Michigan Emergency Manager Laws - more than you ever wanted to know!

By: FLwolverine , 3:43 AM GMT on July 26, 2013

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I apologize for the length of this post, but sometimes ……..

Some posters (including me) commented on Dr Rood’s blog of July 1, 2013, about the City of Detroit bankruptcy, starting at #507. Then this conversation started:

(Naga and yoboi, I did leave out a few sentences in your comments that referred to other things, but I am trying to quote you accurately. I thought it would be most accurate if I quoted you at length. if there’s anything you think I should change, let me know and I’ll do it.)

Naga5000 - “Anyways, bankruptcy was filed by the non-elected, appointed city manager. I'm so glad democracy means dismantling the elected city officials and appointing a dictator, which seems highly illegal and unethical.”

FLwolverine - “I had this debate with people here (southeast Michigan) last fall when the emergency financial manager statute was up for a referendum vote. I think there should be a high standard for appointing an EMF, but when a city government has been operated so badly for so long that it can't provide basic services for its citizens (a 58 minute average time for police response! sporadic trash pickup, reduced number of firefighters, city employees on unpaid furloughs so city operations just stop), then IMO somebody has to do something to change directions. In this case it has to be the state because there's nobody else. I would rather see a skilled EMF trying to work things out with unions and creditors, than watch a dysfunctional city council do nothing for another umpteen years and keep adding to the city's $18 billion debt."

Naga5000 - “I see the point, but my worry from the get go was since these EMF's are appointed by the governor, they seem to do little more than extend the policy of austerity and ignore the issues that caused the problem in the first place.”

FLwolverine - “That's a valid concern, but I think the idea is to have the EMF do the nasty stuff that city councils can't or won't do for political reasons, and then try to give the city back to the elected officials in sufficiently stable condition that the officials can start to work on the underlying problems.

By nasty stuff, I mean sell assets, negotiate with unions and creditors, reorganize departments if that's necessary to provide better service, do what's possible to upgrade the city's credit rating. I've been watching the city of Pontiac also; I very much doubt that the city council will do anything except keep squabbling when their EMF turns the city over to them this summer.”

Naga5000 - “True, but the downside of all of this is that you have taken away democratically elected officials, good or bad. It's a slippery slope for sure. I personally believe governors in many states all ready have too much appointment power, when that power begins to infringe on the democratic process, I get worried.”

yoboi - “It would depend if the elected council voted for the appointment of the city manager.....now if the Governor signs an emergency declaration for a city he then has the right to govern and take control of that city.”

Naga5000 - “Who gives the governor that power? Where is it stated in the federal or state constitution that the governor can disband a city council and appoint a city manager? What happened to the democratic will of the people who chose their city council members? It is a very dangerous precedent regardless.…………. “A Declaration of Emergency in a natural disaster is a totally separate thing. Those are temporary. This law in Michigan allows rule by decree when the governor decides a "financial emergency" is occurring, which is unconstitutional. It violates the citizens right to vote in elected officials. The argument on if it's needed or not is moot, the real issue is wholly constitutional.”

yoboi - “I agree with you...it's wrong but the local gov must have asked for state help if they did then the state can step in an take control....plus look at it this way the governor is an elected offical also.....I think you will find that the local gov asked for state help. then they will have to abide by whatever help the state sends.....Interesting topic for sure….”

Naga5000 - “That's just it the cities do not ask for this, the governor just does it.

"Michigan Gov. Rick Snyder announced Tuesday that the state would appoint an emergency financial manager to Detroit. Beginning Monday, Washington D.C. bankruptcy lawyer Kevyn Orr will begin examining the city's finances in the hopes that in the next 18 months he can make a dent in its massive debts.

"Detroit is only the latest city (and Michigan's largest) to come under control of an emergency financial manager.

"Other cities have fallen under control of EFMs since PA 72 was introduced in 1990, with the aim of allowing the state to intervene in municipalities and school districts facing financial emergencies. Snyder strengthened the law when PA 4 came into effect in 2011, giving an emergency manager extended powers. State voters repealed PA 4 last year, but another law goes into effect in late March that gives an emergency manager the power to dismiss elected officials, abrogate labor contracts, sell off public assets and impose new taxes on residents." No taxation without representation, right? Link [http://www.huffingtonpost.com/2013/03/15/michigan -emergency-manager-law-cities_n_2876777.html]

**********************
I told Naga I would respond, so here goes. I’m going to comment on the “new” emergency manager law, Act 436 of 2012, effective March 28, 2013. The statutory reference is MCL §141.1541-1575, named “Local Financial Stability and Choice Act”. You can find the text of the act here. BTW, I will refer to "the city", but the Act applies to all units of local government (township, villages, etc.) as well as to school districts.

I’ll begin by saying that I think all of Naga’s (and yoboi’s) concerns are legitimate. Many of them are addressed in Act 436, and I’ll go through them briefly. But to start with the biggest issue: constitutionality.

The first emergency manager act was passed in 1990 and is known as Act 72 (there seems to have been a previous statute in 1988, but I haven’t read it and no one ever mentions it when discussing this issue). In 2011 another law, known as Act 4, was adopted that considerably broadened the EM’s powers. A lawsuit challenging Act 4 was brought in Ingham County Circuit Court in 2011 - Brown v Snyder. There was a lot of legal wrangling, but in the only recorded opinion, the Michigan Court of Appeals decided that the constitutional issues could be decided without discovery (that is, the constitutional issues were issues of law and there were no issues of fact that the parties disagreed on, so it wasn’t necessary to have a lot of depositions and interrogatories) and sent the case back to the Circuit Court to proceed accordingly. The Court of Appeals did not rule on the constitutional issues, and there’s no recorded opinion addressing the constitutionality issue - probably because Act 4 was put on the November 2012 ballot as a referendum issue, and was defeated and so repealed, so there was not point in continuing the Brown lawsuit.

After the referendum, the Michigan Supreme Court determined that any emergency managers then in office were acting under old Act 72. In response, the Michigan legislature passed Act 436.

All of which is a long way of saying that no court has determined whether Act 436 or any of its predecessors is unconstitutional.

You can find the arguments supporting unconstitutionality on the website of the law firm that represented the plaintiffs in Brown, here. If you read these, remember that you are looking at only one side of the argument, and that it doesn’t specifically address the provisions of Act 436.

What would be the State’s arguments for constitutionality? I don’t know all of the arguments, but I would expect the State to say that this kind of supervision is necessary for the public health, safety, and welfare. Ensuring the public health, safety, and welfare is one of the responsibilities given to the State in the Michigan constitution, so if they can prove that Act 436 does indeed do this, then they have cleared one big hurdle on the way toward proving constitutionality. If you decide to look at the statute, MCL 141.1543 is where you find the “legislative findings” that will be used to support the State’s arguments.

Other issues:

1. Who appoints an emergency manager?

It’s not that simple. First the State Treasurer conducts a review to determine if a city is under “probable financial stress”. MCL 141.1544 says the Treasurer “may” conduct a review under certain specified circumstances; it does not require him to conduct a review. If there’s no review, the process for appointing an EM doesn’t even begin.

The specified circumstances (listed in that same section) include such things as the city requesting a preliminary review; a creditor (defined in the statute) requesting a review; a specified number of local voters submit a written request; the Treasurer is notified that the city has failed to pay wages, compensation, or benefits for 7 days or more after the scheduled date of payment; the city is delinquent in distributing to other jurisdictions the tax revenues that it collected for those jurisdictions (for example, if the city collects taxes for the school district and fails to send the money to the school district). There are a bunch of other things; none of them are minor.

Before starting the preliminary review, the Treasurer must notify the city. Then there are deadlines for completing the review and requirements for providing it to the city. After the review is completed, there is a board that determines whether probably financial stress exists. If it makes that finding, the governor appoints a review team that makes a further investigation and reports to the governor that a financial emergency does or does not exist.

Based on the review team’s report, the governor determines whether a financial emergency exists. The city may request a hearing to be conducted by the State Treasurer. After the governor’s determination is final, the city may appeal the determination to the Michigan Court of Claims.

At this point, the city has four options (MCL 141.1547).
- It can enter into a consent agreement with the State about how its deficiencies will be resolved;
- it can agree to appointment of an emergency manager (this is like appointing a receiver);
- it can request the “neutral evaluation process” (this is like going into arbitration);
- it can elect to file Chapter 9 bankruptcy.

Only after that whole process is completed can the emergency manager be appointed.


2. What is the status of the elected officials (the city council in Detroit) while the emergency manager is in charge?

The city council is not dissolved, although they are not authorized to exercise any of the powers that are granted to the EM unless the EM authorizes them to do so. MCL 141.1549. Also, their compensation is suspended during the term of the receivership, unless the EM provides otherwise in the financial and operating plan. MCL 141.1553


3. Can the emergency manager dismiss elected officials?

If a local elected official fails to “abide by” the terms of Act 436, the EM may recommend to the State Treasurer and attorney general that the official be removed. The official is entitled to notice and hearing. The State Treasurer may then recommend to the governor that the official be removed, and the governor may remove him. MCL 141.1567


4. Can the emergency manager sell the city’s assets?

Yes, if the sale is specified in the financial plan prepared by the EM and submitted to and approved by the State Treasurer and the governor. MCL 141.1552 However, a general vote is needed for the EM to sell a “public utility furnishing light, heat or power”. No mention of water and sewer departments!


5. Can the emergency manager abrogate labor contracts?

Only under certain conditions and after meeting certain requirements, including meetings with the bargaining representatives. MCL 141.1552. The statute allows the EM to modify, terminate, etc, “1 or more terms or conditions”, so the EM can pinpoint the changes that need to be made to help alleviate the financial emergency. However, the EM is explicitly prohibited from modifying or deleting any provision of a collective bargaining agreement that authorizes payment of a death benefit to a policy officer or firefighter killed in the line of duty. MCL 141.1555


6. Can the emergency manager impose new taxes?

MCL 141.1568 specifically says: “This act does not give the emergency manager or the state financial authority the power to impose taxes, over and above those already authorized by law, without the approval at an election of a majority of the qualified electors voting on the question.”


So there you have it - probably more than you ever wanted to know. But to those who may be still reading, I’ve already stated my position on the EM issue: “I would rather see a skilled EMF trying to work things out with unions and creditors, than watch a dysfunctional city council do nothing for another umpteen years and keep adding to the city's $18 billion debt.”

FLW






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10. WunderAlertBot (Admin)
7:39 PM GMT on February 06, 2014
FLwolverine has created a new entry.
9. Astrometeor
5:48 AM GMT on July 27, 2013
Thanks for the blog post on this FL, I agree with you on the "morality" of the manager. If the managing of what has been a disaster is done so properly, with the safeguards as you mention, then I am okay with it.

Interesting to see how this turns out, hope Detroit gets better.
Member Since: July 2, 2012 Posts: 101 Comments: 10459
8. FLwolverine
1:56 PM GMT on July 26, 2013
Quoting 2. Naga5000:
Just checked in. Great post, and I truly mean that. I will have to take some time to respond, but I do love the effort you put into this. :) I unfortunately have to go to Baltimore for a wedding tomorrow so it may not be timely, but I will get back to you when I can. I completely appreciate the discussion. Thanks!
Don't worry. We'll all still be here when you get back! Have a safe trip.
Member Since: January 6, 2013 Posts: 3 Comments: 2424
7. FLwolverine
1:52 PM GMT on July 26, 2013
Quoting 5. yoboi:
thanks for the great post....
Thanks. I stretched some unused mental muscles doing it, but it felt sort of good to come out of retirement.
:-)
Member Since: January 6, 2013 Posts: 3 Comments: 2424
6. FLwolverine
1:49 PM GMT on July 26, 2013
Quoting 3. goosegirl1:
This sounds like something that happens here every few years. but on a much, much smaller scale. If the local elected public school board is having difficulty managing their budget, the state will step in and take control of the county public schools until they can bring finances back under control. When they can get a budget set up and the board comes under compliance, the state steps out until the next time they are needed.

If the emergency manager is just that- employed during the emergency, then finances turned back over to the city after the crisis, I can't see any moral issue. But if the elected officials are not put back into place after the crisis, I would have to see that differently.

I think this law has been used in MI in several school districts. Authority is returned to the elected officials after the EM's term. There may be a variation in Detroit. I've heard that the EM is seeking advice from specialists in urban governance; I think he's asking if there's a better structure for governing the city than the current one. But such changes would need amendments to the city charter, and the EM can't do that without a citywide vote. Another possibility that's talked about is consolidating the city with Wayne County (I'm not sure what the benefit of that is supposed to be!) but again that would require a referendum.
Member Since: January 6, 2013 Posts: 3 Comments: 2424
5. yoboi
12:56 PM GMT on July 26, 2013
thanks for the great post....
Member Since: August 25, 2010 Posts: 7 Comments: 2532
4. goosegirl1
12:45 PM GMT on July 26, 2013
Quoting 2. Naga5000:
Just checked in. Great post, and I truly mean that. I will have to take some time to respond, but I do love the effort you put into this. :) I unfortunately have to go to Baltimore for a wedding tomorrow so it may not be timely, but I will get back to you when I can. I completely appreciate the discussion. Thanks!


Cool, you'll be visiting my neighborhood. I can drive to Baltimore in about 2.5 hours. I hope it's an outdoor wedding- after the steam bath we endured last week, right now it feels like fall in Paradise :). High temps in the 70's and lows down to about 55 are predicted all weekend, and the the sky is gorgeous. They picked great weather for a lovely wedding- have fun!

Member Since: December 17, 2009 Posts: 0 Comments: 1257
3. goosegirl1
12:40 PM GMT on July 26, 2013
This sounds like something that happens here every few years. but on a much, much smaller scale. If the local elected public school board is having difficulty managing their budget, the state will step in and take control of the county public schools until they can bring finances back under control. When they can get a budget set up and the board comes under compliance, the state steps out until the next time they are needed.

If the emergency manager is just that- employed during the emergency, then finances turned back over to the city after the crisis, I can't see any moral issue. But if the elected officials are not put back into place after the crisis, I would have to see that differently.

Member Since: December 17, 2009 Posts: 0 Comments: 1257
2. Naga5000
5:01 AM GMT on July 26, 2013
Just checked in. Great post, and I truly mean that. I will have to take some time to respond, but I do love the effort you put into this. :) I unfortunately have to go to Baltimore for a wedding tomorrow so it may not be timely, but I will get back to you when I can. I completely appreciate the discussion. Thanks!
Member Since: June 1, 2010 Posts: 4 Comments: 3903
1. FLwolverine
3:58 AM GMT on July 26, 2013
As I said on Dr Rood's blog: What's not resolved, I think, is the basic morality - if I can use that word - of supplanting democratically elected officials with an appointed receiver (because that's what this emergency manager stuff is, actually: receivership). I come down on the side of permitting that receivership if adequate standards and protections are applied. Naga may not. Everyone is invited to the discussion.
Member Since: January 6, 2013 Posts: 3 Comments: 2424

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About FLwolverine

UMich grad; retired attorney; lives in Michigan, spends time in Florida.

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