Wednesday, March 9, 2011

Michigan bill would scrap local governments

Bill offers few guidelines for use of emergency managers’ powers

Expert: 'Unlike in a corporate liquidation, the citizens don’t just go away'
By Eartha Jane Melzer | 03.03.11 | 10:26 am
Michigan State Treasurer Andy Dillion’s bio includes work as a corporate restructurer, so perhaps it is natural that he would look to the corporate world for ways to deal with the growing number of towns that are verging on insolvency.
State officials estimate that dozens of local governments and school districts will soon be unable to pay their bills and the Treasury dept. is on record supporting a bill — passed by the House last week — which would recast Emergency Financial Managers as Emergency Managers and give them unprecedented new power to fire elected officials, dissolve labor contracts and reorganize or dissolve cities and school districts.
Supporters of the measure say that it is needed because the leaders of some towns and schools have been unable to muster the political will to take unpopular budget balancing steps.
Because the bill establishes no process for how appointees can carry out their new powers and specifically lays out that Emergency Managers need not consult with a community’s elected representatives, some worry that corporate managers, appointed by the governor, could liquidate community assets to cover debt and leave towns no better off than they were.
What values will guide these individuals or firms as they work to balance budgets?
How will a manager decide whether to sell off an ice rink or a library?
The Treasury Dept. is in the process of training potential Emergency Managers, so the Messenger asked for some details of the training in hopes of better understanding the motivations and priorities of the folks who may soon take over our schools and towns.
It turns out the training itself was mostly outsourced to the law and accounting firms — Plante & Moran, Plunkett & Cooney, Miller Canfield, Foley & Lardner — already involved in emergency financial management of Michigan towns.
The training was not conducted by Treasury, spokesman Terry Stanton explained. “It was administered by Dr. Eric Scorsone at Michigan State University, in conjunction with the MI chapter of the Turnaround Management Association, with support from the department.”
Though Treasury was slow to provide details of the event, Kevin Lucey of the Bloomfield Hills accounting firm O’Keefe and Associates, a member of the Michigan Chapter of the Turnaround Management Association, provided an agenda for the day and half long event which was held at MSU’s Henry Center for Executive Development on Feb. 9 and 10.
About 60 people, mostly accountants, lawyers, former city managers, and “private sector turnaround specialists” attended the event which featured “war stories” by many current and former Emergency Financial Managers, Lucey said.
Though the House had not yet finalized its bill to expand Emergency Manager powers at the time of the training many participants were excited about the tools it seemed ready to extend to them, Lucey said.
“The legislation as it previously was didn’t give you much of a sword, it did not really allow you to deal with the biggest items like pension and post retirement options,” Lucey said. “Going after the contracts is kind of what everyone has been waiting for.“
Lucey said that attendees were also excited about a provision of the bill (removed in the House but slated for reconsideration in the Senate) that would ban elected officials in towns where financial emergency is declared from running for office for 10 years.
He said there were real differences among the current and former EFMs in terms of how they relate to elected officials.
“A lot of them say that the relationship with city council is horrible, so they say it is best to stay away from councils, don’t go to their meetings, don’t provoke them. Others seem to be more about communicating.”
Eric Scorsone, former senior economist with the state Senate Fiscal Agency, is an extension specialist with MSU’s department of Agricultural, Food and Resource economics and is working on a Mott and Ford Foundation-sponsored research project on chronic fiscal stress in shrinking cities.
Scorsone coordinated the event and gave a presentation on the basic roles and responsibilities of an Emergency Financial Manager under current law.
Most cities that have had an Emergency Financial Manager have common problems like lack of bank reconciliation, and basic financial reporting problems that can be addressed with common approaches in terms of forensic accounting, he said.
“Is your payroll being accurately compiled? How are you controlling vendor contracts?”
But beyond organizing the books in a town or school district, when there isn’t revenue to pay the bills how would emergency managers decide what public services to cut? How would they decide what functions to consolidate with other communities or whether to dissolve the whole town?
“Now you are talking about a more politically sensitive topic,” Scorsone said, and he pointed out that the House added in a provision that would allow elected officials to break labor contracts in some circumstances, a move that could reduce the chances that complete power is ever vested in an Emergency Manager.
Scorsone said that he thinks the governor wants to push communities to make hard choices about their budgets by showing them that if they don’t make painful cuts, a state appointed Emergency Manager will do it for them.
The proposed bill does not give details as to what actions an EM should take first when it comes to restructuring a town, and an appointed manager could decide to start with extreme measures such as dismantling a town, Scorsone said.
“It’s unclear to me how that would actually work,“ he said, “how services will be provided.”
“Unlike in a corporate liquidation, the citizens don’t just go away.”
Working out the details of some of these extreme measures is stuff for another more advanced training, he said.
“In April or May we may get into questions like how does one dissolve a town.”
Treasury spokesman Terry Stanton said no dates for further raining have been finalized.

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