Manufacturing: The Missing Element in the Policy Discussions

The manufacturing of products is critical to the economic prosperity of our country and our state. While talking to voters in my campaign, the loss of jobs in manufacturing has been particularly commented upon, in large measure because our state and region have been hit hard by the loss of jobs in the auto and related industries.

Manufacturing products which are sold outside of the country or state is important to replenish the wealth in an area. Money which circulates in a state economy changes hands over and over again, because an expense to one party is income to another. However, to the extent that we import more products (and services as well, but services tend to be more localized) than we export, money leaks out of the system, leaving less and less money to be shared among the area’s residents, making the area poorer and poorer – unless the money is replenished by sales outside the country or area. On the local level, this fuels the “Buy Local” efforts of chambers of commerce and other groups.

But what can we do to encourage manufacturing? The report Manufacturing Strategy for Jobs and a Competitive America, National Association of Manufacturers, June, 2010, lays out the NAM recommendations, which in general are:

• “Tax policies to bring America more closely into alignment with major manufacturing competitors and foster innovation
• Government investments in infrastructure and innovation
• Trade initiatives to reduce barriers, open markets to U.S. exports and protect intellectual property
• A dynamic labor market that allows companies to attract the best, most talented workers from around the world to work in the United States
• A common-sense, fair approach to legal reform
• A regulatory environment that promotes certainty and economic growth
• A comprehensive energy strategy that embraces an “all of the above” approach to energy independence
• Health care reform that drives down costs.”
  2010 NAM Labor Day Report, National Association of Manufacturers, September 1, 2010.

The 2010 NAM Labor Day Report raises another very important point, when it says that

“[N]ow is not the time for policymakers in Washington to focus on an agenda that will increase costs, further elevate uncertainty and reduce the ability of our workers and companies to successfully compete in the global economy.”
. . .

“The current level of business uncertainty is illustrated by the funds available to invest by companies sitting on the sidelines. As of the first quarter of 2010, net corporate cash flow (mainly undistributed profits and funds set aside to replace depreciating capital) stood at $1.5 trillion, or 10.5 percent of GDP. This level is significantly higher than any similar period (three quarters into an economic recovery) during the past 60 years and a clear sign that firms remain hesitant to expand operations due to concerns about the U.S. business climate.
. . .
Asked if uncertainty about the business outlook is delaying their plans to expand employment or capital spending, nearly three-quarters (74 percent) responded “yes.” Of those who reported that uncertainty is affecting their expanding capital investment and hiring, the main areas of concern were the state of the U.S. economic recovery (46 percent) and possible regulatory or legislative changes from Washington (37 percent).

Businesses, workers and the American public simply have no clear sense of how actions by Congress and the Obama Administration could reshape the economy, employment and our country’s ability to successfully compete in the global economy.” [Emphasis added.]

Specific legislation, laws and regulations identified in the report as magnifying the uncertainty that afflicts the economy and negatively affecting American workers included:

• “Expiration of the 2001 and 2003 tax cuts
• The Environmental Protection Agency’s (EPA) proposed new regulatory regime to control greenhouse gas emissions and raise energy costs
• Government implementation of the new health care laws, with their numerous mandates on employers, insurers and consumers as well as a myriad of unintended consequences
• Failure to achieve an ambitious trade agenda necessary to ensure and expand global market share for U.S exporters
• Labor policies, such as the Employee Free Choice Act, that could rob the U.S. economy of its dynamic growth potential.”

In other words, much of the Obama/Congressional Democrat agenda is creating the uncertainty which is retarding economic recovery, while at the same time spending billions in “Stimulus money”. This is equivalent to sitting in a car pressing on the gas pedal and the brakes simultaneously, and wondering why the car won’t go.

“Instead, policymakers should focus their efforts on progrowth, pro-worker and pro-manufacturing policies that structurally improve the competitiveness of the U.S. economy and increase the certainty that our country will remain the most competitive, dynamic and innovative economy in the world.
. . .
Our economy stands at a crossroads. The path our country takes will determine the long-term competitiveness of the U.S. economy and the American worker. With more competitive tax policies that encourage innovation and investment, lower and more certain costs in the areas of regulation, litigation and energy, and a committed effort to lower trade barriers overseas and support U.S. exporters, the prospects for a competitive U.S. economy that supports highly productive and compensated workers are very real. Without the right policies in place, the U.S. economy and the American worker will lose out to fierce global competition. The choice is ours to make.”

Increasing Our International Competitiveness

I had the opportunity to discuss our international competitiveness with David Huether, the NAM Chief Economist today. Besides the points discussed above, highlights of the discussion were:

• We need to be very careful about legislation, regulations and other actions that increase our costs which cannot be offset by productivity increases. To the extent that wages in the state have been negotiated lower and unemployment has lessened wage demands, we have thereby increased our competitiveness. We must guard against complacency as the auto industry recovers, or that improvement may be quickly lost.
  
  The cost of fringe benefits is another factor we must control. One of the elements discussed in the need for “health care reform” was the possibility of shifting the cost of health care from employers to a broader set of participants (i.e., taxpayers) to put our employers and manufacturers on a more equal footing with our international competition which are not saddled with the same health care costs. The effects of the National Healthcare Reform, aka “Obamacare” are still unknown, with most sources believing that employers’ health care costs will actually increase due to the act, rather than being helpful.
  
  
• The devaluation of the U.S. dollar will put our manufacturers in a better position to compete, as our exports will be cheaper for others to import and imports into our country will be more expensive. Challenges remain with the Chinese Yuan being pegged to the U.S. dollar, but it is expected that the Yuan will ultimately be allowed to appreciate, which would be an improvement in our manufacturers’ competitiveness. Of course, our leverage to influence Chinese policy is limited, given the amount we owe the Chinese government due to our enormous national debt.
  
  
• We must continue to work for free trade agreements with numerous countries (such as Columbia, Panama and South Korea), because if we do not, the free trade agreements by the European Union effective January 1 will begin to push U.S. exports out of the market. Even if these negotiations are successful, the US will have FTA’s with only 22% of the global economy vs. 37% by the European Union.
  
  
• We must fight to redress violations of existing trade agreements.
  
  
• Last, but not least, we must increase our productivity. This can be accomplished to some extent by investing in basic research and infrastructure. But, we can do more by having a more educated work force in science, technology, engineering and math, as well as promoting a greater work ethic and eliminating job rules that include featherbedding (paying people for doing nothing productive) and other such nonsense.

Some of these elements are out of the control of the Michigan Legislature, but we certainly can have an impact on the avoiding unnecessary cost increases for our businesses and working to increase our productivity. That will be part of my focus on improving the environment for businesses to prosper, grow and create jobs here in Michigan. After all, businesses create jobs, not government. The best government can do is create the environment in which businesses can emerge and flourish.

Why Focus on Improving the Environment for Small Business Job Providers?

There are two competing philosophies regarding economic development:

• Empower the bureaucrats in Lansing to pick the winners from the losers, subsidize the expected winners with tax credits and hope they create jobs.
  
  
• Improve the environment for all businesses, encourage innovation and entrepreneurship and hope jobs are created and revive the economy.

First, it probably goes without saying that creating jobs and reviving the economy is the most critical issue Michigan faces. If we can get the economy going again:

• State tax revenues will rise, making balancing the budget much less painful.
• The budget priorities, such as education and public safety will more easily be funded.
• Home foreclosures will fall. Home values will stabilize.
• The severe budget problems facing local governments will subside so as to allow funding of critical public services such as plowing snow, fixing roads, and police and fire protection.
• Kids will be able to find jobs here and stay in the state, making not only them happy, but thrilling the parents and grandparents who want to maintain close contact with their family.

Creating jobs is the key to solving many, many issues.

Bureaucrats Fail. I don’t favor the first method, as studies have proven that the bureaucrats simply are not that good at predicting business success. Only 29 jobs have been created for every 100 announced with great fanfare with the granting of the tax credit by MEGA, and at enormous cost per job. In short, this method is great for publicity for the politicians and bureaucrats, not so good for the workers. See The Michigan Economic Development Corporation: A Review and Analysis

Startups Are the Key to Job Creation. Small business creates well over the majority of new jobs. (64% by one report, but a higher percentage by other reporters) Further, the Kaufman Foundation Research Series: Firm Formation and Economic Growth, “The Importance of Startups in Job Creation and Job Destruction”, July, 2010, says: “[W]ithout startups, there would be no net job growth in the U.S. economy.” Startups create most new net jobs in the United States, and the job creation is less dependent on the business cycle, whereas existing firms’ employment varies dramatically with economic expansion and contractions.

“Policymakers tend to reflect common media stereotypes about job changes in the economy, which is to say a focus on the very large aggregate picture (such as the national or state unemployment rate) or on news of very large layoffs by individual companies. That attention is almost certainly misplaced. Nationwide measures are a blunt tool for analysis, and net employment growth reveals little that policy can affect.

Similarly, the common zero-sum attempts to incentivize firm relocation are oblivious to the important pattern of gross job creation revealed by the [study]. States and cities with job creation policies aimed at luring larger, older employers can’t help but fail, not just because they are zero-sum, but because they are not based in realistic models of employment growth. Job growth is driven, essentially entirely, by startup firms that develop organically. To be sure, Survivors create zero to 7 million net jobs (half of which are at establishment births), while Deaths account for a net loss of 4 million to 8 million jobs, which are large flows for the context of the steady job creation of 3 million startup jobs. But, in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. In other words, the [study] indicates that effective policy to promote employment growth must include a central consideration for startup firms.” Page 6.

Ranking 48th Out of 50 States Will Not Revive the Michigan Economy. Michigan ranks very low in terms of attractiveness for businesses to locate here. Whether we wish to encourage outsiders to come locate here of grow organically, we need to make it as easy and attractive as possible to establish themselves here. Otherwise, why shouldn’t they go where it is more favorable?

What Causes Michigan to be “Unattractive”? What can be done? There is no one cause, but the Michigan Business Tax with its 22% surcharge does not help. Neither does the labor climate, with Michigan’s reputation for strong unions, particularly when there are other state’s without the same adversarial labor-management attitudes. The uncertainty about our current and future tax structure is also a deterrent, as uncertainty increases risk for investments and discourages lenders from making loans to emerging enterprises.

If I had to pick one group of ideas proposed by any one group about what to do to improve the environment for creating jobs, it would be the Business Leaders for Michigan, with its Michigan Turnaround Plan: (in great measure along the lines of Rick Snyder's Reinvent Michigan: Rick's 10-Point Plan). See a more extended discussion on my website at http://voiceforthepeople.net/issues.htm

I must admit that this set of ideas is no “quick fix”. It will not be easy and it will not be quick. Anyone who suggests his or her method will be quick and easy is just trying to sell you on smoke and mirrors, similar to “hope and change”. But, we can do better. We can revive Michigan.

The bottom line is that we are not helpless or hopeless. And, as Edward Everett Hale is credited as saying,

"I am only one, but I am one. I cannot do everything, but I can do something. What I can do, I should do and, with the help of God, I will do."

This apples equally well to all who seek to serve this great state of Michigan in getting it back on its feet. That is what I am committed to doing.

Reinventing Michigan for Our Future vs. Protecting the Past and Special Interest Groups

You may have heard about the 7-year-old entrepreneur named Julie Murphy whose business as a lemonade stand at the July Multnomah County, Oregon monthly art fair was shut down and threatened with a $500 fine. The government regulation she violated? Failing to get a $120 temporary restaurant license. Inspectors Shut Down Girl's Lemonade Stand

This serves as an extreme example of government interference with job providers which is stifling our economic recovery. We have a clear choice in this election for State Representative in the 55th legislative district of Michigan.

• I favor getting government out of the way and cut taxes to let small businesses create jobs. There should be no bailouts for union bosses, or dollars for special interests not tied to real job creation. I favor workers’ choice in the workplace.
  
  
• My Democrat opponent? As a AFL-CIO Community Service Liaison to the United Way, a long time member of the United Steelworkers local 2511 District 2 AFL-CIO who has served as Chief Steward, Trustee and President of the local and currently represents local 2511 as a Delegate to the Monroe/Lenawee County AFL-CIO Central Labor Council, he can be expected to protect the past, opposing necessary reforms related to labor laws (although none of his publicity is specific enough beyond buzz words to know just what he stands for). (And his “Issues” page on his website is blank.)

Currently, labor laws allow unions to collect membership dues from workers covered by a collective bargaining agreement, regardless of whether or not they support the union, and with precious few checks and balances to assure that union money and power is actually used to further the interests of workers.

An August 2002 EPIC/MRA survey commissioned by the Mackinac Center for Public Policy, reported in Michigan Voters Support Labor Reforms, g. 28, 2002, http://www.michigancapitolconfidential.com/4571 showed that there was support to make the union bosses more accountable.

A financial disclosure bill, e.g. House Bill 6226 of 2002, would require public employee unions to open their financial records to members. When asked whether they would favor a bill requiring annual financial reports from government employee unions, 73 percent of those polled indicated they would do so, with 47 percent saying they would “strongly favor” such a bill. Of those who identified themselves as union members, 72 percent expressed their support for union financial disclosure. Only 15 percent of those questioned expressed opposition to the financial disclosure law. Only with full disclosure can workers fully exercise their right to choose whether to support the continued existence of the union. This is clearly a “union bosses” vs. “the workers” issue. I side with the individual workers.

A paycheck protection bill, e.g., House Bill 4252 of 2002, would require unions to obtain authorization from individual union members before using those members’ dues money for purposes other than bargaining or implementing an existing collective bargaining agreement. Such a law, if implemented, would prevent union dues money from being spent on political activities or lobbying without the approval of workers. Sixty-three percent of those polled expressed support for such a law. Twenty-five percent were opposed. The number of union members favoring paycheck protection fell just short of a majority, at 49 percent. I support the workers’ right to choose whether to support any political parties or ballot measures, and not leave it to the sole discretion of the union bosses.

"Right to Work” laws are state statutes or constitutional provisions which ban the practice of requiring union membership or financial support as a condition of employment. Twenty-two states have enacted Right to Work legislation. Michigan is not one of these states with right to work protection of the employees. Instead, Michigan has a union shop provision allowing employers and unions to negotiate rules that mandate that employees join a union or pay union dues and fees. See http://www.nrtw.org/ Few employers can withstand the union pressures to agree to those provisions.

Senate Bill 945, sponsored by Sen. Nancy Cassis, R-Novi, is a bill that would allow local governments to create the right-to-work zones. (This is different from House Bill 4454, introduced by state Rep. Jack Hoogendyk, R-Portage, in 2008 which would have given workers in a union shop an opt-out of participating or paying dues to a union, in other words, a state-wide implementation.)

“Within these proposed zones, employers would be prohibited from compelling an employee to join a union under threat of either being fired or never hired in the first place. Free-market labor analysts have repeatedly noted that there is a strong correlation between a state's economic growth and whether it provides right-to-work protections to its workers. And polling data has indicated strong public support for Michigan becoming a right-to-work state.” [A June 2002 poll of likely Michigan voters indicated that 62 percent would favor a Michigan right-to-work law. Only 22 percent of those polled were opposed to this idea.] . . .

“A 2007 analysis by Mackinac Center labor policy director Paul Kersey examined the correlation between a state's economic success and its adoption of a right-to-work law. Looking at the five-year period from 2001-2006, Kersey reported that states with right-to-work laws increased their gross state product by 18.1 percent, while states without a right-to-work law saw GSP grow by just 13.6 percent. Michigan was one of the worst non right-to-work performers, growing by just 3.4 percent.

Even Louisiana and Mississippi - two right-to-work states that saw massive economic damage due to being hit by Hurricane Katrina during the period under examination - were still able to substantially exceed the GSP growth of Michigan.” http://www.michigancapitolconfidential.com/12537

Republican gubernatorial candidate Rick Snyder has opted not to make Right to Work a plank in his platform, likely recognizing that in addition to a massive voter education campaign, any successful workplace freedom initiative would require a population that has learned to dismiss the demagoguery of self-serving special interests who benefit from the status quo.

When Mike Bouchard announced his support for Michigan becoming a Right to Work state in his unsuccessful candidacy for Governor, he said, "The union bosses and special interests may be upset, and will probably target me, but I'm ready and willing to take on the tough challenges to turn our state around." I second that emotion. If we are going to pull the state out of our doldrums, we must take dramatic action to show that “Michigan is open for business.”

“University of Michigan economist Don Grimes said, “the state will have trouble competing for manufacturing jobs against states from the South that are almost all right-to-work. . . . If Michigan wants to go after manufacturing jobs, it should consider right-to-work laws.” Role of unions in Michigan during recession disputed

Prevailing Wage Laws. Under Michigan’s prevailing wage law, all contractors participating in a state or state-sponsored school construction project must compensate their workers b paying wage and fringe benefit rates found in local union collective bargaining agreements. While I was a school business manager at Adrian Public Schools supervising the $50 million bond project to renovate our schools, the contracts that fell under that provision cost us about 20% more than contracts that we could competitively bid out without that provision. With scarce dollars, we must do all we can to get the biggest bang for our buck, and that includes eliminating this budget busting provision.

Minimum Wage. The federal minimum wage is set at $7.25 per hour. With some exceptions, this amount is the lowest amount that a worker is able to make in the United States. States are entitled to pass higher minimum wages. Michigan’s minimum wage is currently $7.40 per hour.

No one will argue that $7.25 is a wonderful wage rate, but studies have shown that setting minimum wages reduces the number of people employed. Further, Michigan setting a minimum wage rate higher than the federal minimum wage is one more example of Michigan being antagonistic to employers. Small wonder we rank 48th out of 50 states in attractiveness for businesses to locate in Michigan.

“Card Check”. “The current method for workers to form a union in a particular workplace in the United States is a sign-up then an election process. In that, a petition or an authorization card with the signatures of at least 30% of the employees requesting a union is submitted to the National Labor Relations Board (NLRB), who then verifies and orders a secret ballot election.

. . .

Under the proposed Employee Free Choice Act (EFCA), if the NLRB verifies that over 50% of the employees signed authorization cards, the secret ballot election is bypassed and a union is automatically formed.” http://en.wikipedia.org/wiki/Card_check

The tension here is the workers’ freedom to choose without coercion as guaranteed by the confidentiality of a secret ballot versus the unions’ desire to more easily form new unions. I view the secret ballot to be a right we must protect, yet most Democrats favor the card check bill.

Other Miscellaneous (but important) issues related to labor: The Democrats in Lansing:

• Overwhelmingly opposed blocking the 3% increase for unionized state employees even when a $1.7 billion deficit was projected.
  
  
• Oppose revision of PA 312 (which requires binding arbitration for police and fire fighters if agreement with the municipality cannot be reached) to require the arbitrator to consider the municipalities' ability to pay. Contracts awarded by arbitrators in the absence of that requirement have granted retirement pay and other benefits grossly out of line with reason. See Center for Michigan
  
  
• Oppose revision of the Urban Cooperation Act (which requires consolidating municipalities to pay the highest wages and the highest benefits of the consolidating entities, which results in higher costs after consolidation rather than lowering costs, and thereby discouraging consolidation rather than encouraging cooperation).

Where will my Democrat opponent come out on these issues? All relate to protecting the current practices which discourage controlling spending and creating an environment in which small business job providers can prosper and create jobs. My bet is that with his strong union background (and probable financial support for his campaign) he would vote with the liberal majority of the Democrat caucus and against job creation.

The choice is yours. I would appreciate your support.

Embryonic Stem Cell Research and Answering Questions on the Fly

I wish to clarify and/or amend my statement concerning my support for allowing embryonic stem cell research reported in "Field Of Conservative Republicans File For Angerer's Seat, Volume #49 Report #137 Friday, July 16, 2010".

Proposal 2 of 2008 added a constitutional amendment allowing embryonic stem cell research to the Michigan Constitution. As an elected State Representative, I would be bound by my oath of office to uphold the Constitution.

However, under the belief that life begins at conception, the use of embryos in research is morally wrong, especially where alternative sources exist for research, such as adult stem cells. I would support legislation which provides reporting and oversight of human embryo research and prohibits the expansion of such research into areas such as creating human-animal hybrid embryos, buying and selling human eggs or human embryos and cloning technology.

Any confusion on this issue demonstrates the hazard of answering questions “on the fly” on my cell phone while in my vehicle, similar to legislators voting on bills they have not seen or had a chance to read and thoroughly review, and consult with others more expert in the subject matter. This particular issue is not one in which I am an expert, with my focus on the economic issues, as we must get Michigan back to work.

State and Local Governments Fiscal Issues Intertwine – No Quick Fix on the Horizon

At the Leadership Summit conducted by the Business Leaders of Michigan on May 17, Robert Daddow, Deputy County Executive for Oakland County pointed out several areas related to local government solvency that he believes are being overlooked. His comments reinforced the idea that the fiscal fortunes of the state and local governments are truly linked.

My take on his comments are:

• Foreclosures are on the rise again. Declining property values will continue to drop assessed values, which in some places remained above taxable values, but now will begin to drop below taxable values, such that property tax revenues will drop even more than in the past years.
  
  
• The assessed values of properties are determined by the increase or decrease in the average price of property sold in the previous year (at least for residential property). The lag in the drop in assessed values will result in past years’ property value drops now showing up in assessed values. In other words, the taxable values will continue to drop even after the actual property values level off until the lag time is worked through.
  
  
• Recourse payments (aka “chargebacks” by county treasurers) are expected to be larger than normal as tax delinquencies rise.
  
  
• Michigan Tax Tribunal losses will finally begin to show up as backlogged cases start being cleared in late 2011, causing not only a drop in taxable values for current and future years, but also refunds for previous years.
  
  
• Many schools and other municipalities have passed millages and issued unlimited general obligation bonds. These were approved on the assumption of increasing property values, but as property values drop, the debt service must still be paid. The municipalities will have two choices: increase the millage rate or cover the property tax shortfall from the already stressed General Funds.
  
  
• Debt issued by DDA’s, TIFA’s and LDFA’s were projected to be paid from property taxes collected on assumed increasing property taxable value. Even if the debt is solely backed by the entities’ revenues, will defaults affect the local government’s bond rating? Will local governments need to step in to prevent default?
  
  
• Lag in funding due to different fiscal years results in need for borrowing which is increasing as fund balances drop. For example, school districts are paid in 11 convenient installments (August is skipped), two months late. Will there be adequate borrowing capability by the municipalities on their own via tax anticipation notes or for schools, “state aid notes”? If access to the Michigan Municipal Bond Authority will be needed, what about the state’s credit rating and ability to access money? Municipal bond insurance is more difficult to get at reasonable rates. How will this impact the interest rates municipalities will need to pay?

Result: Taxable values are expected to decline by roughly a third in the next several years, such that even with optimistic economic forecasts, it will take until 2020 – 2025 to return property tax revenues back to the 2007 collection levels. When these property tax impacts are added to the huge unfunded liability for pensions and retirees’ healthcare and declining revenue sharing payments to the municipalities from the state, you can see why local governments are truly in peril. Local governments will need to significantly tighten the belt, and get all the help they can get in controlling its wage and benefit costs. But, even given that, state revenue sharing or local millage increases will be needed to maintain essential services.

Further:

• with the state 6 mill school tax based on taxable values, the state property tax collections will decline.
• the per pupil foundation grant received by school districts is comprised of the amount per student collected from the 18 mills levied on non-homestead property in the district plus whatever additional the state needs to make up. With taxable values declining, the amount extra the state will need to make up will continue to increase.

We truly are in this together – state and local fiscal issues intertwine. We need to work together to reposition the state to turn this state around economically. To get more tax revenues, we need to get more businesses making money, more workers earning pay checks and paying taxes, fewer homes in foreclosure, and stabilizing property values. There is no quick fix, and attempting to get the quick fix by simply raising taxes and making the state even less competitive in attracting and encouraging businesses will only prolong the agony.

The good news is that there are plenty of very smart people who have put together a collection of ideas or proposals that can turn the state around economically - to make Michigan a Top Ten state again. That was the impetus for the Leadership Conference, to promote the Michigan Turnaround Plan proposed by the Business Leaders for Michigan. We can and must do better. Daddow’s presentation is valuable, for the first step to finding solutions is a brutal recognition of the facts.

Double Dipping Permitted Under New Retirement Law and Should be Stopped

“School administrators in metro Detroit districts are considering whether to retire and then return to their jobs as independent contractors . . . . Retiring allows them to begin drawing a state pension, while being rehired privately for the same job allows them to continue to collect a salary . . . .

Drawing both a pension and a paycheck was once considered "double dipping," but is allowed under Michigan's new pension reform law . . . . School districts save money when they re-hire the retiree privately, because the district typically does not offer benefits and is no longer required to contribute to the state retirement system on behalf of that employee . . . . “ Michigan Education Digest, June 8, 2010

This process has been called “retire-rehire” and has been a tactic some school districts have used to save money, by, in effect, dumping the benefit costs onto the retirement system. When an administrator retires and then is rehired on a contract, the district avoids not only the about $16,000 per year health insurance cost and the 2010-11 MPSERS rate of 19.41% (minus the 3% the employees will need to pay under the new law), but the district also avoids the 7.65% combined Social Security tax, the unemployment tax and workers compensation insurance costs.

This all adds up, with most superintendents and many other administrators earning over $100,000 per year. For example, as cited in the Michigan Education Digest report, the “retiring” Clawson Public Schools Superintendent will continue to receive her $140,000 annual salary, but the district will no longer pay $65,000 in benefits.

Many will ask, “Well, if the school districts are saving so much money, what’s wrong with that? It sounds like good management to me.”

The problem is that the benefit costs are not avoided, but merely shifted. That is, the stressed MPSERS system now absorbs the cost, and this cost is then paid by higher contribution rates paid on wages by all school districts for their employees. This practice has been under attack as “abuse” by the MPSERS system for years, and while not completely legal, many districts continued to do it. The “retired” employee is hired on a contract through a third-party employer, rather than directly. That, in itself, should be a red flag that something is not right with the tactic.

The tactic appears to have been less effective with hiring back teachers than with administrators. The excuse is that “good school administrators are hard to find”, but often this is just a smoke screen for protecting the good ole boy system within the current and former school administrator ranks. Many teachers are ready to step into principal roles when given a chance. And, with all of the laid off management skill in Michigan today, there is ample transferable talent available to run our schools at the superintendent level.

While the school district retirement system reform law recently enacted was a step in the right direction, it could be improved by eliminating the double dipping it still allows.

A Tribute to Our Veterans

I give thanks to our veterans who served our country this Memorial Day weekend. Protecting our freedoms has never been free, and many of our brave servicemen and women have paid dearly so that we can live free. Mere words can never express the gratitude which we owe them.

Many others - men, women and children - have not served during the Vietnam era, or any of our other wars or conflicts, for that matter. We who have been spared owe a terrific debt of gratitude for those who have.

Special Tribute To:

• My dad, Alfred Olson, who served in World War I in France – “Lafayette, We Remember”
• My wife’s dad, Gerald Ruckle, who served in World War II, in the awful island hopping in the Pacific. He suffered nightmares until the day he died on my birthday in 1971.
• My brother, Jim, who served as a medic during the Vietnam Era, fortunately all stateside
• Our son, Kirk, who served 10 years in the U.S. Navy, as a nuclear electrician
• My high school buddy, David Paavola, who served valiantly in Vietnam and lives to NOT talk about it.
• Our brave young men and women who currently voluntarily serve our country all around the world, preserving our safety and our freedoms. Few will forget the images we saw on 9-11-2001 and the days following, or forget that we still live in an unsafe world, where people are willing to martyr themselves to destroy our way of life.

Thank you!

For the story of my personal journey with regard to serving our country in the Armed Forces, see: A Tribute to Our Veterans

Public Employee Benefits? "That's where the money is."

The Center for Michigan article Special Report: Public worker benefits under scrutiny puts the issue of controlling the cost of public sector employee retirees’ health care costs in perspective. Unfortunately, any effort to deal with this gargantuan cost is labeled as “unfair” and “anti-people”.

“Why the clamor over health benefits for people once they’re no longer in the workforce?

Money. And lots of it.

The cost of pension benefits is astronomical for both the private and public sectors. . . .

Health (including dental and vision) benefits cost the Michigan Public School Employees Retirement System $795 million in fiscal year 2009, a 70 percent increase since the start of the decade.

At that rate, longtime Michigan education leader Tom White isn't far off when he says anticipated retiree health care costs for school employees could total $15 billion in the next 20 years.
And that's just for retirees. That doesn't cover medical expenses for current staffers, let alone pensions.

Total retiree expenses (including health care and pensions) is expected to comprise nearly 20 percent of school districts' payrolls next year, White says.”

This issue is similar to the question Willie Sutton, the famous bank robber was asked, “Why do you rob banks?”, and he replied, “That’s where the money is.”

Public employee wages and benefits make up the vast majority of government expense. Why look here for savings? Well, “That’s where the money is.” Couple that with the fact that public employee benefit costs far exceed the cost of comparable private sector employees.

Legislators serious about balancing the state budget do not look here because they do not like state employees or public school employees. On the contrary, they see them as providing essential public services.

The issue is not whether we like them; the issue is whether the costs have gotten out of control. When Michigan was a rich state, we could afford them. Now that we rank 37th among the states in per capita income, we no longer are a rich state, and we simply can’t afford them any longer.

I am sorry if this offends the public sector unions and their members. Many are my friends, teachers who I have seen work very hard to give their students the same opportunities that lifted me out of poverty. Many dug into their own pockets to provide extra classroom supplies. As individuals, I love the teachers. Collectively, however, through their unions, public employees are trying to protect the past, rather than look to the future our state could have.

Adopting the Michigan Turnaround Plan, or at least most of its provisions, can make Michigan a Top Ten state again. But, we must let go of the past and reposition the state to seize the opportunities the future will bring.

We can do it!

Dismal Forecasts and Possible Light on the Horizon

Sobering information was presented at last Monday's Leadership Summit sponsored by the Business Leaders for Michigan. The presentations may be downloaded from the Business Leaders for Michigan website, on the left margin. Further news from the Summit: The bell is tolling for Michigan Detroit News, Business leaders face Michigan's fiscal reality Detroit News and Budget experts predict economic dire straits Detroit Free Press.

The conclusion from the Summit was that as dismal as some of the forecasts are, there are plenty of ideas that collectively can turn the state around. All that is needed is the political will to make the decisions. (And a few more Republicans elected wouldn’t hurt either!)

A step in the right direction is the passage of Senate Bill 1227 which amends the Michigan Public Schools Employee Retirement System (MPSERS). The Senate Fiscal Agency estimates the plan will save $650 million in the first year and $3.1 billion over 10 years by increasing employee contributions and requiring that new employees are placed in a more cost-effective hybrid defined benefit/defined contribution retirement plan. Newly Passed Retirement Bill a Step in the Right Direction

Friday’s Revenue Estimating Conference brought mixed news:

“. . . [S]chool aid revenue is up $292 million above January estimates. General fund revenue, however, is down nearly $244 million below estimates because income and business tax revenue has come in lower than expected. Senate Fiscal Agency director Gary Olson estimates that will leave a shortfall of about $219 million in the general fund budget for the current fiscal year, which ends Sept. 30.” MI school cuts not expected in 2010-11

“The three fiscal experts also agreed that based on a slightly improving economy, the state will have $128 million more in the general fund and $352 million more in the school aid account for the budget year that starts Oct. 1 than they initially estimated in January.” State revenue fund deficit: $244M: Economists say solutions include borrowing, making cuts or using one-time federal money

The state's economic future is still in jeopardy, but here is a bit of optimism in the midst of gloom. Salute!

My Origins and How They Affect My View of Public Policy Issues

The recent death of my 98 year old mother created a flood of memories of my childhood. With this coinciding with my candidacy for State Representative, it represented a great opportunity to consider how those early impressions affect my thinking on a number of today’s state and national issues.

"What one sees depends on where one stands.” This surely has meaning to an exceptionally short or exceptionally tall person in the physical sense, but also has meaning in one’s outlook in life. That is, our past experiences color how we see the world today. Two people with different backgrounds can see the exact same thing and interpret the occurrence entirely differently.

Because of this, Peter Senge in “The Fifth Discipline” promotes dialogue to explore such differences in backgrounds and perceptions, with the goal to more often arrive at collaborative solutions to problems and issues. He also advises exploring our own perceptions and their origins, and scrutinizing them to see whether they square with reality.

This phenomenon of how external stimuli are filtered by our past experiences to create our current perceptions partly explains our political differences. In the hopes that my views can be better understood and thus make finding common ground more possible, I have given some thought to and hereby share My Origins and How They Affect My View of Public Policy Issues of the Importance of Education, the Welfare State and Poverty, Medical Care as a “Right”, Our “Dependency Culture” and Immigration.

Federal Budget: Spending and Taxing Revisited

A. A Preventable Crisis: Exploring Fiscal Crisis Scenarios for the United States is a sobering report regarding the rising National Debt and potential disastrous scenarios we face unless we tackle the problem soon. From the Committee for a Responsible Federal Budget, April 21, 2010.

B. The Man With the Plan is a long and relatively heavy article, but insightful and worth reading. The article is about Congressman Paul Ryan's "Roadmap for America's Future," a sweeping plan to stave off the nation's looming economic and fiscal collapse by changing the tax code, overhauling the health care system, and reforming the nation's major entitlement programs. Its debt-reducing claims aren't based on mere fantasy -- the Congressional Budget Office has determined that the plan would boost economic growth while making Medicare and Social Security solvent. And it accomplishes these aims without raising taxes or affecting the benefits of current retirees. From The American Spectator, April, 2010.

C. Value Added Tax Update: The VAT is exactly what I have been warning people about with the huge and growing deficits and the enormous national debt. (See National Value Added Tax Considered - Tax Increases Ahead , posted October 2, 2009) This invisible tax (imposed on each stage of production) must be opposed, as once in, can all too easily be increased. The VAT is a prescription that treats the symptom (deficit) rather than the cause (spending) of the disease (national debt).

“As the night follows the day, the value-added tax cometh.

With the passage of Obamacare, creating a vast new middle-class entitlement, a national sales tax of the kind near-universal in Europe is inevitable.” Health bill brings higher taxes, by Charles Krauthammer, from the Detroit News, April 8, 2010.

“Pay attention to the growing chatter about a value added tax. It's how we'll likely pay for our new health care entitlement, and the vehicle that will turn America into a colony of worker bees sweating and slaving to sustain Queen Government. . . .” Welfare state will demand a new VAT tax, from the Detroit News, April 22, 2010.

“. . . the liberals' lunge to maximize government's growth depends on quickly creating a crisis that can be called a threat to the entitlement menu. Then the public can be panicked into accepting the addition of a VAT to the existing menu of taxes.” Social programs have real costs, By George Will, from the Detroit News, April 30, 2010.

Nuclear Power Tidbits

A. Here is an interesting article from the Heritage Foundation about an attack on nuclear power under a hidden "environmental" label.

“The New York Department of Environmental Conservation rejected Indian Point’s request for a water-quality certificate, which the plant needs to keep operating one reactor running after 2013, and the other after 2015. . . . The State denied the certificate largely because Indian Point’s water-intake system, which draws water from the Hudson to cool the reactors, kills about 1 billion aquatic organisms annually — mostly eggs, larvae and plankton.”

Indian Point’s two nuclear reactors provide about a third of Gotham’s power (and nuclear plants overall generate 31 percent of electricity statewide). . . .

“[The regulators] are demanding a system that would require the construction of cooling towers — a process of up to 15 years. Thanks to various regulatory delays (see below), these wouldn’t be online until about 2030. The system would cost more than a billion dollars and take the power plant offline for a year. . . .

Bottom line: The Department of Environmental Conservation is basically imposing hurdles that Indian Point almost certainly can’t clear — which suggests what the real agenda is here. . . .

That is: The decision to deny Indian Point its water-quality certificate is a bid to close the plant down — possibly with an eye on then shuttering other nuclear plants with similar cooling systems across the state or even nationwide.

This isn’t state bureaucrats doing their job — it’s an ideologically-driven move that could cost New York a vital source of clean, affordable energy.” A Sneak Attack on NYC’s Electric Bill The Foundry: Conservative , April 8th, 2010.

B. George Will makes the case for the safety of nuclear power as compared with the coal industry. He also proposes that we recycle nuclear waste as is done safely in France.

“The 29 people killed last week in the West Virginia coal-mine explosion will soon be as forgotten by the nation as are the 362 miners who were killed in a 1907 explosion in that state, the worst mining disaster in American history. The costs of producing the coal that generates approximately half of America's electricity also include the hundreds of other miners who have suffered violent death in that dangerous profession, not to mention those who have suffered debilitating illnesses and premature death from ailments acquired toiling underground.

Which makes particularly pertinent the fact that the number of Americans killed by accidents in 55 years of generating electricity by nuclear power is: 0. That is the same number of Navy submariners and surface sailors injured during six decades of living in very close proximity to reactors. . . .” This Nuclear Option Is Nuclear, by George F. Will, April 9, 2010.

C. Safe disposal of nuclear waste (and Yucca Mountain being the best site) has been scientifically proven since at least 1984 when I served as a management consultant for the High Level Nuclear Waste Management Office in the WA DOE overseeing the US DOE research in selecting the nuclear waste repository. Recycling the waste is a better idea. It is time to get building the plants we will need to meet future electrical energy demand.

“The amount of used nuclear fuel currently in storage in this country is not an enormous amount by volume. It could be stacked on one football field to a height of ten feet, and this used nuclear fuel is being stored safely and securely in engineered water pools and dry casks at nuclear plant sites.

However, it is important to recognize that 95 percent of the nuclear used fuel could be recycled. In fact, countries that recycle their used fuel include France, Great Britain, Russia, Germany, Belgium and Japan. Instead of continuing to store 65,000 tons of used fuel at nuclear plant sites, we should turn the Yucca Mountain site into a national recycling center. Recycling, which is also known as reprocessing, reduces the volume of so-called nuclear waste by 97 percent.” U.S. needs nuclear waste recycling, by Gary Wolfram, from Detroit News editorials, May 5, 2010.

D. This National Center for Policy Analysis article says that “until the government meets its legal obligation to provide storage for spent nuclear fuel and high-level radioactive waste, only a few new nuclear reactors are likely to be built. . . .

With waste building up, Congress passed the 1982 Nuclear Waste Policy Act (amended in 1988) to ensure proper long-term storage. The act required the U.S. Department of Energy to develop and maintain an underground storage facility for nuclear waste.

The Energy Department determined that Yucca Mountain, Nevada, was a satisfactory storage place. However, despite scientific evidence that Yucca Mountain is safe, lawsuits and political wrangling have prevented use of the site as a storage facility.” Nuclear Power Development: Removing Roadblocks, March 29, 2010. See http://www.ncpa.org/pub/ba700 for full report.

Quick Hits Regarding Unions

Here are a few article qoutes and links that I think are instructive:

A. It is time for all Senators and State Representatives to do what is right, instead of being scared of or beholden to the government employee unions. This article chronicles several attempts to control costs that have been derailed by the public sector unions.

“Michigan has the ninth-most heavily unionized state and local government workforces among the states. In a recent article about the rise of public-sector unionism, New York professors Fred Siegel and Dan DiSalvo described how government employee unions are "bankrupting states and municipalities" because they "achieve influence on both sides of the bargaining table by making campaign contributions and organizing get-out-the-vote drives to elect politicians who then control the negotiations over their pay, benefits, and work rules.

In Michigan, one can add preventing the legislature from adopting reasonable public employee pay and pension reforms to that list.” Analysis: Government Employee Political Clout Obstructs Budget Reform, April 13, 2010

B. Here is some insight into what is happening with SEIU, one of the strongest government employee unions in the country and how they are extracting wealth from taxpayers and redistributing it to government workers.

“It is no coincidence that under Stern’s tenure the number of government union members surpassed the number of private sector union members for the first time in our nation’s history. There are two reasons for this: 1) Unions kill private sector jobs, and unionized companies earn profits 15% lower than those of comparable non-union firms. This makes unionized firms less competitive, which is why unionized manufacturing jobs fell 75% between 1977 and 2008, while non-union manufacturing INCREASED 6% over that same time. 2) Government union jobs face no competition. Public sector unionization has exploded in the past decade as leaders like Stern realized politics paid much better than the free market. Under Stern’s leadership, SEIU has become the nation’s second largest government union with over half of its membership drawing a paycheck on the taxpayers dime.” Morning Bell: Andy Stern’s America The Foundry: Conservative Policy News. April 13, 2010

C. More political payback from Obama for the unions' support in the 2008 elections. Elections to approve a new union would only require a majority of those voting, in contrast to prior law which required a majority of workers affected. Rule change aids union workers in airline, rail industries, from The Detroit News, May 11, 2010

D. Responsible contractor" provisions must be rejected, whether they be in federal law, state law or local municipality policies, as they drive up taxpayer costs, the last thing we need now with stretched public budgets. A "responsible contractor" policy allows bidders that provide higher pay and richer benefits for their workers to get an advantage in winning government contracts. In practice, the plan would favor firms whose workers are members of unions. Editorial: Fed contracts should favor best price, not unions, from the Detroit News, March 16, 2010

E. “The government class enjoys higher salaries, richer benefits and far better job security than the citizens they are supposed to be serving. . . . The 'public servants' have become the masters over taxpayers.” Good times still roll for government employees, from the Detroit Free Press .

F. We will not have a sustainable long-term budget plan without addressing public employee wage and benefit issues. The legislature, meanwhile, was not able to get the 2/3 vote needed in the State Senate to rescind the 3% raise for unionized state employees. With no Democrat support in the Senate, the Senate could not send the measure to the Democrat controlled House of Representatives, where it would have been even harder to get the necessary 2/3 vote. If we can’t even block pay raises to public sector union employees, is there hope to get cuts? State pay issue will get worse, from the Detroit News, April 2, 2010

G. “Public Labor Union claims of $700 million in concessions by state employees are a comparison of itself to itself. It pales in comparison to the sacrifices made by private sector taxpayers in Michigan that are being asked to foot the bill for their unrealistic benefit and pay levels. They have been shielded and protected from reality for far too long and it is a luxury that taxpayers in this state can no longer afford.” $700 Million in Concessions By State Workers? Really? Where Did That Number Come From? From the NFIB, March 18, 2010.

H. “State Sen. Nancy Cassis has introduced legislation in Lansing that would allow localities to set up what might be called “right-to-work zones. . . Among nearly all private-sector workers, labor relations are governed by federal law: the National Labor Relations Act. The NLRA is fairly exhaustive, and the courts have consistently interpreted it as “occupying the field” of private-sector labor relations, leaving very little room for states to act. But there’s one big exception carved out of federal labor law: States can regulate union membership and agency fees. This is where state right-to-work laws come into play.

“Right-to-work” prohibits unions and employers from signing contracts that force workers to join or financially support a union, leaving union membership and support to the conscience of individual workers.”

This local approach to Right-to-Work could be the means to bit by bit improve the image of the state as anti-business/anti-jobs, and make the state more competitive. Local Right-to-Work: Yes we can! Well, maybe. If we set it up just right..., October 28, 2009.

I. “Place the blame for the loss of the much-needed [Race to the Top] grants squarely on the Michigan Education Association. It sabotaged the state's application at every step. . . . But real change in Michigan's public schools will only come when parents and others concerned about the future of the state decide they've had enough of the Michigan Education Association's obstructionism. “ MEA's sabotage kept Michigan out of Race to Top finalists, From The Detroit News, March 7, 2010.

Reform of MPSERS Retirement System Necessary – But Only Wisely

Governor Granholm proposed changes to the Michigan Public School Employee Retirement System (MPSERS) in her budget proposal. With the contribution rate public schools and community colleges needing to pay going up to 19.41% for the coming school year, it is obvious that the system is unsustainable. Changes must be made to keep the program actuarially sound, and yet affordable by the education system.

Governor Granholm’s proposal was aimed to create cost savings to help balance the budget, but also contained a sweetener to entice long tenured employees to retire (and allow lower cost new employees to be hired) by raising the multiplier of 1.5% to 1.6%, for a 6.6% increase. The multiplier is multiplied by the number of service years credited to the employee. For example, with 30 years of service, and if the highest 3-year average salary were $60,000, at a multiplier of 1.5, the retirement payments would be 1.5% x 30 x $60,000 = $27,000 per year, while at 1.6% they would be $28,800.

The Senate chose not to include the sweetener in Senate Bill 1227, while adopting the bulk of the Governor’s proposal. Significant savings would result. On the other hand, the Democrat controlled House of Representatives amended the bill to send back to the Senate the bill increasing the sweetener from 1.5% to 1.7% or a 13.3% increase, plus a plethora of additional sweeteners.

The worst change made in the House is changing the lifetime health coverage to a constitutionally protected fringe benefit, which it is not now classified. The Michigan Capitol Confidential estimated the added burden to the State would be a new $25.9 Billion liability for the taxpayers.

When the State is having trouble adopting a balanced budget, does it make sense to be adding to the State’s costs and liabilities? Well, to the Michigan Education Association bankrolled and controlled House Democrats, apparently it does.

I say “NO, IT DOES NOT!”

With the bill thrown into a free conference committee, the Senate Republicans would be better off coming out with no bill than a poor one, just to get something agreed upon. With the state the state is in, we cannot afford to saddle the taxpayers with even more costs and liabilities.

Sources:

• Executive Proposed Reforms for the Michigan Public School Employee Retirement System (MPSERS), February, 17, 2010
• MEA Wounds Governor’s School Pension Reform, May 1, 2010
• Analysis: Senate GOP Fumbles, May Approve $25.9 Billion Taxpayer Liability to Satisfy MEA, May 10, 2010

The Ann Arbor Airport Expansion Is Not Justified Now

On March 20, 2010, I took a position opposing the expansion of the Ann Arbor Airport. My statement to the news media was as follows:

“I oppose the proposed expansion of the Ann Arbor Municipal Airport as described in the “Preferred Alternative” in the recent draft Environmental Assessment. The changes proposed neither greatly increase safety nor sufficiently enhance the operations of the airport to justify spending taxpayers’ money on the proposed changes now.

None of the stated objectives individually (or even collectively) is sufficient to justify the spending of public taxpayer dollars now. If State Road is widened in the future, then a shift of the runway to the SW would be appropriate, which would achieve objectives 2, 3 and 5.

But wait, “Isn’t this money free, that is, federal money from the Airport and Airway Trust Fund, and if we don’t spend it, someone else will?”

97.5% of the estimated $1.3 million cost would come from that fund, and 2.5% from the airport’s operating fund. However, we need to take a principled view of this “free” money. Everyone acting as if federal money is free is exactly what has gotten us into the U.S. Congressional “earmark” game, as everyone tries to “get their share”, to the point that the whole country suffers from budget deficits and an exploding national debt. If a project is not a good expenditure, it should not matter what the source of the funds are, as ultimately we all are paying the cost.

In this case, the shift of the runway 150’ SW may be needed in the future, but not now. The extension of the runway might never be justified. We ought not to spend these funds now.”

The full statement submitted to the Michigan Department of Transportation can be found here.

Several responses to the statement warranted the following Q and A:

Q: The project would be paid from user fees paid into the Airport and Airway Trust Fund. Why are we worried about the cost?

A: The fact that the cost of the project would come from the Airport and Airway Trust Fund actually creates less of an objection than ordinary Congressional earmarks in that the users of the airport contribute into the fund through their aviation fuel tax. Airplane owners can say that they have already paid for the project through their user fees. For me, the bottom line is that if a project does not generate more benefits than its cost, it does not make economic sense to do the project, no matter what the source is. The fact that the money is “free” does not increase the project's benefits nor decrease its cost.

Q: Doesn’t this endanger the survival of the airport?

A: I support the continued operation of the airport. Nowhere in this discussion have I heard that the proposed improvements are needed to ensure the survival of the airport. The proposed improvement would be nice, but not required by any current FAA regulation for continued operation. The Ann Arbor Municipal Airport serves a useful function, especially for student pilots (which I was one back in 1975 flying out of a grass strip near Mason, MI) which you really want to keep away from the busier airports. If you read the full analysis, you will also see that I would support the shift of the runway 150’ to the SW at such time as State Road is widened, but doing so now with no widening of State Road imminent would not be necessary now.

I would also work to receive funds from the Airport and Airway Trust Fund if the airport ever became in danger of closing due to lack of funds for necessary improvements. While little argument can be made that expansion of the airport would create measurable economic benefit, closure would clearly entail significant economic loss which should be avoided.

Q: If Ann Arbor does not get these funds, someone else will, so why not get our share?

A: That is an argument for every project in the United States, and for every earmark. My best response is to suggest you Google “tragedy of the commons”, which in short, means that when each individual pursues his or her own personal best interest in the use of a common resource, the common resource gets overused to the point that all lose. I know, this is a philosophical argument, but we need to start somewhere.

I understand the need for jobs in this area, and having taken 27 courses in economics over the course of my lifetime, I understand the “multiplier effect” of expenditures in an area (although one can argue just what the multiplier is, from 3 to whatever, depending on the “leakage” from the area economy). So, balancing a principles approach vs. a purely “what’s in it for me (or us)” get tough. On this issue, I have chosen the principled approach.

We will not agree on every issue in the future, but what I pledge is to be willing to take positions based on research of the facts and analyses, listen and consider alternate points of view.

Q: You say you are taking a “principled view” on this issue. Would your stance change if the amount of the project were $10 billion to be spent in our area, instead of the much smaller projected cost of $1.3 million for the proposed expansion?

A: This, like many questions that State Representatives face, is not a question subject to an easy “Yes” or “No” answer. Taking a principled view does not mean we should never take federal money. If the hypothetical case would show significant benefits in excess of the costs, then my answer might well be different. A $10 billion investment into our area would obviously result in a substantial positive economic impact for us, and would be extremely hard to not want.

What many people would miss in their thinking about the costs and benefits in this hypothetical (as well as most other well-meaning government programs) is that the taxes necessary to pay for these “free” projects also destroy as many jobs as they create, in very diffused secondary or indirect effects. Most “tax and spend” programs are zero sum games, in that there are winners and losers, with no net positive impact. The reason they are so popular among people (and their elected representatives) is that the winners are easily identified and vocal, while the losers are harder to identify because the costs are indirect, usually more in number, but each hurt only a little bit and therefore not as vocal.

The issues we face as a community today are often complex and not subject to easy answers. We need to have good dialogue on these important issues. “Politics” is, after all, conversations about important topics leading to ultimate decisions that affect virtually every aspect of our lives. (Although many people say it means "poly" (or many) and "ticks" (or many bloodsucking parasites). :)

I appreciate the opportunity to hear supporting and opposing views. Only by considering all points of view can we be sure we make decisions based on all the facts, rather than on uninformed, predisposed opinions.

Were home based child care workers unionized against their will? The controversy continues…..

Once elected, I will fight forced unionization of independent private business owners who are receiving payments from the stateon behalf of their clients. Further, I will fight against high-handed executive branch diversion of funds contrary to the intent of the Legislature in its adopting the Appropriations bills.

Rick Olson, Candidate for State Representative, 55th Legislative District

In 2009, the Mackinac Center Legal Foundation filed a lawsuit (Loar v. DHS) against the state Department of Human Services on behalf of at least 40,000 home-based (business owners ) day care providers. The case challenges the union effort to designate the providers as government employees for unionization and dues-collecting purposes. The case is based on the grounds that state law presumes that no one is subject to public-sector bargaining unless state legislation has made them so, and in this case, there is no legislation — only an interlocal agreement. On December 30, 2009, the Michigan Court of Appeals dismissed the case without explanation. The public-interest law firm has appealed the case to the Michigan Supreme Court.

Several efforts to get the state Supreme Court to hear the case are underway.

“State Representative Dave Agema, R-Grandville, has submitted a resolution asking that the Michigan Supreme Court hear a case involving home-based day care workers who say they didn't realize they were unionized by the state.” State Reps. Joining Day Care Union Case, Tom Gantert article on Michigan Confidential, April 18, 2010.

The National Federation of Independent Business has joined the Mackinac Center for Public Policy in the legal arguments to go before the Michigan Supreme Court by filing a amicus brief. A show of public support for the Michigan State Supreme Court to hear the case is important, as the Court has discretionary authority on whether to hear the case or not.

Background Articles:

“A year ago in December . . . more than 40,000 . . . home-based day care providers statewide were suddenly informed they were members of Child Care Providers Together Michigan — a union created in 2006 by the United Auto Workers and the American Federation of State, County and Municipal Employees. The union had won a certification election conducted by mail under the auspices of the Michigan Employment Relations Commission. In that election only 6,000 day care providers voted. The pro-labor vote turned out. . . . [T]he state created an "employer" for the union to "organize" against. Of course, Michigan's independent day care providers don't work for anybody except the parents who are their customers. Nevertheless, because some of these parents qualify for public subsidies, the Child Care Providers "union" claimed the providers were "public employees."

Michigan's Department of Human Services teamed with Flint-based Mott Community College to sign an "interlocal agreement" in [September] 2006 establishing a separate government agency called the Michigan Home Based Child Care Council. This council was directed to recommend good child care practices — and not coincidentally, to serve as a "public employer." Although the council had almost no staff, no control over the state subsidies and no supervision of the providers' daily activities, it became the shell corporation against which the union could organize.

Thus the state created an ersatz employer and an ersatz "bargaining unit" against which what was essentially an ersatz union could organize. . . . “ Michigan Forces Business Owners Into Public-Sector Union, by the Mackinac Center for Public Policy, January 15, 2010.

“The Michigan Home Based Child Care Council . . . somehow -- became the intermediary between the department and a new AFSCME- and UAW-affiliated union called Child Care Providers Together Michigan.

In December 2006, AFSCME announced that the state had certified that a majority of home-based child care providers had chosen union affiliation. AFSCME said its drive to unionize child care providers encompassed eight other states, including neighboring Illinois, Minnesota, Ohio and Wisconsin. “ Forced unionization: Lawmakers should look into state's collusion in organizing babysitters, Editorial from The Detroit News, March 22, 2010.

“Last year in a complicated union deal, about 70,000 day care workers in Michigan learned they had joined a union known as Child Care Providers Together Michigan and were now working for Michigan Home Based Child Care Council. About 40,000 of those home-based day care workers have union dues to the tune of $3.7 million a year automatically deducted from their state subsidy checks. . . . State documents show that 6,396 day care workers voted and 5,921 were in support of forming a union. But the union supposedly represents the 70,000 day home-based day care workers in Michigan, not just the 40,000 who receive state subsidy checks, according to the Michigan Auditor General.” Minority Rules: Most Members of Child Care Union Didn’t Vote Themselves In, by Tom Gantert, article in the Michigan Confidential, March 1, 2010.

“Thirteen other states have pulled off the same shady scheme to surreptitiously subsidize unions in this manner and labor, with all its financial resources, would seem to have an unbeatable hand except for public interest groups like the Mackinac Center.

Individual care providers, who generally run low-budget operations, don't have the resources to fight back against such thuggery, sanctioned by their own elected representatives.

Answers needed . . .

Since the MHBCCC has indicated that it does not employ the care providers, how can these business owners be deemed employees in a labor union?
If the care providers need a license to operate a business, how can they be considered employees of a state council, which disclaims an employers' role?

And if the state does employ these people, should it also shell out the 6.2 percent federal payroll tax which employers are required to pay? [I.e., what supervisory functions does the council serve, when the “employee” vs. “independent contractor” criteria are applied, as for when Social Security taxes and Federal and state unemployment insurance taxes must be collected by the employer. Note that the day care providers file 1099 tax returns, which put them into the category of contractual workers.]”

The Mackinac Center lawsuit result is important for Michigan.

It will tell us whether our state will require transparent, fair treatment of its citizens in the future, or whether powerful special interest groups will continue to divert taxpayer dollars for their own benefit with the aid of those they helped elect.” Home Day Care Workers Should Have Fair Hearing, Frank Beckman editorial on Detroit News, April 9, 2010.

Meanwhile, the unions have responded with:

“Child care workers paid by the Michigan Department of Human Services in 2005 came to the UAW and AFCSME with a desire to bargain collectively to improve their wages and working conditions. Over the course of several months, a majority of these child care providers signed union cards. In the fall of 2006, they voted to form their union in a state-supervised election. . . . These workers followed state law in winning union representation and then went beyond that. They first organized by "card check," a legal procedure, and gathered more than 22,000 signatures of child care providers in favor of a union, or 55 percent of the state's 40,500 child care workers at that time.

But they also petitioned the Michigan Employment Relations Commission for an election. Under the state labor law system, most elections are done by mail.

In October 2006, ballots were mailed out by MERC to every eligible voter working at that time. Of those voting, 92 percent came back in favor of a union.” Special Letter: Child Care Workers Asked for Union, by James Settles, UAW, letter printed by Detroit News, April 15, 2010.

In an interesting and connected side note,

“The Legislature last year ended payments to the Michigan Home Based Child Care Council, a liaison between the state's Department of Human Services and a controversial labor union that, under questionable circumstances, came to represent people who receive government subsidies for providing day care in their homes for children of low-income working parents. Lawmakers recently learned that Human Services officials have defied them by shifting money within the department to keep the council's $200,000 contract intact.

A Human Services spokesman said this was done because the department has a contractual obligation to fund the council through the end of this year. The spokesman also claimed that the Legislature's action, taken as part of its approval of the department's budget for 2010, did not include a specific prohibition against further payments to the council from other funds. . . . “ Forced unionization: Lawmakers should look into state's collusion in organizing babysitters, Editorial from The Detroit News, March 22, 2010.

If this practice is allowed to stand, what would prevent the same thing from happening to home health care workers whose clients receive government assistance? Pharmacists? Others? This cannot be allowed.

Improving the Business Climate to Create Jobs

None of these ideas include the government directly creating a job (which would have to be paid for by higher taxes) but improving the business climate to create the atmosphere for entrepreneurship, innovation and risk-taking by businesses trying new things.

This local approach to Right-to-Work could be the means to bit by bit improve the image of the state as anti-business/anti-jobs, and make the state more competitive. Local Right-to-Work [Mackinac Center] Feb. 25, 2010

This editorial clearly paints the difference between the parties' approaches to turning Michigan around. The "Spenders" (aka the "Tax and Spenders") plan does nothing to encourage job growth, but only supports the public employees' jobs. We must do better than that. It's Reformers vs. Spenders in state faceoff From the Detroit News. Jan. 28, 2010

Now here are some great New Year's resolutions worth making AND keeping. Michigan's 2010 New Year's resolutions State must say goodbye to its lost decade and start new year on a more productive path. From the Detroit News. Dec. 31, 2009

In this philosophical debate on how best to create jobs, I come down on the side of creating a better business climate for all businesses in Michigan, encouraging all businesses to flourish, to harness the entrepreneurial spirit and innovativeness that made Michigan the envy of the world years ago. I simply do not believe that bureaucrats in Lansing can pick the winners better than the best minds in business and finance who are risking their own money and careers with their investment choices. Sharing Ideas for a Better Michigan: Bureaucrats Should Not be Picking Winners and Losers in Our Fre Dec. 29, 2009

Posts to Facebook re Michigan's Budget Crisis

Tax hike won't solve budget woes Governor's proposal courts failure by avoiding more long-term ref detnews.com Feb. 24, 2010

It is not my nature to be confrontational, but any cost cutting measures at the state level that do not address the excessively high cost of public employee wages and benefits will not be a long-term solution. They must be brought down to private sector equivalents.
School, Government Employee Unions Drain Their Host
By Jack McHugh, The Mackinac Center for Public Policy Feb. 23, 2010

The union's choice of retaining high salary and benefit levels instead of retaining service levels for Wayne County residents is not a viable long-term solution. It's time for public sector unions to wake up and smell the coffee brewing in Michigan. http://www.detnews.com/ Feb. 23, 2010

The Governor's Proposed Budget includes a tax increase without sufficient savings from salaries and benefits from state and public school employees. The Legislature must do better. Editorial: Balance Michigan budget with labor cost savings Feb. 14, 2010

Unions bleed taxpayers to help Democrats, http://www.detnews.com/ Feb. 9, 2010

For more, go to my Facebook page at http://www.facebook.com/#!/olson48176?ref=profile

Cheers! Rick

Taxes and Spending – the Perennial Issues

Here is an excerpt from the February 2010 Washtenaw Republican Informer, of which I am a co-editor and which may be accessed on the Washtenaw Republican Party website:

Read “Where We Are and How We Got There”, Feb. 17, 2010, by Mitch Bean, with the House Fiscal Agency. This is not fun reading, but a good summary of the State's fiscal status. What is missing, however, are options for cost controls and job growth which help solve the revenue shortfalls. For good starts, see:

• Republican Senate Reform Package which could potentially save the state more than $2 billion.
  House Republican Strategic Task Force on Jobs
  The Michigan 2010 Small Business Agenda
  The Michigan Turnaround Plan, by the Business Leaders for Michigan
  

Both Republican caucuses and the business groups oppose the tax increases in Governor Granholm’s Proposed Budget. Where some difference of opinion exists among the Republican and Republican oriented groups is whether reforming Michigan to gain control of costs and a reforming the tax structure should occur simultaneously Consensus appears to be that cost control must come first, before reforming the Michigan tax structure is put on the table. Otherwise, the fear is that “restructuring” simply becomes a tax increase.

Defending the Constitution

Here is an excerpt from the February 2010 Washtenaw Republican Informer, of which I am a co-editor and which may be accessed on the Washtenaw Republican Party website:

One of the unifying themes of the many “liberty” groups, whether they be Tea Party groups, Americans for Prosperity, Campaign for Liberty, etc., is the demand for a return of the reading of the U.S. Constitution as it was intended by the Founding Fathers, i.e., the creation of a limited government, chock full of checks and balances. Here are some useful resources.

• Nullification: A curb on federal overreach - An interesting outgrowth on the debate of the Senate health care bill (and ObamaCare in general) is the renewed interest in nullification among state legislatures. The first instance of the use of nullification were The Virginia and Kentucky Resolutions of 1798 a direct response to the constitutionally offensive Alien and Sedition Acts of the same year. Whether it’s ObamaCare, federal gun laws or the REAL ID Act more and more state legislatures are turning to nullification to reassert their state sovereignty under the Tenth Amendment. For further viewing: Judge Andrew Napolitano: The Constitution and Freedom
  
  
• On the humorous side, two eminent law enforcement officers (Barney Fife and Andy Griffith) weigh in on the Preamble of the Constitution in this YouTube video.
  
  
• Michael Badnarik, a more credible source on the Constitution, provides a very informative 8 hour class on the Constitution & History which can be watched in short segments.
  
  
• The webcast archives from the Hillsdale College’s January 30th “Constitutional Town Hall” are another excellent source (free, after registering online).

Thanks William Rushlow and Dave Pangborn for your submissions for this article.

Critics of members of the Tea Party: "What a quaint idea. The U.S. Constitution actually means what the words say? Pure madness." We all need to be concerned to the extent the limits on government written in the Constitution have been eroded by Supreme Court opinion after opinion over the years. We are to the point that many believe we are not the republic the Founding Fathers envisioned, but rather a democracy where 50% +1 can do anything they wish against the outvoted minority (typically the producers of society). Tea Partiers hold true to the 10th from the Detroit News.

Comments?

Rick

Parliamentary Procedure Interactive Workshop Available

A Parliamentary Procedure Interactive Workshop was held on February 24 at the Monroe County Community College for community leaders and activists to conduct more effective meetings. I am willing to conduct this workshop for other groups upon request.

This is a fun, engaging way to learn the basics of Parliamentary Procedure, as you briefly hear the theory, put it into action through skits, and have a few laughs along the way. For more information, contact me or download the Fundamentals of Parliamentary Law.(PDF)

Rick Olson, 734-944-0794

Lowering the Cost of Public Safety Services

Contracting with a lower cost department can make sense and avoids the stupidity of the Urban Cooperation Act's forcing the highest wages and benefits that occurs with consolidation of municipalities (and thus discouraging the very "cooperation" the name of the Act implies).

Municipalities stuck with excessively high costs imposed by arbritrators under PA 312 should definitely look at this alternative. The Center for Michigan » SPECIAL REPORT: Combining cop shops can save big bucks

An amendment to PA 312 without requiring the arbitrator to take into consideration the municipality's ability to pay is truly "hollow". A chance to control costs has been lost, but we will need to come back to this. Michigan Senate Bill 1072 Will Change Public Act 312, but May Have Little Effect [Mackinac Center]

As much as we love and respect our public safety employees (police and firefighters), PA 312 needs to be more balanced, to reflect the community's ability to pay. The Center for Michigan » Cities push hard on Act 312 and cost controls

These proposals make sense to control costs of corrections, without being "soft on crime". We also need to look further at the levels of wages and benefits of prison workers and privatizing support services to minimize costs. The Center for Michigan » Three things every citizen should know about state prisons

See also: Repeal PA 312 to Eliminate Binding Arbitration for Police and Firefighters? and
Michigan Laws that Impede Greater Efficiency through Collaboration

I welcome your comments. Cheers!

Is the Name of the Michigan "FairTax" a Sham?

In response to Facebook postings:

1. “David A. Dudenhoefer February 23 at 11:33pm Reply http://www.campaignforliberty.com/blog.php?view=32914 This is timely as some hacks in our state are pushing this "fair-thief" tax” and
   
   
2. Tony DeMott’s Facebook posting: “The Fair Tax simply changes who is the tax collector. It turns small businesses into tax collectors. The Consumer will still end up paying all the taxes. The tax burden will not be lowered at all. Michigan citizens care about lowering the tax burden, not who the tax collector is. The Fair Tax is a sham and if you believe our government is too big, too intrusive, and too oppressive, you should oppose this sham”

I respectfully disagree. But first, let me make clear that I totally agree that there are a lot of costs that can and should be cut out of government spending, both at the state and federal levels. Any serious look at my Facebook and blog postings would confirm that. Second, I am opposed to many of the government interventions into our economy and personal lives which go well beyond the limited government our Founding Fathers envisioned. So, I am onboard with the concept endorsed in Michigan by the Business Coalition that we must get the spending reforms first, then we can tackle the tax structure.

I also agree that the name “FairTax” is a misnomer, as any tax system is a transfer of wealth from somebody to government for transfer to someone else, and so will never be “fair”, whatever that means. But, it is a piece of the marketing of the FairTax idea, and I can understand that. A proposal needs to be evaluated on its content, and not by its name.

Having said that, now it is important to realize that taxation in one form or another is a reality, and one that is not likely to change. So, if we are to be taxed, the questions are, “What taxing mechanism is best? On what criteria should we judge a tax system?” In other words, one can distinguish between (1) the tax level, i.e., the total amount of taxes collected and (2) the taxing mechanism or structure.

It does matter what tax system is in effect, as different tax systems have different secondary or indirect effects. For example, economists will tell you that a business is a tax collector, and not a “taxpayer”, as the indirect impacts are: higher prices, lower wages to its workers, lower dividends to its owners, or fewer jobs, or some combination of these impacts. The consumer ultimately pays. Different tax schemes have different impacts, some which distort the free market economy more than others. An income tax, for example, discourages earning, savings and investing. With different direct and indirect impacts, it therefore does matter what tax system we use – given that we will have some tax system.

A consumption tax is one that distorts the free market the least, although even a consumption tax discourages consumption, and therefore lowers prices, and therefore less is produced in a free market society, in effect, lowering the standard of living in the society. Is it perfect? No. No tax system is. I just see it as better than the current tax system, whether it be called a “consumption tax”, “FairTax”, or whatever.

It also matters how easily a tax can be increased, as the easier it is to raise a tax, the more likely the politicians will raise it. The visibility of a tax is one deterrent to a tax being raised. Contrary to the claim that the FairTax would be hidden, it would be incredibly visible, paid on each purchase, and far more visible than an alternative I fear will be proposed to raise more revenue at the federal level – the Value Added Tax, which is collected at each level of production and hidden in the final price of a product.

I further disagree with the use of David’s term of calling those who support the FairTax as “hacks”. I understand the tactics espoused by Saul Alinsky in his book “Rules for Radicals” that calling people names is a good tactic for radicals. I believe it is offensive, however, when used against friends who happen to disagree with you on some point. Fact is, none of us will ever agree 100% with anyone else. Maybe I am too willing to leave the name calling to the radicals who we jointly oppose, but us freedom lovers should look to find common ground amongst us, rather than look to tear us apart. No one group in the “liberty” movement has a monopoly on patriotism.

Respectfully, your friend,

Rick