Unfair Competition Should Be Outlawed

The state Legislature is considering two bills that may effectively eliminate the unfair competition between municipalities and private businesses, such as golf courses. House Bill 5975 and House Bill 5976 are designed to a) mandate accounting procedures that prevent government from spreading the true cost of operating certain businesses across bureaucratic departments; and b) prohibit the creation of additional public enterprises that unfairly compete with private businesses.

The two bills have been referred to the House Government Operations Committee chaired by Macomb County lawmaker Leon Drolet. House Bill 5975 is described as follows on MichiganVotes.org, a Web site of the Mackinac Center for Public Policy:

Introduced by Rep. Rick Jones on April 25, 2006, to require audited financial disclosure reports from government entities engaged in commercial activity, which means providing goods or services that can normally be obtained from private enterprises. The disclosure would have to show all income and expenditures. Grants (subsidies) from the public entity could not be counted as income, and expenses would have to show a proportionate share of common expenses shared with other government agencies, such as utility costs, supplies, repair and replacement costs, insurance of all types, employee compensation, employee benefits, payroll taxes, debt service and depreciation of all types.

This is what some might consider a "sunshine" law that forces a unit of government to account for the true cost of providing a particular service. All too often such costs are spread across bureaucracies, making it impossible to determine if an activity actually generates more revenue than expenses each year. For example, some municipalities may charge golf course lawn maintenance to their department of public works, making golf course operations appear less expensive than they really are.

The Mackinac Center recommends the use of cost accounting techniques in government budgeting for a simple reason: the more information policymakers and voters have, the more likely it is that better public decisions will be made.

House Bill 5976 specifically outlaws unfair government competition against existing businesses. The MichiganVotes.org description of the legislation is as follows:

Introduced by Rep. John Garfield on April 25, 2006, to prohibit government agencies from competing against private enterprises, or subsidizing any charitable or not-for-profit institution that would use the support to compete against private enterprises. Activities normally provided by government would be exempted, including "essential services" and "necessary services," both defined in the bill. "Vital services," including things like food stores, drugstores, child care, elder care and telecommunications services could only be provided if there were no private sector alternatives. Privatization of essential and necessary services would be explicitly allowed, including water supply, sewers, garbage and trash removal, recycling, utilities, streets and roads, public transportation, correctional facilities, fire departments, emergency services and medical services. A private enterprise could sue to obtain an injunction forcing the government competitor to stop, and would only have to show prima facie evidence that the government entity is or is planning to compete, not that the private enterprise has been damaged. Governments already providing commercial goods or services would be grandfathered, but could not expand.

This legislation also represents an idea the Mackinac Center for Public Policy called for years ago. In 1992, Center President Lawrence W. Reed wrote, "This problem of public-sector competition has crept up on us with little legislative consideration of the implications. The issue is overdue for some serious scrutiny, the kind that will find answers to questions like these: What activities can we tolerate as legitimate for the state or its entities to be engaged in and which ones ought we put a stop to? How many jobs are lost in the private sector because the state unfairly ‘dumps’ its competing product?"

Government regularly sticks its nose into the business of business; but that does not mean it should. These bills are long overdue and will provide taxpayers a service on two levels: information and legislative protection from unfair government competition.

Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy.