Municipal Takeovers: Examining State Discretion and Local Impacts in Michigan

Abstract

State interventions during municipal financial emergencies can play a critical role in ensuring the continuation of public services and preventing municipal bankruptcy but have often been applied unevenly. Using a case study of municipal takeovers in Michigan, we examine their predictability based on financial stress indicators and effects on drinking water services. We find financial stress alone does not explain takeover decisions, and that a city’s reliance on state revenue and racial and economic context play a role. Cities that have been taken over are more likely to experience drinking water privatization and rate increases than similarly financially stressed cities. The malleable definition of financial distress and discretion in implementation allow takeover policies to be applied unevenly, creating additional challenges for already distressed communities. Decision makers should seek alternative approaches to municipal financial emergencies that address underlying causes while minimizing the potential for bias and significant changes to public services.