Scholars have long demonstrated that cities are constrained by states and the federal government in the exercise of their power. While important, the emphasis on these “vertical” constraints on cities does not account for the “horizontal” constraints on city power from private actors. This Article suggests that the emphasis on vertical constraints on city power is due to a misunderstanding of the history of local government law that describes its sole function as the vertical distribution of power between cities and different levels of government. I revise the history of Dillon’s Rule, the doctrinal cornerstone of local government law’s vertical distribution of power, by arguing that local government law also distributes public and private power, between private capital and cities. Correcting the historical misunderstanding helps to show how private power still shackles cities in their efforts to address important challenges.
Dillon’s Rule is a rule in local government law holding that localities wield only the powers expressly granted to them by states and no others. In this Article, I suggest that this view rests on a misinterpretation of the Rule’s origins narrowly centered on nineteenth-century jurist John Forrest Dillon’s hostility toward local power and his faith in state power. I put Dillon’s Rule back into the historical path from which it emerged, the evolution of U.S. public debt and economic development in the nineteenth century. I argue that this new historical contextualization reveals that Dillon’s Rule also distributes public and private power.
Dillon and his Rule emerged during a critical moment in the evolution of U.S. public debt and economic development, after federal and state debt-financed economic-development projects failed, and localities took up the task. Iowa was the epicenter of local debt finance, and it was where Dillon, then a state court judge, saw a wave of defaults in the 1860s as evidence of cities’ inherent wastefulness and susceptibility to public corruption. Dillon believed, left to their own devices, cities and their mismanagement of debt would repeatedly deprive creditors and investors of their property. In response, Dillon authored the doctrine that would become known as his Rule. But Dillon did not give states the task of disciplining fiscally irresponsible cities. The Rule’s empowering of states was largely procedural. Dillon made cities fiscally powerless so that they could only borrow and spend in a narrow way that would convince municipal creditors that their debts would be repaid. This constraint on local power by private capital was at the core of the Rule’s design.
In closing, I explore the contemporary ramifications of the Rule’s distribution of public and private power. Today, in the name of attracting and shielding capital against city power as Dillon intended, the Rule shackles cities to a limited range of market-consented options with which to address shortages in local economic development, affordable housing, and climate change. Critically, these burdens fall disproportionately on people of color. I argue that seeing the Rule in this new light should impact how we view the project of revitalizing city power moving forward.