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(In Dec 13 item, paragraph 5, corrects month when the state began relying on old emergency manager law)
* Bill to replace previous emergency manager law
* New law to keep intact ongoing review process like Detroit
* Local officials will be given a set of options
By Karen Pierog and David Bailey
Dec 13 (Reuters) - A bill that will give fiscally troubled local Michigan governments like Detroit's, as well as school districts, a set of options ranging from bankruptcy to arbitration was approved by the Michigan Senate on Thursday.
The bill, which senators approved by a 23 to 15 vote, would replace Michigan's previous emergency manager laws, including a 2011 law that was repealed by voters in November.
The Michigan House approved the measure on Wednesday during the state's active lame-duck session, which also produced controversial right-to-work bills.
The new emergency manager bill, which would take effect in about 90 days, was pushed by Republicans, who control both chambers. It heads next to Republican Governor Rick Snyder for his signature.
After the 2011 law was suspended in August pending the outcome of the Nov. 6 state-wide vote, the state r elied o n a former, weaker law to keep in place state-appointed managers for five cities and three school districts and consent agreements for three cities, including Detroit.
The new bill would keep intact any ongoing review process like the one launched for Detroit this week, as well as existing consent agreements and appointed managers for Michigan local governments and school districts.
Senator John Proos, a Republican whose southwestern Michigan district includes the city of Benton Harbor, which is under the control of an emergency financial manager, said cooperating with the state to fix local financial problems does work.
"This bill gives us a chance to have an early warning system," Proos said in support of the bill. "Then a community may choose what is the best for them".
Democrats opposing the new measure said Thursday the legislature was simply ignoring the decision by voters in November to repeal the previous emergency manager law.
"This is an assault on Democracy, this is an assault on the constitution," said Senator Coleman Young II, a Democrat from Detroit. "It's wrong. It's illegal. It's despicable. The people already decided."
Young is the son of the late Detroit Mayor Coleman Young.
The new law would give the elected officials of local governments determined to be in a fiscal emergency the option to choose between municipal bankruptcy if the move is approved by the governor, an emergency manager, arbitration with a neutral party or a consent agreement. The chosen option would need to be approved by the governments' elected officials.
Detroit, which has been operating under a consent agreement with the state since April, was placed under a preliminary review by Michigan Treasurer Andy Dillon on Tuesday. The review could potentially lead to the city having an emergency financial manager in the aim of quickening the pace of financial reforms.
The move came even after the Detroit City Council signed on to some reform measures that led to the release on Thursday of $10 million in bond proceeds state officials had been holding in escrow.
Detroit Mayor Dave Bing said the money will help the city meet other conditions laid out by state officials that could result in the release of another $20 million. (Reporting by Karen Pierog in Chicago and David Bailey in Minneapolis; editing by Tiziana Barghini and Todd Eastham)