Emergency Financial Managers: A burgeoning industry

As I have written about recently, particularly in my piece The connection between Michigan’s EFM power grab, Rep. Fred Upton and Big Oil/Gas, my biggest concern about the use of Emergency Financial Managers (EFMs), particularly in areas where there are abundant natural (and other) resources to be exploited, is that they represent prime opportunities for businesses and corporations to use the economic crisis to line their own bank accounts and real estate portfolios with little regard with what’s good for the local community or the state.

These are reasonable fears. When you look at the training materials for the Emergency Financial Manager training session held in Michigan last February, you realize that this is indeed an industry. The training was supplied by a long list of “suppliers” to the future EFMs, organizations that the EFMs can eventually turn to when they begin to outsource the functions normally handled by the government or school system.

The training was, in fact, put on by the Government Turnaround Association, a unit of the state chapter of the Turnaround Management Association that was formed just last December. TMA is “the only international non-profit association dedicated to corporate renewal and turnaround management” and now they have taken that model and begun to apply it to governments and schools.

One of the panelists at the final panel at the February training, the same one where Benton Harbor EFM, Joseph Harris, talked trash about the city officials and public employee union members, was from the company that Harris outsourced Benton Harbor’s Human Resources to. Let’s listen to him talk about assisting EFMs (audio clip below):

Thank you. Mario Emprazizi. They needed an Italian up here to make the language a little easier! [laughter] My background is I’m a reformed CPA, I was an audit tax scholar at Price-Waterhouse back in the day. About 15 years ago I got into the HR business, outsourcing HR for small businesses — as an advisor, project base, as a co-ployer with them.

And about two years ago, I started looking at nonprofits, charter schools and municipalities, in particular, as an industry. Rather than jumping into it, I decided to do some research and then had our first sort of full engagement with the City of Benton Harbor so I’ll have to be careful with some of the war stories that I tell this morning. But I appreciate the opportunity to be here so thank you.


Emergency Financial Manager Training – February 10 & 11, 2011 – Michigan State University
CLICK BUTTON TO PLAY AUDIO – NOTE: The audio requires that you have Flash enabled.
You also may need to allow it to buffer a bit. If all else fails, the direct link to the audio file is HERE.

Of course, it’s not just municipalities that are being handled with this corporate model. Just yesterday, the EFM for the Detroit Public Schools, Robert Bobb, a man with a long history of government service, was replaced by Governor Rick Snyder with an ex-GM official, Roy Roberts.

Roberts’ business success was key to the appointment, Snyder said. The district’s financial crisis is important, but Roberts’ most pressing task will be to ensure DPS students are college-ready, Snyder said.

Local municipalities are so fearful of being taken over by the new corporate leaders that they are taking these EFM trainings themselves. And who can blame them? If their cities or schools are taken over by an EFM, they lose all control of their destiny, just as Benton Harbor has done.

This new model of fixing governments and schools by applying a corporate framework on them is 180-degrees the opposite of how a government should run. As pointed out by Mitchell Bean, director of the Michigan House Fiscal Agency at a recent presentation I attended, the revenues:resource expenditure ratio for businesses is upside-down compared with governments. With a business, as the economy falters, demand for their products or services goes down. Therefore, you have less need for specific resources like raw materials, shipping, human capital, etc. With governments, the situation is exactly the opposite. When the economy is bad, the demand for government services INCREASES. The citizens have a greater need for the things governments exist, in part, to provide.

So, modeling governments after corporations puts them on a path to be unable to serve the citizenry in their time of greatest need. It also begins to assign financial worth to our needs, putting a price tag on unemployment, health care and other essential services we use. Once that is done, a corporate cost-benefit analysis is sure to follow close behind. Those costs that don’t return enough benefit will be eliminated. That’s how you run a business.

Until now, it was NOT how you run a government or a school.

One other piece of this needs to be discussed, too, the one I characterized as my biggest concern: the selling off of public assets and resources to the highest bidder for short-term revenue gains. This is always a potential issue with any government agency, particularly when times are tough. But when a city is in crisis, it becomes desperate. In their desperation, they become extremely vulnerable to unscrupulous businesses that lurk like vultures, waiting for their opportunity to rush in for the spoils.

This was the situation that Benton Harbor found itself in when it negotiated an almost 100-year lease of some of its prime shoreline property to a luxury golf course (see this page for an interactive panoramic image of Jean Klock Park and the Harbor Beach Golf Course.) The lawyer hired by the city to hammer out this agreement was also working for the development agency that built the golf course. (More on that situation HERE.) It’s also notable (and alarming) that Joe Harris’ first act after dismissing the Benton Harbor City Commission was to replace multiple members on the City Planning Commission and the Brownfield Redevelopment Authority.

I believe that most EFMs have a sincere desire to leave the schools and cities they are responsible for in a better place when their work is completed. However, when you look at who provides the training they receive and the business models that are being used, you quickly realize that this is not how governments are meant function. It also is apparent that a more malevolent corporate approach waits on the sidelines, ready to exploit any weakness, any fault lines that appear, for their own benefit.

This is what we have wrought by electing a businessman as Governor in Michigan. Rick Snyder had absolutely no history or experience running a government prior to being elected. He knows business and that’s all he knows. The imposition of a business model on Michigan is no surprise. That, at least, was something he DID tell us he would do. What none of us anticipated, however, was that he would create a brand new industry: the Emergency Financial Manager industry.

I’m just sayin’…

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