For the Balkinization symposium on David Schleicher, In a Bad State: Responding to State and Local Budget Crises (Oxford University Press, 2023).

Christopher J. Tyson

In a Bad State is an incredibly important contribution to the literature on state and local government fiscal matters and a much broader discussion of cooperative federalism. The discussion is also well-timed as Schleicher is aware – the federal response to COVID-19 and the subsequent inflationary crisis will likely continue to shape prevailing public policy pertaining to federal aid to the states and localities as well as judicial approaches to the conflicts that arise therefrom. In a Bad State also provides very important and useful historical context that suggests that federal involvement in state and local government fiscal distress is an endemic feature of our federalism and therefore something we should expect to continue to wrestle with going forward.

What is remarkable about Schleicher’s treatment of the subject matter is the way he seamlessly rolls through a series of very complex and layered instances of state and local government fiscal distress and analyzes them within his trilemma framework. All of these episodes require a more in-depth treatment to fully appreciate their respective historical contexts, but that is not the goal of this book. The goal is to vet the trilemma as a framework for understanding federal responses to state and local government fiscal distress. Although I would have enjoyed a deeper dive into the controversy over repudiating southern state debts after Reconstruction or Washington, DC’s fiscal distress in the 1990’s, Schleicher provides only enough context to test his trilemma framework. This keeps the book disciplined, tight, and focused.

 
I found Schleicher’s suggested reforms for Chapter 9 bankruptcy thought-provoking given my previous research on the topic. Specifically, he proposes allowing for multiple overlapping defaulting local governments to be addressed in a single bankruptcy case.[1] The overlapping nature of special purpose and general purpose local government subdivisions is a defining feature of state and local government and it stands to reason that bankruptcy courts should be able to contend with multiple instances of fiscal distress over a common geography. Schleicher argues that consolidating bankruptcy cases accounts for the interconnectedness of the fiscal burdens experienced by overlapping local governments and the impact that has on a community. He justifies the proposal on grounds of fairness and how isolating the insolvency crisis of one municipality pretends that each government in a metropolitan area is “independent of all other entities that raise money from the same tax base.”[2]
 
Schleicher’s recognition of the unfairness of attempts to isolate the impact of fiscal distress in a shared geography raises questions around the unfairness of doing so in adjacent geographies. Issues of fairness in the treatment of local government entities covering the same social, economic, or political community has long been a subject of my work. I’ve primarily addressed the racialized distribution of resources within metropolitan areas and the role municipal boundary law has played and continues to play. Just as local boundaries may artificially separate government obligations that bear on the same geography and metropolitan economy, they also artificially divide metropolitan territory in a manner that belies the lived experience of residents who frequently cross general purpose government boundaries.
 
This is especially true in the case of Detroit, whose historic bankruptcy receives ample treatment by Schleicher. Detroit is a city known for its history of racial segregation, industrialization and de-industrialization, and the school desegregation battle that led to the Supreme Court striking down a multi-district school desegregation plan in Milliken v. Bradley.[3] The long history of suburbanization in the Detroit metropolitan area and throughout the country is a byproduct of the unfairness of state boundary regimes that allowed central city residents in a metropolitan area to move beyond the central city boundaries, form separate governments on the periphery, implement exclusionary land use laws, and ultimately restrict the redistributional impact of their tax dollars. This is the nature of American urban development in the post-Civil Rights era. Race has been and remains one of the driving factors behind metropolitan-area location choice.
 
In my article, Exploring the Boundaries of Municipal Bankruptcy,[4] I argued that federal courts should be able to take into consideration state boundary law regimes and their role in creating the preconditions for local government fiscal distress, particularly in the case of metropolitan area central cities. Chapter 9 doesn’t allow bankruptcy courts to deal with the role of state boundary regimes in creating metropolitan area disparities. The constitutional protection the state receives in Chapter 9 bankruptcy regarding its sovereignty to organize its internal political units effectively subsidizes its decisions to favor suburban jurisdictions at the expense of central cities or any local government unit whose fiscal position is undermined by the state allowing competing subdivisions to form on its periphery. This “subsidy” effectively leads to moral hazard.
 
In parts of the nation there are still “cityhood” movements that, in most instances, consist of wealthier and whiter communities attempting to use municipal boundaries to place them in separate political communities than poorer minority communities. This is a fiscally destabilizing force for the municipality experiencing the out-migration. I have argued that Chapter 9 could be revised to allow bankruptcy courts to inquire into issues of local government organization and administration by the states if the bankruptcy judge deemed such information pertinent to assessing the causal factors leading to default.[5] This could open the door for municipal consolidations, inter-governmental agreements, regional governance structures, or forced boundary modifications that would provide new tax revenue sources for struggling municipalities while enforcing other debt restructuring measures.
 
While Detroit and the other examples profiled in In A Bad State illustrate the difficulty of singling out any one dynamic as the causal driver for municipal default, it is undeniable that white flight, suburbanization, and a variety of racially exclusionary state and local policies and politics have undermined the fiscal stability of many metropolitan area central cities. The growing appreciation of the role of federal policy in racializing housing markets should counter the notion that the movement out of cities over the past 50 years is an a-political, rational matter of people “voting with their feet.” As In A Bad State teaches us, federal policy and jurisprudence can create powerful incentives that direct state and local policy in a particular direction. It should encourage us to be more imaginative in leveraging federal policy tools and the federal courts to create a more equitable metropolitan community.

 
Christopher J. Tyson is President, National Community Stabilization Trust. You can reach him by e-mail at ctyson@stabilizationtrust.org. 
 

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[1] See David Schleicher, In A Bad State 145-46 (2023).
[2] David Schleicher, In A Bad State 145 (2023).
[3] 418 U.S. 717 (1974).
[4] See Christopher J. Tyson, Exploring the Boundaries of Municipal Bankruptcy, 50 Willamette L. Rev. 661 (2014).
[5] See Christopher J. Tyson, Exploring the Boundaries of Municipal Bankruptcy, 50 Willamette L. Rev. 661, 681 (2014).