Michigan’s new emergency manager law

When Public Act 4, the emergency manager law, was rejected by a vote of the people, new legislation was passed. The new law, Public Act 436 of 2012, gives communities options to address fiscal challenges.

On March 28, Public Act 436 of 2012, also known as the Local Financial Stability and Choice Act, will take effect. This legislation was passed to address the revocation of P.A. 4 and the realization that changes were needed to both P.A. 4 and its predecessor P.A. 72 to give more flexibility to financially challenged communities. While P.A. 436 is similar to its predecessors, it has some key differences that give communities a variety of ways to best address their fiscal situations.

If a local government or school district is having financial issues, the State Financial Authority (SFA is either the state treasurer or state superintendent of public instruction) is required to give written notice that it intends to conduct a preliminary review of a community’s or school district’s finances to determine if financial stress exists. Some triggers that can initiate a preliminary review include:

  • Governing body or CFO of the local community
  • Creditor with an unpaid claim outstanding more than six months that exceeds $50,000
  • Citizen petition signed by the required number of registered voters in the community
  • Notice that local government’s pension fund obligations were not deposited; or is seven or more days late paying wages, salaries or other compensation owed to employees
  • Failure to distribute tax revenues collected for other taxing jurisdictions
  • Fiscal year ended with a deficit and no deficit elimination plan (DEP) filed to correct the deficit
  • Resolution from either state house or senate for a review

The SFA provides a preliminary report of findings to the local government which has five days to comment on it. SFA also provides the report to the Local Emergency Financial Assistance Loan Board. This board has 20 days to decide if a financial stress exists.

If there is a determination of probable fiscal stress, the governor appoints a review team to examine the books and records of the local government and meets with the local officials to obtain additional information. Any review team(s) already serving when this law takes effect is authorized to complete its review.

The review team must file a report to the governor within 60 days giving one of two determinations:

  1. No financial emergency exists based on fiscal stress factors outlined in subsection (3) of the act or if some factors do exist, they do not threaten the local government’s ability to provide necessary services essential for health, safety and welfare of citizens.
  2. A fiscal emergency exists based on finding that one or more of the fiscal stress factors exist or are likely to exist within the current or next fiscal year that would threaten the health, safety or welfare of citizens. A fiscal emergency could also exist if the local government failed to provide timely and accurate information to the review team or the community failed to comply with all of the terms of an approved DEP. Fiscal stress also could be decided if the local government’s CFO documented that one or more factors did exist or were likely to occur within the next fiscal year.

If the governor determines a financial emergency, he/she must provide in writing to the local government the decision and factors used for the decision. The local government may appeal the decision to the Michigan court of claims. If the local government loses the appeal or chooses not to appeal the decision, they can select from one of four options in the new law to address the fiscal emergency:

  1. Consent Agreement based on section 8 of law
  2. Emergency Manager as outlined in section 9 of law
  3. Neutral Evaluation process in section 25 of law
  4. Chapter 9 bankruptcy in section 26 of law

Future articles will provide information on each of the community’s options available through P.A.436.

Read the entire act

Also see Michigan State University Extension’s Frequently Asked Questions About the New Michigan Local Financial Emergency Law at Frequently Asked Questions About the New Michigan Local Financial Emergency Law [Public Act 436 of 2012]

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