Michigan’s legislated bankruptcies

September 8, 2011

Michigan’s legislated bankruptcies

Cities and school districts in Michigan face some severe fiscal challenges that are similar to problems in other parts of muniland. Instead of these distressed communities filing for a Chapter 9 bankruptcy, the state recently updated a 1990 law that gives the governor authority to appoint an “emergency manager” who has powers that would normally be exercised under the authority of a federal bankruptcy judge. The Michigan blog Eclectablog has done an exceptional job documenting what is happening under this law, Public Act 4. From his factsheet:

In March of this year, Governor Snyder signed Republican-passed legislation into law that is formally titled the “local government and school district fiscal accountability act”. It is also known as Public Act 4 of 2011 (PA4) or the “Financial Martial Law Act”.

PA4 gives sweeping new powers to Emergency Managers that include:

  • Modifying or cancelling contracts
  • Modifying or cancelling collective bargaining agreements
  • Acting as the sole agent of the local government in collective bargaining negotiations
  • Acting as the sole trustee of the local pension board
  • Assuming complete control over local governments and can prohibit elected officials’ access to office facilities, email and internal information systems
  • Consolidate or eliminate government departments
  • Remove current department heads, administrators
  • Sell, lease, convey, assign or other use or transfer assets of the local government or school district
  • Dissolve or disincorporate the local government and assign its assets
  • Develop academic and educational plans
  • Receive and disburse all federal, state and local funds earmarked for the local government or school district
  • “Take any other action or exercise any power or authority of any officer, employee, department, board, commission or other similar entity of the local government whether elected or appointed.

Needless to say local citizens find these top-down actions antithetical to democratic representation. Though the powers granted to the emergency manager require approval by the State Treasurer Andy Dillon, they seem draconian and have minimal oversight. Eclectablog reports that criminal embezzlement and misconduct charges forced former Highland Park emergency manager Arthur Blackwell to pay back $264,000 to the city after his tenure from 2004 – 2009. The actions in Michigan are troubling and require further scrutiny from the public. It’s a shame that these actions are not happening under court supervision.

President Obama will not propose aid to states

Governors shouldn’t anticipate any additional support to be unveiled in President Obama’s speech this evening. From the Council of State Governments:

Leaders of the nation’s largest state and local associations were summoned to the White House this morning to hear a preview of the President’s forthcoming jobs address from Danielle Gray, Deputy Director of the National Economic Council, and Cecilia Muñoz, White House Director of Intergovernmental Affairs. While the administration is trying to keep a close hold on details in advance of the speech, it is clear that the President will propose both a continuation of existing programs and new initiatives across three major policy areas: taxes, infrastructure, and unemployment assistance.

Although, Bloomberg and some other media outlets have raised the prospect of direct aid to state and local government being included in the new jobs agenda, the President’s advisors indicated that this would not be part of the speech with officials questioning where the rumors of flexible funding for the states were coming from.

Light municipal bond fund outflows

Muniland experts are a little puzzled about the outflows from municipal bond mutual funds.  It’s important to note that the investor withdrawals are small compared to the winter stampede after Meredith Whitney predicted “hundreds of billions of defaults.” From the Bond Buyer:

Worrying as the outflow trend might be, the recent withdrawal figures are little more than knee scrapes compared to the six months of hemorrhaging from November to May.

Lipper’s four-week average of outflows is currently $359 million, and total outflows in the six weeks stand at $2.43 billion. By contrast, weekly outflows were as much as $4 billion in January, shortly after banking analyst Meredith Whitney warned of widespread municipal bond defaults on prime-time television.

Muniland happenings

The Securities Industry and Financial Markets Association and Municipal Securities Rulemaking Board will offer a compliance seminar on Monday, September 26, in New York City. Details here. SIFMA also hosts its Municipal Bond Summit 2011 on Tuesday, September 27 in New York City. Details here.

The Bond Dealers of America will hold their National Fixed Income Conference on October 6th and 7th in Denver, Colorado. Details here.

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+Good Links +

Bloomberg: Revenue Bonds Catch Up to General Obligations as Growth Slows

Reuters: California governor OKs bill for “minibonds”

McClatchy: Firefighters balk at new digital radios, as failures risk lives

Stateline: Is Nebraska’s cash balance pension a model?

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