The Case Against the Case Against Microgovernments

by Reihan Salam

I recently wrote a post suggesting that some of New Jersey’s structural fiscal problems could be solved by Corzine’s proposed consolidation plan. I tend to like smaller local governments, however, and I’m very glad to report that Jim Manzi has suggested that consolidation is being oversold.

If one were to make the heroic assumptions that these costs differences are caused entirely by town size, and that every town below about 6,000 people could find a nearby town or towns to merge with to get to about 10,000 people (but not more than 15,000, at which point costs would start to rise), and that therefore all small towns could get to the same per capita local government costs as the lowest-cost towns, then you could get some costs out of the system. How much? Under the unrealistic assumptions provided above, about $0.3 billion per year. In comparison, New Jersey’s 2008 state level budget is about $33.3 billion. This is up about $2.2 billion over 2007. So, this – again, totally unrealistic – benefit could be achieved simply by increasing spending from $31.1 billion last year to $33.0 billion this year instead of increasing it to $33.3 billion. Of course when you add in local spending, total state plus local spending is much higher than this in New Jersey. New Jersey’s 2005 total state and local spending was the eight-highest in America, at about $8,900 per capita. Nearby Connecticut had the tenth-highest level of state and local spending, at about $8,550 per person. Simply spending at Connecticut’s level (which isn’t exactly like saying “become Alabama”) would reduce total state and local spending by about $3 billion per year. Finally, under the same set of assumptions that lead us to think we can get $0.3 billion by forcing the consolidation of hundreds of towns, we would presumably want to break up the large towns into smaller towns of 6,000 – 15,000 people each, since this is the lowest-cost town size. That would, under the same assumptions, save more like $1.5 billion per year. Don’t hold your breath.

One way of looking at this is that Corzine chose to pursue a near-impossible strategy that would yield modest gains at best to reduce the burden of state and local taxes rather than take the more straightforward step of reducing spending to Connecticut levels.

While Jim isn’t exactly advocating this idea of consolidation microtowns and breaking up macrotowns, I rather like the idea, particularly the breaking up macrotowns part. This is one reason why I was very disappointed when the San Fernando Valley secession movement failed.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.