Regulations Run Amok in Michigan: Part One

Part One of a Two-Part Series

Business taxes are getting a lot of attention these days as a leading factor in Michigan’s economic malaise, but excessive government regulations are an equally important element in a state’s business climate. Unfortunately, Michigan is rapidly moving in the wrong direction on this front. Here’s a roundup, compiled from news reports, and Mackinac Center articles and analyses:

Electricity competition reversed

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As explained in a recent article by Mackinac Center Adjunct Scholar Theodore Bolema, Michigan adopted a modest electricity competition law in 2000. For a while the law worked to lower commercial and industrial rates by allowing competing alternative power providers to use existing power lines. However, this progress has been reversed.

In a legislative surrender to the existing monopoly utilities, the 2000 law empowered the state Public Service Commission to impose surcharges on customers of alternative suppliers to pay for the "stranded" costs of the incumbent providers’ past investments in uncompetitive power plants. The PSC did so in 2004, which in effect raised the rates of new suppliers to subsidize the old monopolies, Detroit Edison and Consumers Power.

Industrial rates promptly rose 13.2 percent over the next 12 months, resulting in electricity rates for industrial employers that are now 25 percent higher than those in Illinois. Sales by competitive suppliers quickly dropped by about 20 percent, after three years of strong growth.

In January, a PSC staff report noted that the early momentum for electricity choice has stalled and not enough supply is coming in for future needs. While this result should have been obvious, it apparently did not occur to the PSC that the law should be amended to reinstate competition. Instead, the commission determined that the state should give subsidies to favored firms to build new power plants, financed by even more customer surcharges.

Changes in electric rates are often discussed in terms of household costs; for example, "the average consumer’s monthly bill will only go up 50 cents." No big deal, in other words. But for an industrial facility with a monthly bill of $50,000 or more, these changes have a major impact on profits — and site location decisions. Michigan is shooting itself in the foot in this critical area.

Workers compensation insurance costs going up?

As in every other state, Michigan employers must carry workers compensation insurance, which compensates employees for on-the-job injuries. Disputes about the amount of compensation are adjudicated in administrative hearings and can be appealed to a Workers’ Compensation Appellate Commission, the state Court of Appeals and finally the Supreme Court. In 2002, the Supreme Court issued a common sense ruling that an injured worker capable of doing a different job at comparable pay is not considered "disabled," and is therefore not eligible for lifetime benefits.

As described in a recent Detroit News editorial, the state Workers’ Compensation Appellate Commission — reorganized by Gov. Jennifer Granholm in response to union pressure and controlled by her appointees — may be violating the Supreme Court’s common sense decision with its ruling in a case called Stokes v. DaimlerChrysler. The commission’s ruling could make it possible for individuals who are capable of earning a living to instead receive ongoing disability awards. The result could be sharply higher unemployment insurance rates for all job providers — not what a state with a sick economy needs.

Ergonomics regulations

A "work group" convened by the Michigan Occupational Safety and Health Administration for several years has been crafting ergonomics rules to impose on Michigan job providers. Federal ergonomics regulations overturned by Congress in 2001 would have imposed between $264 million and $496 million in new costs on Michigan’s private sector. Only California currently has such regulations (in Washington state, similar regulations were overturned by a popular referendum). A bill to prohibit the regulations was vetoed by the governor in February.

PEO harassment

Professional Employer Organizations are business service companies contracted to take over a firm’s employee payroll responsibilities by "leasing" employees to the other firm. The PEO becomes the employer of record for purposes of paying unemployment insurance taxes. This can be a useful tool for businesses, especially small businesses, helping to lower their human resource administration expenses and headaches.

PEOs claim that for the last year they have been the victims of a campaign of harassment by the Granholm administration, which accuses them of massive subversions of state unemployment compensation tax law. Representatives of PEOs told a legislative committee that scores of firms have had to submit to intrusive and repeated "paper chases" by the state, often accompanied by threats of huge fines for alleged violations. No evidence of widespread unemployment tax violations by PEOs has been presented, however.

New home energy standards

The Granholm administration has promulgated energy standards for new home construction that appear to violate a state law requiring such rules to pay for themselves in energy savings within seven years. The Michigan Association of Homebuilders has sued, winning a temporary injunction to stop the rules from going forward. The homebuilders claim the new regulations would add $4,500 to $6,000 to the cost of a new home at the very time when the housing market in Michigan is already experiencing decline due to our poor economy.

Forced unionization of adult foster care

The Granholm administration is moving forward on imposing burdensome administrative rules for assisted living facilities, but exempting facilities whose employees are unionized. The rules would impact 5,000 providers of long-term care services for the mentally ill and others, many of which are little more than mom-and-pop operations, such as small residential group homes. House Bill 5744, which would have prevented implementation of the rules, was vetoed by Gov. Granholm this spring.

In Part Two, unreasonable environmental regulations and occupational licensure mandates infringe on property rights and the right to engage in honest trade.


Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.