Friday, February 15, 2008

Fiscal Crisis: An Opportunity for Innovation?

Crisis opens way for regional governance
First published: Wednesday, February 13, 2008
Correction: An earlier version of this story misspelled the name of Bill Conway of the Carlyle Group.

When private equity mogul Bill Conway of the Carlyle Group says we're at the beginning of shrinking real estate values, governors and legislators in the Northeast and Midwest should sit up and pay attention.

Like the prospect of a hanging, the prospect of coming budget cycles with falling revenues from property taxes should concentrate the mind wonderfully -- on a policy chore that is long overdue.

Towns, villages, cities, school districts and counties that live on property taxes are going to live on less. They've relied on phantom appreciation. Now they'll face days, if not years, of reckoning.

That leaves local leaders in the old, cold states a choice of cutting back on roads plowed, bridges repaired or emergency services, or else raising property tax rates on homeowners whose asset values are eroding.

There is an alternative. It's called regional governance. Local politicians hate it, but governors are beginning to get it.

In the face of waning taxable value, there is no time like the present for cities and counties in New York, Pennsylvania, Michigan and Ohio to consolidate and restructure, so that their local governments look more like modern-day Virginia or Ontario, and less like medieval England.

Analysts including the Brookings Institution, former Albuquerque Mayor David Rusk and Rochester's Center for Governmental Research have noted that the local government structures in the Northeast and Midwest are more expensive, less efficient and more prone to isolating the poor in the "iron boxes" of elderly cities and first-ring suburbs, whose boundaries are fixed, than are Sun Belt states where counties administer unified service districts (including schools).

Gov. Eliot Spitzer and his colleagues struggle to put state budgets together in part because mayors, supervisors, executives and school leaders all ask for subsidies. Nonschool aid to local governments in Spitzer's proposed budget is more than $1.5 billion.

As the governor's Commission on Local Government Efficiency and Effectiveness completes its work this spring, we hope that it will lead to a more nimble and more cost-efficient system of local government capable of meeting the challenges of contemporary society and the needs of our overburdened citizens.

A recent CGR study showed that the cost of local government is much lower where services are administered regionally, as in Virginia, rather than municipality by municipality, as is the case in New York's 1,550 cities, towns and villages. Taxpayers get a better bang for their buck in Arlington, Va., where the county runs things, compared to communities in and around Rochester, Buffalo and Long Island, where dozens of towns, with dozens of supervisors and commissioners and deputy commissioners and extra department heads, do everything from policing to plowing.

It's the norm in New York. And in Pennsylvania, and in Michigan, and in Ohio.

It used to be that way in Canada, too. Then in the 1990s, Ontario's government faced up to this same pattern of micro-organization, in which every jurisdiction has a public works director and a police chief and an assessor and all the rest. Today, Toronto's consolidation looks a whole lot like New York City's in the 1890s, or the more recent examples in Jacksonville, Fla.; Nashville, Virginia Beach and Indianapolis.

But it's gritty old Hamilton, Ontario, a community of 500,000 near Buffalo, that may be the better model. First the city of Hamilton and its county merged, so that the two biggest bureaucracies melded into one. Then, in the second phase, the separate administrations of the many towns were brought in. Now there's a regional city -- a region centered on the city, with contained costs, and a regional planning scheme that prevents the kind of over-building of housing inventory that gives Rust Belt areas a sort of sugar high, like the one we're crashing from today.

Consolidation works, and more American communities are considering it as the smart alternative. But not in New York.

It costs less, works better and prevents or at least contains the sprawl that leaves regions vulnerable to inflationary highs and lows. Regional consolidations in Indianapolis, Louisville, Nashville, Toronto and Hamilton have also worked because professional civil servants survived.

What tends to die in regionalism -- which is why local politicians resist it so bitterly -- is expensive political patronage, and ancient folkways, such as featherbedding, and racially exclusive zoning, and taxpayer-subsidized handouts to politically wired developers.

But the property value crisis is real, which means that the revenue crisis for local government is real. Local governments in New York operate on a calendar year fiscal year, and if the economists and bankers are right, 2008 is going to be the last year of doing things the old way.

Let's not waste the crisis.

William A. Johnson Jr., a former mayor of Rochester, is distinguished professor of public policy at Rochester Institute of Technology. Bruce Fisher, former deputy county executive of Erie County, is a public policy consultant based in Washington, D.C.