The Corner

Eulogy for Michigan’s Emergency Financial Manager Law

Voters have killed Michigan’s best hope for the fiscal salvation of failing municipalities and school districts. They voted on Tuesday to repeal the state’s emergency-manager law.

Signed in March 2011, the law was just the sort of bold thinking Michigan cities and school districts needed to get their fiscal houses in order. It allowed the governor to appoint an expert manager to intervene when all other financial rescue efforts had failed.

The law vested the emergency financial managers with the broad powers necessary to make a difference, including the authority to terminate contracts or collective-bargaining agreements.

In less than two years, the law was already a force for some momentous achievements.

In the city of Pontiac, emergency manager Lou Schimmel was able to consolidate 87 government union health plans into a single one — a move that saves as much as $5 million annually.

Similarly, when an emergency manager was appointed to Benton Harbor, it was facing a $2.5 million budget deficit. Two years later, the deficit had fallen to around $650,000.

The law also helped even the cities and school districts that did not have an emergency financial manager. Last year, the threat alone of an emergency manager staved off bankruptcy in Detroit, prompting police and firefighters’ unions to accept necessary but significant pension concessions.

Unions saw a threat to their power and their purses, so they decried the emergency financial law, claiming that an unelected official shouldn’t be able to exert such extraordinary influence on city and school district finances.

That’s blatant hypocrisy; Michigan is facing $22 billion in unfunded pension liabilities, and taxpayers are obligated to make up the difference when the state runs short. The union bosses who constantly agitate to drive up Michigan’s public wage and benefit costs certainly aren’t popularly elected.

The defeat of the emergency financial manager law is a major setback for Michigan, but not an insurmountable one.

The increasingly business-friendly state legislature will likely attempt to pass a similar law again soon. And it’s also encouraging to note that Michigan voters denied an attempt to constitutionally enshrine collective bargaining.

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