State Senate Tightens Rules on Driver’s License

The three-ticket rule may inflict collateral damage

The state Senate passed a bill on Nov. 29 to continue a policy that keeps Michigan drivers from renewing their license if they have three or more outstanding parking tickets. Under a law set to expire on Jan. 1, 2018, the Secretary of State does not renew the license belonging to a driver with three or more unpaid tickets until that person pays the tickets — and a $45 “clearance” fee.

Before a change in 2012, Michigan drivers had to accrue six or more unpaid parking tickets before the state would refuse to renew a license. But the Legislature implemented a rule that year bringing the number down to its present level of three. The official analysis of that legislation indicated that the city of Grand Rapids was owed more than $1 million in past-due parking tickets and Detroit was owed around $30 million. The law was set to expire at the end of 2017, meaning that drivers would again be allowed to accrue up to six unpaid tickets before being banned from renewing their license.

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Proponents of keeping the three-ticket rule in place say that it has encouraged people to pay their parking tickets, and that cities have dramatically reduced the amount of unpaid fines they have had to write off. The bill passed the Senate by a wide margin.

Unpaid parking tickets are not the only offense that can cause someone to lose a driver’s license in Michigan. So can a variety of crimes that have nothing to do with vehicles or driving, such as failure to pay child support, supplying a minor with alcohol, failing to pay court costs on time and most drug offenses. While these crimes are serious and deserve proportionate penalties, suspending licenses can strip people of the transportation they may need to keep a job and manage family responsibilities. In many of these cases, stripping someone’s driving privilege for an offense unrelated to driving can have serious collateral consequences.

Unlike, say, a rule relating to child support, the three-ticket rule is an example of where the loss of the driving privilege is logically connected to a driving- or vehicle-related offense. Those who flout the rules of the road in their communities should not be allowed to drive there until they have taken responsibility for those violations. Policymakers should take care to ensure that all offenses are met with proportional, commonsense penalties that do not cause more harm than good.

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School Choice Breaks Down Racial Barriers

Some districts’ residency requirements reinforce segregation

Opponents of school choice seem to be working overtime to discredit programs that give students in tough circumstances a better chance to succeed. These critics would be well-advised to ensure their own house is in order first.

One of the latest lines of attack is a dubious Associated Press claim that public charter schools are increasing segregation because they are more “racially isolated.” How richly ironic that school board member Christopher Profeta from Grosse Pointe, a wealthy district that actively works to keep Detroit kids out of its schools, trumpeted the article on social media.

Robin Lake, director of the Center on Reinventing Public Education, pointed out how the whole premise of the AP story was discredited years ago by careful research. Rather than causing segregation, charter schools are providing an essential service in communities of color. In fact, parents in these communities are choosing to enroll their children in charters because of the painfully evident failure of traditional school systems:

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Lake wrote:

America is inexcusably segregated today, but it is ridiculous to imply that charter schools are to blame. Decades of housing choices, largely driven by suburban and intra-urban white flight, are reinforced today by inequities that are hardwired into our neighborhood school systems where funding, quality teachers, and other resources are unfairly distributed.

A number of Michigan school districts predominantly serve minority students. And our state’s public charter schools tend to serve poor and minority students at even higher rates than in other states. Not surprisingly, they are located where the need is greatest, and their doors are open to whoever chooses to enroll. Often that means students choose to enter a school with a similar racial composition, but offering greater odds of learning success. But in some cases, choice may lead them to schools where the student population looks different.

The Schools of Choice program gives Michigan families more options to get a suitable education, by letting them enroll in traditional districts outside their home boundaries. Yet this policy has limits, as a small number of districts refuse to participate.

Perhaps the best-known example of a district keeping out kids from other communities is wealthy Grosse Pointe, on the outskirts of Detroit. In 2011, Grosse Pointe’s then-state Rep. Tim Bledsoe infamously declared that a school district must be able to “control its boundaries and who is allowed to attend your schools.”

In recent months, the school district has garnered attention for its controversial anonymous tip line, staff investigations and residency documentation requirements, all put in place to enforce strict controls on who can attend school. To his credit, board member Profeta says he backs efforts to relax some of these stringent requirements.

New choice programs offer hope to students whose pursuit of a better educational experience is limited by lines on a map and where their parents can afford to live.

Eight out of nine gold-standard studies find private school choice actually improves racial integration. Enhancing access to Michigan’s current range of educational choices also could provide benefits. State-funded, parent-directed transportation scholarships could help the most disadvantaged families reach a school that serves them well.

The more that opponents continue to sling mud at educational choice programs, the more they hurt their own credibility. But they also risk keeping some of the state’s neediest students from finding a path to success. They should drop their debunked arguments and instead work to open more doors to quality education.

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The Problems with the Pension and Retiree Health Insurance Bills

Recent legislation confuses legal obligations between benefits

Legislation that creates funding requirements for local government pensions and retiree health insurance benefits recently passed both Michigan chambers. This package is an attempt to address the billions in retirement debt faced by local governments. But the law is problematic because it conflates pension and retiree health care benefits — two things that should not be lumped together — and opens the door to tax hikes in local governments.

Pensions and retiree health care are fundamentally different things to governments in Michigan. The state constitution requires pensions to be paid for as they are earned; they are legally binding debt. Retiree health insurance benefits are not. Local government managers can change their eligibility requirements, trim the generosity of benefits or otherwise alter the insurance benefits they offer to employees and retirees.

Local governments can make sure that employees trust that retirement insurance benefits will be available by setting aside money today to pay for them. But few have done so.

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The legislative package, however, creates similar funding requirements for both pensions and retiree health insurance benefits. It recognizes only weakly the very different legal status each benefit has: The state will now consider retiree medical insurance benefits to be underfunded when a local unit of government has less than 40 percent of the cost saved. It will consider pension benefits well-funded when governments have saved enough to pay 60 percent of the liability.

In addition, governments will also be considered “underfunded” when they spend 12 percent of their budget on retiree health care or 10 percent on pensions, even if they exceed the legislation’s funding requirements.

The primary effect of the proposed law is to encourage local governments to fund both benefits. Fund, not cut. And that is a problem. While pensions need to be funded, retiree health care does not. The costs for retiree health care should be lowered, and there is a lot that can be done without making already-retired employees ineligible for insurance. Only after being cutting down to a bare minimum should retiree insurance be prefunded.

The current policy where government officials pledge benefits, kick the costs to future taxpayers, and reserve the option to reduce them later implies that governments need to cut benefits. But that, and prefunding health benefits, should be done only after clearing the mismanagement surrounding the current benefits being provided.

Some local governments may choose to use the funding requirements as a reason to reduce retiree health insurance benefits. For one thing, the 12 percent cap makes it harder to tax their way out of the problem. Yet it’s not impossible, for local government officials are often tempted to see a tax increase as the solution.

If a local government does not meet state funding standards, the state can declare that its benefits are “underfunded” and create a plan to address the underfunding. The plan can be approved or rejected by a state board of political appointees. And that may mean pressure to increase taxes to avoid state involvement.

It is unclear how governments will react to this legislation. Will they be interested in trimming costs, increasing taxes and revenues or will they do something else? The larger problem with the legislative package is that it provides little encouragement in state policy to address these optional retiree health care benefits. Local officials have refused to acknowledge their problems in retirement benefits and instead insist that fiscal issues are entirely the fault of revenue. So it’s likely they will use this process to raise revenue rather than reduce costs for optional benefits.

Legislators can encourage local governments to take steps to lower the costs of retiree health insurance. They can prohibit governments from kicking the costs of new employee service onto future taxpayers and make retiree health insurance prefunding a higher priority than wage increases. They can offer state incentives to lower the costs of these benefits or other kinds of direct encouragement. By not taking steps to move local governments this way, legislators made mismanagement more likely.

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The Right Way to Fund a Second Poe Lock

The shipping industry should help pay for the services it uses

Your house is on fire. Worse, your house is located in a drought-stricken area so the fire department’s resources are oversubscribed and undersupplied. You do have a well; it just needs a source of power for the pump.

You ask yourself: Should I pay for the electricity to run the pump or wait until the fire department has replenished its water supply and let them put it out, at no direct cost to me? A rational person would opt to turn the pump on and begin to fight the fire, given the potential catastrophic consequences. And they’d be right.

This scenario is analogous to the conundrum facing members of the U.S. inland shipping industry that use the Poe Lock, one of the Soo Locks located near Sault Ste. Marie, Mich. But the industry has essentially opted to wait for the fire department.

The Poe Lock can accommodate 1,000-foot Lakers hauling up to 80,000 tons of iron ore. A 2015 Department of Homeland Security study suggests that if this lock were shutdown for a period of six months or longer, unemployment would rise by 5.8 percentage points and the U.S. gross domestic product would shrink by $1.1 trillion, or roughly 6 percent. That’s how important this lock is to the nation’s economy.

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The primary beneficiaries of the Soo Locks are the shippers of the products carried in the vessels using the locks, including iron ore, steel and coal producers as well as farmers. But none of these beneficiaries pay a tax or user fee to support the locks. Instead, they’re waiting for the fire department: Relying on the federal government to continue funding the locks and even hoping Washington will pay 100 percent of the cost of a building a second Poe Lock for their use.

There is no toll for using the Soo Locks. And because the locks are not on the statutorily defined inland waterway system, there are no taxes on the fuel used by vessels traversing them. In fact, there are no user fees or taxes associated with the movement of any commodities through these locks.

Congress authorized the construction of a second Poe lock in 1986 and required some of the costs to come from a source other than the federal government. The Soo Lock navigation industry and shippers have lobbied against this cost contribution over the years, and now the current plan is to fund the construction entirely with federal funds, even though the cost of the project has ballooned from $227 million in 1986 to north of $700 million today.

Some Soo Locks shippers maintain that since they pay harbor maintenance taxes – amounting to 0.125 percent of their cargo – they have fulfilled their financial responsibility for the construction of a second Poe Lock. But these taxes are dedicated to the operation and maintenance of ports, not the construction of locks.

If a second Poe lock is as essential to our economy as the commercial navigation industry and shippers claim, given the federal government’s lack of resources and existing $20 trillion debt, the beneficiaries should pay at least 50 percent of the costs. This is what vessels that use the inland waterway system pay. It is also time for those who benefit from all locks and dams used for navigation to pay the operating and maintenance costs of this infrastructure.

As in the analogy of a house fire, by combining your resources, including the well water with the limited public water, the fire will be doused sooner than it would otherwise be. It’s been 31 years since the second Poe Lock was authorized and the fire still rages as shippers wait for the fire department. But it should continue to rage until the direct beneficiaries of putting it out are willing to pay the price.

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December 8, 2017 MichiganVotes weekly roll call report

Senate Bill 544, Create framework for 'enhanced education savings accounts': Passed 23 to 14 in the Senate

To create an enhanced education savings accounts program that would allow individuals to make tax-deductible contributions to an account used to pay for public school extracurricular activities, vocational programs or other services that schools are not required to provide. Note that while the Senate passed this and some related bills, it did not pass a bill authorizing the tax deductions (Senate Bill 549), without which this and the other bills in the package appear to be moot.

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Who Voted "Yes" and Who Voted "No"

Senate Bill 400, Increase tax imposed to pay for 9-1-1 phone services: Passed 30 to 6 in the Senate

To increase phone service levies and cell phone taxes imposed to pay for local 9-1-1 emergency phone service. The tax on cell phone contracts would rise from 1.92 percent to 4.19 percent, with a monthly user fee (tax) rising from 19 cents to 25 cents.

Who Voted "Yes" and Who Voted "No"

Senate Bill 477, Expand requirement to slow for emergency or service vehicles on roadside: Passed 36 to 0 in the Senate

To expand a law that requires drivers to move over or "reduce and maintain a safe speed" when passing police or emergency vehicles on the side of the road so this is also required for tow trucks, garbage trucks, surveyors, road maintenance and utility vehicles. The bill would define “reduce speed” as slowing down by at least 10 miles an hour.

Who Voted "Yes" and Who Voted "No"

Senate Bill 501, Revise liquor store territory rationing: Passed 27 to 9 in the Senate

To prohibit giving a new package liquor store license to a store that would be within half a mile of an existing seller, with a number of specific exceptions.

Who Voted "Yes" and Who Voted "No"

Senate Bill 686, Require disclosure of municipal employee retirement benefit underfunding: Passed 36 to 0 in the Senate

To establish a new state disclosure and oversight regime for pensions and other post-retirement benefits (OPEBs) offered by local governments to their employees, including retiree health insurance benefits. Local governments would have file annual reports on the extent to which the future benefits they have promised are underfunded, using standards the state Department of Treasury would be required to establish. Locals that fail to meet certain funding levels, or that spend more than 12 percent of their budget to prefund benefits (or catch up on past underfunding) would be required to submit a corrective action plan. Provisions authorizing “emergency manager”-type receivership provisions for local governments that fail to meet the standards by specified deadlines were not included in the final version of the bill.

Who Voted "Yes" and Who Voted "No"

House Bill 5298, Require disclosure of municipal employee retirement benefit underfunding: Passed 105 to 5 in the House

This is the same bill as Senate Bill 686 described above.

Who Voted "Yes" and Who Voted "No"

House Bill 4951, Revise child car seat rules: Passed 94 to 16 in the House

To revise child car seat regulations so they are based on height and weight, not just age. Children under age 2 who weigh 30 pounds or less would have to be in a rear-facing child seat; and children age 2 through 4, or who weigh between 30 and 50 pounds, would have to be a forward-facing child seat. Children between age 5 through 7 would have to be in a booster seat, as would children who weigh between 30 and 50 pounds and are less than 57 inches tall.

Who Voted "Yes" and Who Voted "No"

SOURCE:, 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

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Parents Deserve Clear Information About School Performance

Letter grades work for students, they can work for schools too

Photo via Wikicommons

Michigan’s new state education plan finally got the green light from D.C. Yet while the approved system ranks schools more fairly, the Legislature will have to act to ensure that information about school performance is made clear and useful to parents and other local decision-makers.

States need the U.S. Department of Education’s sanction of their plans in order to continue receiving federal education dollars under the 2015 Every Student Succeeds Act. Like most states, Michigan public schools receive about one in every 10 dollars from Washington, D.C.

Getting Secretary DeVos’s approval means clearing the low bar of following a law that gives states more flexibility to craft accountability and support for local schools. To the good, Michigan’s ESSA plan gives schools more credit for the year-to-year progress students make, rather than heavily weighting raw achievement numbers that underrate higher-performing schools serving low-income populations.

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As a recent report by the Fordham Institute highlights, while Michigan has done a better job of judging schools fairly, the state has fallen down on creating a system that is “clear and intuitive for parents, educators and the public.” State leaders have an opportunity to show they trust local decision-makers with important information that may affect their children’s education:

If we can reasonably believe that a new reporting system will identify substandard schools, there’s no good reason to complicate that information or hide it from parents, businesses and other community members who will foot the bill for changes. An early warning system will work most effectively when enough people can hear and recognize the alarm.

It has been widely reported that a forthcoming legislative proposal would add easy-to-understand letter-grade labels to public school performance. The idea of earning a D or F may make some school officials uncomfortable, but Florida’s experience shows how a well-implemented policy can help drive needed academic improvements. Michigan certainly has a lot of room to get better.

Letter grades give more parents a vocabulary to talk about school quality. They also send a strong signal that motivates educators in struggling schools to focus on improving what takes place in the classroom. A 2013 study of Florida determined that “schools facing accountability pressure changed their instructional practices in meaningful ways,” resulting in higher test scores.

Research from New York City adds supporting evidence. Two separate studies of the Big Apple’s now-defunct school letter grade system found that issuing a school an F grade led to clear and persistent improvements in student learning.

The time is ripe for lawmakers to embrace an idea that is both sensible and popular: Assign schools meaningful grades that people can understand.

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Many advocates of criminal justice reform describe their ideas as ones that would modernize the justice system, or bring it into the 21st century. Nowhere is that description more apt than when considering how to use computers to accomplish things that would normally be done by people. Using technology instead of people can be cheaper and sometimes even more effective. But while it makes sense to automate some interactions, there are others that require the human element – even if that costs more.

One example of technology used well is the Matterhorn Court Innovations project. This tool allows courts to deal with high volumes of civil infractions and disputed tickets online. These types of interactions need resolution, but they don’t necessarily involve legal representation, so courts can allow the Matterhorn platform to “talk” to the defendant and to the court’s internal case management system to retrieve details about each individual’s case. This saves time for both defendants and court employees.

Jason Tashea is the founder of Justice Codes, an organization that worked with the University of Michigan Law School to pilot the Matterhorn project in courts around the country. He says that it’s already had success in Michigan. In Washtenaw County, the average duration of an informal hearing —where traffic tickets are typically disputed — dropped from 157 minutes to 27 minutes. In Grand Rapids, police had to make 550 fewer arrests of people with an outstanding warrant. That’s because an online system made it easier for those individuals to resolve the underlying issue that led to their warrant. This saved over 2,500 hours for personnel in law enforcement, courts and corrections.

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Tashea hopes that Matterhorn will do more than just save time, however. He points out that when courts use it to set payments for court fines and victim restitution, “People are not only paying what’s owed to the court quicker, they are more likely to pay in full.” This is good news for the financial state of judicial districts in Michigan and elsewhere. Although Tashea is not currently operating a Matterhorn project, he believes this technology could be adapted to improve access to justice in rural areas where people have a harder time getting to court.

But there’s another emerging technology that might not be so good for the justice system: video visitation. Many courts have moved to videoconferencing technology so that they can hold brief hearings with jail inmates without requiring jail staff to undergo the time-consuming and risky process of transporting inmates to court. That makes sense. But now, about 650 prisons and jails around the U.S., including a few in Michigan, have started to use phones and cameras in place of in-person visits for people serving time.

While some jails and prisons make this technology available so that friends and relatives don’t have to travel long distances to communicate with their inmate, about three-quarters of the facilities have eliminated in-person visitation altogether. Corrections officials in Jackson, Michigan, cite concerns about the cost of making staffers available to supervise the visits and the risk that outsiders will smuggle contraband into the facilities. But opponents of this practice counter that the companies who provide this technology often require jails and prisons to eliminate in-person visitation as part of their contract. They add that some facilities charge up to a dollar per minute, which is prohibitively expensive for low-income people, and that the audio and video quality can be very poor or prone to glitches. But, fundamentally, they say that the human costs of replacing visits with video calls are just too high.

They are probably right. There is a certain amount of deprivation and hardship that we expect jail inmates and prisoners to experience during incarceration, and we count that as the consequence of their behavior. If someone poses a threat to our society, we will remove him from our society. The natural result is that he will suffer the loss of his daily interactions with his neighbors, friends and family. But the fact remains that the vast majority of people we imprison in Michigan will return to society eventually. And when they return, we hope that they will reintegrate productively into the mainstream economy and conscientiously into their families and communities. If we wish to turn that hope into a reasonable expectation, we need a big-picture perspective.

We must weigh the long-term benefits of a $5 video visitation fee now against the value of having an inmate share a physical space with someone to whom he has a responsibility, someone with expectations for his future. The impact of these visits on an inmate’s behavior and well-being have been observed and even quantified (one study suggests they lower recidivism). But even if their benefits can’t be quantified, they’d be worth allowing anyway. Ours is a society founded on civic virtue and family-fostered individual responsibility. These are things that, if we can encourage, we should – even for inmates.

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From the 16th to the 18th century, the dominant economic theory in Western Europe was mercantilism. Its basic idea was that worldwide wealth was static and for a country to grow rich, it needed to control as much of this wealth as possible. Nation states subsequently hoarded the most valuable thing they could find — mostly gold and silver currencies.

By the time America was founded, the mercantilist theory was in trouble. New economic thinkers like Adam Smith and David Hume were explaining that the theory mistook the cause of prosperity. Worldwide wealth was not stagnant; it could grow or decline as people figured out new ways to make productive use of raw materials. And mercantilist-inspired policies — tariffs, inflation and economic isolationism — were actually counterproductive for generating wealth. Meanwhile, the first Industrial Revolution was helping prove mercantilism wrong by creating more wealth than the world had ever seen before.

But mercantilist thinking is not dead. This debunked theory is still (unintentionally) invoked by pundits who claim that all a state needs to do to increase its wealth is to, in effect, hoard more people who have graduated from college. They repeat claims that the path to state prosperity is simple: Increase the number of people living there who possess a college degree.

A recent example is provided in a news article from Bridge Magazine, which says:

The numbers are clear: Michigan’s economy would improve if more adults had college degrees. People with college degrees make, on average, about a million dollars more in their lifetimes than those with just a high school diploma. Those extra dollars are spent in restaurants and stores, creating more jobs. People who make more money pay more taxes, giving state government more cash for roads and schools.

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If it is true that all that’s needed to grow Michigan’s economy is more people with college degrees, then legislators should pass a law bestowing one on every Michigander. And we’d all be richer then, right?

This, of course, would be ridiculous, but it does illustrate the problem with these types of simplistic ideas about economic growth. Just as gathering up gold doesn’t automatically equate to a strong economy, simply increasing the number of people with college degrees doesn’t necessarily produce economic growth.

My colleague James Hohman calls this flawed idea “talent mercantilism.” He writes, “While it’s certainly true that people with college degrees tend to be more employable and have higher incomes, it does not follow that states increasing their college graduate populations will itself lead to greater state prosperity.” Not all college degrees are equally valuable in economic terms, and some people who have done the most to create wealth for themselves and the economy — think of Bill Gates, Steve Jobs to start with — never earned a degree.

What creates wealth is putting the resources of the world — both natural resources and human ingenuity and creativity — to productive use so that more people are provided with the stuff they want. A college degree can signal that someone is productive, but it doesn’t necessarily follow that the degree itself causes the person to become productive. It’s good for Michigan to have more people doing more productive things, whether they have a college degree or not.

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Wyoming Lights Up a Tax Hike

Op-ed published in Casper Star Tribune

Editor's Note: This op-ed was originally published in the Casper Star Tribune on December 2, 2017.

Cheyenne politicians have a problem getting enough revenue. They’re as addicted to it as some people are to tobacco. And in order to shore up state coffers with the first, it seems that legislators are willing to hike taxes on the second.

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However, excise taxes on tobacco lead to a host of illicit (and often dangerous) activities that undermine two of their advocates’ key goals: bringing in more money for the state and making residents healthier.

Why? Cross-state smuggling. It’s more common than you think.

Wyoming’s revenue committee will take up a proposed $1 excise tax hike on cigarettes in December. Adopting the increase would raise cigarette taxes to $1.60 per pack and make smokes more expensive than they are in four of six surrounding states.

Since 2008 I have co-authored studies detailing the degree to which cigarettes are smuggled between U.S. states, imported from Mexico and exported to Canada. In our most recent work—using data through 2015—my colleagues and I estimated that the Cowboy State was a source of smuggled smokes to other states.

For every 100 cigarettes consumed in Wyoming, an additional 17 were smuggled out to other states. The direction of smuggled smokes will reverse itself, however, if Wyoming adopts a 166.7 percent increase in its excise tax.

Consider the following “what if” scenario on the proposed tax increase, which uses a statistical model created by Michigan’s Mackinac Center for Public Policy:

All other things being equal, the $1 increase in the excise tax will turn Wyoming into a net importer of contraband cigarettes. 25 percent of all the smokes consumed within the state would be of the smuggled variety.

And, because smuggled cigarettes cannot be taxed, net revenues to the state would be far less than the $26 million that Wyoming’s revenue estimators are expecting from the tax increase. Our model projects that revenue will still rise, but only by $14.3 million.

It is not hard to see why. It’s simply too easy to buy cigarettes where they are cheap and make a quick profit where they are more expensive. Take North Dakota, just a stone’s throw away from the northeastern corner of the state.

At just 44 cents per pack in North Dakota, the tax differential between the two states would stand at a gaping $1.16 per pack. In addition, North Dakota doesn’t mandate a tax stamp to provide evidence of the product’s origin. This makes affixing a counterfeit Wyoming stamp much easier, should some organized crime cell choose to do so.

Wyoming pols might be tempted to dismiss this estimate. They should not do so.

Last year we summarized the findings of more than 20 other studies from university and think tank scholars and consultants. Most showed cigarette smuggling to be a major issue. One study found that between 8.5 and 21 percent of cigarettes smoked nationwide were linked to “tax avoidance and evasion.” Many individual states had higher rates.

Moreover, smuggling is not the only ill effect we see when some states increase their tobacco tax rate far above that of their neighbors. States with high cigarette taxes have been plagued by theft, violence against property and people (including murder-for-hire), corruption of public officials and other problems.

Indeed, as prices escalate due to taxes, jurisdictions suffer from “prohibition by price.” The product remains legal, but becomes expensive enough to bring about some of the infamous consequences of alcohol prohibition.

Cheyenne pols no doubt mean well, but going to the cigarette tax well to extract more revenue may be more costly than they realize.

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Unions Complicit in Retirement Benefit Crisis

But trying to shift the blame to Lansing anyway

Public sector union members protested at the state capitol this week because lawmakers are considering reforms to post-employment health insurance benefits promised by local governments to their employees. Union officials loudly proclaim that these benefits should not be cut, and it’s not clear that the recently introduced package would cut them.

That said, nothing in state law requires local governments to offer post-retirement health insurance benefits, which are rare in the private sector. Moreover, everyone in both the private and public sectors gets Medicare benefits when they reach age 65.

The problem is that local officials have promised these benefits to their employees but have not set aside enough money to pay for them. This means the cost of today’s government workers is being shifted to tomorrow’s taxpayers.

This is different from government pension benefits, which are required by the Michigan Constitution to be funded in the same year they are earned. Government employers annually contribute money to a pension fund to provide for another year’s worth of pension benefits earned by their employees. The money goes into investments that are eventually used to cover the monthly pension benefit checks sent to retirees.

Prefunding pensions ensures that the costs of today’s government employees are paid by those who receive the services they provide. But with government retiree health insurance, today’s services are paid years later by taxpayers who may not even have been alive when the benefits were pledged.

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Also unlike pensions, government retiree health insurance benefits are not a legally binding obligation – they can be trimmed or even eliminated at any time by government employers.

It’s an atrocious deal for everyone involved: the employees, government managers and taxpayers. Employees can’t trust that benefits will be there when they retire, the cost of providing them stretches government resources thin, and taxpayers get stuck with an unknown financial burden.

If Michigan government employees and their unions really think these benefits are vital they should negotiate with employers to have them prefunded. That may seem like common sense but is in fact rare. Only a few local governments in Michigan have set aside money to pay for the benefits or else never promised them to begin with.

And union officials are complicit in this. They have worked with government managers to kick retiree health insurance costs to future taxpayers. Without legal guarantees, unions should have ensured that money was set aside to pay for these benefits and could have demanded this at the bargaining table. But they didn’t.

If public sector union officials fail to take these benefit promises seriously that does not absolve local government managers from doing so. These costs have caught up with many municipalities and they may have to trim them back.

The state could help by putting a freeze on local government wage increases until these benefits are funded or renegotiated. That would ensure that both managers and employee groups start taking the costs of these benefits seriously.

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