Michigan: No emergency managers for first time since '00

Jonathan Oosting
The Detroit News
Michigan Treasurer Nick Khouri

Lansing — Michigan school districts and cities are collectively operating without a single emergency manager for the first time in nearly 18 years, ending a streak of state-imposed oversight credited with propelling Detroit’s financial turnaround but blamed for facilitating the Flint water crisis.

Treasurer Nick Khouri announced the milestone Wednesday as the state released the Highland Park School District from receivership. Michigan has had at least one active emergency manager since 2000, when the state took over Hamtramck and Highland Park in initial attempts to turn around the financially struggling cities.

The lack of need for emergency managers prompted celebration from Gov. Rick Snyder’s administration, but reform advocates fear the development could further sap legislative energy to improve the controversial law before it needs to be used again.

“Today’s achievement is really about the hard work our communities have accomplished to become financially sound,” Khouri said in a statement.

“I commend the efforts of our local units to identify problems and bring together the resources needed to help problem-solve challenging financial conditions. Our state as a whole prospers when communities practice good financial policy.” 

The state took over the cash-strapped Highland Park schools in 2012, appointing an emergency manager who that year effectively outsourced the city's education system to a private charter operator.

Michigan has had some form of an emergency manager law since 1988. Snyder signed a more aggressive version in 2011, giving state appointees broad authority to cut local costs and resolve financial crises, including the ability to break collective bargaining agreements with labor unions.

Voters overturned the law in 2012, but the Republican-led Legislature sent Snyder the current law less than two months later and included an appropriation that made it immune from another referendum.

Critics say the Flint water contamination crisis highlighted shortcomings of the existing law. The city was governed by emergency managers before, during and after a switch to river water in 2014. Attorney General Bill Schuette has charged two of them — Darnell Earley and Gerald Ambrose — as part of an ongoing criminal probe.

“It’s obviously been a failure under this administration, so I’m not surprised they don’t have any emergency managers out at this time,” said House Minority Leader Sam Singh, D-East Lansing.

Singh also noted that Detroit Public Schools’ debt ballooned during nearly a decade of state emergency management before the Legislature approved a $617 million bailout to help the district start fresh.

“Two of the biggest issues we’ve had to deal with during my time here, the crisis in Flint and the Detroit schools … were created and made worse by emergency managers that the state of Michigan had put in,” he said. “The whole emergency manager law needs to be revisited and changed.”

 In 2016 congressional testimony, Snyder conceded “it would be a fair conclusion” to say the emergency manager law failed in Flint. While he is open to changes, the governor has cautioned against eliminating the law altogether, arguing it succeeded in Detroit and other parts of the state.

Detroit’s “tremendous recovery would not have happened” without former Emergency Manager Kevyn Orr, who guided the city through the nation’s largest-ever municipal bankruptcy in 2013 and 2014, Snyder spokeswoman Anna Heaton said Wednesday.

“For decades, there were leaders who were aware of the city’s financial problems but failed to take meaningful action,” she said. “That lack of action eventually made it necessary for intervention from the state.”

A Flint task force appointed by Snyder recommended a series of changes to the emergency manager law in 2016, including a mechanism for local officials to appeal the decision of a state appointee.

The law lacks accountability and places too much importance on a single individual, said Ken Sikkema, a Republican and former state Senate majority leader who co-chaired the governor’s task force.

Whether or not the law “works” should not depend on “the personality of that particular emergency manager and how he or she operates,” Sikkema said. “That’s the old theory of the benevolent dictator. Dictators work if you have a benevolent one, but what if you don’t? That’s a fundamental flaw in the current EM structure.”

A bipartisan legislative committee formed in the wake of the Flint water crisis also proposed reforms in the fall of 2016. The panel suggested the state could replace the single emergency manager with a three-person financial management team comprised of a financial expert, local government operations expert and local ombudsman.

But legislative leaders have not acted on any of those recommendations in nearly two years, and there have not been any recent discussions about reforming the emergency manager law, according to Amber McCann, a spokeswoman for Senate Majority Leader Arlan Meekhof, R-West Olive.

“That’s a bit of a head scratcher for everybody,” Sikkema said.  “Maybe lawmakers think because we don’t have an emergency manager today there’s no need to change the law, but we’re going to have one somewhere at some point.”

Still, the current fiscal climate that has eliminated an immediate need for emergency managers ‘is good news and probably a feather in the cap of the current governor” and legislative leaders, Sikkema said.

The state’s ongoing economic recovery has made it easier for the state to move away from emergency managers, but it is also likely a political decision in response to the Flint crisis, said Mary Schulz, associate director of the Michigan State University Extension Center for Local Government Finance and Policy.

Now is an ideal time to assess the law and implement reforms, she said. While Flint drew attention to the law, “you don’t get the best policy in an environment of crisis.”

MSU last year convened local government leaders, former emergency managers and other municipal officials to discuss potential alternatives to the emergency manager law.

Rather than throw the law out, participants recommended methods to improve local input during emergency management, incentivize or require consent agreements as a preliminary step and encourage state appointees to focus on retaining local property values rather than simply making cuts.

“I think any kind of changes to the emergency manager law is going to have to come with some more revenue” to help struggling communities, Schulz said. “And I don’t know if the state is willing to do that.”

In the Highland Park Schools, Snyder first declared a financial emergency in 2012, and the district has since been led by a series of state-appointed managers. Kevin Smith had led the district since 2014.

A locally elected school board will oversee an existing contract with the Highland Park Public School Academy to serve students from pre-K to eighth grade and a cooperative agreement with the Detroit Public Schools Community District to educate high school kids, according to the treasury department.

The district has a plan in place to address its ongoing general fund deficit with revenue from property taxes on non-homestead property the state said. It also is implementing an approved two-year budget.

The state continues to maintain an oversight role in a limited number of Michigan communities. School districts in Benton Harbor and Pontiac are operating under a consent agreement with the state, and the Muskegon Heights school district is overseen by a receivership-transition advisory board.

A financial review commission voted in April to end active state oversight in Detroit, allowing the city to regain local control three years after emerging from bankruptcy. The commission continues to play an active oversight role for the Detroit Public Schools Community District, according to Treasury spokesman Ron Leix.

As Snyder nears the end of his eight-year tenure, he is “open to improvements to the emergency manager law, with the understanding that for leaders to ignore financial problems that occur within a city or school district is unacceptable,” Heaton said.

But Democrats, citing Flint response recommendations that have languished, are not expecting action this year.

“It’s clear Republicans have no desire to do that, and so the failures of the emergency manager law (are) squarely on them,” Singh said. “It’s going to be up to a new governor to fix these problems.”