Contrary to the popular view, Detroit is not the largest municipal bankruptcy in U.S. history. New York City had filed for bankruptcy in 1975 before the process was stopped by a last-minute deal between city officials and municipal unions. There were 10 times as many New Yorkers then as there are Detroiters today.
Nor is Detroit alone in facing a catastrophic loss of population. Virtually all other large, geographically-constrained core municipalities in the Western world have lost population, from Boston to Minneapolis, Paris to Copenhagen. St. Louis has lost a larger share of its population than Detroit, yet remains fiscally solvent. The usual shibboleth — blaming the suburbs — simply misses the point. The Detroit area has seen more than its share of strong interregional cooperation between city and suburbs (in which I had the privilege of involvement).
There are many causes of Detroit’s bankruptcy, and, to be sure, subpar fiscal management is among them. This is not unusual among America’s largest core cities. Growing Sunbelt cities, such as Los Angeles, San Diego and San Jose, are also in financial trouble. Things are so stark in San Jose, heart of the world’s second most affluent metropolitan area and the Silicon Valley, that Democratic Mayor Chuck Reed is pursuing a statewide voter initiative that would permit cities to renegotiate pension benefits for current workers. Even Indianapolis, often cited as a model of fiscal responsibility, required a state rescue of its pensions little more than five years ago.
In fact, financial distress is principally a big-city problem in the United States. This is illustrated by the records of three state programs designed to guide cities through financial embarrassment.
Approximately 20 percent of Pennsylvania’s municipalities with more than 50,000 population have entered the state’s Act 47 program over the last 25 years. This includes the second-largest municipality, Pittsburgh, while the largest, Philadelphia, was saved only through fiscal reforms enacted by newly elected Mayor (and later Governor) Ed Rendell. Among the approximately 2,500 municipalities smaller than Philadelphia and Pittsburgh, only 0.1 percent have ever entered financial distress. Collectively, these smaller municipalities represent more than 80 percent of the population.
In Ohio, cities with more than 100,000 population have been 160 times as likely to enter that state’s distressed municipality program as townships. Townships are generally the smallest governments and can be found throughout both metropolitan and rural counties.
Only 12 of Michigan’s general purpose governments have been taken over by state emergency managers in a quarter century. One, Detroit, has more than three times the combined population of the other 11. The other 1,750 plus general purpose jurisdictions in Michigan, containing 90 percent of the state’s residents, have adequately managed their financial affairs.
The “bigger is better” view of municipal governance has drawn increasing scrutiny from scholars in recent years. For example, the late Elinor Ostrum noted the advantages of smaller local governments in monitoring costs in her 2009 Nobel Prize lecture.
My own research, commissioned by local governments and their organizations in Toronto, Pennsylvania, New York, Indiana, Illinois and Ohio, found strong associations between larger population and both higher taxes per capita and higher spending per capita.
Citizen control is central to the purpose and function of democracy. As governments become larger, the voice of the individual voter becomes more muted and voters have less incentive to become civically-engaged. It should not be surprising that, as citizen control recedes, organized special interests have greater influence. Political campaigns in the largest jurisdictions rely to a large degree on contributions from special interests, on the left and the right.
This has led to a vicious cycle. As municipal expenditures rise, residents become more resistant to tax increases. Cities then turn to debt, rather than making the structural reforms necessary to achieve longer-term financial sustainability. Eventually, default occurs, as has happened in Detroit.
Larger municipal governments provide virtually no economies of scale, except for special interest groups, for which it is cheaper to lobby a big government than many small ones. Financial distress has been largely avoided where governments are smaller, because voters are better able to enforce an appropriate alignment between their interests and those of the municipality.
The best chance for Detroit’s future may be in multiple, independent local government jurisdictions. The new Detroit must be financially stable. It requires a much larger population, which will not be attracted to a city, with inferior public services and profligate spending. Resources need to be managed at least as well as in a city with 5,000 residents (the average size of the cohort of Michigan municipalities which never fell into fiscal distress). In the final analysis, a municipal corporation is justified only to the extent that it serves the people.
A successful Detroit — all 140 square miles — could require government at a more human scale.
This article originally appeared on Public Sector Inc.
