8 Things You Don’t Know about Michigan’s Emergency Manager Law

CityDemocracy (2)The water crisis in Flint, Michigan has put the spotlight on Michigan’s Local Financial Stability and Choice Act (PA 436 of 2012) – better know as the emergency manager law.

The problem with a spotlight is that, with a tight focus on one part of something larger, it can be used to obscure or distort the whole. So here are some things you need to know about Michigan’s EM laws – good and bad – that you likely won’t hear about from the people with spotlights.

Yes, I said “laws.” The existing act, signed by Gov. Rick Snyder in 2012, is the fourth in a series of similar laws that date back to 1988. Let’s start with the most important, basic concept.

1. Michigan cities are not autonomous democracies

Michigan’s local governments — cities, villages, townships — are not independent and autonomous democracies. They never have been.

Municipal governments (and county governments) are subdivisions of state government. They are, in effect, the local branch offices of the state government, established to provide three services that state law mandates they provide. (Fun quiz: post your guesses at what they are in the comments. No fair peeking!)

The Home Rule Cities Act of 1909 allows cities to establish their own charters, develop procedural rules and provide other services. But they remain subdivisions of the state. And that means – ironically enough under the circumstances – that constitutionally, the Michigan governor is ultimately accountable for the actions taken by and the financial performance of local governments.

So let’s not compare the appointment of an EFM with the launching a coup and installing a dictator in, say, Iran. It’s more like a corporate head office saying to a local store manager, “If you can’t get your operation in order, we’re sending in a team to manage it until it is.”

2. It is consistent with the concept of ‘emergency’ powers

One of the greatest ironies of this situation came from the people most vociferous about taking action in Flint. They protested that Flint’s water problems were caused by a governor exercising emergency powers to override local control.

And what did they demand he do? Declare a state of emergency! That’s right: exercise his emergency powers to override local control.

That’s part of that being a subdivision thing: the governor has powers established by statute when there is a declared “emergency.” The only difference is that the EFM laws deal with a condition of financial emergency. And, like the aftermath of a natural disaster, there are certain criteria that must be met in order for a financial emergency to be declared.

Here’s the big difference: unlike the other emergency powers, the governor can’t simply declare it himself.

3. An EM can’t be appointed on a whim

Contrary to what’s been said by some in the media, the governor cannot “overturn elections, basically, wherever he wants to,” as it is described at about 1:50 in this segment.

Picture 11

If Gov. Rick Snyder “doesn’t like what you and your neighbors decided in your local election, he … has the power to step in and effectively void local election results,” says Rachel Maddow last December.        Powerful statement. Too bad it’s not true.

There are, as noted above, criteria that must be met before the appointment of a financial manager can even be considered. The process must starts with a request for a financial review, which can be done upon:

  • a request from the governing body or administrative officer – council, mayor or city manager
  • a petition signed by five percent of the unit’s registered voters
  • a request from a major creditor who has not been paid (and there is a threshold for payment size that is based on the size of the municipality’s budget)
  • completion of a fiscal year in a deficit condition (we’ll come back to this)
  • failure to file an audit
  • demonstration of any of number of indicators of very bad money juju: not making payroll, defaulting on bond obligations, too low a long-term debt rating

There’s also a provision for either the state treasurer (for a municipality) or the state school superintendent (for a school district) to initiate the process in light of a serious financial problem (most of which would be related to the bad juju mentioned above). Either way, that first step triggers a financial review.

That review is conducted by a team. The governor’s office and the treasurer’s office each have one appointment. The other two appointments come from the Michigan Speaker of the House and the Michigan Senate Majority Leader.

The review team issues a report, with recommendations. And then comes the interesting part.

4. The city gets to choose

That’s right. It’s right there in the law that lots of people complain about but nobody ever reads. (It’s right here, if you’re interested.) It says:

“… [U]pon the confirmation of a finding of a financial emergency under section 6, the governing body of the local government shall, by resolution within 7 days after the confirmation of a finding of a financial emergency, select 1 of the following local government options to address the financial emergency:

(a) The consent agreement option pursuant to section 8.

(b) The emergency manager option pursuant to section 9.

(c) The neutral evaluation process option pursuant to section 25.

(d) The chapter 9 bankruptcy option pursuant to section 26.”

The review team will make a recommendation. The municipality has an opportunity to appeal the determination. The appeal process was also contained in the predecessor law, PA 4 of 2011. Flint, for example, was found in a state of emergency under that law, but the mayor and council declined to appeal the finding of emergency or to request, as they could have at the time, a consent agreement.

Detroit entered into a consent agreement under the old law, then promptly failed to live up to its end of the bargain. Only then was an EM appointed.

The choice is one of the significant changes from the previous laws. More on this later.

5. The EM’s powers aren’t absolute

This one is tricky. The common perception, even by people who are in favor of the EM law, is that the emergency manager has virtual dictatorial powers. Elected officials are reduced to “ceremonial” roles. The governor can, on a whim, vacate elected officials from their office (we’ll come back to that one, too.)

Now, the powers granted the financial manager are, indeed, quite broad. But that’s because the city is in a state of legal receivership … and assuming custodial responsibility is the very essence of being a “receiver.” It’s very much like appointing a trustee to manage the inherited millions of an orphaned child or the affairs of an incapacitated adult.

This is important. In almost every case where a Michigan city has run aground financially, it has been because elected leadership would not make the tough call. Cutting programs, eliminating departments and outsourcing services pisses people off, and those people show up to vote in the next election cycle. The very concept behind the EM is to allow those tough decisions to be made by somebody who doesn’t have to fear political repercussions.

But even then, those powers are not absolute. The manager’s actions on collective bargaining agreements, sale of assets or borrowing money must be submitted for approval to the local governing body. The governing body can reject the proposal – but it must then submit an alternative plan, within a defined time frame, to a panel called the local financial emergency assistance loan board.

6. The governor could already remove a local elected official.

One of the provisions of Act 4 of 2011 and its successor that seems upset people the most: that it gives the governor authority to remove a local elected official from office.

Except, the governor has had that ability since PA 116 of 1954 (Chapter XV, Section 168.327, to be exact). Again, because the municipalities are subdivisions of the state, the governor can remove an elected official for “official misconduct, willful neglect of duty, extortion, or habitual drunkenness,” a conviction for “being drunk” or any felony. It’s also in article VII, section 33 of the Michigan constitution.

If anything, the financial emergency law adds to that list a “failure to abide by” that law. Local elected officials are required to provide the EM with the information and resources he or she needs, and to “assist” the EM in getting the job done.

But here’s an even more pragmatic perspective: Every local elected official is sworn in with an oath to uphold the local charter and the Michigan Constitution. That constitution – and the charter of every municipality in Michigan – requires a municipal budget to be balanced.

When local elected officials have allowed their municipality to get into a deficit situation, they have violated that provision of both their charter and the state constitution. Perhaps they should be removed from office. Nearly every time the EM law has been used, it’s because a local entity is deeply in debt. (No, I am not ignoring the role played by the Michigan legislature in creating the financial hardships of cities. More on that here, among other places.)

7. This isn’t new. In some ways, it might even be improved.

Michigan’s EFM law was not invented by current Gov. Rick Snyder. It actually dates back to 1988, when special legislation was drafted (and signed by Democratic Gov. Jim Blanchard) to help stave off a municipal bankruptcy in Hamtramck, a city that was even shorter on money than it was on vowels. That was quickly replaced by a more “permanent” bill, Act 72 of 1990, also signed into law by Blanchard. It was passed with broad bipartisan support. And under that bill, it was invoked in Hamtramck (a second time!), Flint (once before!), Highland Park, Three Oaks, Detroit Public Schools, Benton Harbor, Pontiac and Ecorse, under Blanchard, Republican John Engler and Democrat Jennifer Granholm.

The criteria for triggering a review have always remained largely the same. But the new law expands the review board by including representatives appointed by the legislature as well as the governor and treasurer. That said, putting those appointments in the hands of the speaker and majority leader is far less an improvement than having them made by legislators who represent the local unit might have been even better. (Of course, it could also makes things worse. It’s not unusual for a state representative from the troubled city to have previously been one of the local elected officials who helped create the problem in the first place.)

As I noted, this bill gives the municipality a choice. Two of those choices are opportunities for those local officials to man up and get the job done (as Detroit tried to do with its consent agreement, and failed). One is a total admission of failure. The third should be looked at as an opportunity to say, “we want to make it right, but we need help.”

Probably the biggest improvement in the new law over its 1990 iteration was who pays for the EM. In the old law, the governor appointed the manager for your city, but your city had to pay his salary and benefits. Under the new law, the EM’s compensation is handled by the state.

8. The most evil and undemocratic part of it has become standard operating procedure

The most insidious and undemocratic part of PA 436 is something that Michigan’s current Republican legislative majority has made standard operating procedure. It takes advantage of a quirk of the Michigan constitution to bullet-proof a bill that may be unpopular with voters.

Michigan residents have the power to enact and reject laws by referendum. So the predecessor to this law, PA 4 of 2011, was put to a referendum soon after it went into effect. Voters killed it.

However, the constitution says that any law passed by the legislature that contains a financial appropriation – doesn’t matter if it’s $20 or $20 million – cannot be the subject of referendum. So bills that Republican lawmakers know the largely Democratic voters won’t like contain (sometimes laughable) token appropriations. The Right-to-Work bill of 2012, for example, contained a $1-million appropriation for providing information and responding to public inquiries. They did the same thing late last year when they eliminate the straight-ticket voting option.

This practice is a blatant affront to the spirit of the constitution. But that’s a rant for another day.

 

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8 thoughts on “8 Things You Don’t Know about Michigan’s Emergency Manager Law

  1. Please explain something to me, as long as you’re on the subject of this law. Section 12 (1) (j) authorizes an EM to “Reject, modify, or terminate 1 or more terms and conditions of an existing contract[,]” “notwithstanding any charter provisions to the contrary.” “Contract” isn’t defined in this law, so I assume it’s in its general sense.

    Doesn’t this provision give EMs the right to legally and unilaterally strike a municipality’s existing financial obligations? This provision was also in PA 4 of 2011, along with the definition that a financial emergency exists, and the EM can remain in power, as long as the bond rating was below BBB, which remains in Sec. 4 (1) (r) of PA 436 of 2012.

    If an EM can unilaterally not pay obligations, then the bonds will never be above BBB (nor should they be, if the market is sane), and the EMs can ensure that they never leave if they want to stay. This was my analysis back in 2011, on which I based my decision not to support the EFM law when it came for referendum, and it seems to remain true now. Am I missing something?

    • It’s a good question, because that provision is one of the biggest changes from PA 72 to PA 4. I suspect, given the bent of the legislature that wrote it, is that it’s aimed at collective bargaining agreements. I don’t think “contract” could be identified as a debt. Even if it were, there are two safeguards to ensure an EM doesn’t decide to tank his own credit rating to keep the job. The EM serves at the pleasure of the governor. I can’t imagine a governor allowing that to happen … and if he/she did, that might bring in Section 9(3)(d), which allows the legislature to impeach an EM.

      Once an EM has severed 18 months, the local governing body can also remove him or her with a 2/3 vote (Section 9(5)(c)).

  2. I too suspect because of the positioning of that clause in the law that it was intended to take aim at collective bargaining, but the risk of what seems to be perfectly legal yet unintended use is quite real. This is an immensely risky law, and I’m shocked that anyone who supported it can claim to be a fiscal conservative.

    “Debts” in the form of checks the city has written that won’t clear unless the city borrows money may not be contracts, but municipal bonds are definitely contracts. I fear that an EM could unilaterally strike the face value or the coupon of any bond issued by the body they’re managing; they need approval to borrow new money on behalf of the city, but not to release the city from its existing obligations in that manner by modifying and terminating existing contracts, which they’re explicitly and newly empowered to do.

    If I were an EM, I would first examine the option of engineering a unilateral default like this. If doing so left the city solvent, I’d just do it, and let the Michigan Municipal Bond Authority sue my office for the money! As the EM’s lawyer, I would argue that MMBA should lose, because even though Section 11 (1) (b) demands that the EM’s written -plan- must provide for the payment in full of all the city’s scheduled debt service requirements, their Section 12 powers (1) (g) and (j) are not in fact contingent upon -following- the Section 11 plan; in fact, Section 12 makes clear that its powers are “additional”. Darkly, Darth Vader’s “I am -altering- the deal; pray I don’t -alter- it any further” comes to mind here.

    As for impeachment & removal, while they would almost certainly happen in such an event, those measures hardly seem effective checks or controls on the damage that an EM could cause while in office.

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