Dispossessing Resident Voice: Municipal Receiverships and the Public Trust

The residents of struggling cities suffer property dispossessions both as individual owners and as municipal residents. Their individual dispossessions are part of a cycle that often begins with industrial decline. In Detroit, for example, more than 100,000 residents have lost their homes to tax foreclosure over a four-year period that bracketed the city’s bankruptcy filing. Falling property values, job losses, and foreclosures affect municipal budgets by reducing tax revenues. As individual dispossessions exacerbate municipal financial crises, residents can also face the loss of municipal property. Struggling cities and towns often sell publicly owned property—from parks to parking systems—to balance municipal budgets.

This article discusses the relationship between property dispossessions and proceedings to resolve municipal financial distress, with a focus on another important loss faced by residents of distressed municipalities—the loss of their voice in municipal government. A municipal financial crisis, by itself, has no effect on the property of any individuals who live in the city, and a city’s bankruptcy does not take a city’s assets in the same way that a corporate or personal bankruptcy can take the property of a business or individual. Yet even though creditors cannot force the sale of city-owned assets, the decision to transfer the property may be made by unelected officials appointed by the state government to replace city government in times of financial crisis. This results in another type of collective dispossession—the dispossession of resident voice in local government affairs. This article discusses how insolvency proceedings, including Chapter 9 bankruptcy, can deprive residents of their voice and, in turn, deprive them of the city’s assets that the city holds for them in public trust and proposes some suggestions for states for balancing the need for resident voice with higher-level financial oversight as they determine how to manage the financial distress of their cities.