It replaces a controversial law repealed by Michigan voters on Nov. 6 that made it easier for the state to intervene in fiscally troubled cities and schools.
Michigan Gov. Rick Snyder signed into law on Thursday a bill that gives options to cities and school districts for dealing with severe financial problems, including bankruptcy.
The law, passed by the Republican-controlled legislature earlier this month, allows local elected officials to choose between Chapter 9 municipal bankruptcy, if the move is approved by the governor; an emergency manager; arbitration with a neutral party; or a consent agreement laying out terms for fixing the government's finances.
It replaces a controversial law repealed by Michigan voters on Nov. 6 that made it easier for the state to intervene in fiscally troubled cities and schools and gave state-appointed emergency managers running the governments the power to suspend collective bargaining agreements with workers.
That law, known as Public Act 4, was suspended in August pending the outcome of the vote and the state has been relying on a former, weaker law since then.
Snyder, a Republican, defended the new law against criticism that it is too similar to Public Act 4.
"This legislation demonstrates that we clearly heard, recognized and respected the will of the voters," the governor said in a statement. "It builds in local control and options while also ensuring the tools to protect communities and schools districts' residents, students and taxpayers."
The law also includes appropriations for administrative expenses, making it ineligible for a petition drive that could result in its repeal by voters.
Because the new law will not take effect for 90 days, it will have no immediate impact on eight cities and school districts currently operating with emergency financial managers and three cities, including Detroit, which are operating under consent agreements.
Even after it kicks in, the law keeps in place existing state-appointed managers and any ongoing review process to determine if a manager is needed, which is the case in Detroit.
Snyder on Dec. 18 named a review team for Michigan's largest city, a step in a process that could lead Detroit to file what would be the biggest-ever municipal bankruptcy.
That team met twice last week and is on an expedited schedule to report to the governor, Caleb Buhs, a spokesman for the Michigan Treasury Department, said on Wednesday.
Detroit was able to avoid the appointment of an emergency manager by entering into the consent agreement earlier this year that gave the state more oversight of the city.
However, slow progress on reforms led state officials to launch a review process earlier this month that could lead to a state-appointed manager, who could decide to take the city to federal bankruptcy court unless the state blocks the move.