Your Brownfield reimbursement agreements may be in jeopardy. A new concern has been raised as to whether the broad powers granted to emergency managers could be used to terminate Brownfield reimbursement agreements and render ineffective the associated Brownfield Plans. Therefore, your business should take a cautious approach and undertake measures to reduce this potential risk.

The Local Government and School District Fiscal Accountability Act, MCL § 141.1501 et seq., (the “Act”) was intended to assist local governments in financial trouble. An emergency financial manager can be appointed under the Act to resolve the government’s financial situation. The Act gives the manager very expansive authority. The Act states:

“An emergency manager may … make, approve, or disapprove any … contract” and may “reject, modify, or terminate 1 or more terms and conditions of an existing contract.” MCL § 141.1519(1)(g) & (j).

This incredibly broad legal power could be used to invalidate existing agreements related to Brownfield financing and other economic incentives. No Court has yet to clarify how far this power extends. There are several cases which are challenging the constitutionality of the Act. In Valenti v. Snyder, No. 2:12-cv-11461-AJT-MJH, pending in the U.S. District Court for the Eastern District of Michigan, the Coalition of Unions of the City of Detroit alleges the Act violates the Contracts Clause of the U.S. Constitution because the Act empowers an emergency manager to terminate or modify collective bargaining agreements. In Brown v. Snyder, pending before the Michigan Supreme Court, No. 11-685-CZ, the plaintiffs, 28 Michigan residents, allege that the Act violates the non-delegation doctrine and elector’s rights.

We are unaware if there is any situation where an emergency financial manager has terminated a brownfield related arrangement. However, there are many communities who have had managers appointed and may others who are at risk. We are undertaking a survey of our clients’ situations in communities that are currently being managed by the financial managers and those governments which are could have one appointed in the near future.

There are several strategies, from a legal perspective, to reduce the risk of a brownfield plan or agreement from being terminated under the Act. A comprehensive review of the particular situation along with careful attention to legal issues can manage these problematic situations.