Michigan: A State of Home Rule, Local Autonomy, and Emergency Managers PDF Print E-mail
Written by Evan Gross   
Saturday, 03 December 2011 02:13

As cities around the country show more signs of fiscal distress from years of economic downturn, and municipal bankruptcies become more common, Michiganders are paying much greater attention to our state’s policies for dealing with municipal fiscal stress. The extreme case of a local financial emergency in which an Emergency Manager is appointed to take over a city has been widely debated this year after the passage of Public Act 4 in March. However, it is important to recognize the history of state intervention in municipal fiscal stress in this country and in this state. Financial emergency policies like Act 4 have developed over many decades. From roots in strong local autonomy to multifaceted state intervention in local governance, municipal fiscal policy today has been molded by historical events, citizen voted propositions, and constitutional law dating back to the beginning of the State of Michigan.

What is Public Act 4?

Public Act 4, “The Local Government and School District Fiscal Accountability Act of 2011” is just the latest revision of a procedural process that was set up in 1988 to guide state intervention in Michigan cities experiencing financial stress. The intervention has been loosely based on a set of trigger events. Once a trigger event is experienced by a city- the municipal credit rating dropping to a ‘BBB’ rating or the city defaults on a loan- the state initiates a preliminary review of the city’s finances and meets with local officials to investigate the event. Contrary to the procedure under previous law, Act 4 does not specifically require a trigger event to take place for a preliminary review to be initiated; it can now be instigated solely by the State Treasurer. (1)

If it is determined by this preliminary review that the city is in fiscal stress and further investigation is needed, a formal review team is commissioned, consisting of high level representatives from the state legislative and executive branches, and other state agencies. Under the new law, the review team may outsource the investigation to a firm or consultant. Once a final conclusion has been reached as to the degree of fiscal stress, the Governor determines whether or not the case warrants the appointment of an Emergency Manager (EM), and therein, a state takeover of a local government.

The takeover can be avoided at any time by the approval of a consent agreement between the state and the locality detailing actions to be taken, and outlining a continuing operations plan and recovery plans in which progress toward fiscal stability is continually monitored by the state. If the local government fails to make adequate changes, however, the governor can go ahead with the takeover. In this case the only recourse for the city would be through a circuit court appeal process which would require “substantial evidence” that the Governor’s determination was flawed.

This year there are three Michigan cities and one school district currently being operated by an Emergency Manager appointed by the Governor and serving under Act 4. Benton Harbor, Ecorse, and Pontiac, along with the Detroit Public School District, all pay the costs for their EM whose salaries range up to $250,000 for the School District EM.

Act 4 was signed into law on March 16, 2011 replacing Act 101 of 1988, and subsequent Act 72 of 1990, with the most hyped changes being new powers given to the EM. Among these new powers is the ability to temporarily reject or modify existing collective bargaining agreements, take over an underfunded pension system and transfer funds, as well as the ability to completely dissolve or disincorporate the municipality. However, other powers, such as the ability to revise, limit, or reject a city budget, approve or disapprove all new bonds, contracts, and collective bargaining agreements, review all payrolls, consolidate departments and remove department heads, issue direct orders to personnel, sell city assets, suspend salaries of elected officials, and enter into agreements with other municipalities to provide services, had already existed for the EM position and had been carried out for 20 years before the added powers were introduced in Act 4. Indeed some local governments have expressed desire for a state takeover and an EM appointment in order to gain this power over contracts, unions, and other interests.

Home Rule: The Power of the City

The debate over these powers starts with a review of the history of local government autonomy in Michigan and study of the Michigan Constitution which guarantees home rule to all of Michigan’s cities and to chartered villages and counties. It was Michigan Supreme Court Chief Justice Thomas Cooley who first expressed home rule ideas in 1871 saying, “Local government is a matter of absolute right; and the state cannot take it away.” (2). This became known as the ‘Cooley Doctrine’ and, as a Michigan case, People v. Hurlbut, the doctrine may become important in the question of an unelected EM’s powers over local affairs and, especially, the power to disincorporate a city.

The case itself was a dispute over whether the State Legislature could appoint local officers of the city of Detroit. In his opinion, though, Justice Cooley broadened the question to whether local self-government was a privilege of the state, or an inherent right of the people. The discussion of this issue, according to Cooley, refers back to colonial history, and the Judicial Opinion asserts that it was municipalities that had the original right of self government in America. Cooley states that since the first New England town meetings, “Our traditions, practice and expectations have all been in one direction. [. . .] we find that it has included the power to choose in some form the persons who are to administer the local regulations.” (People v. Hurlburt, 1871, 99)

Some things are too plain to be written [. . .] the usages, the customs, the maxims, that have sprung from the habits of life, modes of thought, methods of trying facts by the neighborhood, and mutual responsibility in neighborhood interests, the precepts which have come from the revolutions which overturned tyrannies, the sentiments of manly independence and self-control which impelled our ancestors to summon the local community to redress local evils, instead of relying upon king or legislature at a distance to do so-- if a recognition of all these were stricken from the body of our constitutional law, a lifeless skeleton might remain, but the living spirit, that which gives it force and attraction, which makes it valuable and draws to it the affections of the people [. . .] would be utterly lost and gone. --Justice Thomas Cooley, 1871. (People v. Hurlburt, 1871, 103)

The verdict, which deemed state level appointments of local officials unconstitutional thereby establishing Home Rule principles in Michigan, comes from Cooley’s statement that “It would be the boldest mockery to speak of a city as possessing municipal liberty where the state not only shaped its government, but at discretion sent in its own agents to administer it” (People v. Hurlburt, 1871, 104) The Revised Michigan Constitution of 1908 and the subsequent Home Rule City Act of 1909 put Cooley’s Doctrine into law ensuring the inviolability of local self government in Michigan.

Home Rule is contrasted by Dillon’s Rule which defines alternative practices that occur throughout the country. Justice John Dillon served on the Iowa Supreme Court around the same time as Cooley was serving, but had different views on the stature of local governments and citizens. He wrote in the case Clinton v Cedar Rapids and the Missouri River Railroad (Iowa, 1868) that, “Municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and control.” (3) And so, off of this ruling, some states today, like Alabama and Nevada, practice a strict form of Dillon’s rule, in which the municipal government is shaped by the state and the power of local governments is limited to only those actions explicitly allowed by state legislature for a municipality to carry out. (4) Some cities in the country have no local control over any kind of taxation or borrowing, as it is all decided by the state government. Different cities across the country today all have different degrees of local autonomy depending on the state, and the type or size of the locality.

In Michigan, our Home Rule laws outline procedure for citizens of a qualifying place to frame and adopt their own city charter and choose how they want to be governed. While there are restrictions set on the state level as to the extent of local government power, the State in turn is limited by the Michigan Constitution as the Legislature is prohibited from passing local or special laws that affect a specific jurisdiction without approval of the voters in that district. (5) The Home Rule City Act, Act 279 of 1909, provides for the incorporation of Michigan cities and leaves the language of each charter up to the city, whereas all charters had previously been written by the state legislature:

Each city may in its charter provide for the exercise of all municipal powers in the management and control of municipal property and in the administration of the municipal government, whether such powers be expressly enumerated or not; for any act to advance the interests of the city, the good government and prosperity of the municipality and its inhabitants, and through its regularly constituted authority to pass all laws and ordinances relating to its municipal concerns subject to the constitution and general laws of this state. MCL #117.4j, MSA 5.2083. (6)

Detroit’s first independent charter was adopted in 1918 and started with the words, “We the People of the City of Detroit, desiring to perfect a municipal government which shall [. . .] secure the fullest measure of self-government conferred by the Constitution and laws of the State of Michigan..” (Charter of the City of Detroit, 1918) The charter was voted on and approved by the citizens of the city for the first time and although the new city charter was based for the most part on the previous charter and the existing city government, it was a large step forward in local autonomy.

From there almost all of Michigan’s 273 cities would adopt a home rule charter and attend to the revision and amendment of their local government on a local basis. The revised Michigan Constitution of 1963 kept the home rule principles and added the words, “The provisions of this constitution and laws concerning counties, townships, cities, and villages shall be liberally construed in their favor.” (7) However, this may have been the peak of home rule in Michigan. Since then, the legislature, the public electorate, and, in some cases, even cities themselves, began to slowly erode the level of local autonomy in Michigan.

Tax Reform and Regulation: The Power of the State

As municipal attorney David Morris writes in “The Nature and Purpose of a Home Rule Charter” the erosion of home rule principles in Michigan has come in bits and pieces of legislative actions over the years. Rules governing public meetings, collective bargaining rights, public employee disputes, and public access to records have been cogently imposed on local governments after being directly applied to state government. The state has also come to heavily regulate elections, borrowing, planning, and municipal infrastructure. Many state level impositions have been of anti-discriminatory nature, but nonetheless represent state control over municipal affairs. Morris reports that the state has even gotten around the prohibition on passing locality specific acts. For example acts could be worded to only affect “cities over one million in population” which could refer to only one city, Detroit. (8) (Note: Detroit’s population exceeded one million for most of the 20th century)

The cities themselves also helped the state erode home rule, as Morris writes, “When in doubt about a given power, like “boulevard lighting,” they have run to the legislature for an amendment spelling it out, thus dodging possible litigation.” (9) While seeking to avoid having to deal with a lawsuit challenging their decision, the cities, in effect, have undermined their constitutional powers to decide local issues themselves. However, the biggest changes to the power of local government did not originate from the state or the cities. These new laws originated from the popular electorate as part of the “tax revolts” of the late 1970s, and profoundly changed the state-local dynamic. While limitations on the taxes that local governments can levy has existed on the state level in some form since 1893, the Headlee Amendment of 1978 and subsequent Proposal A in 1994 tied local and state revenues together and in the end may have degraded local autonomy to such an extent that state control over local governments became imperative.

The 1978 Headlee Amendment, named for its author-a former Michigan gubernatorial candidate, is a voter approved constitutional amendment concerning local revenue raising and state revenue sharing. The Amendment had an overall aim to reduce the tax burden on citizens with a number of provisions and new limitations affecting state and local government interaction. It shares similarities to California Proposition 13 and Massachusetts Proposition 2½ in that it limits local government’s taxing ability, but the Headlee Amendment makes up for this by requiring at least 41.6% of all state spending to be allocated to local governments. Replacing locally raised revenue with state raised revenue has had some important consequences in Michigan, in some ways creating local dependence on the state government and making sound local finances the responsibility of the state.

“Units of Local Government are hereby prohibited,” the Amendment reads, “from levying any tax not authorized by law [. . .] or from increasing the rate of existing tax above that rate authorized by law [. . .] without the approval of a majority of the qualified electors of that unit of Local Government voting therein.” (Headlee Amendment) This essentially means that according to the Michigan Constitution, all local tax rates in Michigan are based on 1978 levels without voter approved increases, and if the taxes collected turn out to be an increase from the previous year of a percentage greater than the rate of inflation, tax rates must be “rolled back” to reflect the authorized rate according to the General Price Level. (This excludes tax revenue from new construction and improvements.)

From there the Constitutional Amendment limits the state government by establishing a baseline revenue sharing percentage, that is, at least 41.6% of spending in every annual state budget must be allocated for local governments. However, since the passage of Proposal A, a much higher percentage of state spending goes to local units due to education costs. In addition, the Headlee Amendment requires the state government to fully compensate local units for any new costs it requires of them from new program or service mandates for citizens. This requirement, however, has led to bitter legal fights between state and local governments over the years including a 1997 case in which 84 local governments won $212 million from the state to cover unfunded mandates. (10)

Proposal A is the other major voter approved law in Michigan which limits government revenue raising ability and alters state and local dynamics. Passed in 1994, the proposal intended to stabilize property taxes and take state control of local K-12 education funding, which was previously done almost entirely on the local level. The history of the proposal, however, has some interesting lessons for home rule in Michigan.

Many of the reforms that were collectively passed as part of Proposal A had previously been voted on and defeated in the years since the passage of the Headlee Amendment. The Smith-Bullard Proposal-A and the Coalition Tax Plan Proposal-C, which would have instituted state equalization measures on education funding and property tax rates, were resoundingly defeated in 1980. After 11 attempts to pass proposals that would institute local revenue and education funding reforms on the state level, the Michigan Legislature took an unprecedented action in 1993, passing a bill abolishing all use of local property taxes for schools, a revenue of over $6 billion, with no new source of school revenue determined.

This set the stage for Proposal A to be brought to the ballot in a special referendum vote in March 1994. Voters essentially were forced to vote for the major tax reform or else risk ending most education funding in Michigan. (11, 12) The proposal’s passage effectively ended municipalities’ major funding control over their own school districts. This was seen by some as a way to solve the school district inequality between rich suburbs and poorer urban districts. However, there were also pertinent changes to property taxes that local governments still relied on for funding. Firstly, a sizable proportion of government revenue in Michigan was shifted from property taxes to state sales taxes when it came to school funding and local government revenue sharing. Secondly, a limitation was set on individual property tax valuations by the municipality. Now, in any given year, the taxable value of a property cannot be raised more than the rate of inflation (excluding new constructions, sales, and improvements). This holds the property taxes mainly collected by localities to essentially the same level every year even if property market values were to increase.

Together the Headlee Amendment and Proposal A had profound impacts on local governments in Michigan and forever changed the interaction between the state and its municipalities. Local governments in Michigan have seen their tax revenues stagnant when they would have been increasing; meanwhile more of the revenue raising responsibility has gone to the state level. Figures from 1999 show, of the total taxes collected by Michigan governments, only 26.9% were collected by local governments. This was among the lowest shares in the country compared to a national average of 38.7% (13). The rest of the revenue is controlled by the State and with inflation rate decreases, unfunded mandates requiring lawsuits, and no control over school funding appropriations, local governmental units can easily fall into dire fiscal straits.

And so we see, with weaker home rule and less control over financial security, a door has been opened that has allowed state takeovers of local government to develop over the last 30 years in Michigan. Coincidentally, at the same time as the debate over the Headlee Amendment in the late 1970s, Michigan was experiencing its first post-Depression local financial emergency. After many years of financial mismanagement, Wayne County went into default in 1979. This experience would be the beginning of more than three decades of deliberation and action concerning state involvement in local fiscal distress.

Modern Local Government Financial Crisis in Michigan

All states have an obligation to make sure that its citizens continue to receive basic services no matter how deep a hole their local government finds itself in, and Michigan saw problems beginning in Wayne County with extravagant employee expenses, cronyism, excessive bureaucracy, and a weak county commission. Required financial reports and audits of Wayne County were largely erroneous or deceptive and, citing noncompliance with requirements in the Michigan Municipal Finance Act of 1966 (which enabled local governments to borrow money against future revenues) the state ordered Wayne County to balance its budget in 1976. (14) However, without any form of state enforcement, the County’s deficit continued to grow until everything collapsed in 1979 and the state’s largest county became the first in the country since the Great Depression to go into default. Employees stopped receiving paychecks and essential services such as the county judicial system risked shutting down.

While the state kept certain essential services on the county level afloat in Wayne County, overhaul legislation concerning county structure and local fiscal distress was being formulated quickly. The Emergency Municipal Loan Act was passed in 1980 and created a state level board with the ability to allocate emergency financial loans to local governments in fiscal distress. To become eligible for a loan, a local government would have to meet certain criteria, (similar to trigger events) including running a budget deficit and accessing a declined ‘state equalized’ property value within the jurisdiction.

In addition, upon receiving a loan, the state dictated that the local unit would have to submit a long range plan to balance the local budget and hire a full time professional administrator to take control of finances and implement the plan. As similar actions were being taken in Ohio and New York to deal with local defaults, Michigan also took the step of giving the state level loan board the power to not only investigate all local financial records, follow up progress on the long-range plan, and obtain sworn statements from local officials, but the board would also be able issue direct orders to the municipality receiving loan money and enforce compliance with those orders through state law. (15)

It was still the local government that would initiate the emergency process at this point and the new requirements and powers of the loan board were mostly only designed to prevent local governments from taking improper advantage of state loan money. However, the question of Home Rule conflicts was brought up in some context as the new act did set a precedent for giving the state broad powers over local governments in financial distress, in order to ensure citizens maintained a certain level of government service.

An argument entered into the Senate Analysis Section Record at the time stated, “the [Emergency Financial Loan] bill only does half the job. The state should be looking for local units whose problems are building toward a fiscal emergency and should move into those units with help in redirecting fiscal management toward a healthier future.” The response to that argument read, “The home rule philosophy prevalent in Michigan makes it difficult to send a professional administrator or consultant into a local unit without a local request for managerial assistance or before a situation reaches crisis proportions” (Senate Analysis Section S.B. 1190, 1192, & 1193, 16 Jun 1980) This home rule protection could also be brought up under other state laws that would come about in the early 1980s, in response to Wayne County’s default, including the Fiscal Stabilization Act of 1981 enabling local units to issue general obligation bonds, and the Charter County Act Amendment (Public Act 7 of 1980) which applied only to counties with a population over 1.5 million (Wayne) and enabled the establishment of a strong county executive power to eliminate and consolidate bureaucratic government departments. (16)

Despite initial state intervention and loans, Wayne County would continue a budget deficit of $117 million in 1982 and only eliminate the deficit over the course of many years, owing as much as $134 million in bailout loans from the state in 1984. Meanwhile however, the cities of Ecorse and Benton Harbor were experiencing severe economic downturns and were being drained of tax revenue as property values plummeted. The State initially tried to deal with these emergencies on an individual basis, as was done with the Wayne County bailouts, granting certain economic development tools such as the creation of Enterprise Zones in 1985 which gave millions of dollars in tax credits to businesses locating in Benton Harbor. In Ecorse, however, the fall of the steel industry in the city caused a much greater financial crisis. By 1986, the situation had gotten so bad that a Wayne County Circuit Court appointed a receiver to the city, and, with $6 million of debt after failing to pay pension obligations, the city essentially was in bankruptcy.

The court appointed a receiver for Ecorse, Michigan citing provisions in the Home Rule Act and other state statutes which required local governments to submit and follow plans for eliminating general fund deficits. Ecorse’s boggled financial records made the city unauditable and therefore the receiver was given powers by the court to make changes necessary in the city government to reduce deficits and balance the budget. The first receiver appointed over a municipality in Michigan, Louis Schimmel (who is currently the Emergency Manager of the City of Pontiac) exercised unprecedented control over the city government of Ecorse under the court’s authority.

Over the course of his four year service, Schimmel cut the city payroll by more than half by eliminating nonessential services and numerous appointed positions and contracting out public works, animal control, harbor facilities, ambulance billing, and city hall maintenance to private firms. Within four years, Schimmel eliminated the city’s debt by liquidating city assets including the library and public parks, freezing pension funds, and renegotiating existing contracts. Although the city lost some services, the actions taken were viewed as successful overall as essential services to citizens were continued. The power of the receiver position was seen as vitally needed to bring the city’s bureaucracy and financial management under control. (17, 18, 19)

Seeing the situation in Ecorse play out, the State sought to bring the powers of the county court receivership under state control and use them to solve fiscal distress in other localities. By 1987, the Michigan Legislature started to write up a method of exercising state power over local financial emergencies and the bill that would become Public Act 101 of 1988 was brought to the State Senate floor, spearheaded by the future Governor and Lieutenant Governor duo: John Engler and Dick Posthumus. This bill set up a state intervention process personified by the Emergency Financial Manager position, which was modeled after Schimmel’s receivership in Ecorse.

The “Emergency Financial Manager”

The local financial emergency procedure, that includes a trigger event, preliminary review, formal review team, potential consent agreement and a report to the governor that would be used to determine the existence of a local financial emergency, was laid out in this original legislation. However, once the governor determined that a locality was experiencing a financial emergency, the case went to the state level emergency loan board that was enabled under the earlier Emergency Municipal Loan Act of 1980. It was this board that could then appoint an Emergency Financial Manager (EFM) once the Governor determined there was an emergency. The EFM was intended to be part of the assistance package that the state would use for local governments, as a way to offer a source of centralized power in dysfunctional governments and enforce strict accountability to the state. However, actually appointing an EFM to takeover a town was still seen as more of a voluntary action that could be avoided if the city abided by consent agreement measures.

In the original legislation, Act 101, the EFM was granted several powers and duties that defined the position’s authority. The duties included developing and implementing a financial plan that was designed to pay off all debt service requirements on bonds and notes, and fulfill all legal obligations of the city, all while maintaining essential operations of the local government. To accomplish these goals, the EFM was authorized by the state to issue orders to local officials and employees, disapprove and revise the local budget, have open access to all records and documents, make or reject any contract, expenditure, or loan, create new positions, review payrolls, use city assets, and renegotiate existing contracts. In addition, the EFM could consolidate departments and remove unelected department heads, unless expressly prohibited by the charter. The EFM was also enabled to contract out financial services or file for bankruptcy on behalf of the city with the approval of the loan board, however, the EFM specifically was prohibited from imposing new taxes on the city without a majority vote of citizens.

Republican State Senator Ed Fredricks entered his support of the new EFM bill into the record saying “Under Senate Bill No. 625, where we’re going to say, “Yes, the state can come in and it’s going to maybe do some reorganizing of local government.” You’re going to get in and take a good hard look. I think there’s plenty of authority there. I think we should pass Senate Bill No. 625 and begin to deal with the real problem. [. . .] More bail-outs are not going to solve [Wayne County’s] problems. Another bail-out will make them think there will be more coming in the future.” (1987 Journal of the Senate of the State of Michigan vol. 3 pp. 3479) The bill subsequently passed the Senate 31-1, and soon after was adopted by the House and signed into law by Democratic Governor Jim Blanchard. The argument was made that, “If conditions [in the local unit had] deteriorated to the point at which an emergency financial manager was needed, it should be clear that the normal decision making processes, together with their concomitant public forums, had failed.” (Senate Analysis Section, SB 175 as enrolled, 11 Apr. 1990)

Act 101 survived for two years before it was replaced by Public Act 72 which contained a few changes, but most importantly extended the provisions of the previous act to include school districts as a local unit that could be declared to be experiencing a local financial emergency. This bill passed the Senate unanimously and, after being approved by the House, it was signed into law in May 1990.

Despite the significance of Acts 101 and 72, they received relatively little attention in the state and in the media. Newspapers in the state hardly reported on these two acts being brought before the Legislature or signed into law. However, after new economic development programs helped Benton Harbor and receivership saved Ecorse from disaster, there were few new cases of financial stress being brought to the public’s attention through the 1990s.

The full effects of these new acts weren’t first fully realized until a decade later. The first city in Michigan to actually go through the whole procedure and get an EFM appointed was Hamtramck in 2000. As the economy weakened in Michigan, four other local units would quickly fall under state review and eventually receive the services of an EFM, including the City of Highland Park in 2001, the City of Flint in 2002, and the Inkster School District, also in 2002.

The first Emergency Financial Manager, appointed to take over the City of Hamtramck in 2000 was none other than Louis Schimmel who would, over the next five years, exercise state control over the city government, selling city assets and outsourcing city services. Hamtramck is a small, densely populated city located almost completely within the city of Detroit. Financial problems lingered for more than three decades in the city of predominately poor immigrant families, and political infighting and corruption eventually created a fiscal crisis in the city that involved a $2 million dollar budget deficit and $10.1 million in long term debt to the state loan board dating back to 1981. The city had stopped paying employee pension funding and bonus and sick time, leading to a number of lawsuits.

Amid the overwhelmingly politicized debate engulfing the country in November of 2000, residents of Hamtramck welcomed their new EFM with a sense of gratitude and relief. According to the Detroit News and the Detroit Free Press, when asked about appointing an emergency manager to take over the city, a resident responded, “The way the council and the mayor have been squabbling, [an EFM] is probably the best thing.” (20) Another responded, “They need it. The city’s in bad shape and they need to be told what to do.” (21)

Highland Park, Michigan, also a small city surrounded by Detroit, had experienced financial trauma throughout the 1990s after Chrysler left the city in 1993 to move its global headquarters to Auburn Hills. Again, after years of mismanagement residents greeted the new EFM appointed in June 2001 with a mix of relief and apathy. However, the situation would take an ugly turn after cuts and actions of the EFM started to infringe on vital city services.

Contemporary Debate

The saga in Highland Park is chronicled in a documentary film called “The Water Front” produced and directed by Liz Miller. The EFM appointed to the city was Ramona Pearson who immediately started laying off city workers, closing schools and the library, and bringing in outside consultants to manage different city departments. “I have the responsibility of taking whatever steps are necessary to get the city financially healthy again and in that capacity, I have all of the powers that the mayor had, and that the Council has,” she said, “and I assume that the purpose of creating this sort of dictatorship, which is what it amounts to, is to make sure that you get it done and get it done fast.”

However, layoffs and consolidation didn’t bring in enough money to the city to balance the budget and Pearson decided to start raising water rates for residents and began a strict water bill collection program, collecting on overdue bills, and retroactive charges for misreadings and leakages over the years. Highland Park’s predominately low-income citizens suddenly started getting water bills of up to $9,000 and when they couldn’t pay, their water could be shut off, condemning their house and sometimes even getting their kids taken away. It was then that residents started to fight back against the EFM.

“We are losing out on everything, the water, education, we’re losing out completely, its Act 72,” said one resident. Another said, “I resent this, I resent people coming into this city, trying to make decisions about people that have lived here all of their life.” One city employee said, “I think this whole administration now is here to destroy the city and take the little bit that is left before they do that.” Mass protests were organized in Highland Park, with help coalitions from Hamtramck and Detroit, even occupying the Highland Park municipal building at one point. (22) Eventually political pressure led the state to ban winter water shutoffs by cities.

According to Jan Lazar, the city manager brought in by Pearson, “People watch the cost of a movie ticket go up and up and up and they still go to the movies, things like water, though, people say “I can’t pay more or I don’t want to pay more.” Well If you can’t pay more or you don’t want to pay more, the services will deteriorate [. . .] Water can be free: stand outside with a bucket when it rains, but processing and delivery costs money [. . .] there is no free, there is only who is paying.” Pearson and Lazar responded to the protests by attaching delinquent water bills to resident’s property tax bills, meaning that if the bill wasn’t paid, the city would foreclose on your house.

Public outcry erupted again when Highland Park citizens learned that they were paying salaries of more than $250,000 for Pearson and her consultants. The Detroit News reported that Lazar was being paid $100,000 more than the highest paid city manager in Michigan. Pearson responded that the high salaries were necessary saying, “Take a poll of qualified people outside of the city of Highland Park and find out how many of them won’t come into Highland Park” In 2004, Pearson started to enter into negotiations to privatize the city’s water department. The move garnered attention from around the country. Resident groups organized politically and claimed public water as a human rights issue. The EFM’s administration was accused of racism and trying to drive low income and senior citizens out of the city with the water control tactics. (23) After the City Council publically repudiated the proposal to bring in an outside investment firm to manage the city’s water, Governor Granholm bowed to pressure from citizens and asked Pearson to resign her post. Pearson was replaced by the state in order to quell public anger and two more EFMs would go on to manage Highland Park until 2009 when the city was finally returned to local control. It seemed as though city residents accepted state takeover of their city up to a certain point, but as soon as the outside managers started to meddle with basic city services, people’s basic necessities of life, that is when their lack of democracy became apparent and generated a backlash.

After Highland Park, Flint fell under state control in 2002, as did the first school district to be appointed an EFM, in Inkster, a western suburb of Detroit. An EFM was appointed to take over the Village of Three Oaks, in the southwest corner of the state, in 2008, which lasted about one year. In the latest economic downturn, from 2009-2010, four EFMs were appointed by the state and sent to Ecorse, Pontiac, Benton Harbor, and the Detroit Public School District, and remain in control of those local units to this day. Some takeovers have gone smoother than others over the years. The city of Flint spent $245,000 in legal costs to try to keep local control of the city in 2002 and bitter disputes between the elected mayor and the EFM continued throughout the two year term. (24) In addition, Pontiac went through two EFMs in two years because of bitter conflicts with city employees and elected officials. Louis Schimmel left Hamtramck in 2006 only to watch the city sink back into debt and go as far as to attempt to declare bankruptcy in 2010. (25)

A research survey of Michigan’s cities was conducted from 2005-2009 as part of a study which analyzed fiscal stress and its effects throughout the state of Michigan. The results of the survey set up a framework for how Michigan cities come to face fiscal crisis and what can be expected in the future. According to the study, a restrictive local unit revenue environment due to the Headlee Amendment and Proposal A, has worked to hamstring local governments in Michigan. On average, between 2005 and 2009, total revenues of local governments have decreased 1% while expenditures went up 3%. This statistic however, is magnified in Southeast Michigan which has been hit hardest by economic depression and population decline. Cities that take in intergovernmental revenue allocations from the federal government saw these funds slashed by 48% and revenue sharing from the state decreased 13% in the four year survey. The largest average increase in city expenditures was for rising public works costs, which increased 10%, followed by public safety costs up 6%. The research uses functions that determine a Government Revenue Index figure and a Government Cost Index figure to determine fiscal stress, and the study determined that local government fiscal stress increased from 2005-2009 in all but 64 cities in Michigan (out of the 230 cities surveyed) (26)

Seeking to head off what could be an explosion of Michigan cities going into financial emergency, newly-elected Governor Rick Snyder sought to update the 21 year old Emergency Financial Manager Law -Act 72- and put forth a more expedited process with a few more powers vested in the EFM to solve city financial emergencies quickly (also broadening the term to just “Emergency Manager”). The result was Public Act 4 which came out right around the same time that the country was in a bitterly partisan public debate over collective bargaining rights, with the spectacle of runaway legislators and mass protests in Wisconsin. The national media quickly ignited a firestorm over the new legislation with MSNBC news anchor Rachel Maddow famously calling Act 4, “out of a dystopian leftist novel from the future.” In a scathing political commentary, Maddow accused Governor Snyder of taking advantage of, and perpetuating fiscal crisis in order to obtain for himself absolute power over local units and their public employee unions.(27)

Governor Snyder signed the updated emergency financial manager act into law on March 16, 2011 as 5,000 people protested at the Capitol in Lansing. The Detroit Free Press ran the story on the front page on that day, and later in the week ran an op-ed by U.S. Representative John Conyers who called the act an “unconstitutional swipe at minority communities and hardworking public workers.” (28) State Treasurer Andy Dillon countered in an opposing article, writing that “The primary motivation for this law was the new fiscal reality facing local governments through Michigan and the recognition that the old ways of doing things weren’t working.” (29)

Letters sent into the paper from Michigan residents displayed a newfound passion in their opinions such as ones saying, “Snyder has succeeded in establishing a modern day viceroy” (Taras Evanenko – Saginaw), “The emergency financial manager bill is essentially a tool to blackmail employee groups into politically expedient but grossly unfair concessions.” (Patrick Conway in Ellsworth), and “Let’s take it nationwide and see how much they like it. That means that President Obama could decide to replace any governor in a state that is in the red. So he could toss out Gov. Rick Snyder here first [. . .] and put in his favorite Democrats. Can you see now why the bill is a total overreach of authority? It overrides the will of the people.” (Erin Symons in Grand Blanc) (30)

A long history of state and local interactions in Michigan led this issue to come to the forefront, and it delves into new philosophical questions about the prerogative of the state in times of crisis. Michiganders have watched their home rule powers degrade over the years and have even welcomed it. More urgent matters took precedence such as economic depression, job loss, the housing market crash, the collapse of the auto industry, unemployment, and high taxes. Local governments found themselves in the middle of these crises with falling revenues, greater restrictions, and higher expenditures in all city services. Today, with Detroit and Flint quickly running out of money, it is important for citizens to understand the evolution of state intervention in local affairs, why decisions were made, and look ahead to the future with questions such as: what was vision and legal precedent of our founding fathers? How much parental responsibility over the actions of a local government do we want the state to have? How can our appointed leaders be held accountable to the public? And should poorer communities lose their right to local democracy because of their inevitable fiscal problems?

So far Emergency Financial Managers are only appointed as a last resort over a few cities at a time, for a temporary term. And it has even worked very successfully in several cases to put struggling localities back on track. But still the question is continually asked about where it goes from here. A lot depends on the future economic health of the state, but the outlook does not have many positives. As this goes to print, the City of Flint has just been appointed its second EM of this decade and Governor Snyder has initiated a review team to investigate Detroit’s financial state, the first step in the process of a state takeover. The Mayor of the state’s largest city seems to be gearing up for a battle with the Governor over the situation and the result is sure to have huge implications for the future of state and local dynamics and civic life throughout Michigan.


1, “The Local Government and School District Fiscal Accountability Act: Public Act 4 of 2011” Citizens Research Council Report 368, Apr 2011.

2,3, “Article VII- Local Government” Citizens Research Council No. 360-10, Jul 2010.

4.Lang, Diane. “Dillon’s Rule...and the Birth of Home Rule” The Municipal Reporter, Dec 1991. <http://www.nmml.org/files/2008/01/dillon.pdf>

5. “Origins of Home Rule Government” Michigan Legislative Topics. Legislative Service Bureau, Oct 2002. no.18. Library of Michigan, Lansing: JS 451.M5 B47 2002.

6, 7, 8, 9 Morris, David. “The Nature and Purpose of a Home Rule Charter” Michigan Municipal League with Citizens Research Council: Joint Publication, Mar 1971

10, “State-Local Relations” Michiganinbrief.org

11. Fulford, Nancy, and Marianne Kroeger. “Funding Crisis Forces Action in Michigan” Policy Seminars North Central Regional Educational Laboratory, 1994. <http://www.eric.ed.gov/PDFS/ED369136.pdf>

12, 13. Ballard, Charles L., eds.et.al Michigan at the Millennium, East Lansing: MSU Press: 2003.

14, 15, 17 “Avoiding Local Government Financial Crisis: The Role of State Oversight” Citizens Research Council Report 329, Jul 2000.

16. “Home Rule in Wayne County: I” Citizens Research Council, Jul 1987. http://www.crcmich.org/PUBLICAT/1980s/1987/cc0965.pdf

18. Daddow, Robert. “Fiscal Background of City of Ecorse” Mackinac Center for Public Policy, 1 May 1992. http://www.mackinac.org/5906

19. “About the Emergency Manager” City of Pontiac. http://www.pontiac.mi.us/info/em_bio.html

20. Capeloto, Alexa, and Cecil Angel. “Hamtramck Residents Praise Takeover” The Detroit Free Press, 17 Nov 2000.

21. Singer, Christopher M. “Layoffs Loom in Hamtramck” The Detroit News, 16 Nov 2000.

22. “Activists Occupy and Hang a Banner off of the Roof of the Highland Park Municipal Building in Protest of Water Shut Offs” Public Citizen 28 Jul 2003.

23. Miller, Liz. (Director, Producer) “The Water Front” (2008) [DVD]

24.Mostafavi, Beata. “What happened last time? A look back at Flint's 2002 state takeover” The Flint Journal. 10 Nov 2011. http://www.mlive.com/news/flint/index.ssf/2011/11/what_happened_last_time_a_look.html

25. Oosting, Jonathan. “Hamtramck manager: We'll pursue bankruptcy until 'door is shut, locked, barricaded, bolted'” Mlive.com, 28 Dec 2010. http://www.mlive.com/news/detroit/index.ssf/2010/12/hamtramck_city_manager_well_pu.html

26 Skidmore, Mark, and Eric Scorsone. “Causes and Consequences of fiscal stress in Michigan Cities”. Regional Science and Urban Politics 41 (2011) 360-371.

27. Maddow , Rachel. (Host) The Rachel Maddow Show. MSNBC News, 8 Mar 2011. Clip retrieved from Youtube

28. Conyers, John. “Legislation is blatant, unconstitutional power grab” The Detroit Free Press, 20 Mar 2011.

29. Dillon, Andy. “Manager would be put in place only if necessary” The Detroit Free Press, 20 Mar 2011.

30. “Emergency Financial Dictatorship (Letters to the Editor)” The Detroit Free Press, 27 Mar 2011.


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Michael Raley is a fourth year Sociology and Public Administration/Public Policy student at Michigan State University. He is especially interested in the public policy, politics, and sociology of urban space, as well as transportation systems and public transit. A native of the Grand Rapids area, Michael is currently an intern in the office of State Representative Roy Schmidt, who represents the west and northeast sides of the city. He also aspires to pursue a career in urban and regional planning, and hopes to attend graduate school for such a course of study.

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