Emergency managers in Michigan have among the greatest powers of any state intervention mechanism in the country. But the city of Detroit's bankruptcy filing demonstrates that state intervention mechanisms do not preclude credit deterioration or default and supports Fitch's choice not to assume a state or federal bailout in its local government rating criteria and ratings. However, clearly state monitoring and intervention programs can be helpful in distressed situations, such as the case of Pontiac, Mich., where an emergency manager has restructured the city's finances.
As Fitch has indicated in the special report "U.S. Local Government Downgrades to Persist," the emergency financial management that states exercise over distressed local governments varies from state to state. Their impacts are affected by the strength of laws governing labor contracts, benefits (including pension obligations), service provisions and other factors.