7 things to know about Michigan’s emergency managers law

When a Michigan city or school district runs out of money, the state can appoint an emergency manager to take over the responsibilities of local elected officials. The powers of an emergency manager are broad—done even more this year – and are designed to help MS to balance accounts and return governance to local elected officials as quickly as possible.

Today there are four towns and one school district under the control of an emergency manager:

• Port of Benton
• Ecorse
• Flint
• Pontiac
• Detroit Public Schools

This is the second time for Flint, who had an “emergency financial director” from 2002 to 2006. The cities of Detroit and the public schools of Inkster and Benton Harbor may soon be added to this list.
1. What can an emergency manager do?

An emergency manager can:

• Hire / fire local government employees
• Renegotiate, terminate, modify employment contracts with the approval of the Public Treasury
• Sell, lease or privatize local assets with the approval of the Treasury
• Review contractual obligations
• Modify local budgets without local legislative approval
• Open municipal bankruptcy proceedings
• Hire support staff

An emergency manager can’t raise taxes.

2. Yesterday and today: emergency financial managers vs emergency managers

Michigan’s emergency management system has been in place since 1988, when Public Law 101 allowed an emergency financial manager to assess and manage Hamtramck’s finances.

PA 101 was strengthened in 1990, when Public Act 72 gave the state government the power to appoint “emergency financial directors” in local government units – such as cities, school districts, or schools. counties – on the verge of bankruptcy.

Emergency financial managers became “emergency managers” when their powers were strengthened by public law 4 in 2011.

The most powerful emergency managers (EM) can now strip elected local officials of their power and they can renegotiate, modify or cancel union contracts before they expire.

According to Joe Harris, emergency manager for Benton Harbor, Public Act 4 effectively removes the power of local elected officials once an ME is appointed.

Harris said Michigan Radio in May that, “the only authority they can have is the authority given to them, or given to them by the emergency manager.”

Under Public Law 4, past emergency mmanagers have removed the legislative powers of elected officials, suspended their salary, fired city officials, and imposed pay cuts that violate union contracts.

Public Law 4 prevails over Public Laws 101 and 72, which are no longer in force.

The decisions of the emergency managers are approved by the state treasurer, the same office that appoints the MS.

3. Emergency management as an alternative to bankruptcy

Michigan’s emergency management system is a bankruptcy workaround.

Municipalities have been able to file for bankruptcy since 1937, a final option for cities that can’t raise taxes to pay off debt.

Declaring bankruptcy allows local government units to cancel contracts, restructure debt, and adjust wage obligations, such as pensions.

Michigan, like most states, requires state approval for a municipality to declare bankruptcy.

When a person defaults on their loans, it destroys their credit rating. It is the same with cities.

By appointing an emergency manager, the state is essentially putting a city or school district “in financial difficulty” into receivership. It gives state officials many of the special powers granted during bankruptcy proceedings without ruining a district’s credit rating.

An emergency manager can make drastic changes to contracts deemed unsustainable – costs such as union contracts, pensions and other existing contractual obligations.

These options, powers conferred on MEs by public law 4, are not available to local elected representatives.

4. How is an emergency manager appointed?

Cities deemed to be in financial difficulty go through a review process before being placed under emergency management.

The initial review can be triggered by non-payment of debts or wages of employees, it can be requested by residents or local authorities. And the State Senate, State House of Representatives, and State Treasurer can also initiate a review.

If problems are detected, the Governor may request a second review before deciding to appoint an emergency manager.

The Local Emergency Financial Aid Loan Board, which includes the State Treasurer, makes the appointment.

It was announced Friday that Detroit will undergo a preliminary financial review.

Detroit Mayor Dave Bing and Detroit City Council say the city does not need state intervention, and some analysts have suggested that bankruptcy is the best option in Detroit.

5. How long does an EM serve?

MEs serve without term limits and appointments are monitored by the Loans Board. The exception is school districts, where emergency managers have a one-year term and can be reappointed.

6. Main legal challenges to Michigan’s EM law

Michigan Forward Is circulating a voting initiative petition to repeal Public Law 4. They collected 157,000 of the 162,000 signatures required by March 2012 to get the question on the November 2012 ballot.

If the petition is approved, PA 4 will be suspended until the November 2012 vote.

The Sugar Law Center for Economic and Social Justice filed a trial on behalf of voters claiming that the Emergency Managers Act violates the separation of powers and their right to self-government. Governor Snyder took an unusual step and asked the Michigan Supreme Court for an expedited decision on the case. These cases normally go through lower courts before reaching the state Supreme Court. Snyder said the serious financial difficulties facing local governments and school districts demand that constitutional issues be resolved quickly. The state Supreme Court asked for more information from those involved before deciding whether or not to hear the case.

US Congressman John Conyers sent a letter last week to Attorney General Eric Holder, calling for a review of Michigan’s SE law with respect to 1965 Voting Rights Act, which protects minorities from discriminatory voting and representation practices. “In this case, while the law itself may be seemingly neutral, it would appear to be applied in a discriminatory manner, as the jurisdictions involved have very high proportions of African Americans and other minorities,” writes Conyers.

If Detroit is named emergency manager, 49% of African Americans in Michigan will live in cities run by MEs.

The letter also invokes Article 4, Section 4 of the US Constitution, which guarantees democratically elected representatives.

7. Beyond Michigan

Michigan has so far set its own precedent for emergency management.

The state’s emergency management process is very similar to New York City Municipal Assistance Corporation, created in 1975 to manage the city’s debt crisis.

One of the first government-appointed financial management groups, the MAC operated as emergency managers do today; oversee the budget, manage loan procedures and restructure staff to reduce payroll expenses.

In Michigan, however, it’s not a supervisory board, it’s a person.

While many states now have provisions on the books for emergency management of local finances, few explicitly grant these powers to individual MEs in the same way as PA 4 (2011).

The argument for a single manager is opportunity and focused responsibility – that a financial crisis demands flexible and responsive leadership.

The largest district taken over by the state was Flint in 2002 (the city’s population is now smaller).

With seven times the population of Detroit, which is currently undergoing a preliminary financial review, presents an entirely different challenge.

– Meg Cramer, Michigan Radio Newsroom

Inform our coverage. Why are you for, against or indifferent to an EM from Detroit?