HB-5566, As Passed House, May 22, 2014

SUBSTITUTE FOR

HOUSE BILL NO. 5566

A bill to create the Michigan financial review commission act;

to provide for the operation of certain commissions; to create

funds and accounts; to prescribe the powers and duties of certain

commissions, the state treasurer, certain other state officials and

state employees, and certain local officials; to provide for the

dissolution of certain commissions; and to make certain

appropriations.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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

"Michigan financial review commission act".

Sec. 2. The legislature finds and declares the following:

(a) It is the public policy of this state to exercise its

sovereign powers with regard to debt issuance and matters of

statewide concern in a manner calculated to foster the fiscal

integrity of all municipal governments to assure that those

municipalities provide for the health, safety, and welfare of their

citizens; pay principal and interest owed on debt obligations when

due; meet financial obligations to their existing and former

employees, vendors, and suppliers; and provide for proper financial

planning procedures and budgeting practices. The inability of a

municipal government to provide essential services to its citizens

as a result of fiscal emergencies is determined to affect adversely

the health, safety, and welfare of not only that municipality's

citizens, but also other citizens of this state.

(b) The police and fire retirement system of certain qualified

cities and the general retirement system of certain qualified

cities are currently underfunded, causing communities across the

state to face higher costs to borrow and invest funds, and have

caused bondholders, bond insurers, and financial institutions

anxiety over the financial health of not only certain qualified

cities, but communities across this state.

there exists a threat of increased costs in borrowing, reductions

in credit or bond ratings, reduced faith from existing creditors of

municipalities and of this state, and dire financial circumstances

from which this state and its political subdivisions may never

fully recover.

(d) Qualified cities have complex budgetary and fiscal needs,

significant and complicated debt management issues, and financial

assets and liabilities that impact, both positively and negatively,

every unit of local government in this state and this state itself

such that reasonable and balanced state oversight over qualified

cities is required as a reasonable exercise of this state's power

for the benefit of residents throughout this state.

(e) There are numerous residents of this state who have

accrued pension benefits from a qualified city's pension systems,

and those pensioners may reside throughout this state. The

settlement of bankruptcy cases involving qualified cities is likely

to have a substantial positive impact statewide.

(f) Establishing a commission and execution by the commission

of its powers granted under this act fulfill in all respects a

public and governmental purpose for the benefit of the people of

this state.

(g) Ongoing fiscal oversight over qualified cities is a

reasonable and sufficiently narrow regulation and serves a

significant and legitimate public purpose because it inures to the

benefit of all of this state's residents and aids in the remedy of

a broad and general social problem.

(h) Fiscal oversight over qualified cities will ensure that

those cities do not engage in the financial practices that led to

financial emergencies and insolvency, and ultimately, entry into

receivership and bankruptcy, which will ensure that those cities

can provide basic and essential municipal services to their

residents.

Sec. 3. As used in this act:

(a) "Applicable contract" means a contract for goods or

services proposed or entered into by a qualified city that either

exceeds $750,000.00, or a higher amount as determined by the

commission, or is for a term exceeding 2 years. Applicable contract

also includes multiple contracts for less than $750,000.00, or the

higher amount determined by the commission, with 1 entity that, in

the aggregate, exceed $750,000.00, or a higher amount as determined

by the commission, within a 12-month period.

(b) "Federal bankruptcy code" means the federal bankruptcy

code, 11 USC 101 to 1532.

financial review commission created in section 4.

(d) "Operating expenses" means the reasonable operating

expenses of the commission, including without limitation the cost

of preparing accounting and other reports, costs of commission

meetings or other required activities of the commission, counsel

fees, including fees of the attorney general, and fees and expenses

incurred for consultants and fiduciaries required to carry out the

purposes of this act.

(e) "Person" means an individual, corporation, limited or

general partnership, association, joint venture, limited liability

company, a governmental entity, including this state.

(f) "Plan for adjustment" means the plan for the adjustment of

debts of a qualified city approved and entered by a United States

bankruptcy court under chapter 9 of title 11 of the United States

Code, 11 USC 901 to 946.

(g) "Professional services" means services that require a high

degree of intellectual skill, an advanced degree, or professional

licensing or certification. Those providing the professional

services are distinguished based on their specialized knowledge,

experience, and expertise. Professional services include, but are

not limited to, accounting, actuarial, appraisal, auditing,

investment advisor, and legal services.

(h) "Qualified city" means a city with a population of more

than 600,000 that is subject to a plan for adjustment.

(i) "State treasurer" means the treasurer of this state or his

or her designee who shall be designated by a written instrument

signed by the state treasurer and maintained in a permanent file

and whose signature shall have the same force and effect as the

signature of the state treasurer for all purposes under this act.

Sec. 4. A financial review commission is created within the

department of treasury for each qualified city. Except as otherwise

provided in this act, a commission shall exercise its powers,

duties, functions, and responsibilities under this act

independently of the state treasurer. The budgeting, procurement,

personnel, and related management functions of a commission shall

be performed under the direction and supervision of the state

treasurer.

Sec. 5. (1) Each commission shall consist of the following 9

members:

(a) The state treasurer, who shall serve for the duration of

his or her term of office.

(b) The director of the department of technology, management,

and budget or successor agency, or his or her designee, who shall

serve for the duration of his or her term of office.

knowledge, skill, or experience in the field of business or finance

and who shall possess knowledge, training, skill, or experience in

budgeting, revenue forecasting, debt management or borrowing,

actuarial science, law, or business operations, at least 1 of whom

is a resident of that qualified city, and at least 1 of whom is a

resident of this state who is not a resident of a qualified city.

(d) The mayor or chief executive officer of that qualified

city, or his or her designee, who shall serve for the duration of

the mayor's or chief executive officer's term of office.

(e) One member appointed by the governor from a list of 3 or

more individuals nominated by the senate majority leader who have

knowledge, skill, or experience in the field of business or

finance, and who shall possess knowledge, training, skill, or

experience in budgeting, revenue forecasting, debt management or

borrowing, actuarial science, law, or business operations, and 1 of

whom is a resident of that qualified city.

(f) One member appointed by the governor from a list of 3 or

more individuals nominated by the speaker of the house of

representatives who have knowledge, skill, or experience in the

field of business or finance, and who shall possess knowledge,

training, skill, or experience in budgeting, revenue forecasting,

debt management or borrowing, actuarial science, law, or business

operations, and 1 of whom is a resident of that qualified city.

(g) The president or chairperson of the qualified city's

governing body or his or her designee, who shall serve for the

duration of the president's or chairperson's term of office.

(2) The appointed members shall serve for a term of 4 years,

except that of the 5 members first appointed, the appointees of the

governor shall serve a term of 1, 2, and 4 years respectively, the

appointee of the governor who was nominated by the speaker of the

house of representatives shall serve a term of 2 years, and the

appointee of the governor who was nominated by the senate majority

leader shall serve a term of 3 years. Appointed members serve at

the pleasure of, and may be removed by, their respective appointing

official.

(3) Members of a commission shall serve without compensation

but may receive reasonable reimbursement for necessary travel and

expenses incurred in the discharge of their official duties.

(4) The state treasurer or his or her designee shall serve as

chairperson of a commission.

(5) A majority of the members of the commission shall

constitute a quorum of the commission for the transaction of

business. The commission shall meet no less than monthly and at

times and places designated by the chairperson. Actions of the

commission shall be approved by a majority of the members.

(6) The commission shall conduct its business at public

meetings in compliance with the open meetings act, 1976 PA 267, MCL

15.261 to 15.275. However, members of the commission may attend and

participate in a meeting of the commission by the use of

telecommunication or other electronic equipment if their attendance

and participation by the use of telecommunication or other

electronic equipment is authorized by the bylaws of the commission

and that meeting is otherwise conducted in compliance with the open

meetings act, 1976 PA 267, MCL 15.261 to 15.275.

(7) A writing prepared, owned, used, in the possession of, or

retained by the commission in the performance of an official

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

MCL 15.231 to 15.246.

(8) The commission shall adopt bylaws for governance of the

commission, which shall, at a minimum, address the procedures for

conducting meetings, including voting procedures, and the

requirements of its members to attend meetings. 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.

(9) The commission may contract for professional services, as

it requires, and shall determine the qualifications it considers

necessary.

(10) The members of the commission and contractors or agents

of the commission are subject to 1968 PA 317, MCL 15.321 to 15.330,

and 1968 PA 318, MCL 15.301 to 15.310.

(11) A member of the commission, and any person the commission

contracts with, shall discharge the duties of his or her position

in a nonpartisan manner, with good faith, and with that degree of

diligence, care, and skill that an ordinarily prudent person would

exercise under similar circumstances in a like position. The

commission shall adopt an ethics policy governing the conduct of

commission members and officers and employees of the commission.

(12) Commission members shall take and subscribe to the

constitutional oath of office under section 1 of article XI of the

state constitution of 1963. The oath shall be filed with the

secretary of state.

Sec. 6. (1) The commission shall provide oversight for a

qualified city beginning on the effective date of the plan for

adjustment or of this act, whichever is later.

(2) The commission shall ensure that the qualified city is

complying with the terms and conditions of this act and of the plan

for adjustment, if applicable. Except as otherwise provided in

section 8, the commission shall by October 1 each year certify that

the qualified city is in substantial compliance with the provisions

of this act.

(3) The commission shall ensure that, where applicable, a

qualified city complies with the provisions of all of the following

and may request verification of compliance:

(a) Section 8 of the publicly funded health insurance

contribution act, 2011 PA 152, MCL 15.568.

(b) Sections 4i, 4p, 4s, and 4t of the home rule city act,

1909 PA 279, MCL 117.4i, 117.4p, 117.4s, and 117.4t.

141.2101 to 141.2821.

(d) The uniform budgeting and accounting act, 1968 PA 2, MCL

141.421 to 141.440a.

(4) During the period of oversight, the commission shall

review and approve that qualified city's 4-year financial plan

required by section 4t of the home rule city act, 1909 PA 279, MCL

117.4t. A 4-year financial plan described in this subsection shall

be submitted at least 100 days prior to the commencement of a

qualified city's fiscal year. The commission shall approve or

disapprove the 4-year financial plan within 30 days of receipt. If

disapproved, the commission shall provide rationale in writing for

disapproval and a qualified city shall submit a revised plan within

15 days that comports with the commission's rationale for

rejection. The commission shall approve or disapprove that revised

plan within 15 days. The commission may also require adjustments to

the financial plan to modify expenditures to satisfy debt service,

adjust projected revenues to comply with financial controls or

accounting practices, and reduce expenditures to conform to

consensus revenue estimates if required in section 7 to comply with

the provisions of section 4t of the home rule city act, 1909 PA

279, MCL 117.4t. If the qualified city fails to submit an

acceptable financial plan, the commission may adopt and impose upon

the qualified city a financial plan satisfying the requirements of

this act and section 4t of the home rule city act, 1909 PA 279, MCL

117.4t, until that time as the qualified city submits an acceptable

financial plan.

(5) Subject to a plan for adjustment and any collective

bargaining agreements still in effect, the commission shall

establish and maintain programs and requirements for the

responsible fiscal management of that qualified city. The

commission's programs and requirements shall include all of the

following:

(a) Increased managerial accountability.

(b) The streamlining of the provision of city services.

(d) Review of the compensation and benefits of city employees

and recommendation of adjustments where necessary.

(6) Notwithstanding any charter provision or local ordinance

to the contrary, all applicable contracts are subject to review and

approval by the commission. The commission may consider a number of

factors when reviewing an applicable contract, including whether

the applicable contract was subject to a competitive bid process.

Only applicable contracts that are first approved by the governing

body and mayor of a qualified city as required by law, charter,

ordinance, or policy are subject to review by the commission. If an

applicable contract is not rejected by the commission within 30

days of its submission, that applicable contract shall be

considered approved by the commission.

(7) A qualified city, when required by the commission, shall

present written reports regarding its financial stability and shall

permit the commission to audit or inspect financial statements,

actuarial reports, revenue estimates, and any and all other

documents, data, reports, or findings that the commission considers

necessary to carry out its purpose under this act. The commission

may require that qualified city's chief financial officer to

certify in writing the accuracy of any documents the commission

requests.

(8) The commission shall, on June 1 and December 1 of each

year in which the commission has oversight over a qualified city,

file a written report with the governor. A copy of the report shall

be submitted to the senate majority leader and the speaker of the

house of representatives and posted on the department of treasury

website. A copy of the report shall be sent to the mayor and

governing body of the qualified city.

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

commission shall approve all collective bargaining agreements,

including any addendums to those agreements, to which that

qualified city is a party after approval by the governing body and

mayor of the qualified city as required by charter or law. The

commission shall approve or reject collective bargaining agreements

submitted to it within 45 days of submission. Collective bargaining

agreements submitted to the commission shall not be executed unless

and until the commission approves those agreements. Collective

bargaining agreements approved by an emergency manager appointed

under section 12 of the local financial stability and choice act,

2012 PA 436, MCL 141.1552, shall not be subject to commission

approval under this subsection.

(10) The commission may file supplementary information

relating to the financial condition of the qualified city with an

arbitration panel in arbitration proceedings in which the qualified

city is a party pursuant to 1969 PA 312, MCL 423.231 to 423.247.

(11) The mayor, governing body, and chief financial officer of

a qualified city shall, at least 45 days prior to the beginning of

each fiscal quarter, certify in writing to the commission the

amount of debt service due on bonds, leases, or other municipal

debt. A qualified city shall specifically report debt service

requirements, calculated through final maturity, and certify its

ability to meet those requirements through the end of the current

fiscal year.

Sec. 7. A commission may do 1 or more of the following for its

qualified city:

(a) Review and approve that qualified city's consensus revenue

estimate under section 4t of the home rule city act, 1909 PA 279,

MCL 117.4t. The commission may also, after consultation with the

qualified city, revise a revenue estimate prepared in connection

with a budget, budget modification, financial plan, or financial

plan modification, if the commission determines that the revenue

estimate was not based on assumptions and methods of estimation

reasonable and appropriate under the circumstances and in view of

the objectives and purposes of this act. After consultation with

the qualified city, the commission may determine the estimated

revenues for the qualified city, but any revenue estimate adopted

by the commission shall be based on the same requirements as the

qualified city's initial revenue estimate.

(b) Require a qualified city to submit the 4-year financial

plan required in section 4t of the home rule city act 1909 PA 279,

MCL 117.4t, in a form and manner the commission considers

appropriate. The requirement to submit a 4-year financial plan is

not subject to waiver under section 8.

operational budgets of a qualified city. A proposed budget or

budget amendment does not take effect unless approved by the

commission.

(d) Require the chief financial officer of the qualified city

to provide the commission with information it requests related to

the qualified city's finances. The commission may also require the

chief financial officer to attend commission meetings. If the chief

financial officer fails to comply with the provisions of this

subdivision, the commission may require the qualified city to

remove the chief financial officer and appoint a successor.

(e) Review and approve requests by a qualified city 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. The commission may develop rules for the issuance

of debt, including limitations that are greater than those provided

in sections 401 to 405 of the revised municipal finance act, 2001

PA 34, MCL 141.2401 to 141.2405. The debt described in this

subdivision may not be issued unless and until approved by the

commission and the commission's approval shall be in addition to

any approval of the department of treasury as required by law.

(f) Review compliance by a qualified city 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) Approve the appointment of a qualified city's chief

financial officer. If that appointment is not approved by the

commission within 45 days of written submission of the appointment

by the qualified city, the appointment is denied. The commission

may require that any effort to terminate the chief financial

officer be subject to commission review and approval.

(h) Require the development and implementation of financial

best practices for a qualified city.

(i) Recommend the adoption or amendment of certain charter

provisions, bylaws, ordinances, policies, or operating procedures

for the qualified city.

(j) Require the pursuit of financial or managerial training to

ensure the proper discharge of duties for the qualified city.

(k) Make and execute contracts necessary to carry out the

purposes of this act.

(l) Sue or be sued. The commission may retain legal counsel to

enforce any provisions of this act.

(m) Require the qualified city and the employees or agents of

the qualified city to timely produce and share all information and

documents, and provide access to all information on assets,

services, records, and any other materials or documents the

commission determines are necessary to carry out its

responsibilities under this act. The commission may require the

officers or employees of the qualified city to attend commission

meetings for any purpose necessary to carry out its

responsibilities under this act.

(n) Perform any duty provided by law that a receivership

transition advisory board as described in section 23 of the local

financial stability and choice act, 2012 PA 436, MCL 141.1563, may

perform.

(o) Perform any other duties assigned by the governor that are

not inconsistent with the purposes of this act.

Sec. 8. (1) Notwithstanding section 6, for its qualified city,

a commission shall, by resolution, waive the requirements

designated in sections 6 and 7 as provided in subsection (2).

(2) The commission shall grant a waiver under this section for

its qualified city if it certifies that all of the following

conditions are met:

(a) The commission certifies that a qualified city has adopted

and adhered to deficit-free budgets for 3 consecutive years that

comply with generally accepted accounting principles and are in

accordance with the uniform budgeting and accounting act, 1968 PA

2, MCL 141.421 to 141.440a.

(b) The state treasurer and the qualified city's chief

financial officer, if applicable, certify that both of the

following are met:

(i) All municipal securities or debt obligations sold by or for

the benefit of that qualified city in the general public market

during the immediately preceding fiscal year and current fiscal

year satisfied the capital and other financial requirements of the

qualified city during that period.

(ii) There is a substantial likelihood that municipal

securities or debt obligations can be sold in the general public

market during the remainder of the current fiscal year and the

immediately succeeding fiscal year in amounts sufficient to

substantially satisfy all of the capital and other financial

requirements of the qualified city during those periods in

accordance with the qualified city's financial plan.

budget for the current and succeeding 3 fiscal years using

generally accepted accounting principles and in accordance with the

uniform budgeting and accounting act, 1968 PA 2, MCL 141.421 to

141.440a, and section 4t of the home rule city act, 1909 PA 279,

MCL 117.4t.

(d) The qualified city has demonstrated to the commission's

satisfaction that the qualified city has sufficient ability to

borrow in the municipal securities market.

(e) The qualified city did not violate the plan for adjustment

in the immediately preceding fiscal year and is not in violation in

the current fiscal year.

(f) The state treasurer certifies that the qualified city is

in compliance with the uniform budgeting and accounting act, 1968

PA 2, MCL 141.421 to 141.440a.

(g) The commission certifies that the qualified city is in

substantial compliance with this act.

(h) The qualified city has established as part of a system of

compensation for employees retirement plans in which the qualified

city contributes no more than 7% of an individual's base pay,

excluding payment for overtime services, 1-time lump-sum payments,

and the cost of fringe benefits, to an employee's retirement

account.

(i) The qualified city has implemented a program in which all

contracts awarded by the qualified city are posted on the qualified

city's public website within 30 days of the contract award,

including the identity of the parties to the contract, the dollar

amount of the contract, and a brief description of the goods or

services provided by the contract.

(3) The commission shall, by resolution, rescind its waiver

under subsection (2) if it certifies that any of the following,

where applicable, has occurred or that there is a substantial

likelihood that any of the following will imminently occur:

(a) The qualified city fails to pay principal of or interest

on any municipal securities when due or payable.

(b) The qualified city incurs a budget deficit in a fiscal

year equal to or more than 5% of the total expenditures in that

year based on generally accepted accounting principles.

authorization of the commission or in violation of the revised

municipal finance act, 2001 PA 34, MCL 141.2101 to 141.2821.

(d) The qualified city violates this act or any mandatory

financial controls in a manner that substantially impairs that

qualified city's ability to pay principal of and interest on

municipal securities when due and payable or its ability to adhere

to a balanced budget.

(e) The qualified city violates any provision of the plan for

adjustment, if applicable.

(f) The state treasurer and the qualified city's chief

financial officer, if applicable, fail to certify that the criteria

in subsection (2)(b) are met.

(g) If the qualified city's chief financial officer has

resigned, been terminated, or been removed, or the office has

otherwise become vacant and a successor has not been appointed

within 180 days of that vacancy.

(h) The qualified city has not satisfied the requirements in

subsection (2)(h).

(4) If the commission finds that the circumstances under which

it rescinded its waiver of the requirements of sections 6 and 7 as

provided in subsection (3) no longer exist, the commission shall

reverse the rescission as provided in subsection (2).

Sec. 10. Each commission, and the carrying out of its

authorized purposes under this act, is in all respects a public and

governmental purpose for the benefit of the people of this state

and for the improvement of their health, safety, welfare, comfort,

and security. These purposes are public purposes, and the

commission will be performing an essential governmental function in

the exercise of the powers provided by this act.

Sec. 11. For the fiscal year ending September 30, 2014,

$900,000.00 is appropriated from the general fund/general purpose

to the department of treasury to be expended to provide commissions

with the resources to exercise its powers, duties, and

responsibilities under this act and as required by this state to

enforce this act and the plan for adjustment; to secure

professional services to assist in the implementation of this act;

and for any other purposes that a commission determines in its

discretion are necessary or implied to implement this act.

Sec. 12. If a commission has waived the requirements of

sections 6 and 7 under section 8 each year for the immediately

preceding 10 consecutive fiscal years, and the plan for adjustment

has expired, the commission shall, by resolution, dissolve itself.

All property, funds, and assets of the commission, if any, shall be

transferred to and vested in this state.

Sec. 13. Each commission is a state commission, and the

members are state officers for the purposes of section 6419 of the

revised judicature act of 1961, 1961 PA 236, MCL 600.6419. The

court of claims shall have exclusive jurisdiction over any and all

actions challenging the validity of this act.