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Smoking’s Bottom Line

Posted on by cjarrettdieterle
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When Michigan Gov. Jennifer Granholm approved a private-business smoking ban in late 2009, many restaurant and bar owners voiced concerns over its potential effect on their businesses. The owners feared that smokers would reduce the time they spent at eating and drinking establishments, thereby hurting the industry’s bottom line. Over a year later, the argument for repealing the ban grows stronger.

A 2010 report by the Michigan Department of Treasury attempted to measure the effect of the smoking ban by analyzing restaurants’ sales tax collections. While the study indicated that most eating establishments were not significantly affected by the smoking ban, the authors observed that the reduced tax collections at taverns with liquor was “potentially related” to the ban. Also decreasing after enactment of the ban were liquor sales at restaurants, tax collections from cigarettes and revenue from bar “Club Games,” such as Keno.

Ultimately, the report concludes, “The impact of the smoking ban has likely affected some establishments within each group far more than others.” Therefore, the best way to determine the economic effect of the smoking ban is on a case-by-case basis.

The website Tobacco Reviews interviewed Michael Moriarty, the owner of two bars in Lansing. One of his bars, Moriarty’s Pub, enjoyed an enhanced lunch crowd, which Moriarty attributed to the ban. At his other bar, Stobers Cocktail Lounge, however, the ban caused Moriarty’s usual clientele to stop coming in as frequently and consistently.

In an article in The South End, Tom Moore, owner of Lefty’s Lounge in Detroit, concurred that the ban has produced mixed results. In May, Moore noted that while some of his customers, such as professors from nearby Wayne State University, enjoy the smoke-free environment, he has also “lost a lot of neighborhood regulars who don’t come in as much — if at all.”

A new Michigan Public Broadcasting series titled “reWorking Michigan” recently produced a video in which several state restaurant owners similarly reflected on the smoking ban. Val Orlando, owner of City Limits Bowling in Mason, supports the ban, and he praised it in the video. Despite this, he admits: “It’s been a little bitter sweet. Our late-night, singles crowd kind of has suffered a little bit … they kind of left us.”

Nicholas Fata, who owns Champions Sports Bar and Grill in Holt, is more vocal about his frustration with the ban. Fata claims that his business is down 10 percent to 15 percent, and he’s laid off 10 employees as a result of losing his smoking crowd.

At first glance, these testimonials from restaurant owners seem contradictory. What they show, however, is that restaurants are not fungible; rather, they have unique menus, business models and clienteles. For example, Moriarty’s Pub in Lansing can attract a larger university crowd to offset the loss of smoking customers. Fata’s sports bar in Holt does not have this advantage, and its business has suffered.

In the end, aggregate data on the smoking ban’s economic effect misses the mark by overlooking restaurants that depend on smoking customers; these establishments lose revenue, lay off workers or even close.

Some contend that the negative health effects of second-hand smoke supersede concerns about restaurants failing. As Mackinac Center Senior Environmental Analyst Russ Harding has noted, however, studies connecting secondhand smoke to health ailments are inconclusive, and such arguments ignore the ability of customers to make their own health decisions by deciding whether to dine at restaurants that allow smoking.

Michigan should repeal its private-business smoking ban and return this decision-making power to restaurant owners. They — not policymakers in Lansing — can better determine what affects their bottom line.

Vouching for Choice

Posted on by cjarrettdieterle
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In the past several years a wave of education reform has swept across the United States. Charter schools are on the rise, vouchers programs are springing up in various parts of the country, and parents have more control over their child’s education than at any time in our country’s recent past. This commendable progress, although far from finished, owes much to the efforts of Milton Friedman. Friedman consistently and forcefully espoused the virtues of educational choice and flexibility.

Perhaps the most well known of Friedman’s educational reform proposals was the school voucher system. In his seminal book “Free to Choose,” Friedman diagnosed the problem with the nation’s education system: “For schooling, the sickness has taken the form of denying many parents control over the kind of schooling their children receive. … Power has instead gravitated to professional educators.” Friedman recognized that the solution was to give parents more flexibility as to where their kids could go to school.

Friedman’s voucher plan, originally proposed in the 1955 essay “The Role of Government in Education,” was remarkably straightforward. Friedman noted that when a child is withdrawn from a public school and sent to a private school, taxpayers are spared the expense and liability of educating that child. There remains a disconnect, however, as the family that withdrew the child receives “no part of that saving except as it is passed on to all taxpayers.” Therefore, Friedman advocated giving such families a voucher in exchange for relieving the state of their child’s educational costs. If the family saves the state $4,000 in costs and receives a $2,000 voucher in return, the state still saves money while the family simultaneously receives assistance for private school tuition. This financial aid, in turn, would make private schooling financially feasible for a greater number of families.

In May of this year, Indiana passed comprehensive education reform legislation that the Wall Street Journal editorial board called “the most ambitious voucher program in memory.” The law provides over 7,000 vouchers in its first year of enactment, eventually uncapping the number of available vouchers in three years (but still limiting availability through means-testing). The vouchers award up to $4,500 for students who are in public schools and want to switch to another public or private school. The legislation also includes other mechanisms that enhance school choice, such as a $1,000 tax deduction for families that spend money on private school expenses. Other places where Friedman-inspired educational choice legislation has been proposed or enacted include Texas, New Orleans, Florida and Washington, D.C.

Although this wave of education reform is welcome, the gains achieved are tenuous and reversible. Entrenched interests — most notably public-sector teacher unions — are determined to stymie reform efforts. Given their organizational advantages and significant financial war chest, such entities are a constant threat to school choice.

It is also important recognize that vouchers are not the be-all-end-all of the educational reform movement. As Friedman himself wrote, “[My wife Rose and I] regard the voucher plan as a partial solution because it affects neither the financing of schooling nor the compulsory attendance laws. We favor going much farther.”

Friedman’s own intellectual contributions to education have made “going much farther” a greater possibility than ever before.

Treed?

Posted on by cjarrettdieterle
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Imagine a young couple moving to the Midwest to escape the grime of New York City. Newly married and seeking open space, they buy a 5 acre wooded lot in a Michigan township. These do-it-yourselfers clear just enough space for a building site, as well as a solar field to power their house. Eventually, they hope to recycle the large oak trees they reluctantly cut as building material for their new home.

This scene appears idyllic; in reality, it’s illegal. Guilty of a municipal civil infraction, the newlyweds are subject to a fine. Like many other Michigan municipalities, their township – say, Bloomfield Township – has a Tree Preservation Ordinance, and large oaks are “landmark” trees.

The newlyweds stop by to caution you with their tale of woe after you close on a lot adjacent to their property. Ever confident and self-reliant, you laugh it off. You are too intelligent to be ignorant of the law! Why, you will simply follow the rules from the beginning and be just fine, thank you. Like any responsible citizen, you download the township’s zoning ordinance and flip to section 42-5.14: Tree Preservation.

First, you learn that if you build a new house or simply want to remove a significant number of trees, a “tree permit” will be necessary. No problem: You’ll just submit the application form, pay the permit fee and then wait for your request to be “approved or rejected” by the “Planning, Building and Ordinance Department.”

That wasn’t so bad, you think to yourself. But hold up there, young fellow! If you intend on removing any “protected” trees, you will be responsible for replacing them “at a rate of fifty percent of the total DBH removed.” DBH, of course, is shorthand for diameter-at-breast-height. Watch out! Do not get “protected” trees confused with “landmark” trees. A landmark tree requires a replacement rate of 100 percent of the total DBH removed, instead of 50 percent.

Unsure what constitutes a “protected tree”? Just consult this convenient scoring chart:

It’s easy! Protected trees score 10 or higher, while any tree nine and under “could be” non-protected. Luckily, a professional Arborist conducts a “tree survey” to determine such things as whether the “twig elongation” growth rates are six inches or seven.

Landmark trees, on the other hand, include 32 species (of varying DBHs) listed in the township zoning ordinance’s “definition” section (separate from the tree ordinance section). Remember: all landmark trees are protected, but not all protected trees are landmarks!

Oh, and when you go about replacing a protected or landmark tree, be sure that the replacement tree you purchase meets the five standards set forth in the ordinance by the American Association of Nurserymen. And your new tree certainly cannot be located within 4 feet of a property line or 10 feet of a power line.

The township may choose to waive the tree replacement requirement if “it is not reasonable, practical and desirable to relocate or replace trees on site or at another approved location.” Of course, if this happens, you may be required to pay “an amount of money equal to the value of the replacement trees” to the township’s Woodland Trust Fund instead.

When you finally start building your new home, you had better get out the posthole digger, because you’ll need to put protective fencing around any tree in the construction area. Be sure to place the fencing five feet outside the tree’s “drip line” (consult the ordinance’s helpful graphics below!); make certain that your stakes are a maximum of 10 feet apart; and confirm that your fencing material is at least 48 inches high. Hopefully, your tree-fence is sturdy, because it’s going to remain in place “until such time removal is authorized by the Township.”

Congratulations! After several weeks, you have successfully obtained your permit and arranged for the safe replacement of the protected trees! Unlike the newlyweds, you were a good citizen and worked hard to follow the law.

But wait! Upon further review, it appears you forgot to “conspicuously display” the tree permit near your building site. Thus, a township representative was unable to inspect the property. This places you in violation of the tree ordinance and guilty of a civil infraction.

Maybe the newlyweds weren’t so stupid after all. Upon paying the fine, they decided to hire a contractor to clear the land and handle the ordinances. For the same price, you too can enjoy your inalienable rights to Life, Landmark Trees, and the pursuit of Ordinance Compliance.

Urban Sprawl, RIP?

Posted on by cjarrettdieterle
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From the mid-1990s to early 2000s, pundits blamed “urban sprawl” for soaring infrastructure costs, environmental degradation, increased CO2 emissions, shrinking farmland and even obesity. Today, in Michigan and across the country, this issue has largely disappeared. Strangely, this disappearance is attributable to the government, albeit more by accident than by design. If sprawl is to remain in the rearview mirror, politicians must address their own contributions to its rise.

In the 1990s, the number of people moving out of cities and inner-ring suburbs into surrounding areas increased, turning more Michigan farms and open spaces into housing developments and suburbs. In 1994, Gov. John Engler’s task force on sprawl reported that farmland was disappearing at the rate of 10 acres an hour.

The apprehension over sprawl in Michigan and around the country led to many hypotheses about its cause: rising personal wealth, more people owning cars, and a general desire to live in less crowded, lower-tax areas. According to this telling, owning a house and raising a family on a nice piece of property — in essence, pursuing the American Dream — was responsible for threatening our land.

As urban sprawl garnered attention, pressure mounted on politicians to do something about it, and Michigan policymakers formulated plans to arrest the pace of development. At the state level, Public Act 116 was amended, providing tax credits to farmers who agreed not to convert their farms into housing developments. Several local municipalities passed programs allowing government to purchase property development rights, thus restricting future building in some areas. The costs of these programs were justified on the basis of protecting valuable natural resources from overeager consumers.

In 2006, however, the real estate bubble began to deflate, and by the end of 2008, housing prices were devastated. Foreclosures soared, and many Americans shuttered their homes. As the causes of the housing bubble began to emerge, it became apparent that government was at least partly to blame for sprawl. The Department of Housing and Urban Development had used Fannie Mae and Freddie Mac to extend riskier mortgages to many Americans. By bundling these mortgages into mortgage-backed securities and backing them with implicit taxpayer guarantees, the government had subsidized homeownership.

The extent to which mortgage subsidization caused sprawl is open to debate. Other factors, such as urban zoning policies, rising wealth and market forces likely played a significant role. Still, government’s response to its market distortions over the last decade was to increase its market involvement through land preservation programs, rather than reforming mortgage or zoning policies.

Interestingly, less-regulated housing markets, such as Houston, Texas, appear to have weathered the housing crisis better than cities with more zoning rules. Houston housing prices neither rose drastically during the housing boom nor declined precipitously during the bust phase. Less government involvement from the beginning may give cities the best chance to avoid dramatic changes in the housing sector.

By contrast, Michiganders find themselves stuck with numerous government policies that distort land and real estate markets, even though the state’s population and house-building have plummeted and sprawl has slowed. When sprawl was prevalent, government was subsidizing it with one hand while trying to stymie it with the other. Today, absent the pressures of sprawl, farmers are still able to enjoy tax credits and government compensation in Michigan.

Now that the hysteria over sprawl has subsided, government should reduce its influence by ending mortgage subsidization and deregulating city planning. Instead of attempting to alleviate sprawl with more government, politicians should see what happens with less.

Municipal Consolidation: Saving Money or Growing Government?

Posted on by cjarrettdieterle
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In an effort to combat bloated government spending in the state, Michigan Gov. Rick Snyder wants to provide incentives for municipalities to consolidate. By combining local units of government, Gov. Snyder is hoping to create economies of scale and reduce local government expenditures. But before Michigan charges ahead on a consolidation crusade, a look at the research on the topic is in order.

Numerous studies investigating the putative cost-savings of municipal consolidation show mixed results. In 2009, at the behest of a state commission studying local government in New Jersey, Rutger’s School of Public Affairs and Administration undertook a literature review of various consolidation studies. Among other conclusions, the report warns that even though “there is some support for reducing the number of governments” via consolidation, “there is a considerable body of literature that does not support consolidation.” For example, the report discusses the absence of efficiency gains in Australian and Canadian municipal consolidations in the 1990s.

Cost-savings from consolidation may seem to make sense, but there are several reasons why merging municipalities may not save as much money as some suggest. A study analyzing consolidation in the U.S. state of Georgia reviews some of the overlooked costs of municipal consolidation. Exclusion of one-time “transitional costs,” such as expenditures for consolidation consultants or new buildings for a larger workforce, can cause the full costs of consolidation to be underestimated.

Another consideration, highlighted in a Syracuse University report, is the phenomenon of “leveling up.” For example, a particular township employee might earn $50,000 per year before a merger, while the corresponding city employee might earn $70,000 per year. After consolidation, if the township employee’s salary is raised to $70,000 as well, the new municipality will have higher compensation costs.

Leveling up can also occur with services. Using the city-township example, the more robust snowplowing schedule of the city might be extended to include the township roads as well, again raising total costs.

Research on the cost-saving potential of municipal consolidation is best described as highly variable and contradictory. In fact, the only real conclusion one can draw from the many studies on the subject is that there is no conclusion. The Syracuse University report summed up this reality, stating: “Policy makers should not expect any dramatic cost savings from consolidation and should avoid using the argument of cost saving as the main benefit of reform.” Overall, much of the literature on consolidation ends with a proviso declaring mixed results and calling for further research on the topic.

The belief that efficiency gains from consolidation lead to cost-savings assumes that government adheres to a “demand-driven” model of operation. This theory treats government like a corporation that seeks to increase efficiency and cut costs. The demand-driven thesis, however, is not an accurate model for school district consolidation, according to a Mackinac Center report by Andrew J. Coulson. In his study, Coulson also tested “public choice” theory, which argues that public officials ultimately seek to advance their own interests. In the public choice model, such officials attempt to accumulate and spend as much money as possible in an effort to enhance their influence and power. Coulson found that the data provided “compelling support” for the public choice theory, noting that the “incentive structure” of public schooling encourages districts “to maximize their budgets.”

Although no one appears to have tested public choice theory vs. demand-driven theory in municipal consolidation, local municipal officials would likely behave in the same way as school officials: seeking more money rather than cutting costs. Some public choice theorists argue that the very existence of fragmented units of government creates competition among municipalities, which can increase public-sector efficiency. In such a structure, residents serve as consumers by voting with their feet and moving to more efficient and responsive municipalities.

Ultimately, consolidating municipalities to save money is dubious. There are other alternatives for reining in out-of-control government spending, such as bringing public-sector benefits in line with the private sector and privatizing services. These options reform government incentives instead of re-structuring the public sector to mirror a corporation. As the experience of Detroit attests, larger government does not necessarily mean cheaper government.

Notice Something Different?

Posted on by cjarrettdieterle
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Under the perspicacious tutelage of our fearless design intern, Jon VanDerhoof, Trying Liberty has officially gone LIVE with a swanky new design. We are proud to present our new format, which we think embodies our passion for liberty and Michigan. We also wanted to update the page to reflect our new group of interns and their cool ideas.

We hope you enjoy the updated page!

“Government by Whim”

Posted on by cjarrettdieterle
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The spring 2011 issue of National Affairs included several essays exploring “government by whim” in contexts like economic policy, law and the auto bailouts. These pieces got me thinking about other examples in our state and country.

The term “government by whim” means governing via a series of regulations and rules that can be capricious and confusing. In such a structure, regulators and government officials are often granted broad latitude when it comes to implementing provisions from legislative acts. In turn, special-interest pressure can lead to a convoluted network of laws that inhibit economic and personal freedom. As Yuval Levin, the founding editor of National Affairs, put it in a recent National Review Online post: “One of the problems with massive, complicated government regulations is that they create a lot of room for regulator discretion, and therefore a lot of room for unequal treatment of different players in the market.”

Of course, the idea of government by whim was neither discovered nor originally popularized by Levin. Friedrich A. Hayek wrote extensively about the dangers inherent in technocratic government, in which bureaucratic institutions attempt to fine-tune large and complex swaths of economic activity. In “Road to Serfdom,” Hayek wrote: “The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans … or whether the state is in a position to frustrate individual efforts.”

Instead of heeding Hayek’s warning, government by whim seems to be catching on at all levels in the United States. On the federal stage, the controversial Patient Protection and Affordable Care Act has codified a health care system that invests broad powers in government agencies. This can be seen in the actions of the Department of Health and Human Services, which has granted some companies waivers from the health care law. These waivers have allowed corporations like McDonald’s to avoid increasing the annual benefits of their “Mini-Med” employee health plans. Meanwhile, companies that were not fortunate enough to receive such waivers must cope with the burdensome costs of the statute. Most frustratingly, the HHS criteria for granting waivers are nebulous and thus fail to provide a guideline.

Government by whim does not end at the swamp’s edge of Washington, D.C., either. State governments have proven just as adept at pursuing erratic, special interest driven programs. For example, the Michigan Economic Growth Authority awards tax credits to select businesses as an inducement for them to increase operations within state borders. In addition to the dubious economic benefits associated with MEGA, the very structure of the program proves problematic too. As Michael LaFaive and James Hohman discuss in their 2009 study, “The Michigan Economic Development Corporation,” companies can initiate requests for tax credits from MEGA. After evaluations on the potential economic impact of a proposed project, the MEGA board votes on whether to approve the deal. This quasi application and approval process amounts to a whimsical game of choosing “winners” and “losers” in the market place as MEGA creates competitive advantages for companies receiving the tax credits.

Other cases in which this topic could be further explored include Michigan’s film subsidy program, the regulatory agencies created in the recently passed Dodd-Frank Act and the Federal Reserve’s unwillingness to engage in rule-based monetary policy. Until and unless we eschew government by whim, efforts to stimulate economic growth will be frustrated. If individuals and corporations cannot engage in strategic planning with assurances that the rules of today will remain the same tomorrow, they will be hesitant to invest and expand. We must return to an economic environment that treats market players equally and consistently. By setting basic initial guidelines and then deferring to market forces, government can lay down a foundation for growth – not a series of roadblocks.