Michigan Emergency Manager Law Upheld by Sixth Circuit

By Marcus Baldori
Associate Editor, Vol. 22

On September 12, 2016, the U.S. Sixth Circuit Court of Appeals upheld the Michigan’s controversial emergency manager law in a 3-0 decision. In general, the law provides that, when certain financial triggers are met, a state-appointed emergency manager will temporarily replace local governments to resolve the financial issue. The court decided that the emergency manager law, also known as Public Act 436, did not restrict the voting rights of residents in financially distressed cities and did not amount to “viewpoint discrimination” (a First Amendment violation). Plaintiffs – citizens of Michigan municipalities with appointed emergency managers – brought allegations that their right to elect local officials was violated under several theories, including the Due Process Clause of the Fourteenth Amendment (by burdening the voting power of African Americans and the poor), the First Amendment (by infringing on the plaintiffs’ freedom of speech), and the Voting Rights Act. The plaintiffs’ core argument was that local officials compose a legislative body, and that there is a fundamental right to vote for local legislative officials. However, the Court identified this argument as “meritless.” The Court relied on an abundance of well-established case law in recognizing a state’s ability to appoint local officials.

However, the concerns surrounding the Michigan emergency manager law remain. Examples of the law’s adverse effects have generated nation-wide attention: a Michigan-appointed task force identified Public Act 436 as a primary culprit in the Flint water crisis; many have attributed the disarray of the Detroit Public Schools to the handling of the various emergency managers since 2009. The racial makeup of communities that have been under emergency management is impossible to ignore. Of the 10% of Michiganders have been under emergency management since 2007, 73% are Black; while a community that is 50% or more White has almost no chance of having an emergency manager. It is clear that Black residents are overwhelmingly subject to emergency management in comparison to White residents under PA 436, and as a result, they have less say in their communities. The Sixth Circuit rejected plaintiffs’ argument that this amounted to a Thirteenth Amendment violation, stating that the focus of PA 436 is to provide a remedy when a community is financially endangered, and that a disparate impact on a specific racial group does not amount to a “badge or incident” of slavery.

Though unpopular and problematic, the use of emergency managers has had success in some instances. In Pontiac, emergency managers have paid off $87 million in debt and privatized or outsourced most public services, leaving the city with a budget surplus of $10 million. Lou Schimmel, the most recent emergency manager in Pontiac, resigned in 2016 and returned control to the elected Mayor, Deidre Waterman. However, the city budget is still subject to a transition board, of which Schimmel is a member. There is still a strong public view that the continued oversight of the State infringes upon the rights of the citizens of Pontiac.

The underlying question is how Michigan should respond to municipalities in financial distress. The policy of emergency manager laws is to make sure citizens retain access to essential public services in their community; affirming this point, the Court held that PA 436 was rationally related to the purpose of improving a locality’s financial situation. State officials have noted the problems that emergency managers aim to resolve. Outdated infrastructure, unorganized and unsupervised management, unpaid utility bills, and corruption are among reasons cited in favor of an emergency manager’s presence. Another problem is that there is a history of localities slipping back into financial distress soon after an emergency manager leaves. Presumably, this is either an indication that the emergency manager did not properly do their job, or that the locality lacks sufficient organization and requires heightened oversight by the state.

When a condition of a financial emergency is detected, PA 436 gives local government four options: consent agreement (local officials stay in control over restructuring, but with constraints), neutral evaluation (pre-bankruptcy process where the local government and its debtors negotiate a settlement), filing for bankruptcy directly, and having an emergency manager appointed. However, these options are somewhat constrained because the choice has to be approved by the State Treasurer. Furthermore, the emergency manager law is promulgated under the Michigan Department of Treasury, so solving a financial emergency seems to be narrowly targeted at getting a community out of debt or bankruptcy. Michigan State University economist Eric Scorsone noted that Pennsylvania has similar emergency manager laws, but that the laws are within the Department of Community & Economic Development (DCED). The DCED focuses on attracting and developing business within a community through grants and tax incentives; government officials continuously work with community leaders and businesses to create jobs and improve quality of life even when a community is not in a financial emergency. In contrast, PA 436 under the Michigan State Treasury aims at getting a community out of bankruptcy when that community is already in a financial emergency.

The fate of PA 436 is unclear, but for now, it stands. Still, it seems that public scrutiny will likely influence the State of Michigan’s use of the emergency manager law. Currently, emergency managers do not oversee any cities, although a few school districts remain under emergency manager oversight, and advisory boards still remain in some cities where emergency managers once were. The plaintiffs plan to appeal the Sixth Circuit’s decision.