Emergency financial manager designations

From Policy Atlas
Jump to: navigation, search

Emergency financial managers designations occur when a superordinate government (typically a state) appoints an emergency manager to a financially troubled subordinate (most commonly a city). The local government might have an excessive debt burden, costly contracts, or systemic corruption. By appointing the manager, the state government strips legal authority from the local government. This is likely because it has lost faith in the local government's ability to resolve its own financial problems. The state government might think that the problems have the potential to be contagious in terms of spilling over into other areas of the state (e.g.,hurting the state credit rating, dragging down the state's economy, or otherwise harming state residents). The manager is required to resolve the issues and put the local government on solid financial footing. Typically, an emergency financial manager is a last resort solution for chronically problematic local governments. The amount of responsibility an emergency financial manager assumes varies. Sometimes the manager will only take control of certain operations in a city. In the most extreme situation, the manager will take on all the responsibilities of the mayor and city council.

CONCEPT


Concept.png

Goals
Example

City A has a government that is incapable of scaling down services and thus can't balance its budget. Due to political roadblocks, no mayor has been able to substantially downsize the government. This has led to years of unsustainable borrowing and budgeting tricks that have left City A in a fiscal crises. The governor appoints an emergency financial manager to resolve the issues. The manager works with local stakeholders to reduce the size of the city's workforce, outsource services where possible, and reduce the city’s debt obligations. Once City A is back on a sound fiscal path, the emergency financial manager returns control back to the mayor.

Tradeoffs

Tradeoffs.png

Tradeoffs of implementing this policy may include:

  1. Drastic spending cuts might exacerbate non-financial problems (such as population decline)
  2. A temporary emergency financial manager may not solve the underlying problems, leading to a reversal of policies and a return to fiscal mismanagement once local control is returned
  3. It greatly reduces local autonomy by transferring powers from democratically elected local leaders to un-elected superordinate government appointees
  4. Necessary measures to balance the budget may result in a decline in popular support for state leaders
  5. The potential to increase racial tensions if the manager is a member of a different race, or is otherwise unrepresentative of the majority of the city's demographics (e.g., an urban official in a rural area).
Compatibility Assessment

Compatibility Assessment.png

If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Is the state unwilling or unable to sustainably resolve the local government's fiscal problems via direct financial assistance?
  2. Would the tradeoffs noted above be less damaging to the state than those expected under a bankruptcy (e.g., credit rating downgrade, bankruptcy contagion, or other problems)?
  3. Are new fiscal regulations on the subordinate government inadequate to solving the problem?
  4. Do the residents of the town support the designation of an emergency financial manager?
  5. Will an emergency financial manager be able to effect the necessary changes to provide a sustainable solution to the fiscal problems (or be supported via other entities and policies)?
Design

Design.png

The following questions should be considered when determining how to implement this policy:

  1. What criteria defines a city as being in a financial emergency (e.g., poor credit rating, high debt ratio, consistent deficit borrowing)?
  2. What are the required qualifications for an emergency financial manager?
  3. How much control will the emergency financial manager have (e.g., will the manager be the sole decision maker, will they only negotiate certain contracts)?
  4. How will the tenure of the emergency financial manager be determined (e.g., up to a maximum time period, until a balanced budget has been approved, etc.)
  5. What will be the role of the elected officials under the emergency financial manager?
  6. Will the manager be supported by state staff, or will they use the current local staff?


ADOPTION


Adoption.png

PolicyGraphics
  • Has Adoption of: Limited. Only a handful of states have used emergency financial managers, however over half the states in the U.S. have emergency financial manager designation laws on the books [1]
  • For area type(s): Urban, Suburban. A rural government is unlikely to build up enough long-term financial problems to require this policy
  • For governance level(s): Local, State or Provincial. Emergency financial managers are appointed by a state government but work in a local government
  • For Issue: Efficiency, Finance
Adopters


STAKEHOLDERS


Supporters

Supporters.png

Opponents

Opponents.png


REFERENCES


Research

Research.png

Footnotes
  1. http://www.governing.com/topics/mgmt/gov-emergency-financial-managers-michigan-municipalities-unwelcome-savior.html
  2. http://www.governing.com/topics/mgmt/gov-emergency-financial-managers-michigan-municipalities-unwelcome-savior.html
  3. http://www.nytimes.com/2011/07/20/us/20centralfalls.html?_r=0
Related Policies



PolicyAtlas is maintained by volunteer contributors. For instructions on how to join PolicyAtlas, simply create an account and read about how to contribute a policy.

You can also follow @PolicyAtlas and contact us on: Twitter Icon.png Twitter, Facebook Icon.png Facebook, Instagram Icon.png Instagram and Email.