Beyond Flint: Should States Take Over in an Emergency?

Many cities can’t avoid interference, and state legislators like it that way.

Image REUTERS/Jonathan Ernst
U.S. Senator Gary Peters (D-MI) (3rd R) addresses a news conference about potential legislation in response to the water crisis in Flint, Michigan, with Senator Chuck Schumer (D-NY) (L-R), Senator Chris Coons (D-DE) and Senator Debbie Stabenow (D-MI), at the U.S. Capitol in Washington January 28, 2016. (REUTERS/Jonathan Ernst)

Emergency managers have no fan clubs. They are representatives of a takeover, sometimes hostile, of a city by a state when the city proves unable to get its finances in order. Emergency managers are often given sweeping powers that trump those of all elected officials, including mayors. They are the “fixers,” brought in to solve irreconcilable fiscal problems. And they are not uncommonly curt in their methods, as time and bond ratings are critical factors.

They don’t always fix problems, though. Occasionally, they make them worse, such as in Flint, Michigan, a city that has endured four different state-appointed emergency managers lording over the city in the past five years alone. At least two of those managers were involved in the regrettable decision to draw water from the corrosive Flint River, which they rationalized as financially prudent. Now, there’s a rising consensus that no one person should have all that power.

Since Flint is a predominantly African-American city with abnormal rates of unemployment and poverty, the NAACP says the emergency managers have abridged the residents’ civil rights. John Conyers, the U.S. congressman representing Michigan, has suggested the managers have a disenfranchising effect on African Americans in violation of the Voting Rights Act. Law professor Peter Hammer, director of Wayne State University’s Damon J. Keith Center for Civil Rights, said in an Associated Press article that Flint is now the “threshold” for determining whether emergency managers are a good idea for cities in general.

On its face, it doesn't seem like a bad idea to bring in a crisis manager when a city is on the brink of financial collapse. A bankrupt city could have even more devastating and disenfranchising impacts on residents. If a city can’t pay its bills, lawsuits will emerge, and arbitrators and judges could end up forcing decisions potentially worse than anything from an emergency manager.

If a city is pondering whether it should allow a state takeover to happen, then the extreme case between Flint and Michigan isn’​t the best example to look at. It would be better to examine the conditions that create a financial emergency to begin with.

Such conditions aren’t always of a city’s own making. Local budgets regularly tank because the state itself has created conditions that inhibit a city’s abilities to remedy its situation. A Michigan State University study released last year on state takeovers found that “some states incubate local financial stress by simultaneously driving up spending pressures on their cities while curtailing their capacity to raise critical revenue.”

Pittsburgh is a good example of how this can shake out. In the early 2000s, the city was crushed with debt from police and firefighter union contract obligations. Then-mayor Tom Murphy had epic public fights with the state general assembly over its hampering of the city’s ability to raise money to cover these debts. The legislature would not allow Pittsburgh to to impose certain taxes on businesses, and forbade the city from levying a commuter tax on people who worked there but lived in the suburbs.

In 2003, Murphy put Pittsburgh at the mercy of the state’s Act 47 “distressed municipalities program,” which meant that the state would appoint a financial coordinator to commandeer Pittsburgh’s budget. The state also set up an “intergovernmental cooperation authority” board that would have additional control over the city’s affairs.

Speaking with Murphy about that decision today, he tells CityLab that neither of these state managers have been very effective, in a transformative sense.

It’s been a “colossal waste of money and time,” Murphy says. They “have been largely useless [and] would be hard-pressed to give you—other than in the most narrow way—answers on how they have saved any money for the city. They have made several attorneys rich, though.”

What the “distressed municipality” designation did do was force the state to make changes to Pittsburgh’s tax revenue structure to the city's benefit, says Murphy.

Michigan’s emergency-manager law is comparable to Pennsylvania’s distressed municipality law, but a bit more aggressive in its execution. The sweeping authority Michigan endows a city’s single emergency manager with is problematic enough. Also at issue is the role the state legislature has played in creating the emergency conditions, namely by reducing state aid to economically vulnerable cities. As with Pennsylvania, Michigan’s policies have also constrained its cities’ abilities to work their financial problems out on their own. Reads the Michigan State University study:

[T]he state’s unyielding property tax rate limits, coupled with special features of the Headlee Amendment that forbid the use of some alternative revenue sources employed in other states (e.g., income, sales and motor fuel taxes), have had the unfortunate side effect of essentially entwining local fiscal health with state legislative politics.  

Michigan’s inflexibility helped create the financially distraught conditions that allowed it to plant an emergency manager with unprecedented powers into Flint. The Flint water crisis emerged from this climate. It was a legislative thirst trap.

Still, there can and will be cases where cities need the the state’s help, whether the state helped cause the mess or not. It’s worth looking at how cities that have been taken over by states have fared in the aggregate. In Debra Isadora Kobes’ 2009 MIT study of fiscal control boards, she found that success has depended on the scope of the problem and the size of the city. Kobes also found that fiscal-control takeovers have mostly improved the financial outlook of large municipalities, but not for all smaller ones.  

Kobes examines Miami and Washington, D.C., as two case studies of cities that had to relinquish fiscal authority to appointed managers— D.C in 1995 and Miami in 1996. Both cities were ultimately saved by these overpowering maneuvers, and thus provide some context for how such takeovers can happen effectively. They “must have proper consideration of existing political and market realities, design, and implementation to realize their benefits while minimizing their disadvantages,” writes Kobes.

At least 18 states have a law that allows it to take control of cities enmeshed in fiscal chaos. These laws first emerged in the 1870s and continued to gradually surface in various states, usually during times of recession and depression. The state takeovers have manifested in many formats—sometimes as a “control board” consisting of multiple managers, like what New York City had in the 1970s, or as a solitary actor, as seen in Flint.

Because these takeovers come in so many different flavors, it’s difficult to conclude whether they are an overall good or bad idea. Even the Michigan State University study cautions that there’s no one-size-fits-all financial-emergency-management kit any city or state can pull from. No matter the cause, it will never be popular to answer a problem with unelected officials imposed by the state, as Kobes shows in the chart below from her study. It’s odious and tyrannical, but it’s also sometimes needed.

(Deborah Isadora Kobes, MIT)

Pennsylvania’s capital city of Harrisburg and Alabama’s Jefferson County were both recently placed under state management when facing bankruptcy, due to financial corruption and malfeasance. This did not bode well for Jefferson County, which in 2011 became the largest municipality to file for bankruptcy until Detroit eclipsed it in 2013. The measure did save Harrisburg, though. The decision to use a state-appointed financial manager there was vindicated last year when Stephen Reed, the mayor who drove the city into near-bankruptcy, was hit with hundreds of federal criminal fraud charges.

An emergency manager was the right call in that case. But in other cases, like Flint and Pittsburgh, the root cause of financial malaise stemmed from structural issues created by loss of population, industry, and the resulting drying up of tax revenue. For those problems, states don’t need to send in a superhero; they need to change the way revenue is generated, shared, and allocated.

“When I watch the [state-appointed] financial managers, they deal with band-aids rather than broader strategies, and that’s what my disappointment is with [them],” says Murphy. “They are bean counters rather than visionary people dealing with the fundamental causes of why municipalities are in distress.”

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