Emergency Financial Manager Needs More Power

The city of Flint is on the verge of being formally taken over by the state of Michigan due to its financial problems. The state has such authority under Public Act (P.A.) 72 of 1990. If the state does strip Flint of its self-governance, an Emergency Financial Manager (EFM) would be appointed to run the city and develop a plan to help it regain its financial footing.

While EFMs enjoy a great deal of power, they need the ability to set aside union contracts to work most effectively.

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The cities of Hamtramck and Highland Park are currently operating under the auspices of an EFM. In addition, in 1986 the city of Ecorse became the first city in the nation to have a court-appointed receiver placed in charge of its daily operations.

Currently, P.A. 72 allows an EFM to control a city's budget, change the way departments operate, renegotiate union contracts, auction off certain city assets, and contract out for professional assistance, if needed. The EFM may even increase taxes, with voter approval. Unfortunately, the EFM may not set aside union contracts in order to outsource for needed services with other government units or with private vendors. This puts them in a bind, since the cost of union contracts is often a major factor in a municipality's bankruptcy. The EFM must either continue to run up deficits and debts, or shut down virtually all services.

When dealing with the private sector, judges have the authority under the federal bankruptcy law to reject collective bargaining agreements (union contracts) "if rejection is necessary to permit the reorganization of the debtor," among other stipulations. While cities like Flint are not yet close to formal bankruptcy, the purpose of changing P.A. 72 to allow contract set asides would be to ensure that the city never arrives at such an outcome.

Section "h" of P.A. 72 addresses the EFM's authority to stand in for local officials in the negotiation and approval of collective bargaining agreements. It is here that state officials should insert the following language.

(i)                  (1) The emergency financial manager may reject or modify any collective bargaining agreement, effective 14 days after the delivery of notice to the employee representative.  For purposes of this subsection, "collective bargaining agreement" shall include arbitration panel decisions.

            (2) Within 10 days of receiving notice of a modification or cancellation, an employee representative may appeal the rejection or modification to the circuit court for the county in which the local government is located or to the circuit court for the county of Ingham.  The court shall not set aside a rejection or modification unless it finds that the rejection or modification of the collective bargaining agreement is arbitrary, capricious, or clearly an abuse or unwarranted exercise of discretion.

            (3) The Circuit Court may enjoin the implementation of the rejection or modification, if the balance of the equities requires it, upon the filing of the appeal by the employee representative, but in the absence of a hearing and final decision on the merits of the appeal such injunction shall not extend beyond 30 days of the filing of the appeal by the employee representative.

By adopting this language the state would give much wider latitude to an EFM and better ensure a healthy outcome in the state's management of financially troubled cities. The Legislature would do well to do make this change before Flint joins the list of Michigan cities affected by P.A. 72.