By Nicole DiMichele, CEDAM Policy Intern

As the fate of Detroit has been placed in the hands of Kevin Orr, there has been much confusion over what powers he and others like him have. There is a wealth of misinformation circulating the state that is making it harder to discern the truth from myths or misunderstandings. As such, the following information is a useful tool for clearing up these misconceptions.

Timeline of the Emergency Manager Law in Michigan:

1988 – Michigan’s emergency management system has been in place since 1988, when Public Act 101 allowed an emergency financial manager to assess and manage the finances of Hamtramck. The law gave Emergency Financial Managers broad powers, including the ability to sell off city assets, eliminate departments, and reduce or eliminate pay to the local mayor and city council.

1990 – PA 101 was strengthened in 1990, when Public Act 72 gave state government the power to appoint “emergency financial managers” to local government units—such as towns, school districts, or counties—nearing bankruptcy.

2011 – Emergency financial managers became “emergency managers” when their powers were strengthened by Public Act 4 in 2011. Under Public Act 4, past emergency managers have removed the legislative powers of elected officials, suspended their pay, fired city officials, and imposed pay cuts that violate union contracts.

2012 – Voters repealed Public Act 4 in 2012, but Snyder and the Republican-led legislature responded later that year by adopting Public Act 436. The revised law is similar to Public Act 4, but contains some differences as well.

Similarities Between Public Act 4 and Public Act 436:

• Like Public Act 4, Public Act 436 is intended to allow the state to intervene in a local government’s or school district’s financial struggles at an early stage. A state financial review team examines the finances and declares a ‘financial emergency’ before the state takes action.
• Under Public Act 436, a state-appointed emergency manager, once again, has the ability to reject, modify, or terminate labor agreements.
• Emergency managers oversee employees and elected officials in the school district or local government, so the EM could strip local officials of their duties and of their pay.
• Emergency managers can sell off assets of a local government or school district. The new emergency manager law puts more conditions on such sales, but the power remains. (If the asset is worth more than $50,000, the EM needs the state treasurer’s approval.)
• EMs can change staffing levels or combine departments, so long as it doesn’t conflict with an existing charter provision.

Differences Between Public Act 4 and Public act 436:

• Under the new law, local governments or school boards can vote to get rid of an emergency manager after 18 months with a 2/3 majority vote.
• Now, after the state declares a ‘financial emergency,’ the local government or school district has four options: choose an emergency manager, file for bankruptcy, sign a consent agreement, or undergo an evaluation process by a neutral third party.
• Remember how the old emergency manager law was repealed by a voter referendum? The new emergency manager law can’t be repealed this way. That’s because legislators included an appropriation in their bill (citizens could, however, challenge the law with a statutory initiative).
• The state now pays for the emergency manager. Under the old law, the cash strapped local government or school district was required to pay.

In general, emergency managers have the following powers:

• Hire/fire local government employees
• Renegotiate, terminate, modify labor contracts with state treasury approval
• Sell, lease, or privatize local assets with state treasury approval
• Revise contract obligations
• Change local budgets without local legislative approval
• Initiate municipal bankruptcy proceedings
• Hire support staff

Contrary to popular belief, an emergency manager cannot raise taxes. Nineteen other states have laws allowing them to intervene in local finances, and they vary in how much they can intercede during or before a municipal crisis, according to a Pew study. However, Michigan laws allow less control to local officials and more control to state appointees than other states. The law has been controversial and has had several lawsuits brought against it, including a federal lawsuit alleging the law violates the Equal Protection act of the U.S. Constitution since a majority of the state’s African-American residents are now under the authority of Emergency Financial Managers.

Currently in Michigan the cities under an emergency manager are Hamtramck, Detroit, Allen Park, Flint and Benton Harbor. School districts under an emergency manager include Muskegon, Highland Park and Detroit Public Schools.