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Michigan's budget crisis puts democracy on the chopping block

Michigan's emergency manager law grants sweeping powers to unelected officials.

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Michigan Gov. Rick Snyder prepares to deliver his State of the State address to a joint session of the House and Senate in Lansing.

Carlos Osorio/AP

When the city of Pontiac, Mich., ordered the closing of its fire department in December, Councilman Kermit Williams found out in the morning paper. This was just one in a series of radical realignments for the city, whose elected government has been replaced by one person with unprecedented power over nearly every aspect of city policy.

Public Act 4, a law Michigan passed in March 2011, has cut elected officials like Williams out of the process. It allows Gov. Rick Snyder to give emergency managers unilateral powers over the municipalities and school districts they run.

“They couldn’t get elected if they tried,” said Williams.

Appointed managers can nullify labor contracts, sell public utilities and dismiss elected officials. Michigan cities Benton Harbor, Ecorse, Flint, Pontiac, and two school districts are under emergency management. Detroit, the state’s largest city, is under financial review by the state.

Update Feb. 15, 1:02pm: A Michigan judge suspended the state review of Detroit's finances, citing violations by the state-appointed team of the Open Meetings Act for public officials. The state's attorneys are expected to appeal the decision.

Michigan is one of 23 states where the GOP has control of both houses and the governor’s mansion since the 2010 election. With the help of free-market think tanks, the state legislature used its one-party rule to pass a flurry of legislation aimed at the state’s prolonged great recession marked by auto industry flight and compounded by the 2007 housing market crash.

The emergency law, an unprecedented austerity measure, is the centerpiece of their strategy. Gov. Snyder’s supporters say Public Act 4 allows a more efficient and nimble response to the budget crisis than local governments have been able to muster. Critics have filed suit and begun a petition campaign to repeal what they call a power grab that obstructs voting rights. Labor officials say the law is part of a nationwide effort by right-wing think tanks and their corporate backers to break up public sector unions.

“We haven’t seen anything this severe anywhere else in the country,” said Charles Monaco, spokesman for the Progressive States Network. “There’s been nothing in other states where a budget measure overturns the democratic vote.”

Fallout in the cities

Pontiac’s Emergency Manager Louis Schimmel privatized city hall, hiring Mayor Leon Jukowski (who had been fired by a previous emergency manager) as a consultant at half his former salary. The City Council was not so lucky.

Neither were the police and fire departments. Pontiac is now patrolled by the county Sheriff, and nearby Waterford Township will put out fires. In late December, Schimmel put hundreds of city properties, including City Hall, up for sale.

Schimmel says he can do what elected officials have been unable to do: execute a plan for balancing the books quickly. Still, he has run into nagging structural roadblocks.

In February, Gov. Snyder celebrated a rare $457 million surplus in the state budget. But legislators in the Democratic minority say his administration has not eased the financial strain on cities. Changes to the corporate tax code are expected to reduce business tax revenue by $1.7 billion this year, and city governments will see a 10 percent cut to the $1 billion revenue-sharing budget.

“One thing we can’t do is print money,” said Schimmel. “We’re always chasing the dropping knife, fixing something here and losing revenue somewhere else.”

City officials like Williams say the emergency manager approach has been tried, unsuccessfully, for more than a decade. Public Act 4 is a strengthened version of a 1990 law that brought state appointees to several cities beginning in 2000.

Appointed managers and elected officials have pointed the finger at each other for the worsening economic situation in the cities. Neither, however, has been able to provide more than short-term fixes to the long-term flow of jobs, residents and revenue from the cities.

Pontiac has been under some form of state-appointed management for three years, during which time the city’s credit rating has dropped from B to Triple-C. The city is projecting a $9 million deficit for 2012.

“They aren’t creating revenue,” said Councilman Williams. “You can’t just cut your way out of a deficit.”

Williams says the emergency manager’s worst cut has been to the democratic process. With an indefinite appointment and city-paid salary, Schimmel doesn’t answer to anyone but the governor, at whose pleasure he serves. City Council can no longer make decisions but still calls meetings, which Williams says are routinely packed with angry residents.

Mackinac plan

Louis Schimmel brings to the Pontiac job years of experience as an associate of Michigan’s Mackinac Center for Public Policy. The center is part of a national network of free-market think tanks that draw support from the Heritage Foundation and major corporate donors. Among the center’s funders is multi-billionaire Charles Koch, a champion of conservative movements.

Schimmel has pushed Mackinac’s gospel of privatization for decades. He served as the center’s director of municipal finance and its board of scholars.

The organization has played an integral role in the formation of the emergency law. In 2005, Mackinac published Schimmel’s essay calling on Michigan’s legislature to give managers the power to impose contract changes on public employee unions and “replace and take on the powers of the governing body.”

After the GOP won control in 2010, Mackinac reprinted Schimmel’s article. Two months later, Mackinac celebrated when the legislature put its prescriptions into Public Act 4.

Schimmel got those powers when he was hired to run Pontiac in September. He quickly fired the city’s clerk, attorney and director of public works. He contracted out several city services.

“Nearly the whole city has been privatized,” said Councilman Williams, who now works without a city salary.

In 1986, Schimmel also privatized city services when Ecorse, Mich., landed in state receivership.

More than twenty years later, the city is back in debt, and back under state management. In a December planning report, new Emergency Manager Joyce Parker said Ecorse would save $2 million annually by bringing the city’s Department of Works back in house, ending costly contracts stemming from the 1980s restructuring.

Schimmel concedes the privatization strategy can backfire, but blames inept local government. “If you don’t have an overseer of the contractor, privatization can be much more expensive than in-house services,” he said.

Bargain basement

The Mackinac Center has also pushed state legislators to challenge public employee unions. Before the March 2011 emergency bill passed, Mackinac’s Legislative Analyst Jack McHugh laid out the center’s agenda.

“Our goal is [to] outlaw government collective bargaining in Michigan,” he wrote to state Rep. Tom McMillin in an email obtained by think tank Progress Michigan.

In Flint, Emergency Manager Michael Brown promised to restructure collective bargaining agreements in his mid-January report to the state.

Flint has hemorrhaged jobs for decades since General Motors began closing factories in the 1980s. Brown is the second state-appointed manager in a decade.

“We’re on the merry-go-round again,” said Paul Jordan, a longtime Flint resident who has joined a legal effort to overturn the law. “This didn’t work in 2002.”

International Vice President of the AFSCME public employees union Larry Roehrig says city workers agreed to health care concessions in a contract with the elected government, hoping to avoid further cuts when Brown arrived.

"We are holding our collective breath,” said Roehrig. “Sure we’re worried, but what can we do?”

The police and fire unions have no agreement with the city, and have taken a more defiant approach to Brown, who can impose contract changes, and even abolish the entire bargaining agreement with state approval.

“If you can bust the unions, you’ve busted the Democratic Party,” said Brit Satchwell, president of the Ann Arbor Education Association, the teachers union.

The Mackinac Center claims that Michigan could save $5.7 billion if public employees’ wages and benefits were made comparable to sinking private sector wages.

Facing charges of greed, the public employee union leaders say cuts to public sector jobs have only seeded the next phase of economic woes in the state — foreclosures, unemployment, and intensified reliance on state aid programs in cities like Flint, where the jobless rate at the end of 2011 was 17.5 percent.

“It’s an acceleration of the downward spiral,” said Satchwell.

Mackinac and ALEC

Another group that may be influencing state legislators in passing emergency manager type laws is the American Legislative Exchange Council (ALEC).

The group convenes national conferences with state legislators and corporate representatives to draft model legislation. Elected officials in ALEC pay a minimal fee to join the group, while corporations pay up to $100,000.

Michigan’s Mackinac Center attends ALEC events, as well. James Hohman, a center analyst, was one of 40 private sector representatives at a December 2010 conference on state fiscal policy, months before Michigan passed Public Act 4.

According to minutes from the closed-door meeting, legislators, corporate representatives and think tanks including Mackinac hammered out new model laws to align public and private sector pay and restructure state pensions.

Since 2010, ALEC member Rep. McMillin has introduced several bills taken right from the playbook. One resolution encouraging privatization of public services draws directly from ALEC’s model laws, hundreds of which were leaked to the Center for Media and Democracy last summer.

The model bills have matched up with language found in Arizona’s immigration law and informed Ohio and Wisconsin’s collective bargaining laws.

ALEC’s Tax and Fiscal Policy Director Jonathan Williams did not respond to requests for comment.

ALEC publishes reports on state fiscal policy including the “State Budget Reform Toolkit” and the yearly “Rich States, Poor States” report, written with Koch foundation money. The reports encourage legislators to target public employees, minimize “redistribution of income” through welfare programs, identify privatization opportunities, sell off public holdings like water systems, hospitals, and utilities and slash corporate taxes.

The reports recommend that states create a “centralized, independent, decision-making body to manage privatization and government efficiency initiatives.” Michigan’s law grants far more sweeping powers to one state appointee.

The D.C.-based think tank’s connection with Michigan lawmakers runs decades deep. John Engler was Michigan’s governor for three terms, from 1991 to 2003. ALEC hails him as an early member in the 1970s and a “pioneer” in the movement to privatize state holdings.

When Snyder was elected in 2010, he hired Engler’s former Lieutenant Gov. Dick Posthumous, also a longtime ALEC member, as his special legislative adviser.

Pushback

Detroit’s elected leaders, unions and citizens groups have attracted national support in their opposition to the State Treasurer’s financial review of city finances in December. Members of the City Council responded by demanding that the state repay $220 million owed to the city under a former revenue-sharing agreement.

Michigan’s Democratic Senators asked Gov. Snyder to back away from the law, while a ten-person review board determines whether Detroit is eligible for a manager.

Detroit’s Mayor Dave Bing acknowledges the city’s budget woes — a $200 million deficit — and has proposed raising corporate taxes, laying off 1,000 city workers, and altering city pensions to head off an emergency manager who would put elected leaders out of a job.

The state’s decision whether to install a manager will hinge on the outcome of Bing’s ongoing talks with city unions. In February, the mayor announced a tentative agreement on concessions with public employees.

Meanwhile, Congressman John Conyers has asked the U.S. Department of Justice to review the federal constitutionality of the law. And Michigan residents will deliver hundreds of thousands of signatures to the state on Feb. 29, attempting to put the law up for referendum in November.

Detroit’s Sugar Law Center for Economic and Social Justice has filed a suit claiming the law violates basic sections of the state constitution, including the home rule provision that outlines residents’ rights to elect local government.

“If we win this case, it will give other state legislatures pause before pursuing similar laws,” said Tova Perlmutter, director of the law center.