Democratic Dissolution: Radical Experimentation in State Takeovers of Local Governments

ABSTRACT While state interventions to stabilize the finances of struggling municipalities date back to the Great Depression, the current fiscal crisis has brought a startling escalation in the powers granted to state intervention authorities. Aptly observed by Abby Goodnough in The New York Times, cities and states have tried "myriad ways of righting their fiscal ships as the recession plods on," but until very recently, "locking the mayor out of City Hall [was] generally not one of them." (1) In 2010 and 2011, Michigan and Rhode Island, which have been watched closely by other states, dramatically reformed their laws governing state receiverships for local governments in fiscal crisis. The new legislation provided for suspension and displacement of local government in faltering cities during the period of intervention, replacing all elected local officials with a single state appointee. Such interventions leave the legal corporation of the city and its budget intact: the city's borders do not change, regardless of the revenue potential and service costs of that land base, and the city must pay its own bills. Yet the city's power to govern that territory and budget is drawn up to the state's executive branch. The city's elected officials and its governing charter are set aside for an unspecified period of years. This Article analyzes the new state receivership legislation in Michigan and Rhode Island and offers the concept of democratic dissolution to help interpret this new development. While the new laws are premised on a genuinely urgent and difficult public policy problem--local governments overwhelmed by debt they cannot service and bills they cannot pay--this Article argues that the reforms do both too little and too much. To cure the underlying structural causes of fiscal crisis, the laws do next to nothing; to improve local management, the laws enact a punishing cancelation of local democracy. For Michigan, Rhode Island, and the other states watching them, I propose legal reforms that more moderately balance the seriousness of the challenges of local fiscal stabilization with the importance of local democracy. TABLE OF CONTENTS Abstract Introduction I. The New Generation of State Takeover Laws A. An Introduction to State Receiverships B. Michigan C. Rhode Island II. Receiverships as Democratic Dissolution A. A Definition B. A Critique C. Tempering Reforms Conclusion INTRODUCTION A haircut still looks a lot better than a beheading. Robert G. Flanders Jr., state-appointed receiver of Central Falls, Rhode Island (2) Democracy, the governor seems to suggest, is something [poor and minority cities] can't afford. Rainbow PUSH Coalition (3) Fiscal crisis is generally described in numbers. Here are a few from the city of Benton Harbor, Michigan. More than 48% of its residents live below the poverty line, (4) compared to just 7% in St. Joseph, Benton Harbor's sister city across the river. (5) Formerly a thriving industrial hub for the region, Benton Harbor saw the rapid flight of thousands of white families and jobs from the 1960s to the 1980s. (6) Today, the city is 91% black. (7) St. Joseph is 88% white. (8) At least five decades of bitter race relations separate the cities sometimes known to each other as "Benton Harlem" and "St. Johannesburg." (9) The number one attribute promoted on Benton Harbor's website is the city's status as an enterprise zone. (10) St. Joseph, by contrast, self-describes as "a growing resort community" that is "nestled on the southern tip of what has been termed 'The Riviera of the Midwest.'" (11) A March 2011 audit estimated Benton Harbor's debt at $6 million--quite a figure for a city of just over 10,000 people. (12) Deepening the fiscal crisis, appliance maker Whirlpool Corporation announced layoffs in 2011 of 5,000 employees, many of whom worked at the company's world headquarters in Benton Harbor. …