Free Speech or Government Speech?

New bills would increase government oversight

The Michigan Senate may soon debate Senate Bills 703 through 707, which were introduced late last year. These bills would amend current law to increase government oversight of tourism agencies, having the practical effect of ensuring that government speech trumps individual free speech for lodging owners.

State law allows local tourism agencies to impose an assessment (tax) on rooms to fund their activities. One result is that lodging owners may get swept up into a bureau’s tourism advertising efforts against their will. Indeed, such advertising may actually disadvantage small operators when compared to their larger and more influential rivals. The ideal legislation would repeal the ability of local tourism bureaus to impose such assessments rather than increase state oversight.

Instead, the bills impose more government control over the bureaus. That, in turn, will turn the activities funded by the assessments into "government speech," making the assessments immune from free speech challenges. You can't sue if your tax dollars pay for a government official whose policies you don't like, meaning you will be forced to pay for speech you don't want. And if the bills are enacted into law, the Mackinac Center Legal Foundation won't be able to sue to protect the hotel owners' speech, because the assessment will be treated more like a tax, paying for a public official to do his official job.

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We have twice litigated for the liberty of lodge-owning clients in northern Michigan on free speech grounds. Commercial speech cannot be compelled. Both cases basically ended in our clients’ favor, though without a formal court decision. One lodge owner sold his business and retired before extricating himself formally, while the other was released from the assessments of the local tourism bureau, with its consent.

It must be emphasized here that the Mackinac Center is not opposed to these bills because they would thwart our ability to sue, but rather because they would suppress the free speech rights of lodging owners who want no part of the local tourism agencies’ advertising efforts. In an age of social media, many business owners are quite comfortable doing their own highly nuanced marketing. These bills, in contrast, would lead to more state government control over local business operations. Furthermore, it would impose a tax on lodging, the costs of which will surely get passed on to tourists and may actually hurt tourism.

We argue that these local tourism bureaus act as part of a ‘good old boys’ network. The large regional lodging players basically control the assessment revenue and the advertising it funds. We are not convinced that these agencies are effective at all, let alone when compared to the efforts made by individual lodging owners.

These business owners should be able to decide how best to operate their lodging. No one should force them to hire a marketing firm against their wishes. But the bills would render the assessments imposed by local tourism agencies immune to many legal challenges. A better alternative is to repeal the state law that permits these unnecessary local tourism assessments and let local lodging owners handle their own advertising.

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Socialism Didn’t Make Detroit Great

Once prosperous, the city has not been helped by socialist policies

In analyzing the current political environment, a columnist says that socialism “once brought great benefits to Detroit.” In many ways, over the past few decades, Detroit has been the most “socialist” city in Michigan – but it’s hard to see the benefits.

John Gallagher of the Detroit Free Press draws a distinction between oppressive “socialism” and what is generally referred to as the emerging “democratic socialism.” The former is often criticized as an tyrannical dictatorship while the latter he defines as “local control of the economic levers of society, in which working people free themselves from the impersonal forces of finance.”

That’s a rosy way to describe it, and vague as well. I’d argue that a free-market system — not socialism — is the economic arrangement most dependent on local control and freedom. In a free market, businesses rely on individuals choosing them to provide a service in a competitive environment; you can’t get more local than that.

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The piece focuses on two ostensibly positive socialist developments: employee ownership of businesses and higher tax rates.

As his main example of the former, Gallagher discusses employee stock ownership plans, where workers own part of the company they work for. I’m skeptical this tells us much about socialism, as individuals, not the government, are still in charge of the company. This is very much a feature (though a very small one) of a free-market, capitalist system, not a socialist one.

Gallagher spends more time calling for higher taxes, and he notes that in the 1950s and 1960s, the U.S. had much higher rates, up to 90 percent. However, that system was filled with loopholes and tax exemptions that made the actual tax rate for the wealthy much lower. And today, the wealthy pay more than their “fair share” of federal income taxes — the richest 20 percent pay nearly 90 percent of federal income taxes, a larger share than when the rates were higher.

Nonetheless, higher marginal tax rates might be a feature, but they do not equate to socialism. Neither do employee-owned businesses. The generally accepted definition of socialism, by academics and the U.S. Socialist Party, is government ownership or control of the means of production. This can be accomplished by authoritarian dictators (such as those who called themselves national socialists, communists and fascists in mid-20th century), or it can be done democratically by a vote of elected officials. Either way, this is the defining characteristic of socialism.

Using that definition, Detroit is more socialist than most. Michigan’s largest city relies heavily on government jobs. It has the highest income and property taxes in the state and more regulations than any other city. For 60 years, the city has focused on a central planning economic model — most notably redirecting money to the politically well-connected by subsidizing large developments, big companies and big league sports teams.

And when government tries to do everything, it often fails at the basics. The city mismanaged its pension funds, even handing out extra checks each year while driving toward insolvency. Streetlights were out through the city. The water department employed a horseshoer (despite having no horses).

One of the problems with socialist governments, as Margaret Thatcher once said, is that “eventually you run out of other people’s money.” And even socialists can’t ignore basic finance for long; Detroit famously went bankrupt in 2013.

It’s true that Detroit was much more prosperous five or more decades ago. Its prosperity then came not from government planning, but rather the power of the free market. Ingenuity driven by competition, especially in auto making, helped make it one of the wealthiest cities on the planet. And while its decline was a complicated affair involving many factors, the expansion of government control over the economy was key.

It may be true that ideas associated with “socialism” are gaining in popularity. But socialism properly defined doesn’t have a good track record, whether internationally or right in Detroit.

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Michigan Votes reviews key votes of the 2017-2018 session

As the Legislature completes its last week of summer break, the Roll Call Report begins a series that reviews key votes of the 2017-2018 session.

Senate Bill 40, Expand state subsidies for particular companies on state line: Passed 24 to 13 in the Senate on February 9, 2017

To let certain businesses near the state line collect up to $10 million in state business subsidies for hiring people who do not live in Michigan. The House has not voted on this bill.

Senate Bill 97, Authorize facility development deals between governments and private businesses: Passed 32 to 4 in the Senate on February 23, 2017

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. The House has not voted on this bill.

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Senate Bill 13, Cap penalties for technical parole violations: Passed 35 to 0 in the Senate on February 2, 2017

To cap at 30 days in jail the penalty for probationers who commit technical probation violations, except for multiple offenses.

Senate Bill 129, Regulate small native copper mines separately: Passed 24 to 11 in the Senate on March 9, 2017

To establish a separate and more streamlined regulatory regime over small ("native") copper mining operations.

House Bill 4315, Eliminate foreign language from graduation standards: Passed 79 to 29 in the House on March 30, 2017

To allow a student to get a high school diploma without meeting the current two-credit language requirement by instead taking a computer class or one in “visual or performing arts." The Senate has not voted on this bill.

House Bill 4070, Revise government eminent domain takings: Passed 76 to 31 in the House on March 28, 2017

To require all state agencies to pay attorney fees and court costs of private real property owners if a "governmental action" results in a loss of value and the department or agency failed to consult guidelines on government takings promulgated by the Attorney General. The state and federal constitutions requires governments to compensate owners when their property is taken. The Senate has not voted on this bill.

House Bill 4213, Require court order to breathalyze minor who says no: Passed 102 to 6 in the House on March 29, 2017

To establish that a police officer must get a court order to get a breath test for alcohol from a minor who objects. This is not related to drunk driving or vehicles, but to enforcement of a state law that bans minors from being in possession of alcohol. Recent court cases have suggested that doing this without a court order is unconstitutional.

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Guiding Quality Growth in the Charter Sector

Workshop sessions focus on developing successful new schools

New School Development Workshop Series session held in Grand Rapids

In Michigan, it's far from easy to get a new public charter school off the ground.

Charters help students learn more on average, and parents continue to seek out these tuition-free options. Yet the number of charter schools plateaued five years ago at around 300, shortly after the Michigan Legislature lifted the statewide charter cap in late 2011.

Not content with current trends, some education leaders are striving to further improve the charter sector by focusing on schools that exist only as ideas today. The Mt. Pleasant-based National Charter Schools Institute is partnering with one of the state's largest charter authorizers, Grand Valley State University, to help grow and improve the next crop of new public charter schools in the state. Their six-part workshop series covers everything from the current legal environment and how to secure facilities and funding to developing an effective educational program.

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The sessions run from July to January in both Detroit and Grand Rapids, to reach potential applicants in both southeastern and western Michigan. A combined total of 18 participants took part in the first sessions. Some participants are new to the game, while others are looking to sharpen their skills. The program is most valuable for smaller independent operators rather than larger management companies.

"It's like going on a journey," said NCSI president and CEO Jim Goenner, one of the workshop's facilitators. "You could go on a journey and figure out how to navigate the trail by yourself, or you could work with a seasoned guide who knows where the good places are and where there are the places to avoid."

Though the event is hosted by GVSU, participants who seek a new charter can submit their application to any institution that serves as a charter school authorizer. Once they realize what is involved, though, some may change their minds. For example, many participants may not realize that Michigan charter schools are subject to nearly all the same rules and regulations as the state's other public schools.

"While we're hoping that we're going to come out with some great applicants and some great schools, we're also hoping that part of the value is to help people understand that this is more than they bargained for and that it's not worth the time and the effort and the sacrifice it requires," Goenner said.

Money is another large obstacle. Not only can Michigan charters not tap local tax dollars, but they also have been unable to get federal startup grants for the past three years. According to Goenner, applicants "either have to have deep pockets or a benefactor" to secure facilities and hire a staff before the school opens its doors and receives funding from the state. Starting a school usually takes 18 months. "It's not an easy process," he said.

Workshop organizers want to see stronger charter applications submitted, though attending the sessions does not necessarily commit someone to the process. But organizers hope that some participants overcome the challenges and open a successful charter school in fall 2020.

"Being able to be a public school, to educate kids, and the success that comes with those kids having a learning environment that meets their needs is really a priceless reward," Goenner said.

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How Taxpayers Get Fleeced in Michigan

More money is not turning into better government services

It is often said that people need to pay higher taxes if they want quality government services. The connection doesn’t work quite that way, however, and the state’s pension mess demonstrates the point.

Ideally, when a government employee earns pension benefits, his or her employer sets aside money into the retirement system where it is invested, grows and pays for the employee’s pension when he or she retires. Setting aside the right amount of money puts the costs of today’s government onto today’s taxpayers. Underfunding the pension system pushes the costs onto tomorrow’s taxpayers.

There are few political incentives to make sure managers put in the right amount. Officeholders rarely get voted out of office if a gap in the pension system emerges. And underfunding it means they can spend more today on other priorities. That’s why nearly all open pension systems in Michigan are underfunded.

Theoretically, unions could be good watchdogs, but I just haven’t seen it play out like that here in Michigan. They seem more interested in keeping crazy pension rules rather than ensuring that their members’ retirement is secure.

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But the past catches up. Today, the costs of paying down yesterday’s pension promises dominate government finances. Taxpayer payments into the state’s largest retirement system, the public school retirement system, increased from $1.1 billion in 2000 to $3.2 billion in 2017, more than doubling in cost when adjusted for inflation. And 90 percent of the payments go to catching up on underfunded benefits.

That makes government cost a lot, but the payments don’t go to pay for high-quality government services today. They pay for the costs of yesterday’s government.

East Lansing just became the first Michigan city in 24 years to pass an income tax, which cities in the state may do. City officials placed the measure on the ballot after city voters rejected a similar proposal last November. But in August, voters approved a different proposal. The extra money will go to the city’s underfunded pension system. This is speculation, but I will be surprised if the income tax goes away even if the city catches up on its pension obligations.

Few benefit from the current system. Workers don’t come out ahead when their pensions are underfunded. Residents see their money go toward the pension fund rather than better services. Unions lose out on members when cities use money for past debt instead of hiring more employees.

But things are changing. Michigan governments are converting their retirement systems from debt-ridden ones to 401(k)-style retirement plans. In a 401(k)-style plan, workers get money set aside into retirement funds that they control. Employees can sue their employers if their managers don’t put in what they promised, which is not true of pension systems. And a 401(k)-style plan stops taxpayers from getting fleeced. 

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Coping with the Growing Number of Felons in Michigan

Our courts deliver nearly 50,000 felony convictions per year

The latest available data from the Michigan Department of Corrections indicates that Michigan courts delivered 47,347 felony convictions in 2016. Because some people received more than one conviction, the total number of people with new felonies is slightly smaller, but tens of thousands of Michigan citizens who did not have a felony record at the end of last year will have one by the end of this year. We should carefully examine our policies to ensure that we’re prepared to meet the challenges posed by this growing demographic.

Less than 20 percent of this year’s convictions – 9,648 of them, to be precise – resulted in a prison sentence. We didn’t add a shocking number of people to our prisons (our prison population is in fact declining and we are slated to close a facility in 2019), but we ended 2016 with about 37,700 more convicted felons in our workforce and communities. There’s no reason to think that when the numbers are finally tallied, they will change dramatically for 2017 and 2018, meaning that we’ll end this three-year period with over 140,000 new felony convictions.

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With crime rates in Michigan and the nation continuing their gradual decline, this is the period of greatest safety in recent history. However, it's important to consider the implications of these statistics for our job market and social fabric, for about 95 percent of those who received a conviction and were incarcerated will eventually be released.

In about 200 state-licensed occupations, a worker who gets a felony conviction stands to lose his license, even if the nature of the crime is completely unrelated to the nature of his job. When licensed (and usually skilled) workers are barred from well-paying jobs, several harms occur. Most obviously, their income may decline and poverty will increase. Employers (many of whom already report labor shortages) will suffer from a lack of employees. That lack of employees, in turn, can harm consumers. We see this in a quiet shortage of housing, which can be blamed in part on a lack of skilled trades workers.

Felony convictions also create a host of other consequences: They pose barriers to housing and education as well as employment, not to mention create a social stigma. Multiply that by tens of thousands of individuals, and what we’re left with isn’t good.

Part of this problem can be solved with legislation this year. Lawmakers are considering bills that would help ensure that occupational licensing requirements don’t needlessly bar people from work. Other reform proposals would automatically clear low-level felony convictions from a person who has stayed out of trouble for a decade or more after a conviction.

The situation can also be tackled by individual members of society, such as the business owners. They can commit to giving people with a record a fair shot at a job or even seek out offenders and the formerly incarcerated and offer them job opportunities. Anecdotal evidence shows that these “second chance employees” are appreciative, ambitious and hardworking.

We should do all we can to help returning citizens integrate safely and successfully into society. Having stable employment and housing reduces the odds that they will commit new crimes, while minimizing disruptions for employers, landlords and families with children. Better outcomes are possible, and they would benefit all of us.


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Spending Interests Want Spending

Yet spending interests won’t say where the money should come from

The Michigan School Finance Research Collaborative — a group of school interests that want more money for schools — released a poll indicating that Michigan voters also want more school funding. Without listing where the money would come from, the poll tells politicians little about popular budget priorities.

Michigan levies taxes, and lawmakers decide where that money should go in annual budgets. If lawmakers want to spend more on schools, the money has to come from somewhere — tax increases, spending decreases elsewhere, or economic growth that generates higher tax revenue. The statement that people want more school money needs to be followed with a recommendation for where it should come from.

Of course, schools have been getting more money already. School revenue is up 4.6 percent above inflation since the 2009-10 fiscal year, even as there are 184,000 fewer students (7.3 percent) in the system. Economic growth drove the state budget to increase, and school funding with it, though not as much. This means that schools have been less of a priority than, say, disbursements to local governments, which are up 13 percent above inflation. Or spending on roads, which is up 50 percent above inflation and bolstered by recent tax hikes.

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If voters supported an increase in, say, the sales tax to go to schools, it would provide stronger evidence that there is popular support for more school funding.

Yet through the common tactic of the trough truce, spending interests ignore the question of where extra money for their cause should come from. If they are all in it together to get more money, then it’s difficult for them to single out an area to spend less on. To cite one example, even if business subsidies are ineffective, and money on them could be spent elsewhere, it is rare for the recipients of other government spending to complain about them.

The reluctance to criticize other areas of government spending may explain why the school finance poll hides the important question of where the money should come from. The question the collaborative asked voters obfuscates the issue of whether there are costs for more school spending. In the results of the survey that the group shared, 60 percent of voters said that they would favor “this proposal to change the way schools are funded in Michigan by establishing a standard, per pupil funding formula.” This is a question about per-pupil funding, not funding increases. It was interpreted as an endorsement of funding increases because the description of the proposed funding formula noted that it would increase funding. But the question itself tells little about whether voters want more funding.

The polling firm further asked whether schools receive too much, too little, or just about the right amount of funding, and most respondents said that it was too little. This again provides little information about where the money should come from.

Until there is broad consensus about where schools stand in relation to spending on other things or letting taxpayers keep more of their own money, state lawmakers are going to have to trust their guts when establishing a budget. Polls that leave out other spending priorities won’t reveal whether extra school funding has popular support.

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Volunteer Fire Departments Save Money, Delivery Quality Service

Op-ed by Mackinac Center intern highlights potential savings

Volunteer-led fire departments are just as effective as paid departments and provide significant cost savings to communities. Local governments should reassess the need for a paid firefighting force and consider replacing it with a volunteer force. Chase Slasinski, a fiscal policy intern at the Mackinac Center, expands on the benefits of a volunteer fire department in an op-ed published in the Lansing State Journal:

As personnel costs continue to rise, municipalities will find themselves stretched thin, losing the flexibility to fund essential equipment, training and fire protection infrastructure, like hydrants and new facilities.

By replacing paid fire departments with volunteer ones, local governments will experience significant cost savings, helping both the taxpayer and the community as a whole. The data shows that for the 10 largest volunteer departments, per capita spending was 27 percent lower when compared to the 10 largest paid departments.

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Quality is not sacrificed for the sake of saving money. As Slasinski explains, a common metric to determine fire department efficacy is the Insurance Service Office’s “public protection classification,” a rating based on the community’s fire suppression rating, with 1 being the best, and 10 being the worst. The Troy fire department, a force made up primarily of volunteers, has a higher quality rating than the state average (3.0 versus 6.4). In Michigan, the ISO ratings for the 10 largest volunteer departments and the 10 largest paid departments are virtually the same.

No one wants to pay more for a given quality of service. The same should be true of Michigan’s communities. By switching to volunteer forces, local communities would have additional funds to use toward other services. Better yet, the switch could put money back into the pockets of the taxpayers.

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What Would it Mean to Unleash the MEDC?

Lawmakers should keep the state's administrators on a tight leash

On the campaign trail, Democratic gubernatorial candidate Gretchen Whitmer pledged to unleash the Michigan Economic Development Corporation if she became governor. There are a number of ways the state could expand its business subsidy regimen, but few that make sense.

The state already operates a number of economic development programs and budgeted $162 million for them for next year. This is in addition to the $788 million administrators expect to pay out in old deals that give businesses refundable tax credits beyond what they owe in taxes.

So lawmakers could offer subsidies through the tax code again. This has some political benefits. Lawmakers get to announce jobs today — few of which ever show up — and push the costs onto future taxpayers. The deals signed before 2012 will cost taxpayers for the next 14 years.

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Pushing the costs of today’s deals into the future is short-term thinking at its best, but it would be one way to unleash the MEDC.

The state’s already doing some of that. Two programs passed last year have pledged $1.2 billion in taxpayer money for future deals, and it will be future legislators that have to figure out how to write those checks.

The state could run a bunch of other lending or equity programs. It hasn’t lost all of the money from its older programs. Indeed, from all of its programs, it got $244 million back. (State administrators don’t report on how much they spent to get that $244 million.)

Or maybe Whitmer wants to do something other than ramp up tax-credit, lending or equity programs.

Whatever she wants, however, note that it won’t be a tested way to grow the economy and justify taxpayer costs. Unleashing the MEDC is not about creating a conducive business environment to foster broad-based economic growth. It’s not about being a good steward of taxpayer dollars. After all, the state’s reporting still doesn’t show how much these programs cost and how many jobs taxpayers have gotten for them. It’s about politicians delivering money to select business owners. And that is something that ought to be leashed.

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Michigan Votes reports interesting or noteworthy recent bill introductions

The Legislature remains in recess with regular sessions resuming Sept. 5. Rather than votes this report contains some interesting or noteworthy recent bill introductions.

Senate Bill 1065: Senate Bill 1065: Give taxpayer subsidies to “large event” organizers

Introduced by Sen. Kenneth Horn (R), to authorize using a portion of the revenue from various state taxes to give subsidies to the organizers of certain “large events,” which could include national or international conferences, conventions or sports events expected to attract visitors from outside the state. Senate Bills 1066 to 1068 would earmark a portion of state sales, use and liquor tax revenue to pay for the subsidies, which would first pass through local bureaus or organizing committees. Referred to committee, no further action at this time.

Senate Bill 1072: Expand regulations, restrictions on bait fish

Introduced by Sen. Mike Kowall (R), to impose a registration mandate on persons who sell live, nonnative aquatic species. The bill would also tighten restrictions on activities of boaters and anglers that facilitate invasive species introductions, including an explicit ban on releasing baitfish. Referred to committee, no further action at this time.

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House Bill 6072: Require breakfast all morning in some schools

Introduced by Rep. Robert Kosowski (D), to require that schools with a very high proportion of students from low income families must offer free breakfasts to students using “a serving model that best suits the pupils enrolled.” The bill labels this a “Breakfast After the Bell Nutrition Program,” which means food would remain accessible after the school day begins. Referred to committee, no further action at this time.

House Bill 6078: Revise rules on permissible “restraint” in mental illness cases

Introduced by Rep. Patrick Green (D), to revise the definition of “restraint” in the mental health code to include drugs that are “not required to treat a diagnosed medical symptom.” Current law imposes strict limits and conditions on “restraints” used to manage behavior that poses a safety risk to the individual or others. Among other things the bill would make using drugs a last resort after physical restraint, and prohibit using both at once. Referred to committee, no further action at this time.

House Bill 6083: Authorize “alternative energy vehicle” sales tax break

Introduced by Rep. Michael Webber (R), to grant a $1,000 deduction from the sales tax owed on the purchase of an “alternative energy vehicle,” and higher amounts as the size and weight of the vehicle increases. Referred to committee, no further action at this time.

House Bill 6086: Mandate liquor stores post pregnancy warnings

Introduced by Rep. Hank Vaupel (R), to mandate that liquor stores must post signs warning about drinking alcohol during pregnancy. Referred to committee, no further action at this time.

House Bill 6098: Impose licensure, schooling, regulation, fees and more on “art therapists"

IIntroduced by Rep. Abdullah Hammoud (D), to impose licensure, regulation, “apprentice” requirements, examinations, college degree prerequisites, $200 application and “examination” fees and $100 annual license fees, and more to enter the occupation of “art therapy.” The bill would create a Michigan Art Therapists Board comprised of incumbent providers to devise additional requirements that new entrants must meet, or waive some requirements for certain individuals. Referred to committee, no further action at this time.

House Bill 6100: Authorize no-fault auto insurance option for seniors

Introduced by Rep. Jim Runestad (R), to require insurance companies to provide auto insurance policies that permit a senior with Medicare health coverage to choose a less costly personal injury protection benefit with a deductible of up to $50,000, rather than the unlimited medical benefits that are mandated by the state no-fault auto insurance law. Referred to committee, no further action at this time.

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