PADM 610 Liberty University WK 6 Financial Management Public Administration Discussion Instructions: Discussion Board Forums in which you will post a threa

PADM 610 Liberty University WK 6 Financial Management Public Administration Discussion Instructions: Discussion Board Forums in which you will post a thread presenting your own opinion on the assigned topic, writing 400–500 words.We also have to do 2 replies in 200-250 words. This can be generic. If you could just write about the same topic as the initial. I will provide the information as a add on. Topic: Discuss statesmanship as it relates to financial management in the public administration context. Discuss the challenges that statesmen would face in this area and the statecraft needed to lead successfully. Integrate Biblical principles into your initial personal thread and your replies to peers. 554679
research-article2014
AASXXX10.1177/0095399714554679Administration & SocietyKasdan
Symposium Article
A Tale of Two Hatchet
Men: Emergency
Financial Management
in Michigan
Administration & Society
2014, Vol. 46(9) 1092­–1108
© The Author(s) 2014
DOI: 10.1177/0095399714554679
aas.sagepub.com
David Oliver Kasdan1
Abstract
Fiscal stress in local governments has reached catastrophic levels in Michigan,
which has implemented emergency management legislation in an attempt to
keep apace of the problems it faces, including Detroit’s bankruptcy. It is
time to consider what kind of public administrator is needed to address the
problems of modern fiscal distress. Whereas the political approaches and
policies for emergency financial management across the country may differ,
the emergency manager can still bring successful generalized approaches and
practices to many problems. This research studies two such bureaucrats in
Michigan, one who has been instrumental in the development of emergency
management policy for decades and one who is bringing his skills in corporate
bankruptcy counsel to task.
Keywords
fiscal distress, emergency manager, reform, transparency
Introduction: Emergency Financial Management
When local governments’ financial conditions sink from fiscal stress to fiscal
distress, the federal system dictates that higher level governments exert their
1Incheon
National University, Incheon, Korea
Corresponding Author:
David Oliver Kasdan, Incheon National University, 119 Academy-ro, Yeonsu-Gu, Incheon,
Korea 406-772.
Email: dokasdan@gmail.com
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authority to correct the situation. The pace and breadth of such situations has
grown dramatically in recent years, as more states have enforced their responsibility over a local government’s inability to balance the budget. As Dillon’s
Rule prescribes, the state-local government relationship is an arrangement of
responsibility:
Municipal corporations owe their origin to, and derive their powers and rights
wholly from, the legislature. It breathes into them the breath of life, without
which they cannot exist. As it creates, so it may destroy. If it may destroy, it
may abridge and control. (As cited in Gere, 1982, p. 273)
Like a cancer survivor who is weakened after the painful chemotherapy
and a fear of recurrence, so too do the local governments in Michigan wonder
whether the treatment of their conditions will ultimately lead to a full recovery or allow a relapse. The state has cycled through a series of legislative
measures to address severe fiscal distress in local governments since 1988.
The Great Recession has added catastrophic declines in Michigan’s manufacturing base and real estate values, necessitating significant reductions in
expenditures for most all categories of government (Skidmore & Scorsone,
2011). Several cities—including Flint, Pontiac, and even Detroit—have been
forced to cede control to the state government. Few of those local governments have emerged from state control; those that have are markedly different entities today, for better or for worse. When the dust has settled years
from now, the communities and the state will have to determine whether the
emergency financial managers charged with structurally rebalancing the budgets of the local governments caused irreparable ancillary damages.
What makes for a good emergency financial manager? Distinct from mayors or city managers whose tenure may coincide with a period of fiscal distress, emergency financial managers are an administrative rarity whose
profile has risen since The Great Recession, at least in the handful of states
that have provision for their appointment (including Michigan, Rhode Island,
and Pennsylvania; Pew Charitable Trusts, 2013). As an official appointed by
a higher authority, they harbor some of Weber’s (1946) traditional leadership
qualities, yet they must also be charismatic to gain support for their controversial cutbacks necessary in times of fiscal distress. Most importantly, the
emergency manager (EM) exercises a level of legal-rational authority necessary to wield the hatchet that cuts through financial entanglements. There is
no ideal type of emergency financial manager, but there may be some transcendent qualities of those administrators who effectively confront fiscal distress among the political, social, and economic turmoil that necessitated their
appointment in the first place.
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By the authority of Public Act 436 of 2012, the Local Fiscal Stability and
Choice Act (Legislature of the State of Michigan, 2013)—the fourth and
most recent iteration of state financial stability legislation enacted since
1988—an EM has been dispatched to many local governments to confront
the structural imbalances and right the fiscal ship: “Upon appointment, an
EM shall act for and in the place and stead of the governing body and the
office of chief administrative officer of the local government.” In essence, the
lawmakers of Michigan have sanctioned a bureaucratic coup in hopes of staving off local bankruptcies, supplanting elected officials with EMs who, more
often than not, serve as hatchet men (and women) in the budget rebalancing
process. These appointments usually equate to cutback management tactics,
as any options for raising revenue through improved services or organic
growth have long since passed. It may not be as rash as United Auto Workers
President Bob King rallied in March 2011—“Do you want dictators or
democracy?”—but the EM supersedes local political decisions and must proceed with consideration of local needs.
Public Act 436 is both political and apolitical at the same time; it was
passed by the Republican-led legislature and approved by Republican
Governor Rick Snyder as a response to the referendum in November 2011
that repealed the previous EM law. That referendum succeeded by virtue of
strong support from Democratic districts, especially in the major cities of
Michigan. Yet for all the political accusations surrounding the enactment of
PA 436, it is essentially a fiduciary appointment that spells out an administrative responsibility in getting a local government’s financial condition on a
sustainable course. Furthermore, previous iterations of this legislation were
exercised by a Democratic governor on several occasions. The EM’s authority to make painful decisions against the wishes of the community’s duly
elected leaders can appear politically motivated, but the principle of a balanced budget and long-term fiscal health knows no party lines.
The outcomes of such appointments hinge to some extent on the EM’s
approach to the job, which is not dictated by the legislation that describes the
procedures for putting the EM in place. There is little history to follow and
few examples that an EM can draw from when confronting a city in dire
financial straits. The EM is charged with making radical reforms at the structural level, requiring a firm authority and sense of righteousness to uphold the
hypothesis that Ammons, Smith, and Stenberg (2012) offer for cities in deep
trouble:
Local governments across the nation will respond to severe financial stress by
imposing on themselves fundamental and permanent changes in their services
and structures, or will have such changes forced on them by their states. These
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changes will be lasting, so as to ensure not only survival from the immediate
crisis but also avoidance of distress from a similar cause in the future. (p. 67S)
As of this writing, there are four municipalities and three school districts
in Michigan under control of an EM, while an additional nine local governments are entering or exiting the process through a review or consent agreement with the state (Department of Treasury, State of Michigan, 2014).
Detroit is the largest of these governments, with the most severe problems as
EM Kevyn Orr is leading the city through Chapter 9 bankruptcy proceedings
that began a scant 4 months after his appointment to the office in the spring
of 2013. The City of Pontiac had been under emergency management since
2009, and the third EM appointee, Lou Schimmel, finished his job in August
2013 as he reported to the governor that the city’s finances were on a sustainable track. Whereas Mr. Orr is a relative newcomer, Mr. Schimmel has tenure
as an EM who helped author the various legislations that have empowered
him in three different appointments to troubled local governments. On the
eve of Orr’s appointment by Governor Snyder, Schimmel offered advice and
insights into the eventual EM of Detroit in an interview on the local public
radio station: “This is not a job for a numbers guy who sits in an office and
crunches numbers” and that the city council “still reject me” among his other
cautions about the difficulties of the job (Wright, 2013).
The two EMs confronted similar problems at different scales, so a comparison of their job performances can only be judged in relative terms. Would
Schimmel be successful negotiating with the big New York banks if he were
running Detroit? Would Orr be able to relate to the people of Pontiac at the
street level? Schimmel had tacit support from the mayor and the Oakland
County Executive (where Pontiac is located) while facing opposition from
the Pontiac City Council and the municipal service labor unions (Blitchok,
2013a). Orr has allies in the statehouse and business community as he confronts a disjointed City Council, big labor unions, and a polity distrustful of
outsiders (Davey, 2013). Although they are in unique contexts, there may be
some opportunity to generalize lessons for emergency financial management
from a comparison of their styles and practices thus far. As fiscal distress
continues to plague local governments world-wide, it will be beneficial to
supplement the literature about causes, consequences, strategies, and tactics
with a study of the human aspect. There is plenty of attention paid to emergency management but little to EMs. Public administration research tends to
avoid ad hominem prescriptions, favoring more generalized notions of “professionalism” (Stillman, 1977), yet a special situation calls for such study.
What kind of attitude, skill, and bureaucratic ethos is needed for this job?
What ideals should we hope to fulfill in the appointment of an EM?
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Perhaps comparing fiscal distress to cancer at the outset was misdirected;
a better analogy may be to that of an addiction. As presented in the Department
of Treasury’s 12-step “Summary of the Local Fiscal Stability and Choice Act
Process” (Department of Treasury, State of Michigan, 2014), emergency
financial management is a recovery program. If local governments are
addicted to fiscal distress—a not wholly implausible perspective when considering the conflict between the costs of political promises and the reality of
administrative accounting—then the EM is the mentor who imparts tough
love tactics. Whether healer, mentor, or hatchet man, the EM is in a new class
of administrators who are confronting a particularly devastating condition
(Davey, 2013).
The research literature on fiscal distress management is robust, yet it has
focused primarily on the processes, not the people, with few exceptions (Elling,
Krawczyk, & Carr, 2013; Perlman & Benton, 2012). This article foregoes a
formal literature review—as can be found in several recent articles on emergency financial management practices (AlBassam, 2011; Ammons et al., 2012;
Coe, 2008; Skidmore & Scorsone, 2011)—in its differentiated purpose to provide some insight into the people who orchestrate recoveries and what administrative leadership and managerial traits they can offer for future practice.
Pontiac and Detroit were selected as the subjects of this research for several
reasons. The cities share some characteristics that are key factors in their fiscal
distress: a history of racial issues, dependence on automotive manufacturing,
and strong union labor influence. The coverage of their declines and (anticipated) resurrections in the media has been extensive. Yet they are different
places, and their appointed EMs have different approaches whose effectiveness will be judged in time. Schimmel has had years of experience in Michigan
squarely confronting fiscal distress in a variety of arenas, “the dean of the
emergency managers” (County Executive Patterson, as quoted in Blitchok,
2013a). Orr was a private counsel with a specialty in corporate bankruptcy
proceedings, promising Detroiters on his first day as EM, “I want to offer a
sincere olive branch and an opportunity for us to work together” (as quoted in
Guillen, 2013). The contexts and individuals in this research provide perspectives that can help to inform what makes for an effective emergency financial
manager. As technical and managerial solutions to fiscal distress are offered in
the academic literature, it makes sense to include some investigation into the
type of person who can effectively advance such solutions.
Pontiac: The Hole of the Donut
The year 2011 was bittersweet for Pontiac. As the citizens of this rust-belt
archetype celebrated their city’s sesquicentennial anniversary, the local
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government reeled under the pressures of fiscal insolvency. After paying the
costs for the already severely reduced police, fire, and emergency service
departments, the city’s budget would have less than US$1 million left for
everything else it would need for the year. The streetlights, parks, garbage
collection, and all other municipal services and salaries for this city of 60,000
residents would have to get by collectively on less than the pay of a starting
lineman for the Detroit Lions football team. Add in a growing crime rate,
increasing unemployment, corrupt school board, collapsed real estate markets, and mismanaged public policies, and the city’s problems became more
than just economic anomalies.
The politics of prevention were rampant; Pontiac’s legislative inertia (or
lack thereof) shoulders much of the blame for its suffering. Failed public
projects, unfavorable lease arrangements, the inability to secure a viable
future for many facilities, and blatant corruption in the leadership of the city
left the administration hamstrung. More often than not, pressing issues
became secondary to the political positioning over the issue itself. A zoning
decision became a racial battle, park maintenance and police patrols became
conflated, school choice undermined labor efforts, and neighborhood boundaries became territorial battles over city resources. Decisions by political
leaders were slow to come and often left administrators with objectives that
were impossible to achieve.
Pontiac’s situation brought stark realizations of social, political, and economic issues, even though it is located in the center of one of the wealthiest
counties in the nation. The county was divesting itself of property in the city’s
borders at losses to avoid legal entanglements that might crop up due to the
degrading condition of facilities that were leased on its properties. Appeals
by Pontiac’s leaders for help from the wealthier neighboring cities were given
shrugs that pleaded of economic difficulty, NIMBY mindsets, or outright
denials of concern despite our current understandings of regional effects. It
appeared as though Oakland County thought Pontiac could just disappear,
given enough neglect; it would be the hole of the donut.
Schimmel is a forthright manager who makes decisions that may not suit
everybody, but he is clear in his reasons and process (Blitchok, 2014). He is
a methodological hatchet man who bluntly states the facts and communicates
the bad news to the city at regular intervals (City of Pontiac, 2014). Schimmel
was an author of the state’s EM policies and has served longer than anybody
in the state in that role. He has eaten enough sacks of bitter public outcry to
fill council chambers during his long and varied career as an EM in Michigan.
He works with his sleeves rolled up and does not politick, despite his conservative leanings (Holeywell, 2012a). Like a true public servant, his idea of
success is working himself out of his job because when the public problem is
solved, the policy should be dissolved.
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During his service as the EM of Pontiac, several extreme measures were
taken that will have long-lasting effects, including the dissolution of the
police, fire, waste and lighting maintenance departments, leasing of the waste
water treatment plant, and sale of several city properties (Blitchok, 2013b).
He all but closed communications with City Council and suspended their pay
as he concentrated on liquidating the liabilities. At the end of his term, he left
his lieutenant in place to ensure that the radically reduced 3-year budget plan
for Pontiac would be implemented during the transition period with reserved
hopes that the structural balances would not be tipped when the state ceded
control back to the elected officials. Yet he also acknowledged the difference
in his priorities as EM from those of the City of Pontiac:
I was all about the money . . . However, when I left, I could have taken the
position of staying a lot longer. The reason I didn’t stay a lot longer is that I felt
we needed to get on with the process of turning the city back. (As quoted in
Blitchok, 2014)
Detroit: Motoring Into Bankruptcy
The chain of events leading to Detroit’s current situation is bizarre and
depressing. The city serves as a distorted realization of the American Dream,
made manifest in a sprawling mess of low-rent tinderbox houses, a “Gangsta
Mayor” who used the city as his personal playground, and a legacy of inept
governance in the context of the nation’s largest industry. From the underfunded public sector pension obligations to the outright neglect of crucial
infrastructure, the whole of the Motor City is culpable for its fate at this point
as it collapses in a textbook example of organizational implosion (Anderson,
2011; Bozeman, 2011).
Amid legal battles and public outcry, Governor Snyder appointed an EM
to deal with a structural deficit that was bleeding into US$18 billion of
municipal debt. Citizens were either fleeing the city or circling their wagons,
depending on their level of resolve and ability to escape the urban nightmare
that has been Detroit since the Great Recession began. Safety forces were
reduced to skeletal levels, street lighting was turned off, and private organizations were contracting for their own private security patrols as some brave
entrepreneurs tried to keep a spark alive in the Downtown and Midtown districts. Whereas appointing an EM to avoid bankruptcy in smaller local governments like Flint, Pontiac, or the handful of school districts deep in the red
could be kept relatively quiet and contained, Detroit’s fiscal problems were
keeping pace with its national notoriety. The repercussions of a bankruptcy at
this scale would affect not only the rest of Michigan but also Wall Street and
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Washington, D.C. Institutional bondholders and Federal agencies were
watching the situation unfold at an accelerating pace in the spring of 2013 as
then-Mayor Dave Bing warned that payrolls would not be met and retired
city employees would have their benefits threatened by insolvency.
Orr is a politically correct legal counselor whose professional specialty in
bankruptcy law bridged the New York City–D.C. gap. He sat down with the
high-priced legal representation that the elites of Chrysler could muster in
2009 to get a U.S. Government bailout. He has some faint tendrils in his personal history connecting him to Michigan but otherwise is a stranger in a
strange land. He is Black, like the majority of Detroit’s residents, but will
remai…
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