Local, Smaller Governments More Financially Stable

Audio, Economy, Frontier Centre

With debts of more than $18 Billion, the city of Detroit was declared bankrupt last year, but it’s not the largest American city to ever face such a crisis.

New York filed for bankruptcy in 1975 but the process was stopped at the last-minute.

Detroit is also not alone in dealing with dramatic loss of population. St. Louis has lost a larger share of its population, yet remains fiscally solvent.

Serious financial stress is becoming a major problem for other American cities, including Los Angeles, San Diego, and San Jose.

Research shows a strong association between large population and both higher taxes and higher per capita spending.

As governments become larger, the individual voter becomes less relevant, and  less engaged in the community. When this happens, organized special interests  make more demands and seem to exert greater influence.

As municipal spending rises, residents resist tax increases. Then cities have to borrow more, and eventually they default on their debt.

Such problems have mostly been avoided where local governments are smaller, because elected officials remain more responsive to the needs of the voters.

The best chance for the future in Detroit  may be in multiple, independent local  jurisdictions.

Canadians should pay close attention to what happens to large American cities and strive to keep governments here more local.

I’m Roger Currie. Join us again next week for more thoughts on the Frontier.

For more on local government,  visit our website www.fcpp.org.