The great state of Michigan is having a crisis of its own. Its municipalities are under financial distress and in need of assistance. State law dictates that emergency financial managers will be issued in cases where local governments are on the verge of insolvency and cannot meet their obligations. This law was passed in 1990:
An emergency financial manager may be appointed under the Local Government Fiscal Responsibility Act, PA 72 of 1990, if a financial emergency is found to exist in a local government and no consent agreement has been negotiated to resolve the emergency. An emergency financial manager assumes budgetary powers and duties of the chief executive officer and legislative body, and may reorganize the government structure and renegotiate contracts. PA 72 provides that if an emergency financial manager is unable to resolve the financial emergency, he or she may request approval from the state's local emergency financial assistance loan board to authorize the local government to proceed under Chapter 9 of the federal Bankruptcy Code.
Federal law specifically states that a municipality cannot file Chapter 9 bankruptcy without the approval of the state:
Municipal bankruptcy is a specific process available under Chapter 9 that allows the reorganization of cities, villages, townships, and counties, but not states. The federal law provides that states must specifically authorize their municipalities to use Chapter 9. No Michigan municipality has ever filed for bankruptcy. Local governments cannot independently choose to file for bankruptcy in Michigan. Instead bankruptcy can only be filed at the request of a state appointed emergency financial manager with the approval of the local emergency assistance loan board.
There are consequences when a municipality files for bankruptcy. The Citizens Research Council states that this should not be an option:
"Bankruptcy should be avoided at all costs," says CRC President Jeffrey Guilfoyle, "the bankruptcy of one of Michigan's local governments could impact the access to credit markets for all of Michigan's governments. Local leaders and the state should explore every possible option before even contemplating a bankruptcy filing, and they should never view a bankruptcy filing as an easy solution to a government's financial problems."
The unions and leftist commentators would have us believe that these draconian laws were just passed by a vindictive republican junta that had hijacked the capitol in Lansing. They state that republicans have manufactured a crisis in order to vacate union contracts. Here are a couple of leftist nut jobs expounding this ridiculous theory:
What the republican led legislature did was strengthen the laws that were already in place. A recommendation that was duly noted back in 2005 by an emergency financial manager and adjunct scholar, as reported by the Mackinac Center for Public Policy:
Schimmel, an adjunct scholar with the Center, has served as an emergency financial manager for the city of Hamtramck and as a court-appointed receiver for the city of Ecorse. We reprint his 2005 work directly below.
Can Detroit’s Problems be Correct by an Emergency Financial Manager?
Michigan Public Act 72 of 1990, as amended, provides for the appointment of an Emergency Financial Manager if it is determined that a serious financial problem exists in a municipality or school district. The appointment of an EFM for the city of Detroit is often discussed as a possible solution for dealing with the city’s continual mismanagement and financial mess.
If it were ever determined by the state that an EFM should be appointed for the city of Detroit, under current law the EFM would not have all of the necessary tools to be successful. There are four major problems that would have to be resolved by amending Act 72 prior to the appointment of an EFM.
Making changes to Act 72 would be essential for an EFM to have the necessary tools to deal with the city of Detroit’s management and fiscal problems.
The changes needed are as follows:
1. Under current law, the EFM can be sued personally. Given that actions by an EFM will almost certainly be controversial, and harassing lawsuits are likely, it is essential that an EFM’s personal assets be protected. Making the EFM an employee of the state treasury department with access to the legal staff of the attorney general would make the present lack of indemnification for an EFM largely moot. Harassing lawsuits by local bargaining units or other affected entities or individuals would be defended by the state — an entity that has the depth of financial resources to discourage the filing of frivolous lawsuits.
2. The present Act lists the powers of an EFM, which are extensive but are not all-inclusive. This can allow the governing body to impede the overall effort of the EFM to deal with the municipality’s fiscal crisis. The Act should state that the EFM replaces and takes on the powers of the governing body (mayor and council or school board.)
3. Charter provisions, especially in old charters, can prevent or make it difficult for an EFM to make necessary structural changes to address financial problems. The EFM should have the power to review charter provisions that frustrate the process of cleaning up and streamlining a municipality’s financial functions.
4. Presently, most labor contracts provide for mandatory continuation of an expired contract until a new one is negotiated. This means municipalities have no opportunity to take advantage of lower-cost service providers. Additionally, in the case of public safety unions, municipalities must adhere to the provisions of Act 312, which mandates that when a municipality and union cannot agree on the terms of a new contract they must go to binding arbitration. In most cases, it takes nearly two years or longer to complete the process, and the legal costs are substantial. Furthermore, municipalities rarely reduce costs by going through the Act 312 process but rather, at best, limit the amount of increased expenses. Act 312 should be repealed in its entirety.
But forget all the above, because according to the professional left, Michigan doesn’t have a crisis. The only crisis to them is the negation of their union contracts.
Source: http://crcmich.org/rss/financialemergencies2010.html
http://www.mackinac.org/14290
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