In the national conversation about Detroit we've been having since last Thursday, one line of questioning keeps coming up: Aren't other cities facing this kind of problem? And what can they do to head off disaster?
The answer is twofold: Sure, no city has a situation quite so dire or as large in magnitude as Detroit's, but cities in general have faced towering pension obligations, shifting industrial bases, and financial mismanagement throughout American history. And as a new report from the Pew Charitable Trusts outlines, state governments have been able to either prevent catastrophe or step in when it arrives.
States and their municipalities have a difficult dance. Counties and cities want to maintain their autonomy, but also beg the state to come in and bail them out if they have to default on their debts. States don't want to let municipal governments fail, but also are loathe to create the expectation that they'll help out if cities act irresponsibly.
So different states have different approaches to managing their local governments. About half don't allow them to avail themselves of Chapter 9 bankruptcy provision at all, and you can understand why: A raft of out-of-luck pensioners are then shifted onto the state welfare rolls, making them a state government problem. Also, bankruptcy can create a "contagion," wherein one city's fiscal problems spread to those nearby, since investors are spooked out of buying their bonds. States sometimes even block bankruptcies to avoid those problems--Connecticut refused to let Bridgeport go bankrupt in 1988.
Instead, 19 states have some form of intervention program, allowing them to step in and help out or tell a city what to do when it appears to be in trouble. It's sometimes easier for a city to get itself in a bind, because of less professionalized leadership and incompetent financial management, without someone watching from the outside. The best example of an activist state government is probably North Carolina, which adopted its interventionist regime during the Great Depression in 1931. Raleigh, through a Local Government Commission, maintains a financial profile of each city and steps in with warnings if their fund balances get too low. It's also able to review any debt a city takes on, in case it's too much for the tax base to handle, as well as step in and run the city's day-to-day operations if steps aren't taken to turn the city around. An emergency manager--like Pawnee's Chris Traeger on the NBC show "Parks and Recreation"--is usually able to make the kinds of unpopular budget cuts that an elected government can't.
That's been a pretty successful model. But Pew's staff warn that it's not necessarily for everyone--they found no significant correlation between interventionist state governments and better metro performance. Instead, the authors emphasize a few specific ways in which states can keep their cities and towns away from doom: Keep an eye on their financial situations, and offer technical assistance to help mayors and city councils understand what they're getting into. Help them budget over longer periods of time, rather than just year by fiscal year. And strategically intervene with state-backed bonds--or more forceful oversight--if they end up in real trouble.
Could any of that have saved Detroit? It would have taken some seriously enlightened management to help replace its fleeing industry, to rectify decades of mismanagement, to stem the outflow of population. But more forceful intervention earlier on could have helped--and now, the city won't be able to emerge from its hole without it.