Government Fragmentation and Economic Growth

fragmentation

by James A. Bacon

What are the secrets of successful metropolitan regions? According to conventional economic-development thinking here in Virginia, success hinges upon the ability to maintain a positive business climate, a concept that encompasses everything from tax rates to the tort system, the transportation network to the education level of the workforce. But a new publication by the Organization for Economic Cooperation and Development (OECD), “The Metropolitan Century,” identifies a critical variable rarely discussed in Virginia: the fragmentation of municipal governance.

Metropolitan regions characterized by higher levels of municipal fragmentation tend to experience lower economic growth rates than metros with less fragmentation, contends the OECD report, as seen in the chart above. Metropolitan regions run the gamut in the degree of fragmentation, from the United Kingdom with an average of 0.4 municipalities per 100,000 residents to the Czech Republic with an average of 2.43 per 100,000. All other things being equal, the report says, “For each doubling in the number of municipalities per 100,000 inhabitants within a metropolitan area, labour productivity in the metropolitan area decreases by 5-6%.”

(I would surmise that the number of municipalities in Virginia falls in the “moderately low” category. For example, the 1.7 million inhabitants of the Hampton Roads metropolitan area are governed by 16 jurisdictions, including two in North Carolina, or slightly less than 1.0 per 100,000 population.)

Fragmented government inhibits economic growth through its impact on transportation and land use, suggests the OECD report. The inability to plan regionally can result in “sub-optimal provision of transportation infrastructure” that falls short of its potential to provide the connectivity required by a productive, growing regional economy.

In the context of large urban agglomerations, land use planning and transport planning are often the fields where the need for co-ordination is greatest. … Housing and commercial developments need to be well connected to other parts of the urban agglomeration, and public transport in turn relies on a minimum population density to operate efficiently.

Integrating transport and land-use planning makes it easier to utilize value-capture tools for financing transportation infrastructure. “Public spending for infrastructure increases the price of adjacent land,” states the report. “Often, this price increase provides a publicly funded windfall profit to land owners or developers. Land-value capture tools aim at recapturing these windfalls from developers in order to (partially) fund the infrastructure investment.”

Echoing arguments that EM Risse made on this blog years ago, the OECD report observes that administrative borders in metropolitan areas have not evolved in concert with economic and social patterns.

While good governance structures are no guarantee for good policies, it is very difficult to design and implement good policies without them. … Administrative borders in metropolitan areas rarely correspond to these functional relations. Often, they are based on historical settlement patterns that no longer reflect human activities.

A few decades ago, there was a move in Virginia to consolidate cities and counties in order to achieve administrative efficiencies and economies of scale. There were some notable successes — Virginia Beach merged with Princess Anne County, Suffolk merged with Nansemond County — but the movement petered out.  The OECD report spelled out reasons for resistance to consolidation that apparently apply across the economically developed world:

Common reasons for the persistence of administrative borders are strong local identities and high costs of reforms, but also vested interests of politicians and residents. Even if policy makers try to reorganize local governments according to functional relations within urban agglomerations, it is often difficult to identify unambiguous boundaries between functionally integrated areas.

There doesn’t seem to be any appetite for consolidating local governments in Virginia, but the OECD report does suggest an alternate strategy: Identifying specific functions that can be transferred to regional authorities.

Would it be worth the effort to invest political capital in such endeavors? Take a look at the chart at the top of this post. The big dividing line in economic growth is between medium-low and medium-high fragmentation. Assuming Virginia metropolitan regions fall into the medium-low category — and I do confess that I do not know exactly what the dividing line is — there doesn’t seem to be much of a growth premium from consolidating our way into “low fragmentation” status. Indeed, I would argue that some competition between jurisdictions in a metropolitan area is a good thing — the ability of inhabitants to “vote with their feet” helps keep the politicians honest.

But that’s a shoot-from-the-hip reaction based upon one OECD chart. If Virginia is serious about positioning itself for economic prosperity in the years ahead, our governance structures, rooted in 19th-century settlement patterns, surely need to keep up with economic reality.

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14 responses to “Government Fragmentation and Economic Growth

  1. I often find myself at odds with Jim B these days but not on every issue and this is an example.

    As the local-designated “liberal” of which I strongly deny and can show a dozen or more examples where I am more fiscally conservative that some of those here who claim to be …

    but I digress…

    Virginia has encourage and incentivized regional thinking ever since they created Virginia Planning Districts in 1960-some with some notable successes but just as many or more – just dumb-as-a-stump locality behaviors that are at the root of expensive competing services as well as lower quality services.. in addition to the economic costs – which DO INCLUDE transportation spending – as each locality has – and still does – even from within the Federal MPOs seek “their” money to build “their” transportation projects – and to do it, often as their effort to win the local commercial business lottery…

    Finally, the much maligned GA – with some strong support from VDOT who has seen the light – an initially little-noticed bill called HB2 (that Jim has blogged on) – emerged – and all heck is breaking loose – especially among the MPOs who see HB2 as a direct threat to their ability to parcel out transportation funding to the localities within the MPO boundaries.

    what has always supposed to have been – was an organization similar to the PDCs to intelligently plan regional transportation – has, more often than not, just devolved into each locality getting their money and/or all the localities going round-robin in waiting their turns at the bigger projects.

    And in doing that – not only have they wasted a ton of money, they’ve things up – actually institutionalizing the fragmentation and done so not only at a cost to their own interests – but more importantly – to corridors of statewide significance – which have proven to be the MPO stepchilds when it comes to inter and intra regional thinking.

    The MPOs were designed from the get-go as MSA critters – and even VDOT has bound itself between and betwixt since the VDOT district boundaries – laid down to align with congressional district boundaries no more match up with MSAs than the man in the moon.

    Fredericksburg VDOT extends from Stafford Va to Mathews Virginia and in theory – that district tries to “balance” the needs between the two disparate places.

    Culpeper District is in charge of Albemarle County and Charlottesville.

    HB2 has an ambitious goal – and it’s a bit convoluted… and complex and not like nor embraced by the MPOs so we’ll see what happens.

    One of the reforms that HB2 attempts to undertake is to do planning and funding as a region – where each project – no matter what county – has to compete on specific criteria with other projects – no matter what county.

    that’s what the MPOs were supposed to do but most never made it. The MPOs basically functioned as would-be funding pie-cutters according to the agreements of the localities participating in the MPO.

    each county was “due” it’s allocations – no matter what the real need was.

    so – perhaps in an irony of sorts – and I’m sure Ed Risse would roll his eyes, VDOT is “de-fragmenting” when no one else has succeeded – and it could be that VDOT will fail also.

    we’ll see..

    • “As the local-designated “liberal” of which I strongly deny” — No, LG, I’d have to label you a contrarian, not a predictable partisan. How contrary? Just depends on which side of the bed each of us got up on, and whether Jim’s smoking gun fired a bullet that hit the target that day.

      • contrary with a purpose -I would assert. Always want to ascertain some level of truth in a asserted path but am reactive to complaints without solutions.

        Easy to complain -hard to deal with the issues sometimes.

        don’t believe in pretending and don’t believe in saying one thing and doing another whether as an individual or elected official.

        the truth is not what we want to believe – it’s different .. and nothing is better than testing what you want to believe to see if it fits the realities.

        on the authorities – there’s a huge downside in terms of people’s trust of govt.

        Just look at MWAA or the Tobacco Commission or the 460 PPTA fiasco.

        local govts don’t live authorities either. If I had a nickel every time the regional library or jail came back to the local govts and said they needed more money – and approval had to be unanimous or else bad stuff would happen – I’d be rich.

        I think Regional Authorities are VERY different than consolidation where voters have direct ways to express displeasure.

        the other thing – “unsegmented” governance is usually very large governance – which some will say – become de-facto embedded bureaucracies.

        just recently someone here pointed out the NYC school system – a huge entity – that had created “rubber rooms” for the teachers that failed competency but took month/years to process out.

        Va has two big structural issues.

        1. – the independent city issue
        2. – VDOT does all roads

        independent cities typically consider the adjacent counties to be not something you want to share power with… good old boys, and all..

  2. If you want to read the ugly history of how Richmond’s metropolitan area was kept fragmented to defeat school busing and the purity of western Henrico’s suburban lifestyle, and it was ugly, read Ben Campbell’s 2012 book, “Richmond’s Unhealed History.” I remember those events growing up in the City’s fan district and Ben has it down precisely right. Just wade through the little preamble on Pocahontas first.

    Jim, you mention the consolidations in Hampton Roads but you skip over the partially successful efforts in Richmond, that led on the one hand to the successful annexation of part of Chesterfield, but on the other to the grotesque Henrico award that had to be declined, and to the GA’s rapid moves thereafter to make any reconsideration of the Henrico boundary practically impossible.

    It’s long past time to move on, but the legislative legacy of those days has local governments locked into a framework reflecting 1970s hostilities and fears that don’t even apply any longer. Ben explores better than I possibly could the entrenched obstacles and advocates pro and con, but suffice it to say, the same trends you write about, Jim — the appeal of urban living and walkability to our youngsters, the decline of autocentric shopping malls, the changing role of government in shaping neighborhoods and parks through zoning and transportation (and, yes, HB2), demographic shifts — are in his opinion the only forces that could break down the City/Henrico barrier built so long ago by the GA, and he prays they will, before Richmond suffers irreversible economic harm.

    The regional authority gambit may be the best way out of this box, but it runs the risk of cherry-picking all the good reasons for regional cooperation so that what’s left is the hard-core stuff that nobody wants to (or can) deal with. What we really need is a merger of all the good and all the bad into one entity but I suppose it doesn’t hurt to speculate how far along the spectrum the Richmond region could get as a practical matter.

  3. Hampton Roads is the classic example of why at least a partial if not more of a regional approach is needed. Assuming there are some sixteen governmental units (or use your number) why have so many separate police, fire, EMT, mayors, zoning boards, housing authorities, highway agencies, etc. ad nauseam? OK, so police and fire are “cooperating” to some extent but let’s go further and really integrate some stuff. Norfolk is really THE business/financial hub so let’s call the area Norfolk. The Beach is really just a bedroom community … I may not have you all with me on that … like Fairfax was when I lived there. BTW, how many arenas/city theaters/convention centers/etc. do we actually need? Norfolk will soon have two! The “Borough of Virginia Beach” doesn’t sound so bad to me. … and BTW, how about we rid ourselves of that silly Hampton Roads label … and yes I do know what Roads means having been aground on the Hampton Bar twice in one day some years ago.

    • I totally agree — lots of redundant infrastructure and facilities down your way.

      So, you would consolidate Norfolk, Portsmouth, Virginia Beach, Chesapeake and Suffolk, call it “Norfolk” and divide it into five “boroughs”? What function would boroughs have?

  4. Most ordinary people don’t mind fragmentation, within a metro area, as smaller governments are often closer to their constituents than are larger entities. It’s harder to screw a community when the local government cannot be easily manipulated by special interests because the local residents know who their representative is. It’s easier for a developer or a smart growth interest group to get things done regionally than locally.

    A few years ago, the Fairfax County Chamber of Commerce tried to get the GA to force Fairfax County to have several at-large supervisors (as opposed to just the Chairman) because local supervisors are too ready to vote for what their constituents want, rather than what “regional thinkers” want.

    There is a role for regional planning and coordination. Virginia, Maryland the District participate in the Transportation Planning Board, an MPO. But the members clearly understand that each jurisdiction, both “state” and local, sometimes don’t agree on regional priorities. Many times they do. There are checks and balances.

    Even the Northern Virginia Transportation Authority has checks and balances. As a practical matter, Fairfax County BoS Chairman Sharon Bulova has a veto over NVTA expenditures. I like that. It forces the NVTA to work together and realize sometimes they need to agree to disagree.

    I like separation of powers and checks and balances.

  5. Jim, I was going past five to consider most if not all of the 16. Your five, however might be expanded to seven by adding Hampton and Newport News to become an urban core group with JCC, IofW, York, NC counties, etc. being a rural core group.

    There some primary functions I’d probably leave separate: schools, for example. It would appear to me that different school populations in IofW, the Beach, and Norfolk/Portsmouth (rural,. suburban, urban) to suggest three jurisdictions would yield better solutions to problems and better overall management if left separate. For somewhat different reasons agriculture, RE assessment, zoning, courts, utilities, and traffic might want to remain separate at least initially. Groupings for school systems (if done ever) might be structured differently than those for agriculture or traffic or waste management.

    Maybe what I’m trying to say is let’s ramp up the ongoing discussions (or at least publicity of them) of the subject to broaden participation.

    • one thing that is curious about “segmentation” is the conundrum between smaller, more local govt -more easily held accountable (in theory) and a larger organization that (in theory) has a more professional orientation.

      TMT likes local – but I wonder if he’d like it if metro were ‘local’?

      you can’t do regional scale infrastructure with local govt.

      and if local trumps regional and state what happens?

      what would happen, for instance, if Fairfax had it’s own criminal code or speed limits or something different from SOLs for schools?

      what if each locality in Va decided it’s own academic standards?

      what if the state police did not exist and it was up to the local sheriff to decide law enforcement such that if you went through several counties – each one had different traffic laws?

  6. MSAs are the most rationally defined regions in my view because they are based on the economic and job relationships for a given region.

    county boundaries in Va have absolutely nothing to do with economics, commuting, etc.

    cities and towns TEND to be core areas within MSAs.. .. for instance, where you’d find State and Federal offices but how they got there – was not by some “plan” but rather geography.. usually a significant transportation terminal of some kind or some local resource – where crops, cattle, farm, forestry products traded/shipped.

    but the point is -except for the MSAs – many of these things are vestiges -by-gone things.. that no longer drive the economy.

    I don’t know the process for updating MSAs but it might be informing to be aware of it.. i.e. how does one place get added to an MSA and how does another get removed? what criteria?

    it’s no small thing when you have an MSA that spans several jurisdictions.

    which should you believe? the MSA or the jurisdictional boundaries?

    bonus question – what do the leader of the local jurisdiction prioritize their boundaries of the MSA region for things like transportation investments?

    • While there’s some “rationality” to the MSAs, I think they’re better for very large areas.

      I actually think there is some utility to the jurisdicitional boundaries in smaller areas outside of the Urban Crescent.

      I imagine that Hill City Jim would tell you that Campbell is much different from Bedford which is much different than Lynchburg. Campbell is very agricultural whereas Bedford is a suburban county.

      Albemarle and Greene are like night and day in the “Charlottesville MSA.”

      But in larger areas, you’re right….not really sure there’s a huge divergence between Henrico, Chesterfield, and Richmond in the Richmond MSA in terms of regional ambition. Obviously, there are some squabbles, but it’s not night and day as compared to Bedford v. Campbell in the “Lynchburg MSA.”

      • I guess I was more thinking about the economy and jobs no matter the size.

        the commuting region … where people live -and work … and jobs are located.

        there are smaller versions called Micropolitan Statistical Areas for smaller type MSAs but the criteria is the same and involves how cross-flow economies and commuting/job regions.

        jurisdictions do have the ability to mess with this by their own zoning and taxing policies.. i.e. they can drive business out of their county to others or vice versa… for instance the BPOL tax.

  7. Plenty of examples out in the wilds of Virginia, for sure. When Lynchburg and the surrounding localities had a strong regional leader, the region was effective in drawing new business and drawing consensus on regional projects. Today, communities fight one another for the scraps and the area seems to be performing more poorly than it has since the early ’80s. Transportation and water are two other issues that lead regional leaders into conflict. Bedford County, which sees its largest growth along the Lynchburg City limits, is spending millions to develop a water system because they can’t work out an arrangement with Lynchburg- this after years of having many residents already tied into the Lynchburg system… by way of Campbell County. Highway spending in the same county comes from the Salem District, which is beholden to its own cities and the traffic issues they have. The only ones who really seem to relish the fight are the local political leaders; everyone else loses money.

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