Michigan Rejects Emergency Managers for Troubled Cities

Michigan voters voided a 2011 law that gave state emergency managers broad powers to cut spending and avoid bankruptcy for stricken cities and school districts.

The referendum repealed Public Act 4, passed by the Republican-controlled legislature at the urging of Republican Governor Rick Snyder, which allowed the state to intervene more quickly to prevent insolvencies and have more power to reverse financial collapse.

“I’m disappointed,” Snyder told reporters in Lansing today. “It makes things more complicated.”

The law was viewed as a boon for cities’ credit by bond- rating companies. The vote against it was 52 percent to 48 percent, with 95 percent of precincts reporting, the Associated Press said.

Public Act 4 replaced a 1990 statute that gave emergency managers less authority. It allowed managers to assume the powers of mayors, city councils and school boards, to fire employees, sell assets and cancel union contracts. After the measure to void it was placed on the ballot, Michigan reverted to the earlier law.

Preservation Attempt

Snyder said he’ll discuss with state lawmakers changing the 1990 measure to preserve the state’s ability to issue early warnings on municipalities’ finances -- and authority to fix them without the authoritarian power of an emergency manager.

Even the earlier law is being challenged in court. If that challenge prevails, “that would be a concern in my view,” Snyder said.

Bondholders have liked the stronger emergency-manager rules, said John Loffredo, co-head of MacKay Municipal Managers in Princeton, New Jersey, which oversees $6.8 billion.

“It’s kept bonds in full payments,” Loffredo said. “It’s given the state and local governments the ability to rewrite contracts. If they are going to a different direction, that is really going to put more pressure on local governments. The appetite for investors in Michigan will change.”

Roy Roberts, emergency manager of Detroit Public Schools, had told Snyder Oct. 30 he might leave the job if voters killed Public Act 4, according to the Detroit Free Press. Snyder said he spoke to Roberts today and no decision had been made.

Opponents called the 2011 law an overreach of state authority and an undemocratic affront. They said the law protected the creditors at the expense of residents.

When the referendum was placed on the ballot in August, Michigan had four cities and three school districts under emergency managers. Another locality has since been placed under state control under the 1990 law.

Detroit avoided an emergency manager in April under a consent agreement with the state that gave Mayor Dave Bing more authority to rein in spending to eliminated a projected deficit that topped $200 million.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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