Michigan’s Public Pensions Are at Risk

Office of Retirement Services must explain appearance of poor management

Editor's Note: This op-ed was originally published by The Detroit News on April 13, 2017.

It’s been a bad couple of weeks for those who oversee Michigan’s public employee pension systems. The evidence of mismanagement coming out of Michigan’s Office of Retirement Services is starting to pile up and lawmakers should respond by rolling back the agency’s power.

A recent report from the state’s auditor general found that ORS understated retiree liabilities by $143 million. This would further add to the $17.7 billion it would take to pay for our retiree health insurance policies. That is in addition to the $33.3 billion in unfunded liabilities in pension systems overseen by ORS. Because of this pension underfunding, government employees and retirees are the state’s largest creditors.

Lawmakers are ultimately responsible for this because they are the ones who delegate authority to pension administrators. But ORS has done a bad job with the authority they’ve been given.

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The state teacher pension system has been underfunded for at least 41 out of the past 42 years. Part of this is because of bad assumptions from the state pension managers, which hide the true cost of the system. Officials assume an investment rate of return of 8 percent on the bulk of their assets, and falling below these returns has been a prime reason why liabilities have grown. They also assume a growth in schools’ payrolls — even as the number of school employees has been on the decline for more than a decade. ORS uses other accounting tricks, like long amortization windows, that punt the costs to future taxpayers.

The costs have piled up. Those assumed investment returns never materialized and as school payrolls continued to decline, pension liabilities have soared. And while those short-sided assumptions helped hide the cost of the system in the short-term, the chicken has come home to roost. Taxpayers are now having to pay for those faulty assumptions.

Today, taxpayers are spending about $2 billion to try to catch up on pension liabilities. This means that 36 cents out of every dollar schools use for paying teachers today goes instead to pay for pensions. And when lawmakers last year tried to finally stop giving the agency the ability to kick the can of pension costs down the road by offering new school employees only 401(k)-type retirement plans — plans that cannot be underfunded and that limit taxpayer liability — ORS deceived them with claims about phantom upfront costs.

But ORS has other problems and these were accidentally exposed when the Mackinac Center for Public Policy, Michigan Press Association and Michigan Coalition for Open Government relied on the agency’s data to create a publicly available database containing the salaries of nearly 300,000 government workers in Michigan. Thanks to this effort, taxpayers can now see exactly how much they are paying their public employees at www.MichiganGovernmentSalaries.com.

The response to the database was fast — it got hundreds of thousands of hits in just a few days — but also furious — it quickly became clear that some of the data ORS had provided was incorrect. Turns out that of the hundreds of thousands of employees, ORS had inflated the salaries of about 4,500 government workers.

The agency claimed it was just a “technical error.” But it caused us to wonder: Is the agency sending out bad information to others who request it? Or worse, is it calculating pension benefits based on salaries that are incorrectly inflated?

Legislators should do more to oversee the responsibilities they entrusted to ORS. The agency needs to answer for why Michigan’s pension systems continue to appear poorly-managed. Ultimately, lawmakers should remove much of their responsibility over government employee pensions. The surest way to do that would be to transfer this responsibility to the employees themselves by offering new workers only 401(k)-style, defined-contribution retirement plans instead of badly-managed and massively underfunded pensions.


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Senate Bill 275, Ban police sex with prostitutes: Passed 38 to 0 in the Senate

To repeal an exemption that allows police to have sex with a prostitute as part of an investigation.

Who Voted "Yes" and Who Voted "No"


Senate Bill 178, Authorize professional sports teams specialty plates: Passed 33 to 3 in the Senate

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To authorize a specialty license plate for professional sports teams, including the Detroit Red Wings, Detroit Lions, Detroit Pistons, Detroit Tigers and the Michigan International Speedway. Proceeds from the sale of the plates would go to charitable organizations created by these entities. Note: The facilities used by these operations have all been beneficiaries of state subsidies.

Who Voted "Yes" and Who Voted "No"


House Bill 4063, Ban aiming a “directed energy device” at an aircraft: Passed 37 to 0 in the Senate

To make it a crime to intentionally aim a beam of directed energy from a directed energy device at or into path of an aircraft, with violators subject to a $10,000 fine and five years in prison. This includes lasers and any other "highly focused energy" that could damage or interfere with an aircraft.

Who Voted "Yes" and Who Voted "No"


Senate Bill 119, Transfer some state property to NMU: Passed 108 to 1 in the House

To transfer a piece of unfenced Marquette state prison land to Northern Michigan University, which will use it for a new forensic anthropology program. This is a field whose techniques are useful in crime and disaster investigations.

Who Voted "Yes" and Who Voted "No"


Senate Bill 35, Regulate the “millionaire party” business: Passed 100 to 9 in the House

To establish regulations for charitable “millionaire party” gambling events that include casino games, in a manner that accommodates charities contracting out their operation to a “charitable gaming service” that provides the service for multiple charities at a single location, one after another. The bill would establish a licensing regime covering both the charities and the service companies. This would recognize and accommodate an evolved system where a person can gamble at a particular location on most days, with the proceeds going to a different charitable organization at different hours.

Who Voted "Yes" and Who Voted "No"


Senate Bill 163, Authorize “Choose Life” license plate: Passed 25 to 11 in the Senate

To require the Secretary of State to develop a “Choose Life” license plate, with profits from its sale spent on "life-affirming programs and projects."

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. Please visit http://www.MichiganVotes.org.


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Grand Rapids is a Regional Leader in Attracting People

City leads Minneapolis and Chicago in population growth

In an article in MLive, Michigan Future President Lou Glazer says that Michigan needs to attract more talent. “Michigan won’t be a high-prosperity state unless metro Detroit and metro Grand Rapids are able to compete with national talent magnets like Chicago and Minneapolis for mobile talent,” he told the paper. He should have checked the numbers first since Grand Rapids is the leader of this group and Chicago is shedding people to other places.

From 2010 to 2016, the Grand Rapids area led that group of four cities by attracting an additional 2 percent of its population from other places in the U.S. Minneapolis came second, adding 1.5 percent of its population. Metro Detroit lost 1.4 percent of its population through domestic migration. The Chicago area, however, lost 2.8 percent of its population to other areas in the U.S.

The policies Glazer recommends are especially suspect when the economic trends he bases them on are misstated.


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Back to the MEGA Future: Good Jobs for Michigan Reinvents Failed MEGA Program

Proposed law shares remarkable similarities with old, failed law

In a previous blog post titled “What’s Old Is New Again” I mentioned just three similarities between the state’s disastrous Michigan Economic Growth Authority law of 1995 and the proposed Good Jobs for Michigan legislation (specifically, Senate Bill 242). There are many others — 12 major ones by my count — and most are marked by some identical language or concept.

The most notable difference between the old MEGA statute and the new Good Jobs for Michigan language is the method for handing out financial favors. Old MEGA provided refundable tax credits to select businesses, GJFM provides select businesses with “captured” tax money. The results, however, are the same. The favored get something at the expense of the many.

MEGA was a business tax credit program begun in 1995 and which was a demonstrable failure. Five different studies (two by the Mackinac Center) examined this program and were published between 2005 and 2014, which means the entire breadth of MEGA’s existence has been examined. This includes the period during and after which expensive “retention” credits were offered and for which taxpayers are still on the hook. Four of the five studies found a zero or negative impact. A fifth study found a small, albeit positive one.

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It is naive to think that this tax capture proposal will be any more effective than MEGA or other similar Michigan programs or business incentive programs run in other states. The general academic literature on tax increment financing programs is mostly negative, and I have pointed to that evidence again and again.

Moreover, a 2014 study of a Kansas program that most closely resembles the GJFM proposal finds: “recipients are statistically not more likely to generate new jobs than similar firms not receiving incentives. A secondary set of findings shows that firms relocating to Kansas, with or without incentives, do not experience job growth at higher rates than existing firms.” The Kansas “PEAK” program allows chosen businesses to keep 95 percent of tax withholding provided they pay a wage above the average in the county in which they operate. Deals can last as long as 10 years.

When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Perhaps all of the similarities — including identical language — between the old MEGA and the new MEGA (GJFM) is just a function of the old guard wanting to go back to the way things were, and without regard to consequences or costs to taxpayers. Even with the best intentions from the people in charge, the signal this sends to entrepreneurs is that success leads from swimming in the “swamp.”

The following is a list of major similarities between the 1995 MEGA statute and SB 242, the new MEGA proposal. The bolded material is meant to highlight identical language despite the 22 years that separate authorship of each.

MEGA Statute: “An eligible business may apply to the authority to enter into a written agreement which authorizes a tax credit under section 9.”

GJFM: “An eligible business may apply to the fund to enter into a written agreement which authorizes the payment of withholding tax capture revenues under this chapter.”

MEGA Statute: “The authority may request such information, in addition to that contained in an application, as may be needed to permit the authority to discharge its responsibilities under section 8.”

GJFM: “The fund may request information, in addition to that contained in an application, as may be needed to permit the fund to discharge its responsibilities under this chapter.”

MEGA Statute: “After receipt of an application, the authority may enter into an agreement with an eligible business for a tax credit under section 9 if the authority determines that all of the following are met:

GJFM: “After receipt of an application, the fund may enter into an agreement with an eligible business for withholding tax capture revenues under this chapter if the fund determines that all of the following are met:

MEGA Statute: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”

GJFM: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”

MEGA Statute: “The plans for the expansion, retention, or location are economically sound.”

GJFM: “The plans for the expansion or location are economically sound.”

MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”

MEGA Statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state.

GJFM: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.

(Note: The links above refer to articles related to the subject matter, not the statute or proposal, respectively.)

MEGA Statute: “The local governmental unit in which the eligible business will expand or be located, or a local economic development corporation or similar entity, will make a staff, financial, or economic commitment to the eligible business for the expansion or location.”

GJFM: “The eligible business has received a letter of support for the expansion or new location from the chief executive official, or his or her designee, of the municipality with jurisdiction over the location of that facility.”

MEGA Statute: “If the authority determines that the requirements of subsection (1) have been met, the authority shall determine the amount and duration of tax credits to be authorized under section 9, and shall enter into a written agreement as provided in this section. The duration of the tax credits shall not exceed 20 years.

GJFM: “If the fund determines that the eligible business satisfies all of the requirements of subsection (4), subject to subsection (6), the fund shall determine the amount and duration of the withholding tax capture revenues to be authorized under this chapter and shall enter into a written agreement as provided in this section. The duration of the withholding tax capture revenues must not exceed 5 or 10 years …”

MEGA Statute: “In determining the amount and duration of tax credits authorized, the authority shall consider the following factors: (A) The number of qualified new jobs to be created; (B) The average wage level of the qualified new jobs relative to the average wage paid by private entities in the county in which the facility is located. (C) The total capital investment the eligible business will make. (D) The cost differential to the business between expanding or locating in Michigan and a site outside of Michigan. (E) The potential impact of the expansion or location on the economy of Michigan. (F) The cost of the credit under section 9, the staff, financial, or economic assistance provided by the local government unit, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.

GJFM: “In determining the maximum amount and minimum duration of the withholding tax capture revenues authorized, the fund shall consider the following factors, if applicable: (A) The number of certified new jobs to be created. (B) The degree to which the average annual wage of the certified new jobs exceeds the prosperity region average wage. (C) Whether there is a disadvantage to the eligible business if it were to expand or locate in this state versus a site outside this state. (D) The potential impact of the expansion or location on the economy of this state. (E) The estimated cost of the reimbursement of withholding tax capture revenues under this chapter, the staff, financial, or economic assistance provided by the municipality, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.

MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “Whether the expansion or location will occur in this state without the payment of withholding tax capture revenues offered under this chapter.”

MEGA Statute: “A written agreement between an eligible business and the authority shall include, but need not be limited to, all of the following:”

(A) A description of the business expansion or location that is the subject of the agreement. (B) Conditions upon which authorized business designation is made. (C) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business and the loss or reduction of future credits. (D) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the refund of credits received under section 9. (E) A method for measuring full-time jobs before and after an expansion or location of an authorized business in this state.

GJFM: “A written agreement between an eligible business and the fund must include, but need not be limited to, all of the following:

(A) A description of the business expansion or location that is the subject of the written agreement. (B) Conditions upon which the authorized business designation is made. (C) A statement from the eligible business that the eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.” “(E) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business, the loss or reduction of future withholding tax capture revenue payments under this chapter, or a repayment of withholding tax capture revenues received pursuant to this chapter. (F) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the repayment of withholding tax capture revenues received under this chapter … (G) A method for measuring and verifying full-time jobs before and after an expansion or location of an authorized business in this state.


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"[F]irms relocating to [the state], with or without incentives, do not experience job growth at higher rates than existing firms.” - Nathan M. Jensen for the Ewing Marion Kauffman Foundation

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Save Closures for Truly Failing Schools

Context needed for decisions, whether by state or local officials

Michigan state Superintendent Brian Whiston caused a small stir at a recent State Board of Education meeting when he remarked that Detroit district leaders would be shutting down some schools this year.

The School Reform Office released in January a list of 38 persistently failing schools subject to closure or other drastic interventions. Twenty-five of the schools are in Detroit, all but one operated by the school district or the almost-defunct Education Achievement Authority. But state officials have never closed down a conventional public school for poor performance.

Despite earlier threats, the trend seems unlikely to change. Gov. Rick Snyder earlier delayed any state decision on school closures until May. Then Whiston offered the 38 schools a chance to sign “partnership agreements” with the Michigan Department of Education to give them extra time to meet goals to improve achievement. The state superintendent speculated that local districts would opt to close some of the 38 schools on their own.

When Whiston specifically addressed that speculation at the state’s largest and most troubled school district, local leaders pushed back. The Detroit district announced that it intends to close only one school, Durfee Elementary and Middle School, but the Detroit Free Press reports that some board members have expressed concerns with that plan.

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Durfee is one of 20 Detroit schools recognized as performing in the bottom 5 percent in Michigan. The Mackinac Center’s most recent Context and Performance Report Card agrees with this rating. Our report card adjusts state test scores for expectations based on student poverty. That means these schools are truly poor performers, even given the greater challenges they face.

With power recently restored to the local school board, the Detroit district needs to make drastic changes if it hopes to survive. Too many students are poorly served, thousands of seats remain empty as families have fled to charters or suburban districts and the district is on a dangerous financial trajectory less than a year after a $665 million Lansing bailout.

Yet any benefit that might come from attempts to right-size the state’s largest district ought to be limited to the 20 schools that truly are the worst performers. State test scores don’t reveal everything parents care about in terms of school quality, but they can highlight schools that fail the basics.

The other four Detroit schools on the state’s “next level of accountability” list are doing better when adjusted for student poverty, either marginally, like Bow Elementary and Middle School, or substantially, like Thirkell Elementary.

Whether state or local leaders make the decision about closures, they should steer clear of schools that are beating the odds.


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April 21, 2017 MichiganVotes weekly roll call report

House Bill 4080, Authorize new energy-related purchase/debt scheme for schools: Passed 36 to 0 in the Senate

To include schools in a scheme authorized by a 2016 law for counties, which lets them contract with vendors for energy efficiency projects, and pay for these with money the projects are supposed to save (or from regular tax revenue if savings don’t appear).

Who Voted "Yes" and Who Voted "No"

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Senate Bill 245, Repeal switchblade ban: Passed 36 to 1 in the Senate

To repeal the state law against owning, selling or possessing a switchblade knife, “the blade or blades of which can be opened by the flick of a button.” The sponsor of the bill says the ban is outdated and unevenly enforced.

Who Voted "Yes" and Who Voted "No"


Senate Bill 160, License Polaris “Slingshot” type vehicles as a motorcycle: Passed 36 to 0 in the Senate

To revise the regulations on motorcycles in the state vehicle code so they also apply to “autocycles,” in particular to three wheeled vehicles like the Polaris “Slingshot.” Under current law vehicles like this happen to fit a particular definition requiring they be enclosed and have other car-like features such as windshields and wipers.

Who Voted "Yes" and Who Voted "No"


Senate Bill 150, Require agencies disclose federal aid requests to legislature: Passed 36 to 0 in the Senate

To require state agencies that apply for any form of federal or other financial assistance to notify legislative leaders, relevant committees and the legislature’s fiscal agencies within 10 days, with the notice including any conditions or stipulations associated with receiving the assistance.

Who Voted "Yes" and Who Voted "No"


Senate Bill 78, Expand property transfer taxable value “pop up” exception: Passed 37 to 0 in the Senate

To exempt from the property tax assessment “pop up” the transfer of a decedent’s principle residence to a family member, for up to two years. The “pop up” is the provision of the 1994 Proposal A tax limitation initiative that makes a property’s market value the basis of property tax assessments when it is sold, rather than the capped (and lower) “taxable value” of the previous owner.

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. Please visit http://www.MichiganVotes.org.


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Lawmakers should consider the full costs of corporate welfare before they approve it

(Editor’s Note: The following is legislative testimony given by James Hohman, assistant director of fiscal policy at the Mackinac Center, to the Michigan House Tax Policy Committee on April 19, 2017, concerning a series of bills — Senate Bills 111-115 — intended to give taxpayer-financed subsidies to select real estate developers.)

Proponents of this package have branded the opposition as being “ideological” in their skepticism. But delivering hundreds of millions of taxpayer dollars to select developers based on flimsy evidence is far more ideological than the practical reasons why you should reject this proposal. Indeed, supporters seem more interested in obscuring the costs of this package rather than justifying them.

There are a number of ways that costs are being ignored. This packages uses the tax code to deliver cash to developers instead of through the budget process. There is already $100 million-plus in the state budget pledged for business subsidies. And those subsidies have to be argued for and compared against the multitude of other areas of state spending where lawmakers prioritize the best uses of scarce taxpayer dollars. This package bypasses that process.

If developers want taxpayer dollars to redevelop select places, they ought to be arguing their case in the budget-making process, and lawmakers should pledge that money this year instead of kicking it to the future, as these bills do by allowing agreements that can last 25 years into the future.

The costs are further obscured by proponents’ argument that the development would not happen without taxpayer assistance, implying that sending tax dollars generated by the development back to the developer represents free money.

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Even if this “but for” presumption is accurate, and there are reasons to be skeptical, it does not make the proposal costless. Construction workers have multiple jobs that they can work on — they don’t just spring into existence when these projects are approved. When they work on other jobs their income taxes go to the state government and the state will miss out on that revenue when they work on the selected projects approved by this package.

Likewise, the people who will live and work in any of these developments do not spring into existence when these buildings get built. Even if people from out of state moved into these developments, they would only be costless to the state budget if the sole purpose of their move was because they really liked the newly developed building.

The other way that costs are obscured in this proposal is through a fig-leaf, cost-benefit calculation made prior to a project being approved. The analysis uses a multiplier to estimate the benefits of the proposal but does not provide the same treatment to the costs. As the bill stands, the methods used by these analyses would likely conclude that partnering with a developer to dig a giant hole in the ground would be a net positive for the state.

While the legislation says that it is only to select “transformational” projects, there is no accountability in these bills that the projects fulfill that promise. That would require performance metrics for the communities, not just for the project, and accountability requirements for both the developers and the people approving these deals.

It is also noteworthy that there are already a handful of other programs on the books specifically for “brownfield development” and dozens more for economic development more broadly. Instead of amending these programs to address what supporters apparently believe are their obvious failures (hence the need for this new and different legislation), this just adds more favors to select businesses and developers from the pockets of taxpayers.

Michigan’s economy is transforming. We are one of the fastest growing states in the union and the best in the region. That includes the recovery of multifamily housing that appears to be targeted in this proposal. If you want to further encourage this transformation, you ought to improve the overall business climate with modest reductions in the state income tax. That would do more to boost Michigan’s economy than creating Rube Goldberg devices to deliver taxpayer dollars to select developers.


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The Michigan Senate has already passed and the House is considering a major expansion of Michigan’s corporate welfare regime. The House Tax Policy Committee held a hearing on March 8, and two officials from the agencies in charge of current business subsidy programs came to explain and justify the state’s corporate welfare apparatus.

Rep. Jim Tedder had some questions about current programs. In particular, about so-called “return on investment” claims made on behalf of one of them (taxpayer-funded “Pure Michigan” ads), which were generated by a consultant called Longwoods International who has been repeatedly hired by the agency and — until recently — under a no-bid contract.

Tedder asked, “[T]he statistic that’s provided — the $7.67 return for every $1.00 — how is that quantified? What is the process in deriving that number?”

The officials were Steve Arwood, chief executive officer of the Michigan Economic Development Corporation and Jeremy Hendges, chief deputy director of the Michigan Department of Talent and Economic Development. Jeremy Hendges fielded the response, a truncated and edited version of which is below (see the embedded video for the entire answer).

“That is the number from Longwoods that does the study on the return from the investment essentially and it is based on state and local tax dollars that come back and Longwoods has been studying the program probably from day one. We have contracted that out a few times. Their methodology was verified a couple years ago. We had Michigan State [University] double check their work essentially and verify their methodology for the study on that.”

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The response didn’t answer the question as directly as it was asked, if at all. It was almost a “nonresponse response,” and may leave the reader wondering why a top official at the MEDC can’t provide an answer to this seemingly basic question.

Hendges failed to provide a specific, detailed answer because he probably just does not know the answer. Longwoods refuses to provide meaningful details of the methods they used to create the ROI figure for Pure Michigan. So no one knows exactly how the figure is calculated, which the MEDC knows and seems perfectly comfortable with (or, if MEDC officials do know, they respect Longwoods’ wishes and keep it hidden from the public). The Mackinac Center has written extensively about a lack of transparency in the Pure Michigan and other programs.

Moreover, the MSU review Hendges references was actually performed by another no-bid contractor called Certec, Inc. This company was owned by a former vice president of Longwoods who coauthored the report with an MSU scholar. The report covers an ad campaign in 2003, which predates the Pure Michigan program by several years.

The companies that produce responses that government agencies want to hear are part of a cottage industry that exists to serve the “budget justification” needs of ineffective state economic development agencies. Their products are nothing more than PR puffery garbed in scholarly robes. Here is a relevant excerpt from a previous blog where I explain why the MSU validation study doesn’t validate the Pure Michigan program’s ROI claims:


Who Watches the Watchers?

So it is interesting that in 2011, when pressed on similar questions about earlier Longwoods’ reports, the then-head of Michigan’s travel promotion bureau pointed to a “validation study” for which the MEDC paid a different contractor $5,000. While this was supposed to confirm that the Longwoods methodology was valid, it also suggests the agency knew these reports had a credibility problem.

Moreover, even this second vendor said Longwoods had a “lack of total transparency,” and acknowledged that reviewing its process would “require costly replication to totally confirm” that its claims were valid. But even if cost were no object, Longwoods’ secrecy would make confirming its claims impossible.

Dodgy Methods Acknowledged

We do know some things about the method, although the details provide little comfort. Bill Siegel, founder and CEO of Longwoods, has said his company uses a hybrid system based on what are called “conversion” and advertising tracking studies. The former are said to measure how many people responded to a travel ad by later visiting the destination.

Nevertheless, traditional conversion study methods appear to have been what the validation study authors used for their work. Conversion studies have been widely criticized by academic economists, who consider them highly dubious. In his book, “Tourism Analysis: A Handbook,” author Stephen Smith writes that — especially with tax-funded travel promotion agencies — “Conversion studies are increasingly popular … as a tool to justify budgets. Because of survival motivation, many conversion studies fall short of full adherence to rigorous scientific procedures.” Smith wrote this was especially true of tax-funded agencies that promote tourism interests.

Even Siegel (writing with colleague William Ziff-Levine) said in 1990 that, “The main value of a conversion study would appear to be to get diagnostic information on a fulfillment piece, not to provide hard numbers on the bottom-line return on-investment of a campaign.” More recently, he said that this hybrid approach uses the parts of the conversion study system that he believes are its most useful and effective.

And then there is the secrecy. While you can read an online copy of the survey Longwoods used to produce its 2014 report, it is meaningless without a detailed explanation of how the company used the survey to derive its claim of a 587 percent return from an ad campaign. And such an explanation is exactly what you won’t find on any Longwoods website or published document.

The MEDC’s validation contractor was supposed to evaluate the legitimacy of Longwoods’ claim. Notwithstanding Longwood’s lack of transparency, this second outfit chose to attempt its own version of a conversion study.

Process Fails Smell Test

As if doubts about the underlying contract weren’t enough, there are many reasons to question the practice of paying a second contractor to validate the claims of a “budget justification” contractor.

To begin with, the MEDC did not issue a request for proposals, which could have given it a number of validation contractors to choose from. Instead, agency officials hand-picked a contractor, which at the very least limited the scope of possible perspectives. Also, it’s hard to ignore that the co-author of the validation study is a former vice president of Longwoods International, the company being evaluated.

That revolving-door relationship is part of a pattern. The MEDC official who mentioned the validation study in 2011 was George Zimmerman, whose title was vice president of the MEDC's Travel Michigan office, which oversees state promotion efforts. Mr. Zimmerman has since been hired by Longwoods International as its chairman.

The questions multiply when details of this second contractor’s work are examined. For instance, the survey research it used involves asking respondents to report the degree to which the state of Michigan’s advertisements influenced their decision to visit. This introduces the possibility of response bias — a pitfall of survey research — which would influence the output. Moreover, the authors simply lump in two categories of responses at different rates before making their calculations. They claim this is a common technique but offer no supporting evidence. Curiously, one result derived by the validation authors apparently matched the Longwoods International conclusions to the penny ($3.42).

Confirmation Study Confirms Nothing

Perhaps not surprisingly, the validation study authors so thoroughly hedged and qualified their report that they appear to doubt whether “return on investment” claims like Longwoods’ can actually be measured. In one place they wrote, “The ‘real’ conversion rate in [sic] unknown and next to impossible to derive given the many variables involved, many beyond the control of the researcher.”

Elsewhere, contractor No. 2 admitted, that “the possible confidence interval for our estimate is wide,” and that “our bottom line estimate will likely be inflated to the degree that other Michigan advertisers were also engaged in these markets at this time at a level beyond the precision of this estimate.” Translation: They came up with a ballpark estimate in a very large ballpark. Still, the contractor suggests that even if they’re off by 25 percent the result is still positive.

The outfit that was paid $5,000 to prepare this report can at least be commended for admitting they don’t know what they don’t know.

Perhaps capping all the preceding, 2011 press reports describe former MEDC and current Longwoods International official George Zimmerman repeatedly pointing to the validation study to support his company’s claims about MEDC ad spending. However, the validation study contract was entered into in 2007 to cover a Longwoods’ report on a 2003 tourism ad campaign. Published reports indicate that the state had validated Longwoods’ technique but failed to mention that the validation work involved ads unrelated to the Pure Michigan campaign.


Representative Jim Tedder asked a pointed and good question and got an empty response. He and his colleagues should remember that the next time corporate welfare legislation or its proponents are asked to approve spending taxpayer dollars on it.


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Net Domestic Migration by County

Michigan county gains and losses

Net Migration by County, 2010 – 2016

 

Source: U.S. Census Bureau

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People move for a lot of reasons: for family, health and retirement among others. Finding economic opportunity is an important driver and one that is encouraged by state and local policy.

Over the past decade, Michigan has started to attract more people. It still is losing people to other states, but those numbers are down.

This map looks at net migration — it calculates how much a county’s population has changed due to people moving in and moving out of it from 2010 to 2016. Oakland and Macomb counties attracted the most people, with Oakland adding 22,936 people, a 1.9 percent gain and Macomb adding 21,223 people, a 2.5 percent gain. Those are neighbors of Wayne County, which lost 104,909 people, a 5.8 percent decline.

It’s not all in one direction, though. According to a different report from the U.S. Census Bureau, which doesn’t align perfectly with the data in the map, from 2010 to 2014, 14,405 people moved from Oakland County to Wayne County. But 20,831 people moved from Wayne to Oakland. In a similar fashion, 5,289 people moved from Macomb County to Wayne County and 13,412 people moved from Wayne to Macomb. That is the equivalent of 38.7 percent of Wayne County’s net out-migration.

The largest gain by proportions came in Grand Traverse County at 4.8 percent and Ottawa County at 3.1 percent.


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Economic Freedom and Well-Being Noticed by Top Official

Christopher DeMuth is the former president of the American Enterprise Institute, a Washington-based think tank. In 2017, DeMuth received a Bradley Prize for his contributions to “preserving and defending the tradition of free representative government and private enterprise.”

DeMuth’s acceptance speech on On April 6, 2017, included this sentence: “Government and politics have succumbed to demands to regiment every aspect of society and commerce and ameliorate every difficulty of private life.”

The Michigan Legislature was taking a spring break when DeMuth spoke, but in the previous week its members proposed adding 83 new laws to the state’s statutes. Here are descriptions of just three, from MichiganVotes.org:

2017 Senate Bill 297: Mandate electrician have proof of licensure while on job
Introduced by Sen. Kenneth Horn, a Republican, on March 30, 2017:
To mandate that an electrician on a job must show a government official or inspector a photo ID and evidence of licensure status if ordered.

2017 House Bill 4465: Mandate cable, phone company “teaser rate” expiration warnings
Introduced by Rep. Jeremy Moss, a Democrat, on March 30, 2017:
To require cellphone, cable and other telecommunications companies that sell contracts with introductory “teaser” rates to notify customers of the new rate in the last two bills before the teaser rate expires.

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2017 House Bill 4440: Authorize cytomegalovirus infection public information campaign
Introduced by Rep. Robert Kosowski, a Democrat, on March 30, 2017:
To require the state health department to do a public and health provider education and awareness campaign on risks related to cytomegalovirus infection.


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