How Emergency Financial Managers Changed Michigan

As Detroit braces for the appointment of an emergency manager, it can look at half a dozen municipalities to see how life has changed under these state-appointed advisers who take control of cities on the brink of bankruptcy.
by | February 25, 2013
Lou Schimmel, the emergency manager for Pontiac, Mich., meets with his staff to discuss topics such as how the city will sell its property and reduce its electric bill. (Photo: David Kidd)

Update on Friday, March 1: Michigan Gov. Rick Snyder announced he will appoint an emergency financial manager for Detroit. Read more here.

By Bill Laitner, Melanie Scott Dorsey and Matt Helms

As Detroiters brace for the possible appointment of an emergency financial manager, they can look at half a dozen cities around Michigan to see how life has changed under these state-appointed financial bosses.

Emergency financial managers have been on the job for years in Benton Harbor, Ecorse and Flint. Early last year, a manager was appointed for the Highland Park public schools, and in October, one was appointed for Allen Park.

But some of the biggest changes have come under managers who have led the City of Pontiac for four years.

"Nothing is owned by the city anymore -- all of the departments were privatized" -- and none of the three managers has kept the council adequately informed, hampering their attempts to aid residents, said Pontiac Councilwoman Mary Pietila.

Empowered to make deep budget cuts, slash staffs -- even eliminate entire departments -- emergency financial managers typically are derided before they arrive and snubbed by local officials and employees after their appointments. The same local officials and employees can lose pay, benefits and often their jobs outright under the newcomer.

Here's a look at how some cities have fared under emergency financial managers.

Pontiac changes course

For years leading up to their first of three emergency managers, members of the Pontiac City Council vigorously opposed having an emergency manager, claiming their city didn't need one. Yet, by mid-2008, Pontiac accumulated a general fund deficit of $7 million and a staggering $115 million in long-term debt, according to state documents.

The first of three managers in succession was appointed in May 2009 by former Gov. Jennifer Granholm. Since then, Pontiac has made major progress toward balancing its books, so much so that emergency financial manager Louis Schimmel told city officials last week that he hoped to be gone by June 30.

"I had an agenda before I walked in here, and I've got 95% of it done," Schimmel said Friday.

The city's first two emergency financial managers made limited progress and infuriated residents by selling the Silverdome for what seemed like a pittance -- about $580,000, said Mayor Leon Jukowski. In contrast, Schimmel avoided secrecy and tried to work with local officials, Jukowski said.

"If the state picks the right person who says, 'I'm willing to work with the local officials,' it can really help," Jukowski said.

But most of Pontiac's City Council members repeatedly have said they don't accept Schimmel's authority and won't cooperate, according to council minutes. Several of them joined a crowd that picketed last year in Ann Arbor outside Gov. Rick Snyder's house, protesting Michigan's Public Act 4 that empowered emergency managers to tear up union contracts.

Neither Pontiac City Council President Lee Jones nor President Pro Tem Patrice Waterman returned phone calls seeking comment. But Pietila said that police response times have improved under new management.

"I won't deny that," she said, adding she has "very mixed feelings" about other changes made by the emergency managers.

City Finance Director John Naglick said other changes include:

  • The police department was disbanded in favor of a contract with the Oakland County Sheriff's Office, saving Pontiac more than $2 million a year while dropping average 911 response times from an hour to less than 10 minutes.
  • Fire service is now provided under contract by neighboring Waterford, saving an additional $6 million annually.
  • Water and sewer utility was sold to the Oakland County Water Resources Commission for $55 million, with the proceeds used to retire most of the city's debt.
  • Most city services were outsourced to the county or to private contractors, dropping the municipal employment roll from 900 a decade ago to 74 this year.

Resident Judith Hainaut said she's deeply conflicted about the state's takeover of Pontiac. She said she finds the idea of an unelected manager undemocratic.

"I think the real force behind it is privatization and profit," she said Friday in the living room of the home she bought in 2000 for $59,500 and spent another $50,000 remodeling. It was valued at $11,000 in her latest city assessment.

"On the other hand, I see the City Council as being totally dysfunctional," said Hainaut, a retired senior designer for GM.

Doing 'less with less'

Head north from Pontiac on I-75 about 40 miles and the city of Flint looks like a mini-Detroit.

Both have aging populations, high crime and unemployment rates. Both have had a foreclosure crisis, which in Flint helped to shrink the population to 102,434 in 2010, a loss of 18% from the 124,943 in 2000.

Mayor Dayne Walling had just been re-elected after serving out the last two years of the previous mayor's term when an emergency financial manager was appointed in 2011.

"We faced and still face a lot of the same problems as Detroit," including plummeting property-tax revenues, a torrent of deficit spending on skyrocketing labor costs and widespread abandoned property as businesses and homeowners fled to the suburbs, he said.

In 2006, Flint operated at a $6-million surplus, and yet, four years later, the city was $48 million in the red, Walling said. The rapid change of fortune followed the housing meltdown, he said.

"At that time, there wasn't the level of cooperation we needed from the City Council or from the union officials" to reach a balanced budget, Walling said.

Since the first of two emergency financial managers was appointed in December 2011, Flint has made deep cuts in personnel, and major cuts to the pay and benefits of those who remain, Walling said. Also taking a deep hit was public safety, despite the city repeatedly leading the nation in violent crime.

"Five years ago, we had 280 sworn police officers. Now, we have approximately 120," Walling said. Flint's government has not become more efficient, just smaller, Walling said.

"Unfortunately, we're doing less with less," he said. Once massive debts are paid, "my goal is to bring the service levels back up," he said.

Ecorse's tough choices

Just a few miles south of Detroit, the Downriver community of Ecorse tried unsuccessfully to stave off an emergency financial manager in 2009 as the city faced a $9-million deficit and an FBI corruption probe that led to prison time for former Mayor Herbert Worthy and former city controller Erwin Hollenquest.

During the summer of 2009, the City Council and mayor tried to come up with a plan to eliminate the deficit but could not agree how. By September 2009, Granholm declared a financial emergency. In October 2009, Granholm appointed Joyce Parker as emergency financial manager.

The appointment takes away local control and the decision-making from the mayor and the council, but she made tough decisions that in some cases the mayor and council were unwilling to make," said current Ecorse Mayor Darcel Brown, who was on the city council when Parker was appointed.

Some of those tough decisions included layoffs of department heads, a reduction in hours for employees as well as health care changes. Parker also instituted furlough days. The mayor and council also took 80% cuts to their salaries, Brown said.

Another tough decision was the 10.4-mill special tax assessment in 2010 that raised about $1.5 million for police and fire services and drew ire from residents.

Despite the decisions, Brown said Parker kept the lines of communication open with residents and the city's top officials.

"I think it's a positive thing to keep a good relationship with the mayor and council because there would be a lot of issues that she may not have known about without that relationship," Brown said.

Some residents said they were skeptical of an emergency financial manager but slowly warmed to the idea.

"When you hear the emergency financial manager, you think you have no control because this stranger comes in and makes decisions -- not the people you voted for," said Tiffany Jones, 32. "In this case, there were a lot of community meetings and we were allowed to give input, so that made it better."

The city also was able to issue bonds under the Home Rule Act to pay off millions in court judgments after Parker lobbied for the legislation, which kept residents from substantial tax hikes. The legislation allowed a third party to collect property taxes to pay the debt service on the bonds first, with the remaining revenue going to the city.

Brown said the city now has a $2.4-million surplus and Parker is expected to end her job in March.

"I think she's been successful in the job," Brown said. "I haven't agreed with every decision, but with a majority of the decisions, you can see that the city is able to move forward."

Allen Park sought help

Although most communities try to avoid the appointment of an emergency financial manager, officials in the City of Allen Park welcomed one.

When officials discovered the city's $19-million budget for 2012-13 had a $4.2 million shortfall because of plummeting property values, rising costs and $2.6 million in annual bond payments for a failed movie studio, they knew they needed help.

City officials sent a letter to the state last March requesting a financial review.

By October, Snyder had appointed Parker as emergency financial manager.

"The first thing any council or mayor notices is that everything that comes from the emergency financial manager is an order," said Allen Park Mayor William Matakas. "The mayor and council typically work by resolutions."

Parker said she plans to cut the mayor and council's salaries by 50% and cut wages for city employees by 10%. A plan to not fill nine police staff positions will save the city about $722,000. Other plans include privatizing trash pickup and finding revenue through land sales.

Many residents blamed the city's financial crisis on a failed movie studio.

The city sold $25.3 million in long-term, general obligation bonds in October 2009 to purchase 104 acres at 16630 Southfield to create the Unity Studios & Village project. The city paid $10.8 million more than the property had been valued. The Securities and Exchange Commission and the FBI are investigating the purchase. The $2.6-million annual debt payment comes out of the city's general fund.

Since Parker's appointment, she has met with residents in town hall meetings.

"I went to the meeting in November and was pleased to hear we would be able to make suggestions," said resident Marie Armstrong, 41. "This is not the best situation, but it's good that the residents who have to live with it can have a say."

Pontiac resident Hainaut said she plans to leave the state and move to Iowa to be near family, and she hopes the city she leaves behind has better days ahead.

"Things could improve here, but even if they do, the city of Pontiac is gone, and I'd hate to see that happen in Detroit. Detroit has so much going for it."

What's next?

  • Under state law, Gov. Rick Snyder now has 25 days to either affirm the finding of the financial review team -- that Detroit is in a financial emergency and needs help fixing it -- or reject it. Snyder must send that determination to city officials in Detroit, who then have 10 days to request a hearing before the governor to try to sway him against the determination.
  • After the hearing, the governor will confirm or revoke his determination, said Terry Stanton, a spokesman for the state Treasury.

(c)2013 the Detroit Free Press


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