Wolverine Blues

Meanwhile Michigan Governor Rick Snyder and key members of the legislature intend to introduce legislation today under which financially distressed Michigan cities and school districts could choose between mediation with creditors, bankruptcy or a state-appointed emergency manager—legislation intended to replace last year’s local fiscal distress law (Public Act 4) repealed by Michigan voters last month. Five cities and three school districts in Michigan currently operate with emergency managers under a prior 1990 law, which would be replaced by the new measure. Gov. Snyder fears the repeal of Public Act 4 left the state without enough ability to rescue cities and schools (and the federal government…) from insolvency. The new financial rescue proposal would retain the state’s power to declare financial emergencies in cities and school districts, but would also give local governments the options to reach a consent agreement with the state, similar to one Detroit has: mediation, an emergency manager, or a Chapter 9 federal bankruptcy filing. Under current Michigan law, the state must approve a bankruptcy request. The proposed new law would tie a Chapter 9 filing to a full state review of city or school district finances. While the new bill would reinstate broad powers for emergency managers, local officials would have authority to approve certain decisions made by the managers, or develop alternate solutions that produce equal savings. The proposal would also permit local officials to ask the governor to remove emergency managers after a year, or dismiss them with a two-thirds vote of the governing body, such as a city council.

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.

Wolverine Test

Michigan Treasurer Andy Dillon has indicated he will be disappointed if voters overturn the state’s emergency management law — the strongest in the nation. Nevertheless, he said if Wolverine voters reject the law next month, it would not spark a string of municipal bankruptcies or turn the Michigan local government landscape into one resembling California’s (see above). To date, the law has been used to solve the most pressing problems facing the state’s most stressed jurisdictions. Should the law be overturned, Mr. Dillon stated the state’s previous emergency management law, combined with a few new models, should be sufficient. Mr. Dillon (not to be confused with Marshall Dillon) spoke after he, Gov. Rick Snyder, and state budget director John Nixon met with all three major rating agencies in New York City in an ongoing effort to regain Michigan’s triple-A rating. This year’s meeting comes ahead of a roughly $100 million general obligation bond deal set tentatively for Nov. 8, two days after voters will weigh in on whether to repeal the EM law, known as Public Act 4, as well as five other major ballot initiatives with the potential to have a big impact on the state’s future. One measure would make collective-bargaining rights part of the constitution, and another would require a two-thirds legislative supermajority for any tax increases. There are currently seven Michigan jurisdictions under emergency management, with an EM expected to be named soon in an eighth, Allen Park. Mr. Dillon said the state is preparing to exit three stressed cities: Ecorse, Pontiac, and Benton Harbor. The emergency managers in those cities tapped PA 4 to implement a swath of changes that address core costs, like labor contracts. In Allen Park, he said an emergency manager lacking the powers of PA 4 would likely have a difficult time because one of the biggest problems is a police and firefighter contract that is “virtually impossible for the city.” In Detroit, Mayor Dave Bing relied on powers in PA 4 to order more than $100 million of wage and benefit cuts to current contracts over the summer. Detroit operates under a consent agreement with the state instead of an EM. The agreement has some ties to PA 4 but would not be overturned if the law is overturned. Top state officials would likely push for a new law that features the use of consent agreements and financial advisory boards for fiscally stressed communities if PA 4 falls, according to Dillon.

Manifestly Dysfunctional?

Michigan Gov. Rick Snyder late last week declared the city of Allen Park to be in a state of fiscal emergency due in part to its struggle to pay bonds issued for a now-failed film studio—giving Allen Park officials until next Monday to request a hearing to appeal the decision. Allen Park faces a chronic general fund deficit, severe cash-flow problems, and political infighting that the state review team said rendered the City Council “manifestly dysfunctional.” In his declaration, the Governor said: “We are committed to helping Michigan's struggling communities, and while declaring a financial emergency in Allen Park is not a decision we like to make, it is a necessary one to restore the city’s financial stability and put it on a path to success.” Absent a successful appeal, Allen Park would become the eighth local government to be placed under the state-controlled fiscal distress program. Three other jurisdictions, including Detroit, operate under consent agreements with the state. Allen Park is a formerly wealthy suburb of Detroit that, like many other Michigan cities, has suffered from declining property values and high unemployment over the past several years. Governor Snyder announced his decision ahead of a highly anticipated ballot referendum in November that asks residents to overturn Public Act 4, the controversial emergency management law that governs how the state deals with fiscally stressed municipalities. If overturned, the previous emergency management law, which lacks many of the powers of the new statute, will become law.

Referenda

The Michigan Supreme Court this week ruled that three out of four controversial referendum proposals can appear on the November ballot, ending months of legal wrangling over the measures. The court ordered that a referendum requiring a vote on a $4 billion, largely bond-financed international trade bridge to Canada should appear on the ballot. That marks a setback for Gov. Rick Snyder and other powerful supporters of what would be one of the country’s largest public-private partnerships. Also appearing on the ballot will be a referendum to make collective bargaining rights part of the state constitution, another question opposed by Snyder and state Attorney General Bill Schuette, who argued that the referendum would change too many state laws to be understood in the 100-word ballot language. The court also ruled that a measure calling for a two-thirds supermajority vote for the Legislature to pass any tax increases should be on the ballot. A proposal authorizing eight new casinos across Michigan will not appear on the ballot. The court, which heard oral arguments on the four proposals last week, had previously approved a referendum to repeal the state’s emergency management law for fiscally stressed municipalities. It will be one of the most crowded ballots in recent history and many of the measures could have long-term impacts on Michigan’s future. The Board of State Canvassers, which has deadlocked on many of the referendums, meets today to finalize the ballot. Voters could decide six proposals in November after the Michigan Supreme Court on Wednesday ordered collective bargaining, tax and bridge questions onto the ballot.

The court blocked a contested proposal that would have asked voters to OK the construction of eight casinos across the state. The court also clarified the process groups and the Board of State Canvassers must follow to get initiatives on future ballots. The decision paves the way for many voter choices, including the five constitutional amendments and a referendum on the emergency manager law. The Board of State Canvassers is set to meet today to finalize language for the ballot questions. The court’s ruling and the board’s ultimate approval will allow the board to meet the deadline for getting proposals added to the November general election ballot. A central issue on the four ballot proposals decided was whether they violated part of the constitution that says a petition must republish provisions that will be altered or abolished. The court said an amendment that does not alter a provision could still annul part of the constitution if it rendered the entire or part of a provision wholly inoperative. The majority of justices ruled the language in the petition to add casinos contained a “fatal” flaw in bypassing the constitutional authority of the Michigan Liquor Control Commission by stipulating the eight casinos would be entitled to a liquor license. The proposal would have authorized casinos on specific properties in Detroit, Romulus, Pontiac, Clinton Township, DeWitt Township, Grand Rapids, Birch Run, and Clam Lake Township near Cadillac. Already on the ballot is a referendum on the emergency manager law, and proposals seeking regulation and limited collective bargaining rights for home health care aides, and a 25 percent renewable energy mandate for utility companies. Michigan Alliance for Prosperity v. Board of State Canvassers, Director of Elections, and Secretary of State, No. , 09/05/12; Citizens for More Michigan Jobs and Robert J. Cannon v. Secretary of State, Board of State Canvassers, and Director of Elections, No. 145754 & (4), 09/05/12; Citizens for More Michigan Jobs and Robert J. Cannon v. Secretary of State, Board of State Canvassers, and Director of Elections, No. 145754 & (4); 09/05/12; The People Should Decide v. Board of State Canvassers, Director of Elections, and Secretary of State, No. 145755; 09/05/12; and Protect our Jobs v. Board of State Canvassers and Citizens Protecting Michigan's Constitution, No. 145748, 09/05/12.

Proposals Michigan voters will decide on the Nov. 6 ballot

Require public vote on new bridge

Purpose: To stop new bridge over the Detroit River by requiring a public vote before construction of international bridges or tunnels.

Status: ON. By order of the Supreme Court today.

Collective bargaining

Purpose: Protect and expand bargaining rights; repeal limits enacted in 2011; block right-to-work.

Status: ON. By order of the Supreme Court today.

Repeal emergency manager law*

Purpose: Repeal Michigan’s emergency manager law that broadened the managers’ powers.

Status: ON. By order of Supreme Court on Aug. 3.

Home health care workers unionization

Purpose: Create registry of home care workers; authorize unionization and bargaining rights for workers.

Status: ON. By order of Board of State Canvassers on Aug. 15; no court challenge.

Tax hike supermajority

Purpose: Require two-thirds majorities in Legislature to raise taxes.

Status: ON. By order of the Supreme Court today.

25 by '25, renewable energy

Purpose: Require utilities to generate 25% of Michigan’s energy from renewable sources by 2025.

Status: ON. By order of Board of State Canvassers on Aug. 15; no court challenge.

* The emergency manager proposal is a referendum on a state law. All of the others are proposed amendments to the state constitution.

Off the ballot

Casino expansion

Purpose: Authorize eight new casinos at specific locations around Lower Michigan.

Status: OFF. By order of the Supreme Court today.