In the United States, a charter city is a city in which the governing system is defined by the city's own charter document rather than by state, provincial, regional or national laws. In states where city charters are allowed by law, a city can adopt or modify its organizing charter by decision of its administration by the way established in the charter. These cities may be administered predominantly by residents or through a third-party management structure, because a charter gives a city the flexibility to choose novel types of government structure. Charter cities are similar in administrative structure to special administrative regions.
For example, in California, cities which have not adopted a charter are organized by state law. Such a city is called a General Law City, which will be managed by a 5-member city council. A city organized under a charter may choose different systems, including the "strong mayor" or "city manager" forms of government. As of 22 February 2013, 121 of California's 478 cities are charter cities. A few examples include Oakland, Newport Beach, Palo Alto, Huntington Beach, Alameda, San Francisco, Irvine, Los Angeles, San Jose, and the capital, Sacramento. However, charter cities that are subordinate to the rules of larger institutions (such as provinces or nations) have limited flexibility to adopt new governance structures.
Outside the United States, some cities function in a somewhat analogous way. Hong Kong and Macau both are current examples of special administrative regions, similar to charter cities, in China, although their Basic Laws do not originate in these cities and they are not referred to as "charter cities" either in legal contexts or common usage. Under the one country, two systems policy, they are able to maintain their capitalist economies, which previously existed under British and Portuguese rule. China also has several special economic zones, but these do not enjoy as much autonomy as special administrative regions.
The range of what is considered a "charter city" may lead to definitional ambiguities. Most times, however, a charter city is founded by charter before large-scale development takes place. While a city may adopt a new "charter" long after its first codification of rules, as in the cases of many cities in California, generally the designation of a charter city is reserved for those municipalities whose charter guides development decisions or influences the creation of social structure from the beginning. A charter city may have some exemptions from some state or provincial laws, which varies entirely for each particular region.
With the help of a guiding charter, cities may be able to avoid administrative inefficiencies and establish rules with alternative social motivations. Thus, one benefit of charter cities is the freedom they offer in establishment of rules of governance. For example, many charter cities use alternative forms of property taxation. Because charter cities are often founded with a goal of large-scale urban development, efficient use of the city's limited land is of utmost importance, for both the economic sustainability of the citizens and the government units. Thus, rather than using the traditional tax on both property and land, charter cities may use land value taxation, which taxes only the value of land, thus not providing disincentives for development.
Economist Paul Romer proposes founding many new charter cities in developing countries. Romer suggests that a developing country pass a law that sets aside a tract of land for a new charter city. This charter city would be administered by a developed third-party guarantor government, and citizens from the host country (and maybe other countries) could move in and out as they please. The point of the charter cities idea is to give citizens the choice about where they want to live and to provide the basic rules and amenities required for economic growth. Ideally, by establishing a city with highly developed rules and governance in an underdeveloped region, living and working in a charter city may provide a closer and more attractive alternative to moving far away to more developed countries.
In Romer's conception, there are three main factors in the creation of a charter city. First, there is the developing host country. The host country provides the land, and designates that land as a special reform zone, subject to the foundational set of rules. Second, the developed guarantor country administers the region, perhaps with a board of governors and an appointed chairman like the Federal Reserve System in the United States. Third, the source country will be where the charter city's residents come from. This may be predominantly from the host country, but there also may be a number of source countries.
In practice, some countries have been receptive to Romer's idea. After a meeting of Romer with president Marc Ravalomanana, Madagascar considered creating two charter cities, but the plan was scrapped when the political leadership that supported the idea was removed from power. More recently, the government of Honduras has considered creating a charter city, though without the oversight of a third-party government. In 2011 Honduras made the necessary legal changes. Romer served as chair of a "transparency committee" but resigned in September 2012 when the Honduran government agency responsible for the project signed agreements with international developers without knowledge of the committee. In October 2012 the Honduran Supreme Court declared charter cities to be unconstitutional because the laws of Honduras would not be applicable there.