6 things to know about Proposal 1: Referendum on the emergency manager law

Oct 25, 2012

In November, Michigan voters will decide the fate of Public Act 4 of 2011 (PA 4)—the controversial emergency manager law.

PA 4 is the latest of three Michigan laws that define the state’s ability to appoint emergency managers to oversee financially distressed local governments.

Under the law, emergency managers have the power to modify and terminate existing contracts, and in some cases, collective bargaining agreements.

Since August 8, when the Board of Canvassers placed Proposal 1 on the ballot, PA 4 has been suspended while awaiting the statewide referendum.

A “Yes” vote reinstates the law.

A “No” vote repeals the law.

Here is how Proposal 1 will appear on your ballot

And here is the full text of Public Act 4 of 2011

What you should know:

The Citizens Research Council of Michigan has done an analysis of all six ballot measures. The following "things to know" were gleaned from their report on Proposal 1.

The CRC is a non-partisan, non-profit, independent research group.

1) PA 4 and the democracy debate

The list of powers granted to emergency managers is long, and EM’s remove nearly all authority from local administrators.

Opponents say that making an unelected official, especially one not beholden to local residents, the sole authority over municipal operations poses a significant threat to democracy.

So argues the Sugar Law Center for Economic and Social Justice. They have filed a lawsuit on behalf of voters saying the emergency manager law violates separation of powers and their right to self-government.

But as the CRC notes, others suggest that financial distress itself poses a threat to democracy.

It could also be argued...that a threat to democracy occurs when local elected officials fail to manage at a minimally acceptable level, fail to be adequate stewards of the public trust, and fail to avoid a financial emergency.

With regard to the constitutionality of the emergency manager law, the CRC notes that the state constitution provides a degree of home rule, yet “’local control’ is not an absolute right, but rather is defined in, and may be changed by, state law.”

From the state Constitution:

Each such city or village shall have the power to adopt resolutions and ordinances relating to its municipal concerns, property and government, subject to the constitution and law [emphasis added].

Legal challenges are expected to proceed if voters approve the law.

2) Some question PA 4’s ability to address structural fiscal problems

The national recession that hit Michigan’s manufacturing and automotive industries with particular force has left many cities with declining property values, crumbling infrastructure, and high unemployment.

Add to that constitutional and statutory limitations on local government’s ability to raise tax rates, and financially distressed cities have very few remedies for solving budget problems.

Local governments are further hindered by recent decisions to reduce state shared revenues and the increased demand on locally provided public services that came in the wake of the economic downturn.

As the latest of three Michigan laws attempting to deal with financially distressed local governments, PA 4 focuses on reforming city budgets, revenues, and expenditures.

But as the CRC notes, of the emergency manager laws, “none address underlying causes such as erosion of the tax base, or establish minimum required public service levels to protect residents’ health and well-being.”

3) Emergency managers have more power than local officials

PA 4 grants extraordinary authority to emergency managers.

Along with their ability to modify or terminate contracts and collective bargaining agreements, emergency managers have the power to:

  • Schedule a millage election.
  • Sell, lease, or transfer assets, with conditions.
  • Apply for a state loan.
  • Incur, restructure, or retire debt.
  • Recommend consolidation with another municipality.
  • Remove or replace appointees
  • Consolidate or eliminate functions and departments.
  • Request permission to file for bankruptcy.

At their most powerful, emergency managers have the ability to disincorporate or dissolve municipal governments with the approval of the governor.

4) Consent agreements come before the emergency manager

Before an emergency manager can be appointed, the financially distressed unit undergoes a state review and is given the opportunity to negotiate a consent agreement.

This intermediate step is meant to prevent bankruptcy and the need for the state to assume control.

Under these agreements locally elected officials remain in place and may be granted nearly all the powers available to an emergency manager.

Earlier this year, Michigan Radio’s Sarah Cwiek took an in-depth look at the City of Detroit’s consent agreement with the state.

In the case of Detroit, the state appointed a nine-member financial advisory board to help promote fiscal stability.

5) Alternatives to emergency managers, bankruptcy and others

One alternative PA 4 supporters say the law helps avoid is municipal bankruptcy.

Filing under Chapter 9 of the federal bankruptcy code allows municipalities to restructure debt, void contracts, and rewrite collective bargaining agreements.

PA 4 is meant to give similar powers to emergency managers without affecting the credit rating of the municipality and the state.

From the CRC:

Effects on pension obligations are unknown, but bondholders, employees, and retirees could be negatively affected. Bankruptcy is expensive and unpredictable, and the collateral damage to other municipalities and to the state could be significant.

The state might also utilize courts to enforce contracts so that local governments would be forced to impose judgment levies on taxpayers to pay off debt.

Other potential remedies include the state imposing model charters, establishing advisory committees, and assuming control of underfunded pension systems.

According to proponents of PA 4, these alternatives are insufficient to the task.

A more universal approach to the problem, suggests the CRC, would distribute the functions of local government across different governmental units to form “more regional service delivery systems with larger tax bases.”  

6) The exit strategy for emergency managers is unclear.

Joe Harris became Benton Harbor’s emergency manager in March 2010 and it’s unclear when he will leave.

Emergency managers serve without term limits and until they deem the financial emergency resolved.

From the CRC:

The EM must declare the emergency resolved, the state treasurer must agree, and the superintendent of public instruction must agree for a school district.

Before leaving, the EM must adopt a 2-year budget including all contractual and employment agreements, which cannot be amended without the approval of the state treasurer.

The orders and ordinances adopted by the EM cannot be revised for 1 year after termination of the receivership.

Michigan Radio's Lindsey Smith spoke with Harris in March and asked him if he would be out of Benton Harbor by the end of the year.

“Oh I have no idea,” Harris said, shaking his head. “The state has not indicated to me one way or another what the future plans are for the EM in Benton Harbor or the future of Joe Harris,” Harris said.

- Jordan Wyant, Michigan Radio Newsroom