While state interventions to stabilize the finances of struggling municipalities date back to the Great Depression, the current fiscal crisis has brought a startling escalation in the powers granted to state intervention authorities. Aptly put by Abby Goodnough in The New York Times: “Across the nation, cities and states are trying myriad ways of righting their fiscal ships as the recession plods on. But locking the mayor out of City Hall is generally not one of them.” 

Until 2010 and 2011, that is, when Michigan and Rhode Island, which are being watched closely by other states, dramatically reformed their legislation governing state receiverships for local governments in fiscal crisis. In those states, new legislation suspends and displaces local government in faltering cities during the period of intervention, replacing all elected local officials with a single state appointee. Such interventions leave the legal corporation of the city intact as a formal matter: the city’s borders do not change, whatever the depressed revenue potential of that land base may be. Yet the city’s local democracy is gone. Its elected officials and its governing charter are set aside for an unspecified period of years and replaced by an official selected by the governor. 

This essay analyzes the new state receivership laws in Michigan and Rhode Island, and offers the concept of democratic dissolution to help interpret this new development. While the new laws are premised on a genuinely urgent public policy problem — local governments overwhelmed by debt they can’t service and bills they can’t pay — the essay argues that Michigan and Rhode Island’s laws strike the wrong balance between state and local authority. For those states and the others watching them, I offer legal reforms to more moderately balance the seriousness of the challenges of local fiscal stabilization with the virtues of local democracy.