Michigan’s local governments face fiscal challenges in 2011. The state already has a pretty good policy in dealing with its local units as their finances are stressed, but this policy should be improved in a few ways so that local governments continue to be solvent as taxable property values fall and spending pressures increase.

 In 2005, Lou Schimmel, an adjunct scholar with the Center and previously the city of Hamtramck’s emergency financial manager, offered four recommendations to the state’s Local Government Fiscal Responsibility Act.

  1. “Under current law, the EFM can be sued personally. Given that actions by an EFM will almost certainly be controversial, and harassing lawsuits are likely, it is essential that an EFM’s personal assets be protected. Making the EFM an employee of the state treasury department with access to the legal staff of the attorney general would make the present lack of indemnification for an EFM largely moot. Harassing lawsuits by local bargaining units or other affected entities or individuals would be defended by the state – an entity that has the depth of financial resources to discourage the filing of frivolous lawsuits.
  2. “The present Act lists the powers of an EFM, which are extensive but are not all-inclusive. This can allow the governing body to impede the overall effort of the EFM to deal with the municipality’s fiscal crisis. The Act should state that the EFM replaces and takes on the powers of the governing body (mayor and council or school board.)
  3. “Charter provisions, especially in old charters, can prevent or make it difficult for an EFM to make necessary structural changes to address financial problems. The EFM should have the power to review charter provisions that frustrate the process of cleaning up and streamlining a municipality’s financial functions.
  4. “Presently, most labor contracts provide for mandatory continuation of an expired contract until a new one is negotiated. This means municipalities have no opportunity to take advantage of lower-cost service providers. Additionally, in the case of public safety unions, municipalities must adhere to the provisions of Act 312, which mandates that when a municipality and union cannot agree on the terms of a new contract they must go to binding arbitration. In most cases, it takes nearly two years or longer to complete the process, and the legal costs are substantial. Furthermore, municipalities rarely reduce costs by going through the Act 312 process but rather, at best, limit the amount of increased expenses. Act 312 should be repealed in its entirety.”

Reforming this act to include these provisions will go a long way in ensuring that Michigan municipalities, school districts, and other local units of government stay operational.