17 for ’12: Legislature Keeps up Reform Pace

Last year, a Mackinac Center article titled “25 Reforms in 2011” described the transformational changes enacted by the Michigan Legislature and Gov. Rick Snyder during the previous year. A mid-year 2012 update suggested that the pace had slowed as defenders of the status quo had more time to undermine the resolve of reform-minded legislators elected in the “Tea Party” election of 2010.

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That proved premature, as perhaps the most consequential reform in generations was enacted in the final days of the 96th Legislature — a Michigan right-to-work law. That got the biggest headlines, but it was far from the only significant reform passed in 2012. Here’s a round-up:

Make Michigan a "right-to-work" state: Michigan joined 23 other states where employers are prohibited from enforcing a union contract provision that compels workers to join or financially support a union as a condition of employment. Perhaps no other policy change says a state is “Open for Business!” more loudly than passing a RTW law.

Extend "right-to-work" to government and school employees: The excessive political power of government employee unions has contributed mightily to making Michigan schools and local governments a poor value for the amount we spend. In the years to come, letting government and school employees choose whether or not to support a union will change the policy landscape in profound ways, not all of which can be foreseen. Among other things, it will reduce the incentives for local governing bodies to serve the union’s interests ahead of taxpayers and students. 

Ban using public school resources to deduct union dues: Henceforth, school employee unions will have to use their own resources to collect dues. The subsequent enactment of a right-to-work law means they will also have to convince employees that their newly voluntary contributions are actually worth the money.

Revise school pension system: Alas, it’s hard to forget “the one that got away,” a Senate-passed bill to close the school pension system to new hires, a transformational reform that would have placed Michigan on a glide-path toward eliminating the largest source of unfunded employee legacy costs. Sadly, House Republicans let themselves become mystified by false “transition cost” claims promoted by pension bureaucrats (and echoed by the teachers union).

Nevertheless, some important reforms were enacted. Michigan taxpayers will no longer provide post-retirement health benefits to new school employees, and current retirees over age 65 will have to contribute 20 percent toward the cost of their own health benefits, up from 10 percent now. Also, current school employees will have to contribute more toward their own pensions, or else receive benefits calculated under a less generous formula.

Incentivize and facilitate local government pension reform. Government “pension obligation bonds” are almost always a bad idea, because they add increased debt service costs to unsustainable and unaffordable “defined-benefit” pension costs. The one exception is when they facilitate the transformational reform of closing those pension systems to new hires. Senate Bill 1129, now Public Act 329 of 2012, essentially “made a deal” with local governments: They could use the dodgy device of POBs, but only to facilitate their exit from the unaffordable pension promises game. On balance, this was a deal worth taking for taxpayers. 

Authorize “parent trigger” charter public school conversion of failing schools: A new law empowers parents whose children attend a public school in the bottom 5 percent statewide to take it over and contract-out the management to a private charter school operator. While “pulling the trigger” is restricted by too many conditions and qualifications, this is still worthwhile progress. 

“Charterize” (vs. bail-out) failed Highland Park and Muskegon Heights schools: The process was complicated and indirect, but the bottom line was a genuine reform that will increase the life-chances of thousands of children in these districts, ending decades of government failure. 

Reduce restrictions on public “cyber schools”: The conventional public school establishment fought hard and succeeded in reducing the scope of this reform, but they couldn’t stop a good idea whose time has come. A new law will gradually increase the number of Michigan students able to take advantage of online public “cyber schools” from just 1,000 to a maximum of 2 percent of the state's public school students (around –30,000). 

Ban school board/union contract conflicts of interest: A new law will prohibit school board members from voting on union and other contracts if a family member works for the district or has an interest in a contract. The need for this worthwhile reform (which passed both chambers with just seven dissenting votes) demonstrates how pervasive the influence of teachers unions is in school elections. 

Revise state “critical dunes” use restrictions: In the 1980s, a complex and heavy-handed law was passed restricting property owners’ use of land considered to be “critical dunes.” Like wetlands restrictions, this imposed on particular property owners the cost of something “society” wanted to preserve, arguably infringing their right under the U.S. Constitution to just compensation for property takings —in these cases, regulatory takings. In 2012, reforms were enacted making the law somewhat less burdensome for landowners. Among other things, local regulations more restrictive than the state’s are limited, and land use permits may be denied only when it is “more likely than not” that a use will damage a dune.

Establish new “non-ferrous” mine taxation regime: Mining was once a mainstay of Michigan’s economy, especially in the Upper Peninsula. With new technologies to extract copper and other “non-ferrous” minerals, mining could generate more jobs and wealth for the state economy. Legislation passed last year to reduce the tax compliance burdens on such mines may help. One caution: the bill directs some tax revenue from the mines to a “rural development fund” that could be a magnet to corporate welfare and pork-barrel spending schemes.

Increase burden of proof for new government workplace safety rules: The Department of Licensing and Regulatory Affairs will have to do more than merely assert that there is a “clear and convincing need” to impose a new occupational health and safety regulation that exceeds federal standards on Michigan employers. It will have to back this up with documented facts, or else show the rule is accepted by a broad consensus within an affected industry.

Ban “stealth conventions” by minor political parties: In 2010 Democratic Party operatives were caught trying to fool likely-GOP voters into throwing away their votes by creating a fictitious “tea party.”  The scheme involved holding a “stealth convention” to nominate insincere candidates. A new law prevents similar future scams by requiring minor political parties to notify the Secretary of State in advance of candidate-naming conventions.

Court consolidation package: For more than a decade the State Court Administrative Office has urged the Legislature to consolidate and reduce the number of judges in Michigan courts. In 2012 it finally happened; the House Fiscal Agency estimates this will save $6.7 million annually, which is probably low given the unfunded liabilities generated by perennial government pension underfunding. 

Don’t create a state “Obamacare Implementation Agency,” a.k.a. “the Exchange”: There’s no new law to cite, and that is the good news here. States have two opportunities to push-back against Obamacare’s usurpation of the federalism principles embodied in the U.S. Constitution, and thanks to the House of Representatives, Michigan accepted the first. (The second is Obamacare’s Medicaid expansion, over which a legislative struggle is now underway.)

Advance state income tax cut: By moving forward a scheduled 0.10 percent income tax cut by several months, and slightly increasing the personal exemption, lawmakers kept $103 million out of the hands of Lansing spenders this year, and another $75 million over the next three years.

Cut “personal property tax” imposed on business tools and equipment: Commercial businesses whose tools and equipment in a particular community have a taxable value of less than $40,000 will be exempt from the so-called “personal property tax,” which is imposed at the same rate as regular property taxes on buildings and land. Other bills in the package will gradually eliminate the tax for manufacturers. All told, the reform will eventually save job providers some $500 million annually, according to the Senate Fiscal Agency.