Monday, May 2, 2011

Michigan's {Financial} Martial Law

Michigan's newly elected Republican Governor, Rick Snyder-- a former high tech venture capitalist, ran on the platform that he was "one tough nerd". He took over the state government at quite possibly the worst time imaginable since the Depression.. Michigan has the nation's 2nd highest unemployment rate, as well as a rapidly declining population matched only by the equally jaw-dropping decline in housing prices (and thus property tax revenue). Snyder promised tough medicine. One of his first actions as governor set the tone-- he appointed Andy Dillon, a former corporate turnaround expert and an even tougher nerd, as his Treasury Secretary. Together they passed "Public Act 4" on March 15th--  which allowed local governments-- cities, school districts and counties-- to be taken over by a state appointed emergency manager. It was a step taken to avoid a cascade of these locals declaring bankruptcy-- now only the emergency manager has this authority.

These "emergency managers" were given broad, sweeping powers to get the local governments' houses in order-- among them are cancelling union contracts, slashing pension payouts, layoffs, and removing any and all elected local officials. As soon as the law was passed, the Unions and other Democratic Party functionaries demonstrated outside of Michigan's capitol, holding up signs saying "Recall the Ricktator" and other forms of protest because they knew it was their constituents that were about to take a nasty hit. John Conyers, the US Representative from Detroit, wrote an article in the Detroit Free Press saying that it was an unconstitutional power grab. Jesse Jackson came to town and joined in a protest against Benton Harbor's emergency manager Joseph Harris.

Michigan's previous governor, Democrat Jennifer Granholm, started this process in actuality. The now infamous Joseph Harris of Benton Harbor was appointed under Granholm. But the powers granted by Granholm to these EM's was very limited. Indeed before the new laws passed by Gov.Snyder came into being, Benton Harbor's City Council constantly passed laws behind Harris's back, handcuffing his efforts to financially rescue the city. Benton Harbor was a mess to say the least.. the city had'nt filed audit reports in eight years. The public safety budget was more than the city's entire tax revenues. The city's pension system was severely underfunded, with accusations of corruption flying far and wide. City commissioner Duane Seats compared Harris to AIDS. When Snyder's new laws became law, Harris struck back.. and hard. He stripped the city's commissioners of all their powers. It was this action that motivated Jesse Jackson's visit. "Harris put them in the time out chair" said area's state legislator.

Whether or not one approves of Michigan's actions, it actually is a grand experiment in public finance crisis management as well as democracy. The voiding of union contracts, public layoffs and other budget slashing measures are going to be the norm in these communities. Indiana is also looking into doing something similar. As the economy continues downhill, many other states will be watching to see how this bold experiment plays out. The alternative-- municipal bankruptcy-- is looking more and more like a mess. One community that took this option.. Vallejo,CA-- has been sued by so many groups that it's legal fees are forcing even more layoffs and cuts-- hardly the result envisioned when they took this path. One thing is certain-- something has to be done. The promises made to public employees and their retirees in the form of health care and retirement pensions are crushing many local governments financially. Borrowing yet more money isn't the answer. In Michigan, the nation's largest producer of automobiles, the rubber is meeting the road.

In other news, President Obama late last nite announced that Osama Bin Laden had been killed in Pakistan. There were spontaneous celebrations all over the nation.. in Philadelphia, the Phillies game was interrupted by the crowd chanting "USA USA USA". But as I read onwards this morning, some curious factoids came to light. First was the astonishing speed at which OBL was buried at sea. The second was that while there were pictures of the place this raid took place, there were none of the dead guy. Lets contrast this with what we did in Iraq.. when Saddam's sons were bombed, we publicly displayed their bodies for all to see. When Saddam himself was captured, videotape of his capture was immediately available. It reminds me of my own personal favorite conspiracy theory-- that of Pope John Paul I, who was Pope for only thirty days and who was cremated immediately and without any autopsy. Later we found out that he had initiated an investigation into the Curia's finances. Whoops. In the case of OBL, it was widely known that even as far back as 2000 he was severely ill with kidney failure. I myself remember numerous articles stating that he was very probably dead long ago from this ailment. Guys with kidney failure are unlikely candidates to grab the nearest AK47 and swap hails of bullets with Navy Seals. While I'm not much on conspiracy theories-- Elvis is indeed dead, 9/11 was indeed a terrorist act, and the Queen of England does not run the world through her alliance of Freemasons-- this one smells somewhat. They said that a picture is forthcoming.. for now, color me skeptical.


  1. I think this is as you said the rubber meeting the road. Bloated promises during the good times cannot be met in a depression era and Michigan is definitely in a depression. They can protest all they want, but Michigan cannot print money. There simply are not enough haves to pay the have nots. This will play out the entire country eventually.
    As for OBL I am mute on the subject. To me it isn't worth one news cycle. I am not smart enough to know what happened or why.

  2. Great Blog as usual Mr K. Keep up the good work.