Document Type

Article

Publication Title

Review of Banking and Financial Law

Abstract

I want to focus on two likely sources of divergence between the interests of local officials and those of their constituents that I consider the most likely cause of our current widespread municipal distress. The first involves the intertemporal conflict between the costs and benefits of current expenditures. Debt crises in New York and elsewhere arose because municipal officials borrowed funds for operating and capital expenses, providing services to current residents while imposing the obligation to pay for them on future generations of residents—those who would not be casting votes in the next election. Aside from intertemporal conflict, there is an alternative source of divergence in the interests of officials and residents. Fiscal distress may arise as a function of fragmented decision-making within local governments. By fragmentation, I mean nothing more than a budgetary system in which, for any given proposed expenditure, there are multiple points of access and review before a decision is finalized. The result is that those who seek government funds may find success through a variety of avenues, and none of the gatekeepers on those avenues has reason to be concerned about the budget as a whole. Representatives from a single district within a locality may be willing to support expenditures within their district, regardless of the desirability of those expenditures from the perspective of the locality. If a publicly funded park in my district enhances my chances at re-election, I will fight for it notwithstanding that, from the perspective of the city as a whole, it is an inefficient expenditure.

First Page

571

Volume

33

Publication Date

2014

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