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Manhattan Institute

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Mergers May Rescue Declining Suburbs

issue brief

Mergers May Rescue Declining Suburbs

September 12, 2017
Urban PolicyRegulationTax & BudgetPublic Sector Reform

Abstract

Many of the so-called inner-ring, or first-tier, suburbs next to America’s central cities are in trouble, with declining population and development, and rising rates of poverty. As these municipalities become progressively poorer, they are less able to finance public services without tax increases, which drives away people and business, which further reduces the tax base. If these fiscal conditions are paired with poor governance and corruption, a turnaround can be especially difficult.

Virtually all options for addressing inner-ring-suburb challenges—neglect, state subsidies, state intervention—come with major drawbacks. However, one option has not received the attention it deserves: a merger with the adjacent central city. Local and state leaders should not wait until an inner-ring suburb’s financial situation reaches a crisis state before pursuing this option. Instead:

  • State governments should pass enabling legislation to allow municipalities to voluntarily plan and execute mergers. The Indiana Government Modernization Act of 2006 is an example.
  • Proposed mergers should clearly result in superior public-service levels in the suburban municipality and no reduction of services in the central city.
  • State governments need to provide an incentive in the form of a state-financed capital-improvement program in the suburban municipality to be merged, contingent on the merger taking place.
  • The state may need to absorb some suburban legacy costs (pensions and debt) to ensure central-city participation.
  • The merger would ideally be done voluntarily, but an involuntary merger could be considered where state receivership, bankruptcy, or other extreme failure would otherwise occur.

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______________________

Aaron M. Renn is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow him on Twitter here.

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