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Some Facts About Michigan “Emergency Financial Manager” Legislation

Posted by Dino on March 13, 2011

3/23/11 Update: If you’re stopping by for the first time first of all, thank you.  Since posting this on 3/13 we have had some very good exchanges of ideas in the comment section below.  The initial paragraph is only a very small portion of the entire conversation.  So please, read on to get the big picture.  Thanks, Dino.

I’ve seen a lot regarding this issue in the past couple of days and had similar concerns so I did what most people don’t do and researched it beyond what sound bites the media and partisan activists produce.  The video that has gotten the most coverage was a piece that Rachel Madow of MSNBC did on her show last week. I was not surprised to find that most of the claims were misleading and false. I read most of the actual bills, both the old Public Act 72 and the updated proposed legislation. Regulations are a big part of my job so I’m pretty used to reading them rather quickly.  I do actually have a life and don’t read regulations just for the fun of it!

Please understand that this is not necessarily an argument for or against the proposal but simply putting the facts out there so an opinion can be developed from what is truly happening and not what Rachel Madow tells us to think.

First, we must understand that this is an update of an existing act titled “Public Act 72″ in which many responsibilities and requirements of the Emergency Financial Manager are laid out….including removal of elected officials if they have been found to have gross neglect of duty. Public Act 72 was signed into law by Democratic Governor Jim Blanchard 1990 and about 6 or 7 cities/townships and 1 school district (Detroit Public Schools) have been deemed in Financial Emergencies between Republican John Engler and Democrat Jennifer Granholm. In this existing legislation and the revision currently in the legislative process, there are checks and balances in that the State Treasury, The Legislature and The Governors office have review processes in place for many aspects of this regulation.

The Governor cannot simply and arbitrarily declare a municipality or school district to be in a financial emergency. There are 3-4 pages of conditions that can even trigger an initial review that has to happen prior to a Financial Emergency can even be declared. This review can take months or even years to conduct pending findings and appeals. Also note that during this time the situation can resolve itself if the municipality takes care of the financial situation prior to review completion.

Apparently the change that people are getting worked up about is the power of the Emergency Financial Manager in the update to modify or amend existing municipal contracts. This is very similar the power to merge government services with those of surrounding services. This just happen in the City of Pontiac, which is currently under EFM oversight.  The Pontiac Police has been eliminated and they are now being absorbed by the Oakland County Sheriff.  The Pontiac Police Union even approved of it.

Here is another article taking the support position to give a bit of balance to the “Michigan Messenger” website piece.

It appears that this bill mainly gives a bit more bite to the existing EFM position powers and does not necessarily create any new, anti-democracy powers as some think it does.

Now that some of the facts are established, debate on.

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35 Responses to “Some Facts About Michigan “Emergency Financial Manager” Legislation”

  1. Rick Curtis said

    It’s obvious that you never read these bills (bills–plural). Your first mistake was to mention that you read the; “proposed legislation.” There are 2 bills in reconciliation with the House and Senate-not just 1! You should really take the time to actually read them–I did, and you are completely wrong about the new power grab that’s being attempted. The emergency managers CAN sweep a school board, township, or county government out of office at the will of the governor’s administration without public hearing, and with vague guidelines at best. Keep in mind, it’s the State that provides the money to the townships, etc. I’ll bet you’d be screaming bloody murder if Granholm had initiated this legislation.

    • Dino said

      You are correct, Rick, that there are two bills currently in reconciliation and I was well aware that during the writing. Instead of taking the time explicitly write out this obvious fact, I simply referred to them both as the “proposed legislation” since they were both very similar. I apologize if this expediency on my part lead you to believe I thought otherwise or in-fact did not “read these bills (bills-plural).”

      In Section 141.1224 of Public Act 72 of 1990 signed by Governor James Blanchard and effective May 15 1990, it details how elected officials may be removed from office as the following: “Failure of an elected official of a local government to abide by this article shall be considered gross neglect of duty, which the emergency financial manager shall report to the local emergency financial assistance loan board. Following review and a hearing with the local government elected official, the local emergency financial assistance loan board may recommend to the governor that the governor remove the elected official from office. If the governor removes the elected official from office, the resulting vacancy in office shall be filled as prescribed by law.”

      Here is how the current legislation (this means “these bills (bills-plural so you aren’t confused) reads in both the Senate and the House version as passed. “Failure of a local government official to abide by this
      4 act shall be considered gross neglect of duty, which the review
      5 team or emergency manager may report to the state financial
      6 authority and the attorney general. Following review and a hearing
      7 with a local government elected official, the state financial
      8 authority may recommend to the governor that the governor remove
      9 the elected official from office. If the governor removes the
      10 elected official from office, the resulting vacancy in office shall
      11 be filled as prescribed by law”

      With the exception of some of the language of “local emergency financial assistance loan board” and “review team or emergency manager” these are nearly identical in process. I apologize for the numbers preceding each line but this is an exact cut and paste from the actual House Bill No. 4214 as passed by the Senate.

      Now if you would like to challenge the legality and/or constitutionality of these requirements then that is well within your rights and may be something that needs to be debated and cleared up. But these requirements need to be put into context and it needs to be understood that these are not new measures that a republican Governor are attempting slide through but in fact were measures that were put in place by Democrat Governor James Blanchard in 1990.

      Link to Section 141.1224 of Public Act 72 of 1990: http://www.legislature.mi.gov/(S(2xcj2x55muk1jh555mcq2kvu))/mileg.aspx?page=getObject&objectName=mcl-141-1224

      Link to HB 4214 as passed by the Senate: http://www.legislature.mi.gov/documents/2011-2012/billengrossed/House/pdf/2011-HEBS-4214.pdf

      Link to HB 4214 as passed by the House: http://www.legislature.mi.gov/documents/2011-2012/billengrossed/House/pdf/2011-HEBH-4214.pdf

  2. Lars said

    Dino, the point of the legislation is to STRENGTHEN the powers of emergency financial managers that you note was first put into place by James Blanchard. Opponents don’t object to the appointment of emergency financial managers to oversee struggling municipalities or school districts as a last resort. It’s the INCREASED powers the legislation gives to emergency financial managers that opponents object to. The legislation package is designed to empower emergency financial managers “to throw out union contracts and overrule elected officials in financially distressed municipalities and school districts… (The legislation will) grant emergency financial managers nearly absolute power to control purse strings. The legislation also grants school district emergency financial managers total authority over academics and curriculum.”* A supporter of the legislation calls it “Financial Martial Law” for cities and school districts, mostly located in impoverished areas, that face insolvency. I think that is a pretty fair description.

    I have no doubt that these changes will be challenged in court.

    *From The Detroit News: http://detnews.com/article/20110310/POLITICS02/103100375/Financial-manager-bill-passes-Michigan-Senate#ixzz1GrfKJzT0

    • Dino said

      Lars,
      I can’t disagree with your statement that EFMs can eliminate union contract. You are quite correct that this bill strengthens the EFM role to allow the EFM change or void union contracts without negotiations. That was not in the original Public Act 72. I am fully aware of this fact and I fully support yours and everyones right to protest, petition the government, recall the Governor or challenge the regulation in a court of law. At this time I don’t even know if I fully support the power of the EFM to void a contract!

      I do, though, disagree with a lot of the mis-characterization and misrepresentation that has gone on through various social websites and media websites. The point of this post was to simply lay out what some of the facts are about this bill and its successor which are not being highlighted by many of those articles. As I stated in the post, I was quite concerned when I first learned of this bill, but after actually reading Public Act 72 or 1990, it became apparent how much power currently exists and was previously granted to the EFM. The State of Michigan printed a “Frequently Asked Questions” piece on Public Act 72 of 1990 and it lists what powers the EFM had prior to the passage of this most recent bill.
      1. As I stated in the comment above, PA 72 outlined the procedures to remove elected officials from office.
      (read excerpts of the FAQ below)
      2. PA 72 allowed the EFM to hire staff;
      3. PA 72 allowed the EFM to direct existing staff;
      4. PA 72 allowed the EFM to amend the budget of local government without approval of the legislative body or CEO;
      5. PA 72 allowed the EFM to issue, amend or disapprove certain obligations;
      6. PA 72 allowed the EFM to ELIMINATE A DEPARTMENT, POSITIONS OR TRANSFER FUNCTIONS OF DEPARTMENTS;
      7. PA 72 allowed the EFM to REDUCE PAY OR ELIMINATE BENEFITS FOR MAYORS AND CITY COUNCIL MEMBERS;
      8. PA 72 allowed the EFM to IMPLEMENT LAYOFFS.

      All these were powers granted to an Emergency Financial Manager in 1990 and are not new powers under the recently passed legislation.

      I encourage everyone to do whatever is in their powers to oppose this if they choose to do so. The most important thing though is that they do it fully informed of the context of the regulation, what powers the previous law granted, and how this regulation came about.

      This is the link to the FAQ: http://www.michigan.gov/documents/treasury/FiscalEmerg_271926_7.pdf

      Here is an exact copy of some of the EFM powers provided by Public Act 72 of 1990 referenced above.

      Do Emergency Financial Managers have the authority to hire staff?

      Yes. In addition to staff otherwise authorized by law, an Emergency Financial Manager, with the approval of the Local Emergency Financial Assistance Loan Board, may appoint additional staff and secure professional assistance considered necessary. The Emergency Financial Manager has the authority to create new positions, and complete authority to fill any vacancy in a permanent position by any appointing authority of the unit of local government.

      Does an Emergency Financial Manager have the authority to direct existing staff?

      Yes. Pursuant to Section 19 of the Act, an Emergency Financial Manager may issue to officials or employees of the unit of local government any orders which the Emergency Financial Manager considers necessary to accomplish the purposes of the Act, including,but not limited to, orders for the timely and satisfactory implementation of a financial plan. An order issued by an Emergency Financial Manager is binding on officials or employees of the unit of local government to whom it is issued.

      Does the Emergency Financial Manager need public approval for a financial plan?

      No. Section 20 of the Act provides that “[i]n consultation with” officials of the unit of local government, an Emergency Financial Manager shall develop, and may from time to time amend a written financial plan for the unit of local government. The financial plan implemented by the Emergency Financial Manager must contain information for each year during which the financial plan is in effect.

      Does an Emergency Financial Manager have authority to change existing labor contacts without negotiation?

      No. While emergency financial managers are authorized to renegotiate labor contracts, they are not authorized to abrogate such contracts or obligations. Therefore, the Act 72 process offers no safe harbor to units of local government seeking to avoid improvidently entered into obligations.

      May the Emergency Financial Manager amend the budget of the unit of local government without the approval of the local legislative body or chief executive officer?

      Yes. An Emergency Financial Manager may amend, revise, approve, or disapprove the budget of the unit of local government, and limit the total amount appropriated or expended during the balance of the financial emergency.

      Does an Emergency Financial Manager have the authority to issue, approve, or disapprove certain obligations?

      Yes. The Emergency Financial Manager may approve or disapprove, amend, or revise a
      3plan for paying all outstanding obligations of the unit of local government.

      Does an Emergency Financial Manager have the authority to eliminate a department or transfer functions of one department to another, or eliminate positions?

      Yes. Notwithstanding the provisions of any charter to the contrary, an Emergency Financial Manager may consolidate departments of a unit of local government, or transfer functions from one department to another department, and may appoint, supervise, and, at his or her discretion, remove heads of departments other than elected officials, the clerk of the unit of local government, or any ombudsman position in the unit of local government.

      Does an Emergency Financial Manager have the authority to enter into contracts with other units of local government for services?

      Yes.

      Does an Emergency Financial Manager have the authority to reduce pay or eliminate benefits for a mayor and city councilmembers?

      Yes. An Emergency Financial Manager may reduce, suspend, or eliminate the salary, or other compensation, of the chief administrative officer and members of the governing body of the unit of local government during the financial emergency. However, an Emergency Financial Manager cannot impair vested retirement benefits for these officials.

      Does an Emergency Financial Manager have the authority to sell assets of a unit of local government?

      Yes. An Emergency Financial Manager may, except as restricted by charter or otherwise, sell or otherwise use the assets of a unit of local government to meet past or current obligations, provided that the use of the assets for this purpose does not endanger the public health, safety, or welfare of residents of the unit of local government.

      Does an Emergency Financial Manager have the authority to review payments to employees?

      Yes. The Emergency Financial Manager may review payrolls or other claims against the unit of local government before payment.

      Does an Emergency Financial Manager have the authority to implement layoffs?

      Yes.

      Does an Emergency Financial Manager have the authority to impose taxes?

      No. Neither an Emergency Financial Manager, nor the Local Emergency Financial Assistance Loan Board, have the power to impose taxes, over and above those already authorized, without the approval at an election of a majority of the qualified electors voting on the question.

      Does an Emergency Financial Manager have the authority to institute Bankruptcy proceedings for a unit of local government?

      Yes. An Emergency Financial Manager may institute proceedings only under Chapter 9 of the
      United States Bankruptcy Code, if the Emergency Financial Manager determines either:
      – That no feasible financial plan can be adopted that can satisfactorily resolve the financial emergency in a timely manner, or
      – That an adopted financial plan that has been in effect for at least 180 days, cannot be implemented, as written or as it might be amended, in a manner that can satisfactorily resolve the financial emergency in a timely manner.
      Before instituting bankruptcy proceedings, an Emergency Financial Manager first must notify in writing the Local Emergency Financial Assistance Loan Board. The Board then has 60 days during which it can disapprove institution of bankruptcy proceedings. The effect of instituting bankruptcy proceedings would be to make the unit of local government a debtor under the United States Bankruptcy Code.

  3. Dan said

    Dino,

    This is a timely and useful discussion. Thank you for taking the time to do the research. Since you have, and at the moment I am too lazy to, perhaps you can address a couple more issues.

    Is the law clear on the difference between a loan board and financial authority? Because if the loan board is democratically elected and large, that is different from, e.g., the state treasurer. Clearly, the latter would concentrate power and reduce checks and balances. The question is, why was that language changed? Why bother unless it has some effect? If so, what is that effect?

    In both the old and new EFM law, what is meant by “abide” by the law? In other words, does not abiding mean obstructing the EFM in executing legally permissible powers? Or can it mean not coming up with a plan the EFM likes? Or what? Of course, if the body deciding changes (my first question), what is there to stop them from adopting a new interpretation?

    Was the 1990 law ever challenged in court? If so, what was the outcome?

    How does MI’s law compare with EFM laws of other states? I understand NY may have a pending lawsuit. Have any lawsuits ever gone up to the Supreme Court, with what outcome?

    Anyway, if you know about any of these issues, I’d love to hear from you.

  4. Ruth said

    Great discussion and thank you for all for staying civil.
    I would not like this sort of management in my town, I live in Hood River , Oregon a town of about 7,000 people.
    We struggle with our budget but everyone struggles at some point in time. Given time a town can generally weather the storms.
    My concerns regarding this are central to our right to vote and elect people that act on our behalf. Most often a blending of liberal and conservative thinkers that try to find the middle ground.

    Having laws that allow appointed managers to sweep away those duly elected officials and act on behalf of a single parties wishes and whims seems like a recipe for graft and corruption
    which throughout history has been the case time and again.

    I treasure my right to vote and have a voice.

    Don’t you??

    • Dino said

      Hi Ruth

      Thank you for stopping by and reading and I too would like to thank everyone, including yourself, for staying civil and having a good discussion about this critical issue.

      I too treasure my right to vote and have a voice. I hope everyone who has that right actively exercises their voice, not simply to vote for elected offices but voice their opposition or support of the issues of the day via peaceful assemblies, petitions and/or legal challenges to regulations that they feel are wrong. I kinda feel that this post is exercising that right.

      There are no abilities of the appointed EFM “to sweep away those duly elected officials and act on behalf of a single parties wishes and whims” as you stated. That is a fallacy that has been put out by opponents of the legislation to hide the actual truth that there are conditions and processes provided by Public Act of 1990 and duplicated by the current regulation as passed. I outlined this process in previous comments.

      It may be also important to note that Democrat and Former State Speaker of the House Andy Dillon (http://en.wikipedia.org/wiki/Andy_Dillon ) who was appointed as State Treasurer by Governor Snyder has come out in support of this legislation and wrote a piece in the Detroit Free Press detailing the legislation and his support. (http://www.freep.com/article/20110320/OPINION05/103200471/Andy-Dillon-Emergency-financial-manager-would-put-place-only-necessary )

      Like you, I grew up and lived in a small town only slightly bigger than Hood River. We saw our fair share of struggles. Over the past 20 or so years Michigan has seen it’s fair share of struggles which seem to be front and center in the national conversation of states that are going through hard times. My family has been largely blue collar, working class people whose struggles increased with the decline of the auto industry. Similar stories are more common then not throughout all of Michigan and throughout the county I’m sure. This is no different than many people and communities.

      We do have to draw a distinction between “struggling” and “on the verge of bankruptcy.” Federal Municipal Bankruptcy (FMB) Proceedings (Chapter 9 Bankruptcy: http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_States_Code ) is not a pretty thing and this bankruptcy proceeding has greater power over collective bargaining agreements then even the regular corporate bankruptcy proceedings. What you say in regards to everyone struggles at some point and most are able to get through those struggles is very true. Proponents of this legislation say that it is their hope that local governments can take care of their struggles without state intervention and especially FMB proceedings.

      We also have to consider the effects of FMB on not only the local government going through FMB but also other municipalities as well as the State itself. Like individuals, States are given a credit worthiness ratings which affects its cost of borrowing money. Ratings agencies such as Moody’s, Standard and Poors and Fitch rate the creditworthiness of that state and when they see financial difficulties of that state getting worse they downgrade the states credit rating. When people go through bankruptcy, afterwards if they are able to get any credit at all, they will have to pay extremely high interest rates on money they wish to borrow because the creditors must be compensated for the amount of risk that they are taking in loaning them money. If Moody’s, S&P and Fitch see that municipalities inside our state are declaring FMB they will downgrade Michigan that much further. The more the state is downgraded the more expensive it is for the government to issue bonds. It can cost all of the taxpayers of Michigan more money. At this point it is in the best interest of all local governments and the State to make sure that no municipalities enter into FMB if at all possible.

  5. I’m a little frustrated that the legislature has still not posted the reconciled bill/law. In fact, it only had the .pdf of the senate version, so I’m wondering, Dino, where you got the house one?

    After familiarizing myself with the basic contours of the new and old laws, I have to say that the public debate has been a little misleading. For example, there is no taxation without representation. Both versions clearly state any increase in taxes must be put to a vote of the electors. Nor are the versions very different in terms of dismissing elected officials; in fact, the new law adds more safeguards. Whereas in the old law the governor alone decided, now referrals from the EFM are vetted first by the state treasurer and attorney general. Some people may have been confused by language added to the new law that gives EFMs explicit power to dismiss officials below the government officials (boards and commissions that report to the local government). But the language prohibiting dismissal of elected governance bodies, and describing the process for referring criminal activity or neglect of duty, is preserved, almost identically.

    Anyway, gotta get some shuteye. Hope to continue the analysis.

    • Sorry, JoinTheLight is my blog name. This is Dan.

    • Dino said

      Hey Dan

      I don’t think the State has “officially” posted the final act yet. The state has a Michigan Register that is published on the 1st and 15th of each month. This register is all of the regulations passed by the state during a specified period of time. The final bill was signed on March 16th and I think it missed the deadline of 3/15 for the April 1st publication so I would expect to see it in the April 15th publication. Here’s a link to the Michigan Register. http://www.michigan.gov/dleg/0,1607,7-154-10576_35738_40280-248859–,00.html The Federal Government also has the Federal Register which is published everyday instead of twice a month, due to the enormous amounts of regulations that the government passes every day.

      You can find the final, reconciled bill by going to http://www.legislature.mi.gov and searching for bill number 4214. This will lead you to a summary of HB 4214 here http://www.legislature.mi.gov/(S(fqtbl020pjptmjnfc3op0my3))/mileg.aspx?page=getObject&objectName=2011-HB-4214
      This lists out the entire path that the bill has taken from introduction to final passage. You can see a link to the pdf files of the bill as passed by the House and Senate and the concurred and enrolled bill (this is the final bill as it will be in the books). You can see much more than the bills themselves though. You can find summaries and legislative analysis of the bill here as well. Pretty nice resource.

      I too see a lot of the misleading debates and misinformation that is out there regarding this bill and what it would do and the intentions behind the bill. All of that led me to look into this legislation more deeply which then led me to this post.

      While doing more research on the issue I found some interesting articles.
      http://www.thegovmonitor.com/world_news/united_states/michigan-expands-powers-of-emergency-managers-to-assist-local-government-47749.html This is written by the Governors office so understand where it’s coming from.

      http://www.connectmidmichigan.com/news/story.aspx?id=592305 This is a story done by NBC 25 out of Saginaw I believe comparing the Madow assertions and their analysis of the bill.

      Thanks for coming back and helping look into the bill with me. I appreciate it. I’m going to do some more work today since now it appears my brackets have been severely disrupted by Pitt losing last night! I’ll have some spare time today unfortunately!

  6. dawn goodwin said

    I think it’s also important to note that this legislation doesn’t exist in a policy vacuum: as the gov signs these bills into law, he’s doing it at the same time that the legislature is cutting programs massively. For education, what this means is this: “Folks, we’re going to need you to get your acts together. If you don’t, we’re taking over. Oh, and by the way, we’re cutting your budgets by about a quarter. Good luck with that . . .” Schools that were not in dire straights WILL be once the budget cuts come through. Doomed to fail, our emergency managers will be taking these schools over en masse. Hell yes I’m worried.

    • You’ve every reason to be worried. But the facts are the facts. Cuts are not 25%. At $470/child (and $170 of that was planned under Granholm), that comes to about 5%, which is the pay cut Republicans look likely to ask teachers to take. And the point of my interest in this discussion of the EFM law is to assess whether Rachel Maddow’s assertions withstand scrutiny that this is qualitatively different from what Democrats have done. In some ways it is (rejection of existing collective bargaining agreements) but in important ways it isn’t (the process for removing local leaders). That “it’s not as bad as Rachel said” certainly doesn’t make it good, but when I critique policy-makers, I like to make sure I critique them for the right things. Otherwise my credibility is damaged. My main issue with Snyder is not even taking on the unions, it is shifting resources from the poor to the rich. The moral repugnance of it would have to be outweighed by compelling evidence that it would reduce unemployment and increase wages in the long run, but there are no studies that support that conclusion; quite the contrary. So it is both mean and stupid, a repulsive combination. And of course the lip service to the importance of education while decimating it in fact… the obvious solution is to raise taxes… abolish the SBT, fine, but do it in a revenue-neutral manner, institute a progressive state income tax, and allow localities to levy local sales taxes (though I prefer local progressive income taxes).

  7. So, reading this discussion I think there are a couple salient points to address about the implications of this legislation. In my understanding (and please correct me if I missed something, or provide clarification in light of this legislation) :

    1) One of the major sources of public outcry against this legislation is that the financial manager (and thus, effectively the Governor) gains the power to fire elected officials, which outside of possible “slippery slope” arguments, still egregiously violates the principles of democracy. Furthermore, to do so would violate article 2, section 8 of the Michigan constitution, which reserves the right to recall officers of the state (all elected officials on any level within michigan are officers of the state) to a vote by recall procedures, and require a petition of 25 percent of the electors in the last gubernatorial election to be submitted to even get that vote. IF this is even implied in either the existing or new version of the legislation, to exercise that authority would violate the Michigan constitution, inviting a suit and subsequent nullification of said legislation.

    Now, that only applies to ELECTED officials. Removing “fourth branch” appointed or hired officers (non-elected bureau and council members) would probably depend on the language of their bureau’s enacting legislation. I have not delved into the intricacies of how executive and legislative bureaus derive their power on the state level. For executive bureaus this would probably be legal, for legislative ones certainly not (as that power belongs to the legislature itself), and for those that have independent authority (I do not know of any in Michigan but the Federal Reserve would be a national example) it would vary depending on whether they have protections from the executive branch.

    2) When the issue of “nullifying contracts” arises, we move into the realm of conflict with judicial authority, and the basis of contract law. This becomes especially important when these contracts involve other states, other countries (political subdivisions often expressly have the right to form contracts with Canada or entities therein), or the United States itself. One cannot simply wave one’s hand and “nullify” a contract. The only government entity given that power is the courts. Entities outside of Michigan are not going to be particularly interested in the Emergency manager’s reasons for breaking the contract, and are likely going to file suit. In the case of interstate commerce, this means any such attempt to breach a contract with another state would likely end up in federal court. Even more troubling is the possibility of violating a contract with Canada. So, the reality of this situation seems to me to be that any attempt for an appointed manager to come in and modify contractual arrangements in this way could entangle the state in litigation and possibly result in large financial repercussions.

    A final question to pose here: are either of the acts being discussed dealing with actual budget concerns, or are they strictly providing for the ability of the state to intervene in the affairs of political subdivisions? If the latter is true, the easiest solution for those who vehemently oppose this legislation is to call a referendum on the recently passed house legislation. In this way it will have no chance of taking effect until the next general election is allowed to put the measure to a public vote. We Michiganders should not forget that the public itself possesses all four means of public “participation” in government available: initiative, referendum, recall, and review. These powers exist for exactly that reason, and they have gotten us some pretty nice results in the recent past (medical marijuana). The rights of the people are very strongly protected here by our constitution, exercise them whenever possible.

    • Dino said

      Hi Justin

      Thanks for stopping by and for giving your thoughts. I tried to address your ideas in the same order.

      1) Yes, Article 2 Section 8 of the Michigan Constitution outlines procedures for the Recall of an elected official. This removal of an elected official through PA 72 and its successor, though, is probably not considered a recall so it can’t really violate Art. 2 Sec. 8. There is more than one way to remove an elected official. A recall is a removal of an elected official by petition of the electorate and is conducted pretty much as you outlined above. There really doesn’t need to be a legal reason for a recall other than the electorate doesn’t want an individual in office and if enough feel the same way they can “recall” or remove that official by petition. Elected officials can also be impeached. This is the process by which elected officials can be removed by via a trial by the legislation for “corrupt conduct or in office or for crimes or misdemeanors.” Article XI Section 7 of the Michigan Constitution covers impeachment procedures.

      Article VII covers “Local Governments” in the Michigan Constitution since local governments are in all actuality provided for by the State. This article covers many things but the most relevant section to this conversation would be section 33 “Removal of elected officials” which clearly states “Any elected officer of a political subdivision may be removed from office in the manner and for the causes provided by law.” A law that provides for the removal of local elected officials is outlined in Public Act 116 of 1954 Michigan Election Law (MCL 168.327) that specifically states “The governor shall remove all city officers chosen by the electors of a city or any ward or voting district of a city, when the governor is satisfied from sufficient evidence submitted to the governor that the officer has been guilty of official misconduct, wilful neglect of duty….” This is rarely used (as it should be) but the most recent “threat” of its use was when Governor Jennifer Granholm argued it had the power to remove Kwame Kilpatrick (former Mayor of Detroit) from office. Here’s a link to the regulation. http://www.legislature.mi.gov/(S(ijlfogesfbmjjabbyiatej45))/mileg.aspx?page=getObject&objectName=mcl-168-327 Do any research on the Granholm argument for their removal of Kilpatrick and you should be able to find many references to Public Act 116. Here is a link to a PDF of the resolution submitted by Detroit City Council to Granholm requesting she exercise this power to remove Kilpatrick. http://info.detnews.com/2008/0513mayorresolution.pdf

      Public Act 72 has been in existence since 1990 and I don’t know yet if it has been challenged in court but I can’t find anything that says it was. I would guess (and of course, it is only my guess and opinion) that court challenge of this aspect of the bill would likely fail since it does appear that removal of municipal officials in this manner may be provided for in the State Constitution and associated regulations. My assumption is that this provision, provided for by the State since 1990 (and at a quick analysis seems “legal”) is being used by opponents since it makes a good sound bite but is far from what the actual legislation provides. Maybe a good court challenge is needed to clarify if and how this removal is allowed by Michigan law.

      2) Nullifying contracts may be the most challenge worthy aspect of this legislation. I have not had the chance to do much research as to the history or legality of these actions but I will add it to my growing list of things to do! You do bring about an interesting view point on judicial authority and contract law.

      Once again, we can simply compare the previous version of the EFM legislation, PA 73 of 1990 to the new EFM Regulation to see what is new and what is not. Specifically the contract issue we can compare. First Public Act 72 of 1990 give the following powers to the EFM in regards to contracts: “Make, approve, or disapprove any appropriation, contract, expenditure, or loan, the creation of any new position, or the filling of any vacancy in a permanent position by any appointing authority.”

      Here is how the newly signed legislation reads when referring to EFM powers when concerning contracts (Section 19(1)(g)): Make, approve, or disapprove any appropriation, contract, expenditure, or loan, the creation of any new position, or the filling of any vacancy in a position by any appointing authority.

      Same powers were granted in PA 72 as in the current legislation.

      The difference between PA 72 and the new legislation is that PA only explicitly granted the EFM the powers to act as an agent for the municipality during collective bargaining agreement negotiations but the new legislation specifically grants some of the following powers regarding collective bargaining and contracts:
      (j) Reject, modify, or terminate 1 or more terms and conditions of an existing contract.
      (k) After meeting and conferring with the appropriate bargaining representative and, if in the emergency manager’s sole discretion and judgment, a prompt and satisfactory resolution is unlikely to be obtained, reject, modify, or terminate 1 or more terms and conditions of an existing collective bargaining agreement. The rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement under this subdivision is a legitimate exercise of the state’s sovereign powers if the emergency manager and state treasurer determine that all of the following conditions are satisfied:
      (i) The financial emergency in the local government has created a circumstance in which it is reasonable and necessary for the state to intercede to serve a significant and legitimate public purpose.
      (ii) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is reasonable and necessary to deal with a broad, generalized economic problem.
      (iii) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is directly related to and designed to address the financial emergency for the benefit of the public as a whole.
      (iv) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is temporary and does not target specific classes of employees.

      I would like to see more research on this issue of these explicit powers and if you find any relevant references, please share them with us.

      As for your final question, I would simply guess that proponents would believe the former true and opponents would feel the latter true. If you do oppose it, more power to ya and do what you legally can to change it.

      Governor Snyder did sign the bill into law on March 16th and it was effective immediately so it is basically the law in Michigan until it is repealed/replaced or struck down by the court system.

  8. Such an amazing discussion. How sad it is taking place off in the dark alleyways of the internet and not on the talking head shows or in the mainstream press. This is far deeper than anything else I’ve read. I wonder how many of us are reading it? If anyone has links to any discussions in legal forums, I’d like to have them.

    I agree with everything Dino wrote. The issue is the new powers granted to terminate existing collective bargaining agreements, about which more in a moment.

    Regarding removing elected officials, I am not aware that this provision of the law has ever been exercised, which would explain why there has never been a legal challenge to it. Benton Harbor’s mayor and city council have talked about filing a class action lawsuit, but they can’t find a lawyer willing to take the case bro bono, and they haven’t actually been dismissed. The EFM law explicitly relies upon the neglect of duty justification, so I agree it seems covered by Michigan constitutional law. I suppose one could challenge whether neglect of duty is defined acceptably in the law (basically as failing to cooperate with the EFM), but, prima facie, such an argument seems unlikely to prevail.

    Regarding collective bargaining, those contracts are regulated by federal law, and different regimes apply to private vs. public sector unions. In fact, private sector unions have more protection in bankruptcy. The law regarding public sector unions is murkier and less tested. The city of Vallejo in California declared bankruptcy and rejected existing union contracts. The union took it up as high as the Bankruptcy Appellate Panel of the 9th Circuit, which unanimously held with the city, then filed with the 9th U.S. Circuit Court of Appeals, but withdrew before a decision could be reached. So the principle that a state or locality can simply vitiate existing collective bargaining agreements in the context of local gvt. receivership or bankruptcy has simply not been tested all the way up to the Supreme Court. The folks behind the new EFM law are probably wagering that the law is on their side.

    Note also that there is talk in Washington of changing the law to enable states to declare bankruptcy: http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html. No state contracts or pensions would be safe. What I don’t understand is why states can’t be compelled to raise taxes to meet their obligations. It’s the voters, and their representatives, who are creating the fiscal crisis by starving the state of funds. If they want to do so after existing agreements expire, fine. But it seems unfair (I know, that has nothing to do with the law) to take it out on workers. And the rhetoric of “our tax load is uncompetitive” is a lot of B.S.: http://www.jsonline.com/news/wisconsin/89702927.htm. I also find it amusing that Republicans think of themselves as so fiscally responsible but want to save money by stiffing creditors. In my book, nothing could be more irresponsible.

    Thank you for reminding me of the four modes of participation in Michigan. Can you tell us more about what you think the most efficient path would be? Snyder and legislators cannot even begin to be recalled until July, and it would seem more efficacious to attack the law rather then the people.

    • Dino said

      Hey Dan

      As of 11:30 this morning this post has been viewed 289 times (this excludes my views) since it was posted on the 13th of March. So some people are looking at it. I haven’t seen any links that have tracked back to this post but there have been 2 facebook shares. Yes it is a shame that more people aren’t actually talking about this in depth. I’m guessing though that it wouldn’t make very interesting headlines to attract viewers so they sensationalize them so people watch….nothing new of course. Happens every day on both sides of the political spectrum. It’s too bad really.

      As far removing elected officials, I’m not aware of it being used under the EFM law but it has been used under the PA 116 in 1982 when Governor Milliken removed the West Bloomfield Treasurer for “Official Misconduct.” Here is a link to a story that mentions that. http://blog.mlive.com/michigan/2008/02/state_law_could_allow_granholm.html#more

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  10. Mindstage said

    Dino, thank you for doing the legwork to drag the facts of this matter into the light. Maddow has hurled me into the uncomfortable path of debating this issue with my libertarian brother in law, who swallowed her version HL&S. Your efforts have saved me untold hours of wasted breath.

    What is most telling about this scenario is the number of people who are launching recall efforts on the basis of proposed legislation. It is clear the outrage is centered on the mere suggestion that state government, even in the most extreme circumstances, might tamper with union contracts. Take hold of the hounds a moment. This is essentially an emergency powers act, with multiple hurdles of review to clear before any drastic action can be taken. Few can doubt that in this economy, any number of communities and school districts in Michigan are teetering on the edge of a financial abyss. It would be irresponsible of the Governor not to have a plan to deal aggressively with those who tumble in.

  11. Jim Fuscaldo aka Jim from Cedar said

    The law is unconstitutional as it pertains to the unilateral administrative powers granted to the EMF to vitiate existing contracts. The law fails to provide for an independent judicial review on the need and fairness of canceling existing contracts to achieve the financial plan. It denies the contract holder (unions, vendors, lessors etc. ) the right to a judicial hearing (due process guaranteed by the state and federal constitutions) on the taking of valid property rights. An executory contract is a property right. Existing Federal Bankruptcy Law (also available to municipal corporations) guarantees judicial review of contract terminations, and the awarding of provable damages resulting from the premature termination of contracts authorized in a Federal bankruptcy proceeding. Independent judicial review of the EMF’s decision to terminate contracts is not provided for in the Bill. The Bill is nothing more than a unilateral state controlled administrative ‘bankruptcy proceeding”. The bill could be remedied if it contained an appropriate procedure to allow due process review via a state court to determine the need and fairness on any and all contract cancellations or alteration of other executory or vested contract rights.

    Federal bankruptcy proceedings for states per se, and state subdivisions such as municipalities, counties, townships etc. is complex. The powers granted to a Federal bankruptcy executor and/or court are limited in contrast to a bankruptcy proceeding involving a non governmental corporation/business because of the Federalist system created by our constitutional republic. The constitution (Federalism) denies the Federal government the right to meddle in the interior administrative affairs of the states when the issue pertains to the administration of financial matters of the state (solvency), or political subdivisions of states.

    • Dino said

      Excellent points Jim. Do you know of any case law pertaining to this or have any other references? I would expect there to be a legal challenge any day now, especially if there were precedents set.

    • Dan said

      I haven’t read the 9th circuit bankruptcy appellate court’s decision, so I don’t know why it held for the state. I would note, however, that the EFM law does discuss receivership. One question is, is the referring to a court implied?

  12. Jim Fuscaldo aka Jim from Cedar said

    The law does provide for a Federal Bankruptcy alternative. However, because of the Federalist system stated in my previous reply there is very little a Federal Bankruptcy Court or Court appointed Executor can do to develop a fair alternative plan for a financially challenged political subdivision of a state. The receivership provision in the law is smoke and mirrors. Obviously, drafted by someone who doesn’t understand Federal bankruptcy law and its limitations when applied to states and political subdivisions of states. Looks good to many of our uninformed lawmakers in Lansing and our Woodrow Wilsonian governor. Call it illusory fairness. The only remedy is to insert due process provisions in the law allowing for state court review. However, the danger in providing for judicial review of the plan is that disenfranchised parties (unions) will in engage in forum shopping. That is, selecting a judge/court that has political views aligned with one or more of the parties. An alternative would be for a special panel of state appellate court judges to review the fairness of any challenged financial plan with direct appeal to the Supreme Court on matters of law only. The Appellate court could appoint a special bankruptcy master to make findings of fact, gather evidence, provide recommendations as to the financial plan that would be reviewed, approved and/or modified by the Appellate Court panel.

  13. Dan said

    BTW, why do you call Snyder Wilsonian?

  14. Jim Fuscaldo aka Jim from Cedar said

    He is a Progressive similar to Woodrow Wilson and T. Roosevelt. He is not a conservative. He is a Keyesian economist and doesn’t know or believe in the economic theories of Adam Smith, Freidrich Hayek or Milton Friedman. He believes in the redistribution of wealth through taxation. He does not believe in building business growth through savings, investment, lower taxes and cutting spending by cutting the size of government. If he wants to attract business to Michigan he must support repeal of the Renewable Energy Mandate. He won’t do it because there is too much money (Federal and State tax dollars and subsidies) being paid to energy companies(Heritage Wind Farms in Traverse City) and their bankers (Northwestern Bank) who are scamming the taxpayer.

    • Dan said

      Jim, you may (or may not) know Michigan and federal constitutional law, but I don’t agree with your assessment of Snyder’s politics or economics. I haven’t seen him busting trusts or standing up for workers (quite the opposite). He hasn’t proposed progressive taxation. He’s slashed taxes on small businesses and if he is redistributing wealth, it is only upward, by cutting EITC, taxing pensions, etc., etc. How are you defining Progressive? Anyway, progressive is relative to what came before it. We can say anyone who supports social security is a “Progressive,” but today that is the mainstream. Dismantling it might be called “regressive.” In my opinion, your interpretation is unusual and incorrect. As for what economic theories he knows or believes in, I don’t have evidence one way or another. Do you care to share what yours is?

  15. Jim Fuscaldo aka Jim from Cedar said

    During his campaign he refused to discuss, debate or answer any questions pertaining to his political platform. Specifically he refused to answer questions and discuss economic and scientific data I presented in a public forum as to why he thought Michigan’s Renewable Energy Mandate would be good for the economy. Specifically, why taxpayer money via EDC (of which he was CEO) was being given to Mascoma to produce ethanol, to Dow Chemical to assemble batteries, to Dow Corning to assemble photovoltaic cells under the guise of jobs, jobs, jobs. (These may have been initiated under the Granholm administration so he may get a temporary pass on these. It depends what he does in the future). If you do the math these are very expensive jobs being created at taxpayer expense. Not basic manufacturing jobs, but merely robotic computer assembly requiring very few high skilled employees to operate. Your high school graduates will not be working in these plants unless they are working minimum wages jobs through a contracted for service company cleaning toilets. Mascoma still hasn’t produced a commercial drop of ethanol in 3 years.

    His tax on pensions will cause many seniors to leave the state, take up personal residence in another more favorable tax jurisdiction ( 6 months plus 1 day) to escape Michigan Income Tax jurisdiction if they have no job or family commitment to retain a legal residence in Michigan. Seniors who are barely getting by on small pensions will be hurt the most. The loss of Homestead Tax exemption may not be such a loss for seniors since property values in Michigan are on the decline. Seniors usually have more disposable income if they have invested wisely through their pension plans and private investment portfolios. Their extra income is usually reinvested as savings for the benefit of their grandchildren (education) and their families and heirs. Savings and investment are the hallmark of the capitalist system. If you tax investment income (pensions) both at the Federal and State levels you reduce available capital to support growth. Tax increases may raise revenue in the short term but eventually reduces the flow of capital investment that is the keystone of growth, wealth creation and job creation. Economic models have shown this to be true. Taxation is a form of behavioral modification. It causes taxpayers to seek tax avoidance schemes or move the income to more favorable tax jurisdictions. If private investment dries up because of increased taxes on investment income who will fill the void? It will be the government or the state with your tax dollars by giving tax incentives etc. to rent seekers and making up the difference by increasing taxes elsewhere. These are nothing more than a redistribution of income from the taxpayer, to the state, to the industries that have the most effective lobbyists. The proposed new bridge in Canada is part of the PPP (private, public partnership plan) to complete the Eastern link of the North American trade highway from the deep water ports in southern Mexico through the U.S into Canada. The NA trade highway will facilitate growth of basic manufacturing off shore and mere assembly in the U.S. to claim the 50% added value for “Made in the U.S.” labeling. The PPP is the brain child of the Council on Foreign Relations and the architect of the EEU. Highway 69 in Indiana has already been leased to a foreign management company. ( I am on vacation in AZ so I don’t have my reference/research material readily available to give you more details). In short look at the big picture. The most effective way to balance the budget is to cut spending. However, he is not willing to deal with tough issues that would alienate his Progresssive (aka socialist base who believe in more government control of the economy).

    Back to Dow Chemical. Did you know that Jennifer Granholm was recently appointed a Director of The Dow Chemical Company. Keep an open mind. Watch how things evolve. FYI: I am a retired scientist and lawyer with 40 years experience in International, Financial, Commercial and Regulatory Law. I retired from Dow Chemical after 30 years experience. I have no regrets or axes to grind with my former employer. They have become one of the many corporate “rent seekers” in recent years because the lawmakers and politicians have been influenced by their lobbyists and have passed laws under the guise of jobs..jobs..jobs!

    • Dan said

      You raise many interesting points, Jim, but we’re getting pretty far afield from the EFM law. I did know about Granholm, and how you’ve characterized the “NA trade highway” is compelling. I disagree that taxing pensions will cause a retiree exodus only because almost all other states already tax pensions, even if the investment impact may be as you contend. I don’t know enough about the specific PPPs you mention, but corporate rent seeking doesn’t surprise me. Still, calling that “Progressive” is rather odd. Progressives would question corporate power, try to redistribute to the poor and elderly, and support unions. On these central progressive issues, Snyder takes the exact opposite policy positions.

      As for Hayek and Friedman, I don’t place value on fidelity to abstract theories, which have real world limitations. There is ample evidence that an unrestricted free market can and often does lead to extremes of wealth and poverty that are ethically problematic and can be incompatible with democracy (of which Hayek was not a huge fan) and participatory government. I believe there are much more important things in life than “economic efficiency” or even “economic freedom.” Marx knew a thing or two about the logic of capitalism, too.

  16. William Green said

    Thanks for the research one and all. What were the founders of the legislation intending when it was created?

  17. Val Fahey said

    Without judicial oversight, this is clearly unconstitutional. Even in private-sector versions of this action, which are receiverships, a judge is responsible for approving the action and appointing the receiver, as well as any expenses or actions undertaken by the receiver.

    I don’t suppose this has any connection to the upcoming SPGA tourney and the newly minted private developer’s golf resort? Noooooo, I’m sure not.

  18. Elle Kaye Jons said

    Just a quick question or two from a Newbie. Is there anything in the law to prevent the EFM from eliminating specific courses and/or specific teachers/professors from the schools/colleges in the affected towns and counties? Can the K-12 schools be pared down to 1/2 time? Does the EFM decide what textbooks will be purchased and used, K-12?

  19. poll said

    meinung…

    Some Facts About Michigan “Emergency Financial Manager” Legislation « Wall Street Crack…

  20. Alyssa said

    I personally want to book mark this particular blog, “Some Facts About Michigan Emergency
    Financial Manager Legislation Wall Street Crack” on my
    page. Do you really care in the event Ido? Many thanks ,Evelyn

    • Not at all. But I am no expert in these issues. This is just me trying to figure things out. Plus, this discussion has been largely superceded by the repeal of the EFM law and introduction of a new one.

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