To the desk of Governor Rick Snyder:
The bill before you would create a new “Local Government and School District Accountability Act,” repealing the existing Local Government Fiscal Responsibility Act passed in 1990 and amending others that have enabled state review and intervention in instances of municipal fiscal stress or emergency. This new bill has been coined the Emergency Financial Managers Act (EFMA). In many ways similar to the 1990 act, the EFMA’s largest change in public policy would be to increase the power and authority of the appointed emergency manager, a title that indicates an authority extending beyond financial matters. The most significant, and therefore controversial, implication for this new authority would be in public employee sector, specifically in the arena of collective bargaining and union contracts. This new bill would amend the Public Employment Relations Act, established in 1947, allowing emergency managers, individuals appointed by the state treasurer or the state school superintendent (if a school district), would be able to revoke labor contracts, suspend collective bargaining for up to five years, become the sole trustee of an underfunded pension system and suspend the power, authority and salaries of city managers and local elected officials. This means that the emergency manager would be granted the authority to reject, modify or terminate collective bargaining agreements made with employees of the state. Contractual agreements made after the passing of this law, if you chose to do so, would be required to include a provision that gives an emergency manager this authority, conversely eliminating the subject’s bargaining rights if deemed necessary by the emergency manager.
Under the current statutory stemming from the public policy debate in 1990, three strategies can be employed by the state if a fiscal emergency is declared in a local government: (1) local officials can develop and implement a plan to resolve the crisis under a consent agreement negotiated with a state-appointed review team; (2) a state-appointed emergency financial manager can develop and implement a plan to resolve the financial crisis; or (3) file Chapter 9 bankruptcy upon recommendation of the emergency financial manager and approval from the state. Under this statutory, seven Michigan communities have had state-appointed emergency financial managers – all within the past 10 or so years: Hamtramck (2000), Highland Park (2001), Flint (2002), the Village of Three Oaks (2008), Ecorse (2009), Pontiac (2009) and Benton Harbor (2010), as well as the appointment of a financial manager for the Detroit Public School District (2009). The reasons for appointment are just as varied as the success rate of the emergency financial managers in actually improving the fiscal health and prosperity of the municipalities. Currently, only Benton Harbor, Pontiac, Ecorse and the Detroit Public Schools still have their state-appointed emergency financial managers in place.
You currently have to face more than 500 separate school districts, a number far greater than most states. Focusing on the performance of school district officials – rather than school financing – comes at a timely crossroads in the restructuring of public education and the financing of public services. You have asked all districts to take steps to shrink staff, close buildings, privatize services and ask teachers to pay a bigger share of their health insurance costs – which some, admittedly, have avoided or been reluctant. Your proposed 8-10% cut to all school districts in the upcoming budget year, when paired with cuts in federal monies and the fact that districts have to pay a bigger share of pensions, works out to a $715-per-student reduction. With this in mind, it is highly likely that many municipalities, particularly schools, will be in a state of either financial stress or financial emergency, as defined by the bill, almost immediately.
If you pass this bill, an unprecedentedly dramatic shift in home rule and local governance will be practically inevitable. Currently, there are a projected 40 school districts that may fall under emergency manager authority within the next year; the number of additional other municipalities is currently unknown. But one can project that the number of state-appointments needing to be made will far outnumber the track record of the past ten years under the criteria set forth in the 1990 Local Government Fiscal Responsibility Act. The propensity for municipal accountability is a motivating factor in all of this but I would warn against passing this bill in the immediate aftermath of deep, across-the-board cuts. It is important, as you have stated, to ensure that all the smaller pieces of the puzzle are working effectively in order for the bigger picture to work. Tempering cuts with greater pressure on municipalities would give local officials the time necessary to make adjustments in their budgets, personnel and facilities. To piggyback one with the other could prove devastating to the efficacy and future efficiency of local governments. I would propose a 2-3 year adjustment period for municipalities around the state to regain their bearings and control over their budgets. If after an appropriate wait period, municipalities are still not making the necessary moves, then the provisions of this bill in the form of an emergency manager may be a viable option. While the intent of this bill is to protect the credit of the state and its political subdivisions, the track record of emergency financial managers does not necessarily lead us to believe that this bill is our greatest – or only – option as I will explain.
First, I would like to draw your attention to a report published in April 2010 by the Citizens Research Council of Michigan, titled “Financial Emergencies in Michigan Local Governments.” The CRC reports that the State of Michigan has adopted a number of statutes specifically designed to prevent local governments from falling into a financial crisis. Some of these acts have been referenced directly or indirectly in this analysis, many of which will either be eliminated or amended if the current legislation passes. Notable legislation includes the Uniform Budgeting and Accounting Act, the Emergency Municipal Loan Act, the Fiscal Stabilization Act, the Revised Municipal Finance Act and the Home Rule Cities Act. Additionally, the CRC report adds, the state constitution already provides for the removal or suspension of local officials, a major component of EFMA. As stated, it might serve the state well if local municipalities were allowed the time to recalibrate their budgets in the wake of the fiscal disequilibrium of massive cuts. There is no immediate need for increasing the authority of emergency financial managers as there are already measures in place to support struggling municipalities. Moreover (and perhaps most importantly), as only the aforementioned eight municipalities have fallen under current standards of a financial emergency, there is no practical or substantial basis to say that the current acts do not truly help struggling municipalities. The acts, therefore, have provided sufficient preventative measures for struggling municipalities. I suppose it goes back to the old adage: if it ain’t broke, don’t fix it.
In order to determine the effectiveness of emergency financial managers, it is important for you to look at our living case study: DPS’s financial manager, Robert Bobb. Bobb was brought in to help deal with the aftermath of a serious scandal that surfaced in which DPS officials embezzled money from the already depleted district budget. Additionally, a corrupt mayor further set back DPS through rampant mismanagement. Bobb came in to assess the damage and give an estimate on how much money it would take to get DPS out of its deficit. He has done similar administrative work in other cities around the country to varying degrees of success. It goes without argument that if Bobb were to go into nearly any school district in the state (and perhaps across the country), he would likely come back with an estimate in the millions that would be needed to get the district out of its deficit and get the "best school possible" for students.
Since Bobb was appointed emergency financial manager in 2009, a Detroit paper reports that “the district's deficit has grown from $219 million at the end of 2009 to its current $327 million. He's closed 59 schools in two years and outsourced several departments including transportation and school security." School consolidation is a likely reality on the horizon, especially with your proposed cuts to education. But consolidation is made at the expense of the jobs of teachers, a population that has historically had a loud voice as backed by the American Federation of Teachers and the National Education Association. As governor of a state strapped for jobs, it is important to remember that the potential for eliminating jobs by way of consolidation has garnered serious resistance from your constituency. The odds are stacked against job retention and teacher retention in our schools. With budget cuts come consolidation, pink slips and eliminations. The creation of new authorities for the emergency manager essentially renders teacher tenure and job security as moot points because seniority and a lifetime of achievement in the schools will no longer be grounds for maintaining a job. Additionally, this bill has provisions that would further damage the attractiveness of the teaching profession to quality candidates in Michigan, particularly in areas that have the greatest need for highly-qualified teachers, such as Detroit and other impoverished districts.
Bobb has taken an approach to education reform similar to that of Michelle Rhee, the former Chancellor of Schools in Washington, D.C., whose methods he has openly supported. This methodology specifically targets teachers, including eliminating seniority in union contracts and rules at schools and implementing merit-based pay (based on student performance on standardized testing and continually rising 'progress' standards). Other reform measures include: extending the school day and school year, and allowing flexibility to use outside service providers to run schools, according to the plan (i.e. contract schools). After implementing a similar plan in D.C. of massive teacher cuts/layoffs, school closures and shifting of principals around, Michelle Rhee stepped down as Chancellor of the D.C. Schools. She served as Chancellor for two and a half years. Robert Bobb has publicly stated his intentions to stay only to the end of this school year. That means his stay in Detroit will have lasted all of two years.
The provisions of the EFMA outline the required qualifications of an emergency manager. The language of the bill states that the emergency manager would be chosen on the basis of competence but need not be a resident of the local government. The manager would serve, as stated, under the state treasurer or state superintendent of schools. Newly-made authorities of the managers have already been discussed at length. Additional language requires that an emergency manager have attained a degree in accounting, business, public administration or a related field from an accredited institution and have a minimum of five year’s experience in local or state budgetary or fiscal management. I would particularly like to point out a responsibility in the job description that requires emergency managers to provide an explicit exit strategy to enable formerly struggling local governments to emerge from financial emergency status, during which time local officials are prohibited from revising the emergency manager’s two-year budget, labor contracts or ordinances. It is absolutely necessary for an exit strategy to be established and truly given a chance to succeed in municipalities.
The success of these strategies, however, rest almost solely on the judgment of an individual, perhaps from the area but perhaps not, with a multitude of personal interests. Bobb himself is both the CEO of a public/private consulting firm all the while serving on the D.C. Board of Education. It is tough to see how local communities, even if disenfranchised with their local government, could really get behind a non-elected individual taking the reigns on the future prosperity of their municipalities, regardless of endorsement by the state or even the governor. After living in the Upper Peninsula, it is conversely safe to say that many Yoopers are highly suspicious of the intentions of down-state politicians and businesspeople. A short-term (two years or so) stay by an outside authority is, in many ways, contrary to our perception of local governance. While this idea of home rule has undergone vast changes over the past decade, there is something to be said about having local knowledge and understanding.
The list of authorities granted to the emergency manger is lengthy and expansive. An emergency manager, if you chose to pass this bill, will essentially be able to manipulate, shift, consolidate, eliminate, employ, restructure (debt, personnel and governing structure), sell, lease, apply for a loan, order millage elections, create ordinances and resolutions, overturn elections of officials, supersede the power of any other entity of the local government – elected or appointed – and all other functions of the local government. These actions are done at the expense of the local government, of which the previous actors have their salaries eliminated for the duration of the receivership. I will not recite to you all of the newly created authorities of the emergency managers but rather implore you to look over the list yourself. I think this is the only way to really capture the profoundness of the legislation. Perhaps if you were to compare it to your own list of authorities upon declaration of martial law, the obvious connections may make you reconsider the bill. The office of the governor is entrusted by the people of the state with their vote and backed by a history of doing right by the people. To grant an emergency manager of unknown virtuosity and intention the same authorities as the office of the governor undermines the power and confidence of such a position.
I would like to close by stating that this analysis does not claim to address the totality of the bill. Nor can this analysis fully express or predict the implications that this bill could have on the future of this state. Upon close review of the bill and extensive consideration, I would highly recommend not passing the Emergency Financial Managers Act into law – particularly at this moment. There are positives to draw from the language of this bill, many of which are already in action. For those provisions not in action at the expense of accountability, I would propose a stiffer agenda and perhaps greater incentives for struggling local governments to get on track. However, to enact such a sweeping measure prior to allowing local governments the chance to work through current budget cuts would be preemptive and, with the provisions of what constitutes a financial emergency, could have long-term damaging effects on the ability of local governments to be self-determining and self-sustaining.
Sources utilized:
http://www.legislature.mi.gov/documents/2011-2012/billenrolled/House/pdf/2011-HNB-4214.pdf
http://www.mlive.com/news/detroit/index.ssf/2010/10/robert_bobb_confirms_he_will_e.html
http://www.legislature.mi.gov/documents/2011-2012/billanalysis/Senate/pdf/2011-SFA-4214-F.pdf
http://a2docs.org/assets/files/2011/02/24/2011-HLA-4214-3.pdf
http://www.mlive.com/politics/index.ssf/2011/03/gov_rick_snyders_education_cut.html
