Municipal Takeovers: Examining State Discretion and Local Impacts in Michigan

• Author: Sara Hughes,Andrew Dick,Anna Kopec
• DOI: 10.1177/0160323X211038862
• Date: 01 September 2021
• Published date: 01 September 2021
• Subject Matter: Original Research General Interest Articles

Municipal Takeovers: Examining

State Discretion and Local

Impacts in Michigan

Sara Hughes

1

, Andrew Dick

2

, and Anna Kopec

2

Abstract

State interventions during municipal f‌inancial emergencies can play a critical role in ensuring the

continuation of public services and preventing municipal bankruptcy but have often been applied

unevenly. Using a case study of municipal takeovers in Michigan, we examine their predictability

based on f‌inancial stress indicators and effects on drinking water services. We f‌ind f‌inancial stress

alone does not explain takeover decisions, and that a city’s reliance on state revenue and racial and

economic context play a role. Cities that have been taken over are more likely to experience drink-

ing water privatization and rate increases than similarly f‌inancially stressed cities. The malleable

def‌inition of f‌inancial distress and discretion in implementation allow takeover policies to be applied

unevenly, creating additional challenges for already distressed communities. Decision makers should

seek alternative approaches to municipal f‌inancial emergencies that address underlying causes while

minimizing the potential for bias and signif‌icant changes to public services.

Keywords

f‌inancial stress, municipal takeover, drinking water, intergovernmental revenue, inequality

Introduction

State interventions in municipal f‌inancial

distress can play a critical role in ensuring the

continuation of public services, preventing

municipal bankruptcy, and minimizing longer-

term ramif‌ications for municipal budgets and

capacities. State governments are important

backstops for communities, particularly given

the growing f‌inancial precarity of many U.S.

cities (Chernick and Reschovsky 2017;

Chernick, Copeland and Reschovsky 2020).

One type of intervention is state municipal take-

overs, and there has been a proliferation of state

policies allowing for municipal takeover during

f‌inancial distress, with at least nineteen states

passing such laws (Nickels 2019). However,

while municipal takeover policies are often

presented by supporters as rationalized, apoliti-

cal, and technocratic responses to municipal

f‌inancial distress, they have been found to in

fact be deeply biased and often racialized

responses to the structural challenges facing

many U.S. cities (Morel 2018; Seamster 2018;

Nickels 2019; Hughes 2020), some of which

are exacerbated by state-imposed limits on

local revenue generation (Frug and Barron

2008). Further, there is little evidence that

1

University of Michigan, Ann Arbor, MI, USA

2

University of Toronto, Toronto, Canada

Corresponding Author:

Sara Hughes, University of Michigan, Ann Arbor, MI, USA.

Email: hughessm@umich.edu

Original Research General Interest Articles

State and Local Government Review

2021, Vol. 53(3) 223-247

© The Author(s) 2021

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DOI: 10.1177/0160323X211038862

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state takeovers have a lasting effect on the

f‌inancial health of municipalities or quality of

public services (Nickels 2019). Understanding

the implementation and consequences of state

municipal takeover policies is critical to

working toward more effective, and more just,

approaches to addressing local f‌inancial

distress.

In this paper, we focus on answering two

questions: how rational or predictable are

state municipal takeovers, and what implica-

tions do these takeovers have for public serv-

ices? To answer these questions, we examine

the implementation of Michigan’s municipal

takeover policy—specif‌ically, the extent to

which the choice to intervene is predictable

based on administratively-def‌ined measures

of f‌inancial distress—and the consequences

of state takeover for drinking water services

in affected communities. We f‌ind that the

state has not uniformly or predictably initiated

municipal takeovers based on its own opera-

tionalization of f‌inancial distress. High depen-

dence on intergovernmental transfers, low

median household income, and the share of

Black residents all perform better than most

f‌inancial indicators at predicting which munic-

ipalities the state will take over. We also f‌ind

that cities that have experienced a takeover

are more likely to have had drinking water

rate increases and actual or attempted privati-

zation of water services than cities that have

not. These are problematic outcomes given

the lack of public input to decision making

made during municipal takeovers.

The Michigan case provides additional evi-

dence that while state intervention can play an

important role in responding to and preventing

the worst consequences of municipal f‌inancial dis-

tress, the subjective and malleable def‌inition of

f‌inancial distress allows aggressive takeover poli-

cies to be applied unevenly and inequitably, and

can create additional challenges for already dis-

tressed and marginalized communities. Given the

growing evidence of these uneven outcomes,

and the lack of public support such policies often

have, we ref‌lect on why municipal takeover poli-

cies persist and how—or if—they can be

improved.

Why and How States Intervene in

Municipal Financial Distress

A growing number of state legislatures—nine-

teen as of 2020—have passed laws giving the

state authority to intervene in local government

f‌inancial emergencies. Broadly, the aims of

such laws are to respond to severe f‌inancial dis-

tress in local governments, often driven by a

desire to protect the credit ratings of state and

local governments and prevent municipal bank-

ruptcy, reducing uncertainty and potentially

improving debt-to-revenue ratios (Berman

1995; Sassen 2006; Sapotichne et al. 2015).

State municipal takeover laws can vary signif‌i-

cantly in how they allocate intervention author-

ity and def‌ine f‌inancial distress (Scorsone 2014;

Sapotichne et al. 2015). They also grant varia-

ble emergency powers to the state over munic-

ipal debt, labor, taxes and fees, f‌inances, and

budgets; in a few states, the state government

has the power to dissolve the municipality

entirely in f‌iscal emergencies (Nickels 2019).

Municipal takeover laws are promoted as

rational, technocratic policies, but in practice

have been found to be highly biased in their

development and application (Stanley 2016;

Morel 2018). While state takeover policies lever-

age techno-rational language and decision criteria,

they typically provide discretion in implementa-

tion and there is growing evidence that they are

unevenly applied (Lee et al. 2016). A study of

takeovers of local school districts found that

they have disproportionately targeted communi-

ties with large Black and Latino populations and

elected leaders (e.g., Morel 2018). Deeply institu-

tionalized and structural limitations placed on

poor and Black communities in the United

States may make them more vulnerable to

emergency management than similarly f‌inancially

stressed communities (Highsmith 2015; Hammer

2016; Stanley 2016).

Concern about bias in the use of municipal

takeovers stems in part from the long-lasting

effects such measures can have on local govern-

ments and communities. Municipal takeovers

have the potential to fundamentally reshape

communities (Fasenfest 2019) and can be met

with signif‌icant local resistance (Pauli 2019).

224 State and Local Government Review 53(3)