Michigan Emergency-Manager Law Goes on Ballot, Court Says

A challenge to Michigan’s emergency- manager law, which allows the state to take over the finances of fiscally troubled cities, must appear on the Nov. 6 ballot, the state’s supreme court ruled.

The Michigan Supreme Court today ordered the state’s board of canvassers to put the repeal of the rule before state voters. The board earlier rejected petitions for a vote because papers filed by the law’s opponents didn’t use the right size type.

“A majority of this court holds that plaintiff is entitled to a new writ of mandamus requiring the Board of State Canvassers to certify its petition as sufficient,” Justice Mary Beth Kelly wrote. The type size used met the state requirement, she said.

The Michigan law, signed by Governor Rick Snyder last year, gives emergency managers the right to terminate employee contracts and suspend collective bargaining. Opponents contend the law is anti-democratic and lets unelected officials rule over local governments.

The 2011 law will be suspended after the state board certifies the election petitions. The effect of this suspension is in dispute and will probably trigger additional court battles, according to lawyers on both sides.

Detroit’s Agreement

Opponents of the law who collected more than 226,000 signatures to repeal it have said the suspension should cover Detroit’s agreement with the state over city finances even though it was reached before an emergency manager was appointed.

“Because the consent agreement was pushed down the throats of the city of Detroit, the agreement should be invalidated,” said Julie Hurwitz, attorney for Stand Up for Democracy, which opposes the law. “The state’s going to resist that. This will go to the courts.”

The financial stability agreement between the city of Detroit and the state will remain in effect, Mayor Dave Bing said in a statement today.

Despite the suspension of the current law, “we will continue to execute our fiscal restructuring plan,” he said. The city is bound by the consent agreement to continue to restructure city government and impose new labor terms, he said.

“The court’s decision is not expected to affect the bond issue we need to maintain the city’s cash flow,” Bing said.

Suspension of the law “may adversely affect Michigan communities and school districts mired in financial emergencies,” Snyder, a 53-year-old Republican, said today in a statement. “It promises to make eventual solutions to those emergencies more painful.”

‘Full-Blown Crises’

The law was intended to “identify financial emergencies before they become full-blown crises,” Snyder said. “Suspending the law limits the state’s ability to offer early intervention and assistance.”

Suspension would create uncertainty for cities and school districts operating under emergency managers, as well as municipalities in fiscal distress, Fitch Ratings said in a statement today.

The ruling may weaken Detroit’s ability to continue fiscal reforms and improve its credit rating under its consent agreement with the state, an alternative to emergency manager rule, Fitch said.

Under the emergency manager law, the consent agreement gives the city authority to suspend collective bargaining after employee union contracts have expired -- a rule that Mayor Dave Bing has used to order a 10 percent wage cut for most unions. Unlike an emergency manager, the Detroit consent agreement doesn’t allow the mayor to nullify existing union contracts.

‘Extralegal’ Action

Today’s ruling will block further actions by already- appointed emergency managers over cities or school boards, said William Goodman, another attorney for Stand up for Democracy.

“Any action taken will be extralegal,” he said in an interview.

A prior law allowing emergency managers should cover those appointed to oversee cities including Benton Harbor and Pontiac, said John Pirich, an attorney for Citizens for Fiscal Responsibility, which supports the 2011 measure.

“The 1990 act would be reinstated,” Pirich said. “It’s not the same act, but we’ve had emergency managers since 1990.”

Interim Effect

The 1990 law will “govern in the interim” between the suspension and the election, Michigan Attorney General Bill Schuette said in a statement before the Supreme Court ruled. The 2011 law remains in effect until state election officials certify the petitions from opponents, Schuette said.

The 2011 law replaced a 1990 law that gave weaker authority to emergency managers. The newer law allows them to fire employees, sell assets and unilaterally alter union contracts. Proponents of the stronger law said it’s needed to more quickly turn around financially failing cities and school districts.

The earlier law will be revived when the petitions are certified, Snyder said today. The 1990 law “will ensure continuity for local units of government currently in financial emergencies,” he said.

Decisions already made by emergency managers would stand, Michigan Treasurer Andy Dillon said at a press conference in Lansing today. The current managers will be reappointed under the previous law, Dillon said. A new manager would have to be named for Flint, he said.

The Michigan legislature may consider a new emergency manager law Aug. 15, Dillon said. A new law should provide for quicker and smoother termination of emergency managers once finances are under control, he said.

The ballot initiative was rejected by Michigan’s board of state canvassers because the signature forms didn’t comply with a legal requirement that petition headings had to be in 14-point type.

‘Substantial Compliance’

Stand Up for Democracy appealed the decision, contending the variance was minor, that the petition was in “substantial compliance” and its rejection would thwart the will of Michigan citizens.

The Michigan Court of Appeals ordered the board to place the measure on the ballot, finding that the petitions complied substantially with the heading type-size requirement.

The state supreme court today found that complying substantially with a requirement wasn’t enough to put the measure on the ballot. Justice Kelly found, however, that the “plaintiff actually complied with the type size requirement.”

Different fonts, or print styles, can appear to be larger or smaller than others, and the characters as measured by a ruler may vary as well, she said. “Plaintiff’s evidence established that its printer used a 14-point Calibri font,” she said. Opponents to placing the measure on the ballot “simply failed to rebut” this, she said.

The 2011 law gave the state “considerably more power” to take over the financial affairs of a city or other municipality or school board, Hurwitz said.

“The emergency manager becomes essentially a dictator, with unilateral power to invalidate contracts, to sell property, to literally run the government,” she said.

The case is Stand Up for Democracy v. Board of State Canvassers, 145387, Michigan Supreme Court (Lansing).

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Chris Christoff in Lansing, Michigan, at cchristoff@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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