A Review of Michigan's Local Financial Emergency Law


May 10, 2017 - Center for Local Government Finance and Policy

Michigan has faced a series of local government financial emergencies since the early 2000s due to a number of factors including long-term economic decline, population loss, poor management decisions, state funding cuts and other state policies, as well as the Great Recession of 2008-09. These local financial emergencies caused a particular policy framework to be implemented that turned out to be both innovative and controversial across the nation. Michigan Public Act 4 of 2011, officially known as the Local Government and School District Fiscal Accountability Act (referred to here as the “emergency manager law”), was essentially an updated and strengthened version of a Michigan law that had been in place, but only infrequently used, since the late 1980s. This new version of the law provided the state government with the authority to intervene and, in some cases, completely takeover local decision-making and governance including the complete removal of all authority from locally elected officials and in effect suspending local democracy. Few other states allowed such actions to be taken in the case of a local financial emergency.

Michigan’s most notable case of a local government financial emergency occurred in the city of Detroit when it declared bankruptcy in 2013 while under the control of a state-appointed emergency manager. Many see this as an example of a case of the successful application of the emergency manager law and its ability to restore balance to local finances. In 2015 and 2016 however, the city of Flint, while under a state-appointed emergency manager, experienced a catastrophic failure of water infrastructure leading to the introduction of lead poisoning into its drinking water. Opponents hold this up as the most significant failure of the emergency manager law. The Flint water crisis has spurred a discussion on changes to the Michigan emergency manager law. This white paper seeks to explore options to the current emergency manager law.

Four versions of the law have been implemented in Michigan since 1988. The paper first outlines the history and current status of the Michigan emergency manager law and provides a perspective on where each version of the law has been implemented. The paper then discusses the pros and cons of the current Michigan law and the general approach used by state government. Finally, the paper focuses on four major alternatives to change the way Michigan addresses local financial emergencies.

This white paper is based on several research strategies. The first strategy was to review all the relevant written literature including academic writings, newspaper accounts, research white papers, and legal findings and cases. The second strategy was to hold a series of small group meetings in Detroit and Lansing with relevant stakeholders. These stakeholders included experts and practitioners involved in the application of the law and local elected officials of communities where state-appointed emergency managers had been involved.



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