PREEMPTION AND FISCAL AUTHORITY.

• Author: Scharff, Erin

INTRODUCTION 1269 I. Local Autonomy and Local Dependence 1274 A. Local Fiscal Constraints 1274 B. States Can Limit Local Regulatory Authority Too 1277 C. Hyper Preemption's Success Depends on Limited Local Fiscal 1280 Authority II. Fiscal Constraints and the Progressive City 1282 A. Limited Autonomy Influences the Local Regulatory Agenda 1283 B. The Half-Empty Glass: Increasing Restrictions on Fiscal 1287 Capital III. Where Do We Go From Here? 1290 CONCLUSION 1293 INTRODUCTION

The Trump presidency has provided urban politicians a chance at national prominence, as urban leaders across the country assert their ability to implement progressive policies at the local level. For example, after President Trump's decision to withdraw from the Paris Climate Accords, mayors of major U.S. cities vowed to meet the Paris goals on their own, (1) and the Climate Mayors, a group of municipal leaders pledging to take action on climate change, has swelled to 407 mayors, representing cities both large and small. (2) Similarly, urban leaders have opposed President Trump's efforts to deport undocumented immigrants. Boston mayor Martin Walsh declared that, "[i]f necessary, we will use City Hall itself to shelter and protect anyone who's targeted unjustly," and told reporters that those who fear deportation "can use my office, they can use any office in this building." (3) Several jurisdictions, including San Francisco and Santa Clara, filed a lawsuit challenging President Trump's Executive Order cutting federal funding for "sanctuary cities"--municipalities that attempt to limit federal immigration enforcement in their jurisdictions. (4)

Urban politicians have also sought to fill the void in progressive leadership at the state level. For example, mayors and local governments have tried to push state legislatures to allow more local regulation of guns. (5) They have also advocated for, and implemented, policies on a range of issues of national concern, including efforts to curb obesity and related health issues, (6) protect the environment, (7) promote participatory democracy, (8) improve working conditions for low-income workers, (9) and safeguard civil rights protections. (10)

Reimagined localism reflects excitement about cities as laboratories for policy experimentation. These efforts paint the picture of increasingly active and powerful local governments and local officials. The picture, however, is more complicated than these anecdotes suggest.

As academic and political advocates of local power observe, efforts to implement progressive policies at the local level have drawn the ire of state legislatures and governors. (11) State legislators are both proposing and passing more laws preempting local authority. (12) Traditionally, state preemption laws simply took away local regulatory authority, but these new "hyper preemption" efforts go beyond that. (13) These new preemption laws increasingly seek to punish local governments and local officials for passing and enforcing regulations that exceed local authority and thereby directly threaten local regulatory innovation. (14) Traditional and hyper preemption statutes, however, are not the only constraints on local autonomy.

Fiscal constraints also significantly limit local autonomy. (15) State law restricts local governments' abilities both to tax and to borrow. (16) Local governments may also face practical limits on their ability to raise taxes without inviting an exodus of local businesses or residents. For example, even jurisdictions with authority to set their own sales tax rates face tax competition from neighboring jurisdictions, which limits the amount of revenue that could be collected by raising sales tax rates. (17) As a result, local governments often lack the independent resources necessary to pursue policies favored by local residents.

Hyper preemption efforts depend on fiscal constraints because the threat of fiscal sanctions dissuades localities from challenging state preemption legislation. Localities fear these sanctions because they would struggle to compensate for the considerable revenue loss that would result from the imposition of such sanctions. (18) But the relationship between fiscal constraints and hyper preemption runs even deeper. (19) Limits on local fiscal autonomy likely influence local interest in regulatory policy in the first place. For example, fiscal constraints may prevent local officials from expanding progressive spending programs, while in actuality, progressive regulatory policies may impose few direct costs on local government and may be a cheaper way of implementing a progressive policy agenda.

Fiscal constraints are likely to increase, at least in the near future. First, cities will face increasing pressure to spend more on public pensions and infrastructure maintenance to make up for earlier underinvestment in these areas. Second, cities will face pressure from changes in federal budget policies.

This Essay explores the relationship between local fiscal and regulatory authority in light of the changing landscape of regulatory preemption. Part I provides further background on local fiscal authority and the ways in which hyper preemption depends on limited local authority. Part II explores the ways in which limited fiscal authority may contribute to a renewed interest in local regulatory authority, and discusses the reasons these constraints are likely to increase. Part III argues that these increasing fiscal constraints both limit local governments' ability to adequately address matters of traditional local concern and hinder local governments' ability to respond to leadership failures at the state and national levels.

1. LOCAL AUTONOMY AND LOCAL DEPENDENCE

   All states grant some authority to local governments. Most states provide for some version of home rule, at least for larger jurisdictions. (20) Home rule provides local governments with authority to act without prior state approval. (21) Moreover, even in traditional Dillon's Rule states, where local governments may exercise only those powers expressly granted by state law, municipalities have some implied authority to act in ways necessary to carry out those delegated powers. (22) Nevertheless, local governments are creatures of state law, and their legal authority to regulate, to tax, and even to exist, depends upon state law. Political and practical constraints limit this authority even further.

   This Part first provides background on the fiscal constraints that local governments face. It then discusses in more detail the ways in which these constraints interact with emerging state efforts to restrict local regulatory authority.

   1. Local Fiscal Constraints

      Local fiscal autonomy is limited both by state law restrictions on local revenue authority and by practical constraints on the ability to exercise this authority. Any discussion about local fiscal autonomy must acknowledge the significant role the state plays in funding local governments.

      Cities receive funding through state aid and federal grant programs. (23) Data from 2010 suggests that, on average, state aid constituted slightly less than one-third of local government revenues. (24) This average, however, masks important differences between states and types of local governments. (25) For example, the same data also illustrates that local governments in Vermont received about sixty percent of their revenue from the state, while Nebraska only provided about eighteen percent of local government revenue. (26) Additionally, municipalities and townships are generally less reliant on state aid than local school districts. (27) Despite these variations, however, state grants provide an important source of local government funding for almost all jurisdictions.

      States vary in the ways they contribute state dollars to local governments. Typically, states provide much of their funding through general aid, which allocates a percentage of state revenue to local government based on fixed distribution formulas. (28) Distribution formulas often consider factors like population size and local needs. (29) The formulas may also reflect a desire to return revenues to the jurisdiction where the tax dollars are earned, so a state may allocate some portion of the state sales tax to the jurisdiction in which the sale occurs. (30) States also use other methods. Arizona, for example, allocates its state shared revenue from the state sales tax using a formula that weighs a jurisdiction's property tax revenue. (31)

      States also provide funding to local governments for specific programs in addition to general funding. For example, Arizona provides dedicated funding to county and municipal libraries, (32) and Arkansas' Historic Preservation Program provides funding to restore historic county courthouses. (33) In Indiana, local governments can apply for state aid to fund efforts to reduce water pollution. (34) Ohio's Attorney General's Office provides grants to local law enforcement to assist in combating the state's opioid epidemic. (35)

      State influence on municipal budgets is not limited to direct support. States exercise significant influence over local governments' ability to raise revenue via taxes and their ability to borrow. (36) As a result, local governments often lack meaningful fiscal autonomy.

      Generally, state law restricts municipal authority over fiscal affairs more than it does in other policy areas. (37) One leading survey of municipal home rule found that only twelve states provide local governments with fiscal control, but five of those states have only limited fiscal authority. (38) Beyond home rule, other constitutional restrictions may also restrict local budget choices. (39) Seattle's head tax on employees, for example, was developed in part because of the city's limited fiscal options. (40) It has already aggressively raised property taxes (and additional increases would likely exacerbate the city's affordable housing...