Korngold on Cutting Municipal Services During Fiscal Crisis

Gerald Korngold (New York Law School) has posted Cutting Municipal Services During Fiscal Crisis: Lessons from the Denial of Services to Condominium and Homeowner Association Owners (NYU Journal of Legislation and Public Policy) on SSRN.  Here's the abstract:

Faced with restrictions on revenue and increased demands for municipal services, local governments have often chosen to cut expenses by denying services such as trash and recycling collection to unit owners in condominiums and homeowner associations (HOA). Although these owners continue to pay full property taxes, they are forced to purchase the withheld public services from private contractors. Condominium and homeowner HOA owners in effect are forced to pay twice for services, even though for these purposes they are indistinguishable from other (single family) residential owners. In light of the current crisis in municipal finance, we can expect that states and towns will attempt to balance their budgets by additional service cuts on small groups in the community who are unable to resist the majority’s political power.

This article will analyze the denial of municipal services to condominium and HOA owners from a public policy and legal perspective. My thesis is that various goals and commonly held values demonstrate that it is poor public policy for municipalities to place the pain of service cutbacks on only one segment of residential property taxpayers. Legislatures should reject service denial proposals because such programs compromise powerful societal policies including efficiency, fairness, shared sacrifice, notice to buyers, and community building. If government still does enact service denials, condo and HOA owners might challenge them in the courts under takings, equal protection, and substantive due process theories. While I offer what I believe to be a plausible equal protection argument against service denials, I do so reluctantly since courts should not generally intervene into state and local regulatory matters. Legislatures need the flexibility to enact programs and judicial intrusion will weaken goals of separation of powers, judicial economy, and experimentation under federalism. The case of service denials, however, where the majority is transferring all costs/burden of a cutback to a smaller segment of society and where there is no plausible distinction between the owners in the majority and minority, might be the rare case where judicial intervention is necessary. One would hope, though, that legislatures do not act unwisely in the first place by enacting no-service laws.

I further argue that my analysis of the issues invoked in condo and HOA service denials should inform policy makers and the courts during the current period of significant municipal fiscal crisis and ensuing service cuts. The fundamental questions in the condo and HOA service denial and the current fiscal cutbacks are the same: which citizens should have their services reduced, should the pain of cutbacks be shared equally, and who (legislatures or courts) should make these decisions? The clashing choices and resolutions in the case of denial of municipal services to condominium and HOA owners provide important guidance when redefining general fiscal goals and obligations of state and local governments.

Steve Clowney