Academic journal article The Journal of Law in Society

Emergency Financial Management of Cities by the State: A Cure or Simply "Kicking the Can Down the Road"?

Academic journal article The Journal of Law in Society

Emergency Financial Management of Cities by the State: A Cure or Simply "Kicking the Can Down the Road"?

Article excerpt



This paper discusses the less than desirable outcomes of state takeover of municipalities in severe financial distress. Municipalities can fall into differing degrees of financial difficulty frequently for a variety of reasons. Serious financial difficulty threatening collapse and leading to takeover by the state--or even bankruptcy--has been rare.

Assumptions that state takeover--less onerous than bankruptcy---guarantees a "fix" for financially distressed communities would be incorrect. In fact, such takeovers dispense resources but do not fully address the root issues or mechanisms to achieve long-term financial solvency for the community involved: state takeovers are only part of a continuing, repetitive cycle for so many communities.


Many units of local government throughout the United States are now in varying degrees of financial crisis. (2) In fact, many anticipate that the number of local units in severe financial distress will increase significantly over the upcoming year. (3) The overall economic situation strongly suggests a worsening financial climate for local units of government. (4) The emergency financial management process initiated in Michigan, a type of receivership, currently serves to only worsen the economic climate in the local communities affected by the law. Without more reform from the legislature on the emergency management laws, the economic climate in struggling Michigan cities will continue to weaken.

The following chart depicts the broad areas of the country affected by the most recent recession as well as that of 1980-1982. (5)

Municipalities in Rhode Island, Pennsylvania and Michigan have already been taken over by state officials as prescribed by respective state laws. (6) Some municipalities have resorted to bankruptcy, as is the case in Vallejo, California, Central Falls, Rhode Island and, the largest, Jefferson County, Alabama. (7) Jefferson County "is a place where government finances, and government itself, have simply broken down. The County, which includes the City of Birmingham, is drowning under $4 billion in debt, the legacy of a big sewer project and corrupt financial dealings that sent 17 people to prison." (8)

Recently, the state capitol of Pennsylvania, Harrisburg, was the 27th city to enter a program provided for under State Act 47 designed to help "develop financial recovery plans." (9) In a New York Times article concerning a rash of New York State communities in difficulty, it was indicated that:

    Suffolk County, one of the largest counties outside New York    City, projected a $530 million deficit over a three-year period    and declared a financial emergency ... Nassau County is already    so troubled that a state oversight board seized control of its    finances last year ... The problems are spreading as    municipalities face a toxic mix of stresses that has been brewing    for years, including soaring pension, Medicaid and retiree health    care costs. And many have exhausted creative accounting    maneuvers and one-time spending cuts or revenue raisers to bail    themselves out. (10) 

Finally, in Michigan, the serious woes of Detroit and other Detroit-area financially distressed communities facing Michigan Public Act 4 are depicted graphically in the Detroit Free Press:

 Detroit's tax streams drop  The city of Detroit long has been allowed to collect more taxes than other Michigan municipalities, but revenues are fast declining.  Tax                       Change from                          2007 to 2011   Percentage change  Income taxes                -$50.0M           -18.0% Utility tax                   -9.1M           -17.0% State revenue sharing       -$33.3M           -12.2% Property taxes               -$5.6M            -2.3% Wagering tax                 -$2. … 
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