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ECONOMIC ANALYSIS: Commission's reforms are just what Indiana needs

December 17, 2007

The recommendations of the Shepard-Kernan report are a tonic to anyone who cares about local government efficiency and improved local services.

The commission r e c o m m e n d e d changes to the way Indiana's government provides local services. Our current system looks much like a pre-statehood government, where services are provided in a disconnected fashion with budgetary decisions answerable to state bureaucracies, not local voters. It is this organization of government that has caused much of the run-up in property taxes.

The commission proposed moving the budgetary authority of the more than 3,000 local government entities in Indiana to the county level. This means strengthening the role of elected county officials who would oversee public safety, library and administrative duties for counties. Cities would remain, but townships would no longer serve a fiscal role.

Small school districts would be consolidated. The research on school and district size clearly suggests this is a prudent costsaving measure that would have no effect on educational outcomes. School spending on infrastructure (bonding) would need approval by the taxing body that bears the cost.

The proposed reforms are crucial to linking the cost of public services to their quality. The commission has made the small recommendations so important for success of the proposal. Expanded county legislative bodies would provide more representative government, coordinating elections to even-number years would boost voter turnout, thus dampening the effect of single-issue voters. And, crucially, the proposals prevent local government employees from also serving as elected officials within that unit.

It is easy to see these proposals would affect local governance. I think there are three effects: reduced redundancy in services, increased efficiency in operations, and, finally, voter input on spending. It is difficult to estimate the impact in dollar terms, but I offer the following experienced guess.

The redundancy in service provision is remarkable. I live in a county with seven or eight police departments depending on which you count. We may not have too many police officers in my county, but we have far too many chiefs. I think a savings of $300 million is a conservative estimate.

Increased efficiency in payroll, purchasing, equipping and contracting ought to shave 5 percent from the $8.3 billion in anticipated local costs.

The biggest impact would be restoring the link between the cost of public services and their price. Across the United States, local tax rates vary widely (we're about average in Indiana). The reason for this variability is that voters choose the mix of taxes and public services they receive. Communities that do a better job with their resources attract a larger tax base and more revenue. So, it is entirely possible that local spending would increase, but at the will of the voters.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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