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Nov. 4, 2021, 11:30 a.m. EDT

‘Trying to strangle local governments’: What happens when states and their cities become adversaries?

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Andrea Riquier

Last September, presenting his proposed 2021 municipal budget , Milwaukee Mayor Tom Barrett laid out a somber picture of his city’s finances.

Even before COVID-19 hit, Barrett said, “our budget challenges reached a crescendo.” Just weeks earlier, the city sustained a debt-rating downgrade, in part because it was spending down reserves.

“We’ve [spent those reserves] to maintain our vital services without any growing revenue,” Barrett continued. “This, of course, is a direct result of our relationship with the state of Wisconsin and legislature in particular.”

The state’s revenue had increased 61% over the past two decades, yet Milwaukee would receive $272 million in 2021, less than the $284 million the state shared in 2003 , when the city’s general fund was 25% smaller.

Over the years, Barrett has given up on securing a bigger slice of state revenue and has focused more of his efforts on trying to raise revenue locally. “Finally I said, please take the handcuffs off and let me generate revenue from sales tax,” he said in an interview with MarketWatch.

But the state legislature, citing an opposition on principle to raising taxes, won’t allow that. As its income dwindles, Milwaukee has lost 160 sworn police officers, or nearly 10% of its force, over the past few years.  

“Without a doubt, the most effective defunder of the police in Wisconsin is the Republican-led legislature,” Barrett, a Democrat in office since 2004, told MarketWatch. “I’ve been arguing for years to give me more resources. They’re essentially trying to strangle local governments.”

It’s not unusual for a state legislature to set limits on what cities can do. In the American system of federalism, cities are subsidiaries of the state, and plenty of states have restrictions in place similar to the one Barrett struggles with. But the issue, sometimes called “pre-emption,” is getting more attention as some statehouse moves are increasingly seen as being motivated by politics, or even a racial enmity.

A 2018 National League of Cities report noted that state legislatures had used pre-emption more aggressively in recent years. “Explanations for this increase include lobbying efforts by special interests, spatial sorting of political preferences between urban and rural areas, and single-party dominance in most state governments,” the report said.

More to the point, the report noted, “Recent pre-emption has pitted rural- and suburban-dominated state legislatures against cities with large populations of low wage earners and ethnic minorities.”

Milwaukee is a majority-minority city, according to data from the Census Bureau , and about 25% of its residents live below the poverty line. It votes decisively Democratic . The state legislature, in contrast, is heavily Republican , and overwhelmingly white. (In last November’s elections, Democratic candidates for the state Senate and Assembly won 47% and 46% of all votes, respectively, but secured just 38% of seats in each chamber. )

Asked whether he thought the legislature’s actions were racially motivated, Barrett said, “I hope not. I think it’s a winning political philosophy for the rest of the state to be pitted against Milwaukee and Madison,” which also leans Democratic but is much whiter.

“Pre-emption happens all the time,” said Matt Fabian, a partner with Municipal Market Analytics. “It becomes an issue when nonrational reasons drive decisions or where the state sees the city or its residents as an adversary. There can be a certain tribalism that hinges on race or how people vote.”

Fabian, whose firm offers research for municipal bondholders, calls politically motivated pre-emption “an underappreciated risk in the muni-bond market. In general when cities default it’s less about finances and more about what the state does to not help the city navigate a situation. The political factor, the relationship and potential antagonism between a city and its state, is widely underinvestigated.”

Municipal-bond defaults are vanishingly rare , but conflict between city and state is a common thread in many recent episodes of municipal distress, which have often occurred in places where the city’s residents are primarily Black.

Many public-finance observers believe Detroit was hustled into its 2013 bankruptcy by a state government intent on imposing its will on the citythe same dynamic that caused years of financial distress and a public health emergency in Flint, Mich.

From the archives (July 2013): Detroit’s Chapter 9 filing sets stage for biggest-ever U.S. municipal bankruptcy

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