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Are Michigan's Financial Emergency Rules Really a 'Big Government' Power Grab?

When is government intervention okay?

A new Michigan law which grants wider powers to emergency financial managers (EFM) assigned to fiscally troubled cities and school districts has drawn fire from political pundits and interest groups alike. But while these EFM positions were created in a law signed by a Democratic governor more than two decades ago, the political left is using the EFM's recently expanded authority to attack Republican Gov. Rick Snyder and his GOP colleagues in the state legislature.

The authority for the EFM program was established by Michigan's Public Act 72 that was signed into law by Democratic Gov. Jim Blanchard in 1990. If the state determined that a serious financial problem existed in a municipality or school district, Public Act 72 granted the governor's office authority to intervene in local government administration as a last resort means of shoring up budget deficits. But as the state's budget problems only continued to grow, it became clear that while well-intentioned, the EFM would not have the necessary tools to be successful.

Enter Republican Gov. Rick Snyder, who earlier this year signed into law Public Act 4, a measure that gave teeth to the EFM's established abilities to cut through bureaucratic red tape and to expedite the process to efficiently bandage up local jurisdictions chronically bleeding red ink. The new provisions also lay out a number of "early warning systems" for local municipalities treading in dangerous fiscal waters and "triggering events" that would bring about EFM action, including defaulting on bond and payroll obligations. In essence, if the city is repeatedly unable to pay its own bills, the state may be forced to step in to act to avoid defaults to creditors and interruptions in taxpayer services.

Opponents of the new law -- including the Sugar Law Center for Economic & Social Justice which is suing to have the law repealed -- are painting the new law as a usurpation of democracy. Civil rights activist Jesse Jackson even jumped into the protest fray yesterday, demonstrating in Detroit. Jackson and his allies are reading the tea leaves and using the recent swell of public opinion against government intervention to push labor's agenda.

Surprisingly, however, the EFM program has drawn some bipartisan support from state policymakers. Earlier today, Russia Today described the debt climate gripping Benton Harbor, a city that had been in debt for years and yet continued to dig itself into a deeper hole. The EFM appointed to work with the city to manage its obscene debt -- Joseph Harris -- was actually appointed by Snyder's predecessor, Democrat Jennifer Granholm. In fact, Snyder chose budget hawk and former House Speaker Andy Dillon, a Democrat and fellow supporter of the EFM program, to serve as his Treasury Secretary.

Despite this fact, the political left's efforts to recall elected officials from Lansing are limited only to Republicans.

While unions and other labor activists are using the mere existence of the EFM program to protest Gov. Snyder, they have of course signaled their willingness to revert back to the 1990 law which would effectively overturn Snyder's measures limiting their negotiating power. In addition, the new law has effectively emboldened municipalities (including the city of Detroit) to better negotiate with public employee unions to take a more aggressive stance in negotiating.

In effect, the threat of EFM status has forced local policymakers to take responsibility for their city's bankrupt statuses and pushed them toward making necessary reforms.

Robert Bobb, the EFM head of the Detroit Public Schools, inherited a shrinking school system with a budget that continued to grow out of control. The new law, however, has authorized Bobb to void union contracts, lay off ineffective teachers and city administrators, close failing schools and even authorize charter schools -- an idea that has prompted teachers union outrage. Bobb was appointed to his position in 2009 by Gov. Granholm and retained by Snyder and is using his newly expanded authority to deal decisively with Detroit schools' $327 million budget shortfall this year.

The city of Pontiac is also one of the state's few local jurisdictions that has warranted state intervention via the EFM program. EFM Michael Stampfler proposed that the city could avoid EFM if the city dis-incorporated and dissolved itself into greater Oakland County. This suggestion, however, prompted leaders in Oakland County to demand EFM action for the city in order to avoid saddling other county residents with Pontiac's self-incurred debts.

(Interesting side note: Bobb and Stampfler, both former city managers, ran West Michigan cities that are not on the verge of bankruptcy.)

While the 1990 EFM law allowed state intervention in local administration to drag on for years, Snyder's new regulations seek to cut the time needed to make necessary reforms to return authority to local residents as swiftly as possible. Nevertheless, if a city feels it has been mistreated, Snyder's policies ensure that local authorities including city councils, mayors and city managers can challenge the EFMs and requires stringent state inspections in any city or township to ensure state and local authorities are working cooperatively to effectively manage the fiscal emergencies.

The Michigan law passed earlier this year was part of a "perfect storm" of policy shifts taking place nationwide -- including Gov. Scott Walker's efforts to curb union power in Wisconsin -- and states continue to struggle digging themselves out of debt.

Although the good intentions of Snyder's new regulations have been hijacked by liberal commentators and union protestors and whittled down to the very narrow issue of how they will affect unions, a larger issue remains at the center of the debate: When is government intervention okay?

If a city defaults on its bills and squanders its treasury, should the state have the authority to intervene to do the job local authorities have either refused or neglected to do? And is this a better alternative than burdening taxpayers statewide with an infusion of bailout funds to save the cities?

What about the voters -- What do they think?

A poll of residents of Benton Harbor found that 50 percent put more trust in the state-appointed EFMs to balance the city's budget than the mayor and city council (27 percent). Similarly, 52 percent of residents also supported the EFM's ability to nullify union contracts to help reduce the city's deficit as opposed to just 27 percent who said they were opposed.

Most importantly, the state's intervention is working and the city of Benton Harbor seems to be slowly turning things around today.

What do you think? If the leaders we elect are not responsible, should the rest of us bail them out and let them continue on their destructive course? Or should the state step in to save cities by doing what local leaders will not? Should cities use EFM to keep budgetary crises isolated from other taxpayers or should the financial burdens of one city be spread across the state?

Indeed handing over power from local to state authorities can be a slippery slope. But do today's desperate times not demand equally desperate measures?

One last thing…
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