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Financial emergency in Michigan

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Financial emergency is a state of receivership for the State of Michigan's local governments.

History

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Ecorse, MichiganDetroit Public SchoolsThree Oaks, MichiganFlint, MichiganHighland Park, MichiganHamtramck, Michigan

In 1986 a state court appointed a receiver, Louis Schimmel, for the city of Ecorse which had a $6 million deficit. The court appointed receivership lasted until 1990.[1]

The financial emergency status, along with the Emergency Financial Manager (EFM) position, was first created in Public Act 101 of 1988 for the specific emergency in Hamtramck. Public Act 101 was amended by Public Act 72 of 1990, allowing an Emergency Financial Manager to be appointed for any local governmental unit. PA 72 in turn was replaced by Public Act 4 of 2011, which renamed the position to Emergency Manager (EM) and gave the Manager additional authority.[2]

Benton Harbor, MichiganAllen Park, MichiganMuskegon Heights School DistrictHighland Park SchoolsPontiac, MichiganBenton Harbor, Michigan

When the Referendum petitions were approved by the Michigan State Board of Canvassers on August 8, 2012, under orders from the Michigan Supreme Court, PA 4 was suspended and the previous version, PA 72, was reinstated.[3] All current EM except for Michael Brown in Flint were reappointed as EFM by the Local Emergency Financial Assistance Loan Board. Brown was previously a Flint City employee in the past five years and was not eligible under PA 72 to be an EFM.[4] The Sugar Law Center filed to challenge PA 4 and PA 72. PA 4 was repealed by Michigan voters in the 2012 general election,[5] and the Michigan Legislature subsequently passed Public Act 436 of 2012 to replace the revived Public Act 72.[6]

On May 1, 2013, the City of Ecorse was moved from under an emergency manager to a transition advisory board, which includes the previous emergency manager.[7] On July 2, a school district dissolution provision was passed into law allowing financially struggling school districts to be dissolved.[8] On July 18 with the Governor's authorization, Detroit's manager filed Chapter 9 bankruptcy.[9] In August, a transition advisory board was appointed for the City of Pontiac which included the then emergency manager.[10]

For the City of Detroit, the state legislature passed a separate law forming a financial review commission to exercise financial check on city government as it exited bankruptcy and emergency management.[11]

As of June 27, 2018, there are no Emergency Managers in Michigan for the first time since 2000.[12]

Procedure

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Original law

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Public Act 101 of 1988 provided certain triggers for an initial review which included: failure to pay debts, failure to pay employee salaries, a request by local residents or officials, or request by a state legislator or state treasurer. If the review found that a financial emergency existed, the Local Emergency Financial Assistance Loan Board would make the appointment of an emergency financial manager for the governmental unit.[2] Public Act 72 of 1990 broadened the Emergency Financial Manager powers to handle all matters of finances of the city and provided a statute to also apply to public school districts.

Public Act 4 of 2011

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Public Act 4 amended and expanded the procedure. The Michigan Department of Treasury would conduct a preliminary examination of troubled local governments. If "probable financial stress" were found, a financial review would be ordered. The Governor of Michigan and other officials would appoint the eight members of a financial review panel, which could report back to the Governor indicating that the local government is in "mild financial stress, severe financial stress or a financial emergency"[13] within 60 days. If a financial emergency existed but local officials had a viable plan to correct the situation, then the panel could recommend a consent agreement. Otherwise, the panel could recommend an emergency manager to take control of the local government.[14] The Governor was given 10 days after the panel reported its findings to choose an option.[13] The local government then had seven days to request a hearing by the Governor or his designee to appeal the decision.[14] Local governments were required to pay the emergency manager.[15]

Public Act 436 of 2012

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The Local Financial Stability and Choice Act of 2012 includes several triggers for a preliminary review:

  • board requesting a review via resolution,
  • local petition of 5 percent of gubernatorial election voters requesting one,
  • creditor's written request,
  • missed payroll,
  • missed pension payments,
  • deficit-elimination plan breach or lack of such a plan within 30 days after its due day,
  • a legislative request.[16]

As with the previous law, various reviews are taken before any actions are made. The State Financial Authority, either the State Treasurer or Superintendent of Public Instruction, must provide an interim report within 20 days of creating a preliminary review to the local government. Then within 30 days, they must provide a final report to the Local Emergency Financial Assistance Review Board (ELB).[17] If the review finds a financial emergency exists, the local government is given four different choices: a consent agreement, chapter 9 bankruptcy, mediation or emergency manager.[6] Under this law, the State government pays the manager's pay under this version.[15] If an emergency manager is appointed, when the manager files his plan with the state, the local governing board may propose an alternative plan which the Local Emergency Financial Board will select which version the manager will implement. After one year, the manager may be removed by a 2/3 vote of the governing body.[6]

A "transition advisory board" may be appointed after an emergency manager leaves a governmental unit and is to oversee the unit's finances.[18] The law also allows the governor to impose a model charter or revise the existing one before the municipality exits receivership.[19]

School district dissolution

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PA 72 provided statute for school districts to also come under Emergency Financial Manager. These powers were further extended under Public Act 10 of 1999, a separate state control arrangement, under which Detroit Public Schools operated from 1999 through 2005 during the John Engler administration for academic reasons.[20] At the time the state assumed control in 1999, Detroit Public Schools had a budget surplus of nearly $115 million.[21] At the end of the 2005 school year, the final year of the state's initial period controlling Detroit Public Schools, the district had accumulated a $31 million deficit.[22]

Detroit Public Schools came under a financial emergency in 2009 under PA 72. With the expansion of emergency manager powers with PA 436, other schools have come under emergency management including school districts in the City of Muskegon Heights and City of Highland Park.[23]

On July 2, 2013, a school district dissolution provision was passed into law allowing school districts that are financially struggling to be dissolved [24] by the state treasurer and state superintendent[25] with the intermediate school district splitting up the district's territory between neighboring school districts.[26] Dissolved school districts become a tax-collecting unit, under the intermediate school district's control, to pay off debts.[27]

Dissolved school districts

Local Emergency Financial Assistance Loan Board

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The Local Emergency Financial Assistance Loan Board (ELB) is ex officio formed board consisting of the State Treasurer of Michigan, director of licensing and regulatory affairs and the Director of Technology, Management and Budget as members or their respective designees.[29] The board selects the emergency manager and chooses between the emergency manager's cost-cutting plan and the local unit board's alternative plan.[6] The ELB approves all major financial decisions over $10,000 while a municipality is under emergency management, including transfers of publicly owned assets.[citation needed]

Emergency manager

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An emergency manager, formerly an emergency financial manager, is an official appointed by the governor to take control of a local government under a financial emergency in the State of Michigan and is not the same as an emergency manager as defined by the International Association of Emergency Managers (IAEM) and the U.S. Department of Labor job classification.[30] A manager temporarily supplants the governing body, chief executive officer, or chief administrative officer of the local government and has the authority to remove any of the unit's elected officials should they refuse to provide any information or assistance.[31] Managers have complete control over the local unit with the ability to reduce pay, outsource work, reorganize departments and modify employee contracts.[32] Emergency managers assigned to school districts may transfer failing schools to the Education Achievement Authority.[33]

List of emergency managers

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Local Government Term Manager Governor
City of Allen Park October 2012–September 2014 Joyce A. Parker Rick Snyder[34][35]
City of Lincoln Park July 2014 - December 2015 Brad Coulter Rick Snyder
City of Benton Harbor Apr 2010 - Jan 2013 Joseph Harris Jennifer Granholm
January 2013–March 2014 Tony Saunders Rick Snyder[36][37][38]
City of Detroit March 2013– December 10, 2014 Kevyn Orr Rick Snyder[11]
City of Ecorse Oct 2009 - Apr 2013 Joyce A. Parker Jennifer Granholm
City of Flint Jul 2002 - Jun 2004 Ed Kurtz John Engler
Dec 2011 - Aug 2012 Michael Brown Rick Snyder
Aug 2012 - July 2013 Ed Kurtz Rick Snyder
July 2013 - October 2013 Michael Brown Rick Snyder
October 2013 - January 2015 Darnell Earley Rick Snyder[39]
January 2015–April 30, 2015[40] Jerry Ambrose Rick Snyder[41]
Hamtramck City 1988-?[2]
December 2000[42]- Feb 2007 Louis Schimmel John Engler[43]
July 2013 – Dec 2014 Cathy Square Rick Snyder [44]
City of Highland Park Dec 2000 - Mar 2005 Ramona Henderson Pearson John Engler[45]
Mar 2005 - Apr 2009 Arthur Blackwell Jennifer Granholm[46]
Apr 2009 - Jul 2009 Robert Mason Jennifer Granholm[47]
City of Pontiac Aug 2010 - Oct 2011 Michael Stampfler Jennifer Granholm
Oct 2011 - August 2013 Louis Schimmel Rick Snyder[32]
Three Oaks Village December 2008 - December 2009 Pam Amato Jennifer Granholm[48]
Detroit Public Schools Mar 2009 - May 2011 Robert Bobb Jennifer Granholm[49]
May 2011 – January 2015 Roy Roberts Rick Snyder[50]
January 2015 - February 2016 Darnell Earley Rick Snyder[41]
Muskegon Heights School District April 2012 - October 2016 Donald Weatherspoon Rick Snyder[51]
Highland Park Schools Jan 2012– October 2012 Jack Martin Rick Snyder[52]
October 2012 - February 2016 Donald Weatherspoon Rick Snyder[34]
Feb 2016 - October 2016 Steve Schiller Rick Snyder[53]
October 2016 - May 2018 Kevin Smith Rick Snyder[54][53]

Other

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  • Bankruptcy
    • Detroit (in addition to emergency manager) (July 21, 2013-[9]December 10, 2014[11])
  • Consent agreements
  • Court order receivership
    • Ecorse (1986-1990)
  • Financial review commission
  • Transition advisory board
    • Ecorse (May 1, 2013 – present[7])
    • City of Pontiac (August 2013 – present[10])
    • City of Allen Park (September 2014 – present)[58]
    • City of Flint (April 30, 2015[40]-January 11, 2019[59] )

See also

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References

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  1. ^ Alley, Jason (May 23, 2009). "ECORSE: Former receiver not surprised by city's state of affairs". The News Herald. Digital First Media. Retrieved February 9, 2016.[permanent dead link‍]
  2. ^ a b c "7 things to know about Michigan's emergency manager law". Michigan Radio. December 6, 2011. Retrieved 30 January 2013.
  3. ^ Anders, Melissa (August 8, 2012). "Emergency manager law officially suspended as referendum is certified for the November ballot". MLive.com. Retrieved 30 January 2013.
  4. ^ Longley, Kristin (August 8, 2012). "Ed Kurtz returns as new Flint emergency financial manager; Loan Board reappoints EFMs in 3 other cities". The Flint Journal. Retrieved 30 January 2013.
  5. ^ Oosting, Jonathan (November 11, 2012). "Michigan emergency manager law: What's next after Public Act 4 repeal?". MLive.com. Retrieved 30 January 2013.
  6. ^ a b c d Oosting, Jonathan (December 27, 2012). "Snyder signs replacement emergency manager law: We 'heard, recognized and respected' will of voters". MLive.com. Retrieved 30 January 2013.
  7. ^ a b AlHajal, Khalil (April 30, 2013). "Ecorse escapes emergency manager, but state keeps oversight indefinitely". Mlive Media Group. Retrieved October 18, 2013.
  8. ^ "Struggling school districts can be dissolved under new law". Michigan Radio. July 3, 2013. Retrieved November 19, 2013.
  9. ^ a b AlHajal, Khalil (July 18, 2013). "Detroit pursues Chapter 9 municipal bankruptcy". Mlive.com. Retrieved 21 July 2013.
  10. ^ a b AlHajal, Khalil (August 19, 2013). "Advisory board replaces emergency manager in Pontiacy". Mlive Media Group. Retrieved October 18, 2013.
  11. ^ a b c d AlHajal, Khalil (December 10, 2014). "By midnight, Detroit exits bankruptcy and Emergency Manager Kevyn Orr leaves office". Mlive Detroit. MLive Media Group. Retrieved March 15, 2015.
  12. ^ "Michigan: No emergency managers for first time since '00". Detroit News. Retrieved 2018-07-31.
  13. ^ a b Longley, Kristin (November 4, 2011). "State panel reviewing Flint's finances asks for up to 30 more days". Flint Journal. Retrieved 30 November 2011.
  14. ^ a b Longley, Kristin (November 8, 2011). "State review panel recommends emergency financial manager be appointed in Flint". Flint Journal. Retrieved 30 November 2011.
  15. ^ a b Oosting, Jonathan (December 11, 2012). "Replacement emergency manager law, like right to work, would be immune from Michigan voter referendum". Retrieved 21 July 2013.
  16. ^ Knake, Lindsay. (May 02, 2013) Michigan Department of Education: Too early to tell what will happen to Saginaw County's Buena Vista School District. The Saginaw News. Retrieved on September 4, 2013.
  17. ^ How a Financial Emergency Works, Michigan Department of Treasury, retrieved on March 15, 2015.
  18. ^ Longley, Kristin (January 22, 2013). "Flint City Council letter to Gov. Snyder: 'We are on the wrong path' with emergency manager". The Flint Journal. Mlive Media Group. Retrieved October 18, 2013.
  19. ^ Adams, Dominic. (September 22, 2013) Uncharted waters: Next Flint emergency manager could radically change the way city is run. Mlive Media Group: The Flint Journal. Accessed on October 18, 2013.
  20. ^ Takeover of Detroit Schools Shows Few Intended Results
  21. ^ "2000 Comprehensive Annual Financial Support" (PDF). Detroit Public Schools. Archived from the original (PDF) on 26 March 2016. Retrieved 18 January 2016.
  22. ^ "2006 Comprehensive Annual Financial Support" (PDF). Detroit Public Schools. Archived from the original (PDF) on 26 March 2016. Retrieved 18 January 2016.
  23. ^ Sugar Law Archived 2015-04-02 at the Wayback Machine,Sugar Law Center. May 2013. Retrieved March 15, 2015.
  24. ^ Struggling school districts can be dissolved under new law. Michigan Radio. Accessed on November 19, 2013.
  25. ^ Knake, Lindsay. (July 18, 2013). Buena Vista schools partners with charter company Leona Group as possible dissolution looms. The Saginaw News. Retrieved on August 16, 2013.
  26. ^ a b Burns, Candace. (July 31, 2013) SISD officially dissolves Buena Vista schools Archived August 18, 2014, at the Wayback Machine. ABC12. Retrieved on August 16, 2013.
  27. ^ Knake, Lindsay. (July 11, 2013) Buena Vista School District could keep collecting taxes after dissolution to repay debt. The Saginaw News. Retrieved on August 16, 2013.
  28. ^ Smith, Brian. "Inkster schools first to be dissolved; students split across 4 districts." Mlive. July 26, 2013. Retrieved on November 2, 2013.
  29. ^ ELB approves Detroit financing proposals, land transfer, Michigan Department of Treasury, Retrieved on March 15, 2015.
  30. ^ "Emergency Management Directors : Occupational Outlook Handbook: : U.S. Bureau of Labor Statistics".
  31. ^ https://www.michigan.gov/documents/snyder/EMF_Fact_Sheet2_347889_7.pdf [bare URL PDF]
  32. ^ a b Longley, Kristin (November 18, 2011). "Other emergency managers provide glimpse of what Flint can expect under state takeover". Flint Journal. Retrieved 30 November 2011.
  33. ^ Higgins, Lori (Dec 4, 2011). "State district for failing schools may expand past DPS earlier than planned". Detroit Free Press. Retrieved 5 December 2011.
  34. ^ a b Moore, Lynn (October 25, 2012). "Highland Park Schools added to Muskegon Heights emergency manager's responsibilities". Muskegon Chronicle. Retrieved 21 July 2013.
  35. ^ Allen Park financial emergency resolved, Snyder says, The Detroit News, Retrieved on March 15, 2015
  36. ^ "TREASURY - Emergency Loan Board Appoints Tony Saunders II Successor-Emergency Financial Manager in Benton Harbor". Archived from the original on 2013-09-21. Retrieved 2013-10-04.
  37. ^ Stanton, Terry (January 11, 2013). "Emergency Loan Board Appoints Tony Saunders II Successor-Emergency Financial Manager in Benton Harbor?". Michigan.gov.
  38. ^ Four years later, Benton Harbor's financial emergency is over, according to manager, MLive.com, Retrieved on March 15, 2015.
  39. ^ Adams, Dominic. (September 11, 201) Darnell Earley promises bold steps as Flint emergency manager. MLive Media Group: The Flint Journal. Accessed on October 18, 2013.
  40. ^ a b Fonger, Ron (April 29, 2015). "'A heavy burden' lifted from Flint as Gov. Rick Snyder declares end of financial emergency". Flint Journal. Mlive Media Group. Retrieved July 18, 2015.
  41. ^ a b "Jerry Ambrose named Flint's fourth emergency manager as Darnell Earley heads to Detroit". The Flint Journal. Mlive Media Group. January 13, 2015. Retrieved January 13, 2015.
  42. ^ Past Financial Emergency Information. State of Michigan: Department of Treasury. Accessed on November 4, 2013
  43. ^ State Board Recommends Revocation of Hamtramck Financial Emergency, Michigan.gov, Retrieved on March 15, 2015.
  44. ^ Hamtramck emerges from emergency management, The Detroit News, Retrieved on March 15, 2015.
  45. ^ "State Will Manage Highland Park's Finances". WDIV-TV. 2000-12-06. Archived from the original on 2012-07-15. Retrieved 2010-01-11.
  46. ^ "Mason Named Highland Park Financial Manager." Department of Treasury. April 18, 2009. Retrieved on April 29, 2009.
  47. ^ Treasury EFM Robert Mason Transfers Control Back to Highland Park, Pressbox Press Release, July 17, 2009
  48. ^ "Pam Amato's time in Three Oaks ends well". Harbor County News. December 10, 2009. Retrieved September 19, 2014.
  49. ^ Duggan, Daniel (November 4, 2009). "Freman Hendrix asked about Detroit Public Schools' $13 million lease in 2001". Crain's Detroit Business. Retrieved November 7, 2009.
  50. ^ Chambers, Jennifer (November 28, 2011). "Official revives DPS fight". The Detroit News. Retrieved 5 December 2011.[permanent dead link‍]
  51. ^ Moore, Lynn (April 19, 2012). "Governor names emergency manager for Muskegon Heights Public Schools". Muskegon Chronicle. Retrieved 21 July 2013.
  52. ^ Foley, Aaron (February 2, 2012). "From state-of-the-art to state takeover: The rise and fall of Highland Park Public Schools". mlive.com. Retrieved 2 February 2012.
  53. ^ a b "SOM - New emergency manager appointed for Highland Park School District". www.michigan.gov. Retrieved 2018-07-31.
  54. ^ "Highland Park schools regain local control; no emergency managers in place in Michigan". Crain's Detroit Business. 2018-06-27. Retrieved 2018-07-31.
  55. ^ Oosting, Jonathan. (March 09, 2012) Gov. Snyder approves consent agreement -- not emergency manager -- for Inkster. Mlive.com. Accessed on November 3, 2013.
  56. ^ Oosting, Jonathan. (March 13, 2012) State Treasury to present Detroit City Council with language of proposed consent agreement. Mlive.com. Accessed on November 3, 2013.
  57. ^ Emergency Manager Information. Michigan Department of Treasury. Accessed on November 4, 2013.
  58. ^ Kalish, Jenny (March 10, 2015). "Special Transition Advisory Board meeting in Allen Park set for Thursday". The News-Herald. Retrieved March 19, 2015.[permanent dead link‍]
  59. ^ Goodin-Smith, Oona (11 January 2019). "State board OKs giving financial powers back to Flint officials". MLive.com. Retrieved 14 January 2020.
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