A news service for the people of Michigan from the Mackinac Center for Public Policy

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Emergency Managers Are Bad, Bankruptcy Far Worse

Ballot proposal would end some cities' best option at fiscal survival

Michigan’s recently beefed-up "emergency manager" law gives broad powers to a state appointee if a local government or school district fails its citizens financially in one of 18 explicit ways.

Assuming a referendum passes a legal challenge and makes it to the ballot, citizens will vote in November on whether to keep or overturn this law.

Before an emergency manager is appointed, a city or school district must have created an astounding fiscal mess. For all the controversy surrounding the law, only seven EMs have been appointed. Without their EM's "house cleaning," most of these cities and school districts would probably be headed for bankruptcy court, where judges have vastly more power than any emergency manager.

Around the country there are a growing number of painful examples when there is no effective law in place to address a local government's fiscal crisis.

For example, Stockton, Calif., just became the third municipal bankruptcy in the state’s history. Prior to officially declaring Chapter 9, the city cut its police force by 25 percent, cut its fire department by 30 percent and reduced pay for all public employees by over 20 percent. Eventually, it stopped paying its vendors, and it will shortly not be able to make payroll for anyone.

Central Falls, R.I., entered bankruptcy proceedings and slashed the pensions of current retired public employees by 34 percent. This was after property and car taxes were increased 20 percent. Meanwhile, city officials report that nearly half of the town’s homes are boarded-up.

Scranton, Pa., might be the best example for why local government entities should avoid bankruptcy. The state’s sixth most populous city is down to its last $5,000 and has slashed the wages of its employees — from the mayor on down — to minimum wage. The mayor is also looking to raise taxes on Scranton citizens by 78 percent over the next three years.

Paying more for fewer employees and worse services is the price of fiscal malpractice in local governments. Opponents of the emergency manager law loudly blow "local control" trumpets. They ignored the reality that powerful special interest groups, which get their money from city workers and use it to lobby local politicians, have created corrupt systems immune to home-grown reform efforts. Witness Detroit, once one of the largest and richest cities in the world, now become the case study of a municipal “death spiral.”

When forced to choose between an emergency manager and a federal bankruptcy judge, local citizens and government employees should be grateful for the option of getting the former.

Meet James Hohman, Assistant Director of Fiscal Policy at the Mackinac Center. James discusses his latest project, an analysis of Proposal 1, the proposal on personal property tax reform that will appear on the August 5th ballot. Read more about Proposal 1 here: http://www.mackinac.org/20246


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