Friday, January 20, 2012

Democracy and Financial Crisis Management


ABC News: Detroit Can Avoid Emergency Manager

Michigan Public Radio: 7 Things to Know About Michigan’s Emergency Manager Law

NY Times: Looking Up Detroit Faces New Crisis

State Bar of Michigan: Michigan Supreme Court Orders Briefs Filed in December on Emergency Manager Law

State of Michigan: Emergency Manager Law

WSJ: Humbled Flint Forced to Take State’s Orders

While many states in the U.S. have laws that provide for emergency management of local finances in crisis situations, Michigan is setting a controversial new standard. Michigan law allows an emergency manager to assume the responsibilities of locally elected officials when a city or school district runs out of money or experiences a financial crisis. Like many states, Michigan’s legislation was modeled after New York City’s Municipal Assistance Corporation (MAC), which was established in 1975 in response to the city’s debt crisis. In the event of a financial crisis, MAC provided for the establishment of an oversight board to control of municipal finances. What makes Michigan’s law so controversial is that, rather than an oversight board or committee consisting of several members, emergency management powers are given to a single individual. As states across the U.S. face economic difficulties, Michigan’s approach may have far reaching implications.

The State of Michigan has been hit particularly hard by the Great Recession, industrial job losses, and a declining tax base. Major employers have either slashed operations and jobs or left the state entirely. As a result, Michigan has experienced a decade of job losses and increasing unemployment rates. Currently, four Michigan cities are under emergency management: Benton Harbor, Ecorse, Flint, and Pontiac. The City of Detroit is also on the verge of financial crisis with a $196 million deficit.

In response to growing financial concerns, Michigan’s legislature expanded the emergency management system in 2011. The new legislation broadens the scope of emergency powers and allows the emergency manager to take over responsibilities normally reserved for elected officials. Voters, local officials, unions, and civil libertarians have taken issue with Michigan’s approach to emergency management, claiming it is unconstitutional and contrary to the democratic process. In addition to budgetary control, emergency managers are empowered to void or revise contracts, modify pensions and payrolls, renegotiate loans, and hire or fire local government officials. The argument in favor of a single emergency manager is based on efficiency, accountability, and responsiveness. A single manager can respond to problems quickly as meetings and board approvals are unnecessary, the manager is fully accountable for his or her decisions and cannot hide behind the guise of committee or board majority votes. In a state where multiple emergency managers are appointed, budgetary constraints can be a consideration. Emergency managers are paid officials and they also have the ability to hire a support staff. Thus, unless other jobs are cut, the emergency management team can be an additional payroll expense for the financially distressed city.

While the debate continues, Michigan’s governor has asked the Michigan Supreme Court to render an expedited opinion on the constitutionality of the emergency manager law. In the face of this financial crisis, a tug-of-war between efficient, centralized powers and the constitutional protections of democracy is being played out at the local, national, and international levels. The crisis-driven centralization of economic power and limitation of democratic process presents an issue without a clear resolution. Perhaps the Michigan Supreme Court will provide some guidance.


Anonymous said...

And don't forget that under Public Act 4, there is little to no oversight or accountability for emergency managers. This section was included to protect emergency managers from lawsuits!

Sec. 25. (1) An emergency manager is immune from liability as provided in section 7(5) of 1964 PA 170, MCL 691.1407. A person employed by an emergency manager is immune from liability as provided in section 7(2) of 1964 PA 170, MCL 691.1407.

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