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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.” 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.

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