Governments should think responsibly about what essential services they offer and how they are funded. It’s important to carefully consider what services your local government should provide and what services should be left to the private market. Before committing to provide and fund any services, think critically about whether or not it is a responsible and appropriate use of government resources.
At the end of the day, cities are enterprises set up for providing services that are considered public goods or that are frequently subject to a natural monopoly.
For example, once the first and most efficient road has been built to your house, you’re likely going to use that road to get to and from your home. If someone were charging you for that use, they could charge whatever they want because building another competing road to your house would be difficult or impossible. As a result of this effect, it makes sense that a local government would provide this service at a low cost.
Another argument for government services is that public goods like roads, sewage systems, or parks suffer from a free rider problem. It is difficult, if not impossible, to keep people from benefiting from these services, even if they don’t pay for them.
People benefit from having a sanitary society and a road system even if they are just visiting the town and don’t contribute to the funding of those systems. Even if those systems were all privatized, people would still benefit from them. When a service poses enough of a free rider problem, it might make sense that the government would provide that service.
There is a very niche corner of services that are arguably most efficiently provided by a local government. Beyond those very basic services, the private market will likely provide a better product at a lower cost than the government can. When your focus moves beyond basic and effective infrastructure, it has moved beyond the proper role of government.
Some might suggest that if the government can provide necessary infrastructure, they should provide any amenities requested by a majority of voters. Certain government services can be efficient and effective, but there are very few instances where it makes sense for the entirety of a community to be forced to fund a project that benefits a small minority of people.
Furthermore, when services are provided via the free market, the quality increases and the price decreases. We’ll talk more on that in the next chapter.
Below, you will find some insight on frequent issue areas you might address as a local official.
“Cities are more than the sum of their infrastructure.” —Rick Yancey
Most large infrastructure projects will require much more money than you have on hand in any given year. As a result, you will have to make some difficult decisions in order to fund these projects.
One Common Approach: An Endless Tax
In an effort to be fiscally responsible, some local governments choose to save up the necessary funds before commencing a big project. At first glance this may seem like a conservative option, but there are several underlying problems with this approach.
First, the method for generating these funds usually comes in the form of a tax. The problem with taxes is that while they are occasionally increased, they are very seldom reduced. Funding a large project with a tax increase often results in permanently increased taxes, even after the project is complete. Even in the case of some bonds, local governments have elected to continue collecting the same amount of money after the bond is paid off by increasing taxes.
Another problem is that by charging taxpayers ahead of time for a project that is to be completed in the distant future, people are funding a service that they don’t currently — and might not ever — benefit from. On top of that, if you indefinitely stash cash in an attempt to save for a large project, that money is losing value as it sits idle and inflation increases.
A Better Way: Smart Temporary Bonding
If rates are low and you can responsibly bond for large infrastructural projects, you should. Then, when that debt is paid off, retire the bond and relieve your constituents of the added financial burden.
This will allow projects to be paid for by those who are actually benefiting from them. This is especially prudent in light of the fact that government entities generally benefit from low interest rates.
Be sure not to treat the opportunity of a bond as a blank check. When borrowing money, you should be especially careful to make sure that your plans are frugal and narrowly applied. Find alternative ways to build that do not involve superfluous or unnecessary spending.
The Washington County School District, for example, opted to use lower cost tilt-up construction for their new projects. This creative approach allowed them to build lasting structures while reducing costs by up to 25 percent.
Utah has experienced record breaking levels of growth over the past few decades. As Utah grows, your jurisdiction will grow and you will have to invest in more infrastructure to facilitate that growth.
One Common Approach: 0 to 100
Growth can be exciting and it is easy to get swept up in that excitement. As you watch neighboring localities grow and expand you might be tempted to jump toward large scale developments and projects. As you manage growth, you must strike a delicate balance. You don’t want to put the cart before the horse and expand your services and subsequent spending too quickly.
However, you also don’t want to be caught off guard by growth and be unprepared to meet the needs of an expanded population.
Being overzealous in your reaction to growth can lead to broad spending which may seem like a good idea in the moment but which leaves you with massive obligations down the road. Spending large amounts of money might seem justified in the moment and in the context of impending growth, but remember that that is not the only context in which that spending matters.
Spending, especially for infrastructure, should be considered within the context of all potential upkeep and maintenance—future obligations and impacts that this decision produces.
On the other hand, growth should not be feared or used as an excuse to restrict or deny land owners or developers. Growth is good and likely inevitable. Trying to avoid growth by undermining property rights or imposing intense restrictions is unfair to your constituents and those interested in joining your community.
A Better Way: Incremental Growth
Your growth should be able to pay for itself. In order to achieve this, growth will need to be incremental. As residents and businesses join your community, the increase in tax revenue should fund the necessary increase in infrastructure and services. A steady process, rather than a series of significant but infrequent steps, can be more easily managed without straining existing taxpayers or eliciting political battles.
Your growth should be financially responsible and sustainable. This means that you ought to take into account not just initial spending but also the cost of maintenance and any other potential obligations or liabilities that are being created.
We have included a chapter on taxes in which we will discuss the spending of money at length. For now, it’s important to note that one of your biggest responsibilities will be the taking, management, and use of taxpayer money.
In addition to being as transparent as possible in your communications and meetings, you should work to be a wise steward of public funds. Your constituents are compelled to fund the government; at a minimum, they should be able to follow where that money is going.
One Common Approach: If You Want It, Come And Find It
Financial transactions are almost always recorded somewhere. A combination of state law, federal law, best practices, and tradition basically guarantee that somewhere in the depths of the city files, the answer to any financial question can be found — it’s just a matter of how difficult it is to find. In most cases, the answer is: extremely difficult.
When financial records are not openly available, any individual wishing to be informed will have to go through an arduous process to get their hands on the appropriate information.
At best, this will entail submitting multiple requests and sifting through documents. At worst, citizens could be tossed around to different administrative offices without ever finding the information they were looking for.
This is not an appropriate way to approach financial transparency.
Finally, even when financial information is released, it is sometimes done in a format that is inaccessible to or difficult to understand for the average taxpayer. Financial information should be communicated and tracked clearly and simply so that those who are paying the government can clearly observe and understand how it is using their money.
A Better Way: Spend Wisely And Publish Everything
Instead of placing the burden on your constituents to sift through and translate financial documents, ensure your staff publishes clear and comprehensive reports on your revenue and expenses. There are local governments that do a fantastic job at this and regularly put out understandable and all-inclusive reports. Work towards this goal. Such financial transparency encourages accountability and responsible spending.
The American Legislative Exchange Council writes on transparency and includes a list of all financial information that should be published.
They include, among other things, all budgets, current and historic, graphs showing spending and revenue over time, a check register including all details of checks written, status of any audits, contract information, and all grants given to non-profit organizations.
As you become more and more familiar with your entity’s finances, you will come to realize just how many expenditures a government makes. Make as much of this information as possible public, accessible, and understandable.
Your focus should be on doing the basics well. Treat taxpayer revenue with more care and consideration than you would your own money. After all, it is not yours. Those funds should go toward the most efficient approaches to the basic services that benefit the public at large. Try not to get caught up in the extravagant projects that some governments fund; it is more important to have well-maintained roads than to have a shiny new stadium.
Here are the key takeaways:
- Focus on doing the basics (roads, water, power, sewer) well.
- Do not provide the service if it could be done better by the private market.