Corzine to Mayberry: Drop Dead

Lots of New Jersey is not much like what you see from the Turnpike. The state has a total of 566 towns; slightly more than half (323) of these have fewer than 10,000 residents.

It seems that Governor Corzine is trying to use fiscal pressure to force small towns (fewer than 10,000 residents) in New Jersey to merge. His stated rationale is that small towns are inefficient, and that New Jersey should eliminate them because the costs of police departments, fire departments, sanitation services and so on are so much higher for small towns since they lack economies of scale.

Here are total municipal costs per capita in 2006 for towns in New Jersey with more vs. fewer than 10,000 residents:

Towns with > 10,000 people: $1,223
Towns with < 10,000 people: $1,261

Per capita costs of local government are about the same, on average, in small towns and large towns. Huh.

But schools are a huge part of local budgets, and school districts don’t always coincide with municipal boundaries. Here are estimated 2005 municipal plus assigned school costs per capita for towns in New Jersey with more vs. fewer than 10,000 residents:

Towns with > 10,000 people: $3,290
Towns with < 10,000 people: $3,250

Huh.

A more fine-grained look at the data is quite interesting:

Here are some observations from this data. When you get down to very small town sizes (on the order of 1,000 people or so), per capita costs really are a lot higher. Towns in the range of about 6,000 – 15,000 have the lower per capita costs for local government. Corzine’s cut-point of a small, inefficient town is actually the size of the most fiscally-efficient towns in New Jersey. Large towns (35,000 – 280,000 residents) have about the same per capita costs as towns with 2,000 – 5,000 residents.

Economies of scale are surely real, all else equal, in provision of local government services. But so are diseconomies of scale – maybe the governor should look into this new-fangled economic idea of public choice.

Consider the application of Corzine’s theory. If one were to make the heroic assumptions that these costs differences are caused entirely by town size, and that every town below about 6,000 people could find a nearby town or towns to merge with to get to about 10,000 people (but not more than 15,000, at which point costs would start to rise), and that therefore all small towns could get to the same per capita local government costs as the lowest-cost towns, then you could get some costs out of the system. How much? Under the unrealistic assumptions provided above, about $0.3 billion per year. In comparison, New Jersey’s 2008 state level budget is about $33.3 billion. This is up about $2.2 billion over 2007. So, this – again, totally unrealistic – benefit could be achieved simply by increasing spending from $31.1 billion last year to $33.0 billion this year instead of increasing it to $33.3 billion. Of course when you add in local spending, total state plus local spending is much higher than this in New Jersey. New Jersey’s 2005 total state and local spending was the eight-highest in America, at about $8,900 per capita. Nearby Connecticut had the tenth-highest level of state and local spending, at about $8,550 per person. Simply spending at Connecticut’s level (which isn’t exactly like saying “become Alabama”) would reduce total state and local spending by about $3 billion per year. Finally, under the same set of assumptions that lead us to think we can get $0.3 billion by forcing the consolidation of hundreds of towns, we would presumably want to break up the large towns into smaller towns of 6,000 – 15,000 people each, since this is the lowest-cost town size. That would, under the same assumptions, save more like $1.5 billion per year. Don’t hold your breath.

In fact, it’s extremely unlikely that the specific pressure that Corzine is bringing to bear will induce any small towns to merge. Even in towns that are most severely impacted by this, Corzine’s fiscal proposals (since ameliorated by the legislature) would raise annual taxes for a typical homeowner by about $100 per year. Nobody is going to march on borough hall over ten bucks a month.

So, if it doesn’t make sense even in theory, and is not large enough to work in practice, what could possibly be behind this proposal? How about the fact that Corzine won the 2005 election by carrying parts of the state dominated by large towns, but losing parts of the state dominated by small towns:

Under the cover of a seemingly-technocratic proposal, he is taking money from the people who voted for the other guy, and giving it to his voters. Jon Corzine: a reformer with results.