Protesters with signs reading "Arrest Synder" and "Fix Flint Now."
Demonstrators protesting in Flint, Michigan, over the contaminated water crisis with signs referencing Michigan Governor Rick Snyder, March 6, 2016. Rebecca Cook/Reuters

A New Approach to Saving Distressed Cities: De-municipalization

Flint, Michigan, offered a devastating lesson in how state takeover of a city can fail. Agency control—“de-municipalization”—is a better idea.

Having marked 10 years since the end of the great recession, municipal insolvency has receded as a leading focus of urban policymakers. Nonetheless, the same structural weaknesses that led to a surge in municipal bankruptcies continue to persist. In the Rust Belt and elsewhere, municipal services remain caught between an impoverished tax base and burdensome legacy costs relating to debt and retirement benefits.

In the coming years, we’re going to need to rethink the relationship between state and local governments if we want to reckon honestly with the challenge of municipal distress. States will need to take a more forthright role to guarantee basic service quality for residents of chronically poor cities. In a new report for the Manhattan Institute, I explore an idea I call “de-municipalization.” Instead of taking over an entire city on an emergency basis, states, or sometimes counties, should assume control of a major city department, and on a presumptively permanent basis.

We’ve seen many examples of state takeovers of entire city governments. Some have been notable successes. Detroit’s 2013-2015 bankruptcy process was directed by a state-appointed emergency manager. Under his guidance, Detroit exited bankruptcy much more rapidly than any expected at the outset. It is doubtful that Detroit would now be as far along its much-heralded renaissance had the same local officials that oversaw its descent into insolvency been tasked with leading its complex and fraught negotiations with creditors in federal court. The oversight regime that former New Jersey Governor Chris Christie instituted in Atlantic City in 2016 was initially denounced as a “fascist dictatorship” by that city’s mayor. But its success in stabilizing city finances is likely what persuaded Christie’s Democratic successor Phil Murphy to keep it in place for the time being.

At the same time, the legacy of Flint, Michigan, now looms large over the question of state interventions. The plan to switch water sources that led ultimately to dangerous levels of exposure to lead was developed by local officials before Michigan’s then-governor Rick Snyder took over Flint in 2011. Though the main purpose of the takeover was to fix the city budget, Snyder admitted to Congress that his emergency manager program had failed the people of Flint with respect to the water crisis.

De-municipalization could be seen as a response to the “if it’s broken, you own it” problem of broad state takeovers. Many governors nationwide will look at the Flint fiasco and resolve never to let that happen to them. But it is a much less daunting prospect for state officials to gauge the extent of the damage and prospects for success of reforming one city department instead of an entire municipal operation.

The city of Camden, New Jersey, long one of the most distressed cities in the nation, has benefited from loss of control of its police department. As a response to rising crime and a strained local budget, the Camden Police Department was dissolved in 2013 and replaced by the Camden County Police Department. Since police operations were placed under the county board of freeholders, crime has fallen and Camden has gained a reputation as a national leader in community policing.

In many, perhaps most states, state government would be the more natural candidate to take control over a major local department like the police, rather than county government. But the principle is the same: less local control, better services. Also crucial is the permanency of the arrangement in Camden. Emergency-style interventions can raise unrealistic hopes of an immediate turnaround. Cities that have been plagued for generations by depopulation, job losses and excessive debt can’t be restored to health within a couple of years. Taking permanent control of a major department, Camden-style, gives state or county authorities time to reform a municipal service on their own timetable.

Most major Rust Belt cities have yet to escape the legacy of deindustrialization. As I showed in a 2017 report that examined the fiscal and economic histories of about 100 cities in the Northeast and Midwest, both local debt levels and poverty rates have generally risen over the last four decades. Cities may be at present muddling through, but no one thinks Detroit will be the last Rust Belt city to go bankrupt.

The Trump Administration’s Opportunity Zone initiative is only the most recent iteration of the misguided faith in economic development as a solution to fiscal distress. Both the left and right have placed too much faith in the notion that poor cities can grow their way out of their struggles. The fact is that poor communities overwhelmingly tend to stay poor, and urban renewal is likely to get harder in coming years. Demographic decline, which is already wreaking havoc on the higher education landscape, spells doom for any urban revitalization strategy centered around attracting more creative-class millennials. If your city hasn’t managed to replicate Brooklyn by now, it probably never will.  

Residents of poor cities don’t have a right to expect their politicians to provide them with middle-class income. But every community should be able to rely on basic services such as police and fire protection, infrastructure maintenance, parks, and libraries. They’re also an essential pre-condition of any future economic recovery.

The recent debate over “pre-emption” has obscured the reality that more autonomy is not going to do much to help the Garys, Youngstowns, and Readings that remain generations removed from their economic heyday. Yes, we’ll need more than one policy tool to help distressed cities. But broadly speaking, states are going to need to be more active than in the past.

Why? Importantly, states generally have stronger tax bases than cities. Only two states, Mississippi and New Mexico, have a poverty rate that exceeds 20 percent. But of U.S. localities with a population of more than 60,000, about 180 have a poverty rate of more than 20 percent, and 26 have a poverty rate of more than 30 percent. In many cases, cities can’t do it on their own.

Yes, bailouts of distressed cities are not popular among conservatives, particularly since such cities tend to be led by Democrats. But assuming at least some financial responsibility for a formerly local department may be a sensible tradeoff to counter objections to a loss of local autonomy. Cities are never truly free to fail and bankruptcy, because of the stringent criteria imposed by federal law, will only ever be available to small number of deeply insolvent cities. A distressed city is one that’s tending to insolvency, but may yet be stabilized by an effective and preventative fiscal policy.

At the federal level, policymakers have not shown much aptitude for deal making of late, but that’s precisely what’s going to be necessary to help distressed cities. The right deal to make is this: less local control of city services in exchange for more state responsibility and, ultimately, better government for communities too poor to meet that goal on their own.

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