Suspending Contracts in Financial Emergencies

The state has a legal process for managing local governments and school districts that are approaching bankruptcy. This law, the Local Government Fiscal Responsibility Act, calls for examination of local finances by state officials, and in the case of a financial emergency, the appointment of an “emergency financial manager.”[48] This EFM has fairly broad powers over government operations and may rework the local government’s budget; approve or reject expenditures, including the hiring of new staff; consolidate departments; sell off unneeded government assets; and contract with nearby governments for the provision of essential government services, such as police and fire. The EFM also takes over the local government’s role in collective bargaining and may ask to have current collective bargaining agreements renegotiated.[49]

As broad as the EFM’s authority may be, the act still leaves union officials in a position to delay and perhaps undermine the EFM’s work. The EFM may need to remove an unaffordable wage or benefit provisions from a city’s collective bargaining agreement. The sooner he or she is able to do so, the sooner the city can have its budget balanced and begin its return to financial and economic health. Yet under the law, the EFM must still engage in good-faith bargaining, while the union continues to draw dues payments that it can use to reverse the EFM’s changes later on, either through collective bargaining or through the political process.

The EFM has other tools at his or her disposal. As long as nearby governments are willing to contract to provide services to the troubled municipality, the contracting-out power may allow an EFM to dispense with collective bargaining and effectively purchase services elsewhere. The consequence of this is likely to be layoffs, however — layoffs that can often be avoided by the prompt restructuring of wages, benefits and work rules.

If a city, county or school district is truly facing an emergency in fiscal terms, then the situation should be treated as an emergency. In an emergency, necessary decisions are not negotiated; they are made and implemented. Collective bargaining is a privilege, not an inalienable right, and it is entirely reasonable that privileges that complicate the resolution of an emergency should be suspended until the emergency has passed. The Legislature should revise PERA or the Local Government Fiscal Responsibility Act to provide that all collective bargaining and collective bargaining agreements are automatically suspended for the duration of the emergency. Among other things, this would suspend the local government’s collection of union dues.

Such a rule may seem harsh, but the interest of taxpayers in the prompt and thorough resolution of the financial emergency and the continuation of city services must take precedence over the interests of union officials or government employees in the continuation of collective bargaining. This rule would also have the salutary effect of providing union officials with a strong incentive to monitor the economic health of the communities where their members work and the fiscal strength of local governments and school districts with whom they bargain. Furthermore, it provides the unions with disincentives against making contract demands that cannot be sustained over the long term. Again, abuse the privilege, lose the privilege.

At a minimum, the EFM should have the authority to rescind or amend collective bargaining agreements. Such a rule will allow EFMs to act quickly to void the most expensive collective bargaining agreements while keeping more reasonable contracts in place. This in turn will make it easier for EFMs to provide relief to taxpayers without disrupting services or laying off workers unnecessarily.