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November 11, 2010

The case against government fragmentation



Myron Orfield

Large metropolitan areas in the United States do much better economically when there is a less fragmented governmental structure, according to a national expert on state and local government and finance.

Myron Orfield spoke here last week on how the Pittsburgh metro area compares in his study of the 50 largest U.S. regions. Orfield is executive director of the University of Minnesota’s Institute on Race and Poverty, as well as a non-resident senior fellow at the Brookings Institution in Washington, D.C.

His Oct. 25 lecture, “Governing Metropolitan Areas in the 21st Century,” was the inaugural presentation of the Changing Nature of Civic Engagement in America lecture series, sponsored by the Innovation Clinic at the Graduate School of Public and International Affairs.

“We’re trying to understand how the 50 largest metropolitan areas are doing in terms of sustainable growth, how unequal they are in terms of the local fiscal capacity, whether they are growing together or apart, trying to understand land use and trying to understand racial and social mobility.”

Citing mostly 2008 data, Orfield compared three metropolitan areas: Pittsburgh; the Twin Cities (Minneapolis-St. Paul, Minnesota), and Portland (Oregon). Pittsburgh is at a comparative disadvantage, Orfield said, with its central city, 216 developed suburbs (places that have developed at least 80 percent of their land, most often called boroughs in Pennsylvania) and 239 developing municipalities. Pittsburgh has a much more fragmented governmental structure than the Twin Cities, which has a total of 187 governmental units, and Portland, with only 35 governmental units.

“Metropolitan areas, at least many of them, can be seen as competitive units in the global economy. Location decisions for firms are often based on evaluations of the entire metropolitan housing, labor and transportation systems, and not on one particular area where the firm may relocate,” Orfield said.

In addition, current federal policies, particularly initiatives coming out of the Department of Transportation, are meant to encourage and reward regional government reform and coordinated land-use planning, said Orfield, who served in both houses of the Minnesota state legislature.

Despite this, policy decisions in most metropolitan areas, and particularly in Pittsburgh, are not made at the regional level but much more often at the local level, he said. Highly fragmented local government systems are more the norm in America, something he said leads to inefficiencies and inequalities.

“Most local elected governments think long and hard about their own municipalities and do the best they can, but sometimes it’s very hard to think about the region, or about how these individual decisions impact the entire region,” Orfield said.

“The current and ongoing federal stimulus packages, which may also be called revenue-sharing packages, represent an enormous opportunity to promote regional government. There’s a very strong possibility that the federal government will provide some sort of revenue-sharing to the states in an ongoing way,” he predicted.

“Policies meant to enhance the greatest impact of economic competitiveness regionally should include an approach to transportation, to the overall quality of the labor force, the quality of life and the quality of the environment and amenities, broadly speaking, across the region.”

He said governmental fragmentation essentially guarantees inefficiency, including unnecessary subsidies, uneven growth patterns, a duplication of administrative functions and a lack of economies of scale for such large regional systems as water treatment and major infrastructure.

“Fragmentation also creates inappropriate or no incentives for land-use planning and for affordable housing — often local planning doesn’t encourage communities to build affordable housing.”

Fragmentation & population shifts

“The population at the core (city) of the Pittsburgh metropolitan region is shrinking reasonably rapidly and the exterior is growing, but the overall net is going down,” he said.

“That’s not a great thing for fiscal capacity. It’s not great either for places that are losing population, because of the reduced tax revenue, or for the places that are growing but not growing with enough fiscal capacity to support new infrastructure. So you’ve got stress on both ends. If you’re adding economic growth, adding fiscal capacity to the region, growing and urbanizing at a steady rate, you can pay for it; it’s not a problem. But if you’re declining, losing businesses and spreading out, you’re really putting the screws on your ability to do things.”

Fragmentation and racial segregation also intersect. “The greater number of local units of government per capita you have, the greater the racial and social segregation. Places like Louisville, Kentucky, that are consolidated with their suburbs are not free of racial segregation, they’re just much less segregated.”

Elementary schools provide insightful data on poverty and racial segregation for understanding regions, Orfield said. When schools become high-poverty schools, as measured by the percentage of students who are eligible for free lunches, “middle income families with choices usually don’t choose to live in such school districts. They usually choose to live in the least poor school districts they can afford to live in,” he said.

“But black families and white families in America have very different choices. Black middle income families, because of the persistent residential discrimination in the form of steering and mortgage-lending, have a small subset of the choices of white families with the same income. Often blacks are shown particular parts of suburban markets and white families are shown different markets, intentionally. This is very common in the United States.”

Class and race also are connected closely as evidenced by elementary schools’ racial breakdowns. “Three-quarters of poor black and Latino children go to schools that are more than 75 percent poor kids, but three-quarters of poor white kids go to schools that are more than 70 percent middle class kids. Going to high-poverty schools has desperately bad effects on opportunity. It depresses graduation rates demonstrably, depresses the possibility of going to college or higher education, it depresses long-term wages,” all of which have dire economic implications, he said.

Fragmentation & fiscal inequality

More fragmented local government leads to a greater degree of inequality and affects local fiscal capacity, defined as all available revenue whatever the source — property taxes or local-source revenue — divided by the number of households, Orfield said.

“That’s almost self-evident: The more fragmentation you have, the more big differences you have in the ability of local businesses to produce revenue.”

Data based on a revenue capacity index show that the Twin Cities area does much better than would be predicted based on the number of government entities. “This is mostly because of the very significant revenue-sharing programs we have for fiscal disparities,” programs that are mandated by the state, Orfield said.

“Portland does even better, mostly because of the variety of housing types each community has developed. It’s in their land-use plan that a significant percentage of all new development is apartment building, multi-family rentals, a variety of housing. Their communities are fairly equal in fiscal capacity as a result.”

The Pittsburgh metropolitan area is dead on the index’s predicted line.

The City of Pittsburgh is right at the average of its metropolitan region in tax capacity. “That’s a good sign, though it could be better. Places like Portland, Seattle, San Francisco and Boston are much higher than their regional average. But Detroit is vastly lower than the regional average; Philadelphia is somewhat lower than the regional average,” Orfield said.

Municipalities in southeastern Allegheny County have very low tax capacity. In those areas, attracting new commerce or industry is hampered by high tax rates and low service provision. “This southeastern area is really being hammered hard fiscally. It’s losing its fiscal capacity and it’s in rapid change toward poverty,” he said. Again, fragmented government contributes to the problems. “Because Pennsylvania doesn’t intervene very much in terms of equalizing things, the area is on its own in a very big way and the trends are really against them,” Orfield said.

The developed suburbs face a different problem. They can attract new business by offering a lower tax rate and more services, but are hampered because the cost of owning a home is much higher and housing is less available.

“At the edge of the region, you can see some areas of growth, and many of them are growing with modest capacity, but not heavily toward commercial and industrial fiscal capacity yet. That usually means higher school taxes and property taxes,” Orfield said.

Fragmentation & job growth

More fragmented local governments are associated with slower job growth across America, Orfield said. The places with more coordinated government tended to be growing economically over the last 20 years.

“As fragmentation goes up, job growth per capita, per household goes down; that’s a general relationship. Those places with less fragmentation — in the South, for example, where county government tends to be in control — they tend to do a lot better with job growth,” he said.

“Why might that be? Sometimes they have large entities that deal with economic incentives. In the Twin Cities metropolitan area we have the Metropolitan Council. Because of tax-sharing, every time a new industry comes to the metropolitan area, every city, county and school district gets a share of the revenue. So there’s a powerful reason for the city, county and other municipalities to work together on economic development, and there’s an entity that has control of the infrastructure,” he said.

“In places like Albuquerque or Louisville, you have one entity that can think across the whole region. It’s really hard when you have a tiny municipality [competing] in the world economy. There are very few incentives for their neighbors to cooperate with them, because the neighbors don’t get anything out of it. They may get the traffic, they may get the overburden of kids into their school system, but they don’t get the property or local income tax.”

The City of Pittsburgh currently has a healthy cluster of jobs, but that could change as local taxes drive business and industry to the suburbs (or out of the area entirely), he said.

“Your local government system is doing most of what it can to push these jobs outside the core. Because of the tax burden on these industries, because of the need to replace older infrastructure, the tax base is going to push these industries out further if you don’t reform this,” Orfield warned.

“You see job growth tending to be near the rim of the region. That’s a trend nationally. But as local communities try to finance their schools and replace their infrastructure, they have to get commercial and industrial value. Nobody can live only on residential value; it doesn’t pay the bills.”


The federal economic stimulus/revenue-sharing packages create an opportunity to encourage more active regional government with funding policies to help them in several ways, as outlined in the Active Community Transportation Act, Orfield said.

That legislation is an attempt to reward metropolitan areas that coordinate transportation funding with improvements in land-use demographics, and that have a plan to grow in an orderly way with funding for regional infrastructure.

“The federal government is trying to encourage job clustering, where new jobs tend to be clustered where jobs already exist,” Orfield said. “Portland and the Twin Cities do this, that is, they try to not approve greenfield sites for scattered jobs, and try to encourage the intensification of existing clusters of employment.”

Other rewards are available for building affordable housing in high-opportunity areas and distributing some government housing subsidies out of the core city into the areas where jobs are going.

“If communities get their act together in terms of transportation planning and thinking, they may be more likely to receive transportation funds and/or revenue-sharing funds in the future. At least that’s the idea,” Orfield said.

He suggested as a starting point for consolidating regional governments establishing a strong centralized metropolitan planning organization. “MPOs already exist in most areas across the country, and they are highly flexible. They represent in my mind a very viable starting point to think about coordinating equality. In the Twin Cities we have the Met Council that started as our MPO. Over the years it’s taken on land-use planning powers and has an increasing ability to cluster jobs and have affordable housing and infrastructure growth to match urban growth,” Orfield said.

“MPOs have a large enough scale to think about a region, but they often aren’t apportioned appropriately. They don’t have ways for central cities or older suburbs to be fully represented. In Portland, the MPO is elected directly by district to reflect the area’s characteristics. I believe that the central cities, the developed suburbs and the undeveloped suburbs each needs a seat at the table proportional to their population,” he said.

“All the data indicate that less government fragmentation leads to a healthier area economically. The central cities are certainly battered, but it’s the older, less-developed suburbs that are the worst off.

“Thinking about how America is divided into central cities, fully developed suburbs and developing suburbs, thinking about the fact that communities that work together do better — they’re less segregated, they use less land, they travel less, they prosper more — this is good evidence of why this is such an important thing,” Orfield said.

Reflecting on older suburbs with increasing racial and social segregation, on communities with growing fiscal inequality, on low-density uses of land without corresponding employment, he said, “It’s hard to deal with these problems unless there is some way to communicate on a regional level, and I think MPOs are a reasonable way to think about doing this.”

—Peter Hart

Filed under: Feature,Volume 43 Issue 6

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