My City Was Gone


Some town governments are pondering a drastic way of dealing with financial crisis: blowing themselves up. The Wall Street Journal reports:

In Mesa, Wash., a town of 500 residents about 250 miles east of Portland, Ore., city leaders have initiated talks with county officials about the potential regional impact of disincorporating. Mesa has been hit by a combination of the recession and lawsuits that threaten its depleted coffers, leaving few choices other than disincorporation, said Robert Koch, commissioner of Franklin County, where Mesa is located.

Two California towns, Rio Vista and Vallejo, have said they may need to disincorporate to address financial difficulties; Vallejo filed for bankruptcy protection last year. Civic leaders in Mountain View, Colo., have alerted residents that they are left with few options but to disincorporate because the town can't afford to pay salaries and services….

Rio Vista says disincorporating would eliminate 38 jobs and shift its sewer services to the county. Vallejo says disincorporating would end public-safety-employee contracts, which city leaders blame for pushing the city into bankruptcy.

It's not certain that all these municipal seppukus will actually take place. Vallejo's finance director insists to Public CEO that the government isn't likely to disband anytime soon, and the Journal espies a potential legal problem:

[S]ome public-finance experts say towns may not have that option if it is being used to unload financial obligations. "This is somewhat of a legal gray area, because disincorporation was not designed to allow cities to escape financial hardship," said John Knox, a public-finance consultant with the San Francisco office of law firm Orrick, Herrington & Sutcliffe.

Mr. Knox, a bankruptcy consultant to Vallejo, said shifting oversight of a city's services to a county or state during the current economic environment would be a tall order. In California and many other states, the county or state must approve such a move, he said. Most counties are ailing as badly as cities, and are unlikely to readily approve a disincorporation, he said.

Elsewhere in Reason: Back in the booming '90s, a loophole in the law prompted a horde of Tennessee micro-communities to try to incorporate themselves. And in 2006, writing in our pages, Robert Nelson proposed a system in which local governments are "more private than public, facilitating a routine flow of mergers, breakups, divestitures, and other organizational rearrangements."