An Update on the Financial Stability Agreement

This past April, the City of Detroit and the Michigan Department of Treasury entered into a Financial Stability Agreement (sometimes called a “consent decree”), creating a Financial Advisory Board — an independent, appointed body with broad powers to oversee the city’s finances.

So-called “consent” from Detroit’s City Council came only reluctantly — in a 5-4 vote — under threat of a state-imposed “emergency manager” that Governor Rick Snyder has the authority, under state law, to impose upon any Michigan city found by a review committee to be in a state of “financial emergency.”

The Financial Advisory Board’s director Kriss Andrews has made few public appearances, and the board itself has managed to operate with a minimal degree of media attention. Its monthly meetings at Wayne State University’s  McGregor Memorial Conference Center have received little publicity. As a result, many Detroiters may not be aware of exactly what functions the board does and does not have. In some cases, the extent of the board’s authority is a matter of dispute even among city and state officials.

Some people have assumed that City Council’s authority has been eliminated or reduced by the agreement. This is not true. According to the agreement itself, both “the mayor and the city council shall continue to exercise all powers, privileges and authorities as are granted to each under the Charter and applicable law.” Many of the Financial Advisory Board’s functions are, as its name suggests, purely advisory. Words like “advise,” “recommend” and “support” appear frequently in the text of the agreement.

Beyond its advisory role, however, the board does have a degree of very real power over the city’s budget. Under the terms of the agreement, the Mayor may not submit, and City Council can not approve, a budget that does not adhere to annual revenue estimations made by the Financial Advisory Board. The city is also forbidden from borrowing money or settling lawsuits above a certain amount without the board’s approval. This ability to restrict city spending gives the board strong leverage with which to influence the city’s budgetary priorities. While no one denies that the city’s financial situation is grim, many Detroiters are wary of handing over such authority to a body which has been criticized as being unelected, unaccountable, and which counts only one Detroit resident among its nine members. While this board has remained more or less behind the scenes since its creation, it is likely to become more prominent early next year when the budget for the 2013 fiscal year is produced.

Another section of the Financial Stability Agreement attempts to give the Financial Advisory Board the power to change or suspend collective bargaining agreements with city workers. This portion of the agreement was declared invalid in September by Ingham County Circuit Judge Paula Manderfield after a lawsuit filed by the American Federation of State, County and Municipal Employees. The judge argued that neither city nor state officials had the authority to incorporate this power into the Financial Stability Agreement. That decision, however, could still be appealed.

Public Act 4 of 2011 — the law which enabled the Governor to threaten Detroit with an emergency manager — has itself come under attack as sweeping restructuring imposed by emergency managers in the city of Benton Harbor, the Detroit Public Schools and elsewhere has been the subject of intense controversy. The act has been temporarily suspended since August and its ultimate fate will be determined by a statewide referendum in the November 6 election.

If Public Act 4 is repealed, will Detroit’s Financial Stability Agreement stand? Opponents suggest that, since the agreement was signed under the assumption that the imposition of an Emergency Manager was the alternative, the agreement becomes void as soon as the emergency manager law ceases to exist. Another argument, however, points out that the Financial Stability Agreement is a legally-binding contract signed by all parties and therefore remains in effect regardless of what happens in November. According to the language of the agreement, the Financial Advisory Board remains in place until Detroit demonstrates, to the satisfaction of the Department of Treasury, its ability to operate without a deficit for three consecutive years. Ultimately, the final decision may be made, not by Detroit residents or Michigan voters, but by our state’s court system.

The Financial Advisory Board typically meets at 2:00 p.m. on the second Monday of each month, at the McGregor Memorial Conference Center, located at 495 Ferry Mall on the Wayne State University campus. The board’s next scheduled meetings are November 12 and December 10, 2012. According to Michigan’s Open Meetings Act, all Financial Advisory Board meetings are open to the public.

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