Study Finds Rejecting Proposal 1 Will Not Preserve Local Control, but Will Affect Powers Given to State-Appointed Managers of Local Governments in Financial Crisis

Center analyst: The additional powers of Public Act 4 will save taxpayers in distressed communities more than $100 million annually

For Immediate Release
Monday, Oct. 22, 2012

James Hohman, Assistant Director of Fiscal Policy
Ted O'Neil, Media Relations Manager

MIDLAND — A new study released today by the Mackinac Center for Public Policy finds that if Proposal 1 is defeated and Public Act 4 of 2011 is nullified, local governments and school districts will still be subject to a state-appointed manager if local officials have led them into insolvency. Such managers, retaining considerable powers, would continue to operate under Public Act 72, which was passed by the state Legislature in 1990 with bipartisan support.

 “Those who oppose the emergency managers in Public Act 4 want to argue that this law infringes on local control,” said James M. Hohman, assistant director of fiscal policy and author of the study. “But local control is always at risk when a government becomes insolvent. Even without Public Act 4 or Public Act 72, a court may step in and appoint a receiver to stave off insolvency, as we saw in the city of Ecorse in the 1980s.”

Appointing an emergency manager is the last step in a long process established by state policymakers to keep local units of government from having to file for bankruptcy.

“The first step is the state’s requirement that local units of government balance their budgets,” Hohman said. “If that fails, the state requires local governments to file deficit-reduction plans. State government also provides several mechanisms for municipalities and schools to borrow extra money if they are in dire circumstances.”

Before an emergency manager is appointed under Public Act 4, state financial review teams conduct two rounds of investigation to certify that a fiscal crisis exists. A review team then recommends whether the governor should appoint an emergency manager. There have been emergency managers under Public Act 4 in just seven of the more than 2,000 local units of government that exist in Michigan.

Public Act 4 clarified the powers and duties given to state-appointed managers under Public Act 72, but also extended them new powers, the most significant of which is the ability to amend government union collective bargaining agreements in certain situations.

“This is an important tool for emergency managers because employee costs typically represent the biggest expenditure for local governments, and local governments in Michigan are highly unionized,” Hohman said. “Emergency managers in only three places — the Detroit Public Schools and the cities of Flint and Pontiac — have exercised this power. Their actions are expected to save taxpayers in the three communities more than $100 million annually.”

The study, titled “Proposal 1 of 2012: The Referendum on Public Act 4,” is online here; the appendix of the study contains the complete language of Public Act 4. For more information on this and other ballot proposals, please see