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There’s more debate than usual these days about how we organize local government.  What kind of local government structure would we have if we started from scratch?  Would we have more than 92 counties?  Fewer?  Would we draw different boundaries for towns and school corporations?  Would we even have townships?

There’s a sub-set of economics that thinks about these questions, called “fiscal federalism.”  Here’s its basic principle, from an article by Wallace Oates, the guru of the field (Journal of Economic Literature, September 1999).  “The provision of public services should be located at the lowest level of government encompassing, in a spatial sense, the relevant benefits and costs.”  All together now, dear readers:  “What?!”

Let’s take it piece by piece.  “The provision of public services” means delivering and paying for the things that government does, like schools, roads and fire protection.  “Lowest level” means a spot in the hierarchy of governments, from federal to state to local.  It can also mean the size of the government, meaning how many people or square miles it includes. 

The principle says we should rely on the smallest, most local government we can.  One reason is accountability.  I’ve met the Mayor of my town.   She’s got a politician’s memory for names—I really admire that—so she knows me when she sees me.  Chances are, if I have a problem with street repairs I can talk to the mayor herself.   I’ve never met the President.  I’ll never get a chance to talk to the President if I have a problem with interstate highways.

Being able to talk to an elected official wouldn’t matter much if my opinion is the same as everyone else’s.  If everyone has the same opinion about public services, then a big jurisdiction can set policy to satisfy everyone.  But people’s opinions differ.  The people in one community may want to spend more on traffic lights.  In another, they may think four-way stop signs are just fine.  If these two communities are in the same local government, one community or the other will be unhappy with traffic control.  If the two communities are in two different local governments, each can provide and pay for the traffic control they want. 

There are good reasons to make local government small, but there are good reasons to make it bigger, too.  That’s what the last part of the principle says.  “Encompassing in a spatial sense” means drawing a boundary to include a particular area.   What about “relevant benefits and costs?”

Suppose that most of the drivers on the roads in that community with four-way stop signs are passing through from other places.  They’d really like to have traffic lights to make the driving easier, and they’d be willing to help pay for them.  Then, perhaps, the boundaries of the local government that provides traffic control should include more of the people who use the roads.  That’s a bigger area than the local community.

We actually do something like that for roads.  The nation’s drivers use the interstates, and we pay for them through the Federal government.  Roads that criss-cross the state are paid for by the state’s drivers through the state transportation department.  Local roads are provided by counties, cities and towns.  Another way we handle this problem is through state aid to local governments.  A little of the gasoline tax money I pay in West Lafayette helps pay for roads in Bloomington.  I’m fine with that, because some day I may drive there, and I want good roads.

Sometimes a bigger unit can provide more services at lower cost than a smaller unit.  That was one reason Indiana consolidated its school corporations in the 1960’s.  One big high school might cost less than two smaller schools, and might provide more opportunities for the kids.  Make it too big, though, and it gets crowded and impersonal and education could suffer.

We can’t really start from scratch.  Counties, towns and schools have histories and loyalties that won’t go away.  And there are elected officials who want to keep their jobs.   Still, if we’re going to debate local government organization, a guiding principle or two couldn’t hurt.