Approaches to Municipal Takeover

• Author: Ashley E. Nickels
• Published date: 01 September 2016
• Date: 01 September 2016
• DOI: http://doi.org/10.1177/0160323X16667990
• Subject Matter: Governance Matters

Governance Matters
State and Local Government Review
2016, Vol. 48(3) 194-207
Approaches to Municipal
ª The Author(s) 2016
Reprints and permission:
Takeover: Home Rule Erosion
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DOI: 10.1177/0160323X16667990
and State Intervention in
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Michigan and New Jersey
Ashley E. Nickels1
Abstract
Municipal takeovers proceed by a state declaring that a municipality is in fiscal crisis and placing it in
receivership, handing over most local processes to a state-appointed manager. This policy of
aggressive state intervention calls into question two principles of local autonomy enshrined in home
rule: that allowing local matters to be handled by local authority removes the need for state special
legislation and that giving local governments functional autonomy allows them to solve problems
without state intervention. This article presents case studies of New Jersey and Michigan to examine
differences in home rule protection as well as approaches to municipal takeover.
Keywords
local control, municipal takeover, home rule, fiscal distress
Many U.S. local governments have been unable
importance of community control. These poli-
to cope with the financial pressures of ongoing
cies also call into question two principles of
economic disinvestment and, more recently,
local autonomy enshrined in home rule: that
the Great Recession. Some ‘‘municipal fail-
allowing local matters to be handled by local
ures,’’ like Stockton and San Bernardino, Cali-
authority removes the need for state special leg-
fornia, have taken local decisions leading to
islation and that giving local governments func-
bankruptcy and financial reorganization. Yet,
tional autonomy allows them to solve problems
other cases like Detroit and Benton Harbor,
without state intervention.
Michigan, East St. Louis, Illinois, Chelsea,
This article presents case studies of New Jer-
Massachusetts, and Camden, New Jersey, have
sey and Michigan to examine differences in
resulted in reduced local autonomy with inter-
home rule protection from and the approaches
vention by the state, referred to here as ‘‘munic-
ipal takeover.’’
Municipal takeovers proceed by a state
1 Department of Political Science, Kent State University,
declaring that a municipality is in fiscal crisis
Kent, OH, USA
and placing it in state-led receivership handing
over most local processes to a state-appointed
Corresponding Author:
Ashley E. Nickels, Department of Political Science, Kent
manager. This effectively removes authority
State University, 302 Bowman Hall, PO Box 5190, Kent,
from local elected officials. In so doing, munic-
OH 44242, USA.
ipal takeovers raise doubts about the value and
Email: anickel5@kent.edu

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Nickels
195
to municipal takeover. Both states have utilized
Home Rule can be best understood as legis-
municipal takeover policies in recent years and
lative or constitutional. In Legislative Home
illustrate important phases in the development
Rule states, ‘‘municipalities derive their power
and erosion of home rule legal concepts and
by legislative grant’’ (Burg 2006, 424). In other
approaches to municipal takeover. This article
words, the power of local governments ‘‘is
begins by laying out the development of home
purely subject to the will of the state, and may
rule, explaining the two basic types. Then it
be altered or removed at any time simply by
presents the approaches—mix of key parties
amending the law’’ (Burg 2006, 424). Never-
and tools—for the mechanisms used in munic-
theless, some Legislative Home Rule states
ipal takeovers. It goes on to apply these ideas to
have protections in their state constitution and
the evolution of home rule and municipal take-
laws against legislative interference in local
over in the two state cases. Finally, it presents
government affairs. For example, New Jersey
lessons drawn from these cases, which can be
is a Legislative Home Rule state. Its constitu-
used to understand similar situations.
tion restricts it from ‘‘pass[ing] any private,
Municipal takeovers highlight the paradox
special or local laws’’ or ‘‘Regulating the inter-
of local–state relations in that strong state inter-
nal affairs of municipalities formed for local
ventions suspend and restructure local govern-
government’’ (New Jersey Constitution, Article
ment and restrict local autonomy, however,
IV, Section VII, p. 9). Such restrictions on pass-
these cities are eager to secure state support.
ing special legislation and ensuring that the
Distressed municipalities are placed in a pre-
state legislature can only pass laws that apply
carious situation: they need and accept subsi-
equally to all towns and cities is a common
dies from their states, but in so doing further
home rule mechanism.
limit their decision-making autonomy. Munici-
Other states, including Michigan, have
pal takeovers represent the clash between the
stronger municipal protection in the form of
need for intervention and the value of local
Constitutional Home Rule. In this instance, the
decision-making. What are the legal frame-
Home Rule powers of the local government are
works that allow state power to trump local,
codified, and ‘‘bestow upon municipalities the
community control? The following section
authority to act in certain areas independent
focuses on the legal concept of municipal home
of state authorization’’ (Haas 2006, 683). The
rule and its relevance to municipal takeover.
legislature cannot seize municipal power, with-
out a constitutional amendment (Vanlanding-
ham 1968).
Home Rule: Legislative and
While most states have adopted some form
of home rule protection, ‘‘cities are free of state
Constitutional
control under home rule only on matters purely
Home rule is the ‘‘legal device’’ used by local
local in nature’’ (Frug 1999, 17). When it
governments to assert at least partial autonomy
comes to economic matters, states have fiscal
from the state (Vanlandingham 1968). In the
oversight for local and municipal governments.
United States, ‘‘only national and state govern-
Therefore, municipal takeovers are a mechan-
ments . . . enjoy [Federal] ‘constitutional
ism of state fiscal policy, allowing the State
legitimacy’’’ (Libonati 2006, 817). Given their
to supersede home rule protections, even in
subordinate status and lack of federal ‘‘consti-
constitutional home rule states.
tutional legitimacy,’’ American municipalities
obtain their existence and authority from their
Municipal Takeover Approaches
state constitution or state legislature. In the
absence of a state provision for home rule, local
A municipal takeover is defined as the state-
governments are subject to state legislative
directed policy of declaring a municipality to
control. It varies by state (Krane, Rigos, and
be in a state of fiscal emergency and interven-
Hill 2001).
ing by (1) placing the municipality under state

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196
State and Local Government Review 48(3)
receivership, (2) handing over control of most
Their powers are such as the legislature may con-
or all local government decision-making to a
fer, and these may be enlarged, abridged, or
state-appointed manager, effectively relieving
entirely withdrawn at its pleasure’’ (Meriwether
local elected officials of their governing author-
v. Garrett 1880, emphasis added). Thereafter,
ity, and (3) implementing a combination of
Kossis (2012, 1117) argues, ‘‘states fell into a
tools to stabilize the local government’s fiscal
pattern of imposing receivership on fiscally
condition. Municipal takeovers are a policy of
distressed cities’’ thus diminishing the objec-
last resort, used when both local government
tions raised by local governments.’’
and the local economy are unstable and crisis
By the mid-1930s, municipal defaults had
prone. A state’s concern regarding credit down-
become a national problem, and as a result, the
grades, municipal bankruptcy, and fiscal conta-
federal government passed the Municipal
gion are common motivations for strong
Bankruptcy Act of 1934 (and 1937) to provide
intervention (Pew Charitable Trusts 2013;
a mechanism for orderly debt adjustment for
Spiotto 2012). Wolman et al. (2007) high-
municipal governments. While the new legisla-
lighted this concern, noting ‘‘cities whose
tion offered support to local governments,
economies are stagnant, whose residents suffer
states continued as they had previously to inter-
from poverty and unemployment, whose bud-
vene. Some states took complete control of
gets are in chronic fiscal stress, and who require
local governments that were in fiscal distress,
state aid to sustain basic services are a drag on
placing them in state receivership (Berman
the entire state economy’’ (p. 1).
1995). In Oregon, for example, the state legis-
lature responded to local fiscal crises brought
on by the Great Depression by passing legisla-
Takeover Laws
tion that allowed state courts to place municipa-
While Michigan and New Jersey’s use of
lities that defaulted on their bond payments
municipal takeover laws are more recent,
under receivership (Kossis 2012).
the roots of municipal takeover date back to the
When the 1970s brought another cycle of
late nineteenth century. Between 1850 and the
urban fiscal distress, cities such as New York,
mid-1930s, municipalities struggled to meet
Philadelphia, and Cleveland, were placed under
their debt obligations. By 1935, there were
financial oversight, renewing discussions over
3,251 municipalities that had defaulted (Mon-
the benefits of strong state interventions. It was
kkonen...