Illinois faces serious financial challenges. With the lowest state credit rating in the nation and a recent “negative” outlook designation by rating agencies, improving the state’s fiscal position and performance is a top priority. Solving the problem will require strategies that have a substantial payoff, strategies that have been shown to be effective not just in the minds of theorists, but also “on the ground.” There is no point to adopting apparent panaceas that serious examination would as virtually hopeless, or worse, likely to intensify the financial distress.
This is most evident in the continuing drumbeat by those who believe in the “bigger-is-better” theory of local government. Typically such analysts start with noting that Illinois has the largest number of governments in the nation, sand on which they build a house of straw based on the assumption that fewer governments would reduce costs. Theory aside, there is no virtually no connection between the number of governments in a state and its taxation or spending per capita. Without reducing taxation and spending per capita, Illinois fiscal situation cannot improve. Local governance expert Robert Bish of the University of Victoria put the issue squarely:
“The ultimate measure of local government efficiency is not a count of jurisdictions or taxing districts, but rather their relative expenditures per capita for quality public services.”
If the bigger-is-better theory were valid, then Illinois would have the highest taxation per capita in the nation. It does not. Thirteen states have higher taxation per capita than Illinois. Illinois ranks right in the middle of its large state peers, despite its greater number of governments. Among the 10 states in the Midwest and Northeast with more than 5 million residents, Illinois ranks 5th in taxation per capita, according to the latest data (2011) from the Bureau of the Census. Taxation per capita in Illinois is less than the average of these 10 states, because taxes the average is skewed high by New York, New Jersey and Massachusetts, with their smaller number of governments.
“Bigger-is-better” proponents point to the larger number of school districts in Illinois as a reason for the Illinois financial dilemma. Only California has more school districts. Yet, California spent less per pupil than the 50 state average in 2011 and less than Illinois. Illinois also spent less than the 50-state average. Among its 10 Midwest and Northeastern peer states, Illinois ranks seventh in per pupil spending, despite having the largest number of school districts among the group.
Research conducted for the Township Officials of Illinois showed that municipal spending per capita rises strongly as the population of a jurisdiction increases. This means that spending per capita is higher where there are fewer governments, not where there are more, the very opposite of the theory. This effect was identified not only statewide but also within the Chicago metropolitan area. Similar conclusions were reached by research at the national level, as well as in New York, Pennsylvania and Ohio.
Townships, which are among the smaller local governments of Illinois, are often singled out by bigger-is-better advocates for abolishment through consolidation, along with smaller school districts and municipalities. Yet, labor compensation (wages and benefits, including public pension contributions) is by far the largest item of expenditure in local government budgets. Sufficient stewardship over labor costs is thus crucial for controlling local government expenditures. If township services were transferred to larger governments, while abolishing smaller governments, taxpayers would likely pay more not less.
The principal difficulty is that when governments combine, costs tend to be “leveled up” to those of the most expensive jurisdiction. Some may naively imagine that the new, larger unit of government will impose lower wages, salaries and employee benefits and will engage in massive layoffs. Employees can be expected to vigorously resist any attempt to impose reductions in wages, benefits and time off, forestalling implementation by elected officials. The reality is that wages and benefits will be “leveled up” to match those of the more expensive merging jurisdiction. Governments do not live in a vacuum, or in an environment comparable to that of private businesses. Draconian personnel cuts rarely, if ever, occur in a political environment. “Leveling” up is also likely to occur with among other costs (all of which are smaller than labor costs).
Of course, there is more than cost. People are also want high quality public services. This is more likely to occur where voters have a larger voice — where the size of the electorate is smaller. Even “bigger-is-better” advocates know this. For example, a report by the Brookings Institution and the Greater Ohio Policy Center noted the desire of citizens for more the “accessible and responsive” governments that is associated with smaller units of local government.
The research is increasingly recognizing the value of smaller local government units. Significantly, the late Nobel Laureate Elinor Ostrum of the University of Indiana identified the advantages of smaller governments, and noted in her 2009 Nobel Prize lecture that “small to medium-sized cities are more effective monitors of performance and costs.”
Illinois will not solve its fiscal problem with dead-end “solutions” like abolishing local governments and turning their functions over to larger, more expensive governments. The Illinois fiscal problem is serious and requires serious answers, not programs based on superficial sloganeering, which could make things even worse. The good news is that smaller governments tend to be both less expensive, and provide quality service to their citizens. This is good for Illinois.
Wendell Cox is principal of Demographia, an international public policy consulting firm located in the St. Louis metropolitan area. He has conducted research on local government performance in the United States, Canada and Australia.
Wendell Cox is principal of Demographia, an international public policy consulting firm located in the St. Louis metropolitan area. He has conducted research on local government performance in the United States, Canada and Australia.