Bridge Magazine article misses the big picture
In Bridge Magazine, former state House Fiscal Agency director Mitch Bean writes:
In addition to property tax cuts, changes to the sales tax base have reduced constitutional revenue sharing payments to cities, villages and townships (CVT) by $27.3 million in FY 2014 and by $181.2 million cumulatively since Proposal A in 1994.
He is not the only one judging that the state’s local government revenue system is “broken.”
You might think this is a terrible situation that local governments find themselves in. But Bean’s numbers don’t really tell the whole story about constitutional local government revenue sharing nor property tax trends. The annual constitutional revenue sharing payment is up $134.6 million over its 2001 level and payments to local governments increased $670.1 million cumulatively since then. Constitutional revenue sharing payments continued to increase regardless of what happened to the sales tax base.
And property tax revenue increased above inflation from 2000 to 2015 as well, suggesting that there weren’t really any meaningful property tax cuts to speak of. Local property tax revenue even grew above inflation from 2000 to 2007, a period when Michigan was suffering from a one-state recession.
Bean deserves credit for pointing out the problems associated with the accumulation of retirement system debt in local governments. But blaming municipal financial struggles exclusively on nonexistent property tax cuts and inadequate constitutional revenue sharing funds misses the big picture.
Economic freedom increases human well-being
The stated purpose of the Mackinac Center for Public Policy is to improve the quality of life for all Michigan citizens by advancing the principles of a free-market economy, limited government and respect for private property. To many people, these seem like abstractions, and to those who believe in a larger and more intrusive state, they are obstacles to be overcome.
But as time passes and evidence accumulates, the link between liberty and human well-being increasingly becomes less a matter of philosophy and more a reasonable conclusion based on simple observation (South Korea vs. North Korea) and supported by a growing body of data and empirical evidence.
One of the foremost authorities on the data and evidence side is the Fraser Institute, a research organization based in Canada. Since 1996, Fraser has compiled economic freedom indexes comparing all the nations of the world. It also creates indexes that examine nations and states in various parts of the world. The goal is to measure economic liberty. This has enabled Fraser and other researchers to examine the relationship between that freedom and economic well-being — and see whether and how closely they are associated in different countries, states and provinces.
The indexes examine variables that indicate the extent to which the governments of a given region forbid or permit voluntary association in economic matters. For Fraser’s World Index, the relevant variables include “freedom to trade internationally” and “access to sound money.” At the state level, they include labor market freedom, taxes, and the magnitude of government spending.
The economic outcome factors are more straightforward — mostly rates of economic growth and average incomes. Spoiler alert: Most people won’t be surprised to learn that more economic freedom is strongly associated with faster economic growth and higher incomes.
While Fraser focuses most of its efforts on collecting data measuring economic freedom, other researchers have used this data to drill down to economic outcomes. They have found, among other things, that liberty is also associated with a more equal distribution of wealth and income in a society.
In the latest 2015 edition of Fraser’s Economic Freedom of the World, the U.S. ranked only 16th — a lamentable position for the putative land of the free. Given this nation’s history and traditions, we should be the freest country in the world — No. 1 by a wide margin.
In the 2015 Economic Freedom of North America report, Michigan ranked 27th among the 50 states. That’s not good, but it’s a lot better than our ranking in 2010, which was 40th.
These things matter, and in ways that are life-changing for real people. The 10 freest states in the North American index enjoy per capita personal incomes that are 7 percent higher than the national average. Incomes in the 10 least-free states are 8 percent below the national average, a 15 percent difference between the top and bottom.
What would a 15 percent gain or loss in household income mean to your family?
Some try to write off the association between economic freedom and well-being as mere coincidence, but that is becoming an ever-greater stretch given the totality of a growing body of evidence. The people of North Korea, Zimbabwe and Nicaragua weren’t pauperized by coincidences, but by their governments crushing economic liberty at every turn.
It’s worth noting that the opponents of economic liberty do not appear to have any comparable indexes showing that people are better off where their preferred policies prevail. Where, for example, does one find empirical evidence that price controls and the suppression of property rights in Venezuela or Cuba have improved their people’s well-being?
The index methodology developed by Fraser has recently been extended by economist Dean Stansel to another level, municipal regions. In a fascinating report from SMU’s O’Neil Center, “The Wealth of Cities: Pursuing Economic Freedom Closer to Home,” the authors examine Stansel’s work.
Stansel examined 384 “Metropolitan Statistical Areas” in the U.S., including Detroit. The Motor City and its region ranked 345th. Looking at just the 30 largest areas by population, the Tampa Bay region in Florida is the most economically free. New York City’s MSA ranked last. Detroit’s MSA was 23rd out of 30 largest.
Again, this matters for the well-being of the people who live in these areas. According to The Wealth of Cities, the 100 MSAs with greater economic freedom experienced faster economic growth, more jobs, higher pay and less income inequality.
That there are opponents of the policies and ideas that make people more prosperous and free is disappointing but not surprising. But the work of the Fraser Institute is making the work of those opponents more difficult.
Just look at the evidence
The best research on school choice in Detroit shows that it leads to better results at a much lower cost to taxpayers. As Mackinac Center’s Director of Education Policy Ben DeGrow writes in The Detroit News:
The best study on charter schools in Michigan is from the Center for Research on Education Outcomes at Stanford University. This study paired individual students in charter schools with their “virtual twins” in district-run schools, based on their gender, race, grade level, family income, and academic ability as measured by standardized tests. It then compared the gains that these students in charter schools made compared to their “control group,” students just like them enrolled in district-run schools.
The study found that charters did better than conventional public schools in 52 of the 56 different outcomes tested and that Detroit charters gave students an extra two to three months of learning each year. The study called Detroit charters a “model” for other cities.
Meanwhile, on every test since 2009, Detroit’s traditional public school students scored the worst in the nation among big cities on the nation’s report card.
According to the state, in total funding (local, state and federal), Detroit Public Schools spend an average of $18,602 per student while Detroit charter schools spend an average of $10,668 per student.
Much of the Detroit establishment — politicians, interest groups, and unions — want to give the mayor the ability to name members to a Detroit Education Commission that would restrict school choice in the city. The State Senate has given in, and included a $700 million bailout. But the State House has resisted and stood up for taxpayers and Detroit parents, who are saving money and receiving better education opportunities.
Michigan already spends more per pupil than the national average
Those anticipating the release of Michigan’s education adequacy study learned this week that, once again, they will have to wait a little longer. While the precise detailed findings are unknown, the embargoed report’s general conclusions should not remain a matter of mystery.
Last September the state granted Colorado-based Augenblick Palaich & Associates a $399,000 contract to determine how much money Michigan needs to spend in order to provide “adequate” services to students. Our state currently ranks 21st in per-pupil spending but 43rd in math and reading achievement on the nation’s report card. Michigan has been spending more than the national average for decades.
The state law that authorized the study called for its completion by March 31. At the eleventh hour, the state agency acknowledged that the process had been held up by problems in data transmission. The deadline was moved back to May 13.
Though APA turned in the study on time, at least according to the granted extension, MIRS News now reports that state bureaucrats were not satisfied with the results. Saying the study did not meet “statutory requirements,” officials levied a fine on the contracted research firm with a new required completion date of June 24.
APA’s findings may not reach the public eye for a while, but interested observers should not be in suspense about one main fact: the study will almost certainly call on Michigan taxpayers to spend more money on schools. The last 13 adequacy studies conducted by APA all reached that same conclusion.
Between 2003 and 2014, various firms, including APA, conducted a total of 39 adequacy studies in 25 different states. Only one, a study performed in high-spending Wyoming, failed to call for additional funds.
Among its more notable projects, APA determined that low-performing Washington, D.C. —which already received about $29,000 per student — should increase funding by 22 percent. Another APA study called for boosting Connecticut’s education expenditures by 35 percent, or $2 billion, even though the state was already one of the nation’s top five in per-pupil spending.
Earlier this year, the Mackinac Center tested the primary assumption behind the forthcoming Michigan adequacy study, namely that more funds all by themselves will improve student achievement. The multi-year, building-level regression analysis found no statistical relationship between spending and results for 27 of 28 different test scores and other academic indicators. The sole exception estimated that a 10 percent spending increase would improve seventh grade math scores by a minuscule fraction of a point.
Accepting that an increase in the state’s K-12 budget will reap rewards in student learning requires a leap of faith. But however long we must wait, an expectation that the state’s adequacy study will call for more money is firmly rooted in evidence from the recent past.
Reitz interviewed by Michigan Radio
Days after the Detroit Free Press published an op-ed he authored on the same topic, Mackinac Center Executive Vice President Michael Reitz was interviewed on Michigan Radio’s “Stateside” program about the need for more transparency in the executive and legislative branches.
Reitz joined host Cynthia Canty to discuss efforts to reform Michigan’s open records laws, which exempt the Legislature and Governor’s office from disclosure. House Bills 5477 and 5478, introduced by Reps. Ed McBroom and Jeremy Moss, respectively, would subject the governor to the Freedom of Information Act while a separate set of bills would establish the Legislative Open Records Act (LORA).
“Ultimately, we think this will be a good package of bills that moves forward in the Legislature,” Reitz said, noting some changes need to be made to the LORA bills to ensure true transparency. “There are a couple of ideas that we’ve discussed in terms of improving the bills but I think the legislation overall represents a very significant step forward where we’re really seriously considering requiring some records at the Legislative branch to be turned over to the public upon request.”
Reitz said an appeals process for records denial should be allowed in the courts, rather than contain it in the legislature, as is currently proposed. The current LORA bills also defines a public record as, “a writing … that has been in the possession of the public body for 15 days or more,” and Reitz said it should not take 15 days for a document to be considered public.
“The key thing is to make sure the records are properly retained,” Reitz said. “I’m not accusing anyone of bad behavior, but you wouldn’t want the scenario where someone is able to delete records before they actually become public.”
Reitz explained the suggested changes in further detail in the op-ed he co-authored with Sierra Club Michigan Chapter Chairman David Holtz.
Listen to the full Stateside interview at Michigan Radio.
Celebrating Andrew J. Coulson
The following is an edited version of the remarks and slides presented by Thomas A. Shull, an adjunct scholar with the Mackinac Center for Public Policy, at The Cato Institute’s May 16 celebration of the life of Andrew J. Coulson. Coulson, who died of a brain tumor in February 2016, was a Cato Institute senior fellow at the time of his death and a former senior fellow in education policy at the Mackinac Center. Coulson was also the author of the groundbreaking book “Market Education: The Unknown History.” He was 48 years old at the time of his death.
* * *
My name is Tom Shull. I knew Andrew because I was formerly the senior editor, and then the senior director of research quality, at the Michigan-based Mackinac Center for Public Policy, where Andrew was a senior fellow in education policy.
Andrew asked that this day be celebratory. So in honor of that wish, I dutifully wrote “In celebration” on this slide last week.
Adding the exclamation point — well, that took me a little longer.
But either we’re celebrating or we’re not — and I think we celebrate. Obviously, Andrew suffered a cruel twist of fate in the brain tumor that led to his passing in February, but when you consider his accomplishments, his relationships with other people, the easy joy he exuded in the way he lived, and in particular, I would say, the way he brought his ideas to life, an exclamation point is the only real choice.
And I had to laugh that even now, I was basically debating punctuation with Andrew, posthumously. Under longstanding precedent, the Mackinac Center uses Associated Press Style, and under AP Style, many of the commas and apostrophes Andrew preferred met their death at my pen. Not that I enjoyed that — I’m more a Chicago Manual guy myself — but I did enjoy the amusing verbal fencing matches that ensued.
Well, it wasn’t quite like that — it was all mock outrage — and we had fun with it. In fact, I remember a lot of laughter in my work with him. Studies say you can tell when someone is smiling on the phone, and with Andrew, you sensed that he smiled a lot.
Which might be hard to believe from this picture. I mean, great production values, Cato: He looks serious, important — someone the media should interview and publish. So I get it.
But I kind of like this picture:
For those of you who weren’t friends with Andrew on Facebook, this was his quirky profile picture, and you saw it on all of his Facebook posts and comments.
I thought it was really appropriate for him. It reminded me of the distinction Isaiah Berlin made between foxes and hedgehogs in the history of ideas, drawing on a fragment of a poem by the ancient Greek poet Archilochus. That little epigram goes, roughly:
For Berlin, there were honorable people on both sides of the fox-hedgehog divide. Hedgehogs were those writers and thinkers who saw the world through one powerful lens and built on one major vision — people like Plato or Hegel. Foxes, on the other hand, were those writers and thinkers who saw the world through many lenses and were skeptical of grand visions in pursuing the truth — people like Shakespeare or, for that matter, Berlin himself.
Others have adopted the fox-hedgehog idea, but they often cast the hedgehog as the dogged hero, with the fox portrayed as being too clever by half, coming up with cockamamie ideas.
Well, I suppose we all have our moments. But how is it that I’ve had a lawn tractor all these years and I’ve never once had to do this with it?
Still, foxes have their advantages. There’s statistical evidence, for instance, that their humility and flexibility makes them better political prognosticators than hedgehog-like thinkers. I recall that Andrew was early in recognizing that education tax credits could have political legs.
And I would submit that part of what made Andrew’s work appealing and unique was his nondoctrinaire, multifaceted approach to the education policy questions before him. He didn’t start with an axiom of self-ownership and reason deductively from there — with all due respect to that approach.
Instead, as in this extended essay for the Mackinac Center [see above], he asked people to simply look at, and reflect on, the data on how public schools were actually performing; to focus on children, not institutions; and to consider every possible approach to providing education, not just the system we see immediately before us.
The resulting mix of appeals to evidence, reason and emotion was all the more powerful because it was balanced, measured, even understated. He had a sincerity that eschewed outrage in favor of an unfeigned goodwill. He wasn’t a firebrand; he was more radical than that.
* * *
Sidestepping opportunities for resentment and outrage served him well in other areas, too. I remember when he submitted a regression analysis that I’d invited him to write up as a research paper — and our peer reviewers simply didn’t like it. They found shortcomings, and I reluctantly passed their criticisms on, feeling as if I’d landed him in an unhappy spot.
But Andrew, characteristically, did not become defensive; he just went to work. And some months later, he came back with an analysis that simply left the same peer reviewers dumbstruck, because it was so much better and more sophisticated. We published that study, which concerned optimal school district sizes, with only minor changes.
And from that moment on, he became one of our expert peer reviewers on statistical analysis. It was a neat reversal of fortune — a textbook example, really, of how to reroute a setback into a chance to make yourself stronger.
What could have been a source of awkwardness between Andrew and the Center now became another area where we had fun. His peer review comments were often as amusing as they were insightful. When one of our analysts decided to take a state economic development proposal that was particularly far-fetched and actually run the data for all 50 states, getting a disastrous correlation coefficient for the proponents, Andrew responded with this:
There was one review that wasn’t complimentary, but still fun. We sent him a manuscript that we’d already figured had problems, and Andrew, in the course of dismantling it, wrote this:
We literally laughed out loud. But tellingly, in the course of that review, he made a comment in the margin that really made us stop and think. That remark proved to be the kernel of an idea that led us in a different direction with our research, and it became the basis of the Mackinac Center’s massive biennial report cards on hundreds of schools around the state.
Updates of that study are published to this day. Again, Andrew had helped reroute a setback to a victory.
So I envision a day when one of our great-great-great-great-grandchildren writes a post-mortem called “Public Education: The Unknown History,” in order to ensure that people growing up in a free education marketplace won’t forget the hard lessons humanity learned from government schooling. I hope that in that book, they adopt the same wide-ranging perspectives, the same thoughtful analysis and the same measured restraint to explain how and why humankind turned away from a public education system that had come to regularly fail its poorest and most marginalized students and moved to a market-based approach for education that was better for everyone.
Above all, then, I hope they will follow Andrew’s lead and turn opportunities for unhappiness and resentment over the past into opportunities for humor and hope for the future …
… and to always find a new way to look at things — a new perspective — that helps remove barriers and move the world forward.
That’s certainly a message to celebrate and pass on.
Bravo, Andrew. Well done, my friend.
# # #
Thomas A. Shull is an adjunct scholar with The Mackinac Center for Public Policy. He is the Center’s former senior editor and former senior director of research quality.
Cabstand at Reagan National shows need for ridesharing
I took this photo at 10:30 p.m. earlier this week at Reagan National Airport in Washington, D.C. It’s the taxi stand outside Terminal B, where dozens of tired travelers were waiting in line for cabs to take them to their destinations.
A minute and a half after I snapped this shot, I was in a Mazda driven by a very pleasant man named Alireza, en route to my hotel thanks to the Uber app on my smartphone. Just three taxis had arrived in the interim to take away the long-suffering residents of the DCA cabstand.
It wasn’t even a question of paying for convenience: The Washington Post’s online taxi fare calculator estimates that my trip in a medallion taxi, had I waited for one, would have cost me $17. My Uber ride cost $16.51, at least until the airport tacked on a $4 surcharge.
That $4 was some of the best money I’ve spent in months, but the tangible reminder that entrepreneurs and free markets make people’s lives better when they’re allowed to do so was priceless.
If the fiscal stress is so great, why keep doling out uncompetitive benefits?
For over a decade, local governments in Michigan have been complaining they need more money from state taxpayers. A recent push by Wayne County Executive Warren Evans is only the most recent example.
That is what they say, but how they act suggests their fiscal complaints are exaggerated. For example, providing post-retirement health care benefits to employees is an expense that should be the first to go if there is a real financial problem.
Many local governments in Michigan pay for retired employees’ health insurance costs, a type of benefit that is rare in the private sector. Unlike pension promises, these other post-employment benefits, or OPEBs, may be trimmed or even rescinded, subject to collective bargaining in some cases. For example, state retirees recently experienced an 11 percent cut in this benefit.
Yet how governments pay for these benefits is a problem. They do not pay for them at all until the bills come due years later when an employee has retired and starts receiving the benefit.
That is because unlike pensions, OPEBs do not have to be prefunded at the time they are earned, but can be covered on a “pay as you go” basis. This pledges a (rescindable) benefit now and pays for it later. It makes future taxpayers responsible for today’s government employees.
Nevertheless, most Michigan local governments continue to promise these benefits to new employees. Offering a premium benefit that racks up millions in unfunded quasi-promises is not how an employer experiencing genuine financial stress would behave.
Consider the city of Warren, where retiree health care benefits are underfunded by $275.1 million. If Warren ceased all operations for two full years and dedicated all its tax revenue to backfilling this unfunded liability, there still would not be enough to cover it.
It is unclear that taxpayers and residents get any benefit from backloading current employee compensation costs. And given that the benefits may be rescinded later, it is hard to see what value they provide to government workers.
Some proponents of a larger and more activist state government have recently been arguing that Michigan should be a “high tax/high service” state. But granting extra benefits that have all but disappeared from private sector workplaces — when Michigan has the related problem of regular pension underfunding — illustrates that a high degree of services does not necessarily follow from higher taxes.
The gap between what local officials say and what they do suggests that state policymakers need to look upon their poor-mouthing with skepticism. To the extent that complaints of financial stress are valid, local governments should clean up their own act before looking to reach more deeply into the pockets of state taxpayers.
Automaker protectionism, who’s the repo man, ballot initiative signatures and more
House Bill 4344, Mandate auto repair shops use vehicle maker's own parts: Passed 33 to 4 in the Senate
To codify into law a comprehensive regulatory regime that is currently imposed on vehicle repair facilities through administrative regulations, including a state registration mandate. Among other things, the bill would prohibit a repair shop from replacing a major part on a newer vehicle with one not made by the vehicle's maker, which has been criticized as protectionism benefiting the Big Three and other car makers.
Senate Bill 671, Expand scope of wine and grape council mission: Passed 37 to 0 in the Senate
To revise the particular interests that must be represented on a government grape and wine industry council, by adding brewers and distillers. Also, to revise this entity's mission to include providing the same kind of indirect subsidies to those industries that it provides to wine making interests. In 2014 this operation reportedly received $927,898 from certain liquor license fees (taxes) and spent $797,000 on things that are supposed to benefit the industry, including $373,000 on compensation for its staff.
Senate Bill 818, Exempt yoga instruction schools from licensure mandate: Passed 92 to 17 in the House
To exempt yoga teacher training schools from a state licensure mandate imposed on private trade-schools, with annual fees, government inspections, regulations and more. A Senate Fiscal Agency analysis notes that many take the classes just for the experience, and "the regulations reportedly have created a business environment that deters...offering or expanding instruction programs."
House Bill 4588, Expand private college security force powers: Passed 87 to 22 in the House
To permit private college security force personnel who have the same license as regular police to exercise full “peace officer” (police officer) powers outside the college’s grounds, including cases of “hot pursuit” of an individual suspected of violating the law, or in cooperation with regular police officers. The House also passed a similar bill for airport security force personnel (HB 5181).
Senate Bill 656, Clarify that hiring repossession agency not same as being one: Passed 74 to 35 in the House
To clarify that the act of hiring and turning over uncollected bills to a bill collection agency for possible repossession actions do not come under the regulations, restrictions, licensure requirements and more that apply to the actual repo process.
House Bill 5401, Revise pollution equipment tax break detail: Passed 70 to 39 in the House
To revise the requirements for getting a property tax exemption that is allowed for industrial pollution control equipment. The bill would require applications to include an affidavit from an environmental engineer that the equipment meets the rules. Under current law, the Department of Environmental Quality must certify the rules are met for getting a tax break, and this would be repealed.
House Bill 4338, Let local school districts not state select retirement plan managers: Passed 66 to 43 in the House
To allow individual school districts rather than the state to select management companies to administer the 401(k)-type defined contribution component of a so-called “hybrid” retirement plan for new school employees. This gives these employees tax deferred contributions to a savings account they own, but also creates additional long term taxpayer liabilities by enrolling new hires in a slightly more modest conventional defined benefit pension plan than existing employees.
Senate Bill 776, Limit time period for collecting ballot initiative signatures: Passed 57 to 52 in the House
To establish that signatures on a petition to amend the constitution must be collected within the 180 days before the measure is submitted, and repeal the ability to challenge whether older signatures may be valid. The House concurred with the Senate on giving the bill immediate effect, which would mean marijuana legalization and anti-fracking petition drives underway in the spring of 2016 would be impacted.
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.
Op-ed explains efforts to permit and restrict ridesharing
A ridesharing entrepreneur who recently participated in a panel discussion at a Mackinac Center Issues and Ideas Forum in Lansing shared his story with Lansing State Journal readers in a recent op-ed.
Tim VanDongen began driving for Uber and Lyft as a way to make extra money, but eventually was earning enough to leave his primary job and make a career out of driving. Now, he has started a company, Ryde Media, which puts advertisements in Uber and Lyft vehicles.
VanDongen has experienced first-hand the many benefits ridesharing companies offer to drivers and riders, but is concerned that onerous regulations might crush such opportunity.
Although this new service has the potential to provide thousands of new job opportunities to drivers and added convenience and reduced transportation costs to riders, it is limited in Michigan by government regulations that were developed when taxicabs were the only car-for-hire option and before smartphones even existed. As a result, consumers can only use Uber’s services in the six cities in Michigan that have explicitly given drivers permission to offer rides.
VanDongen, who is featured on the Mackinac Center’s Ridesharing webpage, explained that a package of “responsible and reasonable” bills moving through the House would allow drivers and riders to benefit from ridesharing services statewide. Unfortunately, bills making their way through the Senate would protect the taxicab industry at the expense of emerging technology.
A statewide approach to regulating this new industry makes sense. If regulations help promote safe ridesharing, then they should be as applicable in Detroit as they are in Traverse City. Further, drivers shouldn’t have to wait until their local municipality gives them permission to earn a living. In fact, last December Ohio created similar statewide regulations.
Read VanDongen’s entire op-ed at the Lansing State Journal.