The Suspension of the Emergency Manager Law and its ImplicationsDOWNLOAD FILE
State governments are responsible for ensuring the fiscal health and stability of local governments, counties, cities, townships, school districts and others within its boundaries. A common concern at the state level is the impact local fiscal stress can have on a state’s credit rating as well as the future cost of borrowing.
In Michigan, Public Act 72 (called the “Local Government Fiscal Responsibility Act“) was enacted in 1990, and it recognized the impact that a fiscal crisis can have on the health, safety and welfare of residents in addition to increased borrowing costs. This law is commonly known as the Emergency Financial Manager law. Subject to a process outlined in the statute, an EFM could be appointed by the governor to address a local government’s financial crisis.
Critics of the law said because of shortcomings in how PA 72 allowed EFMs to address a financial emergency a new law was needed. Consequently, PA 72 was replaced with Public Act 4 (the “Local Government and School District Fiscal Accountability Act“) in March 2011. This law expanded the scope and powers of an emergency manager to include temporary pre-emption of collective bargaining laws and the ability to address operational concerns to reign in significant budgetary and cash flow shortfalls.
The expanded powers of an emergency manager (commonly known as an EM) in PA 4 have been contentious since its inception, culminating in a November 2012 ballot proposal, authorized in August 2012, asking voters to repeal the emergency financial manager law, PA 4.1
The events surrounding PA 4 have presented numerous legal and operational questions, many of which will be worked out through the legal system. This FAQ document will outline many of the questions, identify some sources of guidance during this period of confusion, and will serve as a platform for better understanding the challenges in addressing local government financial crises.