 Welcome, welcome to the panel discussion today. Michigan's controversial emergency manager law. This is a policy forum hosted by the Ford School of Public Policy, the Center for Local, State, and Urban Policy at the University of Michigan and the University. I'm very pleased that everyone can join us today. What I'll do here is my name is Brian Jacob. I'm the director of close up faculty member of the Ford School. I am going to introduce our panelists. The panelists will each speak in turn. Then we're going to open up for Q&A. I am going to start out taking the moderator's prerogative to ask a few questions. And then we'll be collecting questions from the audience. I think if you have a question, you'll be writing it on a note card and handing it to Perry and Roland Miranda, a faculty member at the school, be reading those for us. And so without further ado, let me, well, with one adieu, I want to thank the long list of people that have helped make this possible. The close up staff, Bonnie Roberts and Tom Avocco have as usual been invaluable. Tom Cook at Ford School AV, the outreach office here at the Ford School, Jane Tindall, Lorely, Katie Talick have also been fantastic. Thanks to Rowan and Perry for pulling this together and thanks to Dean Collins for creating the space where something like this can happen. So with all the adieu's done, I'm going to introduce the panelists. First, we have Roger Frazier who'll be speaking first. He is the deputy state treasurer for local government services in the state of Michigan. He was the city administrator of Ann Arbor for nine years. In his current role, he oversees the local government services bureau, which includes many things, but most importantly for this afternoon includes the administration of PA4, also known as the Emergency Manager Law. He'll be starting us off giving us a little bit of background, providing the rationale for the new legislation. We'll then be followed by Brandon Jessup, the chairman and CEO of Michigan Forward. Mr. Jessup is working, Mr. Jessup and Michigan Forward are working to repeal PA4. He's conducting research and analysis on various issues in Michigan. He earned his bachelor's degree in computer information systems at Eastern Michigan. And he is very active in the community. He'll be speaking, trying to articulate some of the concerns and objections that folks have had to PA4. Then we are glad to have Mr. Joseph Harris, who is the Emergency Manager of the city of Benton Harbor. He is a certified public accountant and auditor. He has degrees from the University of Michigan, which makes him an expert in my book. And I think we're hoping he can bring the practitioner's perspective, what it has been like in his job working as a financial manager, arguments for, against, challenges, successes. And then finally, we'll be hearing from Dane Walling, the mayor of Flint. And Flint has had the dubious honor of currently having a financial manager. And he is going to be able to speak to the experience of his city and what he sees, again, as the successes challenges issues relating to this law in Michigan. So I think without further ado, I'm going to turn it over to Mr. Frazier, who will speak first. I think he will be using the podium. Yes? Thank you. It's a privilege for me to be here today. I see a number of friends and colleagues from around the area that I've gotten to know and appreciate over the years. This is going to be kind of fun. I'm here on behalf of Treasurer Andy Dillon, who is meeting this afternoon with the Emergency Loan Board, looking at money for another city in trouble. The whole notion of what Treasurer's role was with respect to cities facing emergency financial issues has become dramatically different over the last several years. And this was, frankly, anticipated as one of the rationale for modifying what was PA 72, the old emergency manager law that became PA 4. The fact matter is that there are cities throughout our state and primarily in southeastern Michigan that are experiencing substantial difficulty with falling revenues, falling populations, and the inability to match service delivery with the existing revenues that are coming in. I'll talk a little bit more specifically about a couple of examples. But as we looked at what was happening under PA 72, there are a number of aspects of that law that were precluding the emergency managers appointed under the old law from getting to the heart of the issues that needed to be changed. So PA 4, what did it do? Among other things, it provided a system of early indicators. One of the things that was not happening was that we weren't able to moderate the wrong word. We weren't able to monitor what was happening, thank you, Joe, with cities in trouble. We weren't noticing those difficulties early enough. And once we did see them, we didn't have the tools to intervene in a way that might be helpful in precluding cities from getting into more difficult financial circumstances. PA 4 has tools in it with which to avoid an emergency manager. We have now an office of fiscal responsibility as a part of the Bureau of Local Government. And as the money is made available to do this, we will be adding staff who will become consultants and advisors on the state's dime for local units of government to help them solve, hopefully, managerial financial issues without getting into deeper difficulty. If the EM is appointed, PA 4 provides the tools for the EM to move as efficiently as possible and hopefully get out and restore the community to local leadership in an early circumstance. The frank problem is, in the majority of these cities, 80% or more of the money that they are required to spend in their budget comes at the expense of personnel. That's what it's about, is people. Local governments are in the business of providing services. And by and large, those services are provided by people employed by the cities. Now, while there's nothing in any of the charters or nothing in the state law that says local units of government must employ people to provide services, that's the way that we've done it. That's what's been happening in our country, frankly, at the local level. We've typically used people to do it. As we deal with PA 4, you should know that our focus from Treasury is to avoid signing an EM to a community as any way possible. If you've followed what's been happening in Detroit, that message has been repeated over and over again by the governor. And he's absolutely serious about that. He wants not to put EMs into local units of government. On the other hand, it is also true that we cannot ignore the pleas from communities that are in financial trouble and unable to figure their own way out. There's all sorts of reasons why that happens. But the fact is that we don't go in unless local communities are unable to work it out themselves. Let me give you a couple of examples. And I'm delighted that Dane Walling is here as a consequence of some of the discussions that we've had over the last year. I've gotten to know and respect Mayor Walling. And the fact is that he inherited a hellacious mess in Flint when he got elected. Back in 2002, the city of Flint was first in receivership. And an emergency manager actually had a couple of them over a period of four years. In 2006, however, when Flint was relieved from receivership, they actually had money in pooled cash in the amount of almost $70 million. In 2010, that pooled cash balance was zero. And at that point, the general fund had a deficit projected at somewhere in the neighborhood of $12 million. That's just one indicator. In addition, it's important to note that on a per capita basis, I'm talking about per capita employees, the city of Flint has the largest debt related to benefits and commitments for post-employment benefits of any city in the nation. And their total debt is close to $850 million. It's amazing. At the same time, the city of Flint, whose 1950 population was approaching 200,000, now has approximately 100,000 people. So if you imagine the commitments that were made and the services that were being provided and the infrastructure that was established for a community of 200,000, you have in some ways a smaller example of what's going on in Detroit. The systems were all designed to serve a much larger population. And the people who were in charge as the money went away didn't have whatever it took to make the decisions, make the determinations, change the system so that they could balance the revenues against that, which was committed in terms of salaries, particularly. Business taxes. Imagine this. I remember heading up 75 as a kid and seeing signs all over the place that talked about Buick. Buick this and Buick that, GM this and GM that. And the plants that you saw from the streets, the highways as you were going up there, were all about GM. Now if you wander around a number of our cities, Lansing for one, Pontiac for another, Flint for sure, all you see in those places are cement slabs. The structures are gone or being taken down. The business taxes paid in Flint have fallen by almost 70% at the same time that the population has dropped by 50%. The mayor is no more proud than anybody else about the crime rate in his community. And it's not just the murder rate. The arson rate, all of those issues are enormous. And there are more problems that the city can fix alone. The criminal justice system, as it functions in Genesee County, is almost broke. And by broke, I shouldn't say broke in, because I don't mean that they're financially broke. They're not functioning properly. You can't get people through the system. And there's a number of reasons for that. And those too are beyond the domain of the city of Flint, but they're the victims of that. Want to discuss one other community as an example, Highland Park. Highland Park is a little over two square miles. It's an enclave in the city of Detroit. And at one point in time, Highland Park was the place to live if you worked in Detroit. It was sort of a haven and a special place amongst other parts of the city. There are people who have lived there their whole lives who hope to have that city remain viable in the future. Presently, the tax rate in Highland Park is almost 90 mils. The rate of collection on the tax rate is about 50%. They have an income tax for which the tax collection rate is also less than 50%. Their water bills are paid at a rate of about 50%. They owe the Water and Sewer Board of Detroit approximately $8 million just for the sewer system and they're going in the hole at the rate of $200,000 a month. They have a new mayor and a new staff and they wanted the opportunity to try to work this out themselves. We're supporting Highland Park in that effort and there is not an EM assigned there today even though Highland Park remains technically under receivership, the decision has been made to try to assist them in their efforts to get beyond those difficulties. We hope and indeed pray that they will be successful. Then there's a question of bankruptcy. If we didn't have PA-4, if we didn't have a state receivership, what would be the alternative? Last fall I did a little bit of research on the effects of bankruptcy on local communities and I talked with a city manager who is currently serving in Ventura, California. Ventura, California has already been through a little bit less than five years of their bankruptcy experience and they're not done. The relationships of Ventura with its community, with its employees, with its neighboring cities has been described by this individual as abysmal. They have just been through hell trying to work their way through bankruptcy. They have resulted in all sorts of irritation as they've negotiated with the creditors. They are unable to borrow money for infrastructure. They have labor contracts that the judge has overturned and set aside, their employees are now faced with all sorts of uncertainty and layoffs. They've been having layoffs, they'll have more layoffs before this is all done. We would hope that PA4 offers an orderly alternative to bankruptcy. That there are ways for us to work through this process and make sure that communities become viable again in a way that they're unable to accomplish by their own. One other point I'd like to share with you. Not every city that comes to the attention of treasury winds up being assigned an emergency manager. Recently the financial review processes were completed with the city of Inkster and that has resulted in a consent agreement. The mayor and the council and the finance director in that case will be able to work with the powers of a consent agreement but without an EM being assigned and we are optimistic that they will be able to work through some significant financial stress. In another circumstance we were asked to go in actually by the Department of Education and put a review team in place for Benton Harbor Schools. Given the history of the city of Benton Harbor, I think there was concern that the Benton Harbor Schools were going to be facing the same kind of difficulty and in fact the finding there by the preliminary review was that they do not have a fiscal crisis that they cannot manage themselves and the state will not be getting any more involved other than to monitor their progress and getting out of trouble. So as we go forward with being for our focus as much as it can be is on implementation of assistance programs rather than takeover and it's only in the most dire circumstances that the state is willing to recommend that an emergency manager be brought in to resolve problems that can't be resolved on the local issue without that kind of assistance. Thank you very much. Good afternoon. Good afternoon. I'm Brandon Jessup, Chairman and CEO of Michigan Forward. I've been a resident here in the state of Michigan for a very long time and it's a pleasure to come forward before University of Michigan and Gerald Ford School of Public Policy to discuss one of the most important issues in the state in some time. I wanna make sure I thank Ms. Bonnie Penleton. I'm sorry, Ms. Bonnie Roberts for sending me the tons of emails to make sure I got here on time. And I also knew exactly where to go. Sprawling throughout this campus can be challenging at times especially coming from EMU where our buildings pretty much take up one city block. But it's always a pleasure to come back here and visit U of M and I'm honored to come here and bring my remarks as a opponent to public act for but also, more importantly, from what we see a proponent of democracy. One that's inclusive throughout the entire state and makes sure that the least of our residents and voters in this state are represented well and also they have full access to the employee journal. Just over a year ago today, Michigan's legislature passed a reform policy for municipalities and school districts in financial distress. This act public act for the local government and school district fiscal accountability act was designed to give power to give the governor expanded power to avert financial crisis in municipalities and school districts. With these power to governor after financial review process may appoint an emergency manager with broad powers spanning both executive and legislative branches of government. Michigan's EM law presents a neck and power grab and tolerable of our form of democracy. The law presents a clear threat to voters across this state. Within the first 30 days of this law's passing, emergency managers waive their absolute authority on the communities have been the harbor and Pontiac. Both these communities entered receivership in 2009. Casualties from the financial crisis of 2008, these cities saw the pay of their elected officials cut to zero or reduced dramatically. Both of these communities representing over 70,000 voters in the state were first to watch the elected officials be stripped of their power to legislate. This act alone immediately disenfranchised voters in their immediate community, disconnected entire communities from their elected representation and the democratic process. Later the emergency manager in Benton Harbor will fire the finance director, city manager and dissolve departments of public service. And Pontiac after the emergency manager was replaced in September, the city clerk was fired days before a pivotal local election to fill a vacancy in that district's house legislature. Currently all public assets in the city of Pontiac are for sale. The absolute power afforded to political appointees over the democratic process caught our organization to action in May of 2011. With Acme Council 25, the ballot question committee standard for democracy was formed to organize and collect the required 161,305 signatures to repeal this law. And this radical legislation has taken precautionary measures to navigate around court decisions that support democracy, legislation that honors voting rights and secures civic engagement by providing accountability and transparency to the public. Public Act 4 isolates the solution and not the problem. Financial recovery requires fiscal expertise and knowledge and application. This law requires none. This act of forward certification to prospective appointees who have completed training on administering this policy. However, this training does not and cannot provide the data necessary to measure responsibly the impact of the communities they are appointed to turn around. Financial crisis has become a political tool designed to suspend government and dissolve communities across the state of Michigan. This bad public policy that not only encourages voter suppression and disenfranchisement, it redirects economic access, opportunity and recovery in the public sector from its natural beneficiary, the public to the private interest. Michigan cannot turn away from democracy in the times of uncertainty and in the times of uncertainty that are facing our local communities. Our opposition to this bad policy reaches farther than the apparent poll tax that I've just described. The measures this law takes to avoid elected government extending to diluting economic opportunity and access of municipalities and school districts. EMs have the ability to cancel all public contracts. This place is some of the latest start of the state's largest economies in areas of commerce under the control of one absolute authority. Small businesses and community vendors have the most to lose under emergency management. Small businesses are the primary job creators in each of our local economies. As the emergency management process academic spreads across Michigan, local vendors are losing access to millions of dollars in federal grants and funds that can redevelop and help sustain our local communities. Our opponents have exploited the aspects of collective bargaining and public contracting to their benefit. Detroit for instance is familiar with the impacts and ineffectiveness of emergency management. After passing two bond measures, one to regain the control of our school district and the second to rebuild schools across the Detroit public school district, amount to nearly $1 billion in investment. However, this school district has closed nearly 70% of its traditional public schools in the last two years. With over 50% of the local small business vendors in Detroit being cut from DPS funding and also the layoffs of thousands of teachers, administrators and staff, the Detroit public school district still remains with a deficit of $327 million. You must find another solution to regaining stability in our municipalities and school districts. The exodus of public tax dollars further depreciates Detroit's education product and inflates the cost of education to our local residents. If Detroit follows Flint until emergency management, the state's largest local economy will be under the control of the state. Detroit's gross domestic, I'm sorry, gross municipal product in 2008 was $300 billion. Over the last 10 years, over the last three years, that output has decreased by 15%. However, Metro Detroit's economy provides over $280 billion to the state and also to our national government. We are in the middle of one of the strongest economic engines in the state. However, it's facing absolute takeover from an emergency manager. Southeast Michigan was shoulder to bulk of the impact of the city of the city of Detroit and Inkster coming under receivership. Communities such as Allen Park and Hamtramick face the possibility of triggering Michigan's EM law and Highland Park School District is currently under emergency management. Adding Michigan's largest economic engine to the absolute authority of the EM's not only challenges the voting rights and economic access of the immediate community, but it challenges the economic access of two million residents that share in that local economy. Accountability and transparency have been the Achilles heel of this law. This law has challenged many policy safeguards for taxpayers, especially those identified against unfunded mandates as drawn out in Michigan's Headly Amendment. This call for this closure has led to lawsuits questioning the governor's use of Michigan's Open Meetings Act. State appointees or review teams assembled under Public Act 4 should convene, report and operate in a transparent fashion. Calis reports have Chronicle Governor Snyder's lack of transparency and the use for this political hammer. The most odious of its actions are apparent in the anti-democracy consent agreement delivered to the city of Detroit last Tuesday. At a glance, this agreement provides a waiver of legal recourse, a $1 million severance to unelected officials, and supersedes any ballot initiative that may alter the state of Michigan's EM law. On February 29th, the Santa For Democracy Coalition submitted 226,637 signatures to the Secretary of State to push a vote in a referendum on Michigan's Public Act 4. Our gradual effort reflected every community of Michigan, from Traverse City to Ann Arbor, students from Grand Valley, Altar Air, across the Montt Community College, have signed a circulated petition to protect democracy in Michigan. Now we wait approximately 60 days for our opponents to formally announce themselves beginning today. One of our opponents, Michigan Citizens for Fiscal Accountability, a super PAC from Grand Rapids, has formally requested to review our submission and we anticipate a strong challenge from this organization. The Santa For Democracy Coalition is committed with our legal partners from the NAACP, ACOU, Advanced Project, Michigan Welfare Rights Organization, the Aspen Council 25, and the Michigan Education Association. To protect our petitions and to make sure we have a fair and transparent process of certifying our petitions and making sure that our account is valid. But throughout my presentation, I've referred to Michigan's EM Law in a very repetitive sense. Michigan's EM Law, regardless of the version, regardless of the version, is wrong for Michigan. I believe, as well as Michigan forward, hundreds of thousands of voters in this state agree that this Michigan has to navigate a different crisis, has to navigate differently in financial crisis. Our petition is a reminder that democracy works. Michigan cannot ignore the factors that are still plaguing our largest communities. An anemic housing market and staggering unemployment continues to handicap Michigan's largest communities. Michigan's core communities are in a cardiac arrest of hemorrhaging resources and population. Yet, Governor Sander cannot turn a blind eye to the efforts put in place to turn each community facing financial trouble around. Detroit, Flint, and Benton Harbor in Pontiac have all experienced near complete turnover of their local representative government since 2009. The city of Detroit itself, just this last November, passed a full reform of the city charter, implementing many, many changes to our local government structure, placing more local control in the city of Detroit and increasing the financial accountability and reporting measures to the community. Michigan Forward tomorrow will present framework for a municipal reinvestment and recovery task force. This task force, accompanied by a bipartisan commission, would develop local recovery and reinvestment plans with the support of grants for the state to reinvest in our city's core services such as fire, emergency and employer services, also water and sewage departments, and any other public service that our core services for our largest communities. Secondly, we asked for a commission with some aspects of the financial advisory board presented to the city of Detroit last Tuesday to not only create a framework for municipalities to recover but also to reinvest responsibly, making sure that we don't continue to sign the bad contracts and bad policy that we've seen in our communities of color and also our larger communities of large economic growth for the last three decades. Michigan Forward and the Standard for Democracy Committee firmly believe and we recognize the issues facing our core communities in this state. However, we cannot trample democracy and the sign of a financial emergency. We firmly oppose the political tool crafted by the Michigan Legislature in March of 2011, and we encourage the state to follow our lead for reinvestment and recovery in Michigan's largest communities and core communities all across the state. Thank you. Good evening. Good afternoon. Thank you. First, let me say that I'm so pleased to return to my alma mater today to join in this discussion on the Michigan's Emergency Manager Law. I'd like you to ponder a few questions. One, is the state of Michigan obligated to intervene when a financially troubled local government or school district, and I'm gonna use the term local government, which fails to resolve its financial difficulties, threatens to materially affect the public health, safety, and welfare of its citizens, and that of others because of its inability to ensure the provision of essential governmental services. Two, does the state have an obligation to protect the credit ratings of the state and or its political subdivisions? Three, is it right for the public good and a valid public purpose for the state to intercede into the affairs of local governments that are experiencing financial distress? Four, what are the potential ramifications to the communities in question, other communities, and the state? If the state does not intercede to prevent defaults on bonds, payless paydays for employees or non-payment of healthcare benefits for employees and retirees? And five, if the state's involvement in the affairs of insolvent communities is appropriate, what should be the extent of that involvement? Should assistance be restricted to providing loans and grants to communities that have demonstrated no capability or no viable plan to address their financial difficulties? Ladies and gentlemen, we cannot afford to expect financially distressed local governments to reverse their declines if they are not making dramatic changes. To change their results, they must change the methods they have been employing. Nor can we afford to expect conditions to be corrected by those steadfastly adhering to failing methods by applying more rigor, more dedication, and more commitment to those methods. I submit to you that the consequence of inaction by the state are untenable and that the state's involvement in the affairs of financially distressed local governments is imperative. So what should the state's response to financial emergencies be? Needless to say, in any set of circumstances, we should select the wisest course of action. However, in the event of an emergency, it is particularly important that we select the wisest course of action. My opinion, PA-4 provides the wisest course of action for financially distressed local governments. Now of course, no patent remedy can be devised to address the insolvencies of local governments that would be acceptable to everyone. PA-4 corrects the deficiencies of its predecessor act, PA-72 of 1990, by allowing local governments to erase or undo regrettable decisions of the past, contractual and otherwise, that have prevented them from resolving their financial difficulties. This displeases those who wish to retain agreements that have worked to the detriment of the local government. And this displeases many city officials and some special interest groups whose control over the local governments have contributed to the financial demise of those governments. But for local governments that require intervention, remedies are likely to be more beneficial and more sustaining if administered by a state appointed receiver, i.e. an emergency manager under PA-4, rather than by municipal bankruptcy court appointed receiver. The primary role of a municipal bankruptcy court appointed receiver is to settle the claims against the local government. This only addresses the symptoms, the finances, the underlying causes remain unaddressed and continue to lurk like a wounded villain that resurfaces in each episode of a horror story. Sustainable change is not just about getting the finances right, it's about rectifying the underlying policies and procedures. By appointing emergency managers, PA-4 provides a means to address those causes of the financial distress by addressing the underlying policies and processes. Emergency managers are the cornerstone of the PA-4 legislation because they provide the essential resources needed to change the contributing factors by providing one, the necessary financial and operational expertise and two, an unbiased, non-political commitment to do what is right and what is necessary. Now, as you know, as has been said, there's an effort underway to rescind PA-4. In my opinion, to abort PA-4 before it has been allowed an opportunity to be assessed based on its performance would deprive not only the financially distressed communities, but other communities that would be harmed by the distress. Through PA-4, communities are now able to cut the Gordian knots that have perplexed them for so long. For many communities, PA-4 is the variable lifeline they desperately need. I'll now discuss an example of how PA-4 can benefit a local government, the Bitten Harbor Financial Emergency. The Bitten Harbor Financial Emergency, or at least the Genesis, began in August 2009 following a written request from the Bitten Harbor City Manager to the state and subsequently, or as a result of that request, the state conducted a review of the city's finances in which it found that a serious financial problem existed. The circumstances, one, the city's 2009 fiscal year audit revealed the general fund expenditures exceeded general fund revenues by $1.3 million. This was with a city that has a $6 million general fund, $6 million revenue, six and a half. Excedent expenditures exceeded revenues by $1.3 million. Two, total cash decrease from $1.7 million in 2006 to $300,000 in 2009, a $1.4 million decrease despite large cash receipts from asset sales. Three, at June 30, 2009, the amount owed to the IRS for payroll taxes withheld from employee wages, but not remitted to the IRS was $678,000. Four, the city was delinquent in property tax distributions collected on behalf of other jurisdictions but never distributed by $626,000. Five, the city owed the employee retirement system $4 million, six. The city was paying $80,000 to $100,000 per year in bank overdraft charges. Seven, the city had no accountants, including the finance director. Nor did any of the four employees in the finance department have any academic or job-related accounting or financial expertise or training. The city was therefore unable to prepare financial statements or even bank reconciliation. Eight, over $1 million of a HUD grant to the city that was intended to provide loans to small businesses was squandered by loans to three small businesses that subsequently filed for bankruptcy. HUD has required, that's housing and urban development, has required the city to repay the grant back to HUD, which is now costing the city $150,000 a year. Nine, the city was paying an excess of $100,000 per year than necessary for rubbish collection services due to the city's commission, city commissioners decision to contract with a local vendor whom they favored, even though he was not the low bidder. 10, budgeted appropriations exceeded budgeted revenues each year from 2000 to 2010. Budgeted appropriations exceeded budgeted revenues. 11, actual expenditures exceeded actual revenues each year for the 10-year period. Mountain 2, operating losses of $12 million over that time. And 12, the city had no satisfactory plan to resolve the financial problem. You wrap up by telling you what actions we've taken over the last two years. One, hired accountants to enable the city to properly maintain the accounting records. Two, awarded the rubbish contract to the lowest bidder. Three, commissioned a study of the Department of Public Safety and based on the recommendations in the report provided firefighter one in two training for police officers who are now certified firefighters. This has allowed the city to reduce its cadre of full-time firefighters which saves the city over a half million dollars annually. Four, negotiated new collective bargaining agreements with police and fire unions that now allow the city to use cross-trained police officers and part-time and on-call firefighters to supplement the city's full-time firefighters. Could not use part-time police officers and part-time firefighters prior to that. Five, improved the level of public service while reducing the general fund staffing levels by 40%. Went from 85 employees to 49 employees. Six, revised the city's healthcare benefits to provide health savings accounts to employees. Seven, paid the $626,000 of delinquent property taxes owed to other local governments, the library, the school district, and the transportation authority. Eight, paid the $678,000 the city had withheld from employees, paid in 2009, but had failed to remit to the IRS. Nine, completed substantial repairs and improvements to city's facilities and equipment. 10, eliminated the city's structural deficit by cutting the city's budget by 20% resulting in annual cost reductions in excess of one and a half million dollars a year. 11, developed balanced budgets for 2013 and 2014 fiscal year. Next year, beginning July 1, 2012, all of the changes that we have implemented will have a full-year effect, as most of those changes happened after PA4. So we have not had the full effect of the benefits of PA4. And last, prepared a deficit elimination plan adopted by the state. Thanks. Okay, good afternoon, everyone. Let me also thank the Ford School and close-up and the fellow panelists and everyone for participating here today. As I was introduced earlier, Mayor Dane Walling and Flint. And I'll share with you a few perspectives on public act four from my position in Flint and also lay out a few alternatives and reforms that could be put in place to address the underlying economic and financial challenges that communities, frankly, all across our state face. I really believe we need to have this conversation about how we improve our cities. And I think everyone who's here is committed to doing that. More brief background on the city of Flint. Deputy Treasurer Frazier made a few of the points on the underlying factors, change in population, change in tax base. There's no debate that the city of Flint is in a severe financial condition. There's severe long-standing public finance challenges as indicated by the fact that we had had an emergency manager under the former act. When I was first elected in August of 2009, there was an audited operating fund deficit of over $10 million. That quickly, by the time I was in place, escalated because the governor of grand homes and the legislature's cuts to revenue sharing. So this is a bipartisan issue. The cuts that have come to cities have come from both sides of the aisle. So immediately a projected deficit of nearly 20 million across our operating funds, not including some of those liabilities for long-term retiree healthcare, the OPEB, other post-employment benefits. So I had to make some of the toughest decisions any local elected official would want to have to face, often with very limited options. Now touch on a few of these that show where some of the different interests in terms of city council and the unions and others came into play here. I reduced the pay through the local officials' compensation commission of all of our elected officials' pay and benefits. So we made that change. We went to 80-20 healthcare cost sharing for all of our non-unionized employees, including appointees and elected officials. In the contracts that came open with AFSCME, we negotiated a double digit concession. Certainly a lot of other issues were still in those contracts, but we did get a double digit value in their concession. I had to do two rounds of public safety layoffs. Some of the hardest decisions I've ever had to make in my life, there simply was no willingness by our police or fire unions to agree to anything other than very nominal concessions. We passed a public safety millage renewal, actually promoted a new millage tax to open the city jail. That was defeated 45 to 55 in May of 2011. We've closed golf courses. We've outsourced certain city work with state approval. We did take out $8 million fiscal stabilization bond to keep the city's cash flow positive, shift part of the burden of that deficit repayment to the city's capital fund as opposed to the operating fund. All of that brought the city's operating funds deficit down to approximately $8 million at the close of this last fiscal year, this last summer. There were additional liabilities that you can calculate in the enterprise funds that increased that number. Overall, our city workforce is down from 1,200 employees about five years ago to 700 employees today. I propose charter changes to reduce the number of city council members and mayoral appointees. I did not get support from that from city council. That never made it to the ballot. And through the summer of 2011, after what was a very, very difficult year for us in 2010 with public safety, it became clear to the governor, to the treasurer, to myself, we all reached the same conclusion that there could not be another round of public safety layoffs. It just simply wasn't possible. The review process started that fall and identified a number of issues, financial management capacity, all the numbers that were in the audits already. The council was actually divided. I think a number of them were frankly tired of me and asked for a manager. It wasn't long afterwards that one was appointed in November and December. The union reaction was actually mixed. Our police sergeant's union came out publicly and said he was looking forward to working with the appointed manager. So you can see how much they thought of me by that point. So my view overall and in my elected position, I was reelected in November of 2011 by 57 to 43% despite all of this that was going on. And the fact that I raised water and sewer rates by 35% in between the primary and the general election. So we were doing everything possible to keep the city's funds and operations going, to keep our community together around some United Solutions. And I've continued to promote that message locally through the state of the city and other opportunities that I've had because in my view, we simply can't go back in Flint to another one of these big political tug of wars that leaves the community in worse shape than it started in. So in my elected position, I have worked with the appointed manager. I serve on the advisory board. I do provide input. My personal focus has been on the planning, economic development, intergovernmental affairs, some citizen and community engagement. One of the things we didn't have when the city went into receivership before, we didn't have a long-term plan in place. In fact, the city's last master plan was passed in 1960. So we don't have on paper the direction and the guidelines for how we grow and change. So we're working on that now with the grant from President Obama's Sustainable Communities Office. And that continues to take up a good deal of my time. I do wanna touch on some of the serious complications that speak to the law, how it may be modified or changed over time, maybe repealed depending on what the people have to say. There have been some problematic implementation issues. The city's current appointed manager is actually under a temporary restraining order as of last Thursday, based on a complaint filed under the Open Meetings Act. That hearing is tomorrow at about this time, so stay tuned about his status. There've also been some concerns that I've had about how the law creates essentially or could create an unequal playing field where appointed managers have more power than local elected officials do. So I think there are some concerns there about how that works over time. The last thing I wanna touch on is the broader on a metropolitan and regional dynamics that are at work here because in my view, what's happening in our central cities is in part about what we've done locally, and I was born and raised in Flint and have seen these things over the years. But there's also a whole host of state and federal policies that have subsidized spraw and the decentralization of population. So over the last 40 years, the city's lost half its population, but Genesee County has actually remained stable. So the individuals who used to live on the east side of Flint who didn't actually pay the full cost of the city workers who picked up their trash that we're now paying for through OPEB and retirement contributions, they just live four or five miles down the road in one of Flint's suburbs and they get the privilege of living in a community that doesn't have those long-term OPEB and retirement benefits. And I think that's a problem. I think we need to have policies that promote more equity across all of our communities. That's a complicated proposition. I don't know how politically feasible it is, but I think it's something that we need to put on the table and we need to wrestle with. There are other issues. Of course, you've heard from my remarks that I think there's an appropriate role for taxes in government and local and state government. I think we could pretty easily talk about broadening the sales tax. We can talk about increasing the income tax at the state or giving some local options. We could return revenue sharing to the original communities that it was established for as opposed to being spread across the whole state. That would advantage many of the same communities that are facing severe financial crisis. So yes, there's things that we have to do and I've been willing to do them and support changes on the spending side, but there's quite a lot that could be done on the revenue side and with other regulations and policies that would promote more equity across our regions. And I think that's important for us to discuss. So there's no question that Michigan cities are going to take serious metropolitan, state, federal cooperation and support to thrive and prosper. That's another point I think we can all agree on. We've benefited greatly in the city of Flint from some investments by the Michigan State Police. There's some additional investments that the governor has proposed. So this has to be a positive working relationship and again, I'll just close by thanking all of you for being a part of this dialogue. Thanking my fellow panelists for the discussion today. All the folks are gathering questions from the audience. I'm going to start out with a few moderate questions. Because I was remissed earlier, I want to thank Christina Hodge for all of the work that she's done and to welcome through video or audiences the Detroit Center that are watching live, the live web stream. So with that, I think you're going to just jump off where Mayor Walling ended and talk about potential alternatives to PA4. My read of the comments, that there's considerable agreement that there is substantial financial distress. There's lots of communities that are in trouble, they don't have enough money to cover reasonable costs. There's also, I think, with some agreement that local control, if possible, would be the best alternative. So what are some of the alternatives that we can think to PA4? I think I'd like to make it a little bit more difficult for the panelists by saying, let's focus on short and medium term. I think it's certainly easy for everyone to say the best long-term solution is economic growth. So we don't have that. And yes, we'll work on economic growth, but in the short and medium term, if not PA4, what? And so I would put that at least initially, Mr. Jessup and Mr. Frazier and then open it up to the other panelists. As I was so prompted by Mr. Frazier here is to take this opportunity to get all the ideas I can out now. So I was starting to say maybe the most important step for municipalities and school auditions with large employment roles and rosters would be to look at ways to immediately restructure the debt onto taxpayers. What has happened over the last, really over the last year from what we've seen at Michigan Fort is that the working in middle-class families and communities in the state's core communities are losing more and more disposable income. By these organizations or these people losing more disposable income, we see where it ends up at the end of the day. They claim Lex's interest on their city taxes. Or they neglect to pay them. Property taxes, X, Y, and Z. We encourage the state to work with every municipality and school district that is facing a financial crisis to look at ways to restructure the long term debt on employees regarding their pension obligations as well as healthcare obligations. And we also have to do it in a manner in which we don't put all of the responsibility back on the face of the employee. Mayor Walden spoke about non-union employees in the city of Flint taking the 80-20 pay differential. That's fine. But however, as the cost of living continues to increase in the state of Michigan and also the wage earnings for people who live in municipalities across the state consistently declining at a rate of around 3% to 5%. In some areas, in Detroit, it's declining almost at 8%. We need to find ways to stabilize our workers to get more disposable income. And one way that we can see that is by restructuring the debt on cities municipalities and therefore restructing their right now payments to long term debt. One of the things that has become increasingly clear to me as we've worked with these cities in financial trouble is that cities in Michigan, particularly in Southeast Michigan, most particularly have modeled their employee pay plans or compensation plans after what the auto industry did in the 50s, 60s, and 70s. And during that same period of time and particularly during the 90s, we had in Michigan more money than we had in any other time in the recent past. And there was a whole lot of spending done by city after city after city making commitments both in terms of the numbers of employees but also in the entitlements that those folks had as a consequence of their employment. Today, if you take a look at what's happened with the auto industry, the auto industry by and large was able to go through bankruptcy. Ford didn't do it, but the others did. And they got rid of all kinds of obligations that they had made in the 50s and 60s and 70s by basically walking away from them. But there's a fact in the private sector, private sector businesses can go out of business. They can dissolve, they can go away. But the fact is that we cannot fail to serve our communities. Local governments are there to provide essential services to folks that they can't provide for themselves. And in addition, if you take a look at our state constitution, there are guarantees in the constitution with respect to public employee pensions. Now all of these promises have been made about pension systems without any particular regulation on the part of the status to how generous they might be or how much money that they might put into those funds. And the dilemma for a lot of these communities and for our state that I don't have an immediate resolution for is tying a little bit to what Brandon suggested as we're talking about other funds coming in to resolve these issues. If we're not able by virtue of the constitution to eliminate our commitments on pension benefits, I'm not talking about pension healthcare, I'm talking about just the retirement itself, then it seems to me that the state as a whole is going to have to pony up some money to help these communities get out of that hole that they're in before we can begin to believe that they're going to have the kind of opportunity to fix themselves with those kinds of major financial overheads just killing them. Let me just say that your question had to do with short to intermediate solutions. It's really interesting that when you listen to most, I shouldn't say most, but many of the individuals whether they be mayors or council members, commissioners as to solutions for financial difficulties is how can we get more money? We got to bring more revenue in. We got to bring more people in. And I contend that cities need to learn to operate with the resources that they have available to them. I contend that the short to intermediate solutions are cost cutting. And when the city manager for Benton Harbor was on his way out the door, he said Mr. Harris thinks he can balance his budget by cutting costs. What I did? Well, I'll play my role and talk about revenues. Currently, the state allows a local income tax for a number of cities across the state. Detroit, Grand Rapids and Saginaw, all by specific amendments and statute are able to collect and expanded local income tax. If the city of Flint were simply allowed to collect the same income tax that's available to Saginaw and Grand Rapids, I don't even need the full 2% in Detroit. I'll take the 1.5 and the other two. The city would generate $8 million more per year into the general funds, about 60 million this year. And our deficit at the end of this fiscal year will be somewhere in the neighborhood of 20 million given what's transpired. So you could eliminate that deficit within three years. So hey, look, I think it's fair to interrogate any proposal when you're talking about taking additional dollars into the public. But I think we need to recognize that there are a host of uneven policies that have been put in place. And this is a time when we should re-examine those. When finances are such as they are, it may be that more of Michigan's local cities and communities should be able to collect an income tax. Or the state could do a surcharge on the, there's a whole number of different ways that you could get to the same conclusion. My specific case, and the city council voted 9-0 on this particular proposal, so they would probably support even this one. If we just were allowed by the legislature to collect the same income tax as our competitor cities in Michigan, then that would be a major increase. We're relying more and more on income taxes because of what's happening with the property tax decline. Our city residential property values dropped 24% this year. That's on top of multiple years. So we're down about 40% from where we were in the early 2000s. So the other solutions I think are appropriate here too, but I wanted to elaborate on that point about revenues. Questions for the audience? I think Professor Miranda. Sure. Okay, so the first is to anyone on the panel, does anyone wish to comment on productivity or lack thereof when addressing payroll in distressed cities and school districts? The issue of productivity. Well, we have a major problem of productivity in the city of Flint. And you can tie that to a number of factors. There were certainly promotions that took place without proper supervision and accountability. None of our contracts are performance-based. So the officer who works hard through the entire eight-hour shifts and makes five or six arrests gets compensated the same way as an officer who takes the same amount of time or twice as much time to do that same work. So I think it's a very important factor that citizens should expect their dollars to be stretched. They should expect employees to work a full, long day. Of course, be compensated for that, but there has not been in the city of Flint enough oversight and accountability, especially at the mid-management level, which can be difficult to manage with changing appointees and protections of union contracts. So that's something we've really wrestled with and there are some efforts across the state, the city stats system that MSU Extension has been promoting. The more that can be measured, the more that can be benchmarked, I think those are important efforts. We made some very modest steps for that in Flint and frankly haven't gotten very far. It takes some management accountability. It often takes some IT infrastructure that can cost some money in terms of the data and analysis. So there are some hurdles there, but it's an important factor in getting more effective services with much less limited resources. I'll take the question of productivity and really take the time to shine more light when you show up with the school district and it's lack of productivity under emergency management. As I stated earlier, the deficit currently in the district is $327 million. The time to relieve that deficit may take over to 15 years. But with that being said, we see some very strange reports of what's productive of a school system that should serve up to 150,000 people over the young people under the age of 18. School aid should have specifically in the Detroit area. Right now Detroit public school serves approximately 63,000 students. In the city of Detroit, there is a propensity to capture the entire education market of 120,000 people of school age. That's folks whose age is a five, 18 years old. Now, for a school district which cannot raise taxes, a school district that has already received upwards to $1 billion in municipal bonds and support from its tax base should be able to produce and serve the market at which it is placed in the middle of. Here in the city of Detroit is what I'm speaking about. However, to see the district consistently underperform over two years of emergency management also in a distance of two years on its own self-determination, we found that productivity and really the state's ability and local community's ability to foster a productive education system instead of Michigan, especially the larger the system becomes, becomes almost unbearable. And as Mayor Wally spoke before about property taxes, the city of Inkster's property tax revenue has fallen almost 15% of last year as well. So just imagine when you have communities such as Benton Harbor where you have the average wealth of the resident at $10,000 and you have a school district, once again, that's facing an economic crisis. The real issue of productivity in our schools comes back to the community and their ability to work and maintain that district. So when we talk about productivity, we have to look at not only the productivity of the organization itself, in this case the school district, but also the productivity of the community in which that school district serves. Any community that faces 30% of unemployment and 8% fall almost annually and wages cannot continue to operate at the same level as it did a year before and a year prior and a year prior. So once again, the question in how do we make sure our systems are more productive, they have to be more responsive to the economy of which they reside in. And as we know, over the last four decades, our local economy has changed quite a bit. Let's go to the next question. Good afternoon, my name is Perry Zilack and I'm a second year master's student here at the Ford School. Very much interested in staying in local issues here in the state of Michigan. But enough about me. This question comes from the Twitter and is open to the entire panel. Detroit's drafted consent decree has no end date. What does success look like and when does the emergency manager term end? You're talking about Detroit public schools or you're talking about the city of Detroit? The city of Detroit. The city of Detroit consent agreement is obviously in the midst of negotiation currently. And the presumption is in that consent agreement as it was drafted in the first place that there would be certain standards that should be met in order to get out from under the consent agreement and those things were fairly clearly spelled out in consent proposal. And I believe that that's now a matter of negotiation between the state and the city about what those standards should be and when the end date would come and under what terms. But there are I believe quite well-defined standards set forth in the draft proposal. Okay, next question. Talk a bit about the privatization of public goods like Benton Harbour's Lakeside Park or Detroit's water system. Where does that fare as a solution to some of the issues we've talked about? I think there is a misconception for those of you who are getting your news from Rachel Maddow regarding the privatization of public goods. There's been no privatization of public goods in Benton Harbour, we privatized nothing. Prior to my arrival, and this is important, prior to my arrival, a portion of a park called Jean-Claude Park, which is on the lake, Lake Michigan, was leased, hold seven, eight and nine for the golf course that was constructed. And that was under the previous administration or I should say an administration in Benton Harbour. Having said that, it should be, I think it's important to point out the fact that one reason that Benton Harbour lasted as long as it did without going into financial distress was because they sold $5 million worth of land between 2000 and 2010. But none of that was done under the emergency manager. Let me just suggest that privatization is but one means of providing an alternate way of providing services. And it seems to me that the obligation of anybody spending public money is to make the most efficient use of those funds in providing services to the community. And it seems to me that privatization along with consolidation and cooperation with neighbors and a number of other alternatives ought to constantly be on the list of things that we look at every time we have a new plan to spend. I just don't think there's anything automatic about it, but it certainly ought to be a part of what we consider. Okay. The trade water and sewer system in 2010, I believe generated over $150 million of revenue. For the governor to suggest this consent agreement that $137 million would be enough to suffice to stabilize the city trade and also to request the privatization or outsourcing. Let's be clear about what it is, it's outsourcing. It's outsourcing labor, public labor, organized labor from maintaining the Detroit water sewer system to a private company. In layman's terms, that is privatization. But the thing of the matter is that I believe many citizens across the city and also residents across the state that's facing emergency management, they don't like the process of devaluing your city jewels for a short-term gain. The Detroit water and sewage department is a revenue generator for the city of Detroit. Outsourcing that to a degree, outsourcing the maintenance of it right now is something that the people of the city of Detroit and also in other communities across the state are very cautious about, simply being because our system serves 40% of the state's water. Now, if we need to restructure that system, let's do that, but we cannot go into the private maintenance or even considering the sale of a public entity for privatization or private use. We've seen the effects of losing the disclosure of transparency on the public, I forward with the review teams, the various actions by emergency managers, and the like. We cannot lose more transparency in the city system that generates hundreds of millions of dollars, not only for the local level, but also for the state as well. Okay. All right, next. All right, next question from the audience. If Detroit is appointed an emergency manager, approximately 60% of all African-Americans in the state of Michigan would be under the control of an emergency manager. Some say this is strictly a manner of balancing finances. However, how can we ignore the fact that this disproportionately affects the democracy of people of color? Let me say that the fact that it does affect people of color is because people of color happen to be in those cities. My dad came to Detroit with a fourth grade education because he worked on the farms in Alabama and was taken out of the schools to work on the farms. He was one of tens of thousands of African-Americans that came to the city to get a job. When the jobs left, the African-Americans for the most part were those who could not afford to leave because they didn't have education. It's not about African-Americans being selected. It's because they are in the cities that have lost the jobs and the population. And while I'm on that topic, when you raise the income taxes, you are giving your residents a pass to go across the border and saying because it's cheaper just to cross the city line. That is not the way that you pure your deficits and the fact that the state is in the city was considering the city of Detroit, Bitten Harbor, Pontiac Flint. It's a good thing because that's the lifeline that the state is throwing to those cities in order to relieve those financial difficulties. There's another side to that question which is what would happen if the state chose to ignore the financial circumstances of those communities and the circumstances for the people who live there got increasingly worse in terms of the quality of services, including the quality of water, the sewer services, the roads, everything else. It seems to me that the finances are driving the state's response and the fact that what Joe has described is sort of the experience of history in our core cities. I think banks for the concern for the well-being of those individuals and the fact that it was deteriorating over time as demonstrated by their fiscal difficulties, and it's that which has driven the state to respond. Okay, if I can add, though, I do think the racial disparity in property values, let me take it from that direction, not directly public act four. There's well-established research that property values are more closely tied to race than they are to income. And I've certainly seen this in my own experience in Flint, in both my neighborhood and the public schools that our two sons attend. I think we would be missing something in this dialogue if we talked about it purely in terms of historical patterns and individuals seeking excellence or quality. I think we should recognize in our state and especially in our regional housing markets around our central cities that race and racism is still very much a factor. That's why I talk about the need for some regional approaches around equity and some different ways that those revenues could either be calculated or shared. I think it's part of the challenge. It's certainly part of the challenge in Detroit, it's part of the challenge in Flint and we can either treat the symptoms or we can start to treat the real underlying cause. That may not help us in the short or medium term as the moderator challenged us, but I do think it's an important fact of our state. I want to speak a little bit from maybe a generation to be moved for the great exodus or for the great Northern migration from 1919 to 1966. I'm from the community or the generation of African Americans that had the first time to enter college without the threat of a national guard, a member or a civil servant to protect that right to attend that educational facility. With that being said, the majority of my educational life, especially public education, has seen a consistent divestment from the enrichment of the education process in major communities, especially in community of color. What does that mean? So when I reached the age of 16, 17, 18, and we decide on what my next step in life is, whether I joined a workforce or attended an institution of higher education, I find myself to be more inadequately prepared in my competition that may be across the border. Now, you take that and you multiply that over two and three and four other generations. And now you find a generation that is unprepared to compete, they cannot maintain their community, and they also totally divest from education. And that's what we've been seeing systematically in communities of color, not just here in Michigan, but across the country. So Dane definitely hit one of the points right on the hit, they're saying that we have to retool our communities of color in our minority communities and re-engage them to the process of what this American life is about. The economic downturn of 2009 hit Detroit the hardest. In fact, there were some symptoms of falling housing prices as early as 2005 in the city of Detroit. In fact, I remember having some lengthy conversation with America Patrick about the falling housing property values in the city, the effect of, I'm sorry, I don't know what I'm looking for. I don't know, you're working on it. I'm sorry, the predatory lending practices in the housing market that were exploited throughout the communities of color across this country has taken a huge impact on the finances and really the way that our communities revive themselves. So yes, cities like Detroit that have an 80% or 85% African-American community will be postured children for emergency management. But it is not because of their inability to compete or their inability to comprehend, which is normally the second follow-up issue regarding communities led by minorities. And there's slowly becoming a racial tone which some people feel across this state especially people of color in the last 10 days that feel that our governor and also our state legislature is not responsive to the needs of minorities in this state. What the real question is, is how will not only the state of Michigan serve and restore the voting rights of 700,000 voters in the city in the state of Michigan if Detroit receives any emergency manager or if they sign a consent agreement but how will we have the two million other residents in Southeast Michigan that will be affected by emergency management? All those people are not African-American. They represent the wide diversity in this country and we have to handle that issue immediately. And emergency management is not the answer. I wanna add just one other point along that same line. I think Brandon makes an excellent point in terms of the need for reformation of the communities in which these folks have been asked to lead. And they have inherited the hellacious mess and I would succumb to you that the A4 is in fact a near-term short-term solution that may be pricey in terms of this notion of democratic freedoms. But at some point the expectation also is that those freedoms will be restored and in an environment that is much more sustainable, much more doable and less of a liability to those who need to live with it for the years to come. Thank you. Thank you. And I think looking at the time I think we're gonna have to end it there. But I'd like to thank all of our panelists very much for joining us and thank the audience members here. And we look forward to following this in the future. Thank you.