Michigan is seizing control of failed local governments.
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In corporate America, turnarounds rarely work out. In education, they fare even worse. Just 11 percent of California elementary schools forced by state officials to undergo turnarounds were successful three years later, according to former Thomas B. Fordham scholar Andy Smarick. Save for the turnaround of New York City, few state takeovers of local governments have been successful. The birthplace of basketball, Springfield, Massachusetts, has had its finances under control of a state board for eight straight years now. Michigan knows this all too well: Michael Moore’s hometown of Flint, which spent two years under state control in the last decade, may end up under state control again by year’s end. Its sister city, Ecorse (whose insolvency led to the passage of the state’s first takeover law), is back under state control.
One reason why the efforts don’t work? The financial czars still have to struggle with the long-term consequences of overspending and public—sector union influence. In Michigan, the governments are constitutionally on the hook for pensions even if the obli-gations are too burdensome to bear. The fact that the unions still wield tremendous political clout through rank-and-file workers and campaign giving to state and local officials — along with the clout they retain to force a city back to the bargaining table once the finance czars finish their work — means that the conditions that led to a city’s insolvency remain in place. Given that city residents have been far too willing to accept fiscal mismanagement in the first place, the success of the overhauls will always remain an open question.
Snyder and his fellow state officials are themselves struggling to get the state’s finances in balance. Two previous years of budget tricks — including $1 billion in one-shot revenues for the 2010–2011 -fiscal year alone — forced state officials to cut spending and tax giveaways in order to make up a $1.2 billion shortfall in the state’s 2011-2012 budget. To keep the budget in balance, Snyder must either force the state’s own public-sector unions to agree to $145 million in concessions, or lay off some of the 47,000 employees on its payroll. Meanwhile Michigan faces a longer-term crisis in the form of at least $70 billion in public pension deficits; based on estimates by Northwestern’s Joshua D. Rauh and the University of Rochester’s Robert Novy-Marx, the busted pensions could be tapped out within the next 12 years.
Abolishing collective bargaining laws, a step taken by Michigan’s fellow Rust Belt state Wisconsin earlier this year, is one way local governments in Michigan and elsewhere could rid themselves of costly union contracts and return to a strong financial footing; so would getting rid of laws requiring local workers to contribute to unions whether they want to or not. States will also have to step in and address local pension issues as part of their efforts to deal with their own obligations. Ultimately, voters must finally subject their elected officials to scrutiny, and vote them out when they are overspending. If folks in Benton Harbor and other Michigan cities had done so years ago, their pols wouldn’t have run up such huge tabs in the first place.
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