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Michigan Still Allows Emergency Takeovers of Local Governments. Is it Finally Time to Reconsider?

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by Anna Clark, Michigan Advance
July 18, 2023

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

In Detroit, the past was all too present. Houses, businesses and schools that once supported nearly 2 million people sat vacant. Old debts forced city leaders into impossible choices. There was not enough money for public safety, not enough for streetlights, not enough for parks, not enough for education — not enough, period.

In March 2013, an attorney named Kevyn Orr was appointed to take charge. He’d never received a vote and had never been vetted by the mayor or City Council. And yet, he assumed all the power that otherwise would be held by the mayor and council, as well as additional powers, such as the ability to unilaterally sell city assets. While local officials could attempt to veto certain decisions, the veto itself was subject to state approval.

Four months later, with the governor’s signoff, Orr led Detroit into the largest municipal bankruptcy in U.S. history. Orr had this authority because of Michigan’s expansive system for intervening in distressed cities and schools. His appointment by state officials as Detroit’s emergency manager intensified a debate about power and democracy that continues to this day.

In Michigan, the state has an unusual amount of discretion in initiating oversight, and its emergency managers have an unusual amount of authority, according to researchers. Compared with those of other states, Michigan’s takeover powers have also been among the most widely used. Since 2000, under various versions of the law, 10 Michigan municipalities have come under the control of at least one emergency manager. So did several public school districts, including Detroit’s.

The results were mixed and showed a clear trend, some studies found, toward intervening in majority-Black towns. One recent study found that the race and economic status of residents and the city’s reliance on state revenue were better predictors of a municipal takeover than financial distress indicators.

By 2017, 56% of Michigan’s Black residents had lived in cities governed by emergency managers or other state oversight measures, according to a widely cited lawsuit filed in federal court by a coalition of community leaders against Michigan’s governor and treasurer. Just under 3% of white people had the same experience, the complaint said. (The suit, which sought to overturn the law based on equal protection and voting rights, was later dismissed.)

Research by sociologist Louise Seamster contends that while Michigan’s emergency management law is ostensibly neutral, it “provides the logic to blame Black governance for structural disinvestment and White-led extraction.”

Early versions of Michigan’s emergency management law were more narrowly tailored, but in 2011, soon after Gov. Rick Snyder took office, lawmakers significantly expanded it. In a 2012 referendum, voters across the state rejected the expanded law. But four weeks later, legislators passed a bill that largely mirrored the earlier proposal and included an appropriation that made it immune from future referendums.

The first city to get a new emergency manager with expanded powers was Flint. Over three and a half years, four managers presided over a cataclysmic time in city history. After switching the water source, failing to treat the water properly and not sufficiently intervening as infrastructure corroded and health risks worsened, the city endured a crisis of extraordinary proportions.

Rick Snyder | Susan J. Demas

Snyder, a Republican who was in office through 2018, has acknowledged that emergency management failed Flint. But he has also pointed to Detroit as evidence that the system worked, with the city on far more stable ground today than it was 10 years ago. (Snyder could not be reached for comment.) Proponents of the law have argued that an outside official is more free to make difficult but necessary decisions.

Others see Detroit’s experience with emergency management as atypical or even flawed. And some of the critics are now in power. Gov. Gretchen Whitmer, for example, advocated for repealing it in her 2018 campaign, and her press secretary said Whitmer will “work closely with the legislature if they take up legislation reforming the state’s emergency manager law.”

But there are few signs that will happen anytime soon.

Eric Scorsone, an associate professor and director of Michigan State University’s Extension Center for Local Government Finance and Policy, is among those who see flaws in the way the state has handled emergency management. A specialist in local government public finance, he’s worked at state agencies in Michigan and Colorado and as an adviser in Flint and Detroit.

Early on, Scorsone said, he didn’t like the expanded version of emergency management law but thought it might be necessary. “I’ve definitely changed my views,” he said. In a March presentation to the Michigan Senate’s general government subcommittee, Scorsone outlined alternative ways for the state to approach struggling cities and schools — including reforms to keep them from struggling in the first place. There was, he said on one slide, “no need to remove local democracy.”

In a conversation with ProPublica, Scorsone described three critical lessons from Michigan’s experience with emergency management.

Detroit is different

After 20 months as Detroit’s emergency manager, Orr resigned. Through bankruptcy, the city shed $7 billion in debt and restructured an additional $3 billion, creating more flexibility for investment in public services.

“A lot of people say, ‘Well, the Detroit bankruptcy is the big success story of the Snyder version of the law,’” Scorsone said. And Orr, he said, is “very good at what he does” and “very successful at navigating this complex legal environment.”

But Detroit’s story is unusual, Scorsone said. And whatever positive developments have unfolded in the city over the past decade, it’s not clear they can be solely attributed to emergency management.

Most notably: There were benefits in bankruptcy. While emergency management has been pitched by proponents as a way for communities to avoid bankruptcy, and the destroyed credit that comes with it, in Detroit, emergency management was actually a precursor to the Chapter 9 process. It is the only community that was put through bankruptcy by an emergency manager. The most significant changes in Detroit between then and now, Scorsone said, can be traced to what happened in bankruptcy court, where the city untangled itself from obligations to more than 100,000 creditors.

“You could argue that Kevyn having the powers he did was important to getting it done the way it was, and that may be true,” Scorsone said. (Orr didn’t respond to messages requesting comment.)

But he also noted that emergency managers make enormously consequential decisions “without open meetings, without freedom of information … they didn’t have to release records.” Not only does the public not have a role in decision-making, but the process can be kept secret from them.

“I’m not convinced that a lot of what the EM does, like taking away transparency and really the elimination of collective decision-making — I mean, I guess I’m not convinced the cost is really worth it,” Scorsone said.

The bankruptcy ended with a much-touted “Grand Bargain,” an $816 million deal involving philanthropic and public donations that limited how deeply pensions were cut and spared artwork in the Detroit Institute of Arts from a forced sale. But this bargain, Scorsone pointed out, could have been made without bankruptcy — “that’s just negotiation.”

And the attorney general could have gone to the court and fought for pension rights, he said, which are guaranteed in the state constitution. The bankruptcy cut pensions for many retirees by 4.5% and eliminated cost-of-living increases. Retired police officers and firefighters were spared immediate cuts, but their 2.25% cost-of-living increases were reduced to 1%. Meanwhile, Scorsone noted, many creditors “ended up getting real estate and other stuff to get bought off.”

“Who really did make out in this bankruptcy?” he asked.

City of Detroit offices, Coleman A. Young Municipal Center | Susan J. Demas

The specter of Flint

As a fiscal adviser in Flint from 2019 to 2022, and in his continuing work with its City Hall, Scorsone said he’s reviewed what emergency managers did, “and it’s not a pretty picture, quite frankly.”

Both Detroit and Flint were led by emergency managers in 2013 and 2014, both overseen by Michigan’s Department of Treasury. Despite the state’s uniquely influential role in both communities, a late effort to negotiate a new agreement to keep Flint from leaving Detroit’s water department failed. Detroit lost its second-biggest customer, and Flint, it turned out, lost a reliable source of drinking water.

The new regional water provider that Flint intended to join was not yet built. So Flint rebooted the old riverfront plant and began treating its own water — a process that went catastrophically wrong. Not only was there excess exposure to lead from the waterafter the switch, but there were bacterial problems, unsafe levels of a disinfection byproduct and an outbreak of Legionnaires’ disease, which sickened at least 90 people and killed at least 12. As Kettering University associateprofessor and Flint resident Benjamin J. Pauli details in the book “Flint Fights Back,” the water activism in the city emerged from its democracy movement, where residents pushed back against emergency management.

“I do think the Flint crisis did happen partly because Detroit was taking all the attention,” Scorsone said. As signs of trouble in Flint escalated — from residents protesting about health issues to a General Motors plant leaving city water because it corroded its machinery — Scorsone described the reaction of some state officials, including at the Treasury Department, as, “Yeah, whatever, it’s just Flint.”

Two of Flint’s emergency managers later faced criminal charges, under two different prosecution efforts, for their roles in the water crisis. Both indictments included charges of misconduct in office. In both cases, they pleaded not guilty and a judge later dismissed all charges against them.

Flint | Susan J. Demas

There are other ways

“Something I’ve learned over the 20 years I’ve been doing this now in Michigan is that we have created a bad public finance system,” Scorsone said. “And that system puts local governments at risk.”

In his recent presentation, Scorsone described how state restrictions curtail the revenue and spending of local governments, threatening to reduce critical public services, defer maintenance and investment in infrastructure and perpetuate inequality between communities.

There are a number of ways the state could support cities before they reach a point of crisis, he said. It could, for example, change its approach to property taxes. Restricting the tax base and rate, he said, has eroded the revenue of many cities.

The state could also change its practice of revenue sharing, he said. A 2019 fact sheet from the Michigan Municipal League, a statewide association, said that between 2001 and 2018, the state diverted $8.6 billion from local governments.

Such policies put communities on shaky ground even before the recession, Scorsone said. “Other states didn’t have this. Other states didn’t have a bunch of cities failing.”

“Instead of just realizing you have a bad system,” he said, state legislators passed the emergency management law to try to clean up problems after they’ve reached a crisis.

In a statement, the Treasury Department emphasized that it tries to work with municipalities and school districts to avoid financial problems. The emergency management law, the department said, “is a law of last resort — and all options must be explored and exhausted before its use.”

Whitmer’s office emphasized to ProPublica that no local governments are currently under emergency management, pointing to that as a sign her policies have bolstered their financial health. “The governor has always opposed the use of emergency managers because it has led to disastrous results for communities,” her press secretary said in an emailed response.

In the aftermath of the problems in Flint, a report from a bipartisan task force commissioned by Snyder recommended changes to the emergency management law, citing its lack of checks and balances and concern over managers making key decisions outside their expertise. And a growing body of research on the law has described troubling consequences.

But while some Democrats who were among the law’s critics are now in power, efforts to repeal or revise the law have yet to move forward. In February, shortly after the party took power in Lansing, a bill to repeal the law was introduced by Rep. Brenda Carter, a Democrat from Pontiac, which has had emergency managers. The bill, which has the support of Pontiac’s City Council members, was referred to a committee six months ago. Carter’s policy director said she’s working with House Majority Leader Abraham Aiyash, a Democrat from Hamtramck (another community affected by emergency management), on a companion bill to create an alternative system for assisting disinvested cities and schools.

Michigan Capitol, March 22, 2019 | Susan J. Demas

Scorsone said that he and others “are pushing privately to say, ‘Look, now’s the time to change it, before you really need it.’”

In a statement to ProPublica, Senate Majority Leader Winnie Brinks, a Democrat from Grand Rapids, indicated dissatisfaction with the law, but she stopped short of specifying how to fix it.

“The way Gov. Snyder weaponized emergency managers created harm that will be felt by generations in certain communities throughout our state,” Brinks said. “He misused and overused a policy that is supposed to help governments in dire circumstances.

“I believe that there still needs to be an avenue where the state can assist in these situations, without usurping the role of democratically elected local leaders,” she added. “Any changes in the future will be the result of many long conversations with the input of cities, townships, school boards, residents and more.”

Scorsone pointed out that the state’s Treasury Department has all sorts of regulatory tools for budgets, accounting, auditing and more that can be used to support struggling cities and schools while avoiding emergency control.

“There’s other ways to deal with this kind of financial crisis that is more transparent, that is more effective, that doesn’t get rid of democracy and that is still going to get the outcomes,” Scorsone said.

Michigan Advance is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Michigan Advance maintains editorial independence. Contact Editor Susan Demas for questions: info@michiganadvance.com. Follow Michigan Advance on Facebook and Twitter.