A repeal of Michigan’s controversial emergency management law would likely further challenge already fiscally troubled municipalities, Fitch Ratings said last week.
Fitch released the comment Friday after the Michigan Supreme Court approved a November referendum asking voters if they want to repeal the law.
The court’s approval, which came after months of debate over the petitions, means the law will be suspended as soon as the petitions are officially approved, which is expected sometime this week.
Officials said the suspension means the state’s previous emergency financial manager law will automatically be revived.
“Fitch believes the possible suspension and repeal of Michigan’s emergency manager law presents uncertainties for the municipalities that have had managers appointed to administer them,” analyst Amy Laskey wrote in a comment. “Entities that do not have appointed managers but are in or near fiscal distress may be at risk of not getting the assistance they need.”
There are currently four cities and three school districts that are under state-controlled emergency management. Detroit has a consent decree that gives state officials greater oversight over the city but stops short of emergency management.
Fitch warned that the consent decree could also be negatively impacted by the suspension or repeal of the current law, Public Act 4.
“As Detroit’s fiscal stability agreement has several features that rely on the existence of PA 4, most notably the ability to suspend collective bargaining, the repeal of PA 4 could weaken or nullify the agreement,” Laskey said. “This may have an adverse effect on the city’s ability to continue the reforms already begun under the agreement and therefore stabilize and improve its credit quality.”
