News Story

What the New Legislature Should Stand For – and What It Should Not

A time for choosing in Michigan

For the first decade of the 21st century, the Michigan Legislature’s policy direction was to increase the power of government at the expense of citizens. The results were predictable to those who understand incentives and how economies really work.

From 2001-2010, compensation costs for the average state employee increased tremendously, while incomes plummeted for the taxpayers who pay those bills. When state revenues stagnated, the Legislature took more from individuals and small businesses through higher income and business taxes, and increased excise taxes on goods like tobacco.

Rather than enact real business-climate reforms that encourage investment and entrepreneurship, legislators turned to government central planning. The state’s corporate welfare arm, the Michigan Economic Development Corporation, grew in scope and power. This well-paid bureaucracy transferred ever larger sums from the market economy to politically well-connected industries in the form of selective tax breaks and subsidies. Open-ended film production subsidies exploded, redistributing about $500 million from state taxpayers to Hollywood producers since 2008.

With many failed promises and little transparency, the MEDC granted long-term deals to favored firms, gifts that keep on taking from Michigan taxpayers. In 2014 alone, the cost was around $860 million, and the budget bleeding will continue for years to come. By all objective measures, these programs have been a colossal failure.

Regulations and mandates also exploded. The number of criminal statutes continued to grow, while licensure and permit mandates were imposed on ever more occupations and activities. The state’s alcohol regulatory regime encourage both a distribution monopoly and price controls, leading to higher prices. In 2008, Michigan handed a virtual monopoly to big utilities while slapping a costly 10 percent “renewable energy” mandate on electricity generators – a double-whammy of inefficiency for consumers. Michigan is now one of the most regulated states when it comes to employment and has the highest electricity costs in the Midwest.

In 2010, Republicans were swept into office promising reform, taking the state House and governorship and expanding their majority in the state Senate. Over the next two years, the Legislature passed collective bargaining reforms for government employees, enacted education reforms that loosened teacher tenure laws and expanded school choice, cut business taxes, and scaled back some of the corporate welfare. Lansing mostly held the line on spending, eliminated project labor agreements that increase the cost of government construction, ended forced unionization schemes, required public employees to pay more for their health care and shored up their pension system.

The icing on this reform cake came at the end of the term, when Michigan became the 24th right-to-work state.

Voters returned the GOP to power in 2012, despite President Obama winning Michigan by 9.5 points. In the same election, voters defeated a series of ballot proposals that would have expanded government and union power.

But over the next two years, as the economy turned around, many legislative actions fell short of the limited government approach. The Legislature expanded a poorly performing welfare program by passing the Obamacare Medicaid expansion. The good news was, for the first time in a generation a governor and Legislature seriously engaged the problem of Detroit's finances rather than “kick the can down the road.” The bad news was, taxpayers were forced to bail out Detroit while city governance reforms were watered down. Corporate welfare schemes were renewed and expanded at a cost of about $300 million per year, and $50 million in annual film subsidies continue flowing down the drain. State spending increased by $2.7 billion. And the Legislature decided to place a proposal on the May 5 ballot that would raise $2 billion in new tax revenue while giving Michigan the second-highest sales tax in the nation.

The new Legislature has a choice in the path it wants to take. It should embrace and promote free enterprise and fiscal responsibility over the next two years.

Pass pension reform that would finally stop the unfunded liabilities from weighing down Michigan. Go through with the income tax relief that was previously promised. Save money by eliminating arbitrary prevailing wage laws and central planning programs. Eliminate licensing and regulatory barriers that unnecessarily impede entrepreneurs. Enforce the right-to-work law that is being ignored by school districts and unions across the state. Pass budgets that put taxpayers and citizens above the system.

Early indications show a House and Senate willing to tackle some of the tougher reforms. The House GOP "action plan," which lays out legislative priorities for the body, is excellent and would provide real reform.

But now the governing begins, and voters should be watching the Legislature to see which philosophy it decides to embrace.

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.