The onset of the Great Recession in 2008 ushered in an era of fiscal and economic crises worldwide. As the world’s economy suffered, so did its smaller subunits—including cities. In a time of economic hardship, city residents—virtually the sole financers of cities—move from the expensive downtown areas into more affordable suburbs, taking their property taxes with them. When coupled with raised taxes in order to supply the city budget, such a scenario forces a seemingly endless cycle: High taxes result in residents leaving the city, shrinking the tax base. In response to this, cities must raise taxes to meet their needs, in turn driving more residents out of the city. Once again, the tax ...view middle of the document...
While cities cope with a shrinking a shrinking tax base, the municipal debt continues to accrue, resulting in a fiscal puzzle that demands solving. With no ways to increase their tax base, cities are faced with the necessity of borrowing through municipal bonds and banks (Mitchell & Beckett, 2008). Though these sources of money provide short-term, temporary relief to the budget, the bonds eventually come due. According to Mitchell and Beckett (2008), municipalities continued to defer their debts through more and more short-term bond notes; consequently, the city’s bond ratings fell, resulting in speculative-grade bonds. Essentially bankrupting the city, the speculative-grade bonds left cities without a solution to their fiscal crises—other than the restructuring of municipal finance.
Financial Control Boards
Financial control boards are “any state-created agency established by statute to oversee the financial affairs of a city during a fiscal crisis” (Harvard Law Review, 1997). These entities, due to their state-appointed status, hold a large amount of power over the affairs of cities. In order to establish a control board over a failing city, states must have control over the cities within their borders. Because cities are entities of the state in which they exist, states have the authority—granted by their state constitutions—to act in all matters that affect the state itself, and to supervise city debt (Harvard Law Review, 1997). That being said, cities (subjurisdictions of the state) do not typically experience interference from the state and, as extrapolated by Noto and Rymarowicz in their study on control boards (Library of Congress, 1995), states generally do not intervene until the situation is deemed an emergency or disaster. In order to quantify what is an emergency, state legislations may dictate the conditions under which a state can run the affairs of a city. Regardless, the clauses that provide the state the right to oversee the affairs of city debt provide the authority to establish financial control boards.
Financial control boards are, by nature, interjurisdictional; that is, boards exist between already established jurisdictions, providing opportunity for reform from a multitude of approaches. Initiated by the state yet focused on its subjurisdictions, control boards sit between state and municipal levels of government. Thus, the composition of a financial control board is often a compromise between a city and its state: Many states, such as Ohio and Illinois, rely on gubernatorial appointments based on suggestions from the mayor (Library of Congress, 1995). However, a board may occasionally be entirely appointed by officials of the state. Nonetheless, control boards contain at least one representative of the city (though he/she may be ex officio). Once established, a financial control board can begin to configure its actions within the city.
According to former mayor of New York City, Rudolph Giuliani, control...