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The Nation's Pulse
Wards of the State
Michigan is seizing control of failed local governments.
How can a state force its cities to stop their fiscal mismanagement? Michigan has an answer: Sweep in and take over municipalities and cut up their costly deals with public-sector unions. Since 2009, Michigan has taken over five city governments and school districts. This includes Detroit’s spectacularly inept public school district, which is now under state control for the second time in the last decade, and Pontiac, the former home of the Detroit Lions. This year, thanks to a newly passed law, it may end up taking over as many as 107 more cities unwilling or incapable of getting their financial houses in order. This may include Detroit, whose overwhelming fiscal problems and political corruption continue unabated for a fifth decade.
One city already taken over is Benton Harbor, better known for its scenic lighthouse, low levels of crime (not one homicide between 2007 and 2009), and native son comedian Sinbad than for being a gritty Rust Belt fiscal basket case. In the past decade, the city has all but surpassed Detroit as the symbol of fiscal mismanagement and government incompetence. Between 2006 and 2009, the city’s reserves dwindled from $1.7 million to $300,000, while it was paying out at least $80,000 a year in bank overdraft fees. Its defined-benefit pension was underfunded to the tune of $10 million. Last year, a Michigan state investigation determined that Benton Harbor had failed to hand over withheld federal taxes from city workers to the IRS in a timely manner, and that it was siphoning money from some accounts to balance spending in others. The city was so broke it asked state officials for a $325,000 advance to stay afloat.
The state stepped in. It took the city government’s finances out of the hands of the grossly inept mayor and city commission and handed them over to emergency financial manager Joseph Harris, a former chief financial officer for Detroit’s city government, serving on behalf of the state. Harris proceeded to slash the city’s budget to close a $1 million deficit, and began merging its police and fire departments. This year, thanks to a newly enacted state law, Harris has taken over the rest of city government, relegating the mayor and city commission to figureheads.
None of this sits well with either Benton Harbor’s officials — including the old-school black politicians who were responsible for the city’s slide into fiscal ruin — or the public-sector unions that have long profited from its spendthrift ways. And the city’s status as a ward of the state has become the latest cause célèbre for race-baiting civil rights activist Jesse Jackson, who is urging the U.S. Department of Justice to stop Harris in his tracks.
Other states are watching what’s happening in Benton Harbor and the rest of Michigan — for good reason. Decades of fiscal profligacy, declines in tax revenues caused by the current economic malaise, and budget-cutting by states struggling with budget deficits have left many cities on the brink of financial failure. Some of them, including dusty Vallejo, California, have already filed bankruptcy; 16 others, including Pennsylvania’s own state capital of Harrisburg, may do the same. But cities have found that bankruptcy neither relieves them of their state-mandated obligations to bargain with public-sector unions such as the American Federation of State, County, and Municipal Employees (AFSCME) and the United Auto Workers, nor gives them the ability to cancel decades of costly pension and benefit deals.
Michigan’s new city takeover law changes all that. It allows state-appointed finance czars to cancel union contracts or even take control of a local pension fund in order to address a deficit. The finance overlords can also take over underfunded pensions, tossing out the boards that oversaw their financial failure. If the Wolverine State succeeds in turning these cities around, other states may follow with similar measures.
STATE GOVERNMENTS RARELY step in to take control of local governments. When they do, it’s usually to run school districts that have fallen into insolvency or become massive dropout factories. (More such takeovers will occur over the next few years thanks to President Barack Obama, whose school reform efforts — including the Race to the Top initiative and School Improvement Grant program — are forcing more states to take responsibility for failing schools.)
When it comes to municipalities, states usually limit themselves to management of financial controls. The most famous such instance took place in 1975, when New York State created a financial control board to take charge of New York City’s finances and stave off fiscal insolvency. The board’s move to end the city’s high spending, along with the election of Ed Koch as mayor two years later, helped precipitate the revival of the Big Apple. Earlier this year, the Empire State had to use its takeover powers once again, seizing control of Nassau County, one of the state’s wealthiest suburbs, after failing to balance its $2.6 billion budget.
Michigan has had a local government takeover law on its books since 1990, after a state court placed the Detroit suburb of Ecorse into receivership. But in the two decades since, the state rarely used that power. This changed in February 2009, when then governor Jennifer Granholm placed control of Pontiac’s budget into the hands of an emergency financial manager after the city ran up more than $60 million in budget shortfalls for five straight years. A month later, Granholm took control of Detroit Public Schools, whose financial misdeeds — including buying five floors in the landmark Fisher Building for $21 million more than the owner paid for the entire building — sealed its reputation as the nation’s worst urban school district.
As of 2011, Michigan had taken financial control of five local governments. But the emergency financial managers didn’t have a whole lot of tools to overhaul finances. State law required municipalities to bargain collectively with AFSCME, UAW, and other union locals regardless of financial condition; the unions therefore had little reason to make more than perfunctory wage and benefit concessions. City officials, particularly miffed that they finally had to answer for their fiscal misbehavior, were still technically in charge of operations; this meant they could sabotage overhaul efforts. When Detroit’s then financial czar, Robert Bobb, decided in March to push ahead with a plan to overhaul the district’s curriculum, the school board successfully sued to stop the effort.
Granholm’s successor, Rick Snyder, decided the financial czars needed more power. In March, he persuaded the state legislature to pass a new emergency financial control law that allowed the czars to cancel or amend union contracts and gave them full power over city operations. With that law in place, the finance czars moved swiftly to repair the damage. In Detroit, Bobb’s successor, Roy Roberts, announced a deal under which the state will take control of 45 of its schools, a move similar to what Louisiana did in New Orleans after Hurricane Katrina. Meanwhile, his counterpart in Pontiac, Michael Stampfler, canceled the city’s contract with the union representing police dispatchers.
In Benton Harbor, Harris ousted members of the city’s commissions and increased city water fees by as much as $46. By June, those moves, along with the merging of the city’s police and fire departments, allowed Harris to declare to Benton Harbor’s residents that “we do have a positive cash flow.”
Of course, neither the law nor the moves by the finance czars sat well with either the state’s city officials or its union leaders. Soon after the law was passed, Detroit’s pension funds sued to invalidate it; Benton Harbor’s officials have also filed their own tort. They, along with left-leaners across the nation, are borrowing from the conservative playbook, declaring that Michigan is engaged in big government overreach. They also accuse Snyder of trying to subvert democracy and push blacks out of political power, conveniently ignoring that all the takeovers so far took place under his Democratic predecessor.
But some officials have found the threat of state takeover a nice weapon in their cost-cutting efforts. Detroit mayor Dave Bing, for example, is using the threat to get the AFSCME local and other unions to agree on cutting $121 million in annual health care costs. Declared Bing in an interview with the Detroit Free Press: “Our unions are kidding themselves if they think refusing to negotiate is going to make this problem go away.”
AT THE VERY LEAST, Michigan’s takeovers have staved off the possibility of state bailouts, forcing city officials to make tough choices. Whether the turnarounds will work is another matter.
About the Author
RiShawn Biddle the editor of Dropout Nation , is co-author of A Byte at the Apple: Rethinking Education Data for the Post-NCLB Era. He can be followed at Twitter.com/dropoutnation.
Letter to the Editor View all comments (39) | Leave a comment
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Richard Baker| 9.21.11 @ 6:53AM
Amazing that the citizens of these communities did NOTHING regarding the mismanagement by their local governments. The only logical reason is that too many of these "citizens" were feeding at the public trough. Maybe the best thing to do is to let these communities go belly up and let their citizens suffer the destruction of bankruptcy and default. Maybe this will get their attention. Whenever I hear someone say that it's all too political it really means that someone else should do it. Appears that in Michigan the people got the government they wanted and now they complain.
Doctor Right| 9.21.11 @ 9:34AM
"Did nothing"?
Are you kidding? They did plenty...Namely, they kept re-electing the same corrupt, kleptocrat Democrat hacks year after year after year...
...And if the State hadn't stepped-in, they'd still be electing them.
And this brings up an interesting point:
What Obama is doing to this country is virtually identical to what these Democrat hack-pols have been doing to their cities for the last 50 years. In fact, Obama would feel right at home as a rabble-rousing city councilman in, say, Detroit, or Baltimore, or Cleveland...But the problem is that in 2008, the voters gave that fool the Keys to the Kingdom!
We must take back the keys in 2012. Otherwise, America's future is Michigan's present-day.
jd| 9.21.11 @ 9:48AM
You are spot on in your analysis. I am embarassed to say that I work in the court system in Flint. While I am not originally from this area, I have worked here for 12 years, living in a suburb of Flint. Is it any wonder that Flint, Detroit and the other cities taken over by the state have been run by liberal, Democratic, mostly blacks? Blacks continually vote for the same type of politician. Just look at the 90% of black voters that will re-elect Obama even though minority unemployment and poverty rates are the highest ever under Obama's presidency. The problem with Michigan is the unions and their members. They are the only workers left in the state. You would not believe the level of hate that is spewing against our governor because of what he is trying to do. The only way our state and country can get on the right footing is to BREAK THE DAMN UNIONS.
SpiralArchitect| 9.21.11 @ 1:20PM
This makes me think of those old ant farms for kids, the cut out view as to see a small scale version of what happens in the big picture.
This is the ant farm version of what Zero and his Czarocrats are doing on a national level. The picture presumably is only exponentially worse on the Federal level.
Nice piece Mr. Biddle
TrueBlue| 9.21.11 @ 6:26PM
Current day unions remind me of all the old mob flicks where the thugs walk into the store and say something like, "Nice place you got here, it'd be a shame if something bad happened to it." The unions are doing the same thing except they came in all nice and then once they had everyone eating from their hand turned on the city/state with, "Nice state you have here, it'd be a shame if everyone stopped working." In both cases the offender ends up running up a huge tab under the pretense of allowing business to continue to run until the business is no longer able to sustain itself and goes belly up. Then they just move on to somewhere else.
People love to point at CEOs and how heartless they are when they lay of a percentage of their workforce, but nobody wants to admit it's better to have that percentage lose their job than the entire company, least of all the unions that spend all their time doing the convincing.
Mike D.| 9.21.11 @ 6:37PM
Unions are nothing more than protection rackets in a legal form. Why does anybody surprised mobs are involved with some of these, its what they do best.
tsd| 9.21.11 @ 8:01AM
It is a bit scary when the state takes over! What if the state screws up and the Feds take over... oh that is exactly what Obama would like. One last chance, then the fed screws up and the UN takes over. A centralized world government... now wouldn't that be nice!!
SpiralArchitect| 9.21.11 @ 1:29PM
Zero is not that smart. Perhaps he could stumble into that situation.
P.Smith| 9.21.11 @ 8:08AM
One suggestion that might keep cities from running up huge bills would be to require those in elected office to be removed immediately from power and not be allowed to ever hold office ever again if the state is required to manage their community. They should also lose their rights to a state or local pension.
Timothy L. Pennell| 9.21.11 @ 8:26AM
First of all, show me a Chocolate City that ISN'T a Disaster. Show me one that DOESN'T have a Jail full of it's own Politicians.
Show me a Chocolate Country that ISN'T Starving, at War, or in the process of Genocide.
Show me a Chocolate Continent that DOESN'T have a Thousand Malnourished Children with a swarm of Flies on their faces.
I'm just saying.
Moe Blotz| 9.21.11 @ 9:17AM
Hershey,PA has none of the problems you mention.
Doctor Right| 9.21.11 @ 9:35AM
LOL!!!!!
I just spit-up my coffee!!!
Dan Hirsch| 9.21.11 @ 10:25AM
Neither does Burlington, Wisconsin!
What?!? Here's what their Chamber of Commerce site says:
"Burlington has gained a reputation and a name as Chocolate City, USA. In 1987, Wisconsin governor Tommy Thompson and the Wisconsin state legislature officially designated Burlington as such, in honor of the Nestle Chocolate and Confection Company's 20-year anniversary in our city."
I'm just sayin'...
HeeHaw!
play nice| 9.21.11 @ 1:50PM
Moe and Dan - this why I love "da web". One never knows who and what is out there.
C. S. P. Schofield| 9.21.11 @ 9:39AM
I vaguely remember the Cleveland of my youth (I'm 50). We had one of the generation of Black politicians who had made the transition from activist to elected official, and he did pretty well. So well that when he was eventually replaced by a white guy, the white guy was a conspicuous failure by comparison.
But that was in the late 1960's and early 1970's, before the corrosive effects of Political Correctness made it effectively impossible to attack a Black politician on the grounds that he was an incompetent jackass. Over time the honest and effectual Blacks with an interest in politics have been driven to the fringe by race-baiting swine like Sharpton.
York Hawk| 9.21.11 @ 4:19PM
C.S.P.,you may remember the "boy mayor" being elected in 1980 (?) and how Cleveland prospered under his guidance. My brother Mike and I are native buckeyes from just down the road in Ravenna and he was living in Lakewood during those years.
career soldier| 9.21.11 @ 9:32AM
Mr Biddle, you are right on the mark about our Beautiful Michigan, and her sagging economy. Thank you for the insightful piece.
I fear race will rear it's ugly head in theses city takeovers, and strongly hinder the good measures initiated there.
Dan Hirsch| 9.21.11 @ 10:17AM
Mr. Biddle;
Two things: The use of the word "czar." There is no room in our Constitutional governments for an individual who has the power and authority associated with the Czars of old Russia. The word itself derives from the Latin word for "Caesar." Our system of self-governance has no room for Caesars. Not any. Somebody should text that to the POTUS...
And a second thing. These are really financial re-organizations, i.e. ersatz bankruptcies, without the fuss and bother of going to court.
While what they are doing is a good thing, there is one very troubling aspect. What is the legal basis for these actions? Is there one? These incompetent local governments were duly elected by citizens, no matter how stupidly they may have voted. The state stepping in to "save" them may be good for the stupid citizens in the short run. But it may work to their disadvantage in the long run. What is being learned here is - who we elect doesn't matter, somebody else will take care of it.
That is exactly what will destroy our nation of self-governance! It may look necessary - but it might actually be counter-productive. It's just another form of pandering to the populace.
If "the tree of liberty needs to be refreshed from time to time with the blood of patriots and tyrants," it might also need refreshment from the coffers of foolish creditors and overfat public pensioners...
DTOM
DH
JayDick| 9.21.11 @ 12:34PM
First, these are all state matters. State governments can control whatever happens in the state, with a few exceptions. Maybe it would be better to just let the cities go bankrupt, but Michigan has chosen another path. I have no problem with what they are doing.
Dan Hirsch| 9.21.11 @ 2:03PM
JD,
Michigan has a Constitution- I do not know if it allows for the unilateral usurpation of local, elected governments without local concurrence. Do you?
If it does, then shame on me and my uninformed opinion. But if it does not, I still maintain that this is not good for anyone in the long run.
We have a country of laws that happens to have an economy. We are not an economy that happens to be located in a country with laws that happened to be here before the economy became what it is.
In short, we are a government of law, not men, not profits. Capice?
DTOM
no hussein 2012| 9.21.11 @ 10:25AM
MI is the hussein's dream, poverty and corruption.
Sheila| 9.21.11 @ 10:42AM
You can have a space program, or you can have BRA (black-run-America - i.e. American run for the benefit of blacks). http://stuffblackpeopledontlik.....ailed.html
WJW| 9.21.11 @ 11:25AM
Why is the state government taking over these failed cities? All the conservatives will get is grief in getting people to take their "fiscal" medicine.
Let the citizens of these communities live with the consequences of their votes. If a community eventually wises up, then give them a helping hand.
Anthony| 9.21.11 @ 12:25PM
Ah, but who will step in and take over the State of Michigan from its own inept governess? The people of America, yes, those same cold-blooded selfish money grubbers will bail out Michigan.
Calling Carl Levin, great job sir, you have served your state well, and it has followed your failed leftist policies right into the toilet, where by the way, you and your D party will end up in Nov. of 2012.
Pat| 9.21.11 @ 1:06PM
If you believe anyone in Michigan’s state government wants to take over the cities of Detroit, Flint, Pontiac or Benton Harbor, think again. It’s a daunting task, 100% downside, zero upside and in the end it will all come to nothing. Ask any adult who has taken responsibility for the care of an elderly parent suffering severe dementia – your beloved parent is seldom lucid and you’re responsible 24/7, you’re forced to explain to your kids why Grandma can’t remember their names and Grandma’s doctor has recently informed you she has a strong heart and will probably live another 10 to 15 years. We can thoroughly sympathize with such a caring adult, but we also know Grandma will never get better, she will only get worse and there is no way out for her family – a truly unfortunate situation.
And this is the very situation Michigan’s state government faces and, despite passage of new laws, nothing will change. What was underplayed within this article is that elected officials in Lansing have been forced to play out this dreary comedy many times in the past – yet they currently find themselves having to assume direct control once again with no hope whatsoever the situation will improve this time around – sorta déjà vu all over again.
Ironically, the problem stems from the citizens of these black majority Michigan cities basic inability to grasp the principles of self-government. As a case in point and starting even before Detroit’s race riots in 1967, white Detroiters - spearheaded by sympathetic Jews living in the Palmer Park, west 7 mile enclaves and the border suburbs of Oak Park and Southfield - began to demand a much larger share of municipal government be given to black politicians who were supported in turn by local religious leaders.
The cruel irony occurred after the riots of 67’ and 68’. White Detroiters bailed out of the city in a mass exodus to the suburbs, spearheaded by those very same Jewish residents who had demanded local Democrats give black Detroiters a far greater presence in city management. Whites within the Democratic Party had made paternalistic promises of help and personal mentoring but eventually black Detroiters found these lofty promises wouldn’t be sustained. Burning down your own home in protest served to extort much federal financial aid during the Lyndon Johnson era, but then this massive federal aid dried up over the ensuing decades. Emulating Democratic Party rule when whites ran the city resulted in the usual scandals, massive corruption and incompetent government common within majority Democratic strongholds but Detroit utterly failed to make the transition to a thriving self-rule. And it’s been that way ever since.
no hussein 2012| 9.21.11 @ 1:36PM
Don't forget about coleman the soul man!
Dan Hirsch| 9.21.11 @ 2:05PM
As long as 'adults' keep showing up and fixing things, these voters have no reason to change their voting behavior.
It is the same thing as threatening your teenager that if they don't clean up their room, you will. Good luck with that...
Dean | 9.21.11 @ 1:37PM
I was born and raised in St. Joseph, on the south bank of the St. Joseph River opposite Benton Harbor. It is a quaint, neat, prosperous town---the polar opposite of Benton Harbor. We used to joke that crossing the river from St. Joseph to Benton Harbor was like passing through Checkpoint Charlie from Cold-War West Berlin to East Berlin.
I am old enough to remember when Benton Harbor was a prosperous city . . . long, long ago, in a galaxy far, far away. Today, it is just a much-reduced version of Detroit with all of the attendent problems. There are efforts to improve the city. A PGA-standard golf course now occupies old factory sites, and Whirlpool Corp. is building a corporate campus on the banks of the river. Still, one wonders if anything can be done to save Benton Harbor; the city is too far gone.
A correction to the article. The scenic lighthouse to which the author refers is the North Pier light, which is in St. Joseph. Part of St. Joseph is on the north bank of the river. My house was located on the river bank and we could easily see the lighthouse.
no hussein 2012| 9.21.11 @ 2:19PM
The Detroit plantation is the progs dream, womb to tomb government support!
Mike D.| 9.21.11 @ 5:57PM
I was born in Detroit, I saw what is was in my time and where its gone. Michigan is kinda like the isrealites after they left Egypt and got in some trouble with God while Moses was getting the stones. They had to wander around until the generation that did the transgressions was consumed. Until the Unions and their schills in the government are finally interned at the dinosaur graveyard and consumed, this state will be a disaster wandering around in the business wasteland for years to come. 8 years of "Jenny the Great" and we were all blown away, right out of the state. Detroit was to be the prototype of the first black nation within a nation. A totally corrupt, incompetent, and completely self destructive class of black politicians pile drove this city into the ground. Its a pit, still is and will be also for generations to come. Unionism has done its share of the demolition. Take a good look America, Michigan and Detroit is where we are headed if these leftists are not put down for good at the voting booth.
no hussein 2012| 9.21.11 @ 7:04PM
Redford Township and then Farmington hills until I was 19, we know the truth.
Pecos Pete| 9.21.11 @ 2:24PM
Change the name of Michigan to California in the article, or Illinois, etc. The feds will be (maybe already are?) crawling all over themselves to take over any state when the sh*t hits the fan.
Marc Jeric| 9.21.11 @ 6:54PM
All government employees unions are by definition criminal conspiracies against the people, and should therefore be routinely prosecuted under the RICO Act laws.
no hussein 2012| 9.21.11 @ 7:05PM
Agreed, unions are communists.
al bundhii| 9.21.11 @ 8:02PM
Benton Harbor was the real name of that great old '60s superhero Super Chicken.( I'm dating myself.)
Ad Infinitum| 9.21.11 @ 8:14PM
It's a big world out there, Mr. Biddle, and it ain't all black. Look around, brother, broaden your horizons.
ZZZZZZZ
D Roamer | 9.21.11 @ 11:44PM
California is next for a series of basket case municipal financial ruinations and a near bankrupt state . It will stay afloat longer due to retirees are staying in their paid off homes, and then we have tourism. But state and city wants to tax their property some more. Most industry has gone or plan on leaving to - anywhere friendly to industry. Inner Los Angeles will be torn down and turned into small farm plots like Detroit. It's a shame, once a great place to live, work and be safe. No more.
POST American| 9.22.11 @ 12:10AM
--------------------BOTTOM LINE----------------------
----AND speaking of that rounding off,
wrapping up Globalist RED China set up,
sellout and TREASON OP.
Merlin| 9.22.11 @ 1:55AM
It seem we need a law that there can be NO defined benefits pensions. Your pension should be what is in your account and nothing else. A defined benefit generally works out to be a promise by person A that person B in some future will pay you what person A promised. Great deal unless you are person B.