Stateside: An in-depth look at Michigan's controversial Emergency Manager Law

Sep 27, 2012

Voters in November will decide the fate of Michigan’s state-imposed remedy for most struggling cities—Public Act 4, also known as the Emergency Manager Law. 

Voting “yes” on the referendum keeps PA4. Voting “no” will repeal it. If that happens, the state says it will revert back to the older PA 72, the Emergency FINANCIAL Manager law. The state is currently operating under that law because Public Act Four is suspended until after voters go the polls.

Currently, seven Michigan cities and school districts are run by state-appointed managers.

This week, Cyndy got the chance to talk to a few experts on the subject.

Louis Schimmel is the Emergency Financial Manager of Pontiac, was receiver for Ecorse, and was Emergency Financial Manager of Hamtramck.

Dayne Walling is mayor of Flint, a city that is currently under state receivership and being managed by an Emergency Financial Manager.

Roger Fraser is Michigan Deputy State Treasurer for Local Government Services.

Cyndy Canty: Lou, critics of PA4 - the emergency manager law put into place last year - say they feel this measure undermines democracy, basically taking away the powers of elected local officials. As an Emergency Financial Manager yourself... how do you respond?

"I always say that PA4 was passed by the legislature and the legislature is elected by the people of Michigan. I can’t see that it’s anything other than democracy," Schimmel said.

"I’ve been an emergency manager and an emergency financial manager. I’ve been under both systems and I can tell you that I was probably as instrumental as anybody in getting PA4 passed because I knew the shortcomings of PA 72."

Cyndy Canty: Mayor Walling, you have had your powers stripped down, what is your response to that criticism of voter suppression?

"Our cities have longstanding challenges, there’s no debate about that. The real question is what’s the best solution or set of solutions," said Walling.

"Of course our state representatives and governor have all been elected and they’ve been the driving force in this particular reform. I do think that local citizens have a widely accepted expectation that Michigan citizens get to participate in a substantive way in the decisions around their local taxpayer dollars."

"I certainly have concerns about what happens long term in communities where in one area there’s not a local control mechanism but if you go across the street in another jurisdiction there is."

"I think there is the possibility of some long term lack of competiveness in the places where there is not substantial local control."

Cyndy Canty: Mr. Fraser, what do you think of these comments saying the Emergency Manager law is taking away democracy?

"We’ve had a mixed history among some of our cities in terms of the success of that locally elected leadership," said Fraser.

"With all due respect to Dayne, who came in at the tail end of some sad decision making in Flint, I think the city council in Flint is still somewhat discombobulated in terms of their ability to make cohesive decisions and that tends to be true in each one of these communities that the ability to make decisive decisions in the face of very severe financial circumstances is absent."

"It’s what has got them into rather significant trouble. Our approach to PA4 has evolved over time. We’ve been trying to focus on not just the finances but the long term health of the city in terms of its leadership and its infrastructure," he said.

"But the kinds of partnerships that haven’t been there between EMs and local leadership needs to be improved."

"As this law PA4 was first implemented there was great isolation and these folks were cast aside as the EMS and even EFMs came in and tried to fix the finances."

Cyndy Canty: A Michigan Radio listener commented on Facebook about the difference between PA4 and PA72. She writes the first is more limited in scope the second grants more complete control—one doesn’t go far enough, one goes too far—is there something in the middle?

“The reason I like PA 4 and I don’t feel it goes too far is because I operated under PA 72 and I didn’t have the authority to deal with such issues as appointments to boards and commissions,” Schimmel said.

"I couldn’t deal with the issues of modifying, changing, or implementing city ordinances. I didn’t have the power to deal with frustrating provisions in the charter that were very difficult to get around in order to deal with the financial problems of the city."

"I really couldn’t deal effectively with union contracts because I was basically doing not a heck of a lot more than what mayors and councils were doing. I was just trying to be more persuasive," he said.

"But I really didn’t have the power to make the changes that would allow me to get in and get out."

"I’ve been in Pontiac now for a year, most of it as EM, and I’ve been able to make dramatic changes in what I would consider issues most people would agree needed to happen in Pontiac. The moves I’m making are pretty commonsense and needed to get done."

"It is my goal to be in and out of here way ahead of five years more like a year or year a half."

"I think about another six months and I’ll be able to fix things."

Cyndy Canty: In reading through public comments–both for and against the Emergency Manager law—one does see some fairly frequent references to “corrupt” or “incompetent” local officials.

Lou Schimmel, how much corruption or just plain old incompetence have you seen when you come into these cities?

"I guess we have to define the difference between mismanagement and corruption. I’ve always tried to stay away from the corruption issue because I really don’t know what happened in the past," Schimmel said.

"I’m trying to be very careful not to make comments that I really know nothing about."

"It’s quite obvious in the city of Pontiac that some bad things happened, whether it was corruption or mismanagement."

"It’s been very, very poorly managed. Even current city council members will admit and they won’t argue that this town has just been miserably mismanaged for 25 years."

Cyndy Canty: It seems like there is a lot of reeducation or just plain education that needs to happen at that local level?

"If you consider common requirements to be a councilmember you have to be of a certain age and you have to be a registered voter. In some places there are no skilled managers among that set," Fraser said.

Walling responded,"To bring it back to PA 4 the potency and the superpowers that are invested in an appointed EM, the current EFM model is somewhat different."

"I haven’t seen the EM being able to build as constructive a relationship  with city council members as is being discussed here.  In theory we want that education and we want our educated officials to have that knowledge to understand that role as policy bodies."

"As mayors we deal with councils who want to get involved in the details all the time while ignoring the more serious structural issues."

"And that’s where there needs to be a somewhat different approach. We need our communities to have the strong self-governance they are going to need long-term and there is not much of anything said in PA4 saying that that is a goal of the law."

"There is some movement in that direction but it’s not required by the law, a different governor at a different time could use the law in an abusive way."

Fraser said, "I think that point is well made. We have tried to include in our agreements with the EMs this notion of working with the council members and the community. We want that to be a product that comes out of our involvement but it’s not well-embedded in the law. And there is so much that these folks have to do just to square around the finances that you’ve got to get the financial bleeding stopped first then you can go back and try to build the capacity in the community and leadership to do that, and there’s no requirement in PA4 to do that."

Cyndy Canty: Another listener raised this question:  Can “they” figure out a better way to be advisers or come up with a mandatory city council degree for local candidates? It seems like more education is needed to make the big decisions to run these cities.

Fraser said, "If you take a look at the places where we’ve run into these financial difficulties—Flint’s a great example—their population is approximately half of what it once was. Their tax base is less than half of what it once was."

"The folks who have now inherited these tasks, in that community and in others like it—Pontiac, Benton Harbor, Ecorse—the people who’ve been elected to these positions are really the board of directors for a multimillion dollar corporation and their asked to make decisions about infrastructure that was designed, in Flint, for a population of 200,000 now it’s only 100,000."

"They’re not generating enough revenue to support it—what do you do with that?"

Fraser mentioned that normally communities pay consultants to help make tough financial decisions, but communities like Flint don’t have the resources for such help.

Cyndy Canty: Mayor Dayne Walling, what are your thoughts on that?

"What we want to deliver in Michigan in our cities and our school districts are world class places that attract residents and attract investment," Walling said.

"And I think our state as a whole…needs a different approach from top down. Because a lot of the assumptions that we’ve had about how places earn their tax dollars and how they become attractive have fundamentally changed."

"The infrastructure we have here in the city, the property tax revenues are so much lower than they once were."

"We need to think together about the right mix of local and school district’s revenue. There needs to be greater communication and collaboration not just in places that are struggling but in those that excel.  With state leaders and I think there are some examples in state offices where some of that is happening, but not enough people recognize how critical that information is, those relationships are."

"We want to build a system that works, from top to bottom and that’s an intergovernmental enterprise that’s going to take local officials, and state and county and everything in between."

“We’ve been fractured and fragmented in Michigan and this is some of the prices we’re paying for it,” Walling said.

“We’re all affected when Detroit struggles or Flint struggles because those are the places that house are big regional assets that are important to Michigan and the global economy.”

“I think we all have to do more, there’s enough blame to go around here, and really focus on what we want our communities to be and all look for some new ways to advance that,” said Walling.

Cyndy saw an editorial by Stephen Henderson in the Detroit Free Press that said even if you don’t like the law, you’ve got to do something about the intransigence at the local level. Hendersen said it was not a power grab in Lansing that brought PA 4 into being.

Cyndy said that she does get the sense that PA 4 could be improved upon.

Fraser said he agrees. He thinks that when PA 4 was adopted it was a recognition that things were getting worse in Michigan, and we needed some ability to control costs at the local level or we were never going to fix anything.

He suspects that after the referendum, the state will solicit recommendations to improve on whatever law the state ends up with.

Mayor Walling said the other point is that there are a number of other state policies that have direct bearing on the health of local communities and school districts. He said we have to think about tax policies, and the differential local income tax between residents and nonresidents.

“We’re not going to revitalize Detroit on a 1950s or 1960s local government revenue model. I know it’s not going to happen in the city of Flint,” said Walling.

“We need to have laws that work for all of our union-negotiated contracts, not just have an ability to make the necessary changes in places where there’s an emergency.

I think we want to look at PA 4 and PA 72, but we also need to look at the variety of state laws and policies that have a direct impact on our cities and we need to think about what’s going to work for Michigan long term and not just be focused on a couple of real problem long standing challenge issues,” said Walling.

Lou Schimmel said we need to think about how much money these cities have now.

“As much as we don’t like to talk about it we have to keep this in mind. The city of Pontiac about 5 years ago had $58 million to spend in its general fund today it has $29 million,” said Schimmel.

“The drop is so dramatic and the cuts that need to be made to deal with a budget of $29 million instead of $58 million are massive.”

“I’ve preach over and over that in Michigan we have a lot of municipalities that have to deal with these kinds of situations and at the end of the day most all of them, though they may scream and holler and whine and do all the things we do under a democracy, at the end of the day they adopt a balanced budget,” said Schimmel.

“The desire to do that in the communities I’ve been in hasn’t been there. In fact, they have no interest in even knowing what the numbers are, or dealing with that kind of a situation. So when I do all the tough things that need to be done here in Pontiac. I’m doing it because no one has done it before or had any interest or wants to deal with it. So that’s a tough situation,” said Schimmel.

“I don’t know how you could straighten this situation out without PA4. I agree that modifications and changes may be necessary, but you need some sort of a process to deal with towns who are unwilling to deal with what other towns are dealing with,” said Schimmel.

Cyndy asked Schimmel what’s to prevent things from sliding back downhill when he leaves.

Schimmel said some preparations are being made before his departure.

“That is not being ignored… the act does provide that we provide a 2 year budget as we leave and that oversight take place. I’ve always said here ‘I’m not going to leave with 2 years budget going forward, I’ll leave them a 5 year road map to follow.’”

Schimmel said those detail need to be worked out and he thinks the state won’t allow all their good work to come undone.

Cyndy asked her three panelists, What comes next if PA 4 is repealed this November?

Roger Fraser said the state has taken the position that PA 72 comes back into play.

He said a dialogue would needs to take place with legislature and with leaders of communities under an emergency financial manager to determine what the appropriate next steps are.

“You alluded to some sort of compromise between the two laws. And I think we’re well satisfied that the PA 72 model is insufficient, so, if PA 4 is done away with, what can we do to come up with a model that still works and gives local units the ability to correct mistakes that we’ve made over years and years and years?” said Fraser.

Mayor Walling said, unfortunately, he thinks there will be a number of issues past and present that will play out in the courts.

“Beyond that I hope there is a dialogue about more than the emergency component of what’s happening in our cities and school districts,” said Walling.

“Whatever budgets are planned for each of these places what we know is that if revenues drop by the same nominal amount in the next five years, as they have dropped in the previous 5 years, then there won’t be any money to spend,” said Walling.

“So we have to look at how we fund our local governments and school districts. The entities that our providing the services businesses and families depending on every day. And we don’t have that right in Michigan right now, so we have to look at that along with what needs to happen on the accountability and management side,” said Walling.

Lou Schimmel said that under PA 72, he knows that he couldn’t have done what he did in Pontiac.

“I say something has to be done beyond 72 in order to give an emergency manager the power he needs to fix problems. You can’t take away all his tools and expect him to fix communities like Pontiac,” said Schimmel.

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