Pontiac's Fiscal Revolution

Thanks to a new law increasing the powers of emergency managers appointed to reform the finances of fiscally failed cities and school districts, the city of Pontiac is now in the midst of a fiscal policy revolution. With the exception of Detroit, there may be few Michigan cities in greater need of a financial makeover.

In fact, Pontiac’s situation became so bad that at one point that the Mackinac Center published an entire issue of its Michigan Privatization Report dedicated to identifying and offering solutions for its worst problems. Many of these and other reforms are now are being implemented by Emergency Manager Lou Schimmel.

Among Schimmel’s most startling accomplishments so far — and evidence of how out-of-control the situation had become — has been consolidating the number of city employee and retiree health and other insurance plans from more than 70 to around six (depending on how one counts them). Annual savings could approach $5 million.

In particular, the city now has just two health insurance plans. The first is for active employees and retirees who are not yet age 65 (and so are not covered by Medicare). The second is for retirees who are eligible for Medicare. Both plans cover basic dental care but not vision or optical, and employees may buy more comprehensive coverage at their own expense.

The city also provides life insurance for 25 different classes of active and retired Pontiac employees. A “class” is a group of individuals with similar benefits who were entered into a plan at the same time. Schimmel is trying to reduce the number of these to about six classes.

The most controversial power the new law gave to emergency managers — and arguably one that makes this reform so effective — is the authority to nullify unsustainable and unaffordable employee union contracts. Schimmel has walked softly and only used this big stick once, for a contract covering non-uniform police and fire dispatchers. He also received permission from the state to modify unaffordable retiree health care benefits, which are exceedingly rare in the private sector.

In contrast, Schimmel successfully negotiated affordable contracts with all remaining unions, which were probably more inclined to reason because of the expanded emergency manager powers. Among the new provisions, active and retired city employees now have to pay higher health insurance deductibles and co-pays for prescription drugs.

Schimmel is also saving Pontiac taxpayers big bucks with a number of innovative service consolidations and asset sales, including:

For all the controversy surrounding the new emergency manager law, it has only been triggered in a tiny handful of different cities and school districts, all of which were fiscal basket cases for whom the only alternative may have been federal bankruptcy court (or massive state-taxpayer bailouts, for which Michigan residents have no taste whatsoever).

The fiscal makeover now underway Pontiac demonstrates that the new law is just what the doctor ordered.

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