News Story

2011 in Review: A Year of Reforms


Looking back on 2011, Michigan state government will be remembered for three things: reforms, reforms and more reforms.

These reforms generated political repercussions, including the recall of one GOP lawmaker. However, the fractious response in Michigan never reached the level of opposition to similar reforms in Wisconsin or Ohio. The difference was likely due to Gov. Rick Snyder's tactics in his efforts to curb union advantages in the public-sector collective bargaining arena.

Gov. Snyder took incremental steps instead of instituting blanket laws. This approach left public-sector unions with a multitude of smaller targets, rather than an obvious major objective.

Collective Bargaining

Arguably the key reform affecting collective bargaining was the enhancement of powers given to emergency managers. The legislation increased the state's power to name emergency managers for school districts and municipalities that have lost control of their finances.

The most important power given to emergency managers was the authority to cancel collective bargaining contracts and privatize services. Prior to passage of the new legislation, emergency managers were arguably hamstrung by their inability to take these steps.

The new law may be a game-changer in its effect on public-sector collective bargaining. It is expected to give locally elected officials a leg up when trying to hold the line on spending. The threat of an emergency manager now looms over government employee labor unions tempted to make unsustainable demands or to use delaying tactics at the bargaining table.

Specific collective bargaining limitations were added this year as well. There are now 16 items that are prohibited subjects of collective bargaining. Seven of these were added this year to the list of prohibited school employee union bargaining subjects under the state's Public Employment Relations Act. These prohibited subjects of negotiation are teacher evaluation, teacher placement, decisions on which teachers to lay off first, classroom observations, employee discipline and discharge, merit pay programs and notification to parents about teacher performance.

Business Tax Cut 

The tax restructuring bill ended the much-criticized Michigan business tax and what had been a double tax on the state's small businesses. This cut was partially offset with a 6 percent corporate income tax, some budget cutting and the removal of certain tax credits and exemptions from Michigan's tax laws. The most publicized eliminations were the exemptions shielding pension income from the state income tax.

The net business tax cut is projected to be approximately $1.2 billion in fiscal 2013. The changes also brought the state closer to a tax code without the special perks or penalties that pick marketplace “winners and losers” based on business type or industrial sector.

Bye Bye, MEGA

The Michigan Economic Growth Authority has served as state government's corporate welfare flagship, offering refundable tax credits to businesses that expanded or moved to Michigan. The authority is effectively scheduled to vanish on Jan. 1.

In the future, tax incentives would have to be approved by the Legislature and signed into law by the governor. Meanwhile, previously existing MEGA tax credits are continuing on the basis that the state of Michigan should not renege on its promises. These credits are supposed to be phased out eventually. 

The Budget

Gov. Snyder and the Michigan Legislature enacted a budget that was much closer to a truly balanced model than the state has had in many years. Perhaps most importantly, it set a new course for Michigan's budgetary ship. The budget laid the groundwork for more fiscally responsible practices in the future by being balanced, passed in a timely manner and written with an overall awareness of coming years. Getting the $47.4 billion budget through the Legislature by May 31 was a considerable accomplishment in itself.

Holding the Line on K-12 spending and Curbing University Tuition Hikes 

The governor and the Legislature took steps to control the upward spiral of K-12 spending and included “best practices” in the public school funding formula. This last measure, a key component of Gov. Snyder's budget approach, forces school districts to adopt “best practices” if they want additional dollars from the state.

The education budget also cut about $80 million in K-12 "categoricals." Such grants can be used by school districts only for specific purposes. The reductions included cutting $24 million for district-specific adjustments. Funding was also zeroed out for grants for declining enrollment, bilingual education, middle college and pre-college engineering.

Tying tuition restraints to additional state funding for universities was a key provision in the higher education portion of the budget. It was typical of an overall approach to give governmental entities monetary incentives for cost-cutting and efficiency.

Teacher Tenure 

A long-sought reform took place with changes to the state's teacher tenure law. Over the decades, the law had become an almost blanket guarantee of employment for teachers no matter how poorly they performed in class or how outlandishly they might have behaved.

Teacher tenure laws were established in Michigan decades ago to protect teachers from being fired for "arbitrary and capricious” reasons. But over time, the system evolved into a legal quagmire that gave tenured teachers almost ironclad protection from dismissal. As a result, school attorneys often advised school districts to pay off problem teachers rather than enter the time-consuming and expensive tenure nullification process.

This year's reforms changed the standard back to one that more closely resembles the original protection against "arbitrary and capricious” firings.

Lifting and Eliminating the Charter School Cap

Another key measure on the education front was the passage of legislation to phase out the state's longstanding cap on charter schools authorized by public universities.

The best evidence of the importance of this change is the long waiting lists of children hoping to be admitted to charter schools across the state. Elimination of the charter cap will lead to the expansion of public school choices for parents and families.

State Employee Pensions

Reforms to the state's pension and other post-employment benefits system are designed to reduce the state's unfunded liabilities and potential future commitments. A variety of mechanisms were employed in these reforms. One is no longer offering retiree health care and other post-employment benefits to new state employees, but rather providing them with higher contributions to their retirement accounts. A second would require veteran state employees to either put 4 percent of their income into their pension plan or switch to a 401(k) retirement savings system.

80/20 Requirements for Government Employee Health Insurance

Under this reform, public employers in Michigan at the state, local, school and university levels can pay no more than 80 percent of employees' health insurance premiums, though some government units (other than school districts) do have room to opt out. The requirement would bring these public-sector employment benefits more in line with those in the private sector.

It's estimated that the cost-sharing on premiums could save public employers more than $500 million annually, including $174 million for state government.

State Funding for Municipalities 

Under Gov. Snyder, the state cut $100 million in revenue sharing for cities, townships and villages. The plan replaced $300 million in statutory revenue-sharing with a $200 million Economic Vitality Incentive Program.

Communities would receive money from the fund if they devised ways to cooperate in the delivery of services, ended defined-benefit pensions for new employees, required those employees to pay 20 percent of their health insurance and enacted fiscal transparency measures to allow taxpayers to see how their money was being spent.

Welfare Limits

This year lawmakers enacted legislation to give the four-year lifetime limit on welfare cash assistance permanent status. The measure brought Michigan in line with other states.

The four-year limit does not apply to those who have a disability and are unable to work. Temporary exemptions may be available for those who care for a disabled spouse or child; those who are 65 or older and do not qualify for Social Security benefits or receive insufficient benefits; or those involved in domestic violence situations that involve law enforcement.

Regulatory Reform

Although Gov. Snyder vetoed legislation that would have prohibited state agencies from promulgating regulations that are stricter than the federal government's, he has moved to reduce the overall regulatory burden.

Regulatory reform legislation signed into law would require the Department of Environmental Quality to detail the information that is required to complete a permit application. The department would also have to commit extra resources to the review process to clear application backlogs.

Other measures include requiring the Office of Regulatory Reinvention to publish a small-business impact statement; requiring agencies to consider exempting small businesses from rules and regulations; requiring the review of at least two DEQ programs each year; and requiring each division within the DEQ to conduct customer service surveys and post the results on its website.

Gov. Snyder has also authorized a number of administrative rule changes designed to reduce the regulatory burden on small businesses in order to help spur job growth.

Unemployment Insurance 

Legislation has been signed into law that aims at providing a comprehensive solution to Michigan's $3.2 billion unemployment insurance debt to the federal government.

The overall approach includes reducing the duration of Michigan's unemployment benefits from 26 weeks to 20 weeks. The measures include both solvency solutions and cost-saving reforms. Michigan has a 100 percent employer-funded system.

Workers Compensation

The governor and the Legislature have enacted systemic reforms in Michigan's workers' compensation system. A key component of the change would provide statutory consistency and certainty regarding the payment of workers' compensation benefits. This would help workers and job providers to avoid spending time and money litigating ambiguities and common disputes.

Banning Project Labor Agreements

A prohibition against project labor agreements in government contracts is now state law.

A PLA is a pre-hire collective bargaining agreement between a coalition of trade unions and a construction management firm that lays out timelines, pay, worker schedules, working conditions, training and other details before the start of a large construction project.

Prior to the prohibition, nonunion businesses wouldn't bother bidding on public projects that had PLAs, because adherence to the agreements would force them to pay salaries and benefits they couldn't afford. PLAs were often used to freeze nonunion workers out of public projects, thereby reducing competition for government construction contracts and decreasing the potential for lower costs.

Prohibiting "Step Increases" During School Employee Contract Negotiations

State law now prevents seniority-based automatic pay hikes (“step increases”) from occurring after a school employee union contract expires. Prior to this year's change, union members could get automatic pay hikes while new contracts were being negotiated — a disincentive to reaching agreements.

The new law also specifies that increases in health benefit costs that take place during negotiations must be borne by the employee and that wages and benefits under a new contract may not be made retroactive to the expiration date of the old one.

Minimum Staffing Requirements Banned

Counties can no longer adopt charters or ordinances that impose any minimum-staffing requirements with regard to their government employees. Existing minimum-staffing requirements, however, were “grandfathered” in under the new law.

Home-Based Day Care Union Dues Scheme Ended

In 2011, the forced unionization of home-based day care providers across the state came to an end. Under the Granholm administration, about 41,000 home-based day care business owners and workers were quietly made eligible for organization into a union formed by the United Auto Workers and the American Federation of State, County and Municipal Employees. The union election occurred with the vast majority of providers never voting. So-called union "dues" were then extracted from government child care subsidies sent to home-based day care providers on behalf of low-income parents. 

A dummy employer and "dues" withdrawals by the state Department of Human Services were used for the scheme. Under the Snyder administration, these withdrawals came to an end. However, a similar forced unionization situation involving home-based health care aides has yet to be halted.

Item-Pricing Law Eliminated

Legislation to bring Michigan into the 21st century when it comes to retail pricing was one of the first measures to pass this year. Retailers claim the law change will save them millions of dollars, which may translate into additional jobs.

The measure repealed the state's item pricing law, under which each individual item in stores needed a price tag. With the new law, retailers must use “appropriate signage,” scanners or other ways to alert customers about the price of an item. In the event of overcharges, retailers will still have to reimburse customers and pay a penalty of up to 10 times the difference in the price up to a maximum penalty of $5 per incident. Retailers who knowingly violate the law face fines of $1,000 for the first offense and $5,000 for subsequent offenses.

In 1978, Michigan became one of the first states to adopt an item-pricing law. This year it became the last to get rid of it. 

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.