The EM law isn’t the whole problem for Michigan cities, but it’s far from a solution

Dayne Walling

Dayne Walling is founder and manager of the management and policy consulting firm 21performance.com. He served two terms as mayor of Flint. 

There’s no way to polish up the emergency manager law. No one at the Capitol seems to even want to touch it. After the debacles with Detroit Public Schools and the Flint water crisis, PA 436 of 2012 is still one of the biggest government blunders in decades. It’s time to take it down.

What should go in its place? One of the state legislative committees examining the Flint water crisis recommends establishing three-person panels of emergency managers. Under the proposed model, one emergency manager would have financial expertise, another would be a government operations expert and another would serve as an ombudsman to local officials and residents. Three heads may be better than one, but any number of emergency managers does not address the underlying problem of how state policies themselves have debilitated local units of government.

Instead of three-person EM panels and more austerity, Michigan needs three policy pillars to reverse the effects of decades of decline, disinvestment and degradation that have left the state steadily losing ground relative to the rest of the country in population growth, job creation and quality of life.

The pillars are fair taxes, smart investments and true partnerships.

The Great Recession showed all too clearly that Michigan had a major problem with fiscal stress in local governments and school districts. When faced with a similar crisis in the state’s budget, newly elected Gov. Rick Snyder worked in dog years to reform the tax code. The state’s general fund has been relatively steady ever since – except when it has been raided for special projects.  

But local governments haven’t seen any reform in tax structure. In fact, state budgets included cuts to revenue sharing from the state sales tax to local communities.

To put the numbers in perspective, the Lansing State Journal recently reported on what has happened in that city. The city received $15.9 million in 2007 yet only $13.6 million last year. Simply adjusting for inflation should have brought the city $18.4 million.

In cities like Flint and Detroit, the distress has been more extreme, and crisis after crisis has affected everyone and everything. The narrow focus on the state government’s own balance sheet and the adherence to a low tax ideology has resulted in local governments being stripped of the ability to provide vital services or to evolve to meet the changing demands of today’s businesses and residents.

The level of desperation is reflected in the unprecedented reduction in police officers and firefighters. This is the most direct indicator of local government’s financial distress. Sending a police officer a pink slip is a last resort. In Flint’s case, the layoffs were dramatic. In other cities, it’s been a quiet reduction in force size as positions are unfilled following retirements. Either way, today in Michigan there are 7,079 fewer public safety jobs than there were 10 years ago.

It’s hard to understand how well-meaning leaders in Lansing could sanction such debilitating injuries to our way of life in the Great Lakes state. The state went from a top 20 safest state in the country to top 20 for the highest rates of violent crime. Approximately 200 schools have closed in Detroit in the last 15 years. In the wake of the Flint water crisis, every community is concerned about their water.

These headlines are not fake news. They represent the reality of what is happening in cities, townships and villages all across our state. The human toll is compounded by the demographic and economic consequences of the constant state of catastrophe.

A brighter future starts with a fair local tax system. This is the most straightforward, even though the politics of tax reform are always contentious. The state needs to do two things – restore the appropriate share of sales tax collections that were promised when the local sales tax was abolished, and equalize the local income tax so that any community can levy 1 percent on personal income earned in its jurisdiction.

These two changes would create a virtuous cycle whereby Michigan’s job centers would have the funds necessary to improve the surrounding quality of life, which would attract more people and generate more economic activity.

The state needs smart infrastructure investment policies. In addition to adequate funding for basic road maintenance, we also need infrastructure projects tied to economic development. Transformative brownfield projects deserve cutting-edge public infrastructure to maximize benefits for businesses and nearby neighborhoods. If local people aren’t connected to the jobs and opportunities that come with new developments, then the multiplier effect – and the rationale for the public support – is unrealized. As it stands now, the state’s economic development arm has zero responsibility for infrastructure investments and it shows when one looks around.

Finally, we need a true partnership among state and local officials. Fighting over control, pulling from each other’s pockets, and working up special deals all undermines the public good. Genuine solutions require every level of government and every sector doing their part. Local communities deserve more options and opportunities to address the diverse conditions across our great state.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

About The Author

Dayne Walling

Dayne Walling is founder and manager of the management and policy consulting firm 21performance.com. He served two terms as mayor of Flint. 

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Paul Jordan
Fri, 07/07/2017 - 3:25pm

We have been told--and federal courts have affirmed--that local governments are "creatures of the state". In their zeal to minimize taxes and reduce the state budget, Republican lawmakers and governors have sought to preserve state programs by cutting funding to local governments.
They and anti-government folks who applaud their actions fail to appreciate that most of the public services on which people depend are provided by local governments. These include fire protection, police services, health protections, water & sewer services, roads, and schools.
The evidence is all around us: We cannot have a great state--and one that is attractive to business--without robust local services.

Kevin Grand
Fri, 07/07/2017 - 3:53pm

"In cities like Flint and Detroit, the distress has been more extreme, and crisis after crisis has affected everyone and everything. The narrow focus on the state government’s own balance sheet and the adherence to a low tax ideology has resulted in local governments being stripped of the ability to provide vital services or to evolve to meet the changing demands of today’s businesses and residents."

Has Mr. Walling NOT been paying any attention to the news lately?

Perhaps he can inform us how states like California and Illinois are faring with the tax system that he is supporting. I understand that Illinois will not be doing things like road work or paying out lottery winners because they are flat-out broke. And California Speaker Rendon displayed a rare flash of sanity and common sense when he pulled their single-payer healthcare bill due to the massive price tag.

http://www.chicagotribune.com/suburbs/lake-county-news-sun/news/ct-lns-s...

http://money.cnn.com/2017/06/27/news/illinois-lottery-state-budget/index...

http://www.washingtontimes.com/news/2017/jun/24/sen-bernie-sanders-rips-...

As for the question that Mr. Walling posed at the beginning of his piece on what to do regarding the EM law, why bother trying to fix what is not only hopelessly broke, but isn't even a function of state government, anyway?

Just scrap the EM law entirely.

If local politicians want to entrench their positions (and re-election chances) by promising free stuff to voters with other people's money, then let them deal with the repercussions when the bill comes due.

Dealing with the tender mercies of a bankruptcy judge will be an invaluable lesson to those who feel that Michigan Taxpayers are an inexhaustible source of revenue when their incompetence comes back to bite them.

It also should remind them that their office comes with responsibilities along with a nice title and paycheck.

Hopefully that should dissuade those who have an aversion towards personal responsibility from seeking them in the future.

duane
Sat, 07/08/2017 - 11:55pm

First, I must apologize to Mr. Walling, this is the first time I have read his things, but he is only the latest in a long line of others who have take his view on EM. I realize it not just to challenge his writing without a conversation [though seldom if ever does a Bridge writer engage readers in a conversation], but he is the one that has push the threshold lower.

Not to say that Mr. Walling has a personal political agenda, but when he can only see Detroit and Flint as the EM legacy it does cause a pause to consider why there is no mention of others or who was responsible for creating the need for an EM.

I would think that someone who is truly concerned about an issue and if they want the public [at least Bridge readers] to be broadly informed it would seem their may see some value in mentioning Allen Park, Ecorse, Benton Harbor, etc. to help people understand that the events getting particular attention aren't necessarily the whole story.

The other question that comes to mind is why doesn't he seem interest in avoiding the need for the EM. Wouldn't it be much better to prevent the financial failure of these organizations and avoid all the added cost and hardship digging these organizations out of the hole they have dug for themselves and the people of Michigan into?

Mr. Walling seems to have narrowed his focus on how to spend more of other people's money rather than being interesting in preventing the wasting of local money forcing other people to pay.

I wonder if Mr. Walling is one of those that only looks for failures so he can only see failures and the need to create new programs/spending for the state. I take the approach of looking for success and using what you learn to help others success prevent failures.

Paul Jordan
Mon, 07/10/2017 - 9:38am

I don't think that Duane appreciates the extent to which the state's own actions contributed to the fiscal distress of so many Michigan's cities. The fundamental cause has been deindustrialization, but that has been made much worse by the state's limitations on the extent to which municipal residents can tax themselves to make up for lost revenues. In addition, the state constitution limits the rise of taxable property values to the rate of inflation--and doesn't take into account at all the possibility that property values could fall. In Flint, we lost 25% of our taxable residential property value in a single year. The constitution's limitation means that the loss of revenue can never be recovered because it can only rise from that low point at the rate of inflation. Finally, poorer cities in Michigan received more state revenue sharing than other cities and were harder hit when state government reduced revenue sharing.
In fact, cities in Flint would not have experienced fiscal distress if revenue sharing had been continued at its previous level.
Distressed cities can't solve their fiscal problems alone because the state's limitations and behavior won't let them.

Rich
Sun, 07/09/2017 - 7:29am

Mr. Walling argues for fair taxes. What are fair taxes? To many, a fair tax is one that attacks the top 1% and lets the bottom 50% slide by scott free. I would argue that a fair tax is one that is equally distributed, not by rate or percentage, but equal in value, If the state has 10,000,000 residents (10 million), and sets a budget of $50,000,000,000 (50 billion), then every person is charged $5,000. The uproar would soon make the legislatures realize that maybe they only need $20,000,000,000 (20 billion) to do the things, and only the things that are prescribed in the state Constitution.

Matt
Sun, 07/09/2017 - 10:12am

"The state needs smart infrastructure investment policies. In addition to adequate funding for basic road maintenance, we also need infrastructure projects tied to economic development. "
There is the problem, government projects are rarely driven by "smart" and the people making these decisions rarely have any experience or clue on how to drive economic development and end up letting personal feelings and wishes determine all programs. These as most government action are driven by politics and subsidies and someone else's money! I've been there and gotten my share.
The EM law is the result of the state being positioned for ultimate responsibility for most municipal financial obligations. This backstop, besides the cost to MI tax payers, changes the way cities operate. Unions don't have to worry about pensions and benefit plans being funded the bill will be passed onto the state if the municipality can't cover them. Cut this tie and get rid of the EM. Cities should be free to file for the equivalent of chapter 11 or 13 bankruptcy and let the lenders and creditors make the determinations. With this in place cities are free to chase as many feelgood dreams as they wish!

Rich
Sun, 07/09/2017 - 1:43pm

Good idea. But before you cut the cities free to do whatever feel good idea they want, the residents of the cities should be given the right to change to another county if they vote that way. My township is so politically different from the majority of the rest of the county, that I fear we will have a repeat of 2015 when everyone in Wayne County was assessed some significant sum to prop up a floundering pension plan of one of the cities within the County. Just two miles away is Oakland County with leadership smart enough to know not to make promises they can not keep.

Matt
Mon, 07/10/2017 - 10:18pm

Sure if a given group of citizens wants to leave one community to join another, if leaving and receiving communities agree why not? I like any type of governmental competition!
I'm skeptical to the idea that municipalities are creatures of and would be compliant to laws of the legislature as Duane stated. They are much more organic in origin than that (and many in fact pre-date the formation of legislatures), further responsibility and good management aren't easily bestowed by legislation as they are by painful consequence.

duane
Sun, 07/09/2017 - 3:07pm

Matt,
The people who populate our Legislature are smart enough; the problem is that their culture/environment/experience are not conducive to what we expect/need from them.
Consider the culture they work in, Lansing, where the government is driven by history , the media who is the megaphone in Lansing is cemented in the past [they are shrinking because they are comfortable there], most legislators are longtime local residents that are inundated by the politics because they must change careers to hold office and have to accommodate the Lansing culture. Before we can honestly expect more from Lansing we must figure out how to break the Lansing culture, open it up to the reality of the future.
Consider how the world economy is changing, moving from working harder to working smarter, from leveraging strength to leveraging knowledge and skills, that suggests the infrastructure is moving from concrete and asphalt to the electronic data transfer. We are a manufacturing state depended on the Interstate highways transiting to a service state depended on the internet. Where the talk is on roads it needs to shift to knowledge and skills.
Think of ‘economic development’ as a ‘rope’, Legislature is trying to push that ‘rope’ using the past while business pulls it by looking for what is needed to change the future. Which do you think will be more effective in improving results? Those pulling the ‘rope’ have their already established what they need for the future, people who will continue to grow their knowledge and skills by learning.
We need Lansing to let go of the education in the past and begin focusing on learning how to learn and on knowledge and skills that will be needed tomorrow.
The Legislature is driven by the culture of politics, what we see playing on the national scene in politics has been playing in Lansing for generations. If what we want is change we need to change that culture, we need to change the expectations of the legislators [we need them to engaged in the changing demands in the global business economy], we need change in the government culture of living based on the past, even changing the media [to reality of how their world has changed and they are about to disappear into the world of irrelevance of ‘fake news’ rather than being part of the reality of their readers’ world].
As for the EM, that is an easy solution. Since the municipalities are a creation of the State legislature they simply need to create new rules how municipalities operate with constraints on their actions as their finance deteriorate. The EM becomes a compliance officer similar to what every private business may experience. The EM would have comparable responsibilities and enforcement tools, and as you say let them go bankrupt.
The real problem is as this article shows whether it is the author, the Parties, even Bridge it is about the politics of the past rather than solutions for the future.

The concern is that aside from you and me who really wants change so we can get better results.

Steve Harry
Sun, 07/09/2017 - 12:04pm

How can a serious discussion of municipality financial crises leave out any mention of unfunded pension and retiree health care liabilities?

Mark Higbee
Sun, 07/09/2017 - 9:20pm

Mr. Walling, I thank you, and BRIDGE, for your factual and informative article. However, I regret that most of the 8 comments on it posted before I wrote this comment are snarky, lacking any engagement with the issues your excellent essay laid out; instead, they seem to have ideological axes to grind. Your piece is quite good!

Kevin Grand
Mon, 07/10/2017 - 6:47am

If I "lack any engagement", Mr. Higbee, would you care to remind everyone here whose pocket the City of Detroit ultimately reached their hands into to bail them out of bankruptcy?

Who the Detroit Public Schools did the very same thing to not that long afterwards?

And what will most likely happen when the dust settles with what is happening in Flint?

If I have an "ideological ax to grind", it is because I am way past fed up with politicians who hopelessly screw up the job they were essentially hired to do, are seldom (if ever) held accountable in any way shape or form for their ineptitude and then watch as a second set of politicians feel that I would be more than happy to see my tax dollars go towards bailing them out from their stupidity.

In the real world, employees are held liable for their mistakes.

In the political world, long detached from any sense of reality, they simply forego that troubling detail and just pass the buck. For them, it's just another day at the office.