The MC: The Mackinac Center Blog

An article by American Enterprise Institute scholar Andrew Biggs in the Wall Street Journal (subscription required) explains how the bogus “transition costs” argument against reforming government pension systems recently became even more bogus.

To refresh, this was the argument used in 2012 by teachers unions and state pension bureaucrats to scuttle a transformational school pension reform bill that had passed the Michigan Senate. The measure would have closed the system to new hires, instead granting them generous 401(k) benefits.

Biggs writes:

But the public-pension industry—government unions and the various financial and actuarial consultants employed by pension-plan managers—claims that ‘transition costs’ make switching employees to defined-contribution pensions prohibitively expensive...

The argument goes as follows: The Governmental Accounting Standards Board’s rules require that a pension plan closed to new hires pay off its unfunded liabilities more aggressively, causing a short-term increase in costs.

But GASB standards don’t have the force of law; nearly 60% of plan sponsors failed to pay GASB’s supposedly required pension contributions last year…GASB standards are for disclosure purposes and not intended to guide funding. New standards issued in 2014, GASB says, “mark a definitive separation of accounting and financial reporting from funding.”

In fact, nothing requires a closed pension plan to pay off its unfunded liabilities rapidly, and there’s no reason it should…Whether new hires are in a defined-contribution pension or the old defined-benefit plan, the size of the unfunded liability and the payer of that liability are the same.

Michigan’s school pension system is among those “60 percent of plan sponsors” who failed to meet “annual required contributions” last year, and thus it broke a GASB “rule.” This means the state did not contribute the amount the system’s own accountants estimated is needed to both cover the cost of another year’s pension credit earned by school employees, and start “catching up” on the past underfunding that has generated a $26 billion unfunded liability. (The estimate was $2.1 billion, and the state only put in $1.6 billion.)

Rule number one of getting out of a hole is to stop digging it deeper. The bill passed by the Michigan Senate in 2012 was potentially transformational because it would have closed the defined-benefit school pension system to new hires, placing the state on a glide path to eventually getting out from under employee legacy costs.

The signs are hopeful that the current House and Senate may complete the work begun by Gov. John Engler and the 1996 Legislature when they closed the state employee pension system to new hires, a reform that saved taxpayers between $2.3 and $4.3 billion.

Right-to-work is not for or against unions. In fact, the only effect of right-to-work on collective bargaining is that it takes away a union’s ability to get a worker fired for not paying them.

In 1999 Robert P. Hunter, a Senior Fellow in Labor Policy for the Mackinac Center for Public Policy, created the Spectrum of Government Intervention in Organized Labor. On one side of the spectrum was government outlawing unions, labeling them a criminal conspiracy. On the other side was forcing all workers to be members of a union.

click to enlarge

Hunter, taking a Goldilocks approach, said that the preferred place for government intervention in organized labor was in the middle: neutrality. Hunter maintained that government should not force or forbid anyone from joining (or associating with) a union.

While right-to-work is not completely neutral — workers can still be forced to accept representation from a union and employers are still obligated to negotiate with a union — it is a step closer to Hunter’s ideal.

With right-to-work, unions, workers and employers can still bargain over wages, hours, working conditions and everything else they typically bargain over.

The difference is that with right-to-work a union must earn the dues of its members.

By proving their worth to their membership and making them compete, right-to-work can make unions stronger. Combine this competition with right-to-work states adding more jobs — meaning there is more opportunity for union jobs — and the result is that union membership may grow faster in right-to-work states compared to non-right-to-work states.

In 2014, the right-to-work state of Indiana tied with the non-right-to-work state of Colorado for adding the most union members in the country. Both states added 50,000 new union members each, according to data from the Bureau of Labor Statistics. The state that lost the most union members was the non-right-to-work state of Washington, which lost 55,000 members.

The ratio of which group of states adds more union members varies each year. In 2012, right-to-work states added 39,000 new members and non-right-to-work states lost 390,000. Other years, like last year, forced-unionism states come out ahead.

Even union officials are starting to take notice of the fact that right-to-work can help unions thrive.

As Gary Casteel, secretary-treasurer for the United Auto Workers recently noted:

“I've never understood [why] people think right to work hurts unions … To me, it helps them. You don't have to belong if you don't want to. So if I go to an organizing drive, I can tell these workers, 'If you don't like this arrangement, you don't have to belong.' Versus, 'If we get 50 percent of you, then all of you have to belong, whether you like to or not.' I don't even like the way that sounds, because it's a voluntary system, and if you don't think the system's earning its keep, then you don't have to pay.”

A year after Michigan passed its right-to-work law, Doug Pratt, director of member and political engagement for the Michigan Education Association, said that right-to-work caused his union to increase their efforts to “explain to our members why membership is of value,” and that “We’re stronger because of it …”

Likewise John Beck, an associate professor in Michigan State University’s School of Human Resources and Labor Relations told the Livingston Daily:

“There’s an imperative now that really demands that unions pay more attention to [member engagement] than they have in the past. In that way, I don’t think that, by its very nature, [right-to-work is] the death knell. In fact, some would argue that it’s actually going to be kind of a needed shot in the arm.”

Right-to-work has little effect on collective bargaining, but can have major effects on the efficacy of union representation.

(Editor’s note: A version of this article first appeared on the Web site of the Illinois Policy Institute.)

House Considers Repealing Outdated Crimes

There are current laws against walkathons and bad language

Yesterday the House Committee on Criminal Justice heard testimony on a package of bills that would amend or repeal several archaic laws. Among the laws under consideration are criminal prohibitions on participating in walkathons, playing “The Star‑Spangled Banner” as part of a medley, using “reproachful” language and selling dyed baby chicks and rabbits. The hearing was covered by the Detroit Free Press and MLive.com.

A study published by the Mackinac Center and Manhattan Institute found that Michigan has more than 3,100 criminal prohibitions in statute. The study identified numerous criminal laws that could be either repealed or amended to reduce the penalties.

The efforts to prune unnecessary crimes from the books are led by a work group led by Rep. Chris Afendoulis, R‑Grand Rapids Township, and Rep. Kurt Heise, R‑Plymouth.

This is a worthwhile process; a review by the Michigan Legislature will identify dozens of laws that no longer serve a useful purpose in protecting people or property. Additionally, the Legislature should enact a bill that would clarify whether criminal defendants should have known they were committing a crime.

Automatic Tax Increases are Not Good Policy

Letter: Continued cigarette tax policy will increase smuggling from other states

Author’s Note: This was originally published Friday, March 20, in the Post Bulletin (see Postbulletin.com).

The Post Bulletin’s recent op-ed arguing for maintenance of the state’s existing automatic tax increase on cigarettes (Our View: Cigarette tax should be left alone, March 12, 2015) is misleading and shortsighted on several fronts.

First, it does not provide evidence to support its assertion that “the number of smokers in Minnesota has continued to drop since the Legislature raised the excise tax on cigarettes in 2013.”

Instead it cites Minnesota surveys conducted in 2010 and 2014 that show a rate decline of 10.6 percent (from 16.1 percent to 14.4 percent). Most of the decline took place before the tax hike was imposed.

Second, in 2012 we estimated the average cigarette consumption decline among states at 2.3 percent. This alone explains almost 87 percent of the smoking rate drop the Post Bulletin erroneously credits to Minnesota’s previous cigarette tax hike.

Lastly, we estimated the smuggling rate differences in Minnesota with an excise tax rate of $2.83 and $2.90. Raising the tax by 7 cents hiked the state smuggling rate by 0.8 percentage points. If that becomes an annual average Minnesota will remain a top five smuggling state and for little in the way of gains to public health.

A better solution is to adopt the bill repealing automatic adjustments upward and let the real price of cigarettes drift back down to more rational levels.

March 20, 2015, MichiganVotes Weekly Roll Call

Abortions, homosexual adoptions, school bake sale "push-back"

Now with one click you can approve or disapprove of key votes by your legislators using the VoteSpotter smart phone app. Visit votespotter.com and download VoteSpotter today!


Senate Bill 84, Authorize “Choose Life” license plate: Passed 26 to 11 in the Senate

To require the Secretary of State to develop a “Choose Life” license plate, with fees collected from its sale given to organizations and projects that promote alternatives to abortion.

Who Voted “Yes” and Who Voted “No”


Senate Bill 139, Push-back against school “bake sale” restrictions: Passed 36 to 1 in the Senate

To require the Michigan Department of Education (MDOE) to “take all steps necessary to ensure maximum state and local control over” school lunch nutrition mandates. Also, to limit to three per week the number of fundraising sales of food or beverages during school hours that do not meet mandated school lunch nutritional standards. The bill was introduced in response to federal and MDOE restrictions and bans on the sales.

Who Voted “Yes” and Who Voted “No”


House Bill 4038, Allow eviction notices by email: 85 to 24 in the House

To allow landlords to send eviction notices by email, if the lease provides for this. Sending these notices is just the first step in the eviction process.

Who Voted “Yes” and Who Voted “No”


House Bill 4189, Let adoption agencies refuse adoptions that violate moral convictions: Passed 65 to 44 in the House

To specify in statute that private adoption or foster care agencies are not required to participate in an adoption or placement that violates their written religious or moral convictions, including adoptions of a child by a homosexual. Also, to prohibit a state agency from discriminating or taking an “adverse action” against a child placement service for this reason.

Who Voted “Yes” and Who Voted “No”


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.

Media Covers MEA President’s Public Pension

Story first discovered by Michigan Capitol Confidential

The Detroit News and WLNS 6 News have reported on the deal between the Michigan Education Association and Lansing School District where the district pays Steve Cook’s $201,613 salary and $51,976 pension contribution, which is then reimbursed by the Michigan Education Association.

Steve Cook is listed as an “Educator on Loan” from the school district to the union. Cook is president of a private organization and does not have any job duties with the Lansing School District.

Michigan Capitol Confidential first drew attention to this arrangement with a report on Feb. 26, 2015, with a follow-up story the next day.

Detroit Free Press Follows Up Story Broken by CapCon

Free Press story covers civil asset forfeiture victim

The Detroit Free Press wrote a follow-up article on a December story broken by Senior Investigative Analyst Anne Schieber. The original story was about two men who had thousands of dollars’ worth of property seized in raids of their homes, without being charged with a crime. Since the publishing of the story, both men have been arrested.

Michigan reports seizing “$24.3 million in cash and assets” in the 2014 Asset Forfeiture Report by the Michigan State Police.

Mackinac Research Featured in Wall Street Journal

Hohman and Skorup cited on film subsidies

The Wall Street Journal cites Mackinac Center research by James Hohman, assistant director of fiscal policy, and Jarrett Skorup, digital engagement manager, in an article on the potential end of the Michigan film producer subsidies. The film incentives program, in its current form, costs taxpayers $50 million per year, or 2.5 million potholes that could have been filled.

Smuggling Rampant in Minnesota

The unintended costs of cigarette 'sin' taxes

(Editor’s Note: This article was originally published on March 18, 2015 by Center of the American Experiment.)

Minnesota has a large smuggling problem and it is set to get worse. We estimate that the 130 percent excise tax increase on cigarettes in July 2013 raised Minnesota’s smuggling rate to 33.7 percent of the total market from a much lower 18 percent. This hike in tax evasion and avoidance is a direct function of high excise taxes — which will likely increase each year — and the ease with which consumers can acquire lower priced cigarettes places like North Dakota, Indian Reservations and the Internet.

The most efficient answer to this smuggling problem is to roll back excise taxes. Short of that the state could repeal its annual automatic tax increase and let the real price of cigarettes drift back to more rational levels. Failure to do so means that Minnesota will probably remain a top five smuggling state.

We have created a statistical model designed to measure smuggling in most U.S. states. It tells us that — at a tax of $2.90 per pack — Minnesota’s elicit market may be equal to about one-third of Minnesota’s cigarette market. It is worth noting, though, that a modicum of cross border cigarette shopping is legally allowed for Minnesotans and is swept into our model’s estimates as “smuggled.”

The large increase in illicit trafficking is a problem that has been recognized at the state capital, both by the Governor and the Legislature. A bill (SF 1192) has been introduced to minimize such lawlessness which among other items would provide for additional state auditors. This solution is unlikely to be effective because of the potential profits involved in smuggling.

Too many politicians — in Minnesota and elsewhere — point to declines in legal paid sales of cigarettes and naively shout, “See! Tax hikes are working; people are quitting.” That may be true to a degree but it is still largely naïve. A better explanation is that people are turning to the illegal cigarette market, a less expensive legal alternative (such as loose tobacco) or both.

Economist Mark Stehr’s 2004 paper in the Journal of Health Economics estimates that up to 85 percent of after-tax-hike changes to legal paid sales may be from tax avoidance, not from kicking the proverbial habit. Even then, his paper was published in 2004, when excise tax rates were generally lower.

There are several reasons why automatic and annual increases in the tax on Minnesota cigarettes is unlikely to reduce the rate of smoking. It is likely that those who still smoke have a strong preference for doing so. Tax hikes on the margin do less to help smokers quit and more to drive them to illicit markets. Second, the illicit market is easy to access. North Dakota’s 44-cent per pack excise tax makes it an ideal source state for consumers in Minnesota, as do Internet retailers and Indian reservations.

Also, people may be channeled into less expensive but possibly more dangerous alternatives, such as “roll-your-own.” Cigarettes cost much less when you buy loose tobacco and roll your own smokes.

Roll-your-own smokes might also be more dangerous because, as smokers need not include filters, they can boost the amount of nicotine they receive with each puff. Think of it as the “bathtub gin” of cigarettes. As prices rise due to Prohibition (then) or taxation (now), people work to get more bang for their buck.

These are all vital considerations because legal paid sales of cigarettes and loose tobacco have both tanked — especially in border counties — and empirical evidence has shown that most of those changes are a function of tax avoidance and evasion and not from quitting. Even the governor’s proposed budget reported that a whopping 40 percent of retailer “inspections resulted in either a seizure or assessment related to the discovery of untaxed tobacco products.”

The response to an apparent large uptick in illicit trafficking has been a proposal to add 11 auditors to the state’s complement to help better ensure against non-compliance with state excise tax laws. This is an ineffective remedy.

Federal and state prison officials elsewhere have been busted for smuggling smokes into prisons. If you can’t keep illicit smokes out of the penitentiaries how does anyone expect 11 bean counters to keep them out of a state with open borders? You could make Minnesota a veritable police state and illicit tobacco would still find its way to consumers of every age.

A better solution is to roll back the excise tax burden on tobacco, or at least stop raising it on annual basis.

Letter to the Detroit Free Press on Film Subsidies

Corporate welfare programs rarely produce net new jobs

Mitch Albom’s March 14 defense of subsidies for film makers should inspire lawmakers to end this public policy mistake. Corporate welfare programs rarely produce net new jobs, especially in light of superior alternatives.

In order to subsidize the jobs of a few “carpenters and drivers,” among others, which Albom says resulted from the program, money must first be taken from many others. The net effect is at best a wash, most likely a loss.

He claims the subsidy appropriation of “fifty million isn’t breaking the state.” The irony is palpable. It appeared next to an article arguing that Michigan doesn’t have enough money to fix its roads. Fifty million a year could fill 2.5 million potholes each year.

I do agree with Albom that the MEGA corporate welfare program offered too many large tax credits to business. But this 16 year-old program was also a proven job creation failure.