The Cost of Local Goverment

7/30/2019 The Cost of Local Goverment

1/24

The Lansing-East LansingMetro Region

Fiscal Scorecard

By:Eric Scorsone, Ph.D.

Christina Plerhoples, Ph.D.c.Shane Litchey

Nilutpol Basumatari


2/24

2

The Lansing-East Lansing Metro Region

Fiscal Scorecard

Executive Summary

Global economic

change continues at

an unabated pace. In

such an environment,

metropolitan areas and

urban regions are at the

crossroads o critical

decisions that will aecttheir utures. Regional

leaders need data and

inormation rom which

they can base decisions

that will benet citizens

and enhance economic

opportunities.

The cost and value provided bygovernment services is one o theactors that matters to the locationdecisions o people and capital. It isby no means the only actor, but itcan make a dierence in some cases.The research presented here is a rstattempt to quantiy and benchmarkthe cost and value o government

services provided by local govern-ments in the Lansing-East LansingMetro region.

The Lansing-East Lansing metroregion is the home o 77generalpurpose local governments includingcities, townships, villages and coun-ties. These entities provide a varietyo public services such as police andre protection, courts and prosecu-tors, recreation and cultural services,public works and many other items

that aect us on a daily basis. Col-lectively, these governments coreunctions represent a $500 millionenterprise.

The metro region was comparedto our other peer metro regionsincluding Canton, Ohio, Ogden,Utah, Grand Rapids, Mich. and DesMoines, Iowa. The ndings rom thisanalysis indicate that the Lansing-East Lansing metro region is in themiddle o ve peer metro regions.

It is likely that this type o resultwould be replicated with more met-ropolitan areas. This implies that theregion as a whole may be cost eec-tive in terms o government services.However, these initial cost estimatesdo not control or quantity or qualityo government services

The city o Lansing, being the corecity, its economic and scal health is

o critical importance to the wholeregion. The city government wasbenchmarked against 22 similarcities rom across the country. Theresults indicate that Lansing is on theslightly higher side o that compari-son in terms o overall spending andin some specic service areas in 2008and 2009. These results serve as a

baseline rom which the city can con-tinually assess its own cost and valueperormance against peer govern-ments. The city has undergone manychanges since that timerame. Futureupdates will be able to assess the cityo Lansings ongoing perormance.

Finally, the region as whole has someassets and weaknesses in regardsto its completion with other metroregions. Educational attainment isclearly strength or the region, while

underlying economic weaknesses re-main with a higher rate o unemploy-ment. These actors reinorce thatthe cost o government, and thoseservice specially provided only bygeneral purpose local governments,are only part o the larger story oregional competitiveness. The overallcost o government in the regionhas some strengths and weaknesses.Much o the data here are rom a pre-

vious period anbd thus the study is

illustrative o trends and not meantto be denite. This research shouldbe ongoing and a living and dynamicprocess. In a globally competitive

world, the region is probably welladvised to seek new service arrange-ments and strategies or maintainingand lowering governmental costs

while maintaining critical services. Itmay no longer be good enough to beaverage.

MSU is an afrmative-action, equal-opportunity employer.5/9/2012

By:Eric Scorsone, Ph.D.

Christina Plerhoples, Ph.D.c.Shane Litchey

Nilutpol Basumatari


3/24

3

The Lansing-East Lansing Metro Region

Fiscal ScorecardBy Eric Scorsone, Ph.D., Christina Plerhoples, Ph.D.c., Shane Litchey, Nilutpol Basumatari1

INTRODUCTION

1 Christina Plerhoples is a PhD Candidate at Michigan State University in the Department o Agricultural, Food, and Resource Econom-ics. Eric Scorsone, Ph.D. is an Extension Specialist and aculty member at Michigan State University in the Department o Agricultural,Food, and Resource Economics. Shane Litchey and Nilutpol Basumatari are undergraduate students at Michigan State University.

The Lansing-East Lansing metroregion is a three-county metropoli-tan area in central Michigan. It isMichigans third-largest metro-politan area and it houses the state

capital. The region is an integralpart o the state, both economi-cally and politically. It is importantthat the region maintains competi-tiveness in terms o governmenteciency and rm attraction andretention. In this report we analyzethe eciency o the local govern-ments in the Lansing-East Lansingmetro region by comparing themto the governments in other simi-lar metropolitan statistical areas

(MSAs) throughout the UnitedStates. We also compare the cityo Lansing to other similarly sizedcities and the region to itsel overtime. This report will be located athttp://slg.anr.msu.edu.

This report tackles several relatedresearch questions. First, how doesthe Lansing-East Lansing metro re-gion compare to other similar MSAsin terms o the cost o government

services? Specically, do the gov-ernments in the region spend moreor less compared to other govern-ments? This question is importantin an era o regional and globaleconomic competitiveness.

A second question that is ad-dressed is the relative competitive-ness o the Lansing-East LansingMetro region in terms o the attrac-tion and retention o businesses?

How does the region compare on anumber o characteristics that arethought to attract and retain rms?This second part o the analysisrefects that the cost o governmentis only part o the location decisionequation. The quantity and qual-ity o services, or in other words,the value o governments servicesmatters as well. Many actors otherthan governments also matter.

Comparable metro regions werechosen based on characteristicsthat would make them similar tothe Lansing metro region. Thisincludes MSAs that have similarpopulations and, like Lansing, havea central city that is airly largecompared to the metro region. Wealso chose MSAs that do not crossstate boundaries and that are in theNorthern United States becausethe local government structure and

culture are more similar than thosein the south. We also droppedMSAs that are on the ocean andor have natural amenities such asmountains that are dissimilar tothis region.

Based on these criteria, we chosethe ollowing metro regions asbenchmarks or the Lansing metroregion: Des Moines-West Des Moines,

Iowa Canton-Massillon, Ohio Odgen-Cleareld, Utah Grand Rapids, Michigan

We also chose 22 benchmark citiesbased on population alone. A ulllist o these cities may be ound inthe Appendix.

There are ocially three countiesin the Lansing-East Lansing metroregion: Ingham, Eaton and Clinton.

There are also 12 cities, 14 villagesand 48 townships, or a total o77 general purpose governments.Because o our size criteria, only 45o the 77 local governments in thisregion are included in the analysis.

The cities and townships do notoverlap and generally providesimilar services such as police andre protection, water and sewerservices, code compliance and

neighborhood development, and insome cases, parks and recreation,land use planning and zoning andothers that vary to some extent bysize o jurisdiction. Counties thatcontain and overlap villages, cit-ies and townships provide courts,


4/24

4

prosecution, judicial, health de-partment, parks and recreation andother state mandated services thatalso vary across the three. Finally,

villages, which do not overlapcities but do coincide with town-ships, provide some level o urbanservices.

A ew points are important whenconsidering comparison across thecountry. The Michigan system issimilar to other Midwest statessuch as Ohio, Indiana and Wis-consin. They are all based on theNew York system o local govern-

ment, which includes townshipsor traditionally more rural areas,cities and overlapping counties.The Virginia plan o government is

used in the south and west. In thissystem, townships do not exist andcounties play a larger role, particu-larly in rural areas. Cities provideurban services to large populations.In some more rural and suburbanareas, special district governmentsprovide inrastructure services.These dierences are important

when considering comparabilityacross the country. By comparing

total metropolitan areas, we willvoid some o these interregionalgovernment dierences.

This report is not meant to produce

solutions or policy recommenda-tions, but rather to help identiyareas where the governments inthe Lansing-East Lansing MetroRegion can improve, and wherethey can continue to perorm well.The regions vitality depends onthe perormance o its local govern-ments and the states vitality de-pends on the health o this region.


5/24

5

Cost o Local Government: Lansing-East Lansing Metro Region

The rst area that we explore isthe cost o the local governments

in the Lansing-East Lansing Metroregion. The cost o local govern-ment has become a critical vari-able as the globalizing marketplaceintensies competition or jobsand people. Part o the equationthat a rm or household looks atis the value equation between thecost o government services andthe quality and quantity o servicesprovided. For example, how mucham I willing to pay or what levelo public saety response? I oneregion can provide an equal re-sponse time at a lower cost it maybe more attractive as a location orbusiness.

Given these challenges, someideas may be useul in thinkingabout the government value equa-tion. Eciency reers not only tothe amount o money that a gov-ernment spends, but also to the

quantity and quality o its serviceprovision. We typically think o aninecient government as one thatprovides a lesser amount and qual-ity o services than it should at itscurrent spending level. However,a government that spends verylittle money but provides ewerand lower quality services thanits constituents require is also aninecient government. At the same

time, a government that spends alarge amount o money, but pro-vides the quality and quantity oservices that its constituents desiremay be an ecient government.This report begins to provide someo the data necessary to engage in adialogue about government spend-ing and eciency. It represents

the beginning, not the end o theconversation.

To examine the cost o the localgovernments in the region, wecollected nancial data rom theaudits o each local government

with a population o 5,000 or moreresidents in each benchmark metroregion or the scal year 2010.Within each audit, we collecteddata rom the Statement o Activi-ties and the Statement o Revenues,Expenditures, and Changes in

Fund Balance. For our report, weocus on governmental accounts.This generally excludes enterpriseunctions such as water and sewersystems.

Figure 1: Expenditures per Capita or Benchmark MSAs

$0$200$400$600$800

$1,000$1,200$1,400$1,600

$1,800$2,000

Expenditures per Capita

Data Source: Local Unit Audit Reports, 2010

Figure 1 shows the total expendi-tures per capita or each o the ve

metro regions in FY 2010.2Out othe ve MSAs selected or com-parison, the Lansing-East Lansingmetro region ranked third in termso expenditures per capita. This re-gion is very close to Canton, Ohioand higher than Ogden, Utah andGrand Rapids, Mich.

Normally, we would expect thatrevenues per capita and spend-ing per capita would be similar

in rank. Most local governmentsacross the United States are re-quired to maintain a balanced bud-get. However, some dierence mayappear i borrowing or other orms

2 MSA data includes all local governments with a population o 5,000 or more and withdata available on their website.


6/24

6

o nancing are relied upon. Also,during this period o scal stress,it may be that at least some gov-ernments may be running decits.

First, we review the revenue percapita ranking. The Lansing-EastLansing metro region ranked thirdin terms o revenues per capita,

which can be seen in Figure 2.This matches with the rankingrom expenditures per capita.

To understand how these expendi-ture and revenue numbers t into ascal health ramework, we calcu-lated the operating decit ratio or

each o these MSAs, which is equalto the (Total Expenditures - TotalRevenues) / Total Revenues. Giventhis ratio, a positive number meansthe region is running a decit.Figure 3 shows the operating de-cit ratios or each o the ve metroregions. The Lansing-East LansingMSA, along with our other re-gions, has an operating decit ratio

which indicates potential problemsin short term scal health as o FY

2010. This ratio may be driven bylarger decits in some governmentsas compared to others. However,it does provide an overall viewo where the entire metro regionstands.

Digging down, we can begin tocompare the benchmark metroregions on a number o cost vari-ables across unctional areas. Giventhe dierences across states, these

cost comparisons should be takenas a rough approximation o dier-ences. Nevertheless, they begin topoint us in the direction o under-standing the relative cost dier-entials. Table 1 shows that theLansing-East Lansing metro regionis higher in some categories than

Figure 2: Revenues per Capita or Benchmark MSAs

$0$200

$400

$600

$800

$1,000$1,200

$1,400

$1,600$1,800

Revenues per Capita


Figure 3: Operating Defcit Ratio or Benchmark MSAs

-0.05

0.00

0.05

0.10

0.15

0.20

Operating Deficit Ratio



7/24

7

other regions and lower in othercategories. Again, rom this data,

we cannot tell the relative e-

ciency or level o quality o servicebeing provided.

As stated previously, the govern-ments o the Lansing-East Lansingmetro region are a $500 millionenterprise. These per capita num-bers translate into the ollowingtotal spending by category or theLansing-East Lansing metro re-gion compared to the other MSAs(Table 1). This allows us to un-derstand the total spending bythis region across those unctionalcategories. To some extent, thesedierences refect dierent priori-ties across the country. At the sametime, these dierences may alsoindicate areas where governmentscan seek new options or deliveringservices that may reduce costs andmaintain quality.

For the Lansing-East Lansing met-ro region several possibilities are

borne out in Table 1. This regionhas relatively high costs in generalservices and in public saety. Thesemay be areas or urther investiga-tion and analysis. Other areas mayneed analysis or whether urtherinvestment and spending isappropriate.

The region spends almost $200million a year across 45 govern-ment entities in the provision o

public saety (Table 2). This in-cludes police, re and EMS protec-tion, courts and 911 dispatch. TheLansing-East Lansing metro regionranked 185th out o 347 metropoli-tan areas in the United States. Thelower the ranking, the saer thecity.

This ranking compared to 248th orDes Moines, Iowa, 321st or Ogden,Utah and 190th or Grand Rapids,Mich. (CQ Press, 2011). These rank-ings are only or crime and not theonly way to assess the eciencyor eectiveness o public saetyspending. Ultimately, the residentso communities and the overallregion are the judges o the rightlevel o service quality.

Based on these statistics, the ques-tion arises as to what pattern canbe discerned rom these statistics.

The basic story is that the metro-politan region hovers in the middleo a robust peer group. However,once these aggregate gures arebroken down, a slightly dierentstory emerges. Lansing-East Lan-sing metro region spending is onthe high side o some categories(such as public saety) and on thelow side o other categories (suchas culture and recreation). Thesendings may point to where uture

in-depth research and easibil-ity studies should be targeted todetermine i new service deliveryorms are required or i new invest-ments in certain service areas areneeded. The investigation will nowturn its ocus to the city o Lansing

Table 1: Spending by Service Area Category

Gen. Govt. Public

Saety

Public

Health

Public Works/

Inrastructure

Community

Development

Culture and

Recreation

Total

Des Moines $109 $430 $126 $281 $88 $106 $1,824Ogden-Clearfeld $205 $292 $45 $60 $40 $46 $924

Canton-Massillon $208 $291 $235 $290 $33 $18 $1,212

Grand Rapids $139 $214 $80 $87 $16 $46 $959

Lansing-East Lansing $258 $429 $95 $116 $23 $66 $1,123

Data Source: Local Audits, FY 2010

Table 2: Lansing-East Lansing Total Spending across Service Areas

Service Area Spending

General Government $119.8 mil.

Public Saety $199.2 mil.

Public Works $53.9 mil.

Community & Economic Development $10.9 mil.

Park & Recreation Services $30.7 mil.

Other $106.9

TOTAL $521.4 mil.

Data Source: Local Audits, FY 2010


8/24

8

as the core o the region and thelargest local government in themetro area.

More worrisome in the short term

is the act that several large localgovernments in the region are

Figure 4: Expenditures per Capita or Benchmark Cities

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Total Expenditures Per Capita


Figure 5: Revenues per Capita or Benchmark Cities

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Revenues Per Capita


concerted rom local governmentalleaders rom across the region.

City o Lansing

Fiscal AnalysisThe city o Lansing is the core cityo the metropolitan area. Its sizeand overall history make it a keylinchpin o the regions scal andeconomic uture. The city has aced

very dicult scal stress duringthe past decade. Employee layosand other cost-cutting measureshave already been instituted by thecity government. Even with these

changes, the city still aces dicultnancial challenges going orward.The city must also compete againstother cities in the global market-place. Like any rm, part o thiscompetitiveness analysis consistso cost comparisons.

Given existing data, we were ableto provide some additional analysisor the city o Lansing. These data

were not available or other cities

or governments in the region. Theollowing charts review the citysspending and revenue per capita,operating decit and employeesper capita. Again, it should beemphasized that there is complexrelationship between cost and e-ciency.

Lansing ranked 18th out o 22benchmark cities in terms o ex-penditures per capita (see Figure

4). This implies that its spendingis slightly above average as com-pared to other city governmentso similar size. In act, Lansing isonly slightly above some o thegovernments ranked below it. Thisranking partially refects mana-gerial cost-cutting implementedduring the last ew years. Again,the overall ranking does not imply

running operating decits. I notaddressed, these operating decitsmay threaten the economic andscal health o the entire region, as

evidenced by what has happenedin Flint, Mich. Addressing thesescal challenges will require a


9/24

9

ineciency per se, only that urtherinvestigation may be warranted.The city o Lansing may have a di-erent set o unctions or responsi-

bilities. However, in general, giventhe similarity in size, these citiesshould be relatively comparable.

Figure 5 shows revenues percapita or these same benchmarkcities. In this case, Lansing ranked17th out o 22. Again, as we wouldexpect, these numbers are similarin magnitude. In terms o operatingdecits, Lansing ranked 11th out o22, with a positive operating decit

which can be seen in Figure 5.Thus, in FY 2010, Lansing neededto expend more than it brought inor all government unds. This hasand will continue to put pressureon the citys budget into the uture.

Like many o its peer cities, Lan-sing ran an operating decit in FY2010. Given the depth o the U.S.recession this is not unexpectedand refects declines in local taxesand state aid. Figure 6 reveals amajority o the benchmark city gov-ernments ran decits. While this isnot unexpected, in the longer term,decit reduction and control re-main critical or Lansing to regainits nancial ooting and play a rolein the regions overall economichealth.

To explore these cost numbersurther, we collected data rom theU.S. Census 2008 Annual Survey

o Public Employment and Payroll,which can be seen in Table 3.Lansing ranked 18th out o the 22benchmark cities with 1.51 To-tal Municipal Employees per 100Residents. In terms o gross pay-roll, $73.47 is spent each month onemployee salaries or every Lansingresident.

Figure 6: Operating Defcit Ratios or Benchmark Cities

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Vic

torville,CA

Athens,GA

Pueblo,CO

Sp

ringfield,IL

ElMonte,CA

Denton,TX

Elgin,IL

N

orman,OK

Manchester,NH

Cle

arwater,FL

Lansing,MI

SantaClara,CA

CostaMesa,CA

Provo,UT

Peoria,IL

Roc

hester,MN

Ing

lewood,CA

Columbia,MO

Indepen

dence,MO

AnnArbor,MI

Wilm

ington,NC

Wa

terbury,CT

Operating Deficit Ratio


Table 3: Government Employment Data or Benchmark Cities

City State

Total Municipal Employees

Per 100 Residents

Full Time Pay Per

Capita

El Monte Caliornia 0.22 $16.37

Victorville Caliornia 0.36 $20.42

Costa Mesa Caliornia 0.48 $23.02

Provo Utah 0.54 $33.79Elgin Illinois 0.57 $35.58

Inglewood Caliornia 0.62 $38.97

Peoria Illinois 0.73 $39.76

Ann Arbor Michigan 0.73 $42.45

Pueblo Colorado 0.76 $43.99

Rochester Minnesota 0.76 $44.72

Santa Clara Caliornia 0.78 $45.27

Wilmington North Carolina 0.90 $46.07

Independence Missouri 0.96 $47.22

Denton Texas 1.04 $50.72

Columbia Missouri 1.13 $52.43

Athens-Clarke County Georgia 1.38 $62.04

Springfeld Illinois 1.40 $63.56

Lansing Michigan 1.51 $73.47

Clearwater Florida 1.51 $77.17

Norman Oklahoma 2.57 $116.30

Manchester New Hampshire 3.02 $120.51

Waterbury Connecticut 3.28 $155.10

Data Source: Census of Governments, 2008


10/24

10

This gure is based on gross pay-roll amounts or the one-monthperiod o March or ull-time em-ployees. Gross payroll includes all

salaries, wages, ees, commissionsand overtime paid to employees be-ore withholdings or taxes, insur-ance, etc. It also includes incentivepayments that are made at regularpay intervals. It excludes the em-ployer share o ringe benets likeretirement, Social Security, healthand lie insurance, lump sum pay-ments, and so orth. The exclusiono legacy costs is potentially a ma-

Figure 7: Municipal Employees per Capita by Major Function

Data Source: US Census of Governments, 2007

jor actor that needs to be actoredin at a later date. It should also benoted that Lansing and many othero these cities have laid o employ-

ees and made changes to wagesand benets during this timerame.Thereore, these numbers shouldbe taken as illustrative o potentialtrends and not denitive in nature.

When broken down by major unc-tion, Lansing has a higher numbero employees per capita than theaverage o the benchmark cities.3

This can be seen in Figure 7.

These gures may require urtherinvestigation regarding ecientpractices. Given the predominanceo personnel costs in municipal

budgets, these gures likely helpexplain the higher cost o Lansingcity government. In some cases,more employees may refect a di-erent set o unctions as opposedto an eciency issue.

3 The employee data above or Lansing doesnot include state government employees.It does include the Lansing Board o Waterand Light.


11/24

11

The cost o local government mayhelp determine a localitys attrac-

tiveness to rms. Though muchresearch has been conducted onrm location choice, no consensushas emerged on what the centrallocation actors are or what is thebest way to estimate their impor-tance.4 However, there are manycommonly studied determinantso rm location choice that canbe examined in the context o theLansing-East Lansing metro re-

Figure 8: The Number o Firms by Industry or MSAs

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Number of Firms by Industry Other (except public administration)

Accommodation and food services

Arts, entertainment, and recreation

Health care and social assistance

Educational services

Administrative, support, waste

management, and remediation services

Professional, scientific, and technical

services

Real estate and rental and leasing

Finance and insurance

Information

Transportation and warehousing

Retail trade

Wholesale trade

Manufacturing

Utilities

Data Source: Economic Census, 2007

gion. This section highlights only aew o the characteristics that may

matter in location choices. Manyo these characteristics are not inthe direct control o local govern-ments. This highlights that the costo government is only one actorin explaining a regions economiccompetiveness.

One o the determinants in rmlocation is agglomeration econo-mies.5 Agglomeration economiesare the benets that rms obtain

by locating near each other. Itis now well established that the

geographic distribution o plantsis concentrated, both across sec-tors and within individual indus-tries.6 Agglomeration economiesare thought to orm an inverted U

Efciency and the Attraction and Retention o Firms

4 Arauzo-Carod et al., 2010

5 Marshall, 1980; Hoover, 1936

6 Devereux, Grith and Simpson, 2004;Combes, Duranton, and Overman, 2005;Holmes and Stevens, 2004; Combes andOverman, 2004; Fujita et al., 2004


12/24

12

shape when economic concentra-tion is compared to the degree oattraction i.e., that spatial con-centration o rms at low levels

encourages more rms to locate ina region. Ater a point this relation-ship changes and density becomesa diseconomy. The literature alsoseems to agree that urbanizationeconomies (the cost savings associ-ated with a good being producedin a large city) outweigh the eectso industry-specic localizationeconomies (the number o the rmso the same industry in a location).This seems to imply that input and

output markets, as well as laborpools, are more important thanbeing located near a competitor.However, service agglomeration

Figure 10: The Number o Firms by Industry or Benchmark Cities

Data Source: Economic Census, 2007

economies seem to have a strongereect than industry-level localiza-tion economies.7

One way to measure the agglom-

eration rates in the Lansing-EastLansing metro region is to countthe number o rms. Figure 8shows the number o rms in theLansing-East Lansing metro regionas compared to the benchmarkMSAs or 2007. Firms are brokendown into major industries. TheLansing-East Lansing metro regionhas the lowest number o overallrms out o the ve benchmarks.

Details o number o rms by typecan be ound in the Appendix.

Figure 9 shows the same data orthe benchmark cities rather than

the MSAs. Here Lansing ranks 12thout o the 22 cities on the list.

There have also been a number oempirical studies examining the

eects o taxes and subsidies onlocation decisions.8 These stud-ies have had mixed results. Somehave ound that tax levels have nosignicant eect on location deci-sions. Others have ound that taxeshave a negative eect on location.9Papke (1991), or instance, ndsthat a high state marginal eec-tive tax rate reduces the number orm births or hal o the industries

7 Head et al., 1995; Guimaraes et al., 20008 Carlton, 1979; Carlton, 19839 Bartik, 1985; Coughlin et al., 1991; Friedman

et al., 1991; Woodward, 1992; Deveraux and

Grifth, 1997; Coughlin and Segev, 2000


13/24

13

examined. Devereux, Grith, andSimpson (2007) nd that discre-tionary government grants have a

small eect in attracting plants tospecic geographic areas, but thatrms are less responsive to gov-ernment subsidies in areas wherethere are ewer existing plants intheir industry. Others have arguedthat there is a trade-o betweentaxes and the provision o publicgoods and services. Gabe and Bell(2004) argue that high taxes can beattractive as long as they are spenton the provision o public goods

and services.

Thereore, both the tax rate andthe provision o public goods areimportant characteristics that areincluded in this analysis. Accord-ing to the Tax Foundation, Michi-gan ranked 18th in terms o itsoverall business tax climate in 2012and 49th in terms o its corporatetax climate.

Corporate tax rates, however, are

not the only tax rates that aectrm location decisions. Corpora-tions make up a surprisingly smallportion o businesses in the US.Thereore, individual tax ratesare also an important actor rmlocation choice. Property taxes andincome taxes will also vary acrossstates and location and aect rmlocation choices. Michigan ranked

11th in terms o individual taxrates, seventh in terms o salestaxes, and 30th in terms o prop-

erty taxes in 2012.Table 4 shows the corporate taxburden or our benchmark MSAs.The Lansing-East Lansing metroregion has the second lowestcorporate income tax burden byhousehold amongst our ve bench-mark MSAs. It ranked 185 out o331 metro regions where havinga higher number is better. Fromone perspective, this is good newsin that tax burdens are low. O

Table 4: Corporate Tax Burdens or Benchmark MSAs

Metro Area State

Households in

MSA

Average CorporateIncome Tax Burden

by Household Rank

Total Corporate Tax Burden

by MSA ($thousands)

Des Moines-West Des Moines IA 204,988 $3,286 38 $673,530

Ogden-Clearfeld UT 138,945 $2,926 73 $1,433,048

Grand Rapids MI 443,357 $2,678 101 $1,187,269

Lansing-East Lansing MI 184,608 $2,303 185 $425,209

Canton-Massillon OH 173,282 $2,110 230 $365,676

Data Source: Tax Foundation, 2005

course, this does not address thequantity or quality o public ser-

vices relative to this tax burden.

As previously mentioned, highertax rates may be appropriate iservice levels are high and o goodquality. One possibility in exam-ining service quality is to lookat crime rates. Crime is partiallyrelated to the provision o policeand public saety services. Figure10 shows the property and violentcrime rates per 100,000 peopleor the 22 cities in our benchmarkgroup. Lansing had the ninth-

Figure 10: Crime Rates per 100,000 People or Benchmark Cities

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Springfield,IL

Lowell,MA

Lansing,MI

Pueblo,CO

Peoria,IL

Inglewood,CA

Clearwater,FL

Wilmington,NC

Victorville,CA

Columbia,MO

Manchester,NH

ElMonte,CA

Independence,MO

Waterbury,CT

Elgin,IL

Athens,GA

Denton,TX

AnnArbor,MI

CostaMesa,CA

Provo,UT

SantaClara,CA

Norman,OK

Crime Rates per 100,000 People

Violent Crime RateProperty crime

Data Source: FBI Uniform Crime Reports, 2010


14/24

14

highest property crime rate andthe third-highest violent crime rateamongst these cities. This indi-cates that the region may need to

address crime strategies to seeka lower benchmark rate. Publicspending in itsel may or may notbe the only answer to addresscrime prevention strategies. It isdicult to assess the comparablequality o other public services.

Human capital also infuences rmlocation choice. Previous researchhas shown that rms are attractedto areas with a higher mean level o

education among the population.10

Figure 11 shows the percent oresidents in each o the ve MSAs

with at least a high school degree

Figure 11: Percent High School and Bachelors Degree Attainment or

Benchmark MSAs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percent High School and Bachelor's Degree Attainment

Percent high school

graduate or higher

Percent bachelor's

degree or higher

Data Source: US Census, 2010

Figure 12: Percent High School and Bachelors Degree Attainment or Benchmark Cities

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AnnArborcity,MI

EastLansingcity,MI

Columbiacity,MO

SantaClaracity,CA

Normancity,OK

Rochestercity,MN

Athens-ClarkeCounty,GA

Provocity,UT

Wilmingtoncity,NC

Dentoncity,TX

CostaMesacity,CA

Peoriacity,IL

Springfieldcity,IL

Clearwatercity,FL

Manchestercity,NH

Elgincity,IL

Lansingcity,MI

Pueblocity,CO

Waterburycity,CT

Inglewoodcity,CA

Independencecity,MO

Victorvillecity,CA

ElMontecity,CA

Percent High School and Bachelor's Degree Attainment

Percent high

school graduate or

higher

Percent bachelor's

degree or higher

Data Source: US Census, 2010

10 Coughlin et al., 1991; Woodward, 1992;

Smith and Florida, 1994; Coughlin and Segev,

2000


15/24

15

and the percent o residents withat least a bachelors degree. TheLansing-East Lansing MSA rankedsecond in terms o both residents

with high school diplomas andthose with bachelors degrees.

Figure 12 shows the same per-centages but or the benchmarkcities. Here, Lansing ranked 12thhighest in terms o high schoolgraduates and 17th highest in termso bachelors degree earners.

Unemployment rates are anotherindicator o municipal health.Figure 13 shows the unemploy-

ment rates or the ve benchmarkMSAs. The Lansing-East LansingMSA ranks third with an unem-ployment rate o 10 percent.

Figure 14 shows unemploymentrates or the 22 benchmark cit-ies. Lansing has the th-highestunemployment rate at 14 percent.Although this may be an indicatoro a weak economy, it also suggeststhat there is a large pool o work-

ers rom which to choose who areseeking employment.

All in all, it is a mixed story or theLansing-East Lansing metro regionin terms o the general eatures opublic services, public costs andbusiness attraction. The region hasstrengths with regards to laborskills and education and does notcarry a high corporate tax burden,at the time still it has some impor-tant weaknesses that need to beaddressed. High unemploymentmay signal that, along with a laborskilled workorce, there are also

workers who require signicantdegrees o retraining, urther jobtraining and new opportunities.

Figure 13: Unemployment Rate or Benchmark MSAs

0%

2%

4%

6%

8%

10%

12%

Unemployment Rate

Data Source: BLS, 2010

Figure 14: Unemployment Rates or Benchmark Cities

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Unemployment Rate

Data Source: BLS, 2010


16/24

16

This report has sought to under-stand the relative ranking o theLansing-East Lansing metro regionand the city o Lansing comparerelative to peer regions in govern-ment spending and eciency.Government eciency is an otensought-ater goal, yet it remainsan elusive goal and a complex or

wicked problem. This means thatwe do not have a clear idea o howto measure and completely as-sess what drives government cost

eciency and the importance ogovernment eciency relative toresidential and business locationdecisions. However, we do havesome ideas or how to proceed.One manner in which to measuregovernment eciency is to look atcost per capita or cost per person.

Comparing regions by total costmay be misleading. Cost per per-son adjusts or population and a

regions size. This is a better wayto compare across regions. As wehave seen, the Lansing-East Lan-sing metro region ranks slightlyabove average and is above averagein a number o specic categories.These may be areas or explorationin terms o service restructuring.There may or may not be goodreasons or a region or city havea higher cost per person. One othose reasons may be ineciency

which can be addressed via servicerestructuring.

Lansing, as compared to some o

its peers, aces some signicantpotential cost issues. The city hasslightly higher average costs thansome peer cities. This indicatesthat despite some o the manage-ment changes in the past, more

work may need to be done. Again,the question o eciency and qual-ity must be raised. Is the dierenceexplained by the act that Lansingprovides a higher level o serviceor more services than comparable

cities? Another possibility is thatLansing is inecient in its provi-sion o services. I so, measuresshould be taken to address theseissues immediately. There is someevidence that high costs can inhibita citys business and economicgrowth without correspondinghigher public service quantity andquality.

What can be done to address

potential cost gaps or inecienciesi they do exist? There are severalmechanisms or cost reduction orservice restructuring. One option

would be to restructure businessoperations internally in a city ortownship government using toolssuch as Six Sigma certication,adoption o lean practices or otherinterventions. Another possibil-ity is to seek out external partnerslike private companies who maybe able to perorm certain servicesat lower costs. A nal option may

Conclusion and Areas or Further Investigation

be intergovernmental coopera-

tion or consolidation. Governmentdepartments may share personneland equipment, departments maybe merged or an authority may beormed or regional provision o aservice. I it is determined that in-eciencies or cost gaps do exist ina certain service area, each o theseoptions should be explored.

This report is designed to stimu-late dialogue and discussion in theLansing-East Lansing metro regionregarding the cost and eciencyo government services. It is at ahigh level and does not purport toprovide denitive answers. How-ever, it should encourage dialoguethat will be productive in movingthe region orward and ensuringthe highest level o quality and e-ciency in local government serviceprovision. That said, the reportdoes hint at certain acts about

governments costs that need toexamined and possibly addressed.

Most importantly, the regionsoverall operating decit must beaddressed in a timely ashion. Fail-ure to address this issue could leadto increased state oversight and apotential impact on the regionseconomy. This scal decit, whileconned to certain governments,should be a concern to all regional

leaders.


17/24

17

AppendixDetailed Tables

MSA Total

Manu-

acturing

Wholesale

trade

Retail

trade Ino.

Proessional

services

Admin. and

remediation

services

Health

care

Food

services

Grand Rapids-Wyoming, MI 10,294 1,344 1,267 1,267 321 1,829 1,129 1,755 1,382

Des Moines-West

Des Moines, IA7,841 471 1,007 1,007 319 1,625 803 1,302 1,307

Ogden-Clearfeld, UT 5,545 529 502 502 150 1,289 682 1,154 737

Canton-Massillon, OH 5,744 591 462 1,463 118 768 480 1,035 827

Lansing-East Lansing, MI 5,170 385 424 424 205 1,098 551 1,182 901

City

Total

RevenuesPer Capita

Waterbury, CT 447

Provo, UT 511

Independence, MO 787

El Monte, CA 793

Norman, OK 849

Columbia, MO 891

Wilmington, NC 903

Pueblo, CO 964

Costa Mesa, CA 970

Ann Arbor, MI 1,008

Victorville, CA 1,025

Denton, TX 1,054

Rochester, MN 1,137

Springfeld, IL 1,169

Athens, GA 1,199

Elgin, IL 1,210Lansing, MI 1,238

Clearwater, FL 1,245

Manchester, NH 1,380

Inglewood, CA 1,430

Peoria, IL 1,460

Santa Clara, CA 1,602

Cities

Total

ExpendituresPer Capita

Provo, UT 581

El Monte, CA 771

Waterbury, CT 773

Victorville, CA 842

Norman, OK 893

Pueblo, CO 895

Independence, MO 975

Denton, TX 1,036

Costa Mesa, CA 1,084

Columbia, MO 1,093

Springfeld, IL 1,097

Athens, GA 1,100

Elgin, IL 1,237

Wilmington, NC 1,242

Rochester, MN 1,336

Ann Arbor, MI 1,346Clearwater, FL 1,352

Lansing, MI 1,371

Manchester, NH 1,463

Peoria, IL 1,705

Inglewood, CA 1,720

Santa Clara, CA 1,789


18/24

18

City Total Expenditures Total Revenues

Operating Defcit

Ratio

Victorville, CA 97,575,051 118,819,130 -0.18

Athens, GA 128,345,439 139,933,429 -0.08Pueblo, CO 95,386,020 102,805,747 -0.07

Springfeld, IL 128,814,362 137,272,436 -0.06

El Monte, CA 87,450,952 90,034,981 -0.03

Denton, TX 117,514,335 119,539,392 -0.02

Elgin, IL 133,813,198 130,901,470 0.02

Norman, OK 99,100,811 94,220,121 0.05

Manchester, NH 160,338,535 151,168,400 0.06

Clearwater, FL 145,540,617 134,056,887 0.09

Lansing, MI 156,694,877 141,480,936 0.11Santa Clara, CA 208,329,010 186,605,766 0.12

Costa Mesa, CA 119,209,826 106,620,366 0.12

Provo, UT 65,365,907 57,517,884 0.14

Peoria, IL 196,055,910 167,951,994 0.17

Rochester, MN 142,599,634 121,449,582 0.17

Inglewood, CA 188,615,029 156,862,931 0.20

Columbia, MO 118,556,103 96,684,314 0.23

Independence, MO 113,875,467 91,984,036 0.24

Ann Arbor, MI 153,411,507 114,841,375 0.34Wilmington, NC 132,198,313 96,176,344 0.37

Waterbury, CT 85,310,800 49,309,600 0.73

MSA Total

Manu-

acturing

Whole-sale

trade

Retail

trade Ino.

Proes-sional

services

Admin. andremediation

services

Health

care

Food

services

Grand Rapids-Wyoming, MI 10,294 1,344 1,267 1,267 321 1,829 1,129 1,755 1,382

Des Moines-West DesMoines, IA

7,841 471 1,007 1,007 319 1,625 803 1,302 1,307

Ogden-Clearfeld, UT 5,545 529 502 502 150 1,289 682 1,154 737

Canton-Massillon, OH 5,744 591 462 1,463 118 768 480 1,035 827

Lansing-East Lansing, MI 5,170 385 424 424 205 1,098 551 1,182 901


19/24

19

Rank City Total

Man-uact-

uring

Whole-sale

trade

Retail

trade

Inor-

mation

Proessional,

scientifc,and technical

services

Admin. andremediation

services

Health careand social

assistance

Food

services

1 Costa Mesa, CA 3,190 258 336 740 87 765 242 360 402

2 Wilmington, NC 3,049 102 150 845 86 648 221 579 418

3 Santa Clara, CA 3,152 542 399 403 159 851 199 230 369

4 Clearwater, FL 2,995 112 184 675 71 774 295 526 358

5 Springfeld, IL 2,276 71 120 608 81 457 167 393 379

6 Ann Arbor, MI 2,251 64 73 518 102 617 144 395 338

7 Peoria, IL 2,199 95 173 585 61 351 146 456 332

8 Columbia, MO 2,107 63 96 542 62 328 165 489 362

9 Manchester, NH 2,092 153 171 489 108 403 157 317 294

10 Athens, GA 1,935 91 106 553 46 286 128 394 331

11 Norman, OK 1,915 80 58 437 44 429 155 427 285

12 Lansing, MI 1,653 95 125 451 67 253 120 315 227

13 Rochester, MN 1,652 62 78 503 60 233 134 304 278

14 Independence, MO 1,559 97 81 490 41 238 117 278 217

15 Denton, TX 1,550 85 83 408 28 234 111 372 229

16 Pueblo, CO 1,550 59 57 441 38 203 91 379 282

17 Provo, UT 1,550 104 66 316 93 357 147 285 182

18 Elgin, IL 1,489 201 196 223 37 249 158 266 159

19 Waterbury, CT 1,506 177 95 442 26 160 70 321 215

20 El Monte, CA 1,377 182 339 300 18 123 80 174 161

21 Inglewood, CA 1,033 69 91 263 21 60 60 310 159

22 Victorville, CA 1,051 31 39 372 39 105 74 192 199


20/24

20

City

ViolentCrime

Rate

Murder andnon-negligent

manslaughter

Forcible

rape Robbery

Aggrivated

assault

Property

crime Burglary Larceny

Motorvehicle

thet Arson

Norman, OK 124 2 42 32 48 3,184 727 2,356 100 5Santa Clara, CA 161 2 6 55 98 2,671 426 1,957 288 14

Provo, UT 165 2 39 23 101 2,326 314 1,925 87 14

Costa Mesa, CA 217 1 31 84 101 2,892 415 2,222 255 9

Ann Arbor, MI 254 0 38 68 148 2,628 469 2,044 115 20

Denton, TX 256 2 53 51 150 2,559 443 1,992 123 17

Athens, GA 329 4 26 97 201 4,369 1,182 2,923 264 13

Elgin, IL 330 4 80 92 154 2,029 395 1,534 100 6

Waterbury, CT 337 5 6 162 165 4,282 720 3,172 391 3

East Lansing, MI 368 2 16 58 293 2,417 604 1,711 102 49Independence, MO 400 7 35 102 256 5,962 1,029 4,327 607 18

El Monte, CA 492 2 22 217 250 2,132 498 980 654 11

Manchester, NH 503 1 57 142 302 3,473 839 2,486 148 55

Columbia, MO 512 3 36 127 347 3,690 534 3,026 131 7

Victorville, CA 582 5 32 219 325 3,139 1,088 1,678 372 22

Wilmington, NC 705 5 46 275 380 5,559 1,410 3,683 466 13

Clearwater, FL 734 5 33 232 464 4,106 735 3,180 190 11

Inglewood, CA 752 18 29 340 366 2,384 559 1,197 627 14

Peoria, IL 766 19 27 267 453 4,507 1,274 2,999 233 53Pueblo, CO 854 1 29 152 663 4,799 1,565 2,798 435 49

Lansing, MI 1,101 9 86 233 772 3,735 1,256 2,266 213 30

Lowell, MA 1,156 1 49 184 921 3,477 866 2,217 394 26

Springfeld, IL 1,237 6 89 288 854 6,446 1,846 4,396 204 49


21/24

21

MSAPercent high schoolgraduate or higher

Percent bachelorsdegree or higher

Canton-Massillon, OH Metro Area 88% 20%

Des Moines-West Des Moines, IA Metro Area 92% 33%Grand Rapids-Wyoming, MI Metro Area 88% 26%

Lansing-East Lansing, MI Metro Area 92% 31%

Ogden-Clearfeld, UT Metro Area 93% 29%

CityPercent high schoolgraduate or higher

Percent bachelorsdegree or higher

East Lansing city, MI 98% 69%

Ann Arbor city, MI 97% 71%

Rochester city, MN 94% 43%

Columbia city, MO 93% 52%

Norman city, OK 92% 43%

Provo city, UT 92% 40%

Santa Clara city, CA 91% 49%

Springfeld city, IL 91% 32%

Wilmington city, NC 88% 37%

Peoria city, IL 88% 33%

Clearwater city, FL 88% 27%

Lansing city, MI 87% 24%

Costa Mesa city, CA 86% 34%

Manchester city, NH 86% 26%

Denton city, TX 85% 36%

Independence city, MO 84% 17%

Pueblo city, CO 83% 18%

Athens-Clarke County, GA 83% 41%

Waterbury city, CT 79% 17%

Elgin city, IL 78% 24%

Victorville city, CA 78% 12%

Inglewood city, CA 70% 17%

El Monte city, CA 53% 11%


22/24

22

City Labor Force Employment UnemploymentUnemployment

Rate

Norman, Oklahoma 54,414 51,561 2,853 5%

Columbia, Missouri 58,039 54,666 3,373 6%Rochester, Minnesota 58,125 54,610 3,515 6%

Denton, Texas 64,389 60,144 4,245 7%

Manchester, New Hampshire 61,993 57,670 4,323 7%

Athens, Georgia 63,278 58,283 4,995 8%

Springfeld, Illinois 66,033 60,654 5,379 8%

Costa Mesa, Caliornia 65,443 59,830 5,613 9%

Provo, Utah 69,156 63,230 5,926 9%

Wilmington, North Carolina 51,018 46,480 4,538 9%

Independence, Missouri 58,616 52,608 6,008 10%Santa Clara, Caliornia 56,214 50,461 5,753 10%

Clearwater, Florida 52,597 46,902 5,695 11%

Lowell, Massachusetts 51,631 46,069 5,562 11%

Peoria, Illinois 58,449 52,015 6,434 11%

Pueblo, Colorado 52,109 46,074 6,035 12%

East Lansing, Michigan 20,162 17,794 2,368 12%

Elgin, Illinois 58,632 51,374 7,258 12%

Lansing, Michigan 65,511 56,412 9,099 14%

Waterbury, Connecticut 50,987 43,579 7,408 15%El Monte, Caliornia 52,083 43,992 8,091 16%

Inglewood, Caliornia 54,383 45,826 8,557 16%

Victorville, Caliornia 29,989 24,872 5,117 17%

MSA Labor Force Employment UnemploymentUnemployment

Rate

Des Moines-West Des Moines, IA 315,869 296,759 19,110 6%

Ogden-Clearfeld, UT 264,298 243,801 20,497 8%Lansing-East Lansing, MI 241,779 218,048 23,731 10%

Grand Rapids-Wyoming, MI 387,532 347,003 40,529 11%

Canton-Massillon, OH 202,929 179,858 23,071 11%


23/24


24/24

MSU is an afrmative-action, equal-opportunity employer, committed to achieving excellence through a diverse workforce and inclu-

sive culture that encourages all people to reach their full potential. Michigan State University Extension programs and materials are open to

all without regard to race, color, national origin, gender, gender identity, religion, age, height, weight, disability, political beliefs, sexual orien-

tation, marital status, family status or veteran status. Issued in furtherance of MSU Extension work, acts of May 8 and June 30, 1914, in coop-

eration with the U.S. Department of Agriculture. Thomas G. Coon, Director, MSU Extension, East Lansing, MI 48824. This information is for educa-

tional purposes only. Reference to commercial products or trade names does not imply endorsement by MSU Extension or bias against those not mentioned.

MSU Extension

Greening Michigan Institute

Government and Public Policy Work Team

The Cost of Local Goverment

Documents

Transcript of The Cost of Local Goverment