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April 6, 2011
Bullet-Point
Summary of the Local Government Fiscal Accountability Act
by Marshall W. Grate and Ann L. VanderLaan
Introduction
- Public
Act 4 of 2011 signed into law, with immediate effect on March
16, 2011.
- Sweeping
legislation which confers significant power to the State.
- Applies
to all local governments defined to include municipal
governments and school districts.
- Repeals
PA 72 of 1990, the former Act which authorized appointment of
and delegated powers to an emergency financial manager.
First Step: Preliminary Review by
State Treasurer or by the State Superintendent of Public Instruction
- Must be completed
within 30 days.
- Review of local
government's finances to determine if probable financial stress.
- One (1) of eighteen
(18) circumstances triggers preliminary review, including the
following:
- Request by a local
government or municipality;
- Voter petition;
- Long-term debt
rating of BBB or below;
- Failure to pay wages
and salaries within seven (7) days;
- Failure to submit
deficit elimination plan within 30 days as required by law;
- The state
superintendent determines, in his sole discretion, that the
facts or circumstances are indicative of a local government's
financial stress.
Governor Appointed Review Team
- If preliminary review
by the state superintendent, if a school district, or state
treasurer, if a municipal government, finds "probable
financial stress."
- Review team consists
of a representative from the state treasurer, a representative
of the director of the department of technology, a
representative of the and director of management and budget, a
nominee of the state senate majority leader, a nominee of the
speaker of the house of representatives, and (for public school
districts) a representative of the state superintendent.
- Review team has 60
days, possible 30 day extension, to submit report to Governor.
- Power to examine
books and records of the local government.
- May negotiate and
sign consent agreement with the local government.
- Inquiry ends if review
team finds mild or no financial stress.
- If severe financial
stress exists, review team must indicate whether a consent
agreement has been adopted, or that no satisfactory plan exists
to resolve financial emergency.
Consent Agreement
- Must contain a Continuing
Operations Plan or a Recovery Plan.
- Law mandates specific
requirements in the Continuing Operations Plan and Recovery
Plan. (Recovery Plan necessary if mandated by the state
superintendent for school districts or state treasurer for
municipal governments).
- Quarterly reports
must be submitted to the state treasurer or the state
superintendent.
- Material and uncured
breach of the consent agreement authorizes the state treasurer
or state superintendent, if a school district, to place the
local government in receivership.
Consent Agreement and Collective
Bargaining
- State treasurer may
grant to local government powers reserved to an Emergency
Manager.
- Exception: the
local government may not reject, modify, or terminate one or
more terms or conditions of an existing collective bargaining
agreement.
- Within 30 days after
the date the local government enters into a consent agreement,
unless the state treasurer determines otherwise, the local
government is not subject to Section 15 of PERA, MCL 423.215;
which deals with a public employer's duty to bargain.
Governor's
Determination
- Governor must
consider review team's report within 10 days of receipt.
- Governor must
determine whether the local government has no financial stress,
has adopted a consent agreement as permitted, or that no
satisfactory plan exists to resolve the financial emergency.
- If the Governor finds
that a financial emergency exists, the Governor must notify the
local government of his decision to appoint an Emergency Manager
("EM") and the factual basis for his decision.
Local Government's Appeal Process
- Seven (7) days to
request hearing before the state treasurer or state
superintendent, if a school district.
- After review of the
hearing record, the Governor, in his sole discretion, may
confirm his decision to appoint an EM and notify the local
government of his decision and facts supporting his decision.
- A board of education,
or a local governing body, by a two-thirds (2/3) vote, may
appeal the Governor's determination to appoint an EM, within ten
(10) business days to the Ingham County Circuit Court.
- Limited power of
review by the circuit court.
Declaration of Receivership and
Appointment of Emergency Manager
- Upon the confirmation
of a finding of a financial emergency, the Governor must declare
the local government in receivership and must appoint an EM to
act for and in the place of the board of education (governing
body) and superintendent (chief administrative officer).
- Immediately upon a
local government being placed in receivership, and during the
pendency of the receivership, the salary, wages, or other
compensation, including the accrual of postemployment benefits,
and other benefits of the superintendent and members of the
board of education shall
be eliminated. Vested pension benefits are
not affected.
- The EM may restore,
in whole or in part, any of the salary, wages, other
compensation or benefits of the superintendent and members of
the board of education during the pendency of the receivership,
for the time and on the terms the EM considers appropriate, and
to the extent the restoration of wages and benefits is
consistent with the EM's financial and operating plan.
- Once the Governor
declares a local government in receivership, and during the time
a local government is in receivership, the board of education
and the superintendent, or the chief administrative officer and
governing body of the municipal government, may not exercise any
of the powers of their offices, unless specifically authorized
by the EM, in writing, and subject to the conditions imposed by
the EM.
Powers of the Emergency Manager
Include, Among Others:
- Broad powers to
operate the local government.
- In addition to the
staff already authorized by law, the EM may appoint additional
staff and obtain professional assistance deemed necessary by the
EM to fulfill the appointment.
- Employ or contract
for school administrators at the expense of the school district.
- The EM may reject,
modify, or terminate one or more terms and conditions of an
existing collective bargaining agreement where the EM and state
treasurer agree that:
- It is reasonable and
necessary for the state to intercede.
- Rejection is
reasonable and necessary to deal with a broad, generalized
economic problem.
- Any rejection is
directly related and designed to address the financial
emergency for the benefit of the public.
- Any rejection is
temporary and does not target specific classes of employees.
- Nothing in the
statute confers power on the EM to consolidate school districts
although the EM can seek approval from the state superintendent
to reduce class schedule, in accordance with the administrative
rules governing the distribution of state school aid, close
schools or other school buildings, and exercise all authority
under the revised school code.
- For a city, village,
or township, the EM may recommend to the state boundary
commission that the municipal government consolidate with 1 or
more other municipal governments.
Written Plan Prepared by Emergency
Manager
- EM is required to
develop and may amend a written financial and operating plan for
the local government.
- For school districts,
the plan may include an academic and educational plan.
- Within 45 days of
appointment, the EM must submit the financial and operating plan
to the state treasurer, and if a school district, to the state
superintendent, the board of education and the
superintendent of the school district.
- Within 30 days after
submitting the financial and operating plan to the state, the EM
is required to conduct a public informational meeting on the
plan and any modifications to the plan. Public approval is
not required for the EM to implement the plan or any
modifications to the plan.
Termination of Receivership
- The local government
shall remain in receivership and will be considered to be in a
financial emergency until the EM declares that the financial
emergency is rectified and the state treasurer and the state
superintendent concur in writing. The declaration may not
be made until the financial conditions have been addressed and
rectified.
- Before the
termination of the receivership and the completion of the EM's
term, the EM must adopt and implement a two-year budget for the
local government, including all contractual and employment
agreements, commencing with the termination of the
receivership. The board of education may not amend the
two-year budget without first obtaining approval from the state
treasurer.
Recommendation of Bankruptcy by the
Emergency Manager
- If in the EM's
judgment, no reasonable alternative to rectifying the financial
emergency exists, the EM may recommend to the Governor and the
state treasurer that the local government be permitted to file
Chapter 11 bankruptcy.
- If the Governor
approves the recommendation of bankruptcy by the EM, the
Governor must inform the state treasurer and EM, in writing, of
his decision, with a copy to the state superintendent if a
school district.
- The EM is empowered
to act exclusively on the local government's behalf in any case
under Chapter 11.
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