Michigan Opts for Emergency Managers for Financially Distressed Towns

While the nation’s attention was riveted on Wisconsin legislators on the lam and massive protests in the state capital, Michigan legislators enacted a law that – in effect – gives the state the unprecedented authority to control cities and school districts in financial distress. The new law, which had the support of Governor Rick Snyder, includes the ability to tend employee union contracts, fire local officials and even disband local governments and combine them with others.

One of the bill’s most controversial measures is to fully tax pensions that previously were exempt from Michigan’s 4.35 percent personal income tax. This prospect of the new law drew approximately 1,000 senior citizens to protest at the Michigan State Capitol in Lansing.  “I’ve never been political, but this is a power grab,” said Jennifer Cherrette, 55, a retired state employee.

Officially known as the Local Government and School District Fiscal Accountability Act, the bill’s supporters say the legislation gives the state a way to step into distressed municipalities and schools before they collapse. It also gives emergency financial managers broad authority to end employee union contracts, and to invalidate elected boards and councils.  The bill’s sponsor, Representative Al Pscholka, said that it would give the state the power it needs to turn around municipalities and school districts in financial distress.  “For years we have allowed cities and schools to be on the verge of bankruptcy without any intervention,” Pscholka said.  “When the state finally does arrive, in many cases we find the financial records in disarray and leave emergency managers with very few good options to balance the books.”  Senator Jack Brandenburg said emergency managers would be used only in communities that need “financial martial law.”

“The Governor will sign,” said Sara Wurfel, a spokesman.  “He believes this was an important step forward and will be a key tool to help indicate and address fiscal problems earlier and more clearly in Michigan’s cities and schools with the hopes of avoiding the appointment of an emergency manager to begin with.”  Critics contend that the Emergency Manager legislation is part of a national effort to consolidate political power by undermining public-sector unions.  Although much of the concern about the Emergency Manager bill focuses on the loss of benefits and jobs that will come when labor contracts can be scrapped, another expected impact is the increasing privatization of city assets.  Additionally, they believe that the law could establish virtual dictatorships and take power away from local elected officials when an emergency manager is put in place.  Michigan’s current emergency financial manager law is being used only in hard-hit Pontiac, Benton Harbor, Ecorse and the Detroit public schools.

An editorial in the Detroit Free Press views the objections to the new law as much ado about nothing – and cautions that the powers be used only rarely.  According to the editorial, “We suspect that the fears the legislation will provide the pretext for emergency managers to run rough-shod over the democratic process in general and public employee unions in particular will prove greatly exaggerated.  Still, the new powers being granted to the governor and the treasurer to intervene in financially failing local jurisdictions are best used sparingly.  Michigan shouldn’t see a rash of state takeovers behind the new law.  In jurisdictions where the state does deem it necessary to assign financial managers, appointees should set aside collective bargaining agreements only when doing so is the only alternative to insolvency.  The new law’s chief attributes are prophylactic more than anything else, designed to help state officials head off local financial crises in the first place.  Rather than wait around as school boards or city councils ignore warning signs, avoid corrective action or indulge outright financial incompetence, the state can now swoop in early and demand substantive change.”