The Local Government and School District Fiscal Accountability Act
Public Act 4 of 2011
April 2011
Report 368

Summary

The Local Government and School District Fiscal Accountability Act (PA 4 of 2011) is the third iteration of statutes that authorize the state to intervene directly in the financial affairs of local governments. By providing for earlier state intervention and the takeover of a local government or school district by a state appointed emergency manager who would assume all of the authority and responsibility of local officials, as well as have power to terminate collective bargaining agreements and contracts, and even to dissolve the unit of government, the state hopes to encourage local officials to resolve financial problems promptly. PA 4 retains the essential process established in earlier statutes (trigger events and preliminary review; appointment of a review team authorized to negotiate a consent agreement and with a limited set of possible recommendations; local government right of review and appeal; state appointment of a financial manager with specified powers and duties) but this act provides much greater powers to the state and to the emergency manager.

PA 4 lowers the threshold for state intervention by expanding the list of initiating events and allowing for a preliminary review at the discretion of the state treasurer. The preliminary investigation may lead to appointment of a review team, which conducts a more thorough review to determine whether any of the events specified in the act, or any other facts or circumstances indicative of financial stress or of a financial emergency, exist. The review team is required to meet with the local government and is empowered to examine the books and records of the local government and to utilize the services of other state agencies and employees. The state department of treasury is to provide staff support to the review team. If the state financial authority approves, the review team may appoint an individual or firm to perform the review and submit a report. The review team must complete the review within 60 days, unless a 30 day extension is granted, and must make one of four possible recommendations.

• The local government is not in financial stress or is in a condition of mild financial stress.
• The local government is in a condition of severe financial stress, but a consent agreement containing a plan to resolve the problem has been adopted.
• The local government is in a condition of severe financial stress and a consent agreement has not been adopted.
• A financial emergency exists and there is no satisfactory plan to resolve the emergency.

The new act provides greater direction and specificity in the development of consent agreements, which may grant one or more powers of an emergency manager to one or more local officials (only the power to reject, modify, or terminate a collective bargaining agreement cannot be granted to a local official under a consent agreement). The consent agreement may contain either a continuing operations plan developed by the local government, or a more demanding recovery plan developed by the state financial authority. Beginning 30 days after the consent agreement is approved, the local government is exempted from collective bargaining requirements for the term of the agreement, unless the state treasurer determines otherwise. A companion statute, PA 9, amends the public employment relations act and provides that a local unit that enters into a consent agreement is exempt from the requirement to collectively bargain and to enter collective bargaining agreements for the duration of the consent agreement.

The state financial authority (the state treasurer, or the superintendent of public instruction for school districts) determines when the conditions of the consent agreement have been met.