In the United States, states and localities have played a key role in the provision of a wide variety of goods and services during the COVID-19 pandemic. The weak support of the federal level has certainly put additional fiscal pressures on these levels of government, which ought to have balanced budgets. According to the Center on Budget and Policy Priorities, “State budget shortfalls from COVID-19’s economic fallout could total $650 billion over three years.” In contrast to Senate Majority Leader Mitch McConnell’s assertions, this trend is not limited to blue state—“the vast majority of states are likely to face serious budget shortfalls over the next year that will more than devour their entire rainy day funds.” In these scenarios, municipalities are especially affected by budget shortfalls given that they are “creatures of the state,” which includes their limited capacity in raising revenue (for some nuance on municipal autonomy, refer to Home Rule and Dillon Rule in the US). Even if states cannot file for bankruptcy, municipalities can do so since the Great Depression. Still, as explained in my last entry, chapter 9 bankruptcy is a rare and extreme course of action. Beyond bankruptcy, states use a variety of institutional/organizational solutions to support and intervene in municipalities facing fiscal and/or financial distress. WHAT SHOULD YOU KNOW? First it is important to note, there are wide variations regarding how states prevent, identify, and remedy municipal crises, as each state has adopted its own laws and monitoring (e.g., preventative vs. remedial) mechanisms. Despite these divergences, there are some broad patterns. * As of 2016, thirty four states do not have explicit laws to tackle fiscal emergencies (Pew Charitable Trusts 2016). * Still, twenty states, mainly in the East Coast and the Midwest, have adopted regulations to allow state governments to intervene in municipal emergencies. Municipal fiscal emergency laws “generally define the conditions that would trigger a crisis, the steps the state and local government should take once the triggers are observed, the powers available to the state once the crisis is established, and, in some cases, the exit strategy” (Scorsone 2014: 11). For instance, Ohio has very clear criteria to determine whether a locality has fallen into fiscal “caution”, “watch,” or “emergency” status. By contrast, New York’s approach to municipal intervention is more ad-hoc and “political” in nature, even if it has adopted a variety of monitoring instruments. * In extreme cases, a state or a court can put a locality in receivership. Still, state intervention fits into one of three categories, which could be use in tandem--
All these institutional solutions have been very unpopular as they have been characterized by their undemocratic nature—they are appointed by the state, and consequently local elected bodies (often) cannot check their powers. The case of Flint’s emergency managers and the water crisis, and the Puerto Rican “junta” illustrate these trends.
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Mariely Lopez-Santana is a Political Scientist and an Associate Prof. at the Schar School of Policy and Government at George Mason University. In the last two decades she has spent much time studying, teaching, and writing about employment policy. She is working on a book project on state intervention and municipal distress. Categories
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