Financial emergency and local governance

Having just broadcast my own unpopular opinion on film credits and gas prices, I figured it was time to take up another hot button topic:  Michigan’s new emergency financial manager (EFM) law.

As an average citizen, it seems pretty sensible to me.  Certainly, for the city of Detroit, it is a miracle insofar as it gives Mayor Bing the tools to address that city’s chronic fiscal deficits.  And yet a lot of progressives, including otherwise smart people like Rachel Maddow, are outraged by the law, variously condemning it as a case of taxation-without-representation, a violation of collectively bargained contracts, etc.  As Jon Chait writes, “There’s always a problem involved in wasting one’s time examining very bad arguments.”  Yet I keep hearing and reading these arguments.

A Detroit News editorial explained the law’s rationale thusly:

If unions cooperate in restructuring benefits and financial plans in a way that make them sustainable for the long-term, the emergency financial manager will not have to touch their contracts. And if they don’t, the unaffordable pacts are going to disintegrate anyway in a bankruptcy proceeding.

The intent of reforming the emergency financial manager law has less to do with unions than it does with elected officials.

Calls for the reform grew out of the dispute between the Detroit school board and Emergency Financial Manager Robert Bobb. The board has continuously harassed Bobb with lawsuits challenging his authority…

There’s no point in the governor putting in place a financial manager, only to have that person distracted by constant court challenges.

The previous law was “too vague in defining the manager’s powers. The new version.. sharpen(s) those definitions,” and

free(s) the manager from the meddling of the elected boards, councils and mayors until the financial problems are fixed.. (T)he state is the ultimate backer of local government debt. If communities and school districts can’t pay their obligations, the taxpayers of the state are on the hook…

(It) will have very little impact on those unions that work with their local governments to put rational and affordable labor contracts in place.

The Free Press editorial board mostly concurred with this assessment, and the Free Press’ Stephen Henderson called the previous EFM legislation “weak to the point of flaccidity”:

For years, local governments and school districts have been able to walk right up to the brink of financial disaster without any intervention from the state.  So when state officials do rush in, they face horrific conditions with too few options for balancing the books.

That’s why cities such as Pontiac have made so little progress getting costs under control even with emergency financial management. It’s why Robert Bobb can’t do what the accountant in him knows needs to be done to fix Detroit Public Schools. And it’s why officials in Hamtramck were just a few months ago begging the state to let the city go bankrupt so drastic steps could be taken.

Even Washtenaw County Commission Chair Conan Smith, a Democrat, described the EFM legislation as necessary:

(H)undreds of governments are on the brink of insolvency now. There are definitely bones to pick with it, he said, but many provisions are similar to what exists under current law, like the ability to renegotiate labor agreements. Smith pointed out that the person who’ll be overseeing the EFM is “our own Roger Fraser”… The previous state administration didn’t deal with it, he noted, and in fact made things worse in some cases – by passing unfunded mandates, for example…

Resident Detroit News windbag* Daniel Howes’ commentary can be hit or miss; at his best, he’s bluntly honest.  In his post Friday for the News, he nails it, teasing out “the fundamental point too many of the EM’s opponents conveniently ignore”:

There would be scant need for a new law empowering state-appointed outsiders to make the hard choices for municipalities and school districts if the people hired to make those choices in the first place actually did their jobs.

But… they mostly don’t… (T)he record of Michigan’s most troubled localities is that the leaders struggle to lead because leading requires difficult financial decisions in a fiercely political context.

Instead, they whine. They beseech the governor… for more money, more time, more political cover. They scare voters with horror stories…

(T)hey’re symptoms of a disease whose cure begins with an honest, disinterested, financially sound assessment of where a locality or school district stands, what its revenue is and how the two can be reconciled free from the push and pull of power politics.

Do you really think… that elected officials and union leaders who’ve been staring at this abyss for years are suddenly going to start doing the right thing if they haven’t already? Or are they more likely to be motivated by an appointee from Lansing? Or could they just let the new outsider make the hard choices and blame what comes on Gov. Rick Snyder and Treasurer Andy Dillon?

There are examples of public officials managing distress well — school districts whose managers still have a rainy-day fund or Oakland County, whose economic body blows from recession and Chrysler Group LLC’s downsizing still didn’t claim its Triple-A credit rating.

They’re the exceptions.

…(T)oo much of the labor-management culture in this state resists change until sharply deteriorating circumstances and the law force it…

He gets in a jab at “(semi-informed) members of the news media”(*cough*Maddow).

“the power politics and procrastination that reduce so much of public problem solving here to nothing more than a series of Big Stalls punctuated by demonstrations, ritual denunciation and complaint.

Hello? The EM law would not threaten democracy if elected officials and those empowered to represent public employees instead trained their finely tuned political antennae on financial reality and charting a path out…

Howes does not mention another key factor:  Every municipality is a child of the state, owing its legal authority, ability to collect revenue, its very independent existence, to the state, and the state is ultimately responsible if that city falls into bankruptcy.  If a community elects its own leaders, and those leaders proceed to run it into the ground — which is the case in any community facing appointment of an EFM under this legislation — the state has to protect the bond ratings of the other 90% of communities that have been fiscally responsible.  If state taxpayers are going to be on the hook for the misbehavior of one municipality, they should have the right to step in.

The EFM law helps change the incentives for city leaders in a way that forces them to lead, and most importantly, to provide better value for money for their taxpayers.  Part of the reason Flint, Detroit, Saginaw, Lansing and other cities have lost so many residents to the suburbs is that they failed to provide that value — taxpayers did not perceive that they were competitive with the suburbs in that respect.  A big part of that came from the irresponsibility of generation after generation of elected officials, burdening their communities with higher legacy costs.  As someone who loves cities and wants to see our state’s old central cities survive and prosper, I am hopeful that will start to change.

*I know, pot calling kettle black.

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2 responses to “Financial emergency and local governance

  1. Having worked in a municipal environment, I have mixed feelings about the beefed-up EFM mechanism. I will agree with you that, in some cases, the new legislation can help a city get out of a groove it’s become “stuck” in, for the positive.

    However, you seem to be falling in the trap of taking as givens things that aren’t, leaving the blame solely on the costs of employees – and therefore the impact solely on those employees. Your post accepts that the state must only perpetually decrease revenue sharing, that the limits placed on municipalities to raise revenue otherwise are the only possible option, and that the set of municipalities we have now is the only proper one. And this leads you to accept things like,

    (It) will have very little impact on those unions that work with their local governments to put rational and affordable labor contracts in place.”

    which can be rephrased as, “Unions (and individual employees) won’t have to worry about an EFM coming in and breaking their contracts if they give everything up before the EFM gets there.” Turn over your protection money now, and you won’t have to worry about that guy with the brass knucks paying you a visit to collect it later.

    I’ve seen an real-world example or two (but not many more) of the negative stereotypes of public sector unionized employees, but the costs of public employees is a red herring in addressing the problems of governance in Michigan – a target of convenience that can be destroyed before anyone wises us to the fact that it doesn’t fix the problem.

    The EM law would not threaten democracy if elected officials and those empowered to represent public employees instead trained their finely tuned political antennae on financial reality and charting a path out…

    What if those who spent their time inventing ways and reasons to justify tax cuts instead trained *their* finely tuned political antennae on financial reality and on charting a path out? Why is it that *only* the labor piece of the equation has to be changed?

    I think the kernel of your argument is sound – we have no “right” to local government, and the state has a duty to its citizens to intervene when one of its creatures is threatening the whole, and the whole “unelected dictators” thing is hooey. I just don’t like that you’re seemingly accepting one special interest group’s attack on another as the objective and fundamental truth to back your premise.

  2. Murph, I think you’re building a straw man. In response to a few of your comments:
    1) “(L)eaving the blame solely on the costs of employees – and therefore the impact solely on those employees”: I don’t believe I did either. There is plenty of blame to go around for any one city’s budget trouble; as I believe I noted multiple times in this post, much of the blame goes to elected officials, and the impact hits residents/taxpayers (in the form of service reductions) as well as employees.
    2) “What if those who spent their time inventing ways and reasons to justify tax cuts instead trained *their* finely tuned political antennae on financial reality and on charting a path out? Why is it that *only* the labor piece of the equation has to be changed?” There was zero political will in Lansing to do it til the Snyder budget came out. Democrats had from at least 2007-2010 to try to raise taxes & deal with the deficit, and possibly even earlier than that. They didn’t, and then state voters overwhelmingly put Republicans in control of all branches of state government FOR THE VERY REASON that they all said they wouldn’t raise taxes. They have been reactive rather than proactive, year after year, as everybody knew the budget was going in the toilet. Yes, I personally would welcome taxing services, switching from a flat to a progressive state income tax, or increasing tax rates in all kinds of other ways. But year after year, state leaders, whether Republican or Democrat, failed to enact any of these reforms.
    3) “Your post accepts that the state must only perpetually decrease revenue sharing, that the limits placed on municipalities to raise revenue otherwise are the only possible option, and that the set of municipalities we have now is the only proper one”: I don’t accept any of those things. As far as the revenue side: The deficits in places like Detroit and Benton Harbor starting accruing way back when revenue sharing was substantially more generous, because local officials found it politically easier to promise pensions and other benefits that could be deferred, thereby saddling future residents with the legacy costs, and they kept doing so even after they started running chronic deficits. You could boost revenue sharing substantially and there would still be municipalities that fail to balance their books. RE: limits on municipal revenue sources: Detroit has (to my knowledge) the state’s highest property tax rate AND an income tax and it is still nowhere near enough to address the city’s deficits, let alone DPS’. How is enabling them to add a local sales tax going to make them any more competitive with greenfield suburbs/exurbs? RE: the set of municipalities we have now — are you talking about consolidation? I’m open to it, and I don’t see how it is incompatible with the EFM law.
    4) “(A)ccepting one special interest group’s attack on another as the objective and fundamental truth” – Despite it being a Gannett publication, I don’t see the Detroit Free Press editorial board as being a special interest group. Just because I happen to agree with a piece of legislation that the anti-tax lobby supports does not mean I am accepting the anti-tax lobby’s version of anything as “the objective and fundamental truth.” I just think it is one potential policy solution to a particular dilemma (i.e. what do you do to keep a municipality from declaring bankruptcy and taking the bond ratings of all its neighbors down with it?)
    Hope that helps clarify things a bit.

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