Michigan's Local Financial Emergency Manager Law: Considering the Alternatives
DOWNLOADMay 30, 2018 - Mary Schulz (schulzm2@msu.edu) and Samantha Zinnes, MSU Extension Center for Local Government Finance and Policy
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EmailMany local governments in Michigan are fiscally troubled due to factors that include long-term economic decline and population loss, cuts to state revenue sharing, depressed property tax values, growing pension and retiree healthcare benefit revenue demands and poor management in some cases. The Local Financial Stability and Choice Act, (PA 436 of 2012), and the concept of the Emergency Financial Manager (“EM”) was created to provide for State intervention and in some cases, complete State receivership of local governance in instances where the State determines a financial emergency exists. Michigan local governments have had uneven experience with local government emergency management. Emergency management and the use of an EM has been the subject of ongoing discussion and whether the EM law needs revision, especially in recent years due in large part, to the Flint Water Crisis.2
The Michigan State University Extension Center for Local Government Finance and Policy published a white pa- per, “A Review of Michigan’s Local Financial Emergency Law,” (“white paper”) in April 2017 that sought to explore options to PA 436 of 2012. The research strategy of the white paper were two-fold: 1) review the relevant written literature, law and cases, and 2) to gather information for the report hold two small group meetings in Detroit and Lansing in 2016 with relevant stakeholders including experts involved with Michigan local government, county, and/or school district receivership.3
On November 13, 2017, MSU Extension held a follow up research forum, “Michigan’s Local Financial Emergency Law: Considering the Alternatives”, to build on research and findings previously reported in the white paper. The purpose of the research forum was to gather multi-stakeholder feedback on the feasibility of possible alternatives to PA 436 of 2012 and to determine which alternatives have the most support within the group. Specifically, the fo- rum was held to discuss and expand on the white paper’s four alternative options to current EM law, and to develop next steps for implementing policy change. The four options presented in the white paper are:
1. Repeal PA 436 with no replacement;
2. Adopt a model similar to California, allow bankruptcy without state receivership
3. Amend existing law to involve local officials and clarify state administration; and/or
4. Adopt specific legislation on a case-by-case basis.
The following is a summary of the Considering the Alternative forum. It should be kept in mind not all financial problems can be solved with an EM, especially for systemic and long-term difficulties since EMs are most effective addressing specific short-term budgetary problems.
