New team will advise on tough Emergency Manager issues

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PHOTOS COURTESY OF WARNER NORCROSS AND JUDD

by Cynthia Price
Legal News

Just understanding Michigan Public Act 4, the Local Government and School District Fiscal Accountability Act, and its implications, is a difficult hurdle to clear for the local governmental units and school districts it affects.

Now Warner Norcross and Judd will help cities, towns, school districts and others unravel the law and all that has resulted from it in the short time  since its March 2011 passage.
According to Warner Norcross partner Steve Grow, who will lead the team along with co-chair Tim Horner, “Events are unfolding fast and furious. It’s all new.”

For that reason, the firm has created a “microsite” web presence, found at http://emergencymanagers.

wnj.com/, to keep pace with new developments.

The web site offers a clearinghouse for articles and other information, and is kept up-to-date on just about a minute-by-minute basis.

According to the site, Public Act 4 “provides new procedures for the state to monitor the fiscal health of local government and to intervene if there is financial distress.” Although most of the focus in discussion of the act centers around the powers of the Emergency Financial Managers, there are new provisions allowing the state to predict when a financial crisis might be looming.

There is also, as Grow points out, a significant action area between discovery of the potential for financial distress and the appointment of the Emergency Manager (EM), that of a jurisdiction entering into a consent agreement with the State of Michigan in order to head off insolvency.

Grow feels that this opportunity is likely to be appealing to local governments. “By entering into a consent agreement, they have the advantage of most of the tools that the EMs have without the disagreeable prospect of a ‘stranger’ appointed to come in. It will be interesting to see how this develops, and we will be here to assist.”

In addition to Grow and Horner, the team will consist of the current mayor of Holland, Kurt Dykstra, and the former mayor of Grand Rapids, John Logie, as well as Warner Norcross experts in government affairs, municipal law, bankruptcy, financial services, labor and employment, and litigation. These include Charles Ash, Kurt Brauer, James Cavanagh, Troy Cumings, Aaron Lindstrom, and Robert Skilton.

Grow points out, however, that clients will have access not only to all of the attorneys in the firm, but also to financial consultants with whom Warner Norcross has well-established links. Which firms to utilize will be determined according to the needs of the particular case.

Grow says that although the initial clients are likely to be those under direct coverage of the act, as events unfold other clients will be in need of legal services as well. “Given the changing legal landscape, there are likely to develop a number of different opportunities for the legal community that we may not all have anticipated – you’re going to have discussions with labor unions, discussions with vendors, since there may be inter-governmental agreements that have to be struck. It’s all so new that I’m not sure anyone can really identify where the most likely traction will be for legal community.”

The overriding intent of the law is to help avoid local government financial collapse.

Section 3 on  Determinations reads:

“The legislature hereby determines that the health, safety, and welfare of the citizens of this state would be materially and adversely affected by the insolvency of local governments and that the fiscal accountability of local governments is vitally necessary to the interests of the citizens of this state to assure the provision of necessary governmental services essential to public health, safety, and welfare. The legislature further determines that it is vitally necessary to protect the credit of this state and its political subdivisions and that it is necessary for the public good and it is a valid public purpose for this state to take action and to assist a local government in a condition of financial stress or financial emergency so as to remedy the stress or emergency by requiring prudent fiscal management and efficient provision of services, permitting the restructuring of contractual obligations, and prescribing the powers and duties of state and local government officials and emergency managers...”

MSNBC pundit Rachel Maddow brought critiques of the bill to a national audience in March; her most pressing criticism was that there are few limitations on what an EM is allowed to do, and citizen input is shut down due to the EM not being an elected official. These criticisms have continued, and there is even a citizen effort to repeal the legislation.
Though the act is a “complete rewrite,” according to Grow, it is not as if EMs are a new phenomenon. PA 72 of 1990 authorized such activities, and indeed all of the EMs currently in place predated Public Act 4. The City of Benton Harbor is most recent, with Joseph Harris appointed in April 2010, but managers for Detroit Public Schools, Ecorse, and Pontiac all date from 2009.

If the state finds “one or more conditions indicative of probably financial stress,” the State Treasurer or, in the case of schools, the Superintendent of Public Instruction begins a review, notifying the unit in writing first.

The current Treasurer for the state of Michigan is Andy Dillon, the former Democratic Speaker of the House. Mike Flanagan currently serves as the Superintendent of Public Instruction.

The Treasurer or Public Instruction Superintendent has 30 days from beginning the review to let the Governor know if the entity under review faces “probable financial stress.”
If it does, the Governor appoints a review team consisting of the State Treasurer (or a designee), the Director of the Department of Technology, Management, and Budget (or a designee), a nominee of the Senate Majority Leader, a nominee of the Speaker of the House of Representatives, and any other person or persons with relevant professional experience selected by the Governor. The Superintendent of Public Instruction (or his or her designee) also is a member if a school district is involved. This panel will decide the future of the governmental unit or district under review, including whether to appoint an EM.

It is difficult at this time to foresee who will compose the talent pool from which EM appointments will be made. Grow notes, “There was a training conducted recently, and we participated, which was sort of a requirement for anyone who wanted to be considered for an EM position. It lasted two days and was very well done, I thought.”

That is just one among many questions about how the Local Government and School District Fiscal Accountability Act will unfold.

Stated Warner Norcross team co-chair Tim Horner, “The pace of change in this area is incredibly fast.  Warner Norcross is out in front on this issue and can be a resource.”