Q: How would you describe your role as Deputy State Treasurer and also as a Review Team member going into cities?
A: As the Deputy State Treasurer for local government services, I’m responsible for the entire local government service group, and that includes a number of things besides emergency managers. Local units of government are required to submit annual audits of their financials, and those audits are submitted to the state and people in this local government group review those. If cities are in a circumstance where they are running at a deficit, where they are spending more than they have in any front, we require them to submit a Deficit Elimination Plan. To the extent that our monitoring indicates that a city is not successful in straightening that stuff out, then we may get involved in a more direct way in finding out how they are doing and their overall management. The cities that get into extreme trouble can wind up, obviously, being under the control of an emergency manager. Public Act 4 of 2011 was adopted to strengthen the state’s ability to declare a local unit of government in receivership. It is intended to be an alternative to going to bankruptcy proceedings in court and it’s intended to try to provide a means to get cities or townships, or counties, or school districts back on their feet financially without having to go through the bankruptcy process. The people who serve as emergency managers report to me. I oversee their activities, I help them with issues, and there are certain requirements in the Act that have the emergency managers seeking approval from Treasury for some things that they may do. So I am the intermediary on some things, I can approve some things, or other things I prepare for either the Treasurer or the Governor to consider. That’s generally my role vis-à-vis the emergency managers. On a review team, and with the exception of Detroit, -I’ve chaired the review teams that we’ve had so far other than Detroit-- and I’ve only been here, just less than a year, and we’ve had three. In those cases I’m one of anywhere from seven to nine people who serve on this review team and go in and try to evaluate – we already have a lot of financial data when we go in- but we try to better understand how they got there and what the capacity of the people there is to work their way out of it.
Q: Your background is as City Administrator in Ann Arbor, can you talk about how your perspective has changed from working at the local level to now at the state level.
A: Well perspective on any particular thing?
On managing city finances-
A: Well in the circumstance of Ann Arbor, I was the CEO. I reported to a board of directors which was the city council and the city council ultimately adopted our financial plan which was a budget. It was my responsibility to prepare a budget and to have it submitted to the City Council for their review. We went through almost a six-month process of developing, for our benefit, information about what the Council’s priorities were. We got them to adopt a plan with respect to funding: how much money were we going to have to work with in the budget, and get them to buy off on a strategy of using x, y, or z, amount of money for the general fund and in the other funds. And then we would work with the Council to carry out what we believed were the directions we received from Council with respect to changes, or whatever there might be in the way we do our business. But there I was truly in the driver’s seat. Here I’m part of a cog, in the larger wheel, dealing not so directly with the responsibility for day-to-day operations, but trying to help other organizations figure out what they can do to improve what they’re doing. So it’s a different role, quite a different role.
Q: As a former financial “CEO” of a city yourself, do you see local fiscal emergencies as partly the fault of bad city management?
A: In Michigan, in the last six or seven years, the experience of reduced revenues has been almost universal. Even Ann Arbor, as pristine as it seems to be from outside, had major major issues in terms of its economics. During the time that I was there, we cut people, the number of positions in the city by over 30%. But we saw it coming. We began back when I was hired – the Council already understood that they were spending more than they could afford, and that they needed to cut. And we worked for virtually the entire time I was there, with each year requiring reductions in our spending. But by the time the big blast came in 2008 and 2009, we were pretty well situated - It was difficult, probably some of the most difficult stuff I ever did as a city administrator, but still, it wasn’t as bad as some of our other colleagues had to deal with- like Grand Rapids, for example, hadn’t done that and they wound up having to take the 25% hit in less than two years. It’s a lot easier to do it over nine years than it is to do it over two years.
A: Right. And then what we’re discovering is that some of these cities have just taken enormous enormous hits, if you take a look at cities like Ecorse and River Rouge: U.S. Steel, I’ve forgotten what it was called before that, but they closed down, they absolutely closed down. Well, that was the financial life-blood of that city, and it was just devastating. The City of Wayne had two Ford plants, and probably 80% of their property taxes came from those two plants. Ford closed one of them completely and all of a sudden Wayne, their budget was cut in half, and that happened in the course of just twelve months. Well those are very very difficult things. Now Wayne managed it. Highland Park didn’t. Ecorse didn’t. River Rouge didn’t. And, let’s just say that you’ve got to have skills, and abilities, and knowledge in order to do the right things in response to those circumstances. And what we’re finding is that in cities like Flint and Pontiac, Highland Park and Benton Harbor, they weren’t set up so that they could do that. They didn’t have the leadership in place that knew what to do. It isn’t clear that they recognized it. It isn’t clear that once they recognized it they knew what to do, or if they had the will to do it. Because sometimes it meant taking a public position that you’re going to cut services at a time when it might cost you your job as an elected official. So there are all kinds of reasons why it occurs, but there are a number of things that tend to be commonly experienced in each of these jurisdictions.
Q: Ok moving on to the Review Teams themselves, as you’ve heard the court declared that they would be subjected to open meeting laws in Michigan. As a Review Team Member yourself, how do you see this ruling? Were Review Teams doing stuff illegally?
A: “Illegally” is an interesting phrase. The concept of Review Teams has been in existence for 20- some years. The Review Team Process was changed last year when Public Act 4 was adopted, but Public Act 72 of 1990 also provided for Review Teams in financial circumstances, and the idea that the Open Meetings Law applied to this Process, --which was perceived by administrations as preparing a recommendation to the governor who was the one who would make a decision --it never occurred to anybody that this was subject to the Open Meetings Act, and we still don’t feel as though it should be. The primary reason is that, just set aside the technical argument for just a minute, when we sit down as a Review Team and you are a director of a department in a city responsible to an elected mayor, imagine what you are willing to say in a closed room in a private setting as opposed to a public room where the mayor could be sitting there watching you. What is the quality and nature of the information that you are going to get in one setting versus another? That’s the part that, as a review team member, I am troubled by. I understand the technical argument. I understand why they have taken a word or two out of the act and said that these are public policy people whose functions ought to be viewed in the open. It’s also true, according to the Offices of the Attorney General, that the probability of any Ingham County Circuit Court Judge deciding in favor of the State of Michigan is near zero. The history of that decision making process has been very very consistent. I can’t tell you it’s 100%, I wouldn’t tell you that, that would be foolish, but the probabilities are really really high that when we go into the Ingham County Circuit Court, the State will not win.
Q: No minutes or records were kept at these meetings?
A: To say that there were no records kept is incorrect. Each one of them had an agenda. Each one of them had notes taken of the conversations that occurred, the people that were seen, the comments that were made – they weren’t verbatim by any means, but there is in fact a record of everything that was done.
Q: And other than the report, do those records ever get made public?
Q: Are you planning to conduct any meetings publically now? How will the team comply or what happens now?
A: Well we understand how the law works. Those of us who have worked in local government understand it better than the people who’ve worked in state government do and we will do our business the way they told us we have to.
Q: I want to talk about the referendum petition that could freeze Public Act 4 and put it on that ballot. Is there concern in the Treasury about the programs currently underway?
A: Of course.
Q: What is being done to address those concerns?
A: What can you do? I mean it’s similar to the decision of the court. You have a law that’s in place, that you’ve been advised to treat in a certain way. And so you do it. Whether it’s the Open Meetings Law that you just asked about or whether it’s P.A. 4 on its face, that’s the law of the land until somebody determines otherwise. And so you keep working within the law of the land. Now, it’s also true that legislative strategies are being considered that would provide a potential rewrite of P.A. 4 if that was to occur, because our concern is that a number of these cities, where we are in the midst of trying to fix their finances, are just going to be in a whale of a mess if that referendum is successful, and if P.A. 4 is suspended pending the actual vote.
Q: Well how concerned is the Treasury about public opinion of the Emergency Manager Law and the Emergency Managers in place right now?
A: How concerned? What’s your scale of measurement for how concerned? I mean of course we’re concerned about it and we actually have a public information staff that works on issues for us and we also are under the oversight of the Governor’s office in terms of this issue because it is such a publically concerning one. So we are working to try to ensure that we put the best face forward possible. One of the things that I understand the criticism about is this notion that locally elected officials lose their status as a consequence of this law. The practical response to that is that they’re the ones who are responsible for the mess that they’re in and you can’t expect to proceed the way you always have and expect to get out of the mess you got in, you got to do something differently. On the other hand, we also know that two or three of the people who have been appointed to [Emergency Manager] have gone about it in such a way as to make it look really bad. They’ve done the right things in terms of trying to fix the finances, but they’ve done a miserable job of dealing with the public and dealing with the whole nature of the notion of public service, which is what local governments exist for. So one of the reasons that I was hired, with my background, was to try to change the way this whole thing is done. So within the confines of the law, we are making changes in the way we do the program.
Q: What kind of changes?
A: There’s got to be a communications strategy that the EM actually draws up and reviews with us. There’s got to be a strategy for working with the Mayor and Council. I’ve urged to set up advisory groups to serve the EM and the regular process of public information.
Q: And is any of that considering more local accountability on the part of the Emergency Managers?
A: Accountability to whom?
To the public-
A: No, not in the sense that they have the ability of taking the person out. No. But the issue of listening, well I don’t accept your use of your word “accountability”. I think that they need to be responsive to the locals. The accountability is to Treasury and to the State because the State is the one who appoints them and it’s to the State that they have to demonstrate that they have corrected the finances. But the mistake has been made on focusing only on the finances and forgetting about the quality of life in the city and the need to create a structure that can succeed once the EM has left and that’s about people, and it’s about process, and it’s about talent. It’s about all of those things and it’s both on the elected side and on the appointed side. And that piece wasn’t addressed in the law and it’s part of what we are trying to enter into this whole process, recognizing as we get toward the end of a couple of cities, that they’re not equipped to take over. They don’t have the skill sets, they don’t have the attitude, they don’t have the inclination to keep it going the way it should.
Q: And when you are talking about selling local city assets, like buildings, parks, museums, city owned property, should there be any public input in this case, the public preventing the Emergency Manager from selling off those things which would be permanent?
A: No. No, again this goes to the notion of getting public input. The Emergency Manager is supposed to develop a plan, and the plan is published, and the EM is supposed to submit to us quarterly reports that demonstrate what the EM is doing and the progress. The sale of assets are supposed to be included in the plan and it’s a part of the published effort. To the extent that they are not in the plan, then we expect the EM to make public notice of his intent to sell this or sell that, and give people an opportunity to comment. There’s nothing in the law that says that.
Q: Can you give any insight into how emergency managers are chosen in a particular situation, a particular local government or school district?
A: There is not a readymade pool of candidates. We have people who have expressed interest to us and there are people that are becoming known to us who either have experience doing this or have a particular skill set that is appropriate for that particular time and place. If you take a look, for example, at the current emergency manager in Pontiac, at the time that the previous EM was let go, Louis Schimmel was serving as the administrator under the Mayor of Warren, but Lou Schimmel probably has the longest history of working as an EM of anybody, and he also happens to have lived in the Pontiac area almost all of his adult life. He has well-established relationships with the leadership of Oakland County and the Pontiac area and he was somebody who knew the place and was also well experienced in dealing with these issues. And I just sat down with Lou and said, “Hey, how would you like to do something different?” And that’s the way it went from there.
The guy who was [appointed] the EM in Flint [Michael Brown] was previously, for a brief stint, the acting mayor in Flint and has a life-long history in the City of Flint. He has not actually, other than that one stint, managed a city before, but he has a good track record in nongovernmental organizations as CEO and, particularly with United Way, when they went through some significant problems in Flint, he was the one that cleaned it up. So it’s a mix of talents and a mix of experiences. The guy who’s in Benton Harbor, [Joseph Harris] was chosen before I got here, but he was the Auditor General of the City of Detroit. The Auditor General of the City of Detroit is appointed for a ten year term by the Mayor and Council, but once the Auditor General is appointed they can’t take him out, he’s there for ten years. His responsibility is to provide advice on city finances. Now unfortunately, or fortunately, I guess it’s your perspective, he has no real compelling authority to do anything other than make his reports, make them public, and try to convince the Mayor and Council that they should do something else. He’s also served as a professor, but he’s never run a city. It was with that background that he came to the attention of the previous administration who made him to, to come to Benton Harbor. So you begin to see that it’s a mix of circumstances that has gotten EM’s selected.
Q: Is the Emergency Manager Law working for Michigan in your opinion? Would it work better for the State to be providing targeted monetary support to some of these cities to keep them falling back into emergency management-?
A: We already do provide targeted financial support for cities in the form of loans or grants. There are a number of things that are available to cities to deal with revenue shortfall. But what we also find is that, well both, we see some cities that have just made a mistake, and they know how to fix it, and they can do it. And we see other cities that spend it like there’s no tomorrow and giving them more money just doesn’t resolve the problem, so you’ve got to evaluate each circumstance. By and large, I believe that the EM Law is the right thing. We try not to abuse it, we try to make sure the EM’s don’t abuse it, and we are in the process of putting together an advisory team that will work with local units of government who appear to be teetering on the edge, and we would go in and provide consulting services free of charge that would help them both on the financial and on the management side.
Q: That’s in the works right now?
A: That’s correct. We’ve hired the person who’s going to head up that team, and that will be a part of this Bureau.
Q: Do you know which cities they would go in to?
Q: Ok, and how would you respond to those you say that Emergency Managers and their consultants are paid too much in these fiscally strapped cities?
A: Typically they are paid without benefits, they have to get their own, and we pay what it takes to get somebody there because this is not an easy job. When I first agreed to take this job, I described EM’s going into a city as the equivalent of sending a squad of soldiers into Afghanistan all by themselves and saying, “fix it!” Because you’re not wanted, cooperation is hard to find, and basically, particularly in the beginning, you were left to your own resources to figure out what to do and to fix it. So I understand the argument, I understand why people make it, but when you consider the job, it’s an enormous and difficult job requiring significant skills.
Q: Detroit and Mayor Bing have reached a tentative labor agreement with some of the unions, but it’s not certain that it will keep the city solvent long term. Based on what you know, how likely is it that Detroit gets an Emergency Manager?
A: I think that, out of this review process, the most likely next step is a consent agreement. With proper structure –and working with the Detroit Mayor and Council – it’s possible that that could be sufficient for a while. The difficulty with the consent agreement, what we are finding, is that Detroit has suffered badly from a lack of leadership for a long time. I mean Kilpatrick was notorious in the way that he messed it up. He probably did the greatest damage in the shortest time, but it’s been all too consistent for a long time. The mayor has had such a string of appointments, such a large number of appointments in leadership positions, that there’s been significant evidence of management failure throughout the organization. It isn’t alone in the Mayor’s office. Our fear is that Detroit just needs a major overhaul; they just need a structural organization change up and down. Our position also is that this focus on collective bargaining agreements is just nipping around the edges of the problem and just this morning we spent time walking through the details of their agreements and our fear is what they’ve done doesn’t get them to where they need to go.
Q: Oh so what do you think needs to be done? For the Consent Agreement?
A: That’s a complex question for which I am not prepared to answer. The consent agreement is going to require a whole lot of steps and I am not on that review team. The Treasurer and a number of people are working on ideas and concepts that they think ought to be included in a comprehensive consent agreement.
Q: You held a hearing for the Highland Park School District a couple weeks ago [before they were appointed an Emergency Manager]. At the hearing, the School District claimed that they had made progress and cut their costs by 48%. Their financial officer Randy Lane said that “if the school district and the state had worked together the financial crisis would have been avoided”. Do you understand this sentiment?
A: I understand his claim, I think it was spurious. The response that was provided by the Department of Education enumerated all of the ways the Department of Education had provided support for Highland Park’s schools in response to virtually every request they made. Some of them Highland Park didn’t follow up on, some of them were done and Highland Park blew the money. The fact is that the school district has literally died in terms of students, and as I presume you already know that funding is based on student population, as a per student formula, and they’ve taken big hits as a consequence of losing these kids.
Q: So, looking back over your first year in your position in the State Treasury, what are some of the obstacles you’ve faced and what are you anticipating or looking forward to in the next year?
A: Well the biggest single one was that the Legislature adopted this new law without appropriating any money to support it. So, as we’ve been trying to put together resources – I mean it was just me – the guy who heads up the Bureau is responsible for managing almost 70 other people, and that’s outside of dealing with this EM program. This EM program requires active involvement on the part of the Treasury, and that’s what I’m here for, but I’ve been doing it all myself. I didn’t even have this assistant out here when I started. So, it’s been a matter of trying to collect resources and develop strategies around this brand new law that is a significant change to what we had before. And I’ve talked to you about all the things that we’re trying to do to improve the way that we deal with it. It’s been a learning experience in trying to find what needs fixing and how to do it. And with each one of the EM’s, the concerns are different.
Q: And for the next year, what do you expect?
A: My fear is that we’ve got several more cities that are likely to experience difficulty. The economy is picking up a little bit but the cities that have lost industry are struggling badly. How many more? I don’t know, we have a watchlist of, I think it’s down to about sixteen that we’re keeping an eye on. The worst of them are already in receivership, but if you take a look at the Downriver area in Detroit, there are about 20 cities that are surrounding, west and south, that any one of those could go under a review at any time.