Referendum ruling clouds Detroit's financial fix

Reuters News
Posted: Apr 25, 2012 8:03 PM
Referendum ruling clouds Detroit's financial fix

By Karen Pierog

(Reuters) - Part of Detroit's recent deal to mend its shattered finances could be threatened if Michigan officials on Thursday rule that a referendum to repeal the state's controversial emergency manager law should be allowed on the November ballot.

A decision by election officials to allow the referendum to be put before voters on November 6 would result in a suspension of the law, pending an actual vote on the measure.

Opponents of the law object to the power it grants to essentially replace local elected officials with an emergency manager during a financial crisis.

Stand Up for Democracy, the coalition that launched the petition drive to repeal the law, on its website calls the law "a power grab by politicians" and criticizes the emergency managers appointed by the governor as "neglected bureaucrats ... unaccountable to local taxpayers."

Detroit was able to avoid the state appointment of an emergency manager under an agreement reached early this month to put its finances under stricter control by the state.

But portions of that deal, known as a consent agreement, are tied to the 2011 emergency manager law, known as Public Act 4. Those provisions include exempting Detroit from collective bargaining with its unions, according to Eric Scorsone, an assistant professor of economics at Michigan State University.

"To me that's a huge part of this agreement," Scorsone he said.

Several other public entities in Michigan are operating under emergency managers.

Greg Bowens, a spokesman for the coalition, said a suspension of the law would make any parts of Detroit's consent agreement based on Public Act 4 null and void.

But a spokesman for Governor Rick Snyder said any actions taken prior to the law's suspension would remain in effect.

"Any provisions of the agreement that were allowed exclusively under (Public Act) 4 would be suspended, but a majority of the agreement would not fall into that category," Terry Stanton, the spokesman, said.

Stanton said the existing emergency managers in other Michigan cities and school districts would remain in place, but their authority would be limited by provisions in the state's previous financial manager law.

The law made it easier for Michigan to intervene in financially struggling local governments and gave emergency managers appointed by the governor enhanced powers to control cities and schools and void contracts and collective bargaining agreements.

Michigan Attorney General Bill Schuette has said that if the law is suspended, it would be temporarily replaced by a former one with weaker provisions.

A review by the staff of the Michigan Bureau of Elections found that Stand Up for Democracy secured enough valid signatures on its petition to put the referendum on the ballot. Election officials will have to weigh that against a challenge by a group opposed to the repeal that claims the petition is invalid because the font size used to print it was too small.

Bettie Buss, a senior research associate at public policy group Citizens Research Council of Michigan, said a suspension of Public Act 4 would likely to trigger a flurry of litigation by labor unions challenging the resurrection of the former law.

"The unions are not going to give up on this," Buss said.

Detroit's pact has a severability clause that would allow the agreement to continue even if parts can no longer be implemented, she said.

Uncertainty over the future of Public Act 4 has been a concern to credit rating agencies, which have cut Detroit's bond ratings deeper into the junk category.

Fitch Ratings on Wednesday said that while Detroit's consent agreement provides a strong framework for addressing its budget problems, other issues including resistance by city unions and the fate of Public Act 4 cloud the deal's sustainability.

A tie vote by the four-member state election panel on Thursday could send the matter to court. Lawsuits are already pending in state courts challenging the legality of the emergency manager law and the actions of review teams.

(Editing by Tiziana Barghini and Leslie Adler)