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Cash-strapped cities seized by new management

Michigan Governor Rick Snyder talks about the city of Detroit being in a financial emergency state during a  meeting with an invited audience at Wayne State University in Detroit, Michigan March 1, 2013.   (REUTERS/ Rebecca Cook)
Michigan Governor Rick Snyder talks about the city of Detroit being in a financial emergency state during a meeting with an invited audience at Wayne State...


Imagine if a democratically-elected mayor was suddenly neutered and replaced by an “emergency manager” with the power to steamroll City Council. Imagine if the manager had the authority to unilaterally modify or even eradicate collective bargaining agreements and used that authority to entirely wipe out public sector unions. For Detroit, and its staunch labor movement, that scenario is less far-fetched than it sounds. In fact, it’s already happening in the Michigan city of Pontiac.

Since Lou Schimmel became Pontiac’s emergency manager in 2011, he has privatized the Department of Public Works, outsourced police services to the Oakland County sheriff’s office, and turned over the city’s fire department to nearby Waterford Township, killing the public sector unions which represented the city’s firefighters and cops. He's put every city property, including City Hall, up for sale and cut the city’s public employee workforce by about 90%. And he’s done it all without the consent of the city council.

Across Michigan, emergency managers installed by the state are using sweeping powers to privatize public services, lay off city employees, and weaken public sector unions with little standing in their way. Now the same thing is likely to happen in Motor City, one of the industrial centers of America.

Ostensibly a mechanism for rescuing insolvent Michigan cities and school districts from the brink of bankruptcy, the Emergency Management system has turned into a way for unelected officials to break up public sector unions, privatize public services, and drastically shrink the size of municipal governments. Currently, five Michigan cities are being administered by emergency managers—all of whom were appointed by the state’s Local Emergency Financial Assistance Loan Board (ELB).

When a city fails to meet certain financial benchmarks, the state can step in.

“Basically, there’s a set of conditions that trigger this law, things like missing a payroll or bound default,” Michigan State University economist Eric Scorsone told msnbc. A state review team then examines the city or school districts’ financial health for the governor, who then decides whether a financial emergency has taken place. The governor and state treasurer then determine whether "local officials have the wherewithal to enact a plan,” Scorsone said.

If not, then the ELB—which includes gubernatorial appointees—will likely appoint an emergency manager.

If Detroit receives an Emergency Manager, roughly half of the state’s black population, living in primarily urban centers, will be governed by un-elected leaders. More than 5,000 unionized city employees in Detroit—all of whom have already been working without a collective bargaining agreement since last spring—will totally lose control of contract bargaining.

Schimmel, whose office did not respond to multiple requests for an interview, is the third EM to preside over Pontiac since 2009.

“He’s the roughest, toughest one,” said Democratic City Councilman Don Watkins. In fact, said Watkins, Schimmel has completely disregarded the City Council, leaving the city’s elected legislative body impotent and irrelevant. Council members no longer receive compensation for their part-time work as elected representatives, though the mayor is on the EM's payroll as a consultant.

Managers in other cities have attempted similar maneuvers. In Muskegon Heights, the EM for the town's public schools fired 158 teachers in Mid-2012 and turned over management of the school district to a private company called Mosaica Education. Reporters later discovered that many of the new Muskegon Heights educators were not legally certified to teach in Michigan. Meanwhile, in the historic union town of Flint, the EM unilaterally imposed contract concessions on public employee unions and outsourced waste collection.

Pontiac too was once a union town but that is no longer the case, said Watkins. The “whole goal” of those policies, Watkins believes, “is not to have city employees. They want to have every city service be handled by private companies.”

“Modern-Day Cincinnatus”

Emergency Managers haven’t always held such sweeping powers. Until 2011, they were called Emergency Financial Managers and their authority was defined by a state law called Public Act 72 [PDF]. Passed under Democratic Governor James Blanchard in 1990, it empowered the state government to appoint managers to run city budgets or school districts which would otherwise remain financially insolvent. After the 2008 financial crash, the Democratic administration of Governor Jennifer Granholm appointed several EFMs.

But even before the crash, some people were unsatisfied with what they saw as the limited authority of EFMs. Under Granholm's administration, Schimmel was a manager in the town of Hamtramck and an adjunct scholar at the Mackinaw Center, a right-wing Michigan think tank. In 2005, he wrote an essay for Mackinac arguing that Public Act 72 didn’t give EFMs “all of the necessary tools to be successful.” The authority to tinker with public sector union contracts was particularly limited, he complained.

State Republicans who rose to power in 2010 agreed. With a Republican governor, Rick Snyder, and solid majorities in the House and Senate, the legislature passed Public Act 4 in 2011, transforming Emergency Financial Managers into Emergency Managers and expanding their authority. In particular, the newly dubbed EMs now had the power to unilaterally modify collective bargaining agreements with public sector unions.

The EMs appointed under Snyder haven’t been shy about exercising their new authority, said John Philo of the Sugar Law Center, which has challenged the law in court. “Emergency Managers in general have looked at the unions as their major targets for cutting costs, and that’s regardless of whether the unions have been willing to negotiate and give concessions,” he told msnbc.

Roy Roberts, the Snyder-appointed EM for Detroit’s public school system, imposed a new contract on the Detroit Federation of Teachers in July 2012. Under his predecessor, the teachers had agreed to significant concessions in a contract that was estimated to save the school system $100 million.

Keith Johnson, president of the teacher federation, described the new contract as an “edict,” not a collective bargaining agreement, and accused Roberts of creating a "culture of fear."

In an article describing Public Act 4 as “financial martial law,” Mother Jones’ Andrew Kroll suggested that Mackinac had “inspired” the bill. The president of the Center, which is connected to ALEC and played a key role in making Michigan a right-to-work state, called that description an exaggeration. But Mackinac has been more than effusive in its praise of the act. Michael Van Beek, the center's director of education policy, has even compared the new emergency manager role to that of a “modern-day Cincinnatus"—a reference to the historical figure who temporarily became dictator of Ancient Rome in order to save it from military defeat.

For others on the right and in the business community, Public Act 4 has been a boon for fiscal solvency. In late December, Pontiac received a bond rating upgrade from Fitch Ratings, and the financial publication Crain’s Detroit Business has subsequently held up Schimmel’s tenure as a tentative success.

However, even emergency management proponents believe that there is still work to be done.

“There are cities that have found their own ways towards success,” said Ari Adler, press secretary for Republican State House Speaker Jase Bolger. “I don’t think we have anything that has shined as an example just yet, that has turned around completely.”

“The proof is going to be in how the [Pontiac] City Council acts” once Schimmel steps down, said James Hohman, a fiscal policy analyst at the Mackinac Center. It is unclear when Schimmel will decide to turn control of Pontiac back to its elected leaders.

The Clone Wars

In early 2012, Stand Up for Democracy, a group connected to the public sector union AFSCME, began collecting signatures for a petition intended to kill Public Act 4 for good. If the group managed to obtain 162,000 legitimate signatures, Public Act 4 would be suspended until November 2012, when it could be voted on as a popular referendum.

It collected 220,000 signatures and a protracted legal struggle ensued. First, a group called Citizens for Fiscal Responsibility—backed by several prominent businessmen in Michigan, including the former head of the Michigan Chamber of Commerce’s political activities—challenged the legitimacy of the petition. One of its arguments was that the petition heading was “noncompliant with the 14-point type” required by state law.

As a result, the Board of Canvassers failed to certify the petition in April, and Stand Up for Democracy took legal action in the case, which wound up before the Michigan Supreme Court. In August, the Court ruled on behalf of Stand Up for Democracy, putting Public Act 4 on ice until at least November. With the Emergency Manager legislation suspended, the law reverted back to Public Act 72.

On Election Day 2012, Michigan voters repealed Public Act 4. But the fight was far from over.

“You can vote to eliminate Emergency Managers, but you can’t vote to eliminate the emergency,” said Adler, Speaker Bolger’s press secretary. Republicans in the state legislature, arguing that Public Act 72 was still insufficient to deal with local budget crises, got to work crafting a replacement.

Days after Michigan officially made itself a right-to-work state, and just hours before the end of the 2011-2012 legislative session, the lame duck Republican majority pulled an all-nighter. The November elections had cost the state Republicans a chunk of their commanding majority in both houses, and so they were using their last minutes of uncontested dominance to pass as much of their agenda as they possibly could.

“We were here until about 4:30 in the morning, jamming through any number of divisive pieces of legislation under the cover of night,” Robert McCann, the communications director for the State Senate’s Democratic caucus, told msnbc. Around two in the morning, Michigan Republicans successfully passed Public Act 36, which Democrats argue is essentially a clone of Public Act 4.

“It’s really the exact same law,” said McCann. “They changed the wording of it a little bit.”

The new law allows cities to choose between a consent agreement, an EM, bankruptcy, or mediation with creditors. The EM’s power to unilaterally alter collective bargaining agreements reemerged in the new law.

Because of the expansive powers over collective bargaining reinserted into the new Emergency Manager law, Detroit teachers are racing to put together a new contract before the law goes into effect on March 27. That same day Michigan will officially become a right-to-work state, and by then, Detroit’s new Emergency Manager will have likely taken office.

Johnson, who heads the teachers federation, said both pieces of legislation were part of a “relentless and unprecedented assault upon labor unions in general and teachers unions in particular.”

Speaking from experience in Pontiac, officials there said there was little anyone could do to push back once their cities were under the control of an emergency manager. “We’re just hoping he’ll leave,” said Watkins, the city council member, referring to Pontiac’s EM.

Michigan Democrats, still in the minority in the legislature, said they would continue to oppose the law but offered no specific plans to try to repeal it or challenge it in court, said McCann, the spokesman for Democrats in the state Senate. “We’re going to keep talking about how this law flew right in the face of what voters just told us last year, and we’re going to keep carrying that message forward," he said.

Michigan's stance on city management take-overs seems more aggressive than in other states but that could change. “Most states have a law that says the state can intervene in local governments if there’s a crisis of sorts, but I don’t think they’re nearly as strong as in Michigan,” said Scorsone.

UPDATE (3/11/2013, 12:10 PM): An earlier version of this article, citing a 2011 post from Michigan blogger Chris Savage, said that over half of Michigan's black population would be governed by EMs if Detroit went under emergency management. However, as Savage pointed out in a more recent post, the new numbers show it would be slightly less than half of Michigan's black population.