David Palmer weighs in on the Emergency Financial Manager Act

One of your fellow readers, a man by the name of David Palmer, recently attended a State-sanctioned training session for would-be Emergency Financial Managers. He was kind enough to type up his thoughts after attending the session and send them in. You’ll find them below. If you have any questions, just leave a comment, and I suspect that he will respond.

PA4: how we got here, what it does, and what to do next.
By: David Palmer

Over the last many years, we the people have been engaging in a lopsided discourse regarding the role of government in our daily lives. In Michigan, we have discussed the known, open and obvious structural funding deficit, the massive loss of jobs and citizens; and the fact that so many of our local institutions seem broken for any number of different reasons. Whatever that conversation has been among friends, neighbors and communities, the reality is that the conversation in the legislature has been one of deferment and dismantling.

Public Act 4, which replaced Public Act 72, expands the powers of the state, and appointed Emergency Managers to balance the budgets of subunits who cannot, or will not, adjust their spending to the limits available to them. A subunit is effectively any county, city, township, village, or school district. Previous to Public Act 4 of 2011, there had been little effort made in the Michigan legislature to address several fundamental questions. PA4 does not address these questions directly, but it definitely helps frame the conversation.

What kind of government do we want in the 21st century? Does the government we have now serve the people of this community, and this state well?

How do we currently fund our government and what leads to these ongoing structural deficits?

Why are local governments and schools structured as they are? How are they funded, and why do they always seem to be cutting their budgets? Have the funding decisions we have made over time worked out the way we wanted them to?

What happens when there is no meaningful local way to raise revenues needed to operate these institutions and yet their need for resources outpaces inflation on an annual basis (example: health insurance & gas)?

In the absence of a solid course of action we as a society have continued to hobble along using accounting gimmicks, stimulus money (borrowed from abroad) and cut after cut after painful cut. Yet, an old drumbeat plays day after day: Government is inefficient and wasteful. Paying taxes prevents you from, one day, becoming a millionaire small business owner. Reduce, cut and shrink- regardless of if it makes sense or not.

Whether we walk with that drumbeat, or not, it has been a guiding principle in our civic lives for decades.

Today we are meeting face first with insolvency on an unimaginable scale because the legislature refuses to raise revenues concurrent with the needs of our local institutions. They refuse to raise revenues, even with over $8 billion dollars of available room under the Headlee limit, the voter imposed ceiling on taxes that can be levied by the state.

According to James Crowley, an attorney at Clark Hill who specializes in school finance law, about 150 Michigan school districts will face insolvency if Governor Snyder’s budget proposal passes as is. A recent analysis by Mlive.com of state financial reports reveals there are over 100 municipalities that are close to insolvency.

You may ask: Why don’t voters simply raise revenues locally to pay for schools, police, fire, parks and recreation? Why don’t we increase local taxes to keep class sizes at 25, instead of 40, or to keep our community schools open?

Essentially, other than minor tweaks, we can’t. In 1994, we the voter decided to limit and cede our local ability to raise revenue under Proposal A. An environment exists in which local units of government, including schools, have their fortunes tied to ever-diminishing returns. The legislature, which we elect, turns out to have all the power – by our own doing.

According to the Supreme Court of the United States, the role of local government is clear, “municipal governments are the political subdivisions of the state, created as convenient agencies for exercising such of the powers of the State as it may be entrusted to them…”. At the State’s leisure, within its own statutory framework, it may, “withdraw all such powers, may take without compensation such property, expand or contract the territorial area, untie the whole or a part of it with another municipality, repeal the charter and destroy the corporation (unit of government)”. (Hunter v Pittsburgh, 1907)

As much as I find Rachel Maddow entertaining – even sometimes informative – and despite the rhetoric of pundits- regardless of popular opinion, we do not have an inherent right to local government. If the state, in this case the legislature, decides to emaciate local governments and schools to the point where they no longer function, then it is the state’s obligation to clean up the mess in lieu of bankruptcy under Chapter 9 of the US Bankruptcy Code. A government going to bankruptcy court is very rare, incredibly expensive and presumably has a rather disastrous effect on the State’s ability to borrow money via bonding.

Last year we elected a governor from the private sector, who sees government from the eyes of a CEO. Governor Snyder enjoyed popular support at the polls. He had both financial and rhetorical support from prominent Democrats. Early in the process he was even lobbied to run as a Democrat. Signing the Emergency Manager law (Public Act 4) is a CEO’s natural response to an imminent need to restructure subunits of the organization he manages.

PA4 can be read in its entirety here.

Under the act there are 18 different triggers under which any municipal government or school district can fall in order to instigate a review by the State Treasurer’s office. These are enumerated under Section 12(1) of PA4. They include a voluntary request by the local unit, a request by an unpaid creditor, a request by either the House or the Senate, for not making payroll, or at the discretion of the Treasurer.

The Department of Treasury is granted 30 days to conduct a preliminary review. If it determines that there is “probable financial stress” among the 12 stress indicators under Section 13(3), they must explain as much in the final report. This report is allowed to have one of four conclusions under Section 13(4):

• There is no financial stress, or it is mild;

• There is severe financial stress, but a consent agreement is in place;

• There is severe financial stress and no consent agreement;

• A financial emergency exists and there is no satisfactory plan to resolve it.

If problems are found, a consent agreement is the only way to avoid state takeover. There was a consensus among the presenters at the Best Practices in Local Government Fiscal Management workshop, which was held last week in Lansing, that consent agreements were the strong preference of the State Treasurer and the Governor. Ironically, the State Treasurer does not have the staff to process tens, or hundreds, of reviews simultaneously, nor does he have the staff to consult with tens, or hundreds, of Emergency Managers.

A consent agreement must be approved by the local unit and by the state. It can include a three-year budget plan to eliminate a deficit and any other reasonable and necessary changes that need to be made by the local unit in order to remain solvent.

If a consent agreement cannot be reached, or there are two or more factors apparent under 13(3), Section 15 describes the powers granted to the Governor to resolve the situation.

Should an Emergency Manager (EM) be appointed, his/her powers are enumerated in the act, and begin under Section 15(5).

These include adopting a budget in the first 45 days, receive and oversee the payment of all funds, fill vacancies, consolidate or eliminate departments, enter into agreements and refer evidence of criminal conduct to the Attorney General.

It is fair to say that there is extreme conflict between the common concept of fairness and democracy, and the abilities of the EM, since there is no opportunity for debate and locally elected officials may have their powers suspended. Just as in a large business, decisions are made to fix the problems regardless of how observers feel about the solutions that are implemented, or who gets fired. While local officials may return to office after the EM leaves town, they are not able to amend the budget put in place for two years, and effectively remain on probation for that period.

As we react to the abilities of an EM to act on the behalf of the state with near impunity, and ponder all the terrible things that could/may/will happen, it is important to remember that we the people have the ability to change this situation by either electing a legislature that will make government more efficient and raise the revenues needed to pay for the services we want, or we can pass funding mechanisms by referendum.

It is also important to remember that, so far, there are no organized coherent alternatives to the Governor’s budget, as proposed on 17 February 2011. There are many good ideas, some have been in circulation for years, that could serve as a real alternative to the Governor’s budget.

Finally, the EM must still abide by the laws of the State of Michigan. Consolidations cannot occur unilaterally. There is a statutory process wherein the Boundary Commission and affected voters must be involved. Competitive bidding must be applied to any contracts over $50k. In most cases the EM cannot unilaterally raise taxes without a public vote. Contracts cannot be canceled or amended without first going through a review process and finally must be approved by the Governor.

This is not a good law. Instead, it is the result of a prolonged ideological process that has demonized public servants and pitted our fundamental desire for fairness against the reality of diminishing returns and the sovereign rights of the state.
Democrats, Republicans and all of us who vote, all caused this problem together. And, believe it or not, we have the ability to get ourselves out of this mess with the correct combination of leadership and backbone. But, the web of problems we have created for ourselves is simply too complicated to be addressed in a television segment, or in a YouTube clip. We must act now. Now is the best time to begin organizing state legislative campaigns for the 2012 election. We need a majority of legislators, regardless of party affiliation, who will work together to positively define 21st Century government in Michigan. Our current legislature and governor have told us unequivocally what it is that they see our future to be. We have two choices: We can either like it, and concur via inaction, or we can do something about it.

David, I should add, recently ran as an Independent to represent the 54th District in the Michigan House. He was also kind enough to loan me the first few Star Wars movies (the good ones) the last time that I was sick.

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  1. dragon
    Posted April 25, 2011 at 9:00 pm | Permalink

    God Damn, what a bunch of horseshit.

    Over the last many years,
    What does this even mean?

    we the people
    So, you’re just going to assume no dogs are reading this?

    In Michigan, we have discussed the known, open and obvious structural funding deficit
    You don’t give 1.8 billion dollar tax cuts into an obvious structural funding deficit. So that means you are obviously lying. Or you are a Republican.

    What happens when there is no meaningful local way to raise revenues needed to operate these institutions and yet their need for resources outpaces inflation on an annual basis (example: health insurance & gas)?
    There is a meaningful way, DON’T give a 1.8 billion dollar tax cut.

    Yet, an old drumbeat plays day after day: Government is inefficient and wasteful.
    Please explain how government health care is inefficient and wasteful compared to private health care?

    Paying taxes prevents you from, one day, becoming a millionaire small business owner.
    Too stupid to comment on.

    Today we are meeting face first with insolvency on an unimaginable scale because the legislature refuses to raise revenues concurrent with the needs of our local institutions. They refuse to raise revenues, even with over $8 billion dollars of available room under the Headlee limit, the voter imposed ceiling on taxes that can be levied by the state.
    Hilarious. Yeah, raising revenues is unimaginable. Safe to say you lack imagination.
    Democrats, Republicans and all of us who vote, all caused this problem together.
    Umm…No. Politicians caused this problem all by themselves.

    But, the web of problems we have created for ourselves
    “Mommy should have realized that Daddy had too much to drink, so it’s her fault that Daddy punched her in the face.”

    Please make it stop!!!!

  2. JorgXMcKie
    Posted April 25, 2011 at 9:22 pm | Permalink

    I am rather constantly amazed by those who assume that: 1) “raising revenues” is easy [as if there is some lode of revenue in Lansing that merely needs to be tapped], and/or; 2) this problem hasn’t been building for over a decade and isn’t the combined result of of politicians and interest groups and citizens demanding services while refusing to consider the future results of a “structural imbalance.”

    If the 1.8B in tax cuts doesn’t happen, all you’ve done is postpone the crunch for a year or two. It was bad enough in 2003 or 2004, but since 2005 anyone with a calculator who understands compound interest could see the problem coming.

    The EFM bill has flaws. There is no other realistic solution out there. Until there is one, it’s this or a wave of municipal bankruptcies.

  3. Boy O Boy
    Posted April 25, 2011 at 10:04 pm | Permalink

    Typical bull hokey from someone who has no cogent and coherent thoughts but somehow thinks he deserves to govern. To add to Dragon’s insights:

    “What kind of government do we want in the 21st century”?

    Uh. A Constitutional government. You got other ideas? You looking for a new kind of government???

    “it has been a guiding principle in our civic lives for decades.”

    So now old is good again? You looking for an old, tried and true government???

    I’ve read a lot of stupid stuff on this blog, but at least it’s been coherently stupid. This guy says so little that I bet he’ll be our next president: George Washington … Stalin … Creationism … Hard Work … Science … Free Market … Government Health Care … Gun Control … Right to Bear Arms …

  4. Dirtgrain
    Posted April 25, 2011 at 10:05 pm | Permalink

    Michigan Governor’s Criteria and List of Towns Eligible for Takeover by an Emergency Financial Manager

    We’re on the list.

  5. Dirtgrain
    Posted April 25, 2011 at 10:06 pm | Permalink

    So is Ann Arbor? Really? Aren’t they swimming in money?

  6. Dirtgrain
    Posted April 25, 2011 at 10:12 pm | Permalink

    I just realized that wasn’t breaking news. Sorry. I’m still bummed.

  7. Posted April 25, 2011 at 10:16 pm | Permalink

    I don’t think that trolls can read.

    Very informative and insightful David. Like you said, it’s not a good bill but it’s more complicated than a YouTube clip, and I’m glad someone took the time to look at it.

  8. dragon
    Posted April 25, 2011 at 10:41 pm | Permalink

    Hey Joel
    If you sit on your hand first informative and insightful it goes numb.

  9. Posted April 25, 2011 at 11:08 pm | Permalink

    The problem is that political election cycles are short. There’s no incentive for politicians to make investments that will pay off in the long term, or make painful cuts now when they can be delayed until later… That’s not the only problem, of course, but I think it’s a big one.

    I’ve got more to say, but I’m tired.

    Good night, my friends and trolls.

  10. Posted April 26, 2011 at 7:48 am | Permalink

    It is also important to remember that, so far, there are no organized coherent alternatives to the Governor’s budget, as proposed on 17 February 2011.

    I don’t think this is true: there are actually new alternatives being turned out of (Republican-controlled) House and Senate Subcommittees every day. Many of these are proposals that make cuts even deeper than what the Governor has proposed (e.g. a 15% cut to public transit operating funds), others involve adding in language that makes qualitative changes about reporting requirements for stem cell research or paying foster child clothing allowances in gift cards (oh, and did we miss the part where the dollar value was actually reduced?).

    Honestly, if we didn’t have Rick Snyder for Governor right now, we’d have Hoekstra or Bouchard — and we’d be seeing much more far-right budget proposals, as well as the social conservatives unleashed to pursue their agenda. I can’t say I like Governor Snyder’s budget proposal, but I will say he is far preferable to any of the alternatives. (Note: none of the alternatives involved a Democratic Governor being elected, either in the past tense of last fall or the future tense case of a recall.)

    As well, David is absolutely correct that what we’re seeing now is the result of structural deficits and limitations that have been building for a long time (including throughout Gov. Granholm’s tenure) – we can point to the net cut of $1.8b in business tax revenue proposed, but our financial crisis has been building for over 30 years (or, to be accurate, has been intentionally built, starting at least with Headlee in 1978 – as David put it, this has been “a prolonged ideological process”).

    For anyone who is unhappy with what’s going on right now in State government, there are a few things that it would be good to remember, if you’re interested in changing anything:

    * Governor Snyder is not operating in lockstep with the Republican legislature, and, in fact, sometimes has trouble controlling them.
    * If you don’t like what’s going on now, you should probably be rooting for the Governor in that particular conflict, because you’d like the legislature’s urges even less.
    * The problems we have now have in no way been created or invented by the Governor, but have been building for years. If you’d prefer not to go down his proposed path, you’d better be prepared to consider some equally radical alternatives.

  11. Posted April 26, 2011 at 7:57 am | Permalink

    I’d also like to offer a wager to Mark, as a proxy for the more “corporate crony landgrab” take on the emergency manager situation.

    Mark, I will bet you $5 that fewer than 10 emergency managers are appointed under PA4 during 2011. EFMs already appointed don’t count – that includes Fred Leeb in Pontiac (appointed 2009), Joe Harris in Benton Harbor (appointed 2010), and Robert Bobb in DPS (appointed 2009).

    I’ll bet you another five that neither the City nor the Township of Ypsilanti are among those to pull emergency managers.

  12. elviscostello
    Posted April 26, 2011 at 8:50 am | Permalink

    Murph, I’ll take that bet. Mark knows me and we can meet at the Corner Brewery in January 2012. Once the Revenue Sharing Cuts and School Aid Cuts hit, you can bet that there will be more than 10 entities whi get EFM’s.

  13. Edward
    Posted April 26, 2011 at 9:20 am | Permalink

    I prefer corporate crony grab ass.

  14. Posted April 26, 2011 at 10:07 am | Permalink

    Elvis, you’re on – you can be the proxy rather than Mark. (I only intend to bet one person, rather than 20.)

    I agree that the revenue sharing and school aid cuts will push a lot of cities and districts towards insolvency, but I think a pretty limited number will actually end up with EMs. (<– note that the new legislation calls them “Emergency Managers”, as opposed to the old “Emergency Financial Managers”.) I think we’ll see a couple of things happen to limit the numbers.

    First, we’ll see a lot of cities / school districts that limp through the cuts by slashing budgets – in some people’s eyes, a good thing, but those are mostly the people who don’t know municipal operations, and think there’s still fat to cut. These cuts will be fingers and toes.

    Second, we’ll see cities that can’t get the cuts they want to make asking the state for consent agreements that give them additional powers, so that they can start chewing their legs off in hopes of getting out of the trap.

    I’m not saying either of these things are desirable outcomes – just the opposite – but I think local units will be remarkably hesitant to give up and call in the EM, and I also think that the Governor will be hesitant to take on more than he needs to. I predict we’ll see a lot of local units that take extreme measures in order to stagger across the line and bleed out in the new year, rather than throwing in the towel this year. What I’m betting against is not the statement that “local units are totally f—ed”, but the statement that “Gov. Snyder is undertaking a corporate land grab and will find any excuse to scoop up local governments by the dozen.”

    But, if we wanted to mix it up a little, maybe we could all set up brackets to figure out which units get EMs first.

  15. EOS
    Posted April 26, 2011 at 10:15 am | Permalink

    Of course the township won’t get an EFM. They are not even on the list. The city is safe through 2011, but I wouldn’t bet on that through 2013.

  16. Glen S.
    Posted April 26, 2011 at 11:15 am | Permalink

    1.) To date, Snyder’s proposals are among the most most regressive, draconian, unjust and undemocratic Michigan has ever seen. Just because there are Republicans in the House and Senate who are making proposals that are even WORSE doesn’t make Snyder any more reasonable or moderate … it just means he’s a good politician who knows how to play the classic “good cop/bad cop” routine to his advantage.

    2.) At this point, whether or not individual Michigan communities (or school districts) end up formally being put under the authority of an EFM, or not, is really beside the point. At the end of the day, once unions have been busted, wages and benefits have been slashed, vital services have been eliminated, and crucial institutions and infrastructure that help hold our communities together are left to wither away — will it really make any difference whether it wound up being locally-elected officials or an EFM who finally pulled the trigger?

    3.) I agree there is a real structural deficit that needs to be addressed, and that it has been building for decades — under both Republican and Democratic governors and legislatures. However the root cause — the fantasy that we can have all the services we need without having to pay for them — still has not been adequately addressed by “leaders” who, seemingly, are too afraid to tell voters some things they don’t want to hear. So, rather than working to build a rational, sustainable plan to rebuild the balance revenues and expenses — we instead have politicians “doubling down” on an already miserably-failed strategy by proposing even more huge tax breaks.

    Folks, this is madness .. and frankly, I can’t believe we’re actually discussing any of it as if it were worthy of serious consideration.

    Instead, I think we have reached the point where any politician, of any party, who continues to propose additional cuts or other draconian measures without ALSO talking about ways to raise significant new revenue — including making businesses and the wealthy pay their fair share — needs to be targeted for electoral defeat, if not recall, a.s.a.p.

    Likewise, I think that any locally-elected officials who end up taking Snyder’s bait by seeking to avoid the threat of an EFM through busting unions, slashing wages and benefits, etc. (in effect, doing Snyder and the Republicans’ “dirty work” for him/them) should be treated as exactly what they are — collaborators in what amounts to an unjust (and possibly illegal) plan to destroy Michigan’s future, through rewarding the already rich and powerful by stealing from the poor, as well as the working- and middle-class.

  17. Concerned Citizen
    Posted April 26, 2011 at 12:34 pm | Permalink

    The City of Ypsilanti has been trying for a long time to merge Departments, Outsource and combine Police and Fire. I agree with David, and the City of Ypsilanti that we have to make changes.

  18. cmadler
    Posted April 27, 2011 at 12:07 pm | Permalink

    For once I agree with EOS. Ypsi will make it through 2011 without an EM, but in the longer term (4 to 7 years out) we’re in trouble.

  19. WTF
    Posted April 27, 2011 at 12:23 pm | Permalink

    The clown car rides on.

    Nothing you say will make this swill go down easier. It is part of a Republican corporatist conspiracy.


  20. Erik
    Posted April 28, 2011 at 11:48 am | Permalink

    I think this article is fair and objective, and that Dragon and boy o boy had their mind made up before they even read the article.

    Government IS wasteful and inefficient. It is a mistake (in the society we live in) to rely on altruism as motivation to do a good job. There is a reason why socialism does not work, productivity is destroyed. People get in a comfortable position and then think “Why do I need to work harder? I’ve got it made”.

    Until society can consistently produce humans who are able to motivate themselves for the “good of the community” (which I see as the ideal situation by the way), the best option is motivation through the desire for profit. For us to leverage this system less government and more privatization makes sense. The biggest issue becomes policing corporations who are harming society. Corporations should not have the same rights as individuals unless they can be “sent to prison” too. In effect if a corporation breaks the law, shut them down for the same amount of time an individual would have to go to prison.

    Anyway I digress, the whole point is that Dragon and boy o boy’s attitudes and viewpoints have no worth as I see them here, and I encourage other readers to ignore them.

    Paul / Kuchinich 2012

  21. Glen S.
    Posted April 28, 2011 at 11:57 am | Permalink

    “Paul / Kuchinich 2012”

    As in … RON Paul and DENNIS “Kuchinich?!”

  22. Glen S.
    Posted April 28, 2011 at 12:10 pm | Permalink

    For those who are interested, Eclectablog has a new post that includes details about the rally being planned during Snyder’s address at U-M commencement this Saturday morning.


  23. Edward
    Posted April 28, 2011 at 2:56 pm | Permalink

    What’s to stop the federal government from sending Emergency Financial Managers into states that are determined to be failing? I’m not joking. I’m serious about this. Could the President move to have elected Governors pushed aside?

  24. Erik
    Posted April 28, 2011 at 6:41 pm | Permalink

    Yes Ron Paul and Dennis Kuchinich

    Auditing the Federal Reserve and ending America’s reach for empire should be the highest priorities for everybody right now. This is where the vast, VAST majority of our nation’s wealth is being squandered. We must take care of these problems or everything else is a moot point.

    see this… (don’t be scared or the fox business news logo. I generally boycott fox news altogether, but Judge Napolitano is an exception.)


  25. EOS
    Posted April 28, 2011 at 7:42 pm | Permalink

    How about Paul/Trump 2012? All Trump would have to do is contribute a few billion. The difficult part is that Trump would be harder to keep in a box than Biden has proven to be.

  26. Robert
    Posted April 29, 2011 at 2:19 pm | Permalink

    I agree with the Republicans that the President should disolve the Michigan State Legislature and Governor’s position and appoint an Emergency Financial Manager in their place. These are tough times and we need to make tough decisions. Besides, had Michigan managed it’s money right they wouldn’t need to be replaced with a Czar. It’s Michigan’s citizens own fault.

  27. Kim
    Posted April 29, 2011 at 3:05 pm | Permalink

    How about Palin and that inbred boy from Deliverance in 2012? Or, how about a mascot? I think people would like something patriotic, like a giant Eagle. He could run through the crowd while Palin speaks, giving high fives. He’d be the best VP ever. And it wouldn’t matter who was inside the costume. It could be an illegal alien that we were paying $3 an hour. Think of all the money we’d save not having to pay for someone like Joe Biden. I love this idea.

  28. Angelina Jolie
    Posted April 29, 2011 at 9:01 pm | Permalink

    How about Palin and that inbred boy from Deliverance in 2012?

    Leave my dad alone!!

  29. Peter Larson
    Posted April 30, 2011 at 6:53 pm | Permalink

    A state efm would be the first step to true democracy in Michigan.

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