State Policies Sink Cities

Third-class cities (defined by population) in Pennsylvania, such as Lancaster, are hoping Governor-elect Tom Corbett will push legislation giving cities more autonomy from the state.

The Lancaster Chamber of Commerce & Industry believes the financial crisis looming over Lancaster, and other cities across Pennsylvania, is not a result of mismanagement by local governments, but rather burdensome state regulations that prevent cities from making necessary changes.

The Chamber is asking the state to be more proactive and stop “throwing money” at financially distressed cities and change policies that prevent cities from getting out of debt.

These recommendations are supported by a yearlong study of Lancaster City, which found state regulations impede these major areas:

  • Pensions: Cities that wish to cut costs and eliminate political manipulation of pensions by placing all new local government employees in a defined-contribution plan, like a 401(k), can’t because cities must follow the state’s model.
  • Union Contract: The state mandates cities accept an arbitrator’s decision in disagreements between unions and cities. Because arbiters typically favor unions, these groups will often opt for an arbiter instead of making an agreement with the city, leaving the local governments with contracts well above what they can afford.
  • Economic Development: The Chamber also recommends creating tax breaks for urban development to help revitalize cities (broad tax cuts would be a better policy).

In fact, it jusn’t just state mandates that hurt local governments, but state spending.  A recent Mercatus study finds that state aid to local governments increases local government spending from local tax dollars.  Looking specifically at Pennsylvania as an example, the authors write:

For every $100 in [state] grants, local governments eventually raise revenue by between $23 and $46 to support the continued operation of these programs.

The Chamber believes its proposal is fair because it isn’t asking for a Harrisburg handout, but flexibility. If the state isn’t going to stand up to special interest groups, then cities won’t have the opportunity to exercise control over their budgets.