Wolverine Reversal

Michigan voters this week voted to overturn last year’s state law that gave state-appointed emergency managers broad powers to cut spending and avoid bankruptcy for financially stricken cities and school districts, repealing Public Act 4. That law, requested by Governor Tick Snyder, allowed the state to intervene more quickly to prevent insolvencies or have more power to reverse financial collapse. The law was intended to replace a 1990 statute that gave emergency managers less authority. Public Act 4 allowed managers to assume the powers of mayors, city councils, and school boards, to fire employees, sell assets, and cancel union contracts. When the referendum was placed on the ballot in August, Michigan had four cities and three school districts under emergency managers. In the wake of the vote, Governor Snyder warned that overturning the state’s controversial emergency management law could lead to municipal bankruptcies for some of the state’s most troubled jurisdictions: “Bankruptcies could have a greater likelihood of happening…We could have a situation of not having a manager who can do their work more effectively and faster, and the probability of municipal bankruptcy could increase because that could be the only option left to them: I still think there are a lot of negative consequences of municipal bankruptcy, if you look at places like California.” No local government has ever declared bankruptcy in Michigan, which has a high number of struggling cities and school districts. The voter-rejected law, Public Act 4 significantly broadened the state’s authority to intervene in troubled communities as well as the powers of emergency managers, giving them the ability to terminate or unilaterally amend labor contracts. The disputed—and now rejected—law had been suspended since late August, when the state election board approved the repeal question for the ballot. Michigan is currently operating under its previous, less powerful, law for fiscally stressed governments, Public Act 72. (There are currently eight governments in state-controlled emergency management status.) PA 72 itself is not without trials and tribulations: opponents filed a lawsuit last month arguing that the revival of the previous law is illegal. A hearing on the case is set for after Thanksgiving. Faced with such a potential loss, Gov. Snyder said a court-mandated overturn of PA 72 would pose a big problem for the state: “Then there would be no emergency manager law, and that would be a concern….That would really cause me to say that we need to be having a legislative discussion because we need some tools.” The emergency manager of Detroit Public Schools, Roy Roberts, warned last week that he would leave the position if the law were overturned. Under PA 4, Roberts controlled DPS’ fiscal and academic polices, but he controls only the fiscal side of the district under current law. Gov. Snyder said he plans to meet soon with top legislative leaders to discuss the possibility of new legislation that would replace some of the powers of Public Act 4—including the less controversial, but still-effective provisions of PA 4 such as an early-warning system for when local governments are facing fiscal stress.