The city of Detroit is facing a looming financial crisis.
Michigan Public Act 72 of 1990, as amended, provides for the
appointment of an Emergency Financial Manager if it is determined that a serious
financial problem exists in a municipality or school district. The appointment
of an EFM for the city of Detroit is often discussed as a possible solution for
dealing with the city’s continual mismanagement and financial mess.
If it were ever determined by the state that an EFM should be
appointed for the city of Detroit, under current law the EFM would not have all
of the necessary tools to be successful. There are four major problems that
would have to be resolved by amending Act 72 prior to the appointment of an EFM.
Making changes to Act 72 would be essential for an EFM to have the necessary tools to deal with the city of Detroit’s management and fiscal problems.
The changes needed are as follows:
Under current law, the EFM can be sued personally. Given
that actions by an EFM will almost certainly be controversial, and harassing
lawsuits are likely, it is essential that an EFM’s personal assets be
protected. Making the EFM an employee of the state treasury department with
access to the legal staff of the attorney general would make the present lack of indemnification for an EFM largely moot. Harassing lawsuits by local bargaining units or other affected entities or individuals would be defended by the state – an entity that has the depth of financial resources to discourage the filing of frivolous lawsuits.
The present Act lists the powers of an EFM, which are
extensive but are not all-inclusive. This can allow the governing body to
impede the overall effort of the EFM to deal with the municipality’s fiscal
crisis. The Act should state that the EFM replaces and takes on the powers of
the governing body (mayor and council or school board.)
Charter provisions, especially in old charters, can prevent or make it difficult for an EFM to make necessary structural changes to address financial problems. The EFM should have the power to review charter provisions that frustrate the process of cleaning up and streamlining a municipality’s financial functions.
Presently, most labor contracts provide for mandatory
continuation of an expired contract until a new one is negotiated. This means
municipalities have no opportunity to take advantage of lower-cost service
providers. Additionally, in the case of public safety unions, municipalities
must adhere to the provisions of Act 312, which mandates that when a
municipality and union cannot agree on the terms of a new contract they must go
to binding arbitration. In most cases, it takes nearly two years or longer to
complete the process, and the legal costs are substantial. Furthermore,
municipalities rarely reduce costs by going through the Act 312 process but
rather, at best, limit the amount of increased expenses. Act 312 should be
repealed in its entirety.
Making the above changes to Act 72 would be essential for an
EFM to have the necessary tools to deal with the city of Detroit’s management
and fiscal problems.
If Michigan is sincerely interested in keeping and attracting
new business it needs to face rather than ignore the issue of the state’s
excessively high, non-competitive municipal labor costs. High labor costs for
municipalities result in high municipal taxes, which in turn make municipalities unattractive and create major fiscal problems.
Currently the auto, airlines and other private sector
industries are being forced to deal with their high labor costs in order to stay in business and become competitive. However, Michigan municipalities are
handcuffed from dealing with their high labor costs by labor contracts that
cannot be terminated. Such contracts prevent the possibility of purchasing
municipal services at the lowest possible cost. Unlike the private sector,
municipalities can’t move their operations to a market with lower labor costs.
Also, unlike the private sector, municipalities can’t go out of business or
declare bankruptcy and reorganize to reduce pension, health care, and labor
Michigan needs to remove the shackles preventing the purchase
of municipal services at the lowest cost — not only for the few municipalities
that fall into the position of having an EFM – but for all Michigan
municipalities. Repealing Act 312 would be a giant step in the right
is an emergency financial manager in charge of labor negotiations for the city
of Hamtramck and an adjunct scholar at the Mackinac Center for Public Policy, a
research and educational institute headquartered in Midland, Michigan.
Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.