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.
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.
Michigan Public Act 4 (PA 4) became effective in March of 2011. It added several capabilities to the emergency manager position, including modifying labor contracts, privatizing public services, and the sale of city properties. Previous emergency financial managers, who, like Act 4 managers, were appointed by the governor, had less far-reaching powers granted by Public Act 72 (PA 72). A public response to PA 4 was mounted and a petition to have its repeal added to the November 2012 ballot received more than the required number of signatures.
The Board of State Canvassers deadlocked along party lines on whether or not to certify the petition. The decision went to the Michigan Court of Appeals, which approved it for the ballot. That decision was appealed to the state Supreme Court, which heard oral arguments last week.
Flint, Benton Harbor, Ecorse, Pontiac, and Detroit Public Schools have all had emergency managers appointed to administer their financial affairs. Some were appointed under PA 4 while others were appointed under PA 72. 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 PA4 could weaken or nullify the agreement. 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.
Fitch also believesthe prospects for financial stability among entities assisted by emergency managers now, or those that might need them in the future, are unclear. Fitch will continue to monitor this evolving situation and report back when more details and analysis will become available.