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Does Having Lots of Local Governments Help or Hurt Economic Development?

Does Having Lots of Local Governments Help or Hurt Economic Development?
jabiru/Shutterstock.com

Americans are far more likely to like their local government than that at the state or federal level, a recent Pew Research Center report finds. But can some places have too many local governments?

Urban planners and good government types have long been concerned with what they see as the growth and proliferation of local agencies across counties and metro areas. They even coined a word for it — "political fragmentation" — which they argue generates duplication and inefficiency in the delivery of local services. The ultimate consequences include higher tax burdens, increased fiscal stress on local governments, and reduced levels of economic growth.

Some advocate consolidating government agencies across cities, counties, and metro areas — a phenomenon sometimes referred to as "metropolitan government." Metro government has already been instituted in a number of metro areas including Indianapolis, Nashville, Kansas City, Louisville, and Jacksonville. Calls for government consolidation have only risen in light of the increasing budget woes and fiscal stress that have followed the economic crisis.

But what areas of the country suffer from the highest levels of governmental fragmentation?

The map above by Zara Matheson of the Martin Prosperity Institute charts the picture, based on detailed figures from the  2012 Census of Governments on the number of local governments by state.

There is a broad belt of states with relatively large numbers of local governments stretching from the Great Lakes states (New York, Pennsylvania, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota) through the Plains (North and South Dakota, Iowa, and Nebraska) through Missouri, Kansas, and Colorado down to Texas, Oklahoma, and Arkansas. The number of local governments tracks population to some extent. Illinois has the largest number of local governments, 6,968. Pennsylvania is next (4,905), followed by Texas (4,856), and California (4,530). But Kansas and Missouri, much smaller states, are next with 3,806 and 3,752 respectively.

But bigger states will naturally have more levels of governments: What happens when we control for the size of state populations? The map below charts the pattern of governmental fragmentation on a per capita basis, charting the number of local governments per 100,000 people.

The pattern changes somewhat. Now smaller states surge to the top of the pack. The Plains states lead by a considerable margin. North Dakota is first with more than 400 local governments per 100,000 people. Neighboring South Dakota is second with 245, followed by Wyoming and Nebraska with 142 each. Kansas, Montana, and Vermont are the only other states with more than 100 local governments per 100,000 people. Nine additional states have more than 50 local governments per 100,000 — Idaho, Minnesota, Iowa, Maine, Missouri, Colorado, Wisconsin, Illinois, and Arkansas. On the flip side, five states have less than 10 local governments per 100,000 people — Hawaii (1.6), Maryland (6.1), Virginia (6.3), Nevada (7.1), and Florida (8.3).

I thought it would be useful to look into the economic, social, or political characteristics of states that are associated with higher levels of governmental fragmentation.  To get at this, my MPI colleague Charlotta Mellander ran a simple correlation analysis comparing the number of local governments per capita and key state economic and demographic factors. As usual, I point out that correlation does not equal causation and points only to associations between variables. 

Mellander's analysis finds fragmented government to be negatively associated with the affluence of states. The number of local governments per capita is negatively correlated with three key measures of state economic performance — average incomes (-.51), average wages (-.61) and high tech industry (-.30).

You might think states with more advanced knowledge economies and more educated populations would be more interested in governmental efficiency and thus  have less fragmentation. But Mellander's analysis finds no association between either the level of local government per capita and the percent of adults who are college grads or the share of the workforce in knowledge-based industries.

One thing that matters is politics. One party is more consistently associated with governmental fragmentation than the other:  It's the Republicans.  The number of local governments per capita is positively associated with states that voted Republican for President (.31), and negatively associated with states that voted Democratic (-.34). For all the talk of cutting back on government and starving the proverbial beast, there is more governmental fragmentation in red states than blue ones.

Top image: San Francisco city hall (jabiru/Shutterstock.com)

Richard Florida is Co-Founder and Editor at Large at The Atlantic Cities. He's also a Senior Editor at The Atlantic, Director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management, and Global Research Professor at New York University. He is a frequent speaker to communities, business and professional organizations, and founder of the Creative Class Group, whose current client list can be found here. All posts »

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