New Paper Explores De-Municipalization as a Pragmatic Alternative to Municipal Bankruptcy

State or county takeover of key city services can provide long-term fiscal benefits

NEW YORK, NY — A decade after the end of the Great Recession, the recovery for many postindustrial U.S. cities has been slow and incomplete. Facing municipal fiscal strain and increasingly weak tax bases, states have begun experimenting with a variety of oversight and intervention tactics. A new Manhattan Institute report by senior fellow Stephen Eide suggests that de-municipalization, an innovative yet underutilized approach, should be more broadly applied in struggling cities.

Instead of taking over entire city governments on an emergency basis, de-municipalization allows a state or county to take over a large city agency, such as a police department, on a presumptively permanent basis. In comparison to other responses to municipal bankruptcy, the key advantages of this approach include:

• Municipal bankruptcy is difficult for cities to access—and cannot be used on a preventative basis.
• State takeovers are politically risky and are often undertaken on an emergency basis, even when longer-term help is needed.
• Regionalization is not sufficiently targeted at the problem of fiscal strain, while economic strategies like “Opportunity Zones” hold out unrealistic hopes for growth. De-municipalization focuses on targeted fiscal and administrative support.

Camden, New Jersey, is a prime example of a city that has benefited from the use of de-municipalization. The restructuring of the city’s police services was prompted by a combination of fiscal weakness, a rise in crime, and a restrictive union contract that prevented municipal authorities from deploying resources as efficiently as possible. Since its county takeover, Camden’s police department has succeeded in reducing crime levels in the city significantly. Eide argues that this approach should be incorporated into the broader response to municipal distress, alongside traditional takeovers and bankruptcy.

Click here to read the full report.