Saturday, April 16, 2011

Is Benton Harbor the Fuse That Leads to Detroit?

I've been watching the amazing Eclectablog's diary at Kos (where some folks need to chill on the hyperbole) go right through the roof over this last night, and now our state media has finally gotten into the game as well. The rubber is meeting the road in Benton Harbor on the new sweeping powers of the Emergency Financial Manager law, and you have to believe that this is just a warm-up skirmish for the upcoming war that is going to be Detroit - both for the school district and the city government alike.

A little back story: The idea of the state appointing an Emergency Financial Manager for local governments in distress actually dates as far back as 1988, and that led to Public Act 72 of 1990 (Blanchard did it!). Basically, it said that in order for the state to protect it's own credit and fiscal operations, any city or school district that was on the verge of bankruptcy would receive a review of their finances from a state-appointed team, and, if that panel found that the city or school district did not have an adequate plan to get out of trouble, a manager would then come in and help clean up the mess.

The manager could hire staff and direct existing staff. They did not need public approval for a new fiscal plan. They could do anything they wanted with the outstanding financial obligations (i.e., the bills). They could renegotiate labor contracts, but they could not abrogate those contracts. They could eliminate positions except of those of elected officials, cut pay and benefits even for elected officials, sell property, review payroll - anything but touch retirement. They could not raise taxes. They also had the ability to start Chapter 9 bankruptcy if all else had failed.

By the end of January of 2010, Benton Harbor hit the wall. The city's finances, mismanaged for years, were out of control with no hope of recovery. Governor Granholm followed the law as written by PA 72, sent in the panel, who reported the need for a manager. By the end of March, the city, on the verge of failing to meet payroll, was denied an appeal and the Governor approved a state manager. Some city officials were relieved, some upset - and down the road they went.

Fast forward to now. Snyder and the Republicans took the existing law a few steps further, too far to be constitutional, some believe, including myself. It gives the state the ability to review a district or city's finances sooner, the EMF the ability to end labor contracts, call for elections to raise or extend property taxes, force consolidation with other local governments - or even dissolve the city or district altogether. Local elected officials can be stripped of powers, but not removed from office - and that's exactly what has now happened in Benton Harbor.

In a move believed to be the first under sweeping new state legislation, Emergency Manager Joseph Harris suspended decision-making powers of city officials Friday.

Officials only can call meetings to order, adjourn them and approve minutes of meetings as part of the order issued Friday.

The action is likely the first since Gov. Rick Snyder signed into law in March a new statute that grants more powers to emergency managers appointed by the Treasury Department to take over distressed schools and communities.

Look for the lawsuit challenging this to be filed soon, I'm sure. The ACLU is investigating the genesis of these new, broad powers - but it should be obvious. Republicans want to bust union contracts, period. Whether they can get away with it or not is a question for the courts to decide.

And like I said above, I believe this is a warm-up for Detroit, and perhaps the 150 other school districts that Snyder's budget cuts are going to put closer to bankruptcy. DPS EFM Robert Bobb has indicated that he "planned to exercise his power as emergency manager to unilaterally modify the district's collective bargaining agreement", and by law the school district has now sent out 5,466 layoff notices to its union employees, and 250 pink slips to their administrators as well. (that is nearly a yearly occurrence anyway lately - but this time it takes on a new urgency.)

Bobb, under order by law to produce a plan to balance the books, came up with closing half of Detroit's schools by 2014, 70 to be exact. He doesn't want to do this, as class size is expected to swell to 60 and parents would flee the district costing the schools even more money - but the state has given the order. Some schools may turn to charters, and a GM-style bankruptcy that separates the bad debt has been talked about. Whatever happens, it's going to be seismic.

As far as the city goes, Detroit Mayor Dave Bing is asking for benefit concessions from city employees and a new tax on casinos to help balance a budget that has a $155 million deficit and could grow to $1.2 billion by 2015, and his plan is already meeting resistance. Bing claims that, "If we are unable or unwilling to make these changes, an emergency financial manager will be appointed by the state to make them for us" - a bit of leverage, given what is going on with the Detroit Public Schools, and now this takeover in Benton Harbor. The heat is getting turned up fast in Motown, and it should reach a boiling point soon.

I've tried to wrap my mind around Detroit a hundred times now, and I just don't have a good answer. I hope that they can find a way to stability with as little pain and disruption as possible, but given Snyder's massive budget cuts to schools and cities, and now this appointed dictatorship of an EFM law they have passed, it's even harder to see a solution. Mix in legal action from the unions and angry parents over the schools - it's going to be a rough road indeed.

Wish us luck America. We are going to need it. Stay tuned...

UPDATE: Thanks to emptywheel and the Political Carnival for the links - hope this explanation gives some context to what is happening here. It's a difficult issue, and in the case of Benton Harbor, has been a long time in the making.

One important story that has been overlooked in all the recent reports is the lawsuit filed in federal court that is challenging the new provisions of the law:

The city's two pension funds sued Gov. Rick Snyder and state Treasurer Andy Dillon in federal court today to block part of a new emergency manager statute.

The suit alleges the emergency manager statute is unconstitutional, would modify the City Charter and collective bargaining agreements and allow for the removal of pension fund trustees. The suit also claims the law could potentially allow for the funds to be dissolved and have the assets transferred to another retirement system.

Keep an eye on that one - the courts are where this battle will ultimately be won or lost, and that could take years.