• Changes in Emergency Management Law Serve as a Reminder of Opportunities for Overcoming the Challenging Economic Climate Through Inter-Local Cooperation
  • June 6, 2011
  • Law Firm: Mika Meyers Beckett Jones PLC - Grand Rapids Office
  • All politics may be local, but the Local Government and School District Fiscal Accountability Act, Act 4 of the Michigan Public Acts of 2011 (“Act 4”), recently signed into law by Governor Snyder is a stark reminder that the power of a local unit of government is a matter of state politics.

    Act 4 authorizes the State to review local units of government where facts and circumstances indicate financial stress, and to intervene by appointing an emergency manager in times of financial crisis. Although the passage of Act 4 sparked significant debate and attracted the attention of national political pundits and satirists alike, the foundational provisions in Act 4 are familiar to Michigan law. Act 4 replaces the Local Government Fiscal Accountability Act, Act 72 of the Michigan Public Acts of 1990 (“Former Act 72”), which provided for the appointment of an emergency financial manager.

    There are many similarities between Former Act 72 and Act 4, but Act 4 significantly departs from Former Act 72 once the Governor’s financial emergency determination has been confirmed. Following confirmation that a local unit of government is in financial crisis, Act 4 directs the Governor to declare the local unit of government in receivership and to appoint an emergency manager. Once a receivership has been declared, and throughout the pendency of the receivership, the governing body and chief administrative officer of the local unit of government may not exercise power for or on behalf of the local unit of government except for those actions specifically authorized by the emergency manager.

    Act 4 correspondingly increases the power and authority of an emergency manager well beyond the financial powers allocated in Former Act 72. This expansion of power includes, but is not limited to, the power to reject, modify, or terminate one or more terms and conditions of existing collective bargaining agreements, to consolidate and eliminate departments of the local unit government, and, subject to the approval of the Governor, to disincorporate, or dissolve the local unit of government.

    While an emergency manager’s powers are subject to numerous checks at the state level, the consolidation of the power of locally elected officials into one appointed official may seem unconventional. It is constitutional, however. A local unit of government’s existence is entirely dependent on the State’s discretion. Consistent with the Michigan and United States Constitutions, the State may modify or entirely withdraw all powers of a local government.

    The impetus for the State’s renewed focus on the financial difficulties facing local units of government is not mysterious. Well-managed, efficient local units of government find their budgets strained by the loss of manufacturing jobs in the automotive industry, and the loss of property tax revenue from mortgage foreclosures and reduced taxable values. Budgetary constraints have only been compounded by the frustrating imposition of unfunded mandates and lack of follow through with respect to promised State-shared revenues.

    However, Michigan’s challenging economic climate need not force well-managed and efficient local units of government into the hands of an emergency manager under Act 4. Michigan law provides many opportunities for local units of government to creatively alleviate the strain on budgets well before the State would intervene.

    Article VII Section 28 of the Michigan Constitution specifically endorses jointly administered programs and the sharing of governmental powers and functions. Section 28 directs the Michigan Legislature to create laws authorizing two or more townships, counties, cities, villages or districts to do the following:

    • enter into contracts with one another or the State for the joint administration of any of the functions or powers which each local government would have the power to perform separately
    • share the costs and responsibilities of such functions and services
    • transfer such functions or responsibilities to one another
    • cooperate with one another
    • lend credit to one another to the extent provided by law with respect to authorized publicly-owned undertakings.

    The Legislature has adopted several dozen public acts in specific response to Section 28. These acts authorize townships and other local governments to jointly administer programs, share the costs of those programs, transfer functions to one another and cooperate with one another. Our local government attorneys have a wealth of experience in assisting local units of government in working jointly with neighboring communities, and, in the coming months, we will review the authority granted to local units of government in these cooperative statutes in this publication.