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Wed July 11, 2012
State Treasury officials brace for suspension of EM law
The state Supreme Court could decide soon whether a challenge to Michigan's new emergency manager law will go before voters in November.
State treasury officials are assuming that it will, and they are preparing for the worst.
Roger Fraser is Deputy State Treasurer. He oversees the work of the state's eight emergency managers.
Fraser says if a challenge to the law goes on the ballot, the state's old emergency manager law will go into effect until November.
Current emergency managers will keep their jobs, but they will no longer have the authority to suspend union contracts, which Fraser says is only done if absolutely necessary.
Fraser says a suspension of the emergency manager law puts into question the budgets that the emergency managers completed with the help of the new law.
He also thinks things will go from bad to worse if voters repeal the law.
"Well, I think then you're gonna see more of what's happening in California," says Fraser. "Local units will have no choice but to go to bankruptcy."
Fraser says if Michigan cities go bankrupt, it could raise interest rates for all cities' debt, as ratings agencies increase the risk associated with cities' municipal bonds.
And a city bankruptcy would put the state on the hook for paying the city's bills.
Opponents of the emergency manager law say it is undemocratic.
There are five Michigan cities that have emergency managers right now - Highland Park, Pontiac, Ecorse, Benton Harbor, and Flint.
Three school districts are also currently run by emergency managers: Detroit Public Schools, Highland Park Schools, and Muskegon Heights Schools.
The state has entered into a consent agreements with the cities of River Rouge, Inkster, and Detroit.
The state also has a watch list for schools, counties and cities that are on the brink of requiring a financial review.
State officials are working closely with Wayne County to determine the state of its finances.
Allen Park, Hamtramck, Muskegon Heights, Royal Oak Township, Dearborn Heights, and Harper Woods are in shaky financial shape, too. Two additional school districts are also on the list: Benton Harbor, and East Detroit.