Bonfire of the Bureaucratic Vanities

MEDC should publicize its failures, too

Author Tom Wolfe died last week. He was a famous journalist and author of popular books, including “Bonfire of the Vanities,” which involved a high-flying, risk-taking Wall Street trader who was said to be “hemorrhaging money.” Michigan has its own class of risk-taking traders, but they are of a state-paid variety, operating programs that either mandate unusually risky investments with taxpayer money or undertake them outright.

They should not. Trying to pick winners and losers in the marketplace and invest taxpayer dollars in the winners is fraught with difficulty. Research tells us it is typically ineffective and expensive.

The Michigan Business Growth Fund Loan Participation Program is sold as another way to encourage business growth and diversify the economy. One official document says it is for “borrowers whose projected cash flows are considered speculative by the lender” [emphasis added]. In other words, if a private bank’s experts determine that a project is too risky, the state’s development agencies will back it up with taxpayer money.

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In 2012, they did this with Cherry Growers Inc., a company that filed for bankruptcy last year. This loan (and four others) was duly announced by the Michigan Economic Development Corporation in a July press release bragging about all the good it will do. Come 2018, a report to the Legislature indicates Cherry Growers still owes $2.6 million in state-backed loans.

“The Loan Participation Program will allow these companies to move forward and continue to grow, which in turn brings jobs and investment to our state,” then-MEDC president Michael Finney noted in a 2012 press release. The announcement also noted that Cherry Growers planned to add 250 full-time employees. It was not to be.

Remarkably, backing a loan that was too risky to get private financing wasn’t the only bit of investment risk-taking the state was willing to embrace. Officials, who should be good stewards of state resources, offered this deal up in the middle of one of the worst — nationally recognized — cherry crop failures in Michigan in decades. Other fruit crops suffered as well.

Either state officials didn’t know what everyone else seemed to know, or perhaps they didn’t care. In addition to recommending this loan, the MEDC also supported, in the same year, an additional $2.5 million grant for Cherry Growers through a different initiative, the Michigan Business Development Program.

How much of their $5.1 million will taxpayers get back? It may be too early to tell, but the company is being liquidated. The good news is that there may be a buyer for Cherry Grower’s property. Proceeds from that sale will help pay back creditors to some degree.

Lest the reader think Cherry Growers is a risk-taking one-off, a simple error, consider just a couple of other examples:

  • Spiech Farms was offered a $220,000 grant (on which it collected $100,000) even though its own application for subsidies clearly stated that two seasons of bad crops (2014 and 2015) were “leaving us in financial hardship.” The company filed for bankruptcy in 2017.

Despite the clear warning that the company was in financial hardship, state officials apparently still thought it was a good idea to give it money.

  • The solar company Suniva Inc. was a two-time loser. In 2011 the Snyder administration finished off a deal started during the Granholm administration that saw it get approved for two tax credits, one specifically for photovoltaic projects and the other for general economic development.

As part of 2011 deal, Suniva was supposed to build a $250 million facility in Saginaw Township. That investment never happened. But that didn’t stop the MEDC from recommending in 2014 the company for a $2.5 million grant. Suniva filed for bankruptcy in 2017. Last month, a judge granted permission to a creditor to retrieve and sell at auction its equipment, some of which is located at Suniva’s Saginaw plant, which appears to be sitting idle.

Time and again, state bureaucrats brag about the jobs and other benefits they say their handouts will deliver. Research shows these programs tend to be ineffective. If lawmakers can’t bring themselves to shut these programs down, at least they could impose a reality check on the bureaucracy that helps manage them.

That reality check could be a public relations bonfire of state jobs vanities. Each time one of its winners fails to perform as expected, the MEDC should issue a press release announcing as much — to the same media outlets to which it had previously bragged about those same companies. It could also then announce an estimate of lost taxpayer dollars.

Of course, the better way for government to disburse the money currently given away in handouts would be to spend it on roads, or enact across-the-board tax cuts. But short of eliminating the programs, lawmakers should prevent their corporate welfare minions from enjoying the blessings of braggadocio without the responsibility of publicly admitting corresponding failures.


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Detroit Charters Send More Graduates to College Than Peers Do

Longer-term outcomes back up test-score advantages for charter schools

Detroit charter schools rightly merit attention for helping students improve on math and reading tests. But they deliver other benefits that take longer to emerge. A new analysis says that a Detroit student who attends a charter high school is more likely to pursue higher education.

The Michigan Association of Public School Acade­mies, which represents charter schools in the state, observed that eight of the top 10 schools in Detroit for college enrollment were charter schools. The numbers come from the Michigan Department of Education, and can be easily accessed on an MLive searchable database.

Detroit Edison Public School Academy and Universal Academy topped the list, with 76 and 75 percent of graduates, respectively, pursuing a college education. Other notable examples of charter schools helping students beat the odds include Jalen Rose Leadership Academy, Cornerstone Health and Technology High School and the two University Prep high schools.

Unlike the charters on the list, the two schools run by the Detroit Public Schools Community District that finished in the city’s top 10 — Renaissance and Cass Tech — have selective standards for admission. But charter schools, like most other public schools, cannot discriminate when enrolling students. All eight of the charter schools on the list are as likely as neighboring district schools to serve low-income students — if not more so.

The fact that eight of the top 10 schools in Detroit are charter schools doesn’t necessarily indicate a direct cause and effect between attending a charter and enrolling in college. But more rigorous studies from Florida, one of charter schools and one of a tax-credit scholarship program for low-income students, both indicate that school choice boosts college enrollment.

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The Michigan Department of Education tracks postsecondary progress for each high school's graduates, starting with the Class of 2014. More evidence should be forthcoming in future years to show how many students who graduated from charter and district schools also completed two-year and four-year college degrees.

This evidence may begin to validate other findings about the long-term benefits of academic achievement. A recent Mackinac Center study estimated that each dollar spent by a Detroit charter school will yield about two-and-a-half times greater student lifetime earnings than a dollar spent by the Detroit school district. This finding results in part from the fact that the city's charter schools typically take in and spend about $5,000 less per student.

The increased college enrollment numbers follow other research that highlights the benefits Detroit students enjoy by enrolling in a charter school. A 2015 analysis from the Center for Research on Educational Outcomes at Stanford University found that each year in a charter gave students somewhere from a few weeks to several months of additional learning. CREDO cited charters in Detroit and three other cities as "essential examples of school-level and system-level commitments to quality that can serve as models to other communities."

While Detroit’s charter schools deserve congratulations for outperforming the local district, they should not be complacent. After all, that district has been rated lowest in academic achievement among the nation's major cities five straight times since 2009. The city needs more high schools achieving results like Detroit Edison and Universal academies to raise the bar further and give more students hopes of success.

As reported by MLive, Michigan charter schools outside the Motor City also distinguished themselves in sending last year's graduates to college. Ann Arbor's Central Academy, which serves a largely poor and immigrant student population, had the third-highest college enrollment rate in Michigan – the highest, in fact, outside of public schools that get to exclude students with a poor academic record. Other charters that had 2017 college enrollment rates above 80 percent were Arbor Prep, Washtenaw Technical Middle College Prep and International Academy of Flint.


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Residential Levies for Business Subsidies, Truck Platoons, Baby Boxes and More

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Senate Bill 826, Impose licensure on naturopathic physicians: Passed 24 to 11 in the Senate

To impose licensure and regulation on naturopathic physicians, with license fees, education requirements and more. The bill defines naturopathic medicine as “a system of practice that is based on the natural healing capacity of individuals.”


Senate Bill 655, Create domestic violence confidential address program: Passed 36 to 0 in the Senate

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To establish an address confidentiality program for victims of domestic violence crimes, with the state Attorney General giving a victim a “designated address” to which mail could be sent and then forwarded to the individual’s current location. This location would not be subject to disclosure under open records laws, and the person could also vote in elections using the designated address.


Senate Bill 969, Criminalize marijuana-infused alcohol: Passed 35 to 0 in the Senate

To make the use, possession and sale of marijuana-infused alcoholic drinks a misdemeanor crime.


House Bill 5775, Repeal obsolete lame horse law: Passed 99 to 9 in the House

To repeal a law dating back to 1913 that regulates the sale of a horse or mule which by reason of debility, disease, lameness or injury is permanently unfit for work.


Senate Bill 839, Revise mining permit amendment process: Passed 63 to 45 in the House

To establish streamlined procedures and timetables for a mining company getting revisions to restrictions in its state operating permit, with many exceptions. This would apply to determinations that a permit amendment does not “result in environmental impacts that are materially increased or different” from those specified in the original permit.


House Bill 5749, Allow truck platoons on highways: Passed 64 to 44 in the House

To exempt truck platoon operations from a traffic law requirement that trucks leave sufficient space between themselves for a vehicle to enter that space. "Platoon" is defined as vehicles "traveling in a unified manner at electronically coordinated speeds." Under current law truck drivers must leave “sufficient space between the vehicle and another truck so that an overtaking vehicle may enter and occupy the space without danger.”


House Bill 5750, Authorize surrendered newborn 'baby boxes': Passed 97 to 11 in the House

To revise a 2000 law that provides legal protections to a mother who anonymously surrenders a newborn to an emergency service provider, by allowing providers to install a “newborn safety device” similar in operation to a bank drive-up window or library book return slot, except it would be clean, safe, warm and designed to trigger a 911-call and a notice to staff within 30 seconds that there’s a baby inside.


House Bill 5638, Revise groundwater withdrawal permit regime: Passed 93 to 15 in the House

To revise a 2008 law that imposed a comprehensive regulatory regime and restrictions on industrial, commercial and agricultural groundwater uses that might have a negative impact. The bill would allow a more streamlined process for agricultural and other withdrawals that meet certain conditions, and establish deadlines for state officials to process permit requests. It would also repeal a requirement that landowners make public certain agricultural well use information.


House Bill 5325, Let local business subsidy entities tax residences: Passed 76 to 32 in the House

To expand the taxing power of local authorities created to deliver direct and indirect subsidies to business property owners in “principal shopping districts” and “business improvement districts,” by letting them impose property taxes styled as “special assessments” on home and residential property owners. Under current law residential property is excluded from the levies these entities are authorized to impose.


House Bill 5902, Allow residential "cross-subsidization" of solar cell maker's lower electric rates: Passed 77 to 31 in the House

To allow the indefinite continuation of special discounted electricity rates granted by Consumers Energy to the Hemlock Semiconductor subsidiary of Dow Corning, which under a 2010 law were exempted from a ban on cross-subsidization between residential and commercial/industrial customers (meaning residential customers pay more while Hemlock pays less). The styles the discount as a privilege potentially available to all industrial customers, but details that limit it to just this one company. Note: Hemlock makes photovoltaic solar cells, which were recently granted tariff protection against foreign competition by the Trump administration.


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 www.MichiganVotes.org.


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Michigan’s Convoluted Electricity System Leads to Strife and Strain

Legislature considers a deal for Hemlock Semiconductor and Consumers Energy

Average Electric Prices in kilo-watt hours
Average total electricity prices in kilowatt-hours

Michigan businesses need affordable, reliable electricity to operate. But in our noncompetitive electricity system, almost all are forced to accept monopoly utility services. This system, sprinkled with a small amount of choice, means only a small number of companies are able to get lower-cost energy through an alternative supplier. The only other option for reducing costs is to try to get a special deal from one of the two large providers, Consumers or DTE.

There is currently acrimony over the proposed “Hemlock bill,” HB 5902, which would allow Hemlock Semiconductor to purchase electricity at rates far lower than other utility customers. This bill highlights the market-corrupting nature of Michigan’s over-regulated utility system. By heavily restricting choice in Michigan’s electricity market and by barring competitive pressures against monopoly utilities, state law forces most Michigan businesses to endure the services monopolies choose to offer.

There are good arguments on both sides of this bill. On the one hand, there is nothing wrong with Hemlock working out a deal for energy costs with its provider. That’s how private trade is supposed to work: Companies should be able to contract with whoever they want and reach a mutually beneficial deal. But Michigan’s utility market is, by law, set up as a system of regional monopolies. So, Consumers and Hemlock can’t legally contract for services in this manner. They need the Legislature to step in and broker the contract for them.

And HB 5902 provides that service. This bill uses the power of the Legislature to exempt Hemlock from the high monopoly utility rates that every other Michigan resident and business has to pay. As the MichiganVotes.org description of the bill states, the bill will keep residential utility rates higher to help provide lower electricity rates for Hemlock.

That reality makes a lot of people uncomfortable; some are even angry about it. But imagine the alternative. Michigan’s regulated utility structure means that Hemlock would overpay for its electricity and ultimately subsidize the cost of electricity for everyone else. After all, it is the single largest user of electricity in the state. For Hemlock, lower electricity rates are the difference between profit and loss. The company employs around 1,500 people and produces a product that is in high demand. It has a responsibility to investors, customers, the community and employees. In a free market system, the standard practice would be for a large, reliable customer like Hemlock to request, and easily get, much lower prices than other businesses. But it’s not operating in a market system.

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That’s the unfortunate part of this story, and Hemlock is one of the big losers. One option the company has is “self-service,” which would entail adding generating its own electricity to its primary business function.

But Hemlock is in business to produce polycrystalline silicon – a product used in the manufacture of electronics and solar panels – not electricity. So building electricity generation facilities would take its figurative eyes off the ball. And since Michigan limits who can compete against the monopoly utilities, Hemlock could not legally sell any excess power back to the grid. It would also be forbidden to build transmission lines to (or from) another energy-intensive business, such as Dow Chemical. As a result, everyone else would likely pay higher rates if Hemlock struck out on its own.

So, self-service is a possibility, but not the preferred option for Hemlock or other businesses. A far better option would be to allow the company the freedom to select the best provider of the services needed to produce and sell its products. But Michigan’s electricity laws forbid businesses from choosing any other option than their local monopoly utility. And when that monopoly — as monopolies are inclined to do — provides some of the most expensive and least reliable service in the region, businesses like Hemlock are forced into difficult choices.

That reality has brought us to where we are today, with Hemlock requesting more of the same rate reductions it has received in the past. The old rate reductions are nearing their expiration date. The high cost of monopoly-produced electricity in Michigan means the “renew the favors, or we might be forced to leave” meme is brought out, dusted off and held up in front of taxpayers, employees and legislators.

There’s an old quote, often erroneously attributed to Thomas Jefferson, that goes, “A government big enough to give you everything you want, is a government big enough to take away everything that you have.” That is especially true in this situation because when government has the power to grant special favors at the expense of the taxpayer, it becomes the conduit through which the health, wealth and welfare of the state’s businesses must pass. Deliberately limiting access options to an essential product and service like electricity only makes the situation worse by making government a key player in essential business transactions.

By limiting electricity choice, Michigan government encourages situations like what we are seeing today. If Hemlock doesn’t get its special treatment, the high costs of government-mandated, monopoly electricity service could push it into the red. The real solution to this situation isn’t special legislation that creates special deals for specific companies. The permanent solution is move our electricity markets back to customer choice and open and free electricity markets.


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Kayak Tax Proponents Try to Disguise Cash Grab as Safety Measure

Adding onerous education requirements should not make tax more palatable

Last fall, some Michigan sheriffs began calling for a new tax on nonmotorized watercraft like kayaks, canoes and paddleboards. They say that requiring Michiganders to register these boats will generate needed revenue. Although both the House and Senate have passed resolutions opposing the “kayak tax,” some proponents of the tax haven’t given up on getting it passed.

Detroit News columnist Daniel Howes describes how to overcome this apparent defeat by using a different tack: “the tax-the-paddlers crowd might have a more compelling argument if the proceeds from the registration fees were earmarked for safety training.” Howes cites the argument that if motorboat operators must take safety courses, paddlers should be required to do the same.

But not all motorboat operators have to take safety courses in Michigan. Anyone born before July 1, 1996, can legally drive a motorboat without completing any mandatory safety course. And for “personal watercraft” — jet skis, waverunners and the like — a boating safety certificate is only required for people born after 1978. Howes is essentially proposing creating stricter regulations for paddling a kayak than for flying around in a 300-horsepower Four Winns.

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Further, requiring paddlers to obtain a boater safety certificate would put Michigan in a class of its own. While about half the states require a boater safety course for some operators of motorboats or sailboats, according to U.S. Coast Guard, no state requires a boater safety certification for the operation of paddle craft.

Attempting to recast this naked cash grab as a public health and safety measure is misguided. If there really is a problem with funding Michigan’s water-related infrastructure or first-response teams, it certainly won’t be resolved by creating a new and totally unprecedented tax on the more than 600,000 people just trying to enjoy Michigan’s great outdoors. Kayak tax proponents should seek other avenues for identifying and remedying alleged funding shortfalls.


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The Lawmakers that Voted for the Most Business Subsidies and the Least

$16 billion in corporate welfare approved since 2001

Michigan voters can now see where their lawmakers have stood on state business subsidies from 2001 and into the current legislative session. A new scorecard from the Mackinac Center and MichiganVotes.org shows where every lawmaker came down on votes for corporate handouts that pit regular taxpayers against select business interests and developers.

Michigan lawmakers have authorized the state to spend a lot of money to subsidize businesses since 2001: $16 billion, in fact. That is more that the value of the Lions, Tigers, Pistons and Red Wings with plenty leftover. Or in state budget terms, it could pay off state employee pension debt or resurface nearly all of the state’s highways.

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These amounts have been pledged in the name of creating or retaining jobs in the state. But by taking tax dollars from everyone and delivering them to a favored few, the lawmakers have cost the state jobs rather than added them.

It’s not a Democratic failure or a Republican failure: Business subsidies are a bipartisan affair. Over 17 years, the average Republican approved $1.47 billion in business subsidies during his or her tenure, and the average Democrat approved $1.62 billion.

The overwhelming majority of legislators, both Republicans and Democrats, have voted for business subsidy programs, but Republican voters have been more likely to elect a small minority who oppose subsidies. There were 17.0 percent of Republicans who opposed more than half of the business subsidies they voted on while in office. Only 6 of 233 Democratic legislators, 2.6 percent, opposed more than half of the business subsidies.

In 17 years, 22 lawmakers opposed every business subsidy the Legislature approved while they served. Only one was a Democrat (Rep. Rose Mary Robinson of Detroit).

The scorecard covers two years at the end of the final Engler administration, the entirety of the Granholm administration, and all but the final year of the Snyder administration. Gov. Jennifer Granholm agreed with the Legislature to approve $12.6 billion in business subsidies. Gov. Rick Snyder has agreed to $2.5 billion in subsidies so far.

The amounts covered include the authorized cash transfers to corporations, plus related administrative expenses. In most cases, the numbers came from fiscal agency or department estimates that were developed during the time when each measure was being considered. When these were not available, we used estimates that state program administrators developed.

Not all of the dollars that were authorized were delivered to corporations and developers, though legislators voting to approve them did not know that when the vote occurred. And every dollar that has been delivered was done so because legislative majorities approved one of these authorizations.

The scorecard includes only laws that take money from some taxpayers and give it to others. That includes state grant programs and other forms of direct support approved in annual budgets as well as refundable business tax credits. State revenue estimators expect to pay out $758 million more in credits to companies than the companies owe in taxes this year.

The scorecard excludes other kinds of business favors like selective property tax abatements and nonrefundable business tax credits.

The scorecard covers 37 laws passed since 2001. It includes only votes where approving new subsidies is the primary intent of the law. Subsidies thrown into massive budget bills, for instance, are excluded.


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'Clear and Convincing Need' Bill Would Limit Overregulation

Proposed law would bring more Michigan rules in line with federal government

Nearly one year ago, the Michigan House of Representatives passed House Bill 4205 by a 57-50 vote. The bill was designed to limit state agencies’ power to intrude on the lawmaking duties of the Legislature, but, it has stalled and is gathering dust in the Senate. Although Gov. Rick Snyder has vetoed similar legislation in the past, State Rep. Jim Runestad, a Republican from White Lake Township and co-sponsor of the bill, reports that Snyder has said he will sign the bill.

The legislative analysis from the State Fiscal Agency says that the bill restricts state agencies from proposing or implementing a rule that is “more stringent than an applicable Federal standard.” It does, though, allow a department to issue a more stringent rule if there is an emergency — and if the Legislature agrees. It also allows for an exception if the “agency director determined that there was a clear and convincing need to exceed the applicable Federal standard.”

The current version of the bill passed largely along party lines with 90 percent of Republican representatives voting for it and all House Democrats voting against it. Environmental groups have attacked the bill as a “contender for the worst Michigan environmental bill of the 21st century.” But, supporters heralded it as a lifeline for small businesses and people that are forced to navigate reams of paperwork and pay thousands of dollars in compliance costs to both state and federal departments.

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“Rules and regulations have a disproportionate impact on smaller companies,” Amanda Fisher, assistant state director of the National Federation of Independent Business – Michigan, told the House Oversight Committee in March 2017. The “difference can be as much as 36 percent between the costs incurred by small firms when compared to their larger counterparts.” Fisher added that businesses with fewer than 50 employees paid approximately $11,724 per employee to comply with federal regulations in 2012 – up from $10,585 just two years previous. Piling on repetitive and unnecessarily strict state regulations only adds to that bill.

Rep. Tristan Cole, R-Mancelona, introduced the bill in March 2017. “HB 4205 is a bill we call ‘No greater than the Feds,’” said Denise K. Pallarito, Cole’s legislative director.

Runestad said it would make the state more attractive and competitive for new business. “Departments promulgating rules that go beyond federal regulations are sometimes necessary when they deal specifically with … situations unique to Michigan. However, too often rules are dreamed up that are ridiculous, inane and go well beyond the rule of law and are seemingly arbitrary, which is why I strongly support this bill.”

Fisher characterized the bill as commonsense legislation because it would require any rules that are more strict than existing federal regulations to receive extra scrutiny and justification.


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House Bill 4158, Require conviction for property forfeiture to police: Passed 83 to 26 in the House

To establish that property seized from a person because it may be associated with a suspected drug crime is not subject to permanent forfeiture (loss of ownership) unless an individual is actually convicted. However, the conviction requirement would only apply to forfeitures of less than $50,000 (meaning police and prosecutors could still take and keep assets worth more than that using a lower burden of proof).

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House Bill 5828, Authorize state school safety commission, inspections, grants: Passed 98 to 11 in the House

To create a state school safety commission to devise and promulgate a comprehensive school safety plan, and authorize inspections that would grade schools on their adherence to its guidelines. The bill authorizes a grant program for schools to adopt safety measures but does not identify where the money would come from.


House Bill 5851, Require schools submit threat reports: Passed 69 to 40 in the House

To require public schools to file annual reports with details of all attempted acts of violence on school grounds that were thwarted, and all threats of violence against the school, staff or students. The State Police would be required to compile these into a secret annual statewide report for the School Safety Commission proposed by House Bill 5828.


House Bill 5830, Require new schools meet safety protocols: Passed 97 to 12 in the House

To require new or renovated school buildings to include a combination of safety measures specified in the bill, as determined by the school safety commission proposed by House Bill 5828. Among the measures are state-approved layouts, surveillance technology, reinforced entry doors and remote door locks.


Senate Bill 803, Create state building alcohol sales ban exception: Passed 103 to 3 in the House

To permit alcohol sales in a state-owned building that is at least 1 million square feet in size and leases space to a private company that serves the public and has a liquor license. This is said to be for the state-owned Cadillac Place office complex in Detroit, which has some state offices but is mostly vacant.


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 www.MichiganVotes.org.


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Token Symbols of Growth Damage the State Economy

Select business interests have higher status with lawmakers than regular taxpayers

When it comes to creating jobs, lawmakers find themselves in a dilemma. They can improve the business climate for everyone, which encourages growth but makes it hard to claim credit for creating jobs. Or they can give tax money to select firms, which lets them take credit for a new business groundbreaking, regardless of whether the costs of the subsidies are worth it.

A better business climate will actually make people’s lives better. Giving money to select interests, on the other hand, shifts money around and typically leaves people worse off.

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Business managers are not waiting around for politicians to tell them what to do. And that’s why most economic growth happens without lawmaker approval. Most job growth happens without lawmakers taking money from taxpayers to give to select companies.

According to the Bureau of Labor Statistics, Michigan lost 221,400 jobs in the third quarter of 2017 and gained 196,700 jobs. This is only the third quarter in the current recovery that saw a net job loss. Meanwhile, state officials announced that they were going to deliver subsidies through the Michigan Business Development Program to 23 companies that pledged to create 3,700 jobs. If the state had to rely on the few businesses that receive taxpayer money to replace the jobs lost in the quarter, it would only be able to replace 1 out of 60 jobs.

The business subsidy program is far less beneficial than advertised. For one thing, it’s rare for all the promised jobs to show up. Even worse, when you look at the net costs of the program, you’ll find that for every half million it spends in an average county, the county loses 600 jobs.

These targeted business subsidies simply don’t work. Instead, lawmakers can find ways to operate governments more efficiently and use the savings to lower the tax burden. Or they can re-examine regulatory burdens, such as occupational licensing requirements, much of which make it harder to create jobs without protecting consumers. Both steps would encourage more job growth and less job loss. And they would be actual improvements to the business climate instead of the token symbols of growth delivered by select subsidies.

At bottom, however, the question is whether select business interests have higher status among lawmakers than regular taxpayers. There are a few that get these deals and everyone else has to pay for them. If these deals were actually able to generate broad economic growth, that would be one thing. But since they fail to live up to their promises, these subsidies show just where regular people stand compared to the ones getting special deals.


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Solar Subsidies Are More than 'Fair'

Those selling a wholesale product should be paid the wholesale price

It’s no surprise that taking a stance on a contentious issue will bring on cutting critiques. Emails pointing out a perceived error on a public stance are to be expected. Some contention may also arise when readers see a Mackinac Center blog post that sides with the Michigan Public Service Commission. It’s unusual, but it does happen because the Mackinac Center strives to be pro-free markets as opposed to pro-business. So, when a business veers from free markets into seeking special favors and protections, we will find ourselves on the opposite side — even if it means agreeing with a government agency.

For example, we recently received an email response to our post on the public service commission’s April 18 ruling on net metering. The bulk of that email follows.

Imagine if you have a garden in your back yard and the state mandates that you must sell to the grocery store any excess vegetables at whatever price they want to pay you. Is that fair? This is what this tariff does but worse is that this happens every minute of every day (so if you harvest on the weekend and you have excess you cannot put it in the fridge you must sell the vegetables to the utility at a discounted rate). And the store gets to keep the profit of selling your vegetables to your neighbor.

The garden analogy is a worthwhile attempt to put the net metering issue into more easily understood terms. Our critic also offers a valid critique of the oppressive and market-disrupting nature of Michigan’s regulated utility system. There is no doubt that forcing a government-protected, monopoly electricity system into the lives of Michigan residents gives us all less choice, as well as less reliable and more expensive electricity. But, the correct response to the monopoly utility problem is not more government intrusion and market disruption. Piling on additional costs and interferences is a recipe for more failure. The correct response is to advocate a larger role — not a smaller one — for free markets. On that note, the critique needs a few clarifications to help the analogy better reflect reality.

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First, in real life, Michigan’s renewable portfolio standard mandates the state’s people and businesses obtain 15 percent of our electricity from renewable sources by 2021. To use the analogy, the state government has set aside 15 percent of the writer’s imaginary grocery store for organic farmers, and only they can sell their produce in that section. To extend the analogy a bit further, the people shopping at the imaginary grocery store MUST buy this organic produce first – regardless of the cost. In fact, they are legally barred from buying any other products from the store unless they meet the 15 percent mandate. That’s hardly a fair option – to use the critic’s chosen metric – for the customers of the store. Is it?

Second, in real life, state and federal governments have lavished special tax credits and subsidies onto solar energy, meaning a substantial portion of the cost people pay for solar panels has been socialized across the nation’s taxpayers. To put that in terms of the garden analogy, government has paid for, or has given targeted tax breaks to the farmers for any seed, fuel or tools that they used to produce their organic crops. Those special favors make it possible for the farmers to sell their vegetables at an artificially lowered cost. But, if those farmers can use government to force the grocery store to pay an increased price for their produce, even up to the full retail cost, the organic farmers can pocket that much more profit. Thank you Mr. and Ms. Taxpayer. Again, is this fair for the average taxpayer and electricity rate payer?

Third, in real life, electricity must be sold and consumed as it is produced. While ongoing research may change that fact, there is currently no affordable, reliable means of storing the electricity produced by solar panels. Therefore, electricity goes into the grid and is consumed almost immediately. Additionally, a cloudy day or inclement weather can drastically reduce the amount of electricity solar panels produce. To put those constraints in terms of the garden analogy, organic farmers would have no viable way to store their produce. If they can’t sell it within a few seconds after it comes off the vine, it rots and must be discarded. Additionally, the grocery store and its customers can’t be sure the farmers will produce anything on a given day. Clouds overhead may mean grocery store customers just have to go without … or not. You never really know.

Lastly, in real life, solar panel owners are able to sell their excess electricity only because they are using a heavily subsidized generation source that is connected to a grid that was paid for and provided by other grid participants. To exist in an actual free market, the people or businesses with solar panels would need to act very differently than is the case now. They would need to pay the unsubsidized price for their solar panels, set up a “stand alone” solar array (meaning no connection to the grid), set up batteries to store their excess electricity production, and do all of this at their own cost. Then they would need to hope that they could market that stored electricity to someone else, a customer who is willing to pay the retail price solar panel owners believe they deserve. In the imaginary gardening world, they would need to fully fund their own land for the garden, plus costs for irrigation, harvesting, refrigeration and so forth. They would need to store and transport their produce to a grocery store, and then sell their produce at the price that store was willing to pay.

At the very best, it is hypocritical for those operating in a heavily subsidized industry, or those making use of taxpayer-funded opportunities to complain that it isn’t fair they haven’t received even more from those taxpayers. Complaining they are being ill-treated because they are offered less than full retail price for a wholesale product smacks of an entitlement mentality.

In this case, the garden analogy was a useful tool for trying to explain the net metering issue. But, critics must ensure they address the full scope of the discussion before claiming they are being unfairly treated. Pointing out failures in legislation and policy options is a valuable effort, but attempting to correct those failures with more market disrupting policies is ultimately self-defeating.


Related Articles:

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