Ideas For Fixing the Financial Manager Law

(Editor’s note: This commentary is an edited version of an Op-Ed that appeared in the Lansing State Journal on November 18, 2012.)

Voters on Nov. 6 rejected the state's emergency manager law, Public Act 4 of 2011, by voting against Proposal 1. This reinstates the older emergency financial manager law, Public Act 72 of 1990, largely giving the state the same power to appoint managers to oversee struggling municipalities and school districts.

Legislators should address the referendum by making some important revisions to the emergency financial manager law.

It's important to reflect the message voters sent by repealing this law.

Unfortunately, it's unclear exactly what that message was.

Proponents sometimes believed that this would eliminate both Public Acts 4 and 72 and made their case to the public against state-appointed managers.

Elimination of PA 72 was not the case, so the message may be about the differences between PA 4 and PA 72.

The most material change in the newer law was allowing emergency managers to unilaterally amend union collective bargaining agreements.

Labor costs, especially in school districts, account for the majority of expenses in local government units and Michigan has a highly unionized government workforce.

Legislators should consider reinstating this power if they interpret the message as being against emergency managers more than the difference between the acts.

If the message is about local control, then the state may want to consider only placing an emergency manager upon request of the local government. This has occurred in the city of Allen Park and the Muskegon Heights school district.

In lieu of the emergency manager, the state would likely need to strengthen its rules for consent agreements, which have been comparatively less effective in resolving fiscal emergencies.

Appointing a state monitor and providing real penalties to government officials who stray from contract terms may make these agreements more effective.

Regardless of interpretation, the state needs to make a couple of amendments to Public Act 72: clarifying the role of EFMs in school districts; the ability of EFMs to sell assets and appoint members to boards and commissions; and the multitude of other technical clarifications that Public Act 4 made.

The first version of Public Act 4 contained a penalty meant to ensure that local elected officials had a strong stake in the game to address fiscal problems before they become an emergency.

That provision — a 10-year ban from seeking re-election for those serving when the state declares a financial emergency — could be reinstated.

As a general rule, all local governments are creatures of state policy — the state sets the rules for what governments can and can’t do and how they operate.

These rules are sometimes generic, like requirements to abide by uniform accounting standards. They can also be restrictive, like property tax limits and balanced budget requirements.

The emergency manager law is one of these state-set rules, and it is also the state's final enforcement mechanism to prevent municipalities and school districts from falling into insolvency.

It's important to have a process that addresses fiscal emergencies in local governments while being fair to those that are able to fix their own problems.

Tweaking the emergency financial manager law will ensure that the state's solvency rules are enforced.

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See also:

Michigan Capitol Confidential Coverage of Emergency Managers