revenues to debt payments, these cities have taken dramatic austerity measures—an

unwitting experiment with a shrinking public sector in cities hollowed by household

poverty and physical deterioration. Eventually, these cuts raise a question that looms as

large for insolvency law as it does on city streets: Is there a point where the city should

no longer cut public services and sell public assets, even in the face of unmet obligations

to creditors? If so, what is that point?

and social conditions, their debts, their governments. It explores, as a descriptive matter,

local adaptations to fiscal crisis. It surfaces, as a legal matter, the latent question that

assumes some level of ongoing spending to preserve “health and welfare,” a concept that

raises more questions than answers. This Article explores residents’ interests, mapping

out heuristics for decisionmakers and the public to use in thinking about essential public

spending in the context of cities at risk of default on debt.

neighborhood-scale habitability: How low can shared services go before we should

consider a neighborhood uninhabitable? And second: What does urban life require of

public life? Posing this question in terms of cities offers a smaller setting in which to

explore the age-old debate about what we want from the public sector—what taxpayers

Unable to meet obligations to creditors while also keeping government services in

operation, the City of Detroit entered a state receivership on March 14, 2013 and filed for

bankruptcy on July 18. That makes Detroit the twenty-eighth city to declare municipal

bankruptcy or to enter a receivership for fiscal crisis since late 2008, a window of time that

has seen five of the six largest municipal bankruptcies in American history.

transformation of local finance that has accelerated in the recent recession, these cities and

others are engaging in slash-and-burn budgeting to address falling revenues, rising expenses,

and mounting debt. In San Bernardino, the third Californian city to declare bankruptcy in the

recent recession,

homicide, forcible rape, robbery, or aggravated assault in 2011—an average of roughly one

violent crime every four hours in a city of approximately 77,000 people, only slightly larger

than suburban Palo Alto, California.

and eliminated its homicide and narcotics units.

Where police departments are understaffed, other public services are unstaffed.

Cities in California, Pennsylvania, New York, Michigan, Ohio and elsewhere have

terminated thirty to fifty percent of their employees. Following Vallejo, California’s

bankruptcy, the city’s 2011-12 budget explained that in addition to cutting forty-five

percent of all public safety staff, “[a]ll funding for youth, library, arts, elderly, needy,

education, and recreation programs, projects and positions previously provided by the

General Fund were completely eliminated.”

way are distinct from contracting out for services; these cities are not purchasing private

substitutes for public services. This is privatization in its purest form—government

service shedding, on the unfunded hope that private or charitable alternatives will arise.

Yet such cuts amplify the longstanding trend of outsourcing service provision to other

public agencies (like counties) and private contractors, because the city government itself

has fewer responsibilities, less authority, and a smaller staff.

parks, pools, and government office buildings. In Benton Harbor, Michigan, a city

city buildings in active public use, including the city’s historic police and fire

headquarters and Newark Symphony Hall, in a deal that plugged most of an eighty

million dollar deficit in the 2010 budget but will ultimately cost the city $125 million to

lease back the buildings over the next twenty years.

Local government is shrinking in these and other struggling cities. Years, if not

decades, of budget cuts and asset sales have left little beyond a stripped down version of core

service functions like irregular police and fire protection, rudimentary sanitation, and water

supply. School districts continue to manage education (albeit with budget woes of their own),

but the city government itself is no longer pursing a vision beyond public safety in true

emergencies. How low can these cuts go? While laws provide an entitlement to a public

education, and we have long struggled to interpret what constitutes a legally adequate

education, there is little to nothing to indicate what other services the local public sector must

provide. Beyond education, is there some minimum level of public services and public space

needed to achieve neighborhood safety and habitability?

This is a humanitarian question, but it is also a doctrinal challenge. A system of state

and federal laws govern cities that cannot pay their bills, and decisionmakers in this system

bear the next round of cuts. Five

Standards for local public services must necessarily inform this balancing of interests

between creditors and current residents. Creditors such as bondholders, retired public

employees, contractors, and tort plaintiffs have contracts and legal judgments that quantify a

city’s obligations to them. Residents, by contrast, have no such legal instruments with which

to monetize their share of a city’s revenues. They have no concrete legal entitlements to

police and fire protection, no regulations governing emergency response times, no

matter. How long should a caller to 911 wait for a fire truck or an ambulance? Is there some

point when a city’s violent crime rate tells us that the city needs more police officers, if not

gang prevention efforts, afterschool programs for juveniles, and victim support programs? Is

there a specific density at which neighborhoods are “entitled” to access a public water

system? Where to set the floor under public service cuts is a critical legal issue in public

insolvencies, but we are asking decisionmakers to reason through it alone, and we have failed

to pay attention to their answers.

In this fog of opaque, discretionary reasoning, a curious political reality is nonetheless

visible. In the context of municipal insolvency, everyone (liberal, conservative, and

agreement) as to what those minimum levels of public services should be. This Article

frames and advises that early stage deliberation.

My goal is not to assert that residents’ interests are the only ones urgently at stake in a

bankruptcy. “Creditors” is a monolithic word that stands in for thousands of individuals as

well as institutions. Among them are retirees who worked for decades in insolvent cities

plagued by poverty, crime, and, in some cases, demoralizing working conditions. From the

point of view of individual retirees, most pension commitments are not extravagant: the

average annual police pension in Detroit, for example, is $30,000 a year, and general city

workers (like librarians or sanitation workers) receive about $18,000 a year.

payments fall through, there may be nothing except poverty programs to fall back on,

because many of these retirees, including most former fire and law enforcement employees,

are excluded by law from Social Security.

The word “creditor” also stands for investors who lent these cities money in good

faith, believing loans to municipalities to be one of the most stable, predictable assets

available in American financial markets. When a city defaults on its obligations to

bondholders, it creates risk in municipal bond markets that may drive up borrowing costs for

other cities in the future. Like it or not, the national economy is exposed to these risks. The

American municipal bond market includes one million outstanding municipal bonds with a

total aggregate principal of more than $3.7 trillion.

twenty-eight cities to date) that paid less than the contracted price for debt would reverberate

I thus stand on the foundation that creditor perspectives on municipal insolvency are

compelling from both a humanistic perspective and a policy one. I leave the full articulation

of that perspective, however, to other work where it is being widely and ably explored.

Instead, I focus here on residents’ position in the struggle toward the “least bad” compromise

that is the nature of insolvency.

This story of residents’ interests must surely begin with a look at who lives in

insolvent cities. Part I provides a comprehensive list of all twenty-eight cities with at least

15,000 residents that have declared bankruptcy or entered a formal state receivership for

municipal insolvency during the five years following September 2008. Tables of data about

these cities lay out their demographics, poverty rates, population change over time, median

home values, crime rates, and other metrics. Capturing the probability that these twenty-eight

cities will soon be joined by others, this Part also presents a list of cities at risk of default on

debt and contracts.

Two commonalities are noticeable immediately in all these cities: their poverty rates

dramatically bad for budgets. Cities that formerly had large populations consumed more

extensive city services in the past, leaving a disproportionate pension and capital debt

overhang. Spatially, such cities’ service territories are as large as they ever were, but the

density of service consumers is down, resulting in costly inefficiencies. And people and

businesses rarely clean up their mess

likely to be dilapidated or obsolete, if not sullied by contamination and waste. Those

structures impose costs much deeper than the aesthetics of dereliction. It has been said that in

shrinking cities, demolition may be the major public works of the 21st century.

of state and federal deficits and redistributive intolerance, local fiscal crisis means that city

governments must get smaller. What are these cities doing to shrink their governments? After

introducing insolvent cities as well as insolvency law in Part I, including an overview of the

main legal systems that apply to cities at risk of insolvency, Part II looks at the changes

underway in insolvent cities. I consider these adaptations according to a three-part

framework that describes the main purposes of local government spending, namely: to

provide services (including economic development), to maintain land and equipment for

public use, and to regulate for public safety. Because there is very little that insolvent cities

can do to increase revenues, cities are cutting services, selling assets, and reconsidering their

land-use regulations. This Part explores the nature of the transformative changes underway

along each of these dimensions.

The result of these budget contractions is, as discussed in Part III, a generation of

urban, high-poverty governments focused on little more than the control of fire and violent

crime. These are our new minimal cities. I call them “new” because we have seen minimal

local government before. Wealthy suburbs have experimented with a thin local public sector

focused primarily on land-use and public safety, including police, fire, sanitation, and land-

original minimal cities. Indeed, minimal government in wealthy areas is predicated on

excluding the heterogeneous service needs associated with the residents and uses that inhabit

our new minimal cities. This reflects an implicit bargain, or at least assumption, that residents

who require more public services will live elsewhere. A councilmember of the prosperous,

suburban city of Costa Mesa, California revealed candidly that the best way to keep service

costs low and revenues high is to filter out residents who might commit crimes—for instance,

by catering only to residents with a college degree.

over 25 years old meet that criterion,

I take up the major normative questions for public law that emerge from the

transformation of poor cities into minimal cities, including the question of essential minimum

services. Joining the officials who are now struggling to figure out how to maintain basic

health and safety, this part works through the question of minimum standards for basic

services by mapping out heuristics for bankruptcy judges, state receivers, state legislators,

and the public to use in thinking about the shape of minimum standards. I draw ideas from

social contract theory, economic efficiency, human rights and humanitarian exigency,

property rights, anti-poverty policy, and land use planning to assemble a set of normative

approaches and sources of law that help reason through residents’ claims to city revenues.

Part IV, in conclusion, asks what it means for local governments to get smaller and do

so responsibly. I try to look holistically and pragmatically at how to restructure local

government finance and power in light of fiscal stress and concentrated poverty. If we must

shrink the local public sector, that change should be intentionally created and internally

consistent, not simply government weakness borne of disorganized decay. Like the land-use

strategies of the “shrinking cities movement,” which work to restructure the way land is

organized and used in post-industrial cities coping with substantial population losses, the

concept of shrinking governance that I develop here recognizes that some cities are not on an

concentrated poverty. I grieve the conditions in our high-poverty shrinking cities. Yet this

Article is neither an obituary nor a lament. It is forward-facing and functionalist. Local

governments need ways to build, shrink, and, if desired, rebuild government responsibly and

flexibly across economic cycles. They need tools to manage decline that go beyond the

passive, injurious strategies of atrophy and attrition. Instead of extending long-running

research and debate about why cities reach the point when they can’t pay their bills—a

“whodunit” of urban fiscal crisis

within the lowest strata of cities ranked by property values, crime rates, and educational

outcomes. In addition, the housing market crash that began in 2006 means that this particular

recession will continue to impact local budgets for years. For reasons explained herein,

cities’ property tax revenues will lag any recovery of the local housing market by years, if

not decades. This is ominous news for local budgets, because property taxes remain the

single largest source of local revenues.

For purposes of this current piece, I stand in the current moment—along with the

residents and local leaders who live in these cities—to think through the contraction of the

local public sector. When cities face the compound threat of poverty, population loss, and

phenomenon not limited to cities. It is becoming business as usual for many higher-level

governments, from sequestration in Washington, D.C. to serious deliberation about state

bankruptcy. So too is it the current state of affairs for many school districts today, which lost

300,000 teachers between 2008 and 2011, resulting in changes like this one: in Texas in

2011, no less than 7,000 schools received waivers from the state’s maximum class size limits

for grades K-4.

sector, beyond city hall.

experiment underway in American cities that have gone broke. It surfaces, as a legal

matter, the latent question of minimum standards in the system of laws governing cities

in crisis. And it investigates, as a normative project, sources of guidance to help fiscal

overseers determine the point beyond which it should be legally, or at least politically,

guarantee regardless of consumer buying power or access to private charity? City

insolvencies offer a smaller setting in which to explore the politically inflamed debate

about what we want from government—even in places where government has fallen to its

knees.