Why some cities die off
…and how difficult it is to actually dissolve a locality.
Happy Finance Friday, readers. This week, Chester, Pennsylvania's, receiver issued a startling warning: The state’s oldest city is in danger of dissolving completely.
If that were to happen, all city employees would be laid off, elected officials would be removed, and an Administrator would be appointed by the state Department of Community and Economic Development to contract for the provision of vital and necessary services on behalf of the area.
Chester is in Chapter 9 bankruptcy, which is already a pretty rare situation. Dissolution is even rarer. But, as it turns out, not for lack of trying. This week I’ll look at what it takes for a city to actually disappear.
A warning shot in Chester
Chester receiver Michael Doweary laid out the possibility of disincorporation during the bi-monthly Municipal Financial Recovery Advisory Committee meeting held this week. His office’s presentation started with a financial update on Chester, which included the new 2019 audit findings that the city’s general fund lost $6.8 million that year.
Chester’s general fund balance is now in the red by nearly $28 million and without an intervention, would likely run out of money by this September, according to the receiver. (That number does not include the nearly $40 million in overdue pension bills.) It’s the seventh annual loss in eight years and the city only avoided a loss in 2017 through borrowing. Doweary also maintains the local officials’ persistent objections to the city’s bankruptcy and other efforts by the receiver to move forward on a recovery plan are creating a dangerous delay.
“This is the very real warning or, dare I say, even threat of ‘If we don’t get our act together and get this taken care of, this plan developed by the end of this year, disincorporation is a very real possibility,’” Doweary said.
Vijay Kapoor, Doweary’s chief of staff, later said in an interview the city is facing a fiscal cliff in 2025 when its American Rescue Plan Act funds run out because a large amount of that funding is paying for ongoing operations.
“I think the presentation we made on Tuesday woke a lot of people up and lit a fire under people—including us—to realize there is a deadline to find a solution to this problem,” he told me this week. “Chester has been in some type of fiscal distress for so long, I think people have become numb to it.”
Learn more
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Mission accomplished. The receiver’s warning also just happened to come one day after a candidate in Philadelphia’s mayoral contest seemed to dismiss complaints of pollution and environmental racism in Chester, where some of Philadelphia’s trash is dumped. “Chester is Chester,” Jeff Brown said. “I’m worried about Philadelphians and how their lives are.” His tone underscores the fact that the city’s mismanagement and spiral into insolvency seems to simply be accepted as fact.
Brown’s comment plus the disincorporation warning has prompted a flurry of news stories this week—the most headline activity since Chester filed for bankruptcy in November. People are once again paying attention. At least for now.
Why cities disincorporate
Dissolutions are incredibly unusual but research indicates they’re on the rise. Since the 1800s, there have been at least 690 dissolutions in 38 states, according to the 2012 Yale Law Journal article, Dissolving Cities. Roughly one-quarter of those disincorporations have happened since 2000.
There are many reasons why a locality might cease to exist, Michelle Wilde Anderson wrote in poetic prose not usually found in a law journal article:
Our rural and urban past echoes with memories of cities that came and went. People left, tax revenue sank, and city halls closed their doors. The siren of industry and the winds of the Dust Bowl left only ghosts behind in hundreds of towns in the South and Midwest. When the segregated poverty in central cities fueled riots in the 1960s and 1990s, smaller cities across the country drank a quieter, more final poison. And today, sidewalks in the Northeast that once carried the morning rush of workers to industrial plants and mills have gone empty. Clanging steel has left behind the silence of rust.
Anderson groups dissolution attempts into five main themes: economic decline, tax revolts, corruption and mismanagement, racial segregation, and the desire to preserve history.
Chester isn’t the first city to weigh bankruptcy versus dissolution. The cities of East Palo Alto and San Juan Bautista in California, Macks Creek in Missouri, Westminster in Texas, and other cities have done the same. And after Vallejo, California, declared bankruptcy in 2008, its recovery plan required such dramatic cost-cutting the city was also discussing dissolution.
None of these places went through with it. And that might be a good thing. “Choosing dissolution offers no fresh start in most states: a dissolving city will take its debt with it in the form of a special taxing district,” Anderson wrote. “For that reason, we would expect that bankruptcy is presumptively better suited to cities staggering under the weight of debt.”
State-sanctioned dissolution of cities
When dissolutions are billed as government efficiency efforts, it’s another matter. Sort of.
In 2010, New York State launched its push to dissolve village governments with the passage of the New N.Y. Government Reorganization and Citizen Empowerment Act. That same year, the village of Seneca Falls, the upstate New York birthplace of the women’s rights movement, voted to dissolve their government and merge into the surrounding town of the same name.
The vote to dissolve was painful and pitted residents against each other. But ultimately, it seems, residents’ weariness over paying taxes to the village, the town, the county and the state was more painful.
But even when the state is paying for studies on the matter, getting residents to sign their village’s death warrant is difficult. Since 2010, there have been 41 referenda under the Empowerment Act, 17 of which resulted in a vote to dissolve.
Pennsylvania ranks third in the nation for the number of municipalities, according to Anderson’s research. But it doesn’t even allow dissolution—except in the case of cities (like Chester) that are designated as fiscally distressed under state law.
There have been multiple attempts over the last couple of decades to change that, most recently in 2010, but none of them went anywhere. The alarm bell raised this week by Chester’s receiver is a reminder that extreme financial stress on municipal governments is in some ways a “de facto disincorporation of our region’s municipalities,” as Pittsburgh-based regional economist Christopher Briem once put it.
“Even if cityhood still exists legally,” he added, “it is little more than a geographic label if the government has no money or power.”