Dec. 27 (Bloomberg) -- Michigan Republican Governor Rick Snyder signed a law giving financially distressed cities and school districts a choice of bankruptcy or a state-appointed emergency manager with the power to cancel union contracts.
The bill replaces a similar 2011 measure that voters repealed on Nov. 6. The new law gives elected officials in communities where the state has declared a financial emergency four options: Chapter 9 bankruptcy, the appointment of an emergency manager, mediation with creditors or a consent agreement to reduce debt.
“This legislation demonstrates that we clearly heard, recognized and respected the will of the voters,” Snyder said today in a news release. “It builds in local control and options while also ensuring the tools to protect communities and schools districts’ residents, students and taxpayers.”
Emergency managers still would have powers to administer services and cut costs. However, local officials could stop certain of their decisions or develop alternate solutions that produce equal savings.
The new law permits local officials to ask the governor to remove emergency managers within the first year, or dismiss them after a year, with a two-thirds vote of a governing body such as a city council.
The November repeal of Public Act 4 left the state without enough clout to rescue cities and schools, according to Snyder and Republican lawmakers who championed the 2011 measure. That law gave the state the power to appoint an emergency manager or impose a consent agreement. Opponents called it undemocratic and an attempt to bust unions.
The new law takes effect in late March. That means it can’t be used to help solve the financial crisis in Detroit, which is projected to run up a $400 million deficit by June and a possible cash shortfall.
Detroit avoided takeover in April with an agreement to reduce spending. State Treasurer Andy Dillon has begun a new audit of the city, which he said isn’t moving fast enough to curb its deficit.
Five other Michigan cities and three school districts have emergency managers operating under a 1990 law that took effect when the 2011 law was suspended in August and then repealed. The old law gives the managers less authority to cut costs, such as the inability to modify or terminate existing union contracts.
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