CHICAGO — An effort afoot to suspend and overturn Michigan’s emergency manager law could have negative consequences for the fiscally stressed local governments the law aims to help, Moody’s Investors Service warns.
Opponents last week filed over 226,000 signatures calling for the one-year-old law repeal to be put on the Nov. 6 ballot. Only 161,000 signatures need to be approved.
If the petitions are approved, the law, Public Act 4, would be suspended until the election and the state would revert to its previous emergency manager law, Attorney General Bill Schuette said last week.
That could have negative credit implications for governments that are already under emergency management as well as ones like Detroit that the state is considering taking over, Moody’s Genevieve Nolan said in a commentary Monday.
“A reversion to the previous financial manager law would limit the state’s ability to intervene with financially distressed governments and would reduce the powers afforded to emergency managers under the current law,” Nolan said.
The new law expands the state’s power to intervene in and take over governments. Among other things, it increases the criteria triggering a state review, and broadens an emergency manager’s powers.
The law’s uncertain fate means more pressure for Detroit, Nolan added. “The question of what law may govern should the state decide to appoint an emergency manager, and thus what powers the manager would have to solve Detroit’s ongoing operating deficits, adds uncertainty to an already precarious situation for the city,” he wrote.
The state has 60 days to certify the signatures. Separately, the Michigan Supreme Court is reviewing a legal challenge that was filed in the Ingham County Circuit Court last summer.