Compensating City Councils.

• Author: Zale, Kellen

Table of Contents Introduction I. City Council Compensation A. City Council: Forms and Functions B. The Question of How Much: Compensation Amounts C. The Question of How: Compensation Procedures 1. Procedural mechanisms: city council compensation a. Threshold issue: state or local control b. Compensation-setting procedures 2. Procedural mechanisms: state and federal legislatures II. How Process Affects Outcomes A. Theories of Legislative Compensation 1. The problem of overcompensation a. The civic republican ideal b. Fiscal effects c. Nonpecuniary benefits 2. The problem of undercompensation a. Limiting office to those who can afford to serve b. Good governance c. Conflicts of interest and corruption B. The Distorting Effects of City Council Compensation Procedures 1. City council control 2. Referenda 3. Benchmarking and other formulas 4. Independent commissions. III. Improving the Institutional Design of City Council Compensation Procedures A. First-Order Institutional Design: Structural Tools B. Second-Order Institutional Design: State vs. Local Control Conclusion INTRODUCTION

If you could set your own salary, how much would you pay yourself? Would you give yourself a raise? Would you care what other people thought if you did? What if your pay hadn't increased in over a decade? Would you consider whether increasing your salary would lead to pay cuts for other people in your workplace?

These questions may seem like the daydreams of Office Space employees, (1) but they are the very real concerns that city councils (2) across the United States must grapple with. While some city councilmembers' salaries are fixed by state law or subject to voter approval, in vast numbers of cities-particularly large and midsize cities-city councils have the authority to decide their members' compensation. (3) Like members of Congress and state legislators, (4) city councilmembers are placed in the uncomfortable position of determining how much of other people's money they should pay themselves. And when put in this position, lawmakers face an inherent conflict of interest.

Most obviously, when in control of their own compensation, city councilmembers can engage in financial self-dealing by increasing their own pay when doing so would not be in the public interest. As James Madison recognized in the context of congressional compensation, "[T]here is a seeming impropriety in leaving any set of men without control to put their hand into the public coffers, to take out money to put in their pockets...." (5)

But another form of self-dealing can occur when councilmembers opt not to increase their own compensation when doing so would be in the public interest. (6) This type of self-dealing is best understood as a form of reelection rent-seeking. (7) As Adrian Vermeule has observed in his scholarship on congressional compensation, "[T]he political benefits of conspicuous self-denial may dominate purely financial losses." (8) That is, although a salary increase would boost councilmembers' welfare in terms of monetary gain, if they think that increasing their own salaries is likely to hurt their chances of reelection, then they may opt not to increase their own pay.

At first blush, it might appear that this variant of self-dealing is not particularly harmful. After all, the city council is saving public money by denying itself increased compensation. But there are a number of reasons to be concerned about the systemic effects of reelection rent-seeking. While pay should not become the incentive for government service, most would agree that lawmakers' compensation should be set at a "rate that fairly compensates [lawmakers] for their work and attracts highly qualified candidates." (9) While few go into government work to get rich, common sense, as well as the political science research on the issue, tells us that pay is a consideration for at least some people in making the decision to enter-or continue with--government service. (10) Without adequate compensation, legislative office simply is not an option for some who would otherwise be interested in serving but who cannot afford to. (11)

Compensation also has implications for the quality of governance. While the public might appreciate city councilmembers' decision not to spend additional public funds on their own salaries in the short term, failing to raise compensation to adequate levels may be a "penny-wise, pound foolish" decision that is not ultimately in the public interest. (12) Lawmakers may not be given the resources needed to adequately handle the complex issues they face and may then be cast out by voters for failing to accomplish the tasks they lack the resources to deal with. (13) In addition, while one might intuitively assume that corruption correlates with excessive compensation, low compensation can also raise concerns about corruption and conflicts of interest because councilmembers are more likely to hold outside jobs or seek other forms of remuneration to afford serving in elected office. (14)

These concerns are not just theoretical. Across the country, city councils that control their own compensation routinely deny themselves pay increases, even when the amount would be relatively minor and they have gone decades without a raise. For example, every year for the past decade, city councilmembers in San Diego have rejected an independent citizens' commission's recommendation that councilmembers' pay be increased to reflect the rising cost of living and growing council responsibilities. (15) In Fairfax, Virginia, council salaries remained unchanged for over thirty years, while housing costs increased about 2000% in the overlapping forty-year period. (16) In Tucson, Arizona, the mayor and council actively campaigned against a proposal by an independent commission recommending a modest increase in council pay--$24,000 to $27,500-that, along with an increase in the mayor's pay, would have cost each city resident just five cents per year. (17) Conversely, some city councils in control of their own compensation have engaged in financial self-dealing, even as their cities are in the midst of financial crisis, with small cities like Bell, California attracting media attention for the excessive salaries of their elected officials. (18)

Procedures that give a city council control over its own compensation are thus problematic because they can produce both overcompensation distortions due to financial self-dealing and undercompensation distortions due to reelection rent-seeking. Neither result is normatively desirable. Compensation that is too high may result in elected officials motivated more by pecuniary incentives than civic duty; increased burdens on taxpayers; and inadequate recognition of nonsalary benefits of elected office (such as pension benefits). Conversely, compensation that is too low can result in elected office being open only to those wealthy enough to afford it; a less effective, accountable, and transparent government; and increased risks of conflicts of interest and corruption.

Yet alternative procedures that allocate the decision about compensation to another institution-such as voters or state legislatures-are also unlikely to result in pay determinations that an impartial decisionmaker acting in the public interest would reach. For example, a number of cities require voter approval of any proposed changes to city council compensation. (19) While a referendum process reduces financial self-dealing by councilmembers, the inherently politicized nature of politicians' pay tends to produce election pathologies, resulting in voters reflexively rejecting any proposed increase in city council compensation. (20)

Another alternative to city councils controlling their own pay is for compensation to be set by the state. But while such an approach limits the opportunity for councilmembers to engage in reelection rent-seeking or financial self-dealing, state control poses a risk of aggrandizement by the state. States-which already have significant control over local governments-can use compensation as yet another tool to gain leverage over cities. If "a power over a man's subsistence amounts to a power over his will," (21) then state governments that disagree with their cities' substantive policymaking-on issues ranging from environmental protection to civil rights-may use state control of city council compensation as a way of further limiting the role of cities.

The institutional design of congressional and state legislative pay has attracted some scholarly attention. (22) However, the legal literature has almost entirely overlooked the issue at the local level. This Article aims to remedy that oversight. Questions surrounding the institutional design of city council compensation are not merely derivative of those at the state and federal levels. While the existing scholarship on federal and state legislative compensation offers valuable insights, there are a number of distinct features of local governments-and cities in particular-that warrant independent study of city council compensation.

First, from a purely quantitative perspective, legislative compensation at the local level presents vastly more variations than at the federal or state level. There is only one Congress and only fifty state legislatures. But there are almost 20,000 municipalities in the United States. (23) Were all of these cities identical, the simple numerical fact might not be significant. But there are major qualitative differences between cities. Massive urban metropolises have annual budgets exceeding those of some nations and are responsible for governing millions of residents who have a diverse range of needs. (24) Small municipalities have far more limited resources and more limited needs. Because of the vast number of cities and their diversity-in both substantive characteristics and governance approaches-questions of institutional design for compensation at the local...