CHICAGO — The Detroit suburb of Hamtramck has pressed Michigan officials to allow it to become the state’s first city to file for bankruptcy. Now it has reached a financial agreement with Detroit that, together with a hoped-for $2.5 million state loan, could stabilize its finances for at least the next 10 months.
Both measures will smooth out Hamtramck’s finances over the next several months. But whether the city will remain solvent after that remains uncertain, according to city manager Bill Cooper.
“It doesn’t change the world, it just gives us more time to figure out if we are able to address our financial shortfalls down the road,” Cooper said.
For longer-term stability, the city is hoping that a slew of new laws and bills affecting fiscally stressed local governments will boost its fiscal position. Hamtramck has been under state-mandated financial emergency management in the past but the program did not solve its problems, many of which are tied to costly labor contracts.
The controversial new emergency management law, however, gives state and local officials greater power to negotiate and even terminate labor contracts. Those powers could help Hamtramck — even indirectly — as it spends the next several months negotiating four new labor contracts that Cooper said will be the final key to the city’s financial future.
The new law also broadens the state’s power over local governments, allowing emergency managers to terminate labor contracts, strip local ordinances and remove officials, hold millage elections, dissolve a government with the governor’s approval, and merge school districts.
Those powers do not bode as well for local officials, Cooper said.
“On the one hand, it has the type of teeth that an emergency manager needed to function — prior to the new law, the EM had virtually no more power than the City council and City manager put together,” Cooper said. “But the way it’s written is a little scary. That kind of power in one person’s hands will be a bit scary.”
Of particular concern to local governments, Cooper said, is the provision allowing EMs to dissolve cities and merge them with their neighbors. In Hamtramck’s case, that would be Detroit.
“The citizens of Hamtramck would not be real excited about that,” he said.
On the positive side, the new law features an early-intervention provision that allows state and local officials to hammer out a consent agreement that could give local politicians the power to amend union contracts without an emergency manager taking over.
“If we’re unable to negotiate concessions from unions, that will become a viable option for us,” Cooper said. He added that the mere existence of the new law and pending bills could infuse governments with more negotiating power.
“I know it’s got [the unions’] attention,” he said. “They’re not happy with the possibility of having parts of their contracts set aside, and it will probably make them more willing to talk.”
Meanwhile, the House last week passed a four-bill package that begins to fulfill local government reforms proposed by Republican Gov. Rick Snyder two weeks ago. The bills, HB 4309, 4310, 4311, and 4312, would allow local officials who are consolidating services to eliminate certain guarantees and provisions of collectively bargained contracts.
Snyder’s other proposals would encourage local governments to merge services or even governments and would cut state aid to local governments by a third and require municipalities to implement a series of changes to earn the remaining dollars.
Like the new emergency management law, Snyder’s local reform proposals are a mix of good and bad for municipalities struggling with serious revenue declines, Cooper said.
The biggest hit would come from the state aid cuts and the requirement that cities and towns implement a series of changes to earn the remainder of the state aid, Cooper said.
Local governments, for example, would be required to have employees pay for at least 20% of their health care costs and switch to a defined-contribution pension plan or a hybrid plan. If they fail to win those concessions, the municipalities would lose another third of their remaining state aid.
“The governor said more than once he’s not trying to force anything on anyone, but this is a pretty heavy hit to my revenue column if I don’t go along,” Cooper said.
“It’s up to me to sell the governor’s plan to the unions and that’s not going to be an easy thing to do,” he said. “But I have to, or I stand to lose too much.”