U.S. Bankruptcy Judge Steven Rhodes )
Detroit— U.S. Bankruptcy Judge Steven Rhodes grilled a state attorney Wednesday about whether Michigan’s Legislature made “a mockery” of the referendum process when it passed a new emergency manager law a month after voters rejected the law last November.
Some of Detroit’s creditors have challenged the legality of Emergency Manager Kevyn Orr’s appointment in an attempt to get the case dismissed. They are asking the judge to consider every aspect of the law that gave Orr the authority to file for bankruptcy in determining whether the bankruptcy petition was properly filed.
During the second day of oral arguments over legal issues surrounding Detroit’s eligibility for bankruptcy, the judge had pointed questions about why the Legislature and Gov. Rick Snyder enacted a new emergency manager law in December following a statewide referendum of Public Act 4 of 2011.
“What’s the point of giving people the power of referendum to reject a statute if the constitution is read to give the Legislature the power to re-enact word-for-word the same statute voters just rejected?” Rhodes asked Assistant Attorney General Margaret Nelson. “What’s the point?”
“That becomes a political issue,” Nelson replied. “Do voters want to keep those legislators in office?”
“Why put the people to that?” Rhodes asked. “The people spoke.”
Rhodes’ line of questioning about the emergency manager law was the most dramatic moment of today’s hearing, a continuation of Tuesday’s daylong legal wrangling over pensioners rights in the bankruptcy case. The judge adjourned the proceedings until Monday afternoon to give attorneys for labor unions, retiree groups and the city’s pension funds more time to prepare their rebuttals.
Nelson defended the constitutionality of the new emergency manager law, disagreeing with arguments from objecting parties that the law, Public Act 436, is identical to the law repealed by voters. She said the new law requires more involvement in decision-making from local leaders compared to the previous emergency manager act, which was criticized as undemocratic.
The new law also includes options for cities to avoid the appointment of an emergency manager, although Detroit wasn’t afforded those options when Snyder installed Orr days before P.A. 436 took effect under a 1990 law, Public Act 72. Orr got grandfathered into the new law, allowing his appointment to bypass the scrutiny of City Council.
Last year, the American Federation of State, County and Municipal Employees Council 25 labor union bankrolled a ballot campaign to repeal P.A. 4. More than 2.3 million voters voted to repeal the law, while 2.1 million voters wanted to keep it.
The Republican-controlled Legislature rushed a new emergency manager law to Snyder’s desk during the December lame-duck session over vehement objections from Democrats who said the chambers’ GOP majorities were ignoring the will of the people.
Snyder and GOP lawmakers have said they passed a new law in response to voter concern that the previous emergency manager statute too broadly stripped local officials in financially distressed communities and schools districts of their power to govern. Snyder also has repeatedly said that just because voters got rid of his first emergency manager law, that didn’t end financial emergencies in Detroit and other cities and school districts.
The new law contains a mechanism for local officials to offer alternative proposals for contracts costing more than $50,000. Detroit’s City Council exercised this option Monday when it voted to reject Orr and Snyder’s proposed 30-year lease of Belle Isle to the Michigan Department of Natural Resources to convert the island into a state park.
Under the new law, City Council’s counter-proposal for a 10-year lease with two 10-year extensions will be decided by the state’s Emergency Loan Board, a three-person panel of Snyder appointees.
Nelson argued Wednesday in court that voters still have “the right of referendum” against the new emergency manager law, even though P.A. 436 contained a $5.78 million appropriation that legal experts and lawmakers say makes it immune from a voter-initiated referendum. The money was tacked onto the bill to pay for emergency manager salaries, attorneys and financial consultants working for the state Treasury Department in financially distressed cities, Nelson said.
Nelson told the judge she disagreed with his assessment that the Legislature has made “a mockery” of the referendum process.
“Where is the substance of that right of referendum that the constitution gives the people if the Legislature has the authority to thumb its nose like that?” Rhodes asked Nelson.
“It does beg the question,” Nelson said. “It becomes a matter of political will.”
“The public already expressed its will,” Rhodes replied. “Why do it two, three or an infinite number of times?”