Policy Research

The State Role in Local Government Financial Distress

Pew Charitable Trusts

Summary

PEW trusts take a detailed look at the role of state governments in assisting or intervening in local financial affairs. Using existing literature, as well as a ride array of interviews and case studies, PEW looked at which states allow for interventions, and the differences in these interventions. They found that fewer than half of states in the US allow for state interventions in municipal financial issues and that practices vary dramatically among these 19 states. They also found that states tend to ignore the context that lead to financial distress and tend to intervene to “protect their own financial standing”. Among states that do intervene, the relationship between local elected officials and state officials varies dramatically, usually based upon the level of aggressiveness in the state intervention policy.

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Policy Implications

PEW takes one of the first looks into the differences in intervention policies across states. Policymakers would do well to take note that there is no perfect model for intervention, and there is no consensus on the best approach to local government interventions. There is a wide array of policy options being utilized by various states, with varying degrees of success. They sum “whatever approach state policymakers consider, it is important to design the intervention so state officials turn the day-to-day management of city finances back to local officials as quickly as practical. In this way, states can reduce the tension that often accompanies interventions.”