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American courts have long struggled with categorizing municipalities. They treat municipalities sometimes as private corporations, sometimes as governmental bodies, and sometimes as something in between. This uncertainty provides a shaky foundation for local government law and hampers its development. Local governments are not sure of their powers, and states are unable to create a comprehensive vision of municipal governance. When federal law is involved, the situation is muddled further.

In FTC v. Phoebe Putney, the Supreme Court’s application of the state action doctrine unnecessarily injected federal antitrust law into the relationship between states and municipalities. The state action doctrine exempts states from antitrust liability and is only sometimes applicable to municipalities. Though ostensibly applying a “foreseeability” test to determine whether a municipality benefits from the doctrine, the Supreme Court instead pigeonholed municipal power into a narrow conception of municipalities’ role in American governance. This narrowed foreseeability test not only on its face constricts states’ ability to delegate certain functions to municipalities, but also creates constraining uncertainty as to which delegations of state power to municipalities will run afoul of federal antitrust law. Accordingly, this Note analyzes Phoebe Putney as an erosion of municipalities’ ability to perform governmental functions—to promote the health, safety, and welfare of the community—and as denying municipalities a vibrant role in the American federal system.