In the U.S., states have full authority over local government. Some states strictly centralize power and leave local government little to do. For instance, Hawaii has a single school district for the entire state, so that different localities cannot choose to spend different amounts on the government schools. Michigan effectively has a similar system, because it requires every school district to spend the same amount of money per student and redistributes tax funds across districts to make that possible. Vermont has also centralized school funding.
At the other end of the spectrum, states like New Hampshire let local governments pretty much decide their own level of funding for schools and other programs (about half of all local spending in the U.S. goes toward schools), and towns differ widely. If you want to live in a low-tax, low-spending town or a high-tax, high-spending town, it isn’t terribly difficult to find one. In the middle are states like Texas, where local governments are responsible for their own tax and spending decisions, but the most important level of local government is the county, much larger than the town, and it is therefore difficult to choose where to live based on local taxes and services.
Can we measure how decentralized each state is? I’ve tried to do so. The first measure of decentralization looks at how important local taxes are compared to state taxes. It divides local taxes by state and local taxes put together. This is a familiar variable to scholars of “fiscal federalism,” and it is typically called “tax decentralization.” Here is how the states rank on tax decentralization, as of fiscal year 2011-12, the most recent year for which data on local taxes are available from the U.S. Census Bureau:
New Hampshire 0.62475539
New York 0.540915308
South Dakota 0.514664958
New Jersey 0.503867865
Rhode Island 0.483462474
South Carolina 0.459566438
New Mexico 0.382245601
North Carolina 0.366066432
North Dakota 0.312465478
West Virginia 0.29895431
This isn’t the only way we can measure decentralization, though. After all, some states have more “competing jurisdictions” from which a prospective homeowner can choose than others do. To get at this concept was a little more complicated. I first counted the number of county, municipal, and township governments for each state from the U.S. Census Bureau. Then I looked at what proportion of local taxes came from each level of government and created a weighted average of number of local governments for each state. So if a state had 100 towns, 10 counties, 0 townships, and towns raised 20% of local taxes, while counties raised 80% of local taxes, the formula for the weighted average would be 10*0.8+100*0.2. The formula “rewards” states for letting lower-level, more numerous governments raise more taxes.
Then I thought about the decision of a homeowner in choosing a government to live under. Typically, your general location is set by where you have a job, say, a metropolitan area. But there may be several jurisdictions in that metro area to choose from. So I divided the “effective number of competing jurisdictions” described in the last paragraph by the state’s privately owned land area in square miles and multiplied by 100. So the resulting variable is the effective number of competing jurisdictions per 100 square miles of privately owned land. Higher values mean there is a lot of choice among governments.
Here is how the states come out on this variable measuring choice among governments:
New Jersey 5.619216533
Rhode Island 4.016477858
New York 2.934484963
New Hampshire 2.529344945
North Dakota 1.699505873
South Dakota 1.21988394
West Virginia 0.709066369
North Carolina 0.535369811
South Carolina 0.431428983
New Mexico 0.087975845
In general, the northeastern states score highly, largely because of a historical legacy of strong town government.
We can multiply both variables, tax decentralization and effective number of competing jurisdictions per 100 sq mi, together to get a single measure of how decentralized each state is.
New Jersey 2.831342639
Rhode Island 1.941816321
New York 1.587307839
New Hampshire 1.580221888
South Dakota 0.627831517
North Dakota 0.531036915
West Virginia 0.211978447
South Carolina 0.198270281
North Carolina 0.195980916
New Mexico 0.03362838
New Jersey is the state where the taxpayer has the most choice of government. While local property taxes are generally high there, that may simply reflect the preferences of local homeowners who want to spend money on services. It would be unsurprising if there are also some local jurisdictions in New Jersey where taxes are especially low.
In general, northeastern states, which are mostly left of center and high-tax, have a heretofore unseen advantage in their fiscal systems, letting competing local governments do much or even most of the taxation, making them responsive to local property owners. Perhaps it is precisely because of that responsiveness that overall tax burdens are allowed to be high in some of these states (New Hampshire aside): homeowner voters are more content with the way government uses their tax money there.
5 thoughts on “How Decentralized Is Your State?”
Are local governments that are responsive to local property owners also responsive to local non-property-owners, i.e., renters? That’s a literal, not a rhetorical question. I’m wondering about the state of the evidence. Renters don’t directly pay property taxes, but presumably property taxes are reflected in the rents they pay. Hence the question.
I’m a little puzzled about the underlying motivation of your research here, i.e., its tie back to normative issues. You describe decentralization (or perhaps you specifically mean fiscal decentralization) as an “advantage” because it reflects responsiveness to homeowners, but so does exclusionary zoning, and I wouldn’t count that as an advantage. The truth is that as a matter of lived experience, local decentralization in New Jersey resembles a kind of quietly-enforced segregation that expresses the racial and class obsessions of the most politically active property owners. Incidentally, one the strange things about the “local homeowners who want to spend money on services” is the intense umbrage they take at the suggestion that the money they spend ought to be entirely their own.
You might find these two books of interest if you haven’t read them already. They’re about local Jersey politics, and both implicitly and explicitly take issue with decentralization, though they focus on different aspects of it than your post.
I certainly don’t think that all the aspects of municipal decentralization are positive, and you point out some problems with New Jersey’s system. William Fischel’s work, especially the book, The Homevoter Hypothesis, suggests that most local governments are more sensitive to homeowners than to renters, in part because homeowners vote at much higher rates in local elections.
I think the relationship between decentralization and exclusionary policies, while regrettable, does indicate that one oft-cited benefit of decentralization really does hold: smaller units are more accountable to their residents than larger ones. That very accountability can have negative consequences from a social-justice perspective or even from an interjurisdictional externalities perspective, but there is little doubt that that accountability exists. Presumably there are also some positive consequences of it, even though they might be less visible. Despite the problems in New Jersey state government, it is the most densely populated state and one of the richest if not the richest. New Jersey local government seems to be doing something right.
Thanks for the response. I’m inclined to agree that New Jersey local government is highly responsive/accountable to residents. It’s a libertarian cliche that private entities are more responsive to consumer demand than government, but New Jersey local politics tends to turn that cliche on its head: in my experience, it’s easier to get satisfaction out of local government here than out of the Customer Service Dept of a large profit-oriented chain store. I wonder if that fact plays any role in explaining the left-leaning attitudes in NJ. If local government is highly responsive to what its residents want, people may discount libertarian rhetoric to the effect that government is the problem. The rhetoric will just flout their experience.
Certainly possible, though NJ’s state government stands as an object lesson of the consequences of inefficiency and corruption. I’ve heard a similar explanation for Britain’s turn away from laissez-faire in the late 19th century: the British government was so efficient it was tempting to turn it to other purposes.
Excellent reporting. I am a big fan of decentralization of government. It would make bad government both easier to fix and easier to escape. I do want to point out that Arkansas is not nearly a good in actuality as it looks on paper. For example, taxes for schools are collected locally, but the first 25 mills are sent to Little Rock for them to distribute.