02/20/2012 08:34 am ET Updated Apr 21, 2012

Why Are We Letting Local Governments Go Broke?

American politics has a long and honorable tradition of anti-authoritarianism that is often characterized by hostility to our own institutions. The current conservative strain of anti-authoritarianism can trace its start to Barry Goldwater's losing 1964 presidential campaign which eventually evolved into the Reagan "revolution" of 1980. Today's Tea Party movement is the logical extension of those efforts. As the 2012 presidential campaign heats up, we've now experienced a relentless, three-decade long attack on government. Automatic, almost reflexive, opposition to all things governmental has become a familiar part of our political landscape. While this may have had the positive effect of constraining unchecked power, it has also started to destroy needed and critical government capacities. This has been especially true at the local level -- the place where public policy theory meets operational, real world reality. Of particular concern is the impact of this attack on our public-private system of local government finance.

This weekend, NY Times reporter Michael Cooper filed an excellent report on the impact of declining state and local government employment. Citing data analyzed by the Nelson Rockefeller Institute of Government, Cooper observed that:

The nation has lost 668,000 state and local government jobs since the recession hit -- more than in any modern downturn... [I]n cities and states around the country, the loss of those jobs has made it harder to provide services and has upended the lives of thousands of workers who had thought their government jobs were safe.

While tax revenues have finally begun to grow as the economy recovers, four years of declining tax collections, reduced state aid, and increased pension costs have had a devastating impact on local governments, the services they provide, and the infrastructure they finance. Cooper's story focuses on San Jose, California, where brand new library facilities have never opened and the size of local government has shrunk by 20% since the Great Recession of 2008. While the impact of state and federal budget cuts are sometimes difficult to prove, the effect of cuts at the local level are nearly always easy to see. This is especially true when the cuts persist year after year. In most organizations, early cuts are borne by those units or stakeholders least able to defend themselves from being cut. These are followed by second-round cuts that focus on overhead and spending that might be considered fat or frills. Once these two types of early cuts are taken, then the real cutbacks begin. It is at that point that the quality and quantity of services starts to be reduced. Cooper observes this in his reporting on San Jose, but his Times colleague Mary Williams Walsh sees this even more dramatically in her reporting on the bankruptcy of Jefferson County, Alabama. According to Walsh:

There is no money for a lot of things around here, not since Jefferson County, population 658,000, went bankrupt last fall. There is no money for holiday D.U.I. checkpoints, litter patrols or overtime pay at the courthouse. None for crews to pull weeds or pick up road kill -- not even when, as happened recently, an unlucky cow was hit near the town of Wylam. ...The county, which includes the city of Birmingham, is drowning under $4 billion in debt, the legacy of a big sewer project and corrupt financial dealings that sent 17 people to prison.

The sewer project was not a luxury item, since it was needed to end the practice of dumping raw sewage into local waterways. Unfortunately the project was poorly designed, riddled with corruption and turned into an incompetent, expensive failure. When a private firm suffers this fate, it often goes bankrupt. People may lose their capital and their livelihoods -- but they can often move on and life goes on. When a government goes bankrupt, people can't simply pick up and move on. Many thriving businesses and families live within their borders -- and these folks have assets and are solvent. Government is a monopoly and we simply can't go across the street and shop at another one. We are stuck with the one we have.

That is why local and county government bankruptcy under Title 9 does not permit reorganization or liquidation. Instead, the county and its bondholders need to come to an agreement that allows repayment of debt under new terms. What is disturbing about what is happening in Jefferson County is the failure of the State of Alabama to intercede and prevent the County from reneging on its financial responsibilities. While the law allows the county to renegotiate its debt, this type of deal may make it difficult for other local governments to borrow in the future. In a piece I wrote on this issue last fall, I contrasted the current "culture of fiscal irresponsibility" to the role played by New York State's leadership when New York City almost went under in the mid 1970s:

At that time, New York State Governor Hugh Carey was the central figure in working out an alternative to bankruptcy. Through his strong leadership and important contributions from other leaders of New York's institutions, we saw the development of a responsible fiscal policy that combined federal, state, private and union resources, Due to courageous and far-sighted actions, New York City averted bankruptcy and laid the foundation for the revival that continues to this day... In today's political environment, we seem to be a little short of the political courage displayed here in New York by the late Hugh Carey. Governor Carey did not worry about the next election or what the focus groups thought of his actions. He decided that his responsibility as governor required him to act. Union leaders, realtors and bankers followed Carey's lead and made short-term sacrifices to ensure long-term civic health. Bankruptcy was seen not simply as a fiscal condition, but if permitted would represent a failure of community.

It seems to me that in 2012, no one is willing to face up to this crisis of government funding. Everyone is trying to look the other way. While the Obama stimulus package helped state and local governments for a while, today, no one in Washington is willing to help state governments deal with their budget gaps. And no one in our state capitals seems willing to help their local governments.

Instead: Police forces are cut, and crime goes up. Libraries are cut, and quality of life goes down. Government job cuts keep unemployment high and dampen the economic recovery that is trying to find its footing. These are the real issues that the American public is dealing with every day. They require mature and intelligent debate and problem solving, of a type that is well beyond the superficial nonsense of our current political dialogue. Still, one can always hope...