Emergency Manager Law

[DetroiterOnTheWestCoast]

Light hearted take on a serious issue. I had never heard of Brandon Jessup, but he's Hot!

http://www.huffingtonpost.com/2012/0...ml?ref=detroit

[Wesley Mouch]

Light hearted take on a serious issue. I had never heard of Brandon Jessup, but he's Hot!

http://www.huffingtonpost.com/2012/0...ml?ref=detroit

It is indeed a good article. Well written. Interesting.

He deserves credit for his efforts. Nice job.

Now onto politics. Isn't it clear that he's just using this as an effort to help defend Unions? I expect more of the son of a Black Panther. I'd like to see some concern for the citizens, and not just those who benefit from the status quo. Look at his list of supporters.

American Federation of State, County and Municipal Employees Council 25, the American Civil Liberties Union, the NAACP and Michigan teachers unions, among others.

Only the NAACP isn't labor-affiliated.

That said, I hope he is successful. Because bankruptcy will be better than EFM in changing the status quo.

Labor has a funny agenda here. Do anything whatsoever to avoid EFM, and hope the economy recovers quickly enough to avoid bankruptcy. But that's the only path to maintain power and perks.

[rjk]

"Because bankruptcy will be better than EFM in changing the status quo."


Could you explain your reasoning behind this thought?

I've read numerous articles on the two options and I'm still not clear on which one is better.

[Wesley Mouch]

"Because bankruptcy will be better than EFM in changing the status quo."

Could you explain your reasoning behind this thought?

I've read numerous articles on the two options and I'm still not clear on which one is better.

I'm not an expert here -- but based on previous posts to DY what I've come to understand is that bankruptcy is more severe. Couldn't find a way to search the forum.

My reasoning is that the more severe the remedy, the better the organization will become in the future. Clear out the old debts. Clear out unreasonable contracts with vendors and employees.

I welcome someone more informed to elaborate.

[corktownyuppie]

I'm not an expert here -- but based on previous posts to DY what I've come to understand is that bankruptcy is more severe. Couldn't find a way to search the forum.

My reasoning is that the more severe the remedy, the better the organization will become in the future. Clear out the old debts. Clear out unreasonable contracts with vendors and employees.

I welcome someone more informed to elaborate.

With EM law as it is in place, the emergency manager will actually have most of those powers, plus the advantage of being able to do so swiftly. Clearing out unreasonable contracts, restructuring departments, etc., etc.

Bankruptcy offers some benefits in that it allows all creditors to have their day in court, arguing about why their payments should take precedence over others' payments.

Guess what. This drags the process out for years, generally comes to the same conclusion, and destroys any ability to borrow funds going forward. It's ugly.

An EM will not be able to "cancel old debts", but it can unilaterally settle them. For example, it might say, "We owe you $300,000. We don't have money to pay you. We will give you $25,000 today, with a 75,000 note due in 20 years. Or we can take it to bankruptcy court and you'll get zero."

This is going to be painful and shitty no matter which way we do it. But it's better to get all the pain done at once. Would you rather have the stock market drop by 6,000 points in one day, with 4 more months of consecutive gains to follow? Or would you rather drag the 6,000 point loss over a 3-year, drag-it-out fight to the death."?

Which would be better for business? For consumers? For residents? For vendors? For employees?

The people who are really opposing the emergency actions are denying the fact that pain is coming. Trust me, when it gets here, I'd rather it be swift and over so we can move on the healing.

[Wesley Mouch]

With EM law as it is in place, the emergency manager will actually have most of those powers, plus the advantage of being able to do so swiftly. Clearing out unreasonable contracts, restructuring departments, etc., etc.

Bankruptcy offers some benefits in that it allows all creditors to have their day in court, arguing about why their payments should take precedence over others' payments.

Guess what. This drags the process out for years, generally comes to the same conclusion, and destroys any ability to borrow funds going forward. It's ugly.

An EM will not be able to "cancel old debts", but it can unilaterally settle them. For example, it might say, "We owe you $300,000. We don't have money to pay you. We will give you $25,000 today, with a 75,000 note due in 20 years. Or we can take it to bankruptcy court and you'll get zero."

This is going to be painful and shitty no matter which way we do it. But it's better to get all the pain done at once. Would you rather have the stock market drop by 6,000 points in one day, with 4 more months of consecutive gains to follow? Or would you rather drag the 6,000 point loss over a 3-year, drag-it-out fight to the death."?

Which would be better for business? For consumers? For residents? For vendors? For employees?

The people who are really opposing the emergency actions are denying the fact that pain is coming. Trust me, when it gets here, I'd rather it be swift and over so we can move on the healing.

If what you describe is accurate, then I agree. Bankruptcy is however well established. EFM appears to be subject to political whim.

[7miledog]

Ingham County Judge Collette today enjoined the State from entering into a consent agreement with the city until a hearing on the Show Cause [[Open Meetings Act violation) is held on March 29, three days after the statutory time limit for the financial review team to make a recommendation to Gov Snyder.

More....http://www.freep.com/article/2012032...text|FRONTPAGE

[Zaddik]

I have an idea, and I know its controversial, but that's what this site is about; is it not? The solution is simple, elegant, and egalitarian: Abrogate Home Rule Cities and amalgamate all metropolitan regions across the nation into the central city. The time has come to acknowledge that Home Rule Cities are de facto racist. In times of dwindling economic opportunity, how many city councils, police departments, fire departments, and public works departments must co-exist at the local, county or state level, before people realize that it is costly, duplicative, wasteful, and the cause of Detroit's problems. Just my two cents.

[Danny]

I don't even like Governor Snyder, the Nerd's EFM dictatorship law. Having one person as Caesar, Czar, Czarina, Emperor, Emperess, King, Queen, Judge, Premier, President running government. It's indeed a violation of the checks and balances of power in the U.S. Constitution and it must be appealled now.

[DetroiterOnTheWestCoast]

Dang. All so substantive. I only wanted shallow comments on the guy's attractiveness.

[Hermod]

I have an idea, and I know its controversial, but that's what this site is about; is it not? The solution is simple, elegant, and egalitarian: Abrogate Home Rule Cities and amalgamate all metropolitan regions across the nation into the central city. The time has come to acknowledge that Home Rule Cities are de facto racist. In times of dwindling economic opportunity, how many city councils, police departments, fire departments, and public works departments must co-exist at the local, county or state level, before people realize that it is costly, duplicative, wasteful, and the cause of Detroit's problems. Just my two cents.

Very good! We consolidate Wayne, Oakland, and Macomb Counties into the "super-city" of Michigania. The governments of all three counties and of all the cities they contain are abolished. A strong mayor is elected at-large and a forty-eight seat council is elected from forty-eight defined council districts. About eight of those districts would lie in the former city of Detroit. All civil service, police, fire, and EMS personnel will lose their jobs, but will be allowed to take a comprehensive written examination and be candidates for possibly being hired at employees of Michigania. All union contracts are null and void because the instrumentalities that signed them or set them up have ceased to exist. Unions may try to organize employees of Michigania. Any assets in employee retirement plans of the abolished entities will be held in trust to support payments to their respective retirees. Michigania will establish a defined contribution retirement plan for its hires.

Sounds great! When does it start?

[Bagley]

Dang. All so substantive. I only wanted shallow comments on the guy's attractiveness.

I think that his head is shaped funny but then I know him well. I'll pass along the compliment but I'm sure the substantive conversation, whatever the starting point, is appreciated.

[Danny]

How about a better ideal turn Detroit and its suburbs into a super city of 'Panem' where we have 13 superdistricts representing regional infrastructure by type of personal income. Then the real 'Hunger Games' begins.


"Bread and Circuses" anyone?

[Wheels]

Why can't the State use the same bankruptcy model the Goverment put GM and Chrysler through. They came out quickly and much better off.

[ndavies]

Why can't the State use the same bankruptcy model the Goverment put GM and Chrysler through. They came out quickly and much better off.

The state isn't the federal government. Chapter 9 bankruptcy is a federal court process, The state has no ability to change the process.

The EFM law was the states attempt to shortcut the federal bankruptcy process.

[corktownyuppie]

Why can't the State use the same bankruptcy model the Goverment put GM and Chrysler through. They came out quickly and much better off.

I'm sure they could if they would. The EM model is the best effort at trying to do so.

Here's the problem...when GM, Chrysler, or any other company are put through bankruptcy, you divide people into two groups:

[[1) The owners of the company
[[2) People that the company owes money to. [[aka Creditors)

In a bankruptcy situation, assets are sold off one by one and used to pay the people the company owes money to. But the problem is that if you keep selling off your money-generating assets, then there's nothing left. And if the value of your assets isn't enough to pay off all the creditors, then you need to make some choices:

[[1) Pay some people all the money they're owed, and leave the rest hanging, or
[[2) Pay all the creditors, but each one will only get a portion of the amount they're entitled to.

In either case -- with both #1 and #2 -- any one who is left hanging and unpaid will receive the balance owed...either with an IOU from whatever is left from the company or with ownership in whatever is left from the company [[as well as any future profits that might come from it.)

So let's say you lend me $100 to build a lemonade stand. I only have $40 You choose to either take an IOU for the $60, or I walk away and say, "Welcome, you're now the new owner of the lemonade stand". Pay yourself back with the money you earn running it. [[Or you could even combine the two...I give you $30 today but you're entitled to half the profits -- and control -- of the lemonade stand forever.)

==========

In an ideal situation, all the creditors get locked into a room with the owners. They argue for 3 days. The creditors agree on what sacrifices they'll make and what they'll get in return.Then everyone walks out of the room hand-in-hand with some kind of deal.

In a bankruptcy situation, uhm, it's not pretty. Essentially a bankruptcy judge is assigned to listen to arguments from each of the creditors and determine who should get paid. It takes forever. Forget 3 days. More like 3 years. During those 3 years, it's impossible to get anything done, because no one wants to do business with a company that's in bankruptcy.

With the GM and Chrysler models, the federal government agreed to inject large amounts of money into the company in order to keep them operational, because if the company stops operating for 18 months while trying to figure this out, the customers would never come back. Plus, they'd still be spending all sorts of money to keep the lights on and people employed -- all while not selling anything.

In exchange, they demanded that the creditors all accept less than what they were entitled to. And even of the amount they were entitled to, some of that was paid in IOUs to paid later [[if the company survived), and some of it was paid in company stock and future profits [[assuming there would be some.) The government would be the new owners of the company, entitled to the profits [[and control), and the owners of the company all agreed to forfeit everything they had. Once profits were good enough, the government agreed to sell shares in the new company back to the public in an attempt to recoup its investment.

The problem in municipal bankruptcy is that there are few "profit-generating assets". The biggest source of revenue is property taxes. But property taxes are only there if someone is willing to live in the city. So the city is in desperate need for a major investor to come an put in large amounts of cash.

But no investor would ever be willing to do so while the city has major debts that need to be shredded. The problem is that in a democracy, you need to get people to agree to take less money....and for 30 years, we haven't been willing to do that.

Then lastly, in a corporate setting, a major investor would only be willing to invest large sums of needed cash in exchange for: [[1) future profits and [[2) control of the company.

Where in a city, there are no future profits. And people here are totally living on another planet...demanding that someone write them a big check but with no oversight or control over how the money is spent.

So to answer your question, why don't we just do a managed liquidation bankruptcy like we did with GM and Chrysler?

That's what the state is TRYING TO DO. But it's hard because there's no major source of cash to inject into the system. It's hard because there are no major profit-generators to create. And last but not least, people in the city refuse to allow anyone the authority to skip the democratic process to speed up the process of restructuring. And don't even get anyone started about relinquishing control to someone else.

Good news...you can't fight math. And once the math hits, Detroiters will surrender and simply have to let go of the reins, or people will have to be willing to work for free. Even though choice 1 is very unlikely, when comparing it to choice 2...it's a no-brainer.

I'm not an expert in bankruptcy law, but understand the corporate side far more than the municipal side. If I misstated anything, I welcome corrections.

[EastsideAl]

Isn't it clear that he's just using this as an effort to help defend Unions? I expect more of the son of a Black Panther. I'd like to see some concern for the citizens.

Ummm, who do you think the members of those unions are, space aliens? The largest employer of city residents is the City of Detroit, which means a substantial number of city's citizens are, or are supported by, union members and union retirees. And significant amount of the income that people in this city depend on comes from them. Certainly the city's neighborhoods and businesses are quite dependent on them, particularly in a city where so many other people are unemployed, have little or no income, and/or are on the verge of leaving.

I'm not saying that Jessup, or the unions, are wholly right, or that the unions' way of approaching the city's fiscal problems [[or failing to approach them) is the correct one. Particularly if the choice comes down to some form of financial management imposed from Lansing or outright bankruptcy, as increasingly seems to be the case. But the issues involved here are a lot more complicated than 'unions vs. citizens', especially since in many ways the unions ARE the citizens. Certainly many citizens, union members or not, have very valid concerns about losing their democratic rights and their control over the city's governance and policies. In any event, the unions involved certainly aren't abstractions in the way you and other speak about them.

[313WX]

How about instead of all of these silly names such as "Michigania" and "Panem" for the "super city", why not do what Indianapolis, Houston, and JAcksonville did, and name our super city "Detroit?"

Yeah, I know, too much like right.

[Wesley Mouch]

Ummm, who do you think the members of those unions are, space aliens? The largest employer of city residents is the City of Detroit, which means a substantial number of city's citizens are, or are supported by, union members and union retirees. And significant amount of the income that people in this city depend on comes from them. Certainly the city's neighborhoods and businesses are quite dependent on them, particularly in a city where so many other people are unemployed, have little or no income, and/or are on the verge of leaving.

I'm not saying that Jessup, or the unions, are wholly right, or that the unions' way of approaching the city's fiscal problems [[or failing to approach them) is the correct one. Particularly if the choice comes down to some form of financial management imposed from Lansing or outright bankruptcy, as increasingly seems to be the case. But the issues involved here are a lot more complicated than 'unions vs. citizens', especially since in many ways the unions ARE the citizens. Certainly many citizens, union members or not, have very valid concerns about losing their democratic rights and their control over the city's governance and policies. In any event, the unions involved certainly aren't abstractions in the way you and other speak about them.

Eastside...

I don't like it when someone cloaks themselves with the 'democracy' flag.

The arguments against the EFM that this is against democracy are self-serving.

Amusing that the Unions are for taking away democratic rights when it comes to card-check. No voting there for you. No chance to get together and favor or oppose the Union at your shop. If we get 50% +1 signature, you're in. Surprise!

My post was not intended to be anti-union. I just don't believe that the 'democracy' argument is sincere.

Do you really think this guy is fighting for democracy? He's fighting the EFM law. Why? Because he's defending his turf. What's his turf? His family and his circle tell us. He's defending it. I'm sure he's for democracy. Who isn't.

[Wesley Mouch]

The state isn't the federal government. Chapter 9 bankruptcy is a federal court process, The state has no ability to change the process.

The EFM law was the states attempt to shortcut the federal bankruptcy process.

This comes back to my question --- if EFM is bankruptcy lite, then why are Unions fighting the EFM. Won't they just get full bankruptcy?

[Wesley Mouch]

<snip>...That's what the state is TRYING TO DO. But it's hard because there's no major source of cash to inject into the system. It's hard because there are no major profit-generators to create. And last but not least, people in the city refuse to allow anyone the authority to skip the democratic process to speed up the process of restructuring. And don't even get anyone started about relinquishing control to someone else.

Good news...you can't fight math. And once the math hits, Detroiters will surrender and simply have to let go of the reins, or people will have to be willing to work for free. Even though choice 1 is very unlikely, when comparing it to choice 2...it's a no-brainer.

I'm not an expert in bankruptcy law, but understand the corporate side far more than the municipal side. If I misstated anything, I welcome corrections.

This is excellent. Well presented and easy to understand. Thank you.

[professorscott]

Quote of the day, from Tom Watkins' op-ed piece in the Detroit News. This says it all:

"If you have a hole in your roof, pretending to fix it does not keep the rain out."

[detroiter62]

From what I understand the State of Michigan already owes Detroit 286 million in revenue sharing that was never paid to the city of Detroit.

michigancitizen.com/state-owes-detroit-m-p6099-1.htm

michigancitizen.com/state-owes-detroit-millions-p2111-1.htm

I believe if Detroit signed the consent agreement the state says that they will loan Detroit about 180 million.

If the state withheld the money they agreed to pay Detroit before, why should the city believe them now ?

Also if Detroit signs the consent agreement I believe it will be binding contract and will remain in effect even if the Emergency Financial Manger law is repealed.

Also I dont understand why the state thinks that privatizing most of the city services will save money ?

Private companies want to make a profit, they have a profit margin built into their business model, how does this make the services cheaper ?

Especially the water department, won't water rates go up all over the tri-county area once a private company takes over the water department to meet their profit margin ?

Also, once a bank has foreclosed on a house, do they pay property taxes to the city ? If the house catches fire, they expect the city to put out the fire.

Also have any Emergency mangers in the state of michigan got cities out of financial trouble and relinquished control back to the city goverment-
have you heard of one instance ?

Snyder removed the Michigan Business Tax [[on gross receipts?) and gave corporations a 1.65 billion tax cut, he replaced this with an income tax on business profits which I believe would be much less, therefore less income for the state and the cities, I believe this translates into less revenue sharing with cities. This is more trickle down economics which has not worked in the last 20 years.

[ordinary]

corktownyuppie,
I think this is the first thing that I have understood regarding the whole issue.

[corktownyuppie]

From what I understand the State of Michigan already owes Detroit 286 million in revenue sharing that was never paid to the city of Detroit.

michigancitizen.com/state-owes-detroit-m-p6099-1.htm

michigancitizen.com/state-owes-detroit-millions-p2111-1.htm

This may be true. But even if it be true, it's irrelevant. Just as you can't collect anything by suing someone who is penniless, suing the state will not result in getting any money. If the lawsuit is successful, then it opens the door to every municipality in Michigan suing to get the money they are owed. Detroit is not alone in this, which will bankrupt the state...then no one will get anything.

At the end of the day, a tie goes to the state. Why? Because the city exists under the state government. They are higher up on the food chain. We may like it, dislike it, or not care. But the reality that we must face is that the state has more financial power and legal power than the city.

I believe if Detroit signed the consent agreement the state says that they will loan Detroit about 180 million.

If the state withheld the money they agreed to pay Detroit before, why should the city believe them now ?

We don't have to believe it. In fact, you may even take the argument that we shouldn't believe it. It doesn't matter whether we believe anything or not. They either will or won't loan us the money and there isn't anything we can do about it.

Also if Detroit signs the consent agreement I believe it will be binding contract and will remain in effect even if the Emergency Financial Manger law is repealed.

I agree. And if Detroit fails to sign the consent agreement and the EM law is repealed, then a bankruptcy court will be appointed to do the same thing the EM would do. It would just happen a lot more slowly. So slowly that everyone would end up losing in the long run.

The city and its citizens need to understand that we don't really have a lot of power in determining our fate here. If we can't convince the state to agree on a consent agreement then either we get an EM appointed by the state, or a bankruptcy judge appointed by the feds.

Also I dont understand why the state thinks that privatizing most of the city services will save money ?


Private companies want to make a profit, they have a profit margin built into their business model, how does this make the services cheaper ?

Most of our city departments are mismanaged and very inefficient by today's standards. Our employees are receiving compensation packages which are not in line with marketplace. Translation? We could restructure our departments with more productive people who get paid less money. This translates into better services for the citizens at less drain on the city budget.

You are correct that privatizing means that a profit margin is put in. And you are right that it could theoretically add more cost. But that only makes sense if you think the private company is going to keep the same employees, the same costs, and then add a profit margin on top.

That's not going to happen.

A private company will eliminate unnecessary positions [[and the costs along with them). A private company will eliminate unproductive employees who are overpaid and exchange them with more productive employees whose costs are in line with what is realistic in the market place. Moreover, a private company can take advantage of already existing infrastructure to totally eliminate unnecessary layers of employees.

For example, when auto company A merges with auto company B, they can eliminate redundant positions that are costly. [[for example, instead of having 2 world headquarters, we can consolidate them into one. Instead of having two VPs of Marketing, we can eliminate one.)

The idea is that even with the profit margin, the efficiency gains will be more than enough to compensate. And you know what, even if they're not...then you find another private company who will compete to offer the city a better deal.

Yes, you are correct that the private sector does not automatically mean improvement. Charter schools are a great example of that. And I'm a big believer in public services and am not one of these right-wing crazies that thinks that all government is bad.

The problem is that the City of Detroit has had years and years of opportunities to make much needed changes and has been either incompetent, unmotivated, or politically shackled by special interests to the point that it hasn't been done.

For example, I read of a city employee who was getting paid $45,000 per year, plus health care, plus her pension costs....what was her job? To plan going-away and retirement parties for retiring staff members. This was less than 3 years ago. Somehow, that doesn't strike me as a necessary "core service" that city can't live without.

Why did this job exist? It existed from a time where Detroit had money to burn. It was a luxury. It's like your HBO or your country club membership. Great when times are good. But why couldn't we get rid of it when times were bad?

Especially the water department, won't water rates go up all over the tri-county area once a private company takes over the water department to meet their profit margin ?

I don't believe that the water department is on deck for privatization...that might be a better department for regionalized management.

Also, once a bank has foreclosed on a house, do they pay property taxes to the city ? If the house catches fire, they expect the city to put out the fire.

They do...and if they don't, the city has the right to put a lien on the house so that when it gets sold, their back taxes get paid.

Also have any Emergency mangers in the state of michigan got cities out of financial trouble and relinquished control back to the city goverment-
have you heard of one instance ?

No. But no one expects them to have. The problem here is everyone is thinking about short-term evaluations. An emergency manager will need 3-5 years just to really stabilize a mismanaged city. For Detroit it might literally be 8-10 years. And no matter who is in charge, [[EM,EFM, Bankruptcy Court Judge), the first 3 years are gonna feel worse for many people. But it is widely agreed, however, that Joe Harris is well on his way to successfully turning around Benton Harbor. Certainly, New York City and Orange County are examples of municipal entities that were on the brink of destruction in the late 70s and early 80s. It took a lot of hard work and a lot of pain, but restructuring turned around both entities successfully.

One might say that doing so has been at great cost to the poor for all 3 examples. Ok. It might be. But in choosing between paying your employees or upsetting the poor...you have to choose paying your employees. No one is willing to work for free.

Snyder removed the Michigan Business Tax [[on gross receipts?) and gave corporations a 1.65 billion tax cut, he replaced this with an income tax on business profits which I believe would be much less, therefore less income for the state and the cities, I believe this translates into less revenue sharing with cities. This is more trickle down economics which has not worked in the last 20 years.

I agree. And what Detroit has been doing has not worked for the last 20 years. Nothing has been working for the last 20 years. So we need to focus on what will work for the next 20 years.

The answer lies not in "who gets control". The answer lies in being willing to go back to the drawing board and totally re-design city services from the ground up.

The problem is that the city has been unwilling or unable to do so for a very long time. Changes need to be made so that whoever is in charge is free to do so.