thus easier to tax. But tax-hike proponents must consider the unintended consequences that undermine whatever good intentions they may have had in the first place.
Publicly funded marketing for tourism is a waste of money
A former marketing boss for the Sunshine State’s tourism promotion bureau criticized our Feb. 7 op-ed in the Tampa Bay Times titled “Visit Florida not critical to state’s economy or tourism.” Our column was based on the Mackinac Center for Public Policy’s recent study of state-level tourism promotion that analyzed data from 48 states over 39 years.
The data showed publicly funded state tourism promotion is not an effective economic development tool. We found, for example, that an additional $1 million in state promotion lifted economic activity in the entire accommodations industry in the average state by just $20,000. That’s a negative 98 percent return on investment.
The criticism leveled at us by Dale Brill, now of the consultancy Thinkspot, was riddled with problems, however, including vital errors of fact. It also cherry-picked quotes from one of us (Hicks).
Brill notes correctly that we limited our measurements of state tourism spending impacts to three tourism-related industries, but he inappropriately compares that to a study performed by Hicks in 2009. In the 2009 study, Hicks measured the impact of taxpayer-funded tourism promotion in six categories, not 40 as alleged by Brill, and we used three of those categories in our 2016 study.
We chose a limited number of things to measure because we wanted a simple but robust model. If you try to measure any and everything, you run the risk of introducing all sorts of biases and errors into your statistical model. We chose the three industries we did because they are the most likely to be affected by tourism promotion. If an impact can’t be found in the most directly affected industries, the ripple effects elsewhere are unlikely to matter much.
Brill insinuates that our 2016 study should be treated suspiciously because it employed a different methodology than the 2009 one. But we used different methodologies because the studies were measuring different things. The 2009 study measured the impact of tourism spending at the county level and just for Indiana in 2006. The 2016 study was conducted at the state level, analyzing 39 years’ worth of data from the 48 contiguous states. These differences alone are enough to generate different output.
More specifically, the 2009 Indiana study examined the impact of local, public spending by convention and visitors bureaus, so Hicks used a common software program named IMPLAN to measure the effects. Conversely, our 2016 study of state-level tourism spending required a different model that allowed us to control for more variables, such as the weather and elevation in a state. Both methods are appropriate for what they study.
Lastly, Brill cherry-picked one paragraph from an article by Hicks titled “State tourism advertising poses tough question” to insinuate the Mackinac Center’s study is suspicious. Most of the article was critical of state tourism promotion subsidies, but Brill fails to mention that fact.
In the article, Hicks predicted that an increase in state tourism spending in Michigan would be ineffective. He noted that spending more on tourism promotion here “offered a rare chance for a good chuckle at Michigan’s expense” and that “advertising a region as a business friendly place is good sport, but nothing more.”
We stand by our recent work and the work we have done in the past. Despite Brill’s claims, there are no inconsistencies in our methodologies. Taken in proper context, our research still finds that taxpayer-funded tourism promotion is largely a waste of money. The funds would be better spent elsewhere, such as infrastructure, tax cuts or any number of other important priorities.
New bill would provide remedy for property violations
While Michigan strongly protects people from eminent domain, there are still cases where governments violate the private property rights of citizens. A bill introduced in the House would provide remedies when the state goes too far.
While the practice of government taking private property for “public use” has been allowed since the founding of America, public entities started to expand their definition of the term toward the end of the 20th century. After the Kelo case, where a town took a woman's home to give to a private business for "economic development," citizens across the nation pushed back by passing dozens of constitutional amendments limiting the practice. Michigan passed its own amendment in 2006.
While Michigan still allows a public entity to take private property for public use — typically for things like building roads, pipelines, schools, ditches, utilities, railroads, and so forth — the 2006 amendment limited state power from going much further. But while eminent domain faces a higher barrier than before, there are still instances where the government can dictate what people do with their private property.
Current law requires state departments to “consider the likelihood that the governmental action may result in a constitutional taking” before infringing too much on property rights. But once this is considered, the state can move forward with an action. Private citizens will sometimes fight a rule or a taking, but even if they win and prevent the loss of their property rights, it can be an expensive endeavor.
House Bill 4070, sponsored by Rep. Klint Kesto, R-Commerce Township, seeks to help with that. The bill provides a remedy for an individual if certain departments are found to be guilty of an illegal or unconstitutional taking. The bill would require the state to provide compensation to cover the costs of a legal challenge while also bringing new state departments under the restrictions.
Whether it is eminent domain, the promulgation of administrative rules, or forfeiture, the taking of private property by the government should be extremely limited. It’s a good idea for legislators to stay on the offensive with this issue.
Pensions, education, criminal justice all areas ripe for change
The Michigan House Republicans have released their action plan, which contains their goals for the legislative body for the next two years. Overall, it is very good, as most of the recommendations would lessen the scope and power of state government.
Below are some highlights from the plan, each followed by a commentary.
The Michigan Public School Employee Retirement System’s debt has grown so immense that it is hurting our kids. The system is only 61-percent funded and has more than $25 billion in long-term debt. Currently, 36 percent of education dollars for payroll go to cover pension liabilities. As that gigantic liability continues to grow, more and more resources are redirected out of the classroom, hurting all Michigan students. … [E]nding unsustainable public employee legacy costs … ha[s] eluded lawmakers for far too long.
Michigan closed its state employee pension system to new workers in 1997 but did not make a similar change to its school pension system. That system costs the state $4 billion each year and its liabilities have skyrocketed. Over one-third of school payrolls go to this system, the vast majority of which pays on its debt — which still keeps increasing. This is an existential crisis to teachers and taxpayers, and the only way to solve it is to shift new, incoming workers to a defined contribution plan. Learn more here.
A simple and fair tax code is key to signaling that Michigan is a welcoming place for workers and job providers alike. Therefore, further action is necessary to lower the state’s tax burden and improve the lives of every worker in Michigan, especially those living paycheck to paycheck. We will consider proposals to improve the current tax system by focusing on the areas of reducing personal income taxes and examining and simplifying the tax code.
In 2007, Michigan hiked its income tax by 12 percent with the promise that the increase would be repealed by 2015. But that so-called temporary hike has still not rolled back, despite the state’s budget increasing by $6 billion — up to an all-time high. That tax increase has cost Michiganders a total of $6.3 billion, or more than $1,000 per typical household. Learn more here.
To provide people with more opportunities, we will support a broad-based economic environment that is friendly to job creation and business growth, no matter the size of the business. We are also going to protect the taxpayers’ investment by making sure the funds used by the Michigan Economic Development Corporation are transparent to the public, directed toward long-term viability, help small businesses and are not wasted on picking winners and losers.
Michigan has vast corporate welfare programs that take roughly a billion dollars out of the general fund this year. The House should hold the line on new proposals, cut back on what we are paying, and require transparency for what’s already on the books. Learn more here and here.
Burdensome regulations unjustifiably complicate people’s everyday lives and deter businesses from creating new jobs. … We are committed to reducing these burdens through streamlining state permitting processes, limiting extensive and new licensing requirements, and updating the state rulemaking process to increase legislative oversight.
Michigan requires licenses — special government permission — for at least 160 occupations. This costs jobs, income and population. The Legislature should set up a process to review those not shown to protect health and safety. Learn more here.
Parents should have every opportunity to send their child to a school that best fits their child’s needs. This must include many options, such as charter public schools, traditional public schools, private schools, online schools, and home schools. There is no better measure of a child’s potential for success in school than a parent actively engaged in his or her child’s education. We will support proposals to fund students instead of institutions, and give parents more control over their child’s education. Opportunities such as vouchers or education savings accounts to empower students and parents should remain at the center of our discussion.
The research on parental choice shows that it works. More importantly, the freedom to choose a child’s school is fundamental. Good for the House Republicans keeping this front and center. Learn more here.
Protecting property rights is a fundamental condition for all other liberties, and the government’s ability to seize private property was always meant to be only a power of last resort. We will continue to review and reform our laws to ensure fairness and accountability when government undertakes this extreme measure. Put simply, it should never be easy for the government to take someone’s private property. Strengthening these rights will continue to reinforce Michigan’s reputation as a leader in private property rights.
Law enforcement officials have and should continue to have the ability to seize property while they investigate criminal activity. But the problem with Michigan’s laws is that they allow law enforcement to take ownership of property without a criminal conviction. The Legislature should eliminate civil forfeiture and replace it with criminal forfeiture — where the government can only take ownership of property through forfeiture after it has convicted a person of a crime. Learn more here.
Our no-fault system must be reassessed with an eye toward reducing costs. People deserve a more efficient and fair auto insurance system, and we will work to protect drivers while making auto insurance rates more affordable.
Michigan is a national anomaly in mandating a no-fault auto insurance system along with unlimited coverage known as “personal injury protection.” Our drivers pay among the highest costs in the nation, and twice the national average. Learn more here.
This is the third action plan released by the House GOP and in the past, the results have been mixed. The key for the House is overcoming expected opposition to free-market issues from the Republican-dominated Senate or Gov. Rick Snyder. At the same time, the House GOP should welcome good policy ideas coming from the other parts of government.
The document isn’t all-encompassing. It’s missing some key issues, like prevailing wage, as well as union release time and recertification (learn about those and other issues here). But overall, it is a solid document with issues the House should pursue.
Economic conditions matter more than giving targeted taxpayer dollars to developers
Some officials have argued lately that the state will see the benefits of new projects — which they label “transformational” — only if taxpayers hand out more in subsidies through measures such as Senate Bill 111 and its companions. But plenty of development is built without direct taxpayer support.
The Census Bureau keeps a database of housing permits, organized on a state-by-state basis. It includes breakdowns for single family housing and multiunit housing developments. Developments of five units or more took a beating during the recession but have since recovered. The Census Bureau also publishes data on nonresidential, nonindustrial and nongovernmental construction, an imperfect measure of commercial and retail construction.
Construction doesn’t seem to be influenced much by recent changes in state economic development policy. The state converted one of its development credit programs to a smaller direct subsidy program beginning in 2012. The replacement program delivers fewer dollars to developers, which is probably why lawmakers are talking about ways to make sure it sends them more.
The change seemed to have had little effect on the market. Indeed, housing development spiked after the reform. This is not likely due to the policy change, but rather due to the state’s general economic recovery.
Commercial and retail construction shows a less substantial response to the recession. It has bounced around $4 billion to $5 billion annually since 2009 with a recent upward trend. But likewise, there seem to be broader factors at work than policy changes from Lansing.
The lesson is that plenty of development will happen independent of lawmakers lavishing select projects with taxpayer dollars.
If this latest effort to establish a more elaborate state program were about growing the economy, there would be performance targets in the legislation. After all, programs that are meant to transform the economy should not pay out taxpayer dollars unless they show that economic outcomes increase as a result. Lawmakers ought to state exactly which of the important metrics — income, employment or production — will be improved and how much. If the state should promote developments that the bill supporters say are transformational, then it should spell out exactly what that transformation should mean for the local economy. What transformations can we expect to be clearly attributable to a particular subsidized project?
We’re unlikely to get this clarity, however. It would be difficult for anyone to demonstrate that these projects will make much of a change; developers would face a hard obstacle to overcome before getting taxpayer dollars.
An attempt to prove that a taxpayer handout brought a significant transformation is doomed to fail. This is because the core of a community is not in the city’s buildings, but rather in the productive uses of its people. The economy is decentralized: It is the result of millions of people working together to find better ways to use their knowledge, skills and resources. The places that do well are those putting these things together.
People will continue to build communities without this legislation or other giveaways. Michigan’s recovery has been strong and broad. It will continue to be without creating new ways to subsidize developers.
We should provide tax relief for all instead of favors to a select few
The Michigan Senate has advanced legislation that amounts to handing taxpayer cash over to well-connected developers. According to the nonpartisan Senate Fiscal Agency, the bills would transfer up to $1.8 billion from regular taxpayers to these special interests over the next 20 years.
Meanwhile, on the other side of the Capitol, a state House committee has advanced legislation to deliver some income tax relief to regular Michigan families. The bill would roll back a “temporary” tax hike imposed by Democrats in 2007 and made permanent by Republicans in 2012.
That tax hike has extracted at least $6.3 billion from families since 2007 — and at least $771 million last year alone.
A growing state economy has increased state tax collections, but legislators must still face choices. Unless Republican lawmakers are willing to embrace big spending cuts, they may find themselves in an uncomfortable position with voters. They must explain why they couldn’t let taxpayers keep a modest 0.35 percent of what they earn, but they could find a way to deliver huge handouts to a few wealthy and well-connected developers.
The higher tax rates have real consequences beyond the damage to household income statements and balance sheets. One involves the choice people may make to emigrate to a state with fewer obstacles to getting ahead.
It just may be that more people made that choice after Michigan lawmakers imposed an 11.5 percent income tax hike in 2007, increasing the tax rate from 3.9 percent to 4.35 percent. The question of why people move prompted us to ask Mackinac Center adjunct scholar Michael Hicks to undertake an empirical study to find out what influences a person’s decision.
Using statistical tools to separate out factors like warmer weather and more sunshine, he determined that for every 10 percent increase in the personal income tax rate, Michigan loses another 4,900 people every year thereafter.
In other words, that specific 2007 tax hike may have cost this state more than 50,000 residents in the past 10 years, along with their incomes, the tax dollars they formerly paid and their priceless human energy and talent.
Reversing that trend would seem a high priority for Gov. Rick Snyder, who set a goal in his 2017 State of the State speech of attracting more than 70,000 new Michigan residents from elsewhere. But rather than being a cheerleader for lower taxes, the governor says he has concerns about the House’s income tax cut.
Like legislators, the governor may have to choose: support tax relief for families and small business, or give up on attracting new residents — and watch more people leave for places where they have to pay less.
That last bit is not just speculation. Recently one of the authors (LaFaive) examined 2014 Internal Revenue Service data for Oakland, Wayne and Macomb Counties. All three experienced a net outflow of people, and the top two destination states were Florida and Texas, both of which have no income tax.
Lawmakers love to talk about how they’re “with the people” and “on your side.” If they choose to deliver hundreds of millions to a handful of politically well-connected developers while continuing to take an extra $700-plus million from regular people every year, those regular people can make up their own minds about those claims.