Galvanizing Local Government Reforms: Part 1

This is another commentary in Civic Way’s series on reconstructing American government, more specifically local government. In our last two commentaries, we focused on local government fragmentation and how to fix it. Our earlier commentary on the collapse of American Federalism provides a useful foundation for this piece. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving governmental agencies across the US.


The $150 million Bloomberg Philanthropies donation to Harvard for improving city governance could have a profound impact—as a catalyst for a larger national investment in local government reform. To be catalytic, the investment should be organized around targeted, scalable initiatives, such as:

  • Promote local government collaboration
  • Prepare for future economic and fiscal crises
  • Reinforce local government oversight
  • Transform local government operations

To be national, the investment should have diverse oversight, proven project management, broad governmental participation and meaningful public engagement.


On March 2nd, Bloomberg Philanthropies announced a $150 million to Harvard University to improve city governance. In turn, Harvard announced its intent to expand the Bloomberg Harvard City Leadership Initiative, increase faculty positions in city governance, improve collaboration with Harvard’s Taubman Center for State and Local Government and create the Bloomberg Center for Cities.

While the specifics are unknown, this is welcome news. Cities and other local governments are a vital part of the American landscape. And they are hard to manage even without a crisis. Every day, local government officials strive to anticipate diverse and dynamic public demands, deliver services that residents need (and when they need it) and operate as efficiently as possible within legal, regulatory and budgetary limits. The pandemic has reminded us how important local government is, how hard it is to perfect and the value of innovation.

Given the stunning number of local governments (over 90,000) and the range of their capabilities, the Bloomberg Philanthropies donation could have a marginal impact. But, it also offers a unique opportunity. It could galvanize and accelerate the hundreds of ideas that need a financial infusion to dramatically improve local government. Coupled with the fiscal pressures brought by the pandemic, the Bloomberg funds could support overdue reforms, moving us toward a more agile, innovative and efficient local government system.

Sizing the Opportunity

In recent decades, many local governments have improved. However, this progress has been incremental, imperceptible to most Americans, fans and foes of local government alike. In most cases, local governments have taken these strides on their own, with little federal or state aid, and the pandemic threatens that progress. The Bloomberg grant, coupled with an infusion of other funds, including federal and private funds, could help cities overcome the pandemic and accelerate reforms.

Two formidable questions arise in connection with the Bloomberg donation, however. First, will the funds be targeted to attain meaningful local government reforms or will they be squandered on burnishing academic reputations or promoting prized projects? Second, can the donation be leveraged to attract other funds and support ambitious, yet practical government reform initiatives? They are not unrelated questions.

The answer to both questions is a unifying national public-private project to reform local government. A project that uses the initial donation to attract other funds, assemble a broad coalition of stakeholders and develop feasible and scalable strategies for the nation’s 90,000 local governments.

How should the funds be targeted? On initiatives that can measurably improve as many local governments as possible, improve our collective capacity to navigate future economic and existential crises and significantly enhance public faith in local government.

We suggest four strategic focuses for consideration:

  • Promote local government collaboration
  • Prepare for future economic and fiscal crises
  • Reinforce local government oversight
  • Transform local government operations

Two of these initiatives, and their respective elements, are outlined in more detail below. The other two will be presented in our next commentary.

How can the donation be leveraged? The first step is to determine the initiatives to be funded based on objective criteria (e.g., impact, scalability and feasibility). The next step is to create a diverse project advisory group that represents local government stakeholders, including government officials, professional associations, foundations and citizens. Next, establish a team of proven professionals and practitioners, including an experienced project director, to carry out the project. Finally, every effort should be made to enable interested members of the public to track the project’s progress against established goals.

Promoting Local Government Collaboration

As we argued in our last two commentaries, local government is plagued by two serious structural flaws—fragmentation and parochialism. Fragmentation—an inevitable outcome of small government proliferation—inhibits spurs unhealthy rivalries, duplicates services and increases public costs. Fragmentation also exacerbates parochialism which, in turn, inflames jurisdictional tensions and inhibits regional coordination.

These structural flaws have been amplified by the growing political divide between rural and urban areas. Democrats tend to carry the nation’s largest 100 counties, while Republicans prevail in the others.  Republican politicians dominate most state legislatures while Democrats control most large cities. This split, not to mention the relative legislative success of smaller cities and rural areas, has left many central cities isolated and increasingly vulnerable to anti-urban funding policies and preemption laws.

There are several scalable strategies that should be considered for restructuring local governments and increasing their coordination across jurisdictional lines, including the following:

  • Design a local government prototype that can be readily tailored to individual states and regions (see our last commentary for a pragmatic prototype option)
  • Develop model legislation for distinguishing, empowering and incentivizing charter cities (i.e., cities that satisfy objective criteria for regional collaboration, managerial capacity, operating efficiency, financial health and community resilience) and limiting Dillon’s rule to cities that lack these attributes
  • Develop a model state incentive program to foster regional economic development or infrastructure programs (e.g., grant limited taxing authority to regional entities for eligible projects)
  • Draft model interlocal agreements to facilitate functional mergers among local governments (e.g., joint dispatch centers, unified health districts, universal applications for similar social services and cooperative purchasing compacts)
  • Design a local public-private partnership model to leverage local resources (including volunteers), organize local stakeholders (e.g., civic institutions, foundations, corporations, universities and community groups), define regional goals, carry out action plans and monitor civic progress
  • Establish a review team to review the feasibility of pending restructuring initiatives (e.g., regional planning mechanisms, county mergers, municipal mergers and public-private de-centralization proposals)

Local government collaboration will have many benefits. Regional cooperation will enable cities to strengthen economic competitiveness, confront regional challenges and enhance their political influence. Mergers and other forms of municipal cooperation will position localities to rebalance revenues, promote equity, improve services and save millions of tax dollars.

Preparing for Future Economic and Fiscal Crises

Many local governments face fiscal instability. Even before the pandemic, their fiscal stress was profound. Paltry revenue growth. Structural budget deficits. Short-term budget fixes. Inadequate reserves. Oppressive debt. Underfunded pension plans. Unfunded (and even unreported) non-pension retirement liabilities. Most of America’s largest cities lack sufficient funds to pay their outstanding obligations.

Since the pandemic, state and local government finances have deteriorated. At least 1.3 million jobs lost (nearly twice that of the Great Recession). Anticipated municipal revenue losses of $360 billion through FY22. Mounting unfunded liabilities. Rather than make tough fiscal decisions, many governments have exploited low interest rates to finance deficits. During late 2020, about 1/4 of the municipal bond issuances over $100 million involved deficit refinancing. Such debt will likely remain on local government balance sheets for many years.

Still, credit rating agencies have been slow to downgrade local governments. Why? As the pandemic has shown, we lack a reliable, real-time national system for aggregating state and local fiscal data. Instead, we had to rely on estimates from multiple sources to assess the pandemic’s fiscal impact on state and local government. And, while the Federal Reserve’s Municipal Liquidity Facility (MLF) was an encouraging first step, we also lack adequate emergency borrowing facilities for local governments.

Local governments lack adequate financial restructuring tools. Chapter IX of the US Bankruptcy Code permits insolvent local governments to declare bankruptcy. Under bankruptcy (subject to court approval), local governments receive limited legal protection while executing a debt restructuring plan (e.g., restructuring debts, contracts and operations). State policies vary widely. 24 states allow local governments to file for Chapter IX bankruptcy (subject to state approval), but 26 states prohibit or fail to authorize such filings.

Despite a solid track record (e.g., Detroit), local government bankruptcies remain rare. While less than 1,000 local government bankruptcies have been filed in US history, over 22,000 business and 750,000 personal bankruptcies were filed in 2019 alone. Since 2001, only 31 general-purpose local governments and 95 special-purpose districts (21 in Nebraska) have filed for bankruptcy. This should not be interpreted as a sign of confidence in local government. Rather, given public policy rationale for bankruptcy law (at least for businesses), it should be viewed as a lost opportunity for restructuring local governments that desperately need it.

There are several scalable strategies that should be considered to better prepare local governments for future pandemics, depressions and other calamities, including the following:

  • Develop and implement a real-time national fiscal data system to enable public leaders to quickly amass data on state and local government financial activities, assess conditions, identify local governments on the precipice of insolvency (and eligible for emergency borrowing) and determine the requisite triage strategies
  • Update federal and state bankruptcy laws to facilitate the political restructuring of distressed local governments (e.g., mergers) as well as the restructuring of their assets, liabilities and operations, while affording them adequate legal protections
  • Upgrade the Federal Reserve’s Municipal Liquidity Facility (MLF) and establish a network of similar state mechanisms to make it easier for eligible local governments to access emergency funds, but require any local governments seeking such funds to execute rigorous restructuring plans
  • Make future federal intergovernmental aid contingent on state and local commitments to approved turnaround policies (e.g., greater collaboration, more efficient operations, better management, higher reserves and higher pension funding ratios)

Comprehensive crisis preparation strategies offer great promise. First, they will enable federal leaders to more quickly and accurately project the needs for future state and local government bailouts. Second, they will enable states to link emergency borrowing with overdue restructuring. From the ashes of insolvency, more efficient and effective local governments to emerge.

Seizing the Opportunity

States have been called the labs of democracy (the Brandeis doctrine), but many local governments were better positioned to assume this role—before the pandemic. But this global crisis has brought shrinking revenues, rising costs, crushing debt and staggering instability to local governments throughout America. While many have struggled valiantly and even performed admirably, they lack surplus funds for new initiatives.

The Bloomberg grant is thrilling even as a one-off, but it could be far more impactful as a catalyst. With matching funds from other sources, including the federal government and other foundations, it could attract over $1 billion to invest in national reform initiatives. With the active participation of others, such as representatives of public agencies, think tanks, governmental associations and practitioners, it could have a lasting, generational impact. It could change the way we think about local government.

Most local governments want to improve, but they can’t do it alone. With strategically-targeted investments like the Bloomberg grant—and the lessons of the pandemic still fresh—local governments have a once-in-a-century opportunity to renew themselves. To replace outdated laws, structures, systems and processes. To unify fragmented structures. To rebuild their capacity for meeting future challenges, including the next pandemic.