Reforming State Governments to Meet the Needs of Metros

The economic crisis has spurred a wide range of government innovations, as my colleagues Mark Muro and Sarah Rahman noted in their post earlier this week. But the crisis highlights the need for innovation that goes beyond particular policies to the basic structure of local government.

America’s metropolitan areas can no longer afford the crazy quilt of tiny, fragmented governments that they have inherited from the 19th century. While metro areas are single economic and social units, they are governed by a hodgepodge of cities, counties, towns, villages, school boards, fire districts, library districts, workforce boards, industrial development authorities, water and sewer districts and a host of other special entities.

The result is a fundamental mismatch between the real metro-scaled economy of innovative firms, risk-taking entrepreneurs and talented workers, and the inefficient administrative geography of government. I’ve detailed the range of costs of this mismatch here, but one in particular is worth highlighting.

Metropolitan fragmentation exerts a negative impact on competitiveness and weakens long-term regional performance. Municipalities routinely expend scarce resources on tax incentives to lure firms from nearby jurisdictions, adding not one job or tax dollar to the overall economy in the process. Fragmented regions often fail to recognize their distinctive clusters of strength in the global marketplace and take the actions, large and small, to leverage their competitive advantages. They compete for growth and jobs at a deficit.

States need to act, because they can’t afford their metropolitan economic engines to be weak, particularly now, and because states created, or at least allowed, this local government mess in the first place. States should do three things.

First, they need to move to consolidate units of local governments, starting with school districts and economic development authorities.

Second, states should move to delegate traditional state functions to entities that govern at the metropolitan scale. California, for example, allocates 75 percent of its federal transportation funding directly to metropolitan planning organizations, enabling these organizations (usually governed by city and suburban elected leaders) to make transportation investments in the service of metro housing, land use and economic development priorities.

Finally, states should promote a new generation of inter-jurisdictional collaboration to gain efficiencies, such as tax base sharing and shared services arrangements like consolidation of 911 call centers.

Reducing the proliferation of outdated local governments can enhance competitiveness, promote growth, cut waste and shift investments to what really matters.