This post is based on a presentation for the 2021 North Carolina Law Review Symposium "Home Rule in the 21st Century"
It has been a roller coaster ride for local budgets. 2020 promised another year of record growth until the pandemic created what seemed like a fiscal cliff for many cities. As the year continued, it became clear that many states would weather the pandemic recession far better than initially feared, but local leaders continued to highlight their cities’ budget challenges. Then in March 2021, the American Recovery Plan Act provided an unprecedented fiscal relief package for local governments. Where before the question was how to responsibly close budget gaps, now local officials sought guidance in how to spend this new infusion of federal dollars responsibly.
While ARPA funding has temporarily lessened concerns about the adequacy of state-funded intergovernmental aid, it has not diminished the need for reform. For one, it seems foolish to bet on federal largess going forward. Policy crafted for a once-in-a generation crisis seems a poor building block for local revenue resiliency.
Even more urgently, federal spending has not shielded local governments from fiscally punitive state preemption measures. As state and local officials fight over hot-button issues like police reform and masking, state legislatures and state executives have shown continued willingness to use their fiscal authority to control local policy decisions.
In my home state, Arizona elected officials continue to construe state authority—and executive power—broadly, as a means of limiting local authority. The flash points here almost always involve fiscal carrots or sticks. Arizona Governor Doug Ducey conditioned state education grant funding on school districts forgoing mask mandates. (This move drew a federal rebuke this week; Ducey plans to fund the grant with federal dollars intended to address the COVID public health and economic crisis.)
Governor Ducey isn’t alone in his efforts to coerce local officials to follow policies that defy common sense. Our state’s much-mocked election audit was a circus, and it wouldn’t be a political circus in Arizona without a S.B. 1487 complaint. S.B. 1487 is Arizona’s punitive preemption law that allows any member of the Arizona state legislature to file a complaint with the state’s attorney general alleging a local government’s action violates state law. Under the law, if the attorney general’s investigation reveals such a violation, the locality must cure the violation or the state will withhold a substantial amount of intrastate aid.
Last month, the attorney general’s office issued an opinion concluding that Maricopa County had violated state law in refusing to comply with the Senate’s subpoena directing the county to turn over its internet servers to the Senate (which would then give them to the Cyber Ninjas, the firm it had hired to audit the election). County officials had insisted that handing over the servers would jeopardize sensitive information, including county residents’ Social Security numbers, and leave confidential law enforcement communication systems vulnerable to hackers.
The Attorney General’s opinion inexplicably concluded that the county had conceded the validity of the subpoena when it had failed to appeal a superior court ruling upholding the validity of a separate, earlier subpoena. And on this reasoning, the Attorney General threatened Maricopa County with the loss of hundreds of millions of dollars in revenue. The County and the Senate eventually reached a settlement; the county agreed to abandon its $2.8 million claim against the Senate for damage to election machines in exchange for the Senate dropping its effort to require the county to turn its servers over to the Senate.
Arizona isn’t alone, however, in its willingness to use purse strings to limit local discretion. As readers of this blog likely know, this summer, Texas and Florida both enacted legislation limiting local control over police budgets. The Texas law allows the governor to declare a large city a “defunding municipality” if the criminal justice division of the office of the governor determines that the municipality has reduced its police department funding as compared to the previous year’s budget. Cities declared “defunding municipalities” are prohibited from increasing property tax rates, even to adopt previously voter-approved tax rate increases. Rather, they must impose a tax cut to reflect the reduction in police spending. Moreover, the state will charge a “defunding municipality” for the cost of state-provided law enforcement in the jurisdiction. The extent of such enforcement and its cost is determined by the governor’s office, and the law directs the state to pay these costs out of a municipality’s sales and use tax revenue that is collected by the state.
Florida’s law has received more press attention for the ways it attempts to restrict lawful protest, as noted on this blog, but that law also greatly reduces local budgeting authority. It essentially gives the governor’s cabinet direct authority to increase local police budgets, of course without any increase in state aid to offset these increased costs.
These examples from Arizona, Texas, and Florida represent one extreme of state efforts to supplant local policy judgments, but these states are not alone. States will continue to use their authority over local governments’ fiscal affairs and their dependence on state aid to curtail home rule.