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

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 865

A bill to safeguard and assure the financial accountability of

local units of government and school districts; to preserve the

capacity of local units of government and school districts to

provide or cause to be provided necessary services essential to the

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

management, planning, and control of the financial operation of

local units of government and school districts and the provision of

services by local units of government and school districts; to

provide criteria to be used in determining the financial condition

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

declaration of the existence of a financial emergency within a

local unit of government or school district; to prescribe remedial

measures to address a financial emergency within a local unit of

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

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

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

or school district; to provide for the modification or termination

of contracts under certain circumstances; to provide for the

termination of a financial emergency within a local unit of

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

local unit of government or school district may file for

bankruptcy; to prescribe the powers and duties of certain state

agencies and officials and officials within local units of

government and school districts; to provide for appropriations; and

to repeal acts and parts of acts.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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

financial stability and choice act".

Sec. 2. As used in this act:

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

States Code, 11 USC 901 to 946.

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

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

manager, the president of the village.

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

city manager, the mayor of the city.

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

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

or superintendent, the supervisor of the township.

(iv) The elected county executive or appointed county manager

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

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

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

commissioners.

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

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

(vi) The superintendent of a school district.

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

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

the neutral evaluation process and whose claim represents at least

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

debt or obligations, whichever is less.

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

the local government upon the rejection of an executory contract or

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

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

government's debt or obligations, whichever is less.

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

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

of chapter 9.

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

under section 9. An emergency manager includes an emergency

financial manager appointed under former 1988 PA 101 or former 1990

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

act.

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

corporation, limited liability company, labor organization, or any

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

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

and operating plan for a local government under section 11,

including an educational plan for a school district.

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

a local government representative in the neutral evaluation process

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

the subject of the neutral evaluation process, including the timely

provision of complete and accurate information to provide the

relevant participants through the neutral evaluation process with

sufficient information, in a confidential manner, to negotiate the

readjustment of the local government's debt.

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

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

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

agreements has standing to initiate contract negotiations with the

local government, or a representative selected by an association of

retired employees of the public entity who receive income or

benefits from the public entity. A local government may invite

holders of contingent claims to participate as interested parties

in the neutral evaluation process if the local government

determines that the contingency is likely to occur and the claim

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

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

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

the local emergency financial assistance loan board created under

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

141.932.

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

school district.

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

persons designated by the governing body of the local government

with authority to make recommendations and to attend the neutral

evaluation process on behalf of the governing body of the local

government.

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

certified public accountant, attorney, or similarly credentialed

person whose responsibility it is to determine the existence of

proper internal and management controls, fraud, criminal activity,

or any other accounting or management deficiencies.

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

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

government if the county has an elected county executive under 1966

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

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

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

dispute resolution or mediation between a local government and

interested parties as provided for in section 25.

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

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

and interested parties in reaching their own settlement of issues

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

authoritative decision-making power.

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

financial emergency is addressed through the appointment of an

emergency manager. Receivership does not include chapter 9 or any

provision under federal bankruptcy law.

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

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

district.

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

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

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

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

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

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

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

instruction.

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

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

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

under 1 of the following conditions:

(i) The strong mayor approves the resolution.

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

sufficient votes to override a veto by the strong mayor.

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

body overrides the veto.

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

following:

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

this state would be materially and adversely affected by the

insolvency of local governments and that the fiscal accountability

of local governments is vitally necessary to the interests of the

citizens of this state to assure the provision of necessary

governmental services essential to public health, safety, and

welfare.

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

state and its political subdivisions and that it is necessary for

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

take action and to assist a local government in a financial

emergency so as to remedy the financial emergency by requiring

prudent fiscal management and efficient provision of services,

permitting the restructuring of contractual obligations, and

prescribing the powers and duties of state and local government

officials and emergency managers.

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

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

assist a local government in a condition of financial emergency by

providing for procedures of alternative dispute resolution between

a local government and its creditors to resolve disputes, to

determine criteria for establishing the existence of a financial

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

to exercise powers under federal bankruptcy law.

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

constitute a necessary program and serve a valid public purpose.

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

preliminary review to determine the existence of probable financial

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

occur:

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

a local government requests a preliminary review. The request shall

be in writing and shall identify the existing or anticipated

financial conditions or events that make the request necessary.

(b) The state financial authority receives a written request

from a creditor with an undisputed claim that remains unpaid 6

months after its due date against the local government that exceeds

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

of the local government, provided that the creditor notifies the

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

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

submit a written request under this subdivision.

containing specific allegations of local government financial

distress signed by a number of registered electors residing within

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

the total vote cast for all candidates for governor within the

local government's jurisdiction at the last preceding election at

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

this subdivision within 60 days before any election of the local

government.

(d) The state financial authority receives written

notification that a local government has not timely deposited its

minimum obligation payment to the local government pension fund as

required by law.

(e) The state financial authority receives written

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

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

salaries or other compensation owed to employees or benefits owed

to retirees.

(f) The state financial authority receives written

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

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

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

(g) The state financial authority of a local government

receives a resolution from either the senate or the house of

representatives requesting a preliminary review.

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

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

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

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

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

notes.

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

order issued by the local emergency financial assistance loan board

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

141.931 to 141.942.

(j) The local government has violated a requirement of

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

PA 2, MCL 141.437 to 141.440.

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

financial report or audit that conforms with the minimum procedures

and standards of the state financial authority and is required for

local governments under the uniform budgeting and accounting act,

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

21.55.

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

district fails to provide an annual financial report or audit that

conforms with the minimum procedures and standards of the

superintendent of public instruction and is required under the

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

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

(m) The municipal government is delinquent in the distribution

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

another taxing jurisdiction, and that taxing jurisdiction requests

a preliminary review.

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

a deficit elimination plan or an agreement entered into pursuant to

a deficit elimination plan.

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

prior approval of the governing body of the local government.

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

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

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

failed to comply with the requirements of that section for filing

or instituting a financial plan to correct the deficit condition.

(q) The school district ended its most recently completed

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

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

district has not submitted a deficit elimination plan to the state

financial authority within 30 days after the district's deadline

for submission of its annual financial statement.

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

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

more nationally recognized credit rating agencies.

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

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

indicative of probable financial stress or that, in the state

treasurer's or superintendent of public instruction's sole

discretion for a school district, are indicative of probable

financial stress.

(2) Before commencing the preliminary review under subsection

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

government specific written notification that it intends to conduct

a preliminary review. Elected and appointed officials of a local

government shall promptly and fully provide the assistance and

information requested by the state financial authority for that

local government in conducting the preliminary review. The state

financial authority shall provide an interim report of its findings

to the local government within 20 days following the commencement

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

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

comments to the state financial authority concerning the interim

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

local government. The state financial authority shall prepare and

provide a final report detailing its preliminary review to the

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

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

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

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

days after the final report is provided to the local emergency

financial assistance loan board. The preliminary review and final

report by the state financial authority shall be completed within

30 days following commencement of the preliminary review. Within 20

days after receiving the final report from the state financial

authority, the local emergency financial assistance loan board

shall determine if probable financial stress exists for the local

government.

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

municipal government by the local emergency financial assistance

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

review team for that municipal government consisting of the state

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

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

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

of the house of representatives. The governor may appoint other

state officials or other persons with relevant professional

experience to serve on a review team to undertake a municipal

financial management review.

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

school district by the local emergency financial assistance loan

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

team for that school district consisting of the state treasurer or

his or her designee, the superintendent of public instruction or

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

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

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

of representatives. The governor may appoint other state officials

or other persons with relevant professional experience to serve on

a review team to undertake a school district financial management

review.

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

each review team appointed under this section.

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

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

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

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

state treasurer, the superintendent of public instruction, the

local emergency financial assistance loan board, or a review team

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

before the effective date of this act are ratified and are

enforceable as if the proceedings and actions were taken under this

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

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

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

is binding and enforceable under this act.

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

either or both of the following:

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

(b) Utilize the services of other state agencies and

employees.

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

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

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

discuss, and consider information provided by the local government

concerning the financial condition of the local government. In

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

meeting in the jurisdiction of the local government at which the

public may provide comment.

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

findings to the governor within 60 days following its appointment

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

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

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

administrative officer and the governing body of the local

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

majority leader, [ ] the superintendent of public instruction if

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

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

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

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

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

the following:

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

bonded obligations, notes, or other municipal securities for which

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

segregated in a special trust fund.

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

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

agency:

(i) Taxes withheld on the income of employees.

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

municipal government as agent for another governmental unit, school

district, or other entity or taxing authority.

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

benefit plan.

date of payment to pay wages and salaries or other compensation

owed to employees or benefits owed to retirees.

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

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

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

expenditures of the local government in that fiscal year.

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

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

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

report is received.

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

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

budgeted revenues for the general fund.

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

of an approved deficit elimination plan or an agreement entered

into pursuant to a deficit elimination plan.

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

local government funds that are not regularly settled between the

funds or that are increasing in scope.

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

recurring unbudgeted subsidies from the general fund to other major

funds as defined under government accounting standards board

principles.

(j) Existence of a structural operating deficit.

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

law.

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

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

review team's reporting its findings to the governor.

(m) Any other facts and circumstances indicative of local

government financial emergency.

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

conclusions in its report:

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

government.

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

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

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

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

department of treasury may enter into a contract with the

individual or firm respecting the terms and conditions of the

appointment.

(6) For purposes of this section:

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

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

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

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

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

necessary governmental services essential to public health, safety,

and welfare.

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

any of the following occur:

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

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

the current or next succeeding fiscal year and threaten the local

government's current and future capability to provide necessary

governmental services essential to the public health, safety, and

welfare.

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

accurate information enabling the review team to complete its

report under subsection (3).

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

respects with the terms of an approved deficit elimination plan or

an agreement entered into pursuant to a deficit elimination plan.

(iv) The chief administrative officer of the local government

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

are likely to occur within the current or next succeeding fiscal

year and threaten the local government's current and future

capability to provide necessary governmental services essential to

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

administrative officer recommends that a financial emergency be

declared and the state treasurer concurs with the recommendation.

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

section 5, the governor shall make 1 of the following

determinations:

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

government.

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

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

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

the local government an opportunity to submit a written statement

concerning their agreement or disagreement with the findings and

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

governor determines pursuant to subsection (1) that a financial

emergency exists, the governor shall provide the governing body and

chief administrative officer of the local government with a written

notification of the determination, findings of fact utilized as the

basis upon which this determination was made, a concise and

explicit statement of the underlying facts supporting the factual

findings, and notice that the chief administrative officer or the

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

the notification to request a hearing conducted by the state

financial authority or the state financial authority's designee.

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

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

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

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

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

shall provide a written report to the governing body and chief

administrative officer of the local government of the findings of

fact of the continuing or newly developed conditions or events

providing a basis for the confirmation of a financial emergency and

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

a concise and explicit statement of the underlying facts supporting

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

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

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

provided to the governing body and chief executive officer of the

local government.

(3) A local government for which a financial emergency

determination under this section has been confirmed to exist may,

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

governing body elected and serving, appeal this determination

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

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

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

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

aside a determination of financial emergency by the governor unless

it finds that the determination is either of the following:

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

evidence on the whole record.

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

exercise of discretion.

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

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

the governing body of the local government shall, by resolution

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

emergency, select 1 of the following local government options to

address the financial emergency:

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

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

25.

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

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

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

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

resolution shall be approved by the school board. The resolution

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

superintendent of public instruction if the local government is a

school district.

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

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

government shall proceed under the neutral evaluation process

pursuant to section 25.

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

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

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

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

government may negotiate and sign a consent agreement with the

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

government is a school district and the consent agreement contains

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

the superintendent of public instruction. The consent agreement

shall provide for remedial measures considered necessary to address

the financial emergency within the local government and provide for

the financial stability of the local government. The consent

agreement may utilize state financial management and technical

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

assistance as necessary in order to alleviate the financial

emergency. The consent agreement shall also provide for periodic

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

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

agreement may provide for a board appointed by the governor to

monitor the local government's compliance with the consent

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

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

local government and shall be approved and executed by the state

treasurer. Nothing in the consent agreement shall limit the ability

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

material breach of the consent agreement. A consent agreement shall

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

consent agreement, the governor may place the local government in

receivership or in the neutral evaluation process. If within 30

days after a local government selects the consent agreement option

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

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

treasurer shall require the local government to proceed under 1 of

the other local options provided for in section 7.

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

require a continuing operations plan or a recovery plan if required

by the state treasurer.

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

include a continuing operations plan, the local government shall

prepare and file the continuing operations plan with the state

treasurer as provided for in the consent agreement. The state

treasurer shall approve or reject the initial continuing operations

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

continuing operations plan is rejected, the local government shall

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

any concerns raised by the state treasurer or the superintendent of

public instruction regarding an educational plan. If the amended

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

in material breach of the consent agreement. The local government

shall file annual updates to its continuing operations plan. The

annual updates shall be included with the annual filing of the

local government's audit report with the state financial authority

as long as the continuing operations plan remains in effect.

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

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

all of the following:

(a) A detailed projected budget of revenues and expenditures

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

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

existing deficits will be eliminated during the projected budget

period.

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

fiscal accountability for the local government.

(d) A plan showing reasonable and necessary maintenance and

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

accountability.

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

postemployment health care obligations for which the local

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

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

addressed within the budget period.

(f) A provision for submitting quarterly compliance reports to

the state treasurer demonstrating compliance with the continuing

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

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

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

submitted to the state treasurer.

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

municipal government, the municipal government shall amend the

budget and general appropriations ordinance adopted by the

municipal government under the uniform budgeting and accounting

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

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

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

school district shall amend the budget adopted by the school

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

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

give full effect to the continuing operations plan. The chief

administrative officer, the chief financial officer, the governing

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

direct such actions as may be necessary or advisable to maintain

the local government's operations in compliance with the continuing

operations plan.

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

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

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

recovery plan is developed and adopted for the local government,

the local government shall file annual updates to its recovery

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

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

authority as long as the recovery plan remains in effect.

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

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

not limited to, 1 or more of the following:

(a) A detailed projected budget of revenues and expenditures

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

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

existing deficits will be eliminated during the projected budget

period.

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

fiscal accountability for the local government.

(d) A plan showing reasonable and necessary maintenance and

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

accountability.

(e) An evaluation of costs associated with pension and

postemployment health care obligations for which the local

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

addressed to assure that current obligations are met and that steps

are taken to reduce future unfunded obligations.

(f) Procedures for cash control and cash management,

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

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

for cash control and cash management may include the designation of

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

appropriate fiduciaries.

(g) A provision for submitting quarterly compliance reports to

the state treasurer and the chief administrative officer of the

local government that demonstrate compliance with the recovery

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

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

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

the state treasurer.

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

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

12(1)(p).

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

treasurer for a local government, the recovery plan shall supersede

the budget and general appropriations ordinance adopted by the

local government under the uniform budgeting and accounting act,

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

appropriations ordinance is considered amended to the extent

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

the event of any inconsistency between the recovery plan and the

budget or general appropriations ordinance, the recovery plan shall

control. The chief administrative officer, the chief financial

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

government shall take and direct actions as may be necessary or

advisable to bring and maintain the local government's operations

in compliance with the recovery plan.

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

consent agreement may include a grant to the chief administrative

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

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

more of the powers prescribed for emergency managers as otherwise

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

conditions as the state treasurer considers necessary or

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

government to achieve the goals and objectives of the consent

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

to the chief administrative officer, the chief financial officer,

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

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

(11) Unless the state treasurer determines otherwise,

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

consent agreement under this act, that local government is not

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

remaining term of the consent agreement.

(12) The consent agreement may provide for the required

retention by the local government of a consultant for the purpose

of assisting the local government to achieve the goals and

objectives of the consent agreement.

(13) A local government is released from the requirements

under this section upon compliance with the consent agreement as

determined by the state treasurer.

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

address a financial emergency within that local government as

provided for in this act.

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

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

chief administrative officer of the local government. The emergency

manager shall have broad powers in receivership to rectify the

financial emergency and to assure the fiscal accountability of the

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

cause to be provided necessary governmental services essential to

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

emergency manager and during the pendency of receivership, the

governing body and the chief administrative officer of the local

government shall not exercise any of the powers of those offices

except as may be specifically authorized in writing by the

emergency manager or as otherwise provided by this act and are

subject to any conditions required by the emergency manager.

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

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

experience and demonstrable expertise in business, financial, or

local or state budgetary matters.

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

the local government.

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

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

emergency manager is subject to impeachment and conviction by the

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

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

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

the original appointment.

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

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

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

treasurer. The contract shall be posted on the department of

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

the state treasurer.

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

in a contract approved by the state treasurer under subdivision

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

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

means any money the state receives for the purpose of allocating

additional salary to an emergency manager. Private funds

distributed under this subdivision are subject to section 1 of 1901

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

constitution of 1963.

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

emergency manager shall appoint additional staff and secure

professional assistance as the emergency manager considers

necessary to fulfill his or her appointment.

(5) The emergency manager shall submit quarterly reports to

the state treasurer with respect to the financial condition of the

local government in receivership, with a copy to the superintendent

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

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

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

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

the state treasurer.

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

emergency manager as follows:

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

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

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

emergency manager.

(b) Until the financial emergency is rectified.

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

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

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

mayor, the resolution requires strong mayor approval before the

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

the emergency manager is removed under this subsection and the

local government has not previously breached a consent agreement

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

consent agreement with the state treasurer. If a consent agreement

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

proceed with the neutral evaluation process pursuant to section 25.

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

the financial conditions are corrected in a sustainable fashion as

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

removed from receivership if an emergency manager is removed under

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

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

removed from receivership. If the local government has a strong

mayor, the resolution requires strong mayor approval before the

local government is removed from receivership. A local government

that is removed from receivership while a financial emergency

continues to exist as determined by the governor shall proceed

under the neutral evaluation process pursuant to section 25.

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

section to the state treasurer.

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

an emergency manager is subject to all of the following:

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

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

state officer.

(10) An emergency financial manager appointed under former

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

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

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

his or her powers and duties. Notwithstanding any other provision

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

an emergency manager under former 2011 PA 4 or an emergency

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

serve as an emergency manager under this act.

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

requirements of this section, if an emergency manager has served

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

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

resolution petitioning the governor to remove the emergency manager

as provided in this section and allow the local government to

proceed under the neutral evaluation process as provided in section

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

requires strong mayor approval. If the governor accepts the

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

shall proceed under the neutral evaluation process as provided in

section 25.

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

appropriate local elected and appointed officials and employees,

agents, and contractors of the local government the orders the

emergency manager considers necessary to accomplish the purposes of

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

satisfactory implementation of a financial and operating plan,

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

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

accomplishment of the financial and operating plan. An order issued

under this section is binding on the local elected and appointed

officials and employees, agents, and contractors of the local

government to whom it is issued. Local elected and appointed

officials and employees, agents, and contractors of the local

government shall take and direct those actions that are necessary

and advisable to maintain compliance with the financial and

operating plan.

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

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

disrupting the emergency manager's ability to manage the local

government, the emergency manager, in addition to other remedies

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

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

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

mail, and internal information systems.

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

a written financial and operating plan for the local government.

The plan shall have the objectives of assuring that the local

government is able to provide or cause to be provided governmental

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

assuring the fiscal accountability of the local government. The

financial and operating plan shall provide for all of the

following:

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

government within the resources available according to the

emergency manager's revenue estimate.

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

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

local government, contract obligations in anticipation of which

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

uncontested legal obligations.

renegotiation of contracts pursuant to section 12.

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

fund for the local government or in which the local government

participates.

(e) For school districts, an educational plan.

(f) Any other actions considered necessary by the emergency

manager in the emergency manager's discretion to achieve the

objectives of the financial and operating plan, alleviate the

financial emergency, and remove the local government from

receivership.

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

the emergency manager shall submit the financial and operating

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

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

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

and to the chief administrative officer and governing body of the

local government. The plan shall be regularly reexamined by the

emergency manager and the state treasurer and may be modified from

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

treasurer. If the emergency manager reduces his or her revenue

estimates, the emergency manager shall modify the plan to conform

to the revised revenue estimates.

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

provided by the state treasurer and shall contain that information

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

emergency manager, in consultation with the state financial

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

a deficit elimination plan otherwise required by law if so approved

by the state financial authority.

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

financial and operating plan to the state financial authority,

shall conduct a public informational meeting on the plan and any

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

emergency manager must receive public approval before he or she

implements the plan or any modification of the plan.

(5) For a local government in receivership immediately prior

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

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

financial plan for that local government adopted under former 1990

PA 72 shall be effective and enforceable as a financial and

operating plan for the local government under this act until

modified or rescinded under this act.

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

following additional actions with respect to a local government

that is in receivership, notwithstanding any charter provision to

the contrary:

(a) Analyze factors and circumstances contributing to the

financial emergency of the local government and initiate steps to

correct the condition.

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

local government, and limit the total amount appropriated or

expended.

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

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

programs and the retirement of debt.

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

plan for paying all outstanding obligations of the local

government.

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

made by the finance officer of the local government to its

governing body, the creditors of the local government, the

emergency manager, or the public.

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

under the procedures of the uniform budgeting and accounting act,

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

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

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

analysis of the financial condition of the local government.

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

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

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

(h) Review payrolls or other claims against the local

government before payment.

(i) Notwithstanding any minimum staffing level requirement

established by charter or contract, establish and implement

staffing levels for the local government.

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

conditions of an existing contract.

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

the appropriate bargaining representative and, if in the emergency

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

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

1 or more terms and conditions of an existing collective bargaining

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

terms and conditions of an existing collective bargaining agreement

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

sovereign powers if the emergency manager and state treasurer

determine that all of the following conditions are satisfied:

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

a circumstance in which it is reasonable and necessary for the

state to intercede to serve a significant and legitimate public

purpose.

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

termination of 1 or more terms and conditions of an existing

collective bargaining agreement is reasonable and necessary to deal

with a broad, generalized economic problem.

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

termination of 1 or more terms and conditions of an existing

collective bargaining agreement is directly related to and designed

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

a whole.

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

termination of 1 or more terms and conditions of an existing

collective bargaining agreement is temporary and does not target

specific classes of employees.

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

bargaining with employees or representatives and approve any

contract or agreement.

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

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

recent governmental accounting standards board's applicable

standards, at the time the most recent comprehensive annual

financial report for the municipal government or its pension fund

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

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

appoints the emergency manager as the sole trustee of the local

pension board, replace all the serving trustees of the local

pension board. For the purpose of determining the pension fund

level under this subdivision, the valuation shall exclude the net

value of pension bonds or evidence of indebtedness. The annual

actuarial valuation for the municipal government's pension fund

shall use the actuarial accrued liabilities and the actuarial value

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

method or a method involving a frozen accrued liability, the

retirement system actuary shall use the entry age normal actuarial

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

local pension board, all of the following apply:

(i) The emergency manager shall assume and exercise the

authority and fiduciary responsibilities of the local pension board

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

actuarial assumptions for pension obligations of a municipal

government to the local pension fund.

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

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

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

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

fund's qualified plan status under the federal internal revenue

code.

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

pension fund without identifying the changes and the costs and

benefits associated with the changes and receiving the state

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

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

valuation of the pension fund receiving the transfer must be

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

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

recent governmental accounting standards board's applicable

standards, at the time the most recent comprehensive annual

financial report for the municipal government was due.

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

authority and fiduciary responsibilities of the local pension board

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

municipal government as provided in this act.

(n) Consolidate or eliminate departments of the local

government or transfer functions from 1 department to another and

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

administrators, including heads of departments other than elected

officials.

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

government and with the approval of the state financial authority,

auditors and other technical personnel considered necessary to

implement this act.

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

individual or firm selected from a list approved by the state

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

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

inspector are to assure integrity, economy, efficiency, and

effectiveness in the operations of the local government by

conducting meaningful and accurate investigations and forensic

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

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

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

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

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

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

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

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

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

internal controls over local government operations are designed and

operating effectively to mitigate risks that hamper the achievement

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

government operations are effective and efficient, assure that

financial information is accurate, reliable, and timely, comply

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

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

auditor shall be submitted to the emergency manager, the state

treasurer, [ ] the superintendent of public instruction if the

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

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

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

within 7 days after the report is submitted.

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

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

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

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

any constitutional or legislative mandates, or to restrain

violations of any constitutional or legislative power or his or her

orders.

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

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

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

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

responsibilities of the local government, provided the use or

transfer of assets, liabilities, functions, or responsibilities for

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

residents of the local government or unconstitutionally impair a

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

government.

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

government, subject to the conditions of the emergency municipal

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

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

local government consistent with the Michigan election law, 1954 PA

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

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

state law.

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

the local government as provided by law.

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

the local government on behalf of the local government under this

subdivision. An election to approve or disapprove of the issuance

of obligations of the local government pursuant to this subdivision

shall only be held at the general November election.

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

entities for the payment of existing debts, including the

settlement of claims by the creditors.

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

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

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

approval by the state treasurer.

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

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

exercise of powers, or the transfer of functions and

responsibilities.

(z) For municipal governments, enter into agreements with

other units of municipal government to transfer property of the

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

otherwise provided by law, subject to approval by the state

treasurer.

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

governments or public bodies for the consolidation of services.

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

may recommend to the state boundary commission that the municipal

government consolidate with 1 or more other municipal governments,

if the emergency manager determines that consolidation would

materially alleviate the financial emergency of the municipal

government and would not materially and adversely affect the

financial situation of the government or governments with which the

municipal government in receivership is consolidated. Consolidation

under this subdivision shall proceed as provided by law.

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

disincorporate or dissolve the municipal government and assign its

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

disincorporation or dissolution of the local government is subject

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

law.

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

government, all other authority and responsibilities of the chief

administrative officer and governing body concerning the adoption,

amendment, and enforcement of ordinances or resolutions of the

local government as provided in the following acts:

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

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

113.20.

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

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

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

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

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

78.28.

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

380.1852.

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

to 388.1896.

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

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

similar entity of the local government, whether elected or

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

power of the emergency manager shall be superior to and supersede

the power of any of the foregoing officers or entities.

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

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

within or is a component unit of the local government.

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

pendency of the receivership, the authority of the chief

administrative officer and governing body to exercise power for and

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

shall be suspended and vested in the emergency manager.

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

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

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

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

more, the emergency manager may submit the potential contract to

the state treasurer for review and the state treasurer may

authorize that the potential contract is not subject to competitive

bidding.

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

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

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

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

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

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

manager appointed for a city or village shall not utilize the

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

finances of which are separately maintained and accounted for by

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

or village.

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

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

compensation, including the accrual of postemployment benefits, and

other benefits of the chief administrative officer and members of

the governing body of the local government shall be eliminated.

This section does not authorize the impairment of vested pension

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

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

administrative officer and members of the governing body of a local

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

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

occurred after the effective date of this act. The emergency

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

other compensation, or benefits of the chief administrative officer

and members of the governing body during the pendency of the

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

manager considers appropriate, to the extent that the emergency

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

or benefits is consistent with the financial and operating plan.

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

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

more of the following additional actions with respect to a school

district that is in receivership:

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

on behalf of the school district.

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

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

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

programs and the retirement of debt.

instruction for a reduced class schedule in accordance with

administrative rules governing the distribution of state school

aid.

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

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

current obligations or assure the fiscal accountability of the

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

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

of the school district. The power under this subdivision includes

the closing of schools or other school buildings in the school

district.

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

the school district.

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

all other authority and responsibilities affecting the school

district that are prescribed by law to the school board and

superintendent of the school district.

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

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

administrators considered necessary to implement this act.

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

is included in the emergency manager's financial and operating

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

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

treasurer's approval.

(2) A provision of an existing collective bargaining agreement

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

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

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

impaired and is not subject to any provision of this act

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

or more terms of an existing collective bargaining agreement.

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

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

retained, make a determination as to whether possible criminal

conduct contributed to the financial situation resulting in the

local government's receivership status. If the emergency manager

determines that there is reason to believe that criminal conduct

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

general and the local prosecuting attorney for investigation.

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

appointment, and every 3 months thereafter, an emergency manager

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

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

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

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

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

a report that contains all of the following:

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

disapproved during the reporting period that has a cumulative value

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

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

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

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

disapproved during the reporting period that has a cumulative value

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

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

in a position filled by the appointing authority.

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

from which an employee has been laid off.

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

provided in section 9(3)(e).

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

(h) The financial and operating plan.

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

reasonable alternative to rectifying the financial emergency of the

local government which is in receivership exists, then the

emergency manager may recommend to the governor and the state

treasurer that the local government be authorized to proceed under

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

governor shall inform the state treasurer and the emergency manager

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

public instruction if the local government is a school district.

The governor may place contingencies on a local government in order

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

the emergency manager is authorized to proceed under chapter 9.

This section empowers the local government for which an emergency

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

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

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

emergency manager to act exclusively on the local government's

behalf in any such case under chapter 9.

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

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

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

financial plan can be adopted that can satisfactorily rectify the

financial emergency of the local government in a timely manner.

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

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

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

the financial emergency in a timely manner.

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

recommendation as provided under subsection (1) to the

superintendent of public instruction if the local government is a

school district.

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

before an emergency manager executes an action under section

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

or her proposed action to the governing body of the local

government. The governing body of the local government shall have

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

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

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

action is considered approved by the governing body of the local

government and the emergency manager may then execute the proposed

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

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

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

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

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

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

proposed by the emergency manager, submit to the local emergency

financial assistance loan board an alternative proposal that would

yield substantially the same financial result as the action

proposed by the emergency manager. The local emergency financial

assistance loan board shall have 30 days to review both the

alternative proposal submitted by the governing body of the local

government and the action proposed by the emergency manager and to

approve either the alternative proposal submitted by the governing

body of the local government or the action proposed by the

emergency manager. The local emergency financial assistance loan

board shall approve the proposal that best serves the interest of

the public in that local government. The emergency manager shall

implement the alternative proposal submitted by the governing body

of the local government or the action proposed by the emergency

manager, whichever is approved by the local emergency financial

assistance loan board.

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

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

employed by an emergency manager is immune from liability as

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

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

or lawsuit which challenges any of the following:

(a) The validity of this act.

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

this act.

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

emergency manager under this act.

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

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

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

filing fees, and other reasonable and necessary expenses shall be

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

receivership and shall be reimbursed to the attorney general by the

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

was in receivership to remit to the attorney general the costs

incurred by the attorney general within 30 days after written

notice to the municipal government from the attorney general of the

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

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

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

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

remit to the attorney general the costs incurred by the attorney

general within 30 days after written notice to the school district

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

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

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

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

expense of the local government for which the emergency manager is

appointed, worker's compensation, general liability, professional

liability, and motor vehicle insurance for the emergency manager

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

manager as may be provided to elected officials, appointed

officials, or employees of the local government. The insurance

procured and maintained by an emergency manager may extend to any

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

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

of the emergency manager from the date of appointment of the

emergency manager to the expiration of the applicable statute of

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

recovered against the emergency manager or any employee, agent,

appointee, or contractor of the emergency manager resulted from

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

or contractor of the emergency manager taken in accordance with

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

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

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

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

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

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

worker's compensation, general liability, professional liability,

or motor vehicle insurance, litigation expenses of the emergency

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

emergency manager, including attorney fees for civil and criminal

proceedings and preparation for reasonably anticipated proceedings,

and payments made in settlement of civil proceedings both filed and

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

that is or was subject to the receivership administered by that

emergency manager, provided that the litigation expenses are

approved by the state treasurer and that the state treasurer

determines that the conduct resulting in actual or threatened legal

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

the following:

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

payment.

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

it was in receivership under this act.

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

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

agent, appointee, or contractor of the emergency manager as

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

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

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

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

legal expenses of a former emergency manager or any employee,

agent, appointee, or contractor of the emergency manager as

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

recovered by the state treasurer as provided in the state school

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

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

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

advisory board is appointed under section 23, then before the

transition advisory board is appointed, the emergency manager shall

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

employment agreements, for the local government commencing with the

termination of receivership.

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

the termination of receivership, the governing body of the local

government shall not amend the 2-year budget adopted under

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

shall not revise any order or ordinance implemented by the

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

termination of receivership.

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

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

rectified, the emergency manager shall inform the governor and the

state treasurer.

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

determination that the financial emergency has been rectified, the

governor shall inform the emergency manager and the term of the

emergency manager shall continue or the governor shall appoint a

new emergency manager.

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

financial emergency has been rectified, the emergency manager has

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

financial conditions of the local government have been corrected in

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

may do either of the following:

(a) Remove the local government from receivership.

(b) Appoint a receivership transition advisory board as

provided in section 23.

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

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

local government:

(a) The implementation of financial best practices within the

local government.

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

provisions.

official responsibilities are properly discharged.

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

receivership, the governor may appoint a receivership transition

advisory board to monitor the affairs of the local government until

the receivership is terminated.

(2) A receivership transition advisory board shall consist of

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

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

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

superintendent of public instruction or his or her designee. The

governor also may appoint to a receivership transition advisory

board 1 or more other individuals with relevant professional

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

(3) A receivership transition advisory board serves at the

pleasure of the governor.

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

board shall adopt rules of procedure to govern its conduct,

meetings, and periodic reporting to the governor. Procedural rules

required by this section are not subject to the administrative

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

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

following:

(a) Require the local government to annually convene a

consensus revenue estimating conference for the purpose of arriving

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

fiscal year of the local government.

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

projections and a comparison of budgeted revenues and expenditures

to actual revenues and expenditures.

government. A proposed budget or budget amendment shall not take

effect unless approved by the receivership transition advisory

board.

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

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

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

notes.

(e) Review proposed collective bargaining agreements

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

proposed collective bargaining agreement shall not take effect

unless approved by the receivership transition advisory board.

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

elimination plan submitted under section 21 of the Glenn Steil

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

(g) Review proposed judgment levies before submission to a

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

1961, 1961 PA 236, MCL 600.6093 and 600.6094.

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

time the receivership transition advisory board is appointed.

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

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

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

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

MCL 15.261 to 15.275. A receivership transition advisory board is

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

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

record in the possession of a receivership transition advisory

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

MCL 15.231 to 15.246.

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

after receiving a recommendation from a receivership transition

advisory board, determine that the financial conditions of a local

government have not been corrected in a sustainable fashion as

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

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

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

own discretion, determine that the state monitor the neutral

evaluation process initiated by a local government under this

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

observe the neutral evaluation process. A local government shall

initiate the neutral evaluation process by providing notice by

certified mail of a request for neutral evaluation process to all

interested parties. If the local government does not provide notice

under this subsection to all interested parties within 7 days after

selecting the neutral evaluation process option, the treasurer may

require the local government to go into receivership and proceed

under section 9.

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

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

evaluation process.

(3) The local government and the interested parties agreeing

to participate in the neutral evaluation process shall, through a

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

the neutral evaluation process and facilitate all discussions in an

effort to resolve their disputes.

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

agree on a neutral evaluator within 7 days after the interested

parties have responded to the notification sent by the local

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

qualified neutral evaluators and provide their names, references,

and backgrounds to the participating interested parties. Within 3

business days, a majority of participating interested parties may

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

participating interested parties disqualify 4 names from the list,

the remaining candidate shall be the neutral evaluator. If the

majority of participating parties disqualify fewer than 4 names,

the local government shall choose which of the remaining candidates

shall be the neutral evaluator.

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

the neutral evaluator after the process for selection in subsection

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

treasurer to determine if the neutral evaluator meets the

qualifications under subsection (6). If the state treasurer

determines that the qualifications have been met, the neutral

evaluation process shall continue. If the state treasurer

determines that the qualifications have not been met, the state

treasurer shall select the neutral evaluator.

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

conflict resolution and alternative dispute resolution and have at

least 1 of the following qualifications:

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

experience involving bankruptcy or service as a United States

bankruptcy judge.

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

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

(i) Municipal organization.

(ii) Municipal debt restructuring.

(iii) Municipal finance dispute resolution.

(iv) Chapter 9 bankruptcy.

(v) Public finance.

(vi) Taxation.

(vii) Michigan constitutional law.

(viii) Michigan labor law.

(ix) Federal labor law.

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

objective, independent, and free from prejudice. The neutral

evaluator shall not act with partiality or prejudice based on any

participant's personal characteristics, background, values, or

beliefs, or performance during the neutral evaluation process.

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

and the appearance of a conflict of interest during the neutral

evaluation process. The neutral evaluator shall make a reasonable

inquiry to determine whether there are any facts that a reasonable

individual would consider likely to create a potential or actual

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

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

reasonable individual would consider likely to create a potential

or actual conflict of interest, the neutral evaluator shall

disclose these facts in writing to the local government and all

interested parties involved in the neutral evaluation process. If

any participating interested party to the neutral evaluation

process objects to the neutral evaluator, that interested party

shall notify the local government and all other participating

interested parties to the neutral evaluation process, including the

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

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

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

and (4).

(9) Before commencing a neutral evaluation process, the

neutral evaluator shall not establish another fiscal or fiduciary

relationship with any of the interested parties or the local

government in a manner that would raise questions about the

integrity of the neutral evaluation process, except that the

neutral evaluator may conduct further neutral evaluation processes

regarding other potential local public entities that may involve

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

(10) The neutral evaluator shall conduct the neutral

evaluation process in a manner that promotes voluntary, uncoerced

decision making in which each participant makes free and informed

choices regarding the neutral evaluation process and outcome.

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

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

efforts to assist the participants to reach a satisfactory

resolution of their disputes. Subject to the discretion of the

neutral evaluator, the neutral evaluator may make oral or written

recommendations for a settlement or plan of readjustment to a

participant privately or to all participants jointly.

(12) The neutral evaluator shall inform the local government

and all participants of the provisions of chapter 9 relative to

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

1532. This instruction shall highlight the limited authority of

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

limited to, the restriction on federal bankruptcy judges' authority

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

property and the lack of flexibility available to federal

bankruptcy judges to reduce or cram down debt repayments and

similar efforts not available to reorganize the operations of the

local government that may be available to a corporate entity.

(13) The neutral evaluator may request from the participants

documentation and other information that the neutral evaluator

believes may be helpful in assisting the participants to address

the obligations between them. This documentation may include the

status of funds of the local government that clearly distinguishes

between general funds and special funds and the proposed plan of

readjustment prepared by the local government. The participants

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

manner.

(14) The neutral evaluator shall provide counsel and guidance

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

participant, and shall not have a fiduciary duty to any

participant.

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

government occurs, the neutral evaluator may assist the

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

of readjustment in connection with a potential chapter 9 filing.

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

local government and a majority of the representatives of the

interested parties participating in the neutral evaluation process

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

interested party may make a request to the other interested parties

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

majority of the interested parties agree that the neutral evaluator

should be removed and agree on who should replace the neutral

evaluator, the local government and the interested parties shall

select a new neutral evaluator.

(17) The local government and all interested parties

participating in the neutral evaluation process shall negotiate in

good faith.

(18) The local government and each interested party shall

provide a representative to attend all sessions of a neutral

evaluation process. Each representative shall have the authority to

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

any proposed settlement or plan of readjustment to the participants

in the neutral evaluation process.

(19) The local government and the participating interested

parties shall maintain the confidentiality of the neutral

evaluation process and shall not at the conclusion of the neutral

evaluation process or during any bankruptcy proceeding disclose

statements made, information disclosed, or documents prepared or

produced unless a judge in a chapter 9 bankruptcy proceeding orders

that the information be disclosed to determine the eligibility of a

local government to proceed with a bankruptcy proceeding under

chapter 9, or as otherwise required by law.

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

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

evaluator is initially selected, unless the local government or a

majority of participating interested parties elect to extend the

neutral evaluation process for up to 30 additional days. The

neutral evaluation process shall not last for more than 90 days

following the date the neutral evaluator is initially selected.

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

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

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

balance of the costs of the neutral evaluation process, unless

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

interested parties.

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

following occur:

(a) The local government and the participating interested

parties execute a settlement agreement. However, if the state

treasurer determines that the settlement agreement does not provide

sufficient savings to the local government, the state treasurer

shall provide notice to the local government that the settlement

agreement does not provide sufficient savings to the local

government and the local government shall proceed under 1 of the

other local government options as provided in section 7.

(b) The local government and the participating interested

parties reach an agreement or proposed plan of readjustment that

requires the approval of a bankruptcy judge.

following the date the neutral evaluator was selected, the local

government and the participating interested parties have not

reached an agreement, and neither the local government nor a

majority of the interested parties elect to extend the neutral

evaluation process past the initial 60-day time period.

(d) The local government initiated the neutral evaluation

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

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

(e) The fiscal condition of the local government deteriorates

to the point that necessitates the need to proceed under the

chapter 9 bankruptcy option pursuant to section 26.

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

process expires, including any extension of the neutral evaluation

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

and the neutral evaluation process is complete with differences

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

neutral evaluation process does not resolve all pending disputes

with the local government and the interested parties, or if

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

local government shall adopt a resolution recommending that the

local government proceed under chapter 9 and submit the resolution

to the governor and the state treasurer. Except as otherwise

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

mayor, the resolution requires strong mayor approval before the

local government proceeds under chapter 9. The resolution shall

include a statement determining that the financial condition of the

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

residents who reside within the local government or service area of

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

governor approves the resolution for the local government to

proceed under chapter 9, the governor shall inform the local

government in writing of the decision. The governor may place

contingencies on a local government in order to proceed under

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

exclusively on behalf of the local government in the chapter 9

bankruptcy proceedings. If the governing body of the local

government fails to adopt a resolution within 7 days after the

neutral evaluation process is concluded as provided in this

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

behalf of the local government in chapter 9 bankruptcy proceedings.

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

behalf of the local government in chapter 9 bankruptcy proceedings,

the chief administrative officer of the local government shall act

exclusively on behalf of the local government in chapter 9

bankruptcy proceedings. Upon receiving written approval from the

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

under chapter 9 and exercise powers under federal bankruptcy law.

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

local government may file a petition under chapter 9 and exercise

powers pursuant to federal bankruptcy law if the local government

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

the local government, that declares a financial emergency in the

local government. Except as otherwise provided in this subsection,

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

strong mayor approval. The resolution shall include a statement

determining that the financial condition of the local government

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

reside within the local government or service area of the local

government absent the protections of chapter 9 and that the local

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

days following the adoption of the resolution.

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

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

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

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

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

the local government in the chapter 9 bankruptcy proceedings. If

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

of the local government in chapter 9 bankruptcy proceedings, the

chief administrative officer of the local government shall act

exclusively on behalf of the local government in chapter 9

bankruptcy proceedings. Upon receipt of the written approval and

subject to this subsection, the local government may proceed under

chapter 9 and exercise powers under federal bankruptcy law.

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

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

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

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

employees, agents, and contractors of a local government shall

promptly and fully provide the assistance and information necessary

and properly requested by the state financial authority, a review

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

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

emergency manager believes that a local elected or appointed

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

is not answering questions accurately or completely or is not

furnishing information requested, the review team or emergency

manager may issue subpoenas and administer oaths to the local

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

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

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

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

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

government is located or the Michigan court of claims, as

determined by the review team or emergency manager, to compel

testimony and furnish records and documents. An action in mandamus

may be used to enforce this section.

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

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

team or emergency manager may report to the state financial

authority and the attorney general. Following review and a hearing

with a local government elected official, the state financial

authority may recommend to the governor that the governor remove

the elected official from office. If the governor removes the

elected official from office, the resulting vacancy in office shall

be filled as prescribed by law.

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

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

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

receivership or until the time the receivership is terminated,

whichever occurs first.

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

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

those already authorized by law, without the approval at an

election of a majority of the qualified electors voting on the

question.

Sec. 29. The state financial authority shall issue bulletins

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

act. Rules shall be promulgated pursuant to the administrative

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

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

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

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

(a) A determination by the state treasurer or superintendent

of public instruction pursuant to a preliminary review of the

existence of probable financial stress or a serious financial

problem in a local government.

(b) The appointment of a review team.

report submitted to the governor.

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

in a local government.

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

a local government.

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

reenacted or reaffirmed in any manner to be effective under this

act.

Sec. 31. An emergency manager or emergency financial manager

appointed and serving under state law immediately prior to the

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

emergency manager for the local government.

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

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

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

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

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

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

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

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

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

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

capacity, or any membership of a receivership transition advisory

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

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

government filing under chapter 9, including any proceeding

following a local government's filing.

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

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

court, the invalidity shall not affect the remaining portions or

applications of this act which can be given effect without the

invalid portion or application. The provisions of this act are

severable.

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

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

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

salaries of emergency managers. The appropriation made and the

expenditures authorized to be made by the department of treasury

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

18.1101 to 18.1594.

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

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

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

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

experts, and other professionals to assist in the implementation of

this act, and to assist local governments in proceeding under

chapter 9.

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

project appropriation, and any unencumbered or unallotted funds are

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

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

1984 PA 431, MCL 18.1451a:

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

administrative support for the department of treasury to implement

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

limited to, all of the following:

(i) Staffing-related costs.

(ii) Costs to promote public awareness.

(iii) Any other costs related to implementation and dissolution

of the program, including the resolution of accounts.

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

interagency agreements, grants, state employees, and contracts.

$5,000,000.00.

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

Enacting section 1. The local government fiscal responsibility

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

Enacting section 2. It is the intent of the legislature that

this act function and be interpreted as a successor statute to

former 1988 PA 101, former 1990 PA 72, and former 2011 PA 4, and

that whenever possible a reference to former 1988 PA 101, former

1990 PA 72, or former 2011 PA 4, under other laws of this state or

to a function or responsibility of an emergency financial manager

or emergency manager under former 1988 PA 101, former 1990 PA 72,

or former 2011 PA 4, under other laws of this state shall function

and be interpreted to reference to this act, with the other laws of

this state referencing former 1988 PA 101, former 1990 PA 72, or

former 2011 PA 4, including, but not limited to, all of the

following:

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

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

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

(e) The home rule village act, 1909 PA 278, MCL 78.1 to 78.28.

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

113.20.

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

(h) The metropolitan transportation authorities act of 1967,

1967 PA 204, MCL 124.401 to 124.426.

(i) 1947 PA 336, MCL 423.201 to 423.217.