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Wall Street Journal: Want to Avoid Another Detroit? Monitor Your Municipalities

For states hoping to prevent more record-setting bankruptcies like Detroit, The Pew Charitable Trusts has some advice: be on the lookout for early signs of trouble.

The public policy group made that recommendation in a study, released on Tuesday, that examined how states deal with financial distress in its cities and towns. Some other suggestions: states should involve all stakeholders in any intervention and return control to local officials as quickly as possible. And adopting multi-year budgets to better manage finances couldn’t hurt, either.

According to the Pew report, 19 states have laws that allow the state government to intervene in city, town or county financial crises. The idea, according to Pew, is to prevent a bankruptcy filing or at least provide an alternative.

Michigan, North Carolina, Pennsylvania and Rhode Island are among the states with the most extensive assistance programs, according to the Pew report. In Detroit, which suffered years of economic decline and a population exodus, a governor-appointed emergency manager runs the city and decided to steer the city into bankruptcy, with state approval.

Michigan was one of the first states to conclude it should have a formal program for intervening in local financial problems, according to the report. It passed a law in 1990 allowing it to appoint emergency managers.

When asked about Detroit, Kil Huh, a Pew expert on state and local fiscal health, said there was no “best practice or approach that a city can take in this instance.” He stopped short of saying there was a one-size-fits-all approach for states looking to create or improve their intervention program for distressed municipalities. But “what we found was a set of principles for states to consider,” Mr. Huh said.

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States' Fiscal Health

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