On Monday, Pontiac, Mich., emerged from state financial oversight when Gov. Rick Snyder announced that the city's financial struggles were over and the city no longer needed to be run by an emergency manager. "I'm pleased to see Pontiac emerge as a financially stable city and return to local control," the governor said.
While many cities survive and thrive thanks to state intervention, others struggle and some, like Camden, N.J., grow worse. The city of 77,000, which is adjacent to Philadelphia and was once home to several major manufacturing firms, has received hundreds of millions of dollars in loans, grants and direct aid from the state over the years. Despite all the help, however, Camden, one of the poorest cities in America, remains in deep trouble, according to a report from the Pew Charitable Trusts. The situation is so bad that Camden may never be able to stand on its own -- it's either state support or bankruptcy for the city.
Like Detroit and other beleaguered cities in the Northeast and Midwest, Camden was once a hotbed of manufacturing activity during the first half of the twentieth century, only to have its industrial base shrink to half its size between 1950 and 1970. As manufacturers headed to the suburbs and elsewhere, the middle class departed as well, leaving Camden with a highly concentrated enclave of poverty. It didn't help that public officials built a county waste plant, a prison and a trash-to-steam plant right in the middle of the city either, or that three of its mayors have been sent to prison for corruption over the past three decades.
As it turns out, state subsidies have actually exacerbated, not helped, the city's problems, leading to government growth at a time when it should have been contracting along with its declining population and economic base. City spending shot up 20 percent between 2000 and 2008, propelled largely by big jumps in city employee salaries and benefits. Camden's annual city budget is currently $150 million, but its tax revenue is less than $25 million. The most valuable property in the city, the waterfront, is owned by the government and nonprofits, which means half of Camden's land is tax exempt. The situation has become so unsustainable that city officials this year were forced to cut hundreds of jobs, including the entire police department -- the second-largest force in New Jersey after Atlantic City. Today, Camden County has full responsibility for policing the city.
The story of Camden's plight is part of a larger look by Pew at the different approaches states take in helping cities in financial distress. New Jersey is considered more proactive than most states when it comes to intervening and assisting local governments. Besides turning Camden's police department into a regional operation, the state also took over the city's school system this year.
At the other end of the spectrum is California. Three cities there have filed for bankruptcy protection and nine others have declared financial emergencies, yet the state has done nothing to help them.
Most states fall somewhere in the middle. When Central Falls. R.I., declared bankruptcy, the state responded quickly and assertively to manage the situation. The result: Central Falls was out of bankruptcy in 13 months, one of the shortest on record. Michigan has its emergency manager program, which it is using in a number of cities, including Detroit. And North Carolina has what is considered the most centralized system of municipal monitoring and oversight. Despite high unemployment, North Carolina has managed to keep city budget problems from spiraling out of control.
Overall, the report found:
- Fewer than half of the states have laws allowing them to intervene in municipal finances.
- Intervention practices vary among the 19 states that have some kind of program.
- States tend to react to local government financial crises instead of trying to prevent them.
- States often intervene to protect their own financial standing, as well as for other municipalities.
- Local officials often resent state officials infringing on their rights to govern their own affairs.
So what are the key factors to a successful state intervention? According to the report, states should first design an intervention that returns day-to-day management of the city back to local officials as quickly as practical. This can reduce the tension that often arises when states intervene. Next, states and cities need to be proactive when it comes to detecting and tackling local financial problems. One way to do that is for troubled cities to adopt multiyear financial plans. States also have to weigh the costs and benefits of an intervention during tough economic times. Balance is important -- for both the state and the city. And finally, interventions need to be designed to involve all stakeholders and to be transparent when it comes to financial information.
Still, as Camden and New Jersey are finding out, state interventions can go only so far. While there have been some glimmers of hope -- the city's financial picture has improved after the job cuts and it has conducted its first property reevaluation in decades, doubling the net taxable value of its property -- it has a long, long way to go.