As the discussion over whether states should be allowed to declare bankruptcy heats up (they cannot do so now) several states are taking steps to make their oversight of local government finances stronger. A Wall St. Journal article notes that California, Michigan, and Indiana are among a group of states that is seeking to take steps to enhance oversight and distress statutes.
Pennsylvania is no stranger to distress provisions. There is Act 47, that has been in place for over twenty years, and oversight boards have been created specifically for Philadelphia and Pittsburgh. A national expert on the subject points out that "more than half of the states have some sort of active supervision or financial review of local governments" and the attention has only ramped up as bond defaults, bankruptcies, and fiscal stress becomes more of a reality for state and local governments.
If Pennsylvania can provide a lesson it would be that unless there are some very strict and possibly uncomfortable reforms, states can expect their local governments to be in oversight for quite a long time. Some Act 47 communities have been in for quite a long time and Philadelphia will be under oversight until bonds are paid off, which is sometime early in the next decade. The theory on strengthening distress is to stave off Chapter 9 bankruptcy, which may be the only real solution to many municipalities’ fiscal problems.