Proposal 1 a Referendum on PA 4

(Editor’s Note: The following is excerpted and abridged from the text of a speech delivered by Michael LaFaive, director of the Morey Fiscal Policy Initiative for the Mackinac Center, to various groups around the state about the ballot proposals on the Nov. 6 ballot. We'll post one part each day this week explaining proposals 1 through 5.)

Proposal 1 on the ballot is a referendum to affirm or reject Public Act 4 of 2011. A "yes" vote keeps the law intact; a "no" vote nullifies it, reinstating the older emergency financial manager law.

The wording of this proposal — and thus whether to vote yes or no — is sowing the most confusion among all state ballot choices.

Public Act 4 is the emergency manager law. It permits the state to appoint managers to fix the finances of failed cities and school districts. The law grants more powers to EMs than did its predecessor, Public Act 72 of 1990. Among other powers, it gave EMs the power to tear up an unaffordable government union labor contract. In every case, these contracts were major contributors to the problems that made the EM law necessary.

This has made union bosses angry and frightened. In response, they backed a drive that put the law up for a popular vote.

Pontiac is one city where the new law appears to have worked. The EM there is Lou Schimmel, who has served as emergency financial manager for another city under the old law and also served as a court-appointed receiver for one city. Among the necessary changes in Pontiac that were made possible by PA 4?

  • Pontiac contracted out its police force to Oakland County and saved $2 million annually while increasing enforcement personnel in the city;
  • Pontiac contracted fire duties to Waterford Township and expects to save more than $3 million a year; and
  • The city consolidated 87 city health care plans to one; saving $5 million annually while still offering very generous benefits at a cost of $20,000 per employee.

One of the raps against this law is that it is "anti-democratic," but that is misleading.

First, a democratic body — the state legislature — passed this law as a response to the fiscal irresponsibility of local units. It is used only in extraordinary cases and is the exception not the rule.

Second, local units are subject to state laws and rules, including the requirement to balance their budgets. Locals do not give the state its power — the reverse is true. Thus, the state has some responsibility for local management when fiscal emergencies arise.

What opponents of Proposal 4 would really seem to prefer are state taxpayer bailouts, which seem to be a non-starter with taxpayers.

Emergency managers have new powers to come in, fix the problem and leave. It will help Michigan's local governments meet the promises they make to residents, workers, vendors and bondholders.

To read more about the Nov. 6 ballot proposals. Please visit