Policy Research

Beyond State Takeovers: Reconsidering the Role of State Government in Local Financial Distress, with Important Lessons for Michigan and its Embattled Cities

Joshua Sapotichne, Erika Rosebrook, Eric A. Scorsone, Danielle Kaminski, Mary Doidge, Traci Taylor

Summary

The authors look at the issue of municipal distress, in particular, state conditions that foster municipal distress, i.e. “simultaneously driving up spending pressures on cities while curtailing their capacity to raise revenue”. This authors use a number of data points to examine different relationships across states with their respective cities. They label Michigan as a ‘fiscal distress incubator’ due to its “particular mix of stringent limitations on local revenue and its relatively low level of financial assistance to cities, coupled with spending pressures stemming from spiking local service burdens and increased labor costs”. The authors also, separately, conclude that there is no single model for state interventions into local municipal financial issues due to the extreme variation across states in the policies mentioned above.

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Policy Implications

The authors point out the connection between state policies on local government’s ability to raise and spend taxes and financial distress. The optimum policy that addresses local government intervention will also take into account the state’s relationships with its cities long before financial distress occurs. In short, policymakers must understand that financial distress in cities is often a policy result in and of itself, and is tied to a state’s policy structure around cities. Therefore, state intervention policies need to take into account these structures, and the state’s role in incubating financial distress, while also solving city specific misgovernance issues concurrently.