HB-4326, As Passed Senate, June 18, 2015

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 4326

A bill to amend 2012 PA 436, entitled

"Local financial stability and choice act,"

by amending sections 2 and 4 (MCL 141.1542 and 141.1544).

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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.~~March 28, 2013.

(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~~ Except as otherwise provided in subparagraph (iii),

for a school district, the superintendent of public instruction.

(iii) For a school district subject to a deficit elimination

plan under section 1220 of the revised school code, 1976 PA 451,

MCL 380.1220, the state treasurer.

(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. 4. (1) ~~The~~ Subject to subsection (2), 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

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) If 1 or more of the following occur, the state financial

authority of the school district shall conduct a preliminary review

to determine the existence of probable financial stress within the

school district:

(a) The school district is subject to a deficit elimination

plan under section 1220 of the revised school code, 1976 PA 451,

MCL 380.1220, and the state treasurer determines that the school

district has failed to submit or materially comply with the

requirements of the deficit elimination plan.

(b) The school district is subject to a deficit elimination

plan under section 1220 of the revised school code, 1976 PA 451,

MCL 380.1220, that provides for the elimination of deficit over a

period exceeding 5 years.

(3) ~~(2)~~ Before commencing the preliminary review under

subsection (1) or (2), 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 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. For a preliminary review

conducted under subsection (2), if the final report prepared by the

state financial authority confirms the existence of any of the

factors provided in subsection (2)(a) or (b), the state financial

authority's confirmation is prima facie evidence that probable

financial stress exists for that school district. 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.

(4) ~~(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),~~ (3), 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.

(5) ~~(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),~~ (3), 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.

(6) ~~(5)~~ The department of treasury shall provide staff support

to each review team appointed under this section.

(7) ~~(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~~ before March 28, 2013 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~~ March

28, 2013 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~~ before March 28, 2013 is ratified and is binding and

enforceable under this act.