A comprehensive look at Michigan’s new(est) Emergency Manager Law, now with STABILITY & CHOICE!

I read this stuff so you don’t have to

A mere 37 days after voters repealed Public Act 4, Michigan’s notorious and anti-democratic Emergency Manager Law, Republican legislators passed a new version to replace it. It was signed into law as Public Act 436 thirteen days later. This defiant thumb-in-the-eye to the will of the voters was even more egregious since it contains two appropriations, one to pay Emergency Managers and another to hire consultants, lawyers, “work-out experts”, and others to implement the law. These appropriations ensure voters won’t have a chance to interfere with the business of our Very Serious GOP legislators on this matter again.

So, what, exactly, is in this new law? Well, for starters, let’s have a look at the title:

“THE LOCAL FINANCIAL STABILITY AND CHOICE ACT”

I’m not kidding. That’s what they call it. It’s surprising they didn’t figure out a way to include the words “FREEDOM” and “INDEPENDENCE” while they were at it. You can read the law HERE (pdf).

The new law has some of the same anti-democratic elements in it as Public Act 4 did along with some new things designed, one imagines, to make it more palatable to PA4’s detractors.

The “choice” bit refers to what some have characterized as the “choose your poison” elements of PA 436. Instead of an Emergency Manager being assigned as the only option, local governments actually have four options:

1. A consent agreement
2. An emergency manager
3. A “neutral evaluation process”
4. Chapter 9 municipal bankruptcy

If they choose a consent agreement and it doesn’t work out, they don’t get a second chance.

If they choose Chapter 9 bankruptcy, a process that, as I have pointed out in the past, allows the local elected officials to retain control over their government, the Governor has the last say and can force them to choose another option instead.

The “neutral evaluation process” is an attractive-sounding arbitration process where creditors and other “interested parties” negotiate with the help of a qualified arbitration specialist to resolve the city’s debt problems. However, it requires all parties to agree and that may far more easily said than done. If it falls through, they go to directly to Chapter 9 bankruptcy.

That brings us back to our old friend the “Emergency Manager”. You may have noticed that the terms “Emergency Financial Manager” (EFM) and “Emergency Manager” (EM) are often used interchangeably. They are, however, NOT the same. The original laws governing this, PA 101 and PA 72, called the position “Emergency Financial Manager” because the person’s duties were limited exclusively to the realm of finances. However, with Public Act 4, the title was changed to “Emergency Manager”. I explained why that is HERE:

But let’s take a closer look at #5: “Developing academic and educational plans”.

In the requirement for an Emergency Manager as spelled out by the law, the only specific requirement in terms of experience is “The emergency manager shall have a minimum of 5 years’ experience and demonstrable expertise in business, financial, or local or state budgetary matters.”

What part of that gives them the expertise needed to develop academic and educational plans? If you look at who is taking the Emergency Manager training classes offered by the state, it is mostly accountants and other financial-types. In fact, the trainings themselves are primarily conducted by accounting firms and other vendors who eventually stand to benefit if an Emergency Manager hires them to take over some aspect of the operations currently handled by public employees. There is no training on developing academic or educational plans. None.

So now we begin to see why “Financial” was, at least in part, removed from the title. This is no longer simply about getting a municipality or a school district on solid financial footing. It has transformed into what can only be seen as a power grab. It gives a political appointee control over publicly-owned assets and resources and, more sinisterly, control over the academic and educational plans used by our school systems to educate Michigan’s kids. It’s placing that control in the hands of people who need not have any training, experience or expertise in that area.

The job qualifications for an EM have not changed with PA 436 so these remarks are still completely valid and the title has once again returned to “Emergency Manager”.

Here are some things you need to know about EMs. The bits in italics are directly from the 22-page law:

• Upon appointment, an emergency manager shall act for and in the place and stead of the governing body and the office of chief administrative officer of the local government… Following appointment of an emergency manager and during the pendency of receivership, the governing body and the chief administrative officer of the local government shall not exercise any of the powers of those offices except as may be specifically authorized in writing by the emergency manager.

  In other words, your government officials just got replaced and they can’t do anything relating to the job you elected them to do unless the EM gives their permission to do so.

• The emergency manager’s compensation shall be paid by this state and shall be set forth in a contract approved by the state treasurer.
  This is likely a direct response to the hue and cry about making local municipalities pay for the person appointed to run their government against their wishes. Also, it allows them to justify one of the appropriations in the bill that makes it referendum-proof.

• In addition to the salary provided to an emergency manager in a contract approved by the state treasurer …[the] state may receive and distribute private funds to an emergency manager. As used in this subdivision, “private funds” means any money the state receives for the purpose of allocating additional salary to an emergency manager.
  So, this is interesting. The state can receive funds from outside groups to augment the EMs paycheck. Why would that be? Well, there’s history of that. Robert Bobb, the EFM/EM of the Detroit Public Schools for a time, received additional salary from several groups and when you see who they were, you can see how nefarious this two-sentence bit buried in this law actually is. From a Forbes piece on this:

  The Broad Foundation, along with the Kellogg Foundation, pays Bobb $145,000 a year on top of his $280,000 government salary. For those of you not familiar with Broad, it is one of the leading foundations promoting school choice and privatization across the country. One might almost think that paying a public official hundreds of thousands of dollars a year might amount to nothing short of bribery, especially given the very specific agenda of a foundation like the Broad Foundation.

  Now, Bobb is proposing to create charter schools for 16,000 students from 41 schools slated for closure. He argues that this will save millions of dollars. I have to wonder, however, at the conflict of interest.

  Let’s zoom out for a moment.

  What we have in Detroit is an Emergency Manager appointed by the previous governor who was facing a challenge from the School District which was frustrated by his top-down approach to school reform. That challenge was effectively crushed by the passage of Public Act 4. This same Emergency Manager was a graduate from a foundation that promotes corporate school reform and also pays around a third of his six-figure salary. The Emergency Manager has the power to break union contracts, layoff teachers, and open charter schools that benefit the same foundation that is so heavily invested in the Emergency Manager’s career.

  This is nothing short of a coordinated effort between the billionaire foundations pushing school reform and Tea Party conservatives intent on slashing benefits and ending collective bargaining rights. Public schools are under assault by the forces of privatization, and public school teachers face benefit and salary cuts while the very rich are promised tax cuts.

• One new element is that the EM can be removed after 18 months with a 2/3 vote of the “governing body” of the local government. That said, if they haven’t solved their emergency to the satisfaction of the Governor, they either go into a consent agreement within 10 days or the “neutral evaluation process”.
• Like with PA 4, the EM may prohibit the local elected or appointed official or employee, agent, or contractor of the local government from access to the local government’s office facilities, electronic mail, and internal information systems.
• Banks get paid back in full for any debts owed to them under Section 11(1)(b) which says The payment in full of the scheduled debt service requirements on all bonds, notes, and municipal securities of the local government, contract obligations in anticipation of which bonds, notes, and municipal securities are issued, and all other uncontested legal obligations.
  As usual, it’s good to be the king banker.

• The EM can reject, modify, or terminate 1 or more terms and conditions of an existing contract as well as reject, modify, or terminate 1 or more terms and conditions of an existing collective bargaining agreement.
  The EM does have to submit this to the local government officials who have 10 days to say they don’t want it. If they don’t, they have to submit a plan that achieves the same financial result to the local financial assistance loan board who can approve or deny it.

• Act as sole agent of the local government in collective bargaining with employees or representatives and approve any contract or agreement and the sole trustee of the local pension board.
• Consolidate or eliminate departments of the local government or transfer functions from 1 department to another and appoint, supervise, and, at his or her discretion, remove administrators, including heads of departments other than elected officials.
• Sell, lease, convey, assign, or otherwise use or transfer the assets, liabilities, functions, or responsibilities of the local government..
  This, too, must be submitted to the local government officials who can object to the local financial assistance loan board who has the final say.
  
• For municipal governments, with approval of the governor, disincorporate or dissolve the municipal government and assign its assets, debts, and liabilities as provided by law. The disincorporation or dissolution of the local government is subject to a vote of the electors of that local government if required by law.
  The first sentence of this section is verbatim out of PA 4. However, the second sentence is new. What I don’t know is if this actually IS required by law.

• Take any other action or exercise any power or authority of any officer, employee, department, board, commission, or other similar entity of the local government, whether elected or appointed, relating to the operation of the local government. The power of the emergency manager shall be superior to and supersede the power of any of the foregoing officers or entities.
• Remove, replace, appoint, or confirm the appointments to any office, board, commission, authority, or other entity which is within or is a component unit of the local government.
• When negotiating contracts worth more the $50,000, the EM may ask the treasurer to make them exempt from competitive bidding. This is a very dubious section since it opens the door to corruption and graft, something many of these governments themselves are often accused of.
• One thing the EM cannot do is sell or transfer a public utility furnishing light,
  heat, or power without the approval of a majority of the electors of the city or village voting thereon, or a greater number if the city or village charter provides.

• Upon appointment of an emergency manager and during the pendency of the receivership, the salary, wages, or other compensation, including the accrual of postemployment benefits, and other benefits of the chief administrative officer and members of the governing body of the local government shall be eliminated.
  These can be restored by the EM if they decide they wish to. Maybe if they behave themselves?

• Exercise solely, for and on behalf of the school district, all other authority and responsibilities affecting the school district that are prescribed by law to the school board and superintendent of the school district.
  Again, there are no requirements that the EM have any educational background whatsoever but they are allowed to essentially replace and act in the place of educational administrators.

• An emergency manager is immune from liability.
  Not only that, if they do get sued, they will be defended by the state attorney general with the local government picking up the tab, even if they are sued after they leave the job. That’s a great gig, kids.

• The EM and their helpers also get, courtesy of the local government, worker’s compensation, general liability, professional liability, and motor vehicle insurance.
• This next bit is just so illuminating. It talks about when an EM is going to leave. Here’s the opening line of Section 22:
  

  If an emergency manager determines that the financial emergency that he or she was appointed to manage has been rectified, the emergency manager shall inform the governor and the state treasurer.

  If? IF???! What the heck is “if”? Shouldn’t that be “When”??? Aye, aye, aye…

• This act does not give the emergency manager or the state financial authority the power to impose taxes, over and above those already authorized by law, without the approval at an election of a majority of the qualified electors voting on the question.
  You can always tell when Republicans write legislation, can’t you? EMs can screw over a city two ways from Sunday but they can’t raise taxes to bring in some more revenue.

Finally, there 19 different situations that can trigger the preliminary review process that is the first step in putting a city into receivership and having to choose one of the four poisons offered. Only one of them needs to be met. The last one, carried over from PA 4, is this:

The existence of other facts or circumstances that, in the state treasurer’s sole discretion for a municipal government, are indicative of probable financial stress or that, in the state treasurer’s or superintendent of public instruction’s sole discretion for a school district, are indicative of probable financial stress.

That is so broad and so inclusive and so subjective that it almost begs the question as to why you would even bother to list the other 18 situations. At the end of the day, the state treasurer starts the process for any reason they want; it’s entirely up to them.

This law kicks in on March 28th. Any current Emergency Financial Managers will have to get new business cards that say Emergency Manager but the law doesn’t require any new reviews; they simply get grandfathered in.

So, there you have it: Stability and Choice. Not so pretty-sounding when you deconstruct it, is it?