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Proposal 1: Referendum on the Emergency Manager Law

Election Update: In the Nov. 6, 2012 election, Proposal 1 was voted down, meaning that the emergency manager law, also known as Public Act 4, was eliminated. The primary impact of this law had been that an emergency manager could recommend to the state that they amend a local government's collective bargaining agreements in order to cut costs. Now the state may only appoint an emergency financial manager, who would not have this power.

Mackinac Center analysis indicates this proposal would do the following:

  • Nullifying the state’s Emergency Manager law reinstates the old Emergency Financial Manager, where the state can still appoint a receiver over a local government unit. This measure, therefore, would not impact concerns about local control.
  • The most substantial and change from the old Emergency Financial Manager law was adding the emergency manager’s power to recommend that the state amend a local government’s collective bargaining agreements. Employee services and benefits are a major expense in most local government units. Voting yes on the referendum would maintain this avenue for cutting costs.
  • The state already has numerous provisions to keep local governments away from insolvency prior to appointing a receiver. These include requirements to balance budgets, what are essentially advances on state assistance, and special loans to local governments in need. Thus an emergency manager is not appointed unless the municipality is on the verge of bankruptcy, which would jeopardize pensions and finances over which an emergency manager has no authority.
  • A referendum is asking for voters to approve or reject a piece of legislation. Thus, voting “yes” on the referendum approves the law while a “no” vote nullifies it.

Mackinac Center
Publications on This Proposal

Viewpoints

Commentary

Proposal 1 a Referendum on PA 4

What the Emergency Manager Referendum is About

There Are Alternatives to PA4

Do We Let Unions Bankrupt Government?

Videos

Ecorse: Regaining Control

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Click here for the 100-word Prop 1 summary to appear on the Nov. 6 ballot.

Click here for the complete language of the proposed amendment.



Frequently Asked Questions

What does a “yes” vote on Proposal 1 mean?

Voting “yes” on a referendum lifts the suspension on the legislation in question. In this case, voting “yes” on Proposal 1 will reinstate the Emergency Manager law, Public Act 4 of 2011, while voting “no” will nullify the legislation.

Does this law newly allow the state to take-over a local unit of government?

The state can appoint an emergency manager to operate a local government only if the unit is facing a financial emergency and does not have a plan to resolve its conflict. The state mandates that all governments in Michigan balance their budgets, and nearly every government meets this mandate or has a plan to eliminate their deficit. When governments are facing fiscal problems, the state can assist them by raising money and borrowing from future revenue sources to help pay their bills. But some governments are resolute on fiscally unsustainable courses, in which case the state may appoint an emergency manager.

There has been an emergency manager law since 1988, but the 2011 law grants greater authority to the appointed emergency manager.

Even before that, Michigan courts have appointed receivers to control local governments that had substantial financial problems.

See:
Ecorse: The Fall and Rise of a Michigan City

What can an Emergency Manager do that an Emergency Financial Manager cannot?

There are a couple of changes to the state law guiding the powers of an emergency manager. The emergency manager can set aside staffing restrictions etched into collective bargaining agreements and charters, amend government contracts and remove pension fund trustees if the pension plan is underfunded.

Perhaps the most meaningful change is the ability to amend government employee collective bargaining agreements in certain situations. (See Sec. 19(1)(k) of the law for details.)

Additional sections of the new law make explicit powers that were implicit under the old law. These include utilizing all the powers of local officers and elected officials, to consolidate government services, and to work with creditors to restructure debt.

The state attorney general stated after the petition putting Public Act 4 of 2011 up for referendum was certified that the state’s old law, the Emergency Financial Manager law (Public Act 72 of 1990) would be reinstated. This has been happening as the previous Emergency Managers have been reauthorized as Emergency Financial Managers.