Municipal discretion during the Great Recession.

• Author: Wood, Curtis
• Position: Survey

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A 2010 study, which aimed to establish whether there has been a difference in fiscal outcomes between empowered and less empowered municipalities during the Great Recession, found that officials in more empowered municipalities have acted in a fiscally responsible manner by not using their expanded authority and discretion to impose unwarranted taxes and spending. In addition, empowered municipalities with populations of more than 20,000 in this study have higher bond ratings than do less empowered municipalities of the same size, and public officials in municipalities with populations of more than 2,500 use more deficit-reducing strategies than public officials in less empowered municipalities.

LOOKING AT MUNICIPAL DISCRETION

The most desirable degree to which the state government should or does decentralize power to local government has been a source of major controversy since the end of the Revolutionary War. (1) Municipal discretion, or "independence," as Alexis de Tocqueville called it--and home rule, as many scholars and practitioners call it (Berman, 2003) (2)--emerged during the Progressive Era (a period of social activism and reform that flourished from the 1890s to the 1920s) as "proposals to amend state constitutions or pass state laws that would increase the power of local governments and decrease the power of state legislators over local governments." (3) Local government officials and reformers who support a broad grant of discretionary authority by the state to local governments advance seven major arguments for doing so:

* Citizens' interests will be promoted.

* Civic education will be advanced because local officials and citizens will need to study issues before decisions are made.

* The most expeditious solutions to problems will be found because local officials and citizens have the most familiarity with and knowledge of local problems.

* Local government experimentation will be encouraged.

* In a period of resource scarcity, the most effective and efficient allocation of funds to higher priority needs will be ensured.

* Political alienation of local officials and citizens will be reduced.

* State officials will have more time to focus on statewide issues. (4) In addition, empowered local officials can more easily be held democratically accountable. (5)

Opponents of a broad grant of discretionary authority by the state to local governments argue that in empowered municipalities:

* Local officials will act in an arbitrary and capricious manner by favoring political friends and disfavoring political enemies when making policy and budgetary decisions.

* Units of government will lack uniformity with regard to services, structures, and actions, causing inequities.

* Citizens who appeal local decisions to the state will unwittingly cause the state legislature to spend an inordinate time on local issues.

* Income inequalities among empowered local jurisdictions will leave some local governments unable to solve their own problems, thus undercutting the revenue base of state government.

* Decentralized control will make it more difficult for state government to address regional problems, and local governments will be deprived of the economies of scale that centralized control makes possible through the superior expertise and technical resources of the state government. (6)

The belief that municipal officials cannot be trusted to serve the public interest has its roots in the era of municipal corruption in the last decade of the nineteenth century, chronicled by Lincoln Steffens in his 1904 classic, The Shame of the Cities. Despite the progressive reform movement, which eradicated most municipal corruption, particularly in council-manager cities, popular support persists for constraining municipal government powers through a strict constructionist judicial standard, statutory limits on taxing powers, and tax caps. (7)

THE RESULTS OF THE STUDY

Exhibit 1 showstheminimum, maximum, and mean municipal discretion and fiscal outcome scores for the municipalities participating in this study (see sidebar for details). Of the 20 municipalities with the highest total municipal discretion scores, six are from Illinois, four are from Colorado, and two are from Texas. The respondent municipalities from Colorado, Tennessee, Kansas, Maryland, and Connecticut averaged the highest total municipal discretion scores (see Exhibit 2).

Thirty of the 170 municipalities have earned the highest bond rating from Moody's or Standard and Poor's, while only two municipalities have received a rating of B or lower. Sixty-three of the 170 municipalities (37 percent) were rated only by Standard and Poor's; 63 (37 percent) were rated only by Moody's; 23 municipalities (13.5 percent) used both rating firms and received the same categorical rating from both firms; 18 municipalities (10.5 percent) were rated by both firms, but the Standard and Poor's rating was higher; and three municipalities (2 percent) were rated by both firms, but the Moody's rating was higher.

Of the 244 municipalities, 138 (57 percent) reported a general fund deficit in fiscal 2009 and/or fiscal 2010, while 106 of the municipalities (43 percent) did not report a deficit in either of the two fiscal years. Of the 138 municipalities reporting a deficit, 115 (83 percent) reported expenditure cutbacks, 106 (77 percent) reduced general fund cash balance, 76 (55 percent) increased general fund taxes or fees, and 27 (20 percent) issued debt to reduce or eliminate the general fund deficit.

Fiscal outcomes among the municipalities in this study are more alike than different, regardless of the scope of municipal discretion. Despite the local fiscal crisis brought on in large part by the Great Recession, total municipal discretion is not correlated with property taxes per capita, changes in general fund revenues, total revenue per capita, total expenditures per capita, total full-time equivalent (KFE) employees per capita...