SB-0865, As Passed Senate, December 13, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

HOUSE SUBSTITUTE FOR

 

SENATE BILL NO. 865

 

 

 

 

 

 

 

 

 

 

 

     A bill to safeguard and assure the financial accountability of

 

local units of government and school districts; to preserve the

 

capacity of local units of government and school districts to

 

provide or cause to be provided necessary services essential to the

 

public health, safety, and welfare; to provide for review,

 

management, planning, and control of the financial operation of

 

local units of government and school districts and the provision of

 

services by local units of government and school districts; to

 

provide criteria to be used in determining the financial condition

 

of local units of government and school districts; to authorize a

 

declaration of the existence of a financial emergency within a

 

local unit of government or school district; to prescribe remedial

 

measures to address a financial emergency within a local unit of

 


government or school district; to provide for a review and appeal

 

process; to provide for the appointment and to prescribe the powers

 

and duties of an emergency manager for a local unit of government

 

or school district; to provide for the modification or termination

 

of contracts under certain circumstances; to provide for the

 

termination of a financial emergency within a local unit of

 

government or school district; to provide a process by which a

 

local unit of government or school district may file for

 

bankruptcy; to prescribe the powers and duties of certain state

 

agencies and officials and officials within local units of

 

government and school districts; to provide for appropriations; and

 

to repeal acts and parts of acts.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 1. This act shall be known and may be cited as the "local

 

financial stability and choice act".

 

     Sec. 2. As used in this act:

 

     (a) "Chapter 9" means chapter 9 of title 11 of the United

 

States Code, 11 USC 901 to 946.

 

     (b) "Chief administrative officer" means any of the following:

 

     (i) The manager of a village or, if a village does not employ a

 

manager, the president of the village.

 

     (ii) The city manager of a city or, if a city does not employ a

 

city manager, the mayor of the city.

 

     (iii) The manager of a township or the manager or superintendent

 

of a charter township or, if the township does not employ a manager

 

or superintendent, the supervisor of the township.

 

     (iv) The elected county executive or appointed county manager

 


of a county or, if the county has not adopted the provisions of

 

either 1973 PA 139, MCL 45.551 to 45.573, or 1966 PA 293, MCL

 

45.501 to 45.521, the county's chairperson of the county board of

 

commissioners.

 

     (v) The chief operating officer of an authority or of a public

 

utility owned by a city, village, township, or county.

 

     (vi) The superintendent of a school district.

 

     (c) "Creditor" means either of the following:

 

     (i) An entity that has a noncontingent claim against a local

 

government that arose at the time of or before the commencement of

 

the neutral evaluation process and whose claim represents at least

 

$5,000,000.00 or comprises more than 5% of the local government's

 

debt or obligations, whichever is less.

 

     (ii) An entity that would have a noncontingent claim against

 

the local government upon the rejection of an executory contract or

 

unexpired lease in a chapter 9 case and whose claim would represent

 

at least $5,000,000.00 or would comprise more than 5% of the local

 

government's debt or obligations, whichever is less.

 

     (d) "Debtor" means a local government that is authorized to

 

proceed under chapter 9 by this act and that meets the requirements

 

of chapter 9.

 

     (e) "Emergency manager" means an emergency manager appointed

 

under section 9. An emergency manager includes an emergency

 

financial manager appointed under former 1988 PA 101 or former 1990

 

PA 72 who was acting in that capacity on the effective date of this

 

act.

 

     (f) "Entity" means a partnership, nonprofit or business

 


corporation, limited liability company, labor organization, or any

 

other association, corporation, trust, or other legal entity.

 

     (g) "Financial and operating plan" means a written financial

 

and operating plan for a local government under section 11,

 

including an educational plan for a school district.

 

     (h) "Good faith" means participation by an interested party or

 

a local government representative in the neutral evaluation process

 

with the intent to negotiate a resolution of the issues that are

 

the subject of the neutral evaluation process, including the timely

 

provision of complete and accurate information to provide the

 

relevant participants through the neutral evaluation process with

 

sufficient information, in a confidential manner, to negotiate the

 

readjustment of the local government's debt.

 

     (i) "Interested party" means a trustee, a committee of

 

creditors, an affected creditor, an indenture trustee, a pension

 

fund, a bondholder, a union that under its collective bargaining

 

agreements has standing to initiate contract negotiations with the

 

local government, or a representative selected by an association of

 

retired employees of the public entity who receive income or

 

benefits from the public entity. A local government may invite

 

holders of contingent claims to participate as interested parties

 

in the neutral evaluation process if the local government

 

determines that the contingency is likely to occur and the claim

 

may represent at least $5,000,000.00 or comprise more than 5% of

 

the local government's debt or obligations, whichever is less.

 

     (j) "Local emergency financial assistance loan board" means

 

the local emergency financial assistance loan board created under

 


section 2 of the emergency municipal loan act, 1980 PA 243, MCL

 

141.932.

 

     (k) "Local government" means a municipal government or a

 

school district.

 

     (l) "Local government representative" means the person or

 

persons designated by the governing body of the local government

 

with authority to make recommendations and to attend the neutral

 

evaluation process on behalf of the governing body of the local

 

government.

 

     (m) "Local inspector" means a certified forensic accountant,

 

certified public accountant, attorney, or similarly credentialed

 

person whose responsibility it is to determine the existence of

 

proper internal and management controls, fraud, criminal activity,

 

or any other accounting or management deficiencies.

 

     (n) "Municipal government" means a city, a village, a

 

township, a charter township, a county, a department of county

 

government if the county has an elected county executive under 1966

 

PA 293, MCL 45.501 to 45.521, an authority established by law, or a

 

public utility owned by a city, village, township, or county.

 

     (o) "Neutral evaluation process" means a form of alternative

 

dispute resolution or mediation between a local government and

 

interested parties as provided for in section 25.

 

     (p) "Neutral evaluator" means an impartial, unbiased person or

 

entity, commonly known as a mediator, who assists local governments

 

and interested parties in reaching their own settlement of issues

 

under this act, who is not aligned with any party, and who has no

 

authoritative decision-making power.

 


     (q) "Receivership" means the process under this act by which a

 

financial emergency is addressed through the appointment of an

 

emergency manager. Receivership does not include chapter 9 or any

 

provision under federal bankruptcy law.

 

     (r) "Review team" means a review team appointed under section

 

4.

 

     (s) "School board" means the governing body of a school

 

district.

 

     (t) "School district" means a school district as that term is

 

defined in section 6 of the revised school code, 1976 PA 451, MCL

 

380.6, or an intermediate school district as that term is defined

 

in section 4 of the revised school code, 1976 PA 451, MCL 380.4.

 

     (u) "State financial authority" means the following:

 

     (i) For a municipal government, the state treasurer.

 

     (ii) For a school district, the superintendent of public

 

instruction.

 

     (v) "Strong mayor" means a mayor who has been granted veto

 

power for any purpose under the charter of that local government.

 

     (w) "Strong mayor approval" means approval of a resolution

 

under 1 of the following conditions:

 

     (i) The strong mayor approves the resolution.

 

     (ii) The resolution is approved by the governing body with

 

sufficient votes to override a veto by the strong mayor.

 

     (iii) The strong mayor vetoes the resolution and the governing

 

body overrides the veto.

 

     Sec. 3. The legislature finds and declares all of the

 

following:

 


     (a) That the health, safety, and welfare of the citizens of

 

this state would be materially and adversely affected by the

 

insolvency of local governments and that the fiscal accountability

 

of local governments is vitally necessary to the interests of the

 

citizens of this state to assure the provision of necessary

 

governmental services essential to public health, safety, and

 

welfare.

 

     (b) That it is vitally necessary to protect the credit of this

 

state and its political subdivisions and that it is necessary for

 

the public good and it is a valid public purpose for this state to

 

take action and to assist a local government in a financial

 

emergency so as to remedy the financial emergency by requiring

 

prudent fiscal management and efficient provision of services,

 

permitting the restructuring of contractual obligations, and

 

prescribing the powers and duties of state and local government

 

officials and emergency managers.

 

     (c) That the fiscal stability of local governments is

 

necessary to the health, safety, and welfare of the citizens of

 

this state and it is a valid public purpose for this state to

 

assist a local government in a condition of financial emergency by

 

providing for procedures of alternative dispute resolution between

 

a local government and its creditors to resolve disputes, to

 

determine criteria for establishing the existence of a financial

 

emergency, and to set forth the conditions for a local government

 

to exercise powers under federal bankruptcy law.

 

     (d) That the authority and powers conferred by this act

 

constitute a necessary program and serve a valid public purpose.

 


     Sec. 4. (1) The state financial authority may conduct a

 

preliminary review to determine the existence of probable financial

 

stress within a local government if 1 or more of the following

 

occur:

 

     (a) The governing body or the chief administrative officer of

 

a local government requests a preliminary review. The request shall

 

be in writing and shall identify the existing or anticipated

 

financial conditions or events that make the request necessary.

 

     (b) The state financial authority receives a written request

 

from a creditor with an undisputed claim that remains unpaid 6

 

months after its due date against the local government that exceeds

 

the greater of $10,000.00 or 1% of the annual general fund budget

 

of the local government, provided that the creditor notifies the

 

local government in writing at least 30 days before his or her

 

request to the state financial authority of his or her intention to

 

submit a written request under this subdivision.

 

     (c) The state financial authority receives a petition

 

containing specific allegations of local government financial

 

distress signed by a number of registered electors residing within

 

the local government's jurisdiction equal to not less than 5% of

 

the total vote cast for all candidates for governor within the

 

local government's jurisdiction at the last preceding election at

 

which a governor was elected. Petitions shall not be filed under

 

this subdivision within 60 days before any election of the local

 

government.

 

     (d) The state financial authority receives written

 

notification that a local government has not timely deposited its

 


minimum obligation payment to the local government pension fund as

 

required by law.

 

     (e) The state financial authority receives written

 

notification that the local government has failed for a period of 7

 

days or more after the scheduled date of payment to pay wages and

 

salaries or other compensation owed to employees or benefits owed

 

to retirees.

 

     (f) The state financial authority receives written

 

notification from a trustee, paying agent, bondholder, or auditor

 

engaged by the local government of a default in a bond or note

 

payment or a violation of 1 or more bond or note covenants.

 

     (g) The state financial authority of a local government

 

receives a resolution from either the senate or the house of

 

representatives requesting a preliminary review.

 

     (h) The local government has violated a requirement of, or a

 

condition of an order issued pursuant to, former 1943 PA 202, the

 

revenue bond act of 1933, 1933 PA 94, MCL 141.101 to 141.140, the

 

revised municipal finance act, 2001 PA 34, MCL 141.2101 to

 

141.2821, or any other law governing the issuance of bonds or

 

notes.

 

     (i) The municipal government has violated the conditions of an

 

order issued by the local emergency financial assistance loan board

 

pursuant to the emergency municipal loan act, 1980 PA 243, MCL

 

141.931 to 141.942.

 

     (j) The local government has violated a requirement of

 

sections 17 to 20 of the uniform budgeting and accounting act, 1968

 

PA 2, MCL 141.437 to 141.440.

 


     (k) The local government fails to timely file an annual

 

financial report or audit that conforms with the minimum procedures

 

and standards of the state financial authority and is required for

 

local governments under the uniform budgeting and accounting act,

 

1968 PA 2, MCL 141.421 to 141.440a, or 1919 PA 71, MCL 21.41 to

 

21.55.

 

     (l) If the local government is a school district, the school

 

district fails to provide an annual financial report or audit that

 

conforms with the minimum procedures and standards of the

 

superintendent of public instruction and is required under the

 

revised school code, 1976 PA 451, MCL 380.1 to 380.1852, and the

 

state school aid act of 1979, 1979 PA 94, MCL 388.1601 to 388.1896.

 

     (m) The municipal government is delinquent in the distribution

 

of tax revenues, as required by law, that it has collected for

 

another taxing jurisdiction, and that taxing jurisdiction requests

 

a preliminary review.

 

     (n) The local government is in breach of its obligations under

 

a deficit elimination plan or an agreement entered into pursuant to

 

a deficit elimination plan.

 

     (o) A court has ordered an additional tax levy without the

 

prior approval of the governing body of the local government.

 

     (p) The municipal government has ended a fiscal year in a

 

deficit condition as defined in section 21 of the Glenn Steil state

 

revenue sharing act of 1971, 1971 PA 140, MCL 141.921, or has

 

failed to comply with the requirements of that section for filing

 

or instituting a financial plan to correct the deficit condition.

 

     (q) The school district ended its most recently completed

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

fiscal year with a deficit in 1 or more of its funds and the school

 

district has not submitted a deficit elimination plan to the state

 

financial authority within 30 days after the district's deadline

 

for submission of its annual financial statement.

 

     (r) The local government has been assigned a long-term debt

 

rating within or below the BBB category or its equivalent by 1 or

 

more nationally recognized credit rating agencies.

 

     (s) The existence of other facts or circumstances that, in the

 

state treasurer's sole discretion for a municipal government, are

 

indicative of probable financial stress or that, in the state

 

treasurer's or superintendent of public instruction's sole

 

discretion for a school district, are indicative of probable

 

financial stress.

 

     (2) Before commencing the preliminary review under subsection

 

(1), the state financial authority shall provide the local

 

government specific written notification that it intends to conduct

 

a preliminary review. Elected and appointed officials of a local

 

government shall promptly and fully provide the assistance and

 

information requested by the state financial authority for that

 

local government in conducting the preliminary review. The state

 

financial authority shall provide an interim report of its findings

 

to the local government within 20 days following the commencement

 

of the preliminary review. [In addition, a copy of the interim report

 shall be provided to each state senator and state representative who represents that local government.] The local government may provide

 

comments to the state financial authority concerning the interim

 

report within 5 days after the interim report is provided to the

 

local government. The state financial authority shall prepare and

 

provide a final report detailing its preliminary review to the

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

local emergency financial assistance loan board. [In addition, a copy of

 the final report shall be provided to each state senator and state representative who represents that local government.] The final report

 

shall be posted on the department of treasury's website within 7

 

days after the final report is provided to the local emergency

 

financial assistance loan board. The preliminary review and final

 

report by the state financial authority shall be completed within

 

30 days following commencement of the preliminary review. Within 20

 

days after receiving the final report from the state financial

 

authority, the local emergency financial assistance loan board

 

shall determine if probable financial stress exists for the local

 

government.

 

     (3) If a finding of probable financial stress is made for a

 

municipal government by the local emergency financial assistance

 

loan board under subsection (2), the governor shall appoint a

 

review team for that municipal government consisting of the state

 

treasurer or his or her designee, the director of the department of

 

technology, management, and budget or his or her designee, a

 

nominee of the senate majority leader, and a nominee of the speaker

 

of the house of representatives. The governor may appoint other

 

state officials or other persons with relevant professional

 

experience to serve on a review team to undertake a municipal

 

financial management review.

 

     (4) If a finding of probable financial stress is made for a

 

school district by the local emergency financial assistance loan

 

board under subsection (2), the governor shall appoint a review

 

team for that school district consisting of the state treasurer or

 

his or her designee, the superintendent of public instruction or

 

his or her designee, the director of the department of technology,

 


management, and budget or his or her designee, a nominee of the

 

senate majority leader, and a nominee of the speaker of the house

 

of representatives. The governor may appoint other state officials

 

or other persons with relevant professional experience to serve on

 

a review team to undertake a school district financial management

 

review.

 

     (5) The department of treasury shall provide staff support to

 

each review team appointed under this section.

 

     (6) A review team appointed under former 1988 PA 101 or former

 

1990 PA 72 and serving immediately prior to the effective date of

 

this act shall continue under this act to fulfill its powers and

 

duties. All proceedings and actions taken by the governor, the

 

state treasurer, the superintendent of public instruction, the

 

local emergency financial assistance loan board, or a review team

 

under former 2011 PA 4, former 1988 PA 101, or former 1990 PA 72

 

before the effective date of this act are ratified and are

 

enforceable as if the proceedings and actions were taken under this

 

act, and a consent agreement entered into under former 2011 PA 4,

 

former 1988 PA 101, or former 1990 PA 72 that was in effect

 

immediately prior to the effective date of this act is ratified and

 

is binding and enforceable under this act.

 

     Sec. 5. (1) In conducting its review, the review team may do

 

either or both of the following:

 

     (a) Examine the books and records of the local government.

 

     (b) Utilize the services of other state agencies and

 

employees.

 

     (2) The review team shall meet with the local government as

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

part of its review. At this meeting, the review team shall receive,

 

discuss, and consider information provided by the local government

 

concerning the financial condition of the local government. In

 

addition, the review team shall hold at least 1 public information

 

meeting in the jurisdiction of the local government at which the

 

public may provide comment.

 

     (3) The review team shall submit a written report of its

 

findings to the governor within 60 days following its appointment

 

or earlier if required by the governor. Upon request, the governor

 

may grant one 30-day extension of this 60-day time limit. A copy of

 

the report shall be forwarded by the state treasurer to the chief

 

administrative officer and the governing body of the local

 

government, the speaker of the house of representatives, the senate

 

majority leader, [   ] the superintendent of public instruction if

 

the local government is a school district[, and each state senator and

 state representative who represents that local government]. The report shall be

 

posted on the department of treasury's website within 7 days after

 

the report is submitted to the governor. The report shall include

 

the existence, or an indication of the likely occurrence, of any of

 

the following:

 

     (a) A default in the payment of principal or interest upon

 

bonded obligations, notes, or other municipal securities for which

 

no funds or insufficient funds are on hand and, if required,

 

segregated in a special trust fund.

 

     (b) Failure for a period of 30 days or more beyond the due

 

date to transfer 1 or more of the following to the appropriate

 

agency:

 

     (i) Taxes withheld on the income of employees.

 


     (ii) For a municipal government, taxes collected by the

 

municipal government as agent for another governmental unit, school

 

district, or other entity or taxing authority.

 

     (iii) Any contribution required by a pension, retirement, or

 

benefit plan.

 

     (c) Failure for a period of 7 days or more after the scheduled

 

date of payment to pay wages and salaries or other compensation

 

owed to employees or benefits owed to retirees.

 

     (d) The total amount of accounts payable for the current

 

fiscal year, as determined by the state financial authority's

 

uniform chart of accounts, is in excess of 10% of the total

 

expenditures of the local government in that fiscal year.

 

     (e) Failure to eliminate an existing deficit in any fund of

 

the local government within the 2-year period preceding the end of

 

the local government's fiscal year during which the review team

 

report is received.

 

     (f) Projection of a deficit in the general fund of the local

 

government for the current fiscal year in excess of 5% of the

 

budgeted revenues for the general fund.

 

     (g) Failure to comply in all material respects with the terms

 

of an approved deficit elimination plan or an agreement entered

 

into pursuant to a deficit elimination plan.

 

     (h) Existence of material loans to the general fund from other

 

local government funds that are not regularly settled between the

 

funds or that are increasing in scope.

 

     (i) Existence after the close of the fiscal year of material

 

recurring unbudgeted subsidies from the general fund to other major

 


funds as defined under government accounting standards board

 

principles.

 

     (j) Existence of a structural operating deficit.

 

     (k) Use of restricted revenues for purposes not authorized by

 

law.

 

     (l) The likelihood that the local government is or will be

 

unable to pay its obligations within 60 days after the date of the

 

review team's reporting its findings to the governor.

 

     (m) Any other facts and circumstances indicative of local

 

government financial emergency.

 

     (4) The review team shall include 1 of the following

 

conclusions in its report:

 

     (a) A financial emergency does not exist within the local

 

government.

 

     (b) A financial emergency exists within the local government.

 

     (5) The review team may, with the approval of the state

 

financial authority, appoint an individual or firm to carry out the

 

review and submit a report to the review team for approval. The

 

department of treasury may enter into a contract with the

 

individual or firm respecting the terms and conditions of the

 

appointment.

 

     (6) For purposes of this section:

 

     (a) A financial emergency does not exist within a local

 

government if the report under subsection (3) concludes that none

 

of the factors in subsection (3) exist or are likely to occur

 

within the current or next succeeding fiscal year or, if they

 

occur, do not threaten the local government's capability to provide

 


necessary governmental services essential to public health, safety,

 

and welfare.

 

     (b) A financial emergency exists within a local government if

 

any of the following occur:

 

     (i) The report under subsection (3) concludes that 1 or more of

 

the factors in subsection (3) exist or are likely to occur within

 

the current or next succeeding fiscal year and threaten the local

 

government's current and future capability to provide necessary

 

governmental services essential to the public health, safety, and

 

welfare.

 

     (ii) The local government has failed to provide timely and

 

accurate information enabling the review team to complete its

 

report under subsection (3).

 

     (iii) The local government has failed to comply in all material

 

respects with the terms of an approved deficit elimination plan or

 

an agreement entered into pursuant to a deficit elimination plan.

 

     (iv) The chief administrative officer of the local government

 

concludes that 1 or more of the factors in subsection (3) exist or

 

are likely to occur within the current or next succeeding fiscal

 

year and threaten the local government's current and future

 

capability to provide necessary governmental services essential to

 

the public health, safety, and welfare, and the chief

 

administrative officer recommends that a financial emergency be

 

declared and the state treasurer concurs with the recommendation.

 

     Sec. 6. (1) Within 10 days after receipt of the report under

 

section 5, the governor shall make 1 of the following

 

determinations:

 


     (a) A financial emergency does not exist within the local

 

government.

 

     (b) A financial emergency exists within the local government.

 

     (2) Before making a determination under subsection (1), the

 

governor, in his or her sole discretion, may provide officials of

 

the local government an opportunity to submit a written statement

 

concerning their agreement or disagreement with the findings and

 

conclusion of the review team report under section 5. If the

 

governor determines pursuant to subsection (1) that a financial

 

emergency exists, the governor shall provide the governing body and

 

chief administrative officer of the local government with a written

 

notification of the determination, findings of fact utilized as the

 

basis upon which this determination was made, a concise and

 

explicit statement of the underlying facts supporting the factual

 

findings, and notice that the chief administrative officer or the

 

governing body of the local government has 7 days after the date of

 

the notification to request a hearing conducted by the state

 

financial authority or the state financial authority's designee.

 

Following the hearing, or if no hearing is requested following the

 

expiration of the deadline by which a hearing may be requested, the

 

governor, in his or her sole discretion based upon the record,

 

shall either confirm or revoke, in writing, the determination of

 

the existence of a financial emergency. If confirmed, the governor

 

shall provide a written report to the governing body and chief

 

administrative officer of the local government of the findings of

 

fact of the continuing or newly developed conditions or events

 

providing a basis for the confirmation of a financial emergency and

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

a concise and explicit statement of the underlying facts supporting

 

these factual findings. [In addition, a copy of the report shall be

 provided to each state senator and state representative who represents that local government.] The report shall be posted on the

 

department of treasury's website within 7 days after the report is

 

provided to the governing body and chief executive officer of the

 

local government.

 

     (3) A local government for which a financial emergency

 

determination under this section has been confirmed to exist may,

 

by resolution adopted by a vote of 2/3 of the members of its

 

governing body elected and serving, appeal this determination

 

within 10 business days to the Michigan court of claims. A local

 

government may, by resolution adopted by a vote of 2/3 of the

 

members of its governing body elected and serving, waive its right

 

to appeal as provided in this subsection. The court shall not set

 

aside a determination of financial emergency by the governor unless

 

it finds that the determination is either of the following:

 

     (a) Not supported by competent, material, and substantial

 

evidence on the whole record.

 

     (b) Arbitrary, capricious, or clearly an abuse or unwarranted

 

exercise of discretion.

 

     Sec. 7. (1) Notwithstanding section 6(3), upon the

 

confirmation of a finding of a financial emergency under section 6,

 

the governing body of the local government shall, by resolution

 

within 7 days after the confirmation of a finding of a financial

 

emergency, select 1 of the following local government options to

 

address the financial emergency:

 

     (a) The consent agreement option pursuant to section 8.

 

     (b) The emergency manager option pursuant to section 9.

 


     (c) The neutral evaluation process option pursuant to section

 

25.

 

     (d) The chapter 9 bankruptcy option pursuant to section 26.

 

     (2) Subject to subsection (3), if the local government has a

 

strong mayor, the resolution under subsection (1) requires strong

 

mayor approval. If the local government is a school district, the

 

resolution shall be approved by the school board. The resolution

 

shall be filed with the state treasurer, with a copy to the

 

superintendent of public instruction if the local government is a

 

school district.

 

     (3) If the governing body of the local government does not

 

pass a resolution as required under subsection (1), the local

 

government shall proceed under the neutral evaluation process

 

pursuant to section 25.

 

     (4) Subject to section 9(6)(c) and (11), unless authorized by

 

the governor, a local government shall not utilize 1 of the local

 

options listed in subsection (1)(a) to (d) more than 1 time.

 

     Sec. 8. (1) The chief administrative officer of a local

 

government may negotiate and sign a consent agreement with the

 

state treasurer as provided for in this act. If the local

 

government is a school district and the consent agreement contains

 

an educational plan, the consent agreement shall also be signed by

 

the superintendent of public instruction. The consent agreement

 

shall provide for remedial measures considered necessary to address

 

the financial emergency within the local government and provide for

 

the financial stability of the local government. The consent

 

agreement may utilize state financial management and technical

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

assistance as necessary in order to alleviate the financial

 

emergency. The consent agreement shall also provide for periodic

 

financial status reports to the state treasurer[, with a copy of each

 report to each state senator and state representative who represents that local government]. The consent

 

agreement may provide for a board appointed by the governor to

 

monitor the local government's compliance with the consent

 

agreement. In order for the consent agreement to go into effect, it

 

shall be approved, by resolution, by the governing body of the

 

local government and shall be approved and executed by the state

 

treasurer. Nothing in the consent agreement shall limit the ability

 

of the state treasurer in his or her sole discretion to declare a

 

material breach of the consent agreement. A consent agreement shall

 

provide that in the event of a material uncured breach of the

 

consent agreement, the governor may place the local government in

 

receivership or in the neutral evaluation process. If within 30

 

days after a local government selects the consent agreement option

 

under section 7(1)(a) or sooner in the discretion of the state

 

treasurer, a consent agreement cannot be agreed upon, the state

 

treasurer shall require the local government to proceed under 1 of

 

the other local options provided for in section 7.

 

     (2) A consent agreement as provided in subsection (1) may

 

require a continuing operations plan or a recovery plan if required

 

by the state treasurer.

 

     (3) If the state treasurer requires that a consent agreement

 

include a continuing operations plan, the local government shall

 

prepare and file the continuing operations plan with the state

 

treasurer as provided for in the consent agreement. The state

 

treasurer shall approve or reject the initial continuing operations

 


plan within 14 days of receiving it from the local government. If a

 

continuing operations plan is rejected, the local government shall

 

refile an amended plan within 30 days of the rejection, addressing

 

any concerns raised by the state treasurer or the superintendent of

 

public instruction regarding an educational plan. If the amended

 

plan is rejected, then the local government may be considered to be

 

in material breach of the consent agreement. The local government

 

shall file annual updates to its continuing operations plan. The

 

annual updates shall be included with the annual filing of the

 

local government's audit report with the state financial authority

 

as long as the continuing operations plan remains in effect.

 

     (4) The continuing operations plan shall be in a form

 

prescribed by the state treasurer but shall, at a minimum, include

 

all of the following:

 

     (a) A detailed projected budget of revenues and expenditures

 

over not less than 3 fiscal years which demonstrates that the local

 

government's expenditures will not exceed its revenues and that any

 

existing deficits will be eliminated during the projected budget

 

period.

 

     (b) A cash flow projection for the budget period.

 

     (c) An operating plan for the budget period that assures

 

fiscal accountability for the local government.

 

     (d) A plan showing reasonable and necessary maintenance and

 

capital expenditures so as to assure the local government's fiscal

 

accountability.

 

     (e) An evaluation of the costs associated with pension and

 

postemployment health care obligations for which the local

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

government is responsible and a plan for how those costs will be

 

addressed within the budget period.

 

     (f) A provision for submitting quarterly compliance reports to

 

the state treasurer demonstrating compliance with the continuing

 

operations plan[, with a copy of each report to each state senator and

 state representative who represents that local government]. Each quarterly compliance report shall be posted

 

on the local government's website within 7 days after the report is

 

submitted to the state treasurer.

 

     (5) If a continuing operations plan is approved for a

 

municipal government, the municipal government shall amend the

 

budget and general appropriations ordinance adopted by the

 

municipal government under the uniform budgeting and accounting

 

act, 1968 PA 2, MCL 141.421 to 141.440a, to the extent necessary or

 

advisable to give full effect to the continuing operations plan. If

 

a continuing operations plan is approved for a school district, the

 

school district shall amend the budget adopted by the school

 

district under the uniform budgeting and accounting act, 1968 PA 2,

 

MCL 141.421 to 141.440a, to the extent necessary or advisable to

 

give full effect to the continuing operations plan. The chief

 

administrative officer, the chief financial officer, the governing

 

body, and other officials of the local government shall take and

 

direct such actions as may be necessary or advisable to maintain

 

the local government's operations in compliance with the continuing

 

operations plan.

 

     (6) If the state treasurer requires that a consent agreement

 

include a recovery plan, the state treasurer, with input from the

 

local government, shall develop and adopt a recovery plan. If a

 

recovery plan is developed and adopted for the local government,

 


the local government shall file annual updates to its recovery

 

plan. The annual updates shall be included with the annual filing

 

of the local government's audit report with the state financial

 

authority as long as the recovery plan remains in effect.

 

     (7) A recovery plan may include terms and provisions as may be

 

approved in the discretion of the state treasurer, including, but

 

not limited to, 1 or more of the following:

 

     (a) A detailed projected budget of revenues and expenditures

 

over not less than 3 fiscal years that demonstrates that the local

 

government's expenditures will not exceed its revenues and that any

 

existing deficits will be eliminated during the projected budget

 

period.

 

     (b) A cash flow projection for the budget period.

 

     (c) An operating plan for the budget period that assures

 

fiscal accountability for the local government.

 

     (d) A plan showing reasonable and necessary maintenance and

 

capital expenditures so as to assure the local government's fiscal

 

accountability.

 

     (e) An evaluation of costs associated with pension and

 

postemployment health care obligations for which the local

 

government is responsible and a plan for how those costs will be

 

addressed to assure that current obligations are met and that steps

 

are taken to reduce future unfunded obligations.

 

     (f) Procedures for cash control and cash management,

 

including, but not limited to, procedures for timely collection,

 

securing, depositing, balancing, and expending of cash. Procedures

 

for cash control and cash management may include the designation of

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

appropriate fiduciaries.

 

     (g) A provision for submitting quarterly compliance reports to

 

the state treasurer and the chief administrative officer of the

 

local government that demonstrate compliance with the recovery

 

plan[, with a copy of each report to each state senator and state

 representative who represents that local government]. Each quarterly compliance report shall be posted on the local

 

government's website within 7 days after the report is submitted to

 

the state treasurer.

 

     (8) The recovery plan may include the appointment of a local

 

auditor or local inspector, or both, in accordance with section

 

12(1)(p).

 

     (9) If a recovery plan is developed and adopted by the state

 

treasurer for a local government, the recovery plan shall supersede

 

the budget and general appropriations ordinance adopted by the

 

local government under the uniform budgeting and accounting act,

 

1968 PA 2, MCL 141.421 to 141.440a, and the budget and general

 

appropriations ordinance is considered amended to the extent

 

necessary or advisable to give full effect to the recovery plan. In

 

the event of any inconsistency between the recovery plan and the

 

budget or general appropriations ordinance, the recovery plan shall

 

control. The chief administrative officer, the chief financial

 

officer, the governing body, and other officers of the local

 

government shall take and direct actions as may be necessary or

 

advisable to bring and maintain the local government's operations

 

in compliance with the recovery plan.

 

     (10) Except as otherwise provided in this subsection, the

 

consent agreement may include a grant to the chief administrative

 

officer, the chief financial officer, the governing body, or other

 


officers of the local government by the state treasurer of 1 or

 

more of the powers prescribed for emergency managers as otherwise

 

provided in this act for such periods and upon such terms and

 

conditions as the state treasurer considers necessary or

 

convenient, in the state treasurer's discretion to enable the local

 

government to achieve the goals and objectives of the consent

 

agreement. However, the consent agreement shall not include a grant

 

to the chief administrative officer, the chief financial officer,

 

the governing body, or other officers of the local government of

 

the powers prescribed for emergency managers in section 12(1)(k).

 

     (11) Unless the state treasurer determines otherwise,

 

beginning 30 days after the date a local government enters into a

 

consent agreement under this act, that local government is not

 

subject to section 15(1) of 1947 PA 336, MCL 423.215, for the

 

remaining term of the consent agreement.

 

     (12) The consent agreement may provide for the required

 

retention by the local government of a consultant for the purpose

 

of assisting the local government to achieve the goals and

 

objectives of the consent agreement.

 

     (13) A local government is released from the requirements

 

under this section upon compliance with the consent agreement as

 

determined by the state treasurer.

 

     Sec. 9. (1) The governor may appoint an emergency manager to

 

address a financial emergency within that local government as

 

provided for in this act.

 

     (2) Upon appointment, an emergency manager shall act for and

 

in the place and stead of the governing body and the office of

 


chief administrative officer of the local government. The emergency

 

manager shall have broad powers in receivership to rectify the

 

financial emergency and to assure the fiscal accountability of the

 

local government and the local government's capacity to provide or

 

cause to be provided necessary governmental services essential to

 

the public health, safety, and welfare. Following appointment of an

 

emergency manager and during the pendency of receivership, the

 

governing body and the chief administrative officer of the local

 

government shall not exercise any of the powers of those offices

 

except as may be specifically authorized in writing by the

 

emergency manager or as otherwise provided by this act and are

 

subject to any conditions required by the emergency manager.

 

     (3) All of the following apply to an emergency manager:

 

     (a) The emergency manager shall have a minimum of 5 years'

 

experience and demonstrable expertise in business, financial, or

 

local or state budgetary matters.

 

     (b) The emergency manager may, but need not, be a resident of

 

the local government.

 

     (c) The emergency manager shall be an individual.

 

     (d) Except as otherwise provided in this subdivision, the

 

emergency manager shall serve at the pleasure of the governor. An

 

emergency manager is subject to impeachment and conviction by the

 

legislature as if he or she were a civil officer under section 7 of

 

article XI of the state constitution of 1963. A vacancy in the

 

office of emergency manager shall be filled in the same manner as

 

the original appointment.

 

     (e) The emergency manager's compensation shall be paid by this

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

state and shall be set forth in a contract approved by the state

 

treasurer. The contract shall be posted on the department of

 

treasury's website within 7 days after the contract is approved by

 

the state treasurer.

 

     (f) In addition to the salary provided to an emergency manager

 

in a contract approved by the state treasurer under subdivision

 

(e), this state may receive and distribute private funds to an

 

emergency manager. As used in this subdivision, "private funds"

 

means any money the state receives for the purpose of allocating

 

additional salary to an emergency manager. Private funds

 

distributed under this subdivision are subject to section 1 of 1901

 

PA 145, MCL 21.161, and section 17 of article IX of the state

 

constitution of 1963.

 

     (4) In addition to staff otherwise authorized by law, an

 

emergency manager shall appoint additional staff and secure

 

professional assistance as the emergency manager considers

 

necessary to fulfill his or her appointment.

 

     (5) The emergency manager shall submit quarterly reports to

 

the state treasurer with respect to the financial condition of the

 

local government in receivership, with a copy to the superintendent

 

of public instruction if the local government is a school district [and

 a copy to each state senator and state representative who represents that local government].

 

In addition, each quarterly report shall be posted on the local

 

government's website within 7 days after the report is submitted to

 

the state treasurer.

 

     (6) The emergency manager shall continue in the capacity of an

 

emergency manager as follows:

 

     (a) Until removed by the governor or the legislature as

 


provided in subsection (3)(d). If an emergency manager is removed,

 

the governor shall within 30 days of the removal appoint a new

 

emergency manager.

 

     (b) Until the financial emergency is rectified.

 

     (c) If the emergency manager has served for at least 18 months

 

after his or her appointment under this act, the emergency manager

 

may, by resolution, be removed by a 2/3 vote of the governing body

 

of the local government. If the local government has a strong

 

mayor, the resolution requires strong mayor approval before the

 

emergency manager may be removed. Notwithstanding section 7(4), if

 

the emergency manager is removed under this subsection and the

 

local government has not previously breached a consent agreement

 

under this act, the local government may within 10 days negotiate a

 

consent agreement with the state treasurer. If a consent agreement

 

is not agreed upon within 10 days, the local government shall

 

proceed with the neutral evaluation process pursuant to section 25.

 

     (7) A local government shall be removed from receivership when

 

the financial conditions are corrected in a sustainable fashion as

 

provided in this act. In addition, the local government may be

 

removed from receivership if an emergency manager is removed under

 

subsection (6)(c) and the governing body of the local government by

 

2/3 vote approves a resolution for the local government to be

 

removed from receivership. If the local government has a strong

 

mayor, the resolution requires strong mayor approval before the

 

local government is removed from receivership. A local government

 

that is removed from receivership while a financial emergency

 

continues to exist as determined by the governor shall proceed

 


under the neutral evaluation process pursuant to section 25.

 

     (8) The governor may delegate his or her duties under this

 

section to the state treasurer.

 

     (9) Notwithstanding section 3(1) of 1968 PA 317, MCL 15.323,

 

an emergency manager is subject to all of the following:

 

     (a) 1968 PA 317, MCL 15.321 to 15.330, as a public servant.

 

     (b) 1973 PA 196, MCL 15.341 to 15.348, as a public officer.

 

     (c) 1968 PA 318, MCL 15.301 to 15.310, as if he or she were a

 

state officer.

 

     (10) An emergency financial manager appointed under former

 

1988 PA 101 or former 1990 PA 72, and serving immediately prior to

 

the effective date of this act, shall be considered an emergency

 

manager under this act and shall continue under this act to fulfill

 

his or her powers and duties. Notwithstanding any other provision

 

of this act, the governor may appoint a person who was appointed as

 

an emergency manager under former 2011 PA 4 or an emergency

 

financial manager under former 1988 PA 101 or former 1990 PA 72 to

 

serve as an emergency manager under this act.

 

     (11) Notwithstanding section 7(4) and subject to the

 

requirements of this section, if an emergency manager has served

 

for less than 18 months after his or her appointment under this

 

act, the governing body of the local government may pass a

 

resolution petitioning the governor to remove the emergency manager

 

as provided in this section and allow the local government to

 

proceed under the neutral evaluation process as provided in section

 

25. If the local government has a strong mayor, the resolution

 

requires strong mayor approval. If the governor accepts the

 


resolution, notwithstanding section 7(4), the local government

 

shall proceed under the neutral evaluation process as provided in

 

section 25.

 

     Sec. 10. (1) An emergency manager shall issue to the

 

appropriate local elected and appointed officials and employees,

 

agents, and contractors of the local government the orders the

 

emergency manager considers necessary to accomplish the purposes of

 

this act, including, but not limited to, orders for the timely and

 

satisfactory implementation of a financial and operating plan,

 

including an educational plan for a school district, or to take

 

actions, or refrain from taking actions, to enable the orderly

 

accomplishment of the financial and operating plan. An order issued

 

under this section is binding on the local elected and appointed

 

officials and employees, agents, and contractors of the local

 

government to whom it is issued. Local elected and appointed

 

officials and employees, agents, and contractors of the local

 

government shall take and direct those actions that are necessary

 

and advisable to maintain compliance with the financial and

 

operating plan.

 

     (2) If an order of the emergency manager under subsection (1)

 

is not carried out and the failure to carry out an order is

 

disrupting the emergency manager's ability to manage the local

 

government, the emergency manager, in addition to other remedies

 

provided in this act, may prohibit the local elected or appointed

 

official or employee, agent, or contractor of the local government

 

from access to the local government's office facilities, electronic

 

mail, and internal information systems.

 


     Sec. 11. (1) An emergency manager shall develop and may amend

 

a written financial and operating plan for the local government.

 

The plan shall have the objectives of assuring that the local

 

government is able to provide or cause to be provided governmental

 

services essential to the public health, safety, and welfare and

 

assuring the fiscal accountability of the local government. The

 

financial and operating plan shall provide for all of the

 

following:

 

     (a) Conducting all aspects of the operations of the local

 

government within the resources available according to the

 

emergency manager's revenue estimate.

 

     (b) The payment in full of the scheduled debt service

 

requirements on all bonds, notes, and municipal securities of the

 

local government, contract obligations in anticipation of which

 

bonds, notes, and municipal securities are issued, and all other

 

uncontested legal obligations.

 

     (c) The modification, rejection, termination, and

 

renegotiation of contracts pursuant to section 12.

 

     (d) The timely deposit of required payments to the pension

 

fund for the local government or in which the local government

 

participates.

 

     (e) For school districts, an educational plan.

 

     (f) Any other actions considered necessary by the emergency

 

manager in the emergency manager's discretion to achieve the

 

objectives of the financial and operating plan, alleviate the

 

financial emergency, and remove the local government from

 

receivership.

 


     (2) Within 45 days after the emergency manager's appointment,

 

the emergency manager shall submit the financial and operating

 

plan, and an educational plan if the local government is a school

 

district, to the state treasurer, with a copy to the superintendent

 

of public instruction if the local government is a school district,

 

and to the chief administrative officer and governing body of the

 

local government. The plan shall be regularly reexamined by the

 

emergency manager and the state treasurer and may be modified from

 

time to time by the emergency manager with notice to the state

 

treasurer. If the emergency manager reduces his or her revenue

 

estimates, the emergency manager shall modify the plan to conform

 

to the revised revenue estimates.

 

     (3) The financial and operating plan shall be in a form as

 

provided by the state treasurer and shall contain that information

 

for each year during which year the plan is in effect that the

 

emergency manager, in consultation with the state financial

 

authority, specifies. The financial and operating plan may serve as

 

a deficit elimination plan otherwise required by law if so approved

 

by the state financial authority.

 

     (4) The emergency manager, within 30 days of submitting the

 

financial and operating plan to the state financial authority,

 

shall conduct a public informational meeting on the plan and any

 

modifications to the plan. This subsection does not mean that the

 

emergency manager must receive public approval before he or she

 

implements the plan or any modification of the plan.

 

     (5) For a local government in receivership immediately prior

 

to the effective date of this act, a financial and operating plan

 


for that local government adopted under former 2011 PA 4 or a

 

financial plan for that local government adopted under former 1990

 

PA 72 shall be effective and enforceable as a financial and

 

operating plan for the local government under this act until

 

modified or rescinded under this act.

 

     Sec. 12. (1) An emergency manager may take 1 or more of the

 

following additional actions with respect to a local government

 

that is in receivership, notwithstanding any charter provision to

 

the contrary:

 

     (a) Analyze factors and circumstances contributing to the

 

financial emergency of the local government and initiate steps to

 

correct the condition.

 

     (b) Amend, revise, approve, or disapprove the budget of the

 

local government, and limit the total amount appropriated or

 

expended.

 

     (c) Receive and disburse on behalf of the local government all

 

federal, state, and local funds earmarked for the local government.

 

These funds may include, but are not limited to, funds for specific

 

programs and the retirement of debt.

 

     (d) Require and approve or disapprove, or amend or revise, a

 

plan for paying all outstanding obligations of the local

 

government.

 

     (e) Require and prescribe the form of special reports to be

 

made by the finance officer of the local government to its

 

governing body, the creditors of the local government, the

 

emergency manager, or the public.

 

     (f) Examine all records and books of account, and require

 


under the procedures of the uniform budgeting and accounting act,

 

1968 PA 2, MCL 141.421 to 141.440a, or 1919 PA 71, MCL 21.41 to

 

21.55, or both, the attendance of witnesses and the production of

 

books, papers, contracts, and other documents relevant to an

 

analysis of the financial condition of the local government.

 

     (g) Make, approve, or disapprove any appropriation, contract,

 

expenditure, or loan, the creation of any new position, or the

 

filling of any vacancy in a position by any appointing authority.

 

     (h) Review payrolls or other claims against the local

 

government before payment.

 

     (i) Notwithstanding any minimum staffing level requirement

 

established by charter or contract, establish and implement

 

staffing levels for the local government.

 

     (j) Reject, modify, or terminate 1 or more terms and

 

conditions of an existing contract.

 

     (k) Subject to section 19, after meeting and conferring with

 

the appropriate bargaining representative and, if in the emergency

 

manager's sole discretion and judgment, a prompt and satisfactory

 

resolution is unlikely to be obtained, reject, modify, or terminate

 

1 or more terms and conditions of an existing collective bargaining

 

agreement. The rejection, modification, or termination of 1 or more

 

terms and conditions of an existing collective bargaining agreement

 

under this subdivision is a legitimate exercise of the state's

 

sovereign powers if the emergency manager and state treasurer

 

determine that all of the following conditions are satisfied:

 

     (i) The financial emergency in the local government has created

 

a circumstance in which it is reasonable and necessary for the

 


state to intercede to serve a significant and legitimate public

 

purpose.

 

     (ii) Any plan involving the rejection, modification, or

 

termination of 1 or more terms and conditions of an existing

 

collective bargaining agreement is reasonable and necessary to deal

 

with a broad, generalized economic problem.

 

     (iii) Any plan involving the rejection, modification, or

 

termination of 1 or more terms and conditions of an existing

 

collective bargaining agreement is directly related to and designed

 

to address the financial emergency for the benefit of the public as

 

a whole.

 

     (iv) Any plan involving the rejection, modification, or

 

termination of 1 or more terms and conditions of an existing

 

collective bargaining agreement is temporary and does not target

 

specific classes of employees.

 

     (l) Act as sole agent of the local government in collective

 

bargaining with employees or representatives and approve any

 

contract or agreement.

 

     (m) If a municipal government's pension fund is not

 

actuarially funded at a level of 80% or more, according to the most

 

recent governmental accounting standards board's applicable

 

standards, at the time the most recent comprehensive annual

 

financial report for the municipal government or its pension fund

 

was due, the emergency manager may remove 1 or more of the serving

 

trustees of the local pension board or, if the state treasurer

 

appoints the emergency manager as the sole trustee of the local

 

pension board, replace all the serving trustees of the local

 


pension board. For the purpose of determining the pension fund

 

level under this subdivision, the valuation shall exclude the net

 

value of pension bonds or evidence of indebtedness. The annual

 

actuarial valuation for the municipal government's pension fund

 

shall use the actuarial accrued liabilities and the actuarial value

 

of assets. If a pension fund uses the aggregate actuarial cost

 

method or a method involving a frozen accrued liability, the

 

retirement system actuary shall use the entry age normal actuarial

 

cost method. If the emergency manager serves as sole trustee of the

 

local pension board, all of the following apply:

 

     (i) The emergency manager shall assume and exercise the

 

authority and fiduciary responsibilities of the local pension board

 

including, to the extent applicable, setting and approval of all

 

actuarial assumptions for pension obligations of a municipal

 

government to the local pension fund.

 

     (ii) The emergency manager shall fully comply with the public

 

employee retirement system investment act, 1965 PA 314, MCL 38.1132

 

to 38.1140m, and section 24 of article IX of the state constitution

 

of 1963, and any actions taken shall be consistent with the pension

 

fund's qualified plan status under the federal internal revenue

 

code.

 

     (iii) The emergency manager shall not make changes to a local

 

pension fund without identifying the changes and the costs and

 

benefits associated with the changes and receiving the state

 

treasurer's approval for the changes. If a change includes the

 

transfer of funds from 1 pension fund to another pension fund, the

 

valuation of the pension fund receiving the transfer must be

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

actuarially funded at a level of 80% or more, according to the most

 

recent governmental accounting standards board's applicable

 

standards, at the time the most recent comprehensive annual

 

financial report for the municipal government was due.

 

     (iv) The emergency manager's assumption and exercise of the

 

authority and fiduciary responsibilities of the local pension board

 

shall end not later than the termination of the receivership of the

 

municipal government as provided in this act.

 

     (n) Consolidate or eliminate departments of the local

 

government or transfer functions from 1 department to another and

 

appoint, supervise, and, at his or her discretion, remove

 

administrators, including heads of departments other than elected

 

officials.

 

     (o) Employ or contract for, at the expense of the local

 

government and with the approval of the state financial authority,

 

auditors and other technical personnel considered necessary to

 

implement this act.

 

     (p) Retain 1 or more persons or firms, which may be an

 

individual or firm selected from a list approved by the state

 

treasurer, to perform the duties of a local inspector or a local

 

auditor as described in this subdivision. The duties of a local

 

inspector are to assure integrity, economy, efficiency, and

 

effectiveness in the operations of the local government by

 

conducting meaningful and accurate investigations and forensic

 

audits, and to detect and deter waste, fraud, and abuse. At least

 

annually, a report of the local inspector shall be submitted to the

 

emergency manager, the state treasurer, [   ] the superintendent of

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

public instruction if the local government is a school district[, and

each state senator and state representative who represents that local government].

 

The annual report of the local inspector shall be posted on the

 

local government's website within 7 days after the report is

 

submitted. The duties of a local auditor are to assure that

 

internal controls over local government operations are designed and

 

operating effectively to mitigate risks that hamper the achievement

 

of the emergency manager's financial plan, assure that local

 

government operations are effective and efficient, assure that

 

financial information is accurate, reliable, and timely, comply

 

with policies, regulations, and applicable laws, and assure assets

 

are properly managed. At least annually, a report of the local

 

auditor shall be submitted to the emergency manager, the state

 

treasurer, [   ] the superintendent of public instruction if the

 

local government is a school district[, and each state senator and state

 representative who represents that local government]. The annual report of the

 

local auditor shall be posted on the local government's website

 

within 7 days after the report is submitted.

 

     (q) An emergency manager may initiate court proceedings in the

 

Michigan court of claims or in the circuit court of the county in

 

which the local government is located in the name of the local

 

government to enforce compliance with any of his or her orders or

 

any constitutional or legislative mandates, or to restrain

 

violations of any constitutional or legislative power or his or her

 

orders.

 

     (r) Subject to section 19, if provided in the financial and

 

operating plan, or otherwise with the prior written approval of the

 

governor or his or her designee, sell, lease, convey, assign, or

 

otherwise use or transfer the assets, liabilities, functions, or

 


responsibilities of the local government, provided the use or

 

transfer of assets, liabilities, functions, or responsibilities for

 

this purpose does not endanger the health, safety, or welfare of

 

residents of the local government or unconstitutionally impair a

 

bond, note, security, or uncontested legal obligation of the local

 

government.

 

     (s) Apply for a loan from the state on behalf of the local

 

government, subject to the conditions of the emergency municipal

 

loan act, 1980 PA 243, MCL 141.931 to 141.942.

 

     (t) Order, as necessary, 1 or more millage elections for the

 

local government consistent with the Michigan election law, 1954 PA

 

116, MCL 168.1 to 168.992, sections 6 and 25 through 34 of article

 

IX of the state constitution of 1963, and any other applicable

 

state law.

 

     (u) Subject to section 19, authorize the borrowing of money by

 

the local government as provided by law.

 

     (v) Approve or disapprove of the issuance of obligations of

 

the local government on behalf of the local government under this

 

subdivision. An election to approve or disapprove of the issuance

 

of obligations of the local government pursuant to this subdivision

 

shall only be held at the general November election.

 

     (w) Enter into agreements with creditors or other persons or

 

entities for the payment of existing debts, including the

 

settlement of claims by the creditors.

 

     (x) Enter into agreements with creditors or other persons or

 

entities to restructure debt on terms, at rates of interest, and

 

with security as shall be agreed among the parties, subject to

 


approval by the state treasurer.

 

     (y) Enter into agreements with other local governments, public

 

bodies, or entities for the provision of services, the joint

 

exercise of powers, or the transfer of functions and

 

responsibilities.

 

     (z) For municipal governments, enter into agreements with

 

other units of municipal government to transfer property of the

 

municipal government under 1984 PA 425, MCL 124.21 to 124.30, or as

 

otherwise provided by law, subject to approval by the state

 

treasurer.

 

     (aa) Enter into agreements with 1 or more other local

 

governments or public bodies for the consolidation of services.

 

     (bb) For a city, village, or township, the emergency manager

 

may recommend to the state boundary commission that the municipal

 

government consolidate with 1 or more other municipal governments,

 

if the emergency manager determines that consolidation would

 

materially alleviate the financial emergency of the municipal

 

government and would not materially and adversely affect the

 

financial situation of the government or governments with which the

 

municipal government in receivership is consolidated. Consolidation

 

under this subdivision shall proceed as provided by law.

 

     (cc) For municipal governments, with approval of the governor,

 

disincorporate or dissolve the municipal government and assign its

 

assets, debts, and liabilities as provided by law. The

 

disincorporation or dissolution of the local government is subject

 

to a vote of the electors of that local government if required by

 

law.

 


     (dd) Exercise solely, for and on behalf of the local

 

government, all other authority and responsibilities of the chief

 

administrative officer and governing body concerning the adoption,

 

amendment, and enforcement of ordinances or resolutions of the

 

local government as provided in the following acts:

 

     (i) The home rule city act, 1909 PA 279, MCL 117.1 to 117.38.

 

     (ii) The fourth class city act, 1895 PA 215, MCL 81.1 to

 

113.20.

 

     (iii) The charter township act, 1947 PA 359, MCL 42.1 to 42.34.

 

     (iv) 1851 PA 156, MCL 46.1 to 46.32.

 

     (v) 1966 PA 293, MCL 45.501 to 45.521.

 

     (vi) The general law village act, 1895 PA 3, MCL 61.1 to 74.25.

 

     (vii) The home rule village act, 1909 PA 278, MCL 78.1 to

 

78.28.

 

     (viii) The revised school code, 1976 PA 451, MCL 380.1 to

 

380.1852.

 

     (ix) The state school aid act of 1979, 1979 PA 94, MCL 388.1601

 

to 388.1896.

 

     (ee) Take any other action or exercise any power or authority

 

of any officer, employee, department, board, commission, or other

 

similar entity of the local government, whether elected or

 

appointed, relating to the operation of the local government. The

 

power of the emergency manager shall be superior to and supersede

 

the power of any of the foregoing officers or entities.

 

     (ff) Remove, replace, appoint, or confirm the appointments to

 

any office, board, commission, authority, or other entity which is

 

within or is a component unit of the local government.

 


     (2) Except as otherwise provided in this act, during the

 

pendency of the receivership, the authority of the chief

 

administrative officer and governing body to exercise power for and

 

on behalf of the local government under law, charter, and ordinance

 

shall be suspended and vested in the emergency manager.

 

     (3) Except as otherwise provided in this subsection, any

 

contract involving a cumulative value of $50,000.00 or more is

 

subject to competitive bidding by an emergency manager. However, if

 

a potential contract involves a cumulative value of $50,000.00 or

 

more, the emergency manager may submit the potential contract to

 

the state treasurer for review and the state treasurer may

 

authorize that the potential contract is not subject to competitive

 

bidding.

 

     (4) An emergency manager appointed for a city or village shall

 

not sell or transfer a public utility furnishing light, heat, or

 

power without the approval of a majority of the electors of the

 

city or village voting thereon, or a greater number if the city or

 

village charter provides, as required by section 25 of article VII

 

of the state constitution of 1963. In addition, an emergency

 

manager appointed for a city or village shall not utilize the

 

assets of a public utility furnishing heat, light, or power, the

 

finances of which are separately maintained and accounted for by

 

the city or village, to satisfy the general obligations of the city

 

or village.

 

     Sec. 13. Upon appointment of an emergency manager and during

 

the pendency of the receivership, the salary, wages, or other

 

compensation, including the accrual of postemployment benefits, and

 


other benefits of the chief administrative officer and members of

 

the governing body of the local government shall be eliminated.

 

This section does not authorize the impairment of vested pension

 

benefits. If an emergency manager has reduced, suspended, or

 

eliminated the salary, wages, or other compensation of the chief

 

administrative officer and members of the governing body of a local

 

government before the effective date of this act, the reduction,

 

suspension, or elimination is valid to the same extent had it

 

occurred after the effective date of this act. The emergency

 

manager may restore, in whole or in part, any of the salary, wages,

 

other compensation, or benefits of the chief administrative officer

 

and members of the governing body during the pendency of the

 

receivership, for such time and on such terms as the emergency

 

manager considers appropriate, to the extent that the emergency

 

manager finds that the restoration of salary, wages, compensation,

 

or benefits is consistent with the financial and operating plan.

 

     Sec. 14. In addition to the actions otherwise authorized in

 

this act, an emergency manager for a school district may take 1 or

 

more of the following additional actions with respect to a school

 

district that is in receivership:

 

     (a) Negotiate, renegotiate, approve, and enter into contracts

 

on behalf of the school district.

 

     (b) Receive and disburse on behalf of the school district all

 

federal, state, and local funds earmarked for the school district.

 

These funds may include, but are not limited to, funds for specific

 

programs and the retirement of debt.

 

     (c) Seek approval from the superintendent of public

 


instruction for a reduced class schedule in accordance with

 

administrative rules governing the distribution of state school

 

aid.

 

     (d) Subject to section 19, sell, assign, transfer, or

 

otherwise use the assets of the school district to meet past or

 

current obligations or assure the fiscal accountability of the

 

school district, provided the use, assignment, or transfer of

 

assets for this purpose does not impair the education of the pupils

 

of the school district. The power under this subdivision includes

 

the closing of schools or other school buildings in the school

 

district.

 

     (e) Approve or disapprove of the issuance of obligations of

 

the school district.

 

     (f) Exercise solely, for and on behalf of the school district,

 

all other authority and responsibilities affecting the school

 

district that are prescribed by law to the school board and

 

superintendent of the school district.

 

     (g) With the approval of the state treasurer, employ or

 

contract for, at the expense of the school district, school

 

administrators considered necessary to implement this act.

 

     Sec. 15. (1) Unless the potential sale and value of an asset

 

is included in the emergency manager's financial and operating

 

plan, the emergency manager shall not sell an asset of the local

 

government valued at more than $50,000.00 without the state

 

treasurer's approval.

 

     (2) A provision of an existing collective bargaining agreement

 

that authorizes the payment of a benefit upon the death of a police

 


Senate Bill No. 865 (H-6) as amended December 12, 2012

officer or firefighter that occurs in the line of duty shall not be

 

impaired and is not subject to any provision of this act

 

authorizing an emergency manager to reject, modify, or terminate 1

 

or more terms of an existing collective bargaining agreement.

 

     Sec. 16. An emergency manager shall, on his or her own or upon

 

the advice of the local inspector if a local inspector has been

 

retained, make a determination as to whether possible criminal

 

conduct contributed to the financial situation resulting in the

 

local government's receivership status. If the emergency manager

 

determines that there is reason to believe that criminal conduct

 

has occurred, the manager shall refer the matter to the attorney

 

general and the local prosecuting attorney for investigation.

 

     Sec. 17. Beginning 6 months after an emergency manager's

 

appointment, and every 3 months thereafter, an emergency manager

 

shall submit to the governor, the state treasurer, the senate

 

majority leader, the speaker of the house of representatives, [each state

 senator and state representative who represents the local government that is in receivership,] and

 

the clerk of the local government that is in receivership, and

 

shall post on the internet on the website of the local government,

 

a report that contains all of the following:

 

     (a) A description of each expenditure made, approved, or

 

disapproved during the reporting period that has a cumulative value

 

of $5,000.00 or more and the source of the funds.

 

     (b) A list of each contract that the emergency manager awarded

 

or approved with a cumulative value of $5,000.00 or more, including

 

the purpose of the contract and the identity of the contractor.

 

     (c) A description of each loan sought, approved, or

 

disapproved during the reporting period that has a cumulative value

 


of $5,000.00 or more and the proposed use of the funds.

 

     (d) A description of any new position created or any vacancy

 

in a position filled by the appointing authority.

 

     (e) A description of any position that has been eliminated or

 

from which an employee has been laid off.

 

     (f) A copy of the contract with the emergency manager as

 

provided in section 9(3)(e).

 

     (g) The salary and benefits of the emergency manager.

 

     (h) The financial and operating plan.

 

     Sec. 18. (1) If, in the judgment of the emergency manager, no

 

reasonable alternative to rectifying the financial emergency of the

 

local government which is in receivership exists, then the

 

emergency manager may recommend to the governor and the state

 

treasurer that the local government be authorized to proceed under

 

chapter 9. If the governor approves of the recommendation, the

 

governor shall inform the state treasurer and the emergency manager

 

in writing of the decision, with a copy to the superintendent of

 

public instruction if the local government is a school district.

 

The governor may place contingencies on a local government in order

 

to proceed under chapter 9. Upon receipt of the written approval,

 

the emergency manager is authorized to proceed under chapter 9.

 

This section empowers the local government for which an emergency

 

manager has been appointed to become a debtor under title 11 of the

 

United States Code, 11 USC 101 to 1532, as required by section 109

 

of title 11 of the United States Code, 11 USC 109, and empowers the

 

emergency manager to act exclusively on the local government's

 

behalf in any such case under chapter 9.

 


     (2) The recommendation to the governor and the state treasurer

 

under subsection (1) shall include 1 of the following:

 

     (a) A determination by the emergency manager that no feasible

 

financial plan can be adopted that can satisfactorily rectify the

 

financial emergency of the local government in a timely manner.

 

     (b) A determination by the emergency manager that a plan, in

 

effect for at least 180 days, cannot be implemented as written or

 

as it might be amended in a manner that can satisfactorily rectify

 

the financial emergency in a timely manner.

 

     (3) The emergency manager shall provide a copy of the

 

recommendation as provided under subsection (1) to the

 

superintendent of public instruction if the local government is a

 

school district.

 

     Sec. 19. (1) Except as otherwise provided in this subsection,

 

before an emergency manager executes an action under section

 

12(1)(k), (r), or (u) or section 14(d), he or she shall submit his

 

or her proposed action to the governing body of the local

 

government. The governing body of the local government shall have

 

10 days from the date of submission to approve or disapprove the

 

action proposed by the emergency manager. If the governing body of

 

the local government does not act within 10 days, the proposed

 

action is considered approved by the governing body of the local

 

government and the emergency manager may then execute the proposed

 

action. For an action under section 12(1)(r) or section 14(d), this

 

subsection only applies if the asset, liability, function, or

 

responsibility involves an amount of $50,000.00 or more.

 

     (2) If the governing body of the local government disapproves

 


the proposed action within 10 days, the governing body of the local

 

government shall, within 7 days of its disapproval of the action

 

proposed by the emergency manager, submit to the local emergency

 

financial assistance loan board an alternative proposal that would

 

yield substantially the same financial result as the action

 

proposed by the emergency manager. The local emergency financial

 

assistance loan board shall have 30 days to review both the

 

alternative proposal submitted by the governing body of the local

 

government and the action proposed by the emergency manager and to

 

approve either the alternative proposal submitted by the governing

 

body of the local government or the action proposed by the

 

emergency manager. The local emergency financial assistance loan

 

board shall approve the proposal that best serves the interest of

 

the public in that local government. The emergency manager shall

 

implement the alternative proposal submitted by the governing body

 

of the local government or the action proposed by the emergency

 

manager, whichever is approved by the local emergency financial

 

assistance loan board.

 

     Sec. 20. (1) An emergency manager is immune from liability as

 

provided in section 7(5) of 1964 PA 170, MCL 691.1407. A person

 

employed by an emergency manager is immune from liability as

 

provided in section 7(2) of 1964 PA 170, MCL 691.1407.

 

     (2) The attorney general shall defend any civil claim, demand,

 

or lawsuit which challenges any of the following:

 

     (a) The validity of this act.

 

     (b) The authority of a state official or officer acting under

 

this act.

 


     (c) The authority of an emergency manager if the emergency

 

manager is or was acting within the scope of authority for an

 

emergency manager under this act.

 

     (3) With respect to any aspect of a receivership under this

 

act, the costs incurred by the attorney general in carrying out the

 

responsibilities of subsection (2) for attorneys, experts, court

 

filing fees, and other reasonable and necessary expenses shall be

 

at the expense of the local government that is subject to that

 

receivership and shall be reimbursed to the attorney general by the

 

local government. The failure of a municipal government that is or

 

was in receivership to remit to the attorney general the costs

 

incurred by the attorney general within 30 days after written

 

notice to the municipal government from the attorney general of the

 

costs is a debt owed to this state and shall be recovered by the

 

state treasurer as provided in section 17a(5) of the Glenn Steil

 

state revenue sharing act of 1971, 1971 PA 140, MCL 141.917a. The

 

failure of a school district that is or was in receivership to

 

remit to the attorney general the costs incurred by the attorney

 

general within 30 days after written notice to the school district

 

from the attorney general of the costs is a debt owed to this state

 

and shall be recovered by the state treasurer as provided in the

 

state school aid act of 1979, 1979 PA 94, MCL 388.1601 to 388.1896.

 

     (4) An emergency manager may procure and maintain, at the

 

expense of the local government for which the emergency manager is

 

appointed, worker's compensation, general liability, professional

 

liability, and motor vehicle insurance for the emergency manager

 

and any employee, agent, appointee, or contractor of the emergency

 


manager as may be provided to elected officials, appointed

 

officials, or employees of the local government. The insurance

 

procured and maintained by an emergency manager may extend to any

 

claim, demand, or lawsuit asserted or costs recovered against the

 

emergency manager and any employee, agent, appointee, or contractor

 

of the emergency manager from the date of appointment of the

 

emergency manager to the expiration of the applicable statute of

 

limitation if the claim, demand, or lawsuit asserted or costs

 

recovered against the emergency manager or any employee, agent,

 

appointee, or contractor of the emergency manager resulted from

 

conduct of the emergency manager or any employee, agent, appointee,

 

or contractor of the emergency manager taken in accordance with

 

this act during the emergency manager's term of service.

 

     (5) If, after the date that the service of an emergency

 

manager is concluded, the emergency manager or any employee, agent,

 

appointee, or contractor of the emergency manager is subject to a

 

claim, demand, or lawsuit arising from an action taken during the

 

service of that emergency manager, and not covered by a procured

 

worker's compensation, general liability, professional liability,

 

or motor vehicle insurance, litigation expenses of the emergency

 

manager or any employee, agent, appointee, or contractor of the

 

emergency manager, including attorney fees for civil and criminal

 

proceedings and preparation for reasonably anticipated proceedings,

 

and payments made in settlement of civil proceedings both filed and

 

anticipated, shall be paid out of the funds of the local government

 

that is or was subject to the receivership administered by that

 

emergency manager, provided that the litigation expenses are

 


approved by the state treasurer and that the state treasurer

 

determines that the conduct resulting in actual or threatened legal

 

proceedings that is the basis for the payment is based upon both of

 

the following:

 

     (a) The scope of authority of the person or entity seeking the

 

payment.

 

     (b) The conduct occurred on behalf of a local government while

 

it was in receivership under this act.

 

     (6) The failure of a municipal government to honor and remit

 

the legal expenses of a former emergency manager or any employee,

 

agent, appointee, or contractor of the emergency manager as

 

required by this section is a debt owed to this state and shall be

 

recovered by the state treasurer as provided in section 17a(5) of

 

the Glenn Steil state revenue sharing act of 1971, 1971 PA 140, MCL

 

141.917a. The failure of a school district to honor and remit the

 

legal expenses of a former emergency manager or any employee,

 

agent, appointee, or contractor of the emergency manager as

 

required by this section is a debt owed to this state and shall be

 

recovered by the state treasurer as provided in the state school

 

aid act of 1979, 1979 PA 94, MCL 388.1601 to 388.1896.

 

     Sec. 21. (1) Before the termination of receivership and the

 

completion of the emergency manager's term, or if a transition

 

advisory board is appointed under section 23, then before the

 

transition advisory board is appointed, the emergency manager shall

 

adopt and implement a 2-year budget, including all contractual and

 

employment agreements, for the local government commencing with the

 

termination of receivership.

 


     (2) After the completion of the emergency manager's term and

 

the termination of receivership, the governing body of the local

 

government shall not amend the 2-year budget adopted under

 

subsection (1) without the approval of the state treasurer, and

 

shall not revise any order or ordinance implemented by the

 

emergency manager during his or her term prior to 1 year after the

 

termination of receivership.

 

     Sec. 22. (1) If an emergency manager determines that the

 

financial emergency that he or she was appointed to manage has been

 

rectified, the emergency manager shall inform the governor and the

 

state treasurer.

 

     (2) If the governor disagrees with the emergency manager's

 

determination that the financial emergency has been rectified, the

 

governor shall inform the emergency manager and the term of the

 

emergency manager shall continue or the governor shall appoint a

 

new emergency manager.

 

     (3) Subject to subsection (4), if the governor agrees that the

 

financial emergency has been rectified, the emergency manager has

 

adopted a 2-year budget as required under section 21, and the

 

financial conditions of the local government have been corrected in

 

a sustainable fashion as required under section 9(7), the governor

 

may do either of the following:

 

     (a) Remove the local government from receivership.

 

     (b) Appoint a receivership transition advisory board as

 

provided in section 23.

 

     (4) Before removing a local government from receivership, the

 

governor may impose 1 or more of the following conditions on the

 


local government:

 

     (a) The implementation of financial best practices within the

 

local government.

 

     (b) The adoption of a model charter or model charter

 

provisions.

 

     (c) Pursue financial or managerial training to ensure that

 

official responsibilities are properly discharged.

 

     Sec. 23. (1) Before removing a local government from

 

receivership, the governor may appoint a receivership transition

 

advisory board to monitor the affairs of the local government until

 

the receivership is terminated.

 

     (2) A receivership transition advisory board shall consist of

 

the state treasurer or his or her designee, the director of the

 

department of technology, management, and budget or his or her

 

designee, and, if the local government is a school district, the

 

superintendent of public instruction or his or her designee. The

 

governor also may appoint to a receivership transition advisory

 

board 1 or more other individuals with relevant professional

 

experience, including 1 or more residents of the local government.

 

     (3) A receivership transition advisory board serves at the

 

pleasure of the governor.

 

     (4) At its first meeting, a receivership transition advisory

 

board shall adopt rules of procedure to govern its conduct,

 

meetings, and periodic reporting to the governor. Procedural rules

 

required by this section are not subject to the administrative

 

procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328.

 

     (5) A receivership transition advisory board may do all of the

 


following:

 

     (a) Require the local government to annually convene a

 

consensus revenue estimating conference for the purpose of arriving

 

at a consensus estimate of revenues to be available for the ensuing

 

fiscal year of the local government.

 

     (b) Require the local government to provide monthly cash flow

 

projections and a comparison of budgeted revenues and expenditures

 

to actual revenues and expenditures.

 

     (c) Review proposed and amended budgets of the local

 

government. A proposed budget or budget amendment shall not take

 

effect unless approved by the receivership transition advisory

 

board.

 

     (d) Review requests by the local government to issue debt

 

under the revised municipal finance act, 2001 PA 34, MCL 141.2101

 

to 141.2821, or any other law governing the issuance of bonds or

 

notes.

 

     (e) Review proposed collective bargaining agreements

 

negotiated under section 15(1) of 1947 PA 336, MCL 423.215. A

 

proposed collective bargaining agreement shall not take effect

 

unless approved by the receivership transition advisory board.

 

     (f) Review compliance by the local government with a deficit

 

elimination plan submitted under section 21 of the Glenn Steil

 

state revenue sharing act of 1971, 1971 PA 140, MCL 141.921.

 

     (g) Review proposed judgment levies before submission to a

 

court under section 6093 or 6094 of the revised judicature act of

 

1961, 1961 PA 236, MCL 600.6093 and 600.6094.

 

     (h) Perform any other duties assigned by the governor at the

 


time the receivership transition advisory board is appointed.

 

     (6) A receivership transition advisory board is a public body

 

as that term is defined in section 2 of the open meetings act, 1976

 

PA 267, MCL 15.262, and meetings of a receivership transition

 

advisory board are subject to the open meetings act, 1976 PA 267,

 

MCL 15.261 to 15.275. A receivership transition advisory board is

 

also a public body as that term is defined in section 2 of the

 

freedom of information act, 1976 PA 442, MCL 15.232, and a public

 

record in the possession of a receivership transition advisory

 

board is subject to the freedom of information act, 1976 PA 442,

 

MCL 15.231 to 15.246.

 

     Sec. 24. The governor may, upon his or her own initiative or

 

after receiving a recommendation from a receivership transition

 

advisory board, determine that the financial conditions of a local

 

government have not been corrected in a sustainable fashion as

 

required under section 9(7) and appoint a new emergency manager.

 

     Sec. 25. (1) A neutral evaluation process may be utilized as

 

provided for in this act. The state treasurer may, in his or her

 

own discretion, determine that the state monitor the neutral

 

evaluation process initiated by a local government under this

 

section and may identify 1 or more individuals who may attend and

 

observe the neutral evaluation process. A local government shall

 

initiate the neutral evaluation process by providing notice by

 

certified mail of a request for neutral evaluation process to all

 

interested parties. If the local government does not provide notice

 

under this subsection to all interested parties within 7 days after

 

selecting the neutral evaluation process option, the treasurer may

 


require the local government to go into receivership and proceed

 

under section 9.

 

     (2) An interested party shall respond within 10 business days

 

of receipt of notice of the local government's request for neutral

 

evaluation process.

 

     (3) The local government and the interested parties agreeing

 

to participate in the neutral evaluation process shall, through a

 

mutually agreed-upon process, select a neutral evaluator to oversee

 

the neutral evaluation process and facilitate all discussions in an

 

effort to resolve their disputes.

 

     (4) If the local government and interested parties fail to

 

agree on a neutral evaluator within 7 days after the interested

 

parties have responded to the notification sent by the local

 

government, the local government shall, within 7 days, select 5

 

qualified neutral evaluators and provide their names, references,

 

and backgrounds to the participating interested parties. Within 3

 

business days, a majority of participating interested parties may

 

disqualify up to 4 names from the list. If a majority of

 

participating interested parties disqualify 4 names from the list,

 

the remaining candidate shall be the neutral evaluator. If the

 

majority of participating parties disqualify fewer than 4 names,

 

the local government shall choose which of the remaining candidates

 

shall be the neutral evaluator.

 

     (5) If an interested party objects to the qualifications of

 

the neutral evaluator after the process for selection in subsection

 

(4) is complete, the interested party may appeal to the state

 

treasurer to determine if the neutral evaluator meets the

 


qualifications under subsection (6). If the state treasurer

 

determines that the qualifications have been met, the neutral

 

evaluation process shall continue. If the state treasurer

 

determines that the qualifications have not been met, the state

 

treasurer shall select the neutral evaluator.

 

     (6) A neutral evaluator shall have experience and training in

 

conflict resolution and alternative dispute resolution and have at

 

least 1 of the following qualifications:

 

     (a) At least 10 years of high-level business or legal

 

experience involving bankruptcy or service as a United States

 

bankruptcy judge.

 

     (b) At least 10 years of combined professional experience or

 

training in municipal finance in 1 or more of the following areas:

 

     (i) Municipal organization.

 

     (ii) Municipal debt restructuring.

 

     (iii) Municipal finance dispute resolution.

 

     (iv) Chapter 9 bankruptcy.

 

     (v) Public finance.

 

     (vi) Taxation.

 

     (vii) Michigan constitutional law.

 

     (viii) Michigan labor law.

 

     (ix) Federal labor law.

 

     (7) The neutral evaluator's performance shall be impartial,

 

objective, independent, and free from prejudice. The neutral

 

evaluator shall not act with partiality or prejudice based on any

 

participant's personal characteristics, background, values, or

 

beliefs, or performance during the neutral evaluation process.

 


     (8) The neutral evaluator shall avoid a conflict of interest

 

and the appearance of a conflict of interest during the neutral

 

evaluation process. The neutral evaluator shall make a reasonable

 

inquiry to determine whether there are any facts that a reasonable

 

individual would consider likely to create a potential or actual

 

conflict of interest. Notwithstanding subsection (16), if the

 

neutral evaluator is informed of the existence of any facts that a

 

reasonable individual would consider likely to create a potential

 

or actual conflict of interest, the neutral evaluator shall

 

disclose these facts in writing to the local government and all

 

interested parties involved in the neutral evaluation process. If

 

any participating interested party to the neutral evaluation

 

process objects to the neutral evaluator, that interested party

 

shall notify the local government and all other participating

 

interested parties to the neutral evaluation process, including the

 

neutral evaluator, within 15 days of receipt of the notice from the

 

neutral evaluator. The neutral evaluator shall withdraw, and a new

 

neutral evaluator shall be selected as provided in subsections (3)

 

and (4).

 

     (9) Before commencing a neutral evaluation process, the

 

neutral evaluator shall not establish another fiscal or fiduciary

 

relationship with any of the interested parties or the local

 

government in a manner that would raise questions about the

 

integrity of the neutral evaluation process, except that the

 

neutral evaluator may conduct further neutral evaluation processes

 

regarding other potential local public entities that may involve

 

some of the same or similar constituents to a prior mediation.

 


     (10) The neutral evaluator shall conduct the neutral

 

evaluation process in a manner that promotes voluntary, uncoerced

 

decision making in which each participant makes free and informed

 

choices regarding the neutral evaluation process and outcome.

 

     (11) The neutral evaluator shall not impose a settlement on

 

the participants. The neutral evaluator shall use his or her best

 

efforts to assist the participants to reach a satisfactory

 

resolution of their disputes. Subject to the discretion of the

 

neutral evaluator, the neutral evaluator may make oral or written

 

recommendations for a settlement or plan of readjustment to a

 

participant privately or to all participants jointly.

 

     (12) The neutral evaluator shall inform the local government

 

and all participants of the provisions of chapter 9 relative to

 

other chapters of title 11 of the United States Code, 11 USC 101 to

 

1532. This instruction shall highlight the limited authority of

 

United States bankruptcy judges in chapter 9, including, but not

 

limited to, the restriction on federal bankruptcy judges' authority

 

to interfere with or force liquidation of a local government's

 

property and the lack of flexibility available to federal

 

bankruptcy judges to reduce or cram down debt repayments and

 

similar efforts not available to reorganize the operations of the

 

local government that may be available to a corporate entity.

 

     (13) The neutral evaluator may request from the participants

 

documentation and other information that the neutral evaluator

 

believes may be helpful in assisting the participants to address

 

the obligations between them. This documentation may include the

 

status of funds of the local government that clearly distinguishes

 


between general funds and special funds and the proposed plan of

 

readjustment prepared by the local government. The participants

 

shall respond to a request from the neutral evaluator in a timely

 

manner.

 

     (14) The neutral evaluator shall provide counsel and guidance

 

to all participants, shall not be a legal representative of any

 

participant, and shall not have a fiduciary duty to any

 

participant.

 

     (15) If a settlement with all interested parties and the local

 

government occurs, the neutral evaluator may assist the

 

participants in negotiating a pre-petitioned, pre-agreed-upon plan

 

of readjustment in connection with a potential chapter 9 filing.

 

     (16) If at any time during the neutral evaluation process the

 

local government and a majority of the representatives of the

 

interested parties participating in the neutral evaluation process

 

wish to remove the neutral evaluator, the local government or any

 

interested party may make a request to the other interested parties

 

to remove the neutral evaluator. If the local government and a

 

majority of the interested parties agree that the neutral evaluator

 

should be removed and agree on who should replace the neutral

 

evaluator, the local government and the interested parties shall

 

select a new neutral evaluator.

 

     (17) The local government and all interested parties

 

participating in the neutral evaluation process shall negotiate in

 

good faith.

 

     (18) The local government and each interested party shall

 

provide a representative to attend all sessions of a neutral

 


evaluation process. Each representative shall have the authority to

 

settle and resolve disputes or shall be in a position to present

 

any proposed settlement or plan of readjustment to the participants

 

in the neutral evaluation process.

 

     (19) The local government and the participating interested

 

parties shall maintain the confidentiality of the neutral

 

evaluation process and shall not at the conclusion of the neutral

 

evaluation process or during any bankruptcy proceeding disclose

 

statements made, information disclosed, or documents prepared or

 

produced unless a judge in a chapter 9 bankruptcy proceeding orders

 

that the information be disclosed to determine the eligibility of a

 

local government to proceed with a bankruptcy proceeding under

 

chapter 9, or as otherwise required by law.

 

     (20) A neutral evaluation process authorized by this act shall

 

not last for more than 60 days following the date the neutral

 

evaluator is initially selected, unless the local government or a

 

majority of participating interested parties elect to extend the

 

neutral evaluation process for up to 30 additional days. The

 

neutral evaluation process shall not last for more than 90 days

 

following the date the neutral evaluator is initially selected.

 

     (21) The local government shall pay 50% of the costs of a

 

neutral evaluation process, including, but not limited to, the fees

 

of the neutral evaluator, and the interested parties shall pay the

 

balance of the costs of the neutral evaluation process, unless

 

otherwise agreed to by the local government and a majority of the

 

interested parties.

 

     (22) The neutral evaluation process shall end if any of the

 


following occur:

 

     (a) The local government and the participating interested

 

parties execute a settlement agreement. However, if the state

 

treasurer determines that the settlement agreement does not provide

 

sufficient savings to the local government, the state treasurer

 

shall provide notice to the local government that the settlement

 

agreement does not provide sufficient savings to the local

 

government and the local government shall proceed under 1 of the

 

other local government options as provided in section 7.

 

     (b) The local government and the participating interested

 

parties reach an agreement or proposed plan of readjustment that

 

requires the approval of a bankruptcy judge.

 

     (c) The neutral evaluation process has exceeded 60 days

 

following the date the neutral evaluator was selected, the local

 

government and the participating interested parties have not

 

reached an agreement, and neither the local government nor a

 

majority of the interested parties elect to extend the neutral

 

evaluation process past the initial 60-day time period.

 

     (d) The local government initiated the neutral evaluation

 

process under subsection (1) and did not receive a response from

 

any interested party within the time specified in subsection (2).

 

     (e) The fiscal condition of the local government deteriorates

 

to the point that necessitates the need to proceed under the

 

chapter 9 bankruptcy option pursuant to section 26.

 

     (23) If the 60-day time period for a neutral evaluation

 

process expires, including any extension of the neutral evaluation

 

process past the initial 60-day time period under subsection (20),

 


and the neutral evaluation process is complete with differences

 

resolved, the neutral evaluation process shall be concluded. If the

 

neutral evaluation process does not resolve all pending disputes

 

with the local government and the interested parties, or if

 

subsection (22)(b), (c), or (d) applies, the governing body of the

 

local government shall adopt a resolution recommending that the

 

local government proceed under chapter 9 and submit the resolution

 

to the governor and the state treasurer. Except as otherwise

 

provided in this subsection, if the local government has a strong

 

mayor, the resolution requires strong mayor approval before the

 

local government proceeds under chapter 9. The resolution shall

 

include a statement determining that the financial condition of the

 

local government jeopardizes the health, safety, and welfare of the

 

residents who reside within the local government or service area of

 

the local government absent the protections of chapter 9. If the

 

governor approves the resolution for the local government to

 

proceed under chapter 9, the governor shall inform the local

 

government in writing of the decision. The governor may place

 

contingencies on a local government in order to proceed under

 

chapter 9 including, but not limited to, appointing a person to act

 

exclusively on behalf of the local government in the chapter 9

 

bankruptcy proceedings. If the governing body of the local

 

government fails to adopt a resolution within 7 days after the

 

neutral evaluation process is concluded as provided in this

 

subsection, the governor may appoint a person to act exclusively on

 

behalf of the local government in chapter 9 bankruptcy proceedings.

 

If the governor does not appoint a person to act exclusively on

 


behalf of the local government in chapter 9 bankruptcy proceedings,

 

the chief administrative officer of the local government shall act

 

exclusively on behalf of the local government in chapter 9

 

bankruptcy proceedings. Upon receiving written approval from the

 

governor under section 26, the local government may file a petition

 

under chapter 9 and exercise powers under federal bankruptcy law.

 

     Sec. 26. (1) With the written approval of the governor, a

 

local government may file a petition under chapter 9 and exercise

 

powers pursuant to federal bankruptcy law if the local government

 

adopts a resolution, by a majority vote of the governing body of

 

the local government, that declares a financial emergency in the

 

local government. Except as otherwise provided in this subsection,

 

if the local government has a strong mayor, the resolution requires

 

strong mayor approval. The resolution shall include a statement

 

determining that the financial condition of the local government

 

jeopardizes the health, safety, and welfare of the residents who

 

reside within the local government or service area of the local

 

government absent the protections of chapter 9 and that the local

 

government is or will be unable to pay its obligations within 60

 

days following the adoption of the resolution.

 

     (2) If the governor approves a local government to proceed

 

under chapter 9, the governor shall inform the local government in

 

writing of the decision. The governor may place contingencies on a

 

local government in order to proceed under chapter 9 including, but

 

not limited to, appointing a person to act exclusively on behalf of

 

the local government in the chapter 9 bankruptcy proceedings. If

 

the governor does not appoint a person to act exclusively on behalf

 


of the local government in chapter 9 bankruptcy proceedings, the

 

chief administrative officer of the local government shall act

 

exclusively on behalf of the local government in chapter 9

 

bankruptcy proceedings. Upon receipt of the written approval and

 

subject to this subsection, the local government may proceed under

 

chapter 9 and exercise powers under federal bankruptcy law.

 

     (3) If the governor does not approve a local government to

 

proceed under chapter 9, the local government shall within 7 days

 

select 1 of the other local options as provided in section 7.

 

     Sec. 27. (1) The local elected and appointed officials and

 

employees, agents, and contractors of a local government shall

 

promptly and fully provide the assistance and information necessary

 

and properly requested by the state financial authority, a review

 

team, or the emergency manager in the effectuation of their duties

 

and powers and of the purposes of this act. If the review team or

 

emergency manager believes that a local elected or appointed

 

official or employee, agent, or contractor of the local government

 

is not answering questions accurately or completely or is not

 

furnishing information requested, the review team or emergency

 

manager may issue subpoenas and administer oaths to the local

 

elected or appointed official or employee, agent, or contractor to

 

furnish answers to questions or to furnish documents or records, or

 

both. If the local elected or appointed official or employee,

 

agent, or contractor refuses, the review team or emergency manager

 

may bring an action in the circuit court in which the local

 

government is located or the Michigan court of claims, as

 

determined by the review team or emergency manager, to compel

 


testimony and furnish records and documents. An action in mandamus

 

may be used to enforce this section.

 

     (2) Failure of a local government official to abide by this

 

act shall be considered gross neglect of duty, which the review

 

team or emergency manager may report to the state financial

 

authority and the attorney general. Following review and a hearing

 

with a local government elected official, the state financial

 

authority may recommend to the governor that the governor remove

 

the elected official from office. If the governor removes the

 

elected official from office, the resulting vacancy in office shall

 

be filled as prescribed by law.

 

     (3) A local government placed in receivership under this act

 

is not subject to section 15(1) of 1947 PA 336, MCL 423.215, for a

 

period of 5 years from the date the local government is placed in

 

receivership or until the time the receivership is terminated,

 

whichever occurs first.

 

     Sec. 28. This act does not give the emergency manager or the

 

state financial authority the power to impose taxes, over and above

 

those already authorized by law, without the approval at an

 

election of a majority of the qualified electors voting on the

 

question.

 

     Sec. 29. The state financial authority shall issue bulletins

 

or promulgate rules as necessary to carry out the purposes of this

 

act. Rules shall be promulgated pursuant to the administrative

 

procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328.

 

     Sec. 30. (1) All of the following actions that occurred under

 

former 2011 PA 4, former 1988 PA 101, or former 1990 PA 72, before

 


the effective date of this act are effective under this act:

 

     (a) A determination by the state treasurer or superintendent

 

of public instruction pursuant to a preliminary review of the

 

existence of probable financial stress or a serious financial

 

problem in a local government.

 

     (b) The appointment of a review team.

 

     (c) The findings and conclusion contained in a review team

 

report submitted to the governor.

 

     (d) A determination by the governor of a financial emergency

 

in a local government.

 

     (e) A confirmation by the governor of a financial emergency in

 

a local government.

 

     (2) An action contained in subsection (1) need not be

 

reenacted or reaffirmed in any manner to be effective under this

 

act.

 

     Sec. 31. An emergency manager or emergency financial manager

 

appointed and serving under state law immediately prior to the

 

effective date of this act shall continue under this act as an

 

emergency manager for the local government.

 

     Sec. 32. This act does not impose any liability or

 

responsibility in law or equity upon this state, any department,

 

agency, or other entity of this state, or any officer or employee

 

of this state, or any member of a receivership transition advisory

 

board, for any action taken by any local government under this act,

 

for any violation of the provisions of this act by any local

 

government, or for any failure to comply with the provisions of

 

this act by any local government. A cause of action against this

 


state or any department, agency, or entity of this state, or any

 

officer or employee of this state acting in his or her official

 

capacity, or any membership of a receivership transition advisory

 

board acting in his or her official capacity, may not be maintained

 

for any activity authorized by this act, or for the act of a local

 

government filing under chapter 9, including any proceeding

 

following a local government's filing.

 

     Sec. 33. If any portion of this act or the application of this

 

act to any person or circumstances is found to be invalid by a

 

court, the invalidity shall not affect the remaining portions or

 

applications of this act which can be given effect without the

 

invalid portion or application. The provisions of this act are

 

severable.

 

     Sec. 34. For the fiscal year ending September 30, 2013,

 

$780,000.00 is appropriated from the general fund to the department

 

of treasury to administer the provisions of this act and to pay the

 

salaries of emergency managers. The appropriation made and the

 

expenditures authorized to be made by the department of treasury

 

are subject to the management and budget act, 1984 PA 431, MCL

 

18.1101 to 18.1594.

 

     Sec. 35. (1) For the fiscal year ending September 30, 2013,

 

$5,000,000.00 is appropriated from the general fund to the

 

department of treasury to administer the provisions of this act, to

 

secure the services of financial consultants, lawyers, work-out

 

experts, and other professionals to assist in the implementation of

 

this act, and to assist local governments in proceeding under

 

chapter 9.

 


     (2) The appropriation authorized in this section is a work

 

project appropriation, and any unencumbered or unallotted funds are

 

carried forward into the following fiscal year. The following is in

 

compliance with section 451a(1) of the management and budget act,

 

1984 PA 431, MCL 18.1451a:

 

     (a) The purpose of the project is to provide technical and

 

administrative support for the department of treasury to implement

 

this act. Costs related to this project include, but are not

 

limited to, all of the following:

 

     (i) Staffing-related costs.

 

     (ii) Costs to promote public awareness.

 

     (iii) Any other costs related to implementation and dissolution

 

of the program, including the resolution of accounts.

 

     (b) The work project will be accomplished through the use of

 

interagency agreements, grants, state employees, and contracts.

 

     (c) The total estimated completion cost of the project is

 

$5,000,000.00.

 

     (d) The expected completion date is September 30, 2016.

 

     Enacting section 1. The local government fiscal responsibility

 

act, 1990 PA 72, MCL 141.1201 to 141.1291, is repealed.

 

     Enacting section 2. It is the intent of the legislature that

 

this act function and be interpreted as a successor statute to

 

former 1988 PA 101, former 1990 PA 72, and former 2011 PA 4, and

 

that whenever possible a reference to former 1988 PA 101, former

 

1990 PA 72, or former 2011 PA 4, under other laws of this state or

 

to a function or responsibility of an emergency financial manager

 

or emergency manager under former 1988 PA 101, former 1990 PA 72,

 


or former 2011 PA 4, under other laws of this state shall function

 

and be interpreted to reference to this act, with the other laws of

 

this state referencing former 1988 PA 101, former 1990 PA 72, or

 

former 2011 PA 4, including, but not limited to, all of the

 

following:

 

     (a) The charter township act, 1947 PA 359, MCL 42.1 to 42.34.

 

     (b) 1966 PA 293, MCL 45.501 to 45.521.

 

     (c) 1851 PA 156, MCL 46.1 to 46.32.

 

     (d) The general law village act, 1895 PA 3, MCL 61.1 to 74.25.

 

     (e) The home rule village act, 1909 PA 278, MCL 78.1 to 78.28.

 

     (f) The fourth class city act, 1895 PA 215, MCL 81.1 to

 

113.20.

 

     (g) The home rule city act, 1909 PA 279, MCL 117.1 to 117.38.

 

     (h) The metropolitan transportation authorities act of 1967,

 

1967 PA 204, MCL 124.401 to 124.426.

 

     (i) 1947 PA 336, MCL 423.201 to 423.217.