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Monday, November 12, 2012

A Few Observations on the Efficiency of Local Government

Recent discussions of local government and state finances have focused on high-profile employees. Efforts to control costs in Wisconsin resulted in protests and a recall election. Now Scranton, Pennsylvania, has reduced its workers’ wages to the legal minimum wage. Local budgetary crises have made it difficult for towns to pay for police, firefighters, and school teachers. Some people claim that government employment must be maintained—maybe even increased—because these workers provide vital services.

As a teacher at a private college, I can’t help but notice that the private sector can and does supply education—as well as security. Private provision of education and security are and will always be imperfect, but the track record of government services is hardly enviable. Towns like Sandy Springs, Georgia, and Maywood, California, have saved money by contracting local services, except for the police and fire departments, out to the private sector. (While bidding for a government contract is semi-competitive—there’s only one purchaser—the winning firm is a monopolist, so this arrangement is different from a competitive market.)

We should examine the relative merits of private and government education and security, but there are other issues that may deserve more attention. Many town departments get little scrutiny. The operation of our water, road, recreation, and engineering departments often escapes notice.

Twenty-seven years ago I worked as a summer employee of the Livingston, New Jersey, engineering department. At that time I intended to earn a degree in civil engineering, so this job seemed like a good idea. I was told the engineering department hired several local college students every summer so they could learn surveying, build a résumé, and “earn” some money. During this summer I observed a local government from the inside. I had plenty of time to watch what people were doing because as the chief engineer put it on my first day, “There is no work for you to do in this job.” I thought he might be exaggerating, but this was not the case.

One could say that my own observations are merely anecdotal, but Livingston’s government works like other municipal governments. A town council makes decisions, and residents pay for these decisions, mostly through property taxes and small fees.

The time I spent not working that summer enabled me to observe others not working. The engineering department of Livingston had three full-time civil engineers. There wasn’t enough actual work to keep even one busy. We surveyed land that had already been surveyed. We observed a road construction project and some housing construction. Very little of what any of us did had any practical purpose.

The water department was slightly more productive. Every morning the water department van would go out to fix broken water mains. Most of the time there were none to fix, so this crew of about a half dozen men would be “on call.” How often did water mains break? Once every month or two. How long did it take them to fix a broken main? Two or three days. Do the math and it is obvious that these men were paid to do nothing most of the time. What did they do? They would hang around the local parks, the Livingston Mall, the Donut Basket, or somewhere else.

The road department would clear fallen trees or branches a few times a year. During the summer that I worked in the town hall, some of them were busy replacing street signs they had previously misspelled.

The town recreation department was somewhat busy during the spring and summer. I am not sure how they passed the time the rest of the year.

Perhaps the oddest daily event was the 2 p.m. break in the town hall. Every day town employees would gather in the break room for about an hour for donuts and coffee. This was not a break from work so much as a break from sheer boredom. Soon after the “break” ended, town employees would leave this den of inactivity, fill up their cars at the taxpayer-funded town gas pump, and go home.

My overall impression that summer was that if the entire town hall staff had been abducted by aliens, it could have been weeks, perhaps more than a month, before any residents would have noticed.

I doubt much has changed. Several years ago Livingston had a scandal when the town council built a new and lavish town hall. The remodeling was so expensive that it sparked outrage. The point here is not just to note an example of waste, but also the difference between high- and low-profile waste. Livingston wasted $30 million on its municipal building, but paying the salaries and benefits for dozens of nearly useless town employees over decades costs even more.

As a graduate of the Livingston public school system I can say that the teachers do teach.  As a former resident of Livingston I can attest that the streets are safe. High-profile government employees do provide some services. But as an economist I can see that town governments are biased toward waste. Local taxes are coercive and go into a general fund to finance all of a town’s departments. Local taxes disperse costs over all residents, obscuring the costs of financing specific departments and of hiring individual employees. Many costs of operating local government go entirely unnoticed, making cost control impossible. What takes the place of decision-making on the basis of cost? Decision-making on the basis of politics. There is no market test because the “buyers” of services are not free to say no. Thus politicized management by local governments has a proven track record of waste, to the point where many cities and states are faced with budget crises or have gone bankrupt.

In the past several years many people have realized that the overall costs of government are excessive. Public outrage over waste can have two outcomes. Government officials may occasionally respond to public pressure on high-profile issues, perhaps yielding partial or temporary improvements. Lasting solutions to government waste (local or federal) require extensive privatization. There is a fundamental problem with government in that the people who are most familiar with the worst examples of waste are precisely those people who gain from it: public employees. Taxpayers are at a permanent disadvantage when it comes to learning exactly how their tax dollars are spent or wasted. The smartest move for taxpayers is therefore to press not for more efficient government, but for much less government.

Modern government is a failed social experiment at both the local and national levels. Those who insist on maintaining traditional government services at any cost fail to see that we have options. Recent examples of outsourcing services have been successful, but these moves may not go far enough. Economist Walter Block has written extensively on road privatization. The late Elinor Ostrom, who won the 2009 Nobel Prize in economics, examined common-pool resource management by local nongovernment organizations. Alternative institutions have proven track records. We should have moved away from government economic management before it created severe budgetary crises. Now that these crises are upon us, we should act decisively to end the era of big government.

(A version of this article previously appeared on TheFreemanOnline.)

  • D. W. MacKenzie is an assistant professor of economics at Dickinson College.