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!