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HomeEconomyAn Insider Untangles the Causes of the Financial Crisis in American Cities

An Insider Untangles the Causes of the Financial Crisis in American Cities

The municipal financial crisis, with the failure and decline of cities that follow, is here. But it’s a crisis of mission, not just solvency.

That’s the thesis of Mark Moses, a longtime senior management professional and finance director in California local government. Informed by his decades of experience and a solid grasp of economic principles, Moses contends most cities overextend themselves because they lack a clear, realistic mission, or even worse, see their mission as something like “maximizing services.” Trendy budgeting methodologies like zero-based budgeting and performance budgeting can’t fix the problem, because they can’t overcome inarticulate goals and the administrative inertia they foster. Only a clear-eyed analysis of the proper role of local government, followed by root-and-branch reform, can put cities on the proper path.

Moses says local governments get in trouble because even severe problems have little urgency. Dealing with problems is painful, and postponing hard choices means that someone else will have to make them. Why bother now, if you can’t go out of business? Perversely, governments’ permanence promotes a short-termist mentality.

Moses notes that when he started a new role, a few open-ended questions revealed that municipal employees mostly acknowledge the importance of operational improvements, recognize what’s at stake, and are willing to change. They weren’t the indifferent and unambitious bureaucrats he imagined. Still, nothing gets done. “[W]hy are these organizations a decade or more behind in the use of technology and modern work processes?” Because the burden of proof lies on anyone who wishes to disturb the status quo. Also, those seeking to change things, everyone assumes, must have a political motive. So problems persist.

Even bankruptcy is no solution. Cities emerge from the process with “the same city charter, the same organizational chart, the same array of boards and commissions, the same mission, vision, and goals–i.e., the same fundamentals that paved the road to bankruptcy.”

There are many ways public officials can conceal a problem. You can balance a budget with one-time revenues. You can underfund future liabilities, like defined-benefit pension plans. You can defer maintenance or distract attention with splashy new projects. You can forbid certain land uses rather than buying the rights to them. Regulation looks “cost-free,” other than the small cost of enforcement, but its true costs are merely hidden.

Citizen surveillance of local government is difficult. Local officials themselves often don’t know how other parts of government work. Local governments have become bigger and more complex over time. Frequently, no one knows why things are done a certain way; they just seemingly always have been. Without true voter control of local government, it’s easy for problems to persist and grow in the dark.

While bankruptcy or fiscal distress is the most visible sign of crisis, growing tax and regulatory burdens and gradually deteriorating public infrastructure are the real consequences people suffer. The incentives are simply not aligned in most states for long-run local government performance for the benefit of the citizen.

What’s the solution? Moses advocates clearer, more focused missions for local governments and reorienting service delivery around those missions. Too many local governments define their missions vaguely: “providing the right public services for [our] way of life” (Bend, Oregon) or “provid[ing] municipal services and programs essential to a desirable community” (Walla Walla, Washington). A mission statement that subsumes anything you want is a recipe for disaster for any organization, but especially a permanent one equipped with the right of force.

Moses proposes that local governments limit themselves to tasks that the private sector cannot do. Recreation centers, golf courses, and even libraries might be “nice-to-haves,” but there’s no reason they should be a part of government.

Even fire services can be rethought. Fire hazard has declined precipitously in cities over the last century, but instead of downsizing fire departments, cities gave them EMT and ambulance responsibilities. Could the latter be private functions? Could firefighting be partly or wholly an insurance company function, as in the 19th century?

Moses even advocates a role for competition in water and sewer networks, pointing to telecom innovation after the breakup of AT&T as a precedent. Still, he realizes there will need to be a transition period: “Although the changes from commercializing utilities and other enterprises will be dramatic and exciting, they will not be immediate or routine.” It certainly seems that water and wastewater networks could be privatized and then rate-regulated as a transitional measure. Moreover, technological changes such as the arrival of “community septic systems” make the possibility of decentralized waste disposal networks not so far distant.

In the end, Moses says, we need to decide on the proper scope and purpose of local government and then budget for scope. Balancing budgets without reassessing what municipal governments should or should not do, and the long-term benefits and costs of their activities is insufficient. To put the point slightly differently, once local government does less, it will do what it is supposed to much better. People need their government, as Moses says, to use its unique authority “to apply the legislative and enforcement powers of government to define and enforce personal and property rights that ensure residents’ and business owners’ freedom to engage in personal and commercial activities.” Every effort and resource municipal staffs put into providing commercial services themselves are not spent on achieving the proper role of local government – creating and maintaining an institutional environment for its constituents to operate and flourish freely.

The Municipal Financial Crisis ends up being a refreshing read despite its pessimistic hook. Fixing local government in the US isn’t out of our reach. We don’t have to accept the usual pathologies of bureaucratic paralysis, infrastructural decay, and outmoded business practices. Moses’ longtime experience on the inside of local government gives him the credibility to diagnose what’s wrong with it and to recommend a path forward. Anyone curious about how local government really works, and how we can do better, should read this book. And while following Moses through his stories and recollections of the intricacies, difficulties, and details of budgeting can be exhausting, it only enforces his point: Operating a municipal government efficiently is so complex it urgently requires earth-shaking reform.