Why the Emergency Manager Law Makes Sense

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This article fromn Sen. Pavlov originally appeared in Dome Magazine.

DOME is pleased to publish Senator Pavlov’s rationale for sponsoring the bill that created the position filled just last week by Governor Snyder: Detroit’s Emergency Financial Manager

 

I live in St. Clair, but today I got a bill from Detroit. Yesterday, it was Flint. Last week, it was Ecorse. You might not realize it, but you received the same bills. If you live in Alpena or Ludington, you might not think city government in a place like Pontiac affects you. But it does. If your kids attend Birmingham Public Schools, you might not be too worried about the finances of school districts like Highland Park or Benton Harbor. But you should be.

Financial emergencies in any part of our state affect all of us, because ultimately their problems are Michigan’s problems – meaning you and I, wherever we live, are on the hook along with their own residents or students. That’s why the state Legislature partnered with Governor Snyder to improve existing state laws to help remedy and prevent such situations.

As a state lawmaker sworn to serve thousands of Michiganders, inaction isn’t an option. I represent the people of my own community, but also the interests of Michigan. As a Legislature, we were all sent to Lansing with a clear directive: get Michigan’s finances back in order, create a job-friendly environment, and build a better state for our children and grandchildren to embrace.

The Local Financial Stability and Choice Act plays a big role in accomplishing those goals.

Background

The concept behind this law is not new. For nearly a quarter century, Michigan has authorized state intervention in financially troubled cities and school districts. The first law, Public Act 101 of 1988, was signed by then-Governor Jim Blanchard, a democrat. Both Governors Engler and Granholm used the law to address financial emergencies during their respective terms, as has Governor Rick Snyder. You might be surprised to know the law has rarely been used. In fact, while Michigan has more than two thousand municipalities and public school districts, only about a dozen financial emergencies have ever been declared. That amounts to roughly half of one percent of all cities, villages, townships, counties, and school districts in the state.

The old law definitely needed improvement, though. For example, it really didn’t allow sufficient early intervention to head off catastrophes before they develop. And once a full-blown emergency arose, it didn’t give an emergency manager sufficient tools to completely fix the problem. Thankfully, most communities will never experience a financial emergency or be faced with the prospect of an emergency manager, but having such a law on the books is still good public policy. Michigan needed a law that allowed better preventive measures and real emergency assistance in order to ensure essential services for residents, deliver education for children, and safeguard hardworking citizens everywhere.

The Local Financial Stability and Choice Act identifies signs of trouble sooner, restores financial stability more quickly, and gives taxpayers and job creators confidence that a struggling city or school district will turn around.

Preventing Financial Emergencies

What’s perhaps most important to note about the new Act is the ability it gives the Department of Treasury to prevent local financial calamities from happening in the first place. As Benjamin Franklin famously said, “An ounce of prevention is worth a pound of cure.” This point cannot be overstated, because it’s also the least visible aspect for the public to see.

What about local units of government and school districts who are just beginning to experience financial stress? How can we ensure they don’t fall deeper into trouble, to the point where a state review is necessary? That’s where the new Act allows strong, proactive steps to identify signs of trouble sooner, so that a financial crisis can be avoided entirely.

The Department of Treasury can now provide technical expertise to these local units of government and school districts in an effort to work through financial problems before they reach a critical stage. Together with city, village, township, county or school officials, the department can help establish protocol and develop strategies to promote sound fiscal health, in addition to ensuring the development of a good working relationship with the state.

How many cities and school districts have been helped by this law in the past two years, in ways the public might not see? That’s hard to quantify, because the Department of Treasury is rightly vigilant in protecting the privacy of those entities. But we do know there are fewer school districts in deficit in 2013 than two years earlier, and even fewer projected to be in deficit next year.

We also know that the prospect of an emergency manager encourages local officials to collaborate more seriously with the state in ways they might not have before.

Resolving Financial Emergencies

A financial emergency affects real people and causes serious problems. There may be fewer police on the streets, ambulances that don’t reach those in need, and employees not paid on time.
In many instances, these crises have developed over several years, and are not necessarily the fault of one person, one mayor, one superintendent, or one school board. Regardless of how it came about, if such a crisis is not addressed quickly, it can easily mushroom into a devastating situation.

These emergencies require strong, decisive action, and that’s what we’re seeing happen in communities across our state right now. Let’s look at how emergency managers have recently made strides in three Michigan cities, to impact hardworking taxpayers in a positive way.

When Governor Jennifer Granholm declared a financial emergency in the City of Pontiac, basic public needs were not being met. Today, the city’s snow plowing, street sweeping, traffic light maintenance, streetlight maintenance, street sign maintenance, and road patching services have been contracted out to vendors, saving the city $500,000 annually. Other services and practices have been reformed and modernized for efficiency and savings, with $17.8 million allocated to deficit elimination. As a result, Pontiac’s bond rating has been upgraded to a B- grade, and its “Negative Watch” status changed to a “Stable Outlook.”

Governor Granholm also appointed an emergency manager for the City of Ecorse, where debt had exploded into a $14.6 million deficit. In 2011, Ecorse had a balanced budget for the first time since 2005, and a positive fund balance over $1 million. They’ve streamlined departments, improved service delivery, and eliminated the need for emergency borrowing. The city recently received a national award for “Small Bond Issue of the Year,” recognizing their exemplary bond restructuring.

Governor Rick Snyder appointed an emergency manager for the City of Flint in 2011. At that time, the city faced a projected $25 million budget shortfall. Today, a balanced budget has been adopted and implemented, and projections indicate no additional accumulation to the deficit. The creation of a city-wide authority has allowed for maintenance and improvement of lighting, and implementation of a basic waste disposal fee is keeping the city streets clean and sanitary. Partnerships between Flint police and the Michigan State Police are maintaining public safety and generating revenue to support reopening the city lockup. New labor agreements, reduction of long-term debt, a streamlined city workforce, and stabilization of water and sewer rates are also positive developments.

Local Choice

Economic crises which have developed over several years do not disappear overnight. With this new Act, however, we have established mechanisms for stability and pathways to sustainability. And we have done so in a way that respects the voice of the people and involves local choice to every extent possible.

Under the new Act, elected local officials have the ability to choose one of four potential remedies: a consent agreement, a mediation process, bankruptcy, or an emergency manager. If an emergency manager is the chosen option, local officials are empowered to approve certain decisions made by the manager and propose alternative solutions. Additionally, local officials may remove an emergency manager after 18 months by a two-thirds vote of their governing body and (if they are a city) approval by the mayor.

Each of us, no matter where we live, work, and play, envisions a vibrant Michigan, where our cities and towns thrive and where public services are delivered well and on time. We also envision our children happily and safely heading off for a day filled with quality learning in a financially sound school.

The Local Financial Stability and Choice Act is an action plan for that vision. It values local control, financial responsibility, and long-term accountability. It helps us build a better Michigan. As taxpayers, you get enough bills. This Act serves every day to keep you from getting another one. It’s working, and it’s putting all of us in Michigan on the right course.

State Sen. Phil Pavlov, R-St. Clair Township, represents Michigan’s 25th District in Lansing. He serves as chair of the Senate Education Committee and vice chair of the Committee on Natural Resources, Environment and Great Lakes, and is also a member of the Transportation and Regulatory Reform Committees. Previously, he completed three terms in the Michigan House of Representatives.

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