When I ran for state senate in 2008, I mentioned that while most people are aware of the corruption problems associated with big cities, there is a significant but less well-known problem associated with very small political entities as well.
Here is another example of such problems, and why it is useful to have another level of government that acts as a restraint on local government abuses. This July 10, 2012 Los Angeles Times article describes a federal civil rights lawsuit filed against Colorado City, Arizona, where a polygamist schism of the Mormon Church completely dominates local government. One of those excommunicated (apparently for indicating that his little girls would not be available for Warren Jeffs' sexual use) has experienced not simply ostracism, but apparently something considerably worse: police harassment and refusal to provide equal protection of the law against criminal acts.
What makes this especially obnoxious is that this subculture, like many such cults, is highly dependent on government subsidies.