Metropolitan Governance Structure and Income Growth

There has long been debate on the extent to which the structure of government in metropolitan areas helps or hinders income growth. Polycentrists contend that numerous local governments lead to competition that streamlines government, produces services at least cost, and leads to higher incomes. Centrists argue that large, multiple service governments have scale economies leading to more efficient production of services and hence higher incomes. What matters to regionalists is whether there is a metropolitan governance arrangement that effects an improvement in the distribution of economic activity that increases income. Which school of thought is right? This article evaluates the association between metropolitan governance structures and growth in per capita personal income among ,287 of the largest metropolitan statistical areas for the period 1976 to 1996. After controlling for several factors, we find empirical support for the centrist and regionalist schools of thought but very little support for the polycentrist school. A growing literature addresses the link between the structure of governance at the metropolitan level and income growth (Foster, 1993; Nelson, 1990; Ward, 1987). This literature is advanced by “polycentrists,” “centrists,” and more recently “regionalists” (for a review, see Wallis, 1996). Polycentrists argue that fragmented structures offer greater choice among service and tax/fee bundles for residents and firms with diverse preferences, constrain the costs of local government through competition, elevate overall government performance through experimentation by many units of governments at different levels, and increase the level of political representation and participation by individuals. Centrists counter that consolidated structures are more desirable because they capture efficiencies in economies of scale and agglomeration of talent, internalize externalities, promote fiscal equity, facilitate more efficient coordination of land use and facility planning, and economize on the potentially costly concessions common to many well-publicized competitions for “marquee” firms. In recent years, a third school of thought, espoused by regionalists, has downplayed traditional concerns about the actual arrangement of municipal governments to focus instead on the existence of regionwide mechanisms for collaborative decision making. The persistence and intensity of the debate stem from its policy relevance. As regions respond to the imperatives of global competition, public officials, policy analysts, and citizens seek to know *Direct all correspondence to: Arthur C. Nelson, Georgia Institute of Technology, 245 Fourth Street, Atlanta, GA 30332. JOURNAL OF URBAN AFFAIRS, Volume 21, Number 3, pages 309–324. Copyright © 1999 Urban Affairs Association All rights of reproduction in any form reserved. ISSN: 0735-2166. whether and how certain arrangements of local governments may be better than others in improving income, a near universal goal of metropolitan policy makers (Elkin, 1987; Logan & Molotch, 1983; Peterson, 1981). Determining the relative growth effects of alternative governance structures is of considerable concern to regional decision makers, as evidenced by a growing popular and professional literature on the merits of restructuring governance structures for economic gain (for example, see Dodge, 1996; Downs et al., 1996; Mahtesian, 1995; Peirce, 1993; Rusk, 1993, 1995; Wallis, 1996). Despite considerable attention, however, questions about whether certain governance structures are superior to others in their ability to improve income and which of the three schools of thought are supported by the statistical evidence remain unanswered. Empirical evidence linking governance structures to income growth is scant and inconclusive. Mixed findings provide little incentive for advocates to stray from their theoretical allegiances and give policy makers and voters little guidance on issues of governance structure. This study casts new empirical light on the relationship between metropolitan governance structures and growth in personal per capita income in metropolitan statistical areas (MSAs). The analysis examines changes between 1976 and 1996 in personal per capita income among the 287 largest MSAs considering measures of governance representing each school of thought, after accounting for a variety of factors. The analysis indicates that the centrist and regionalist schools, not the polycentrist school, are mostly right, suggesting a composite view of how governance structures influence income growth. The article proceeds with a review of the literature supporting the three contending schools of thought, a model of metropolitan personal per capita income growth, statistical assessment, and conclusions for policy. REVIEW OF THE LITERATURE There is consensus in the literature that metropolitan governance structure may affect choices made by households, firms, and developers. Because government arrangements may influence the type and quantity of services, facilities, and amenities in an area, they may also influence residential and commercial location and investment decisions (Danielson & Doig, 1982). Little consensus exists, however, about how metropolitan governance structure may affect economic development. Three schools of thought—centrist, polycentrist, and regionalist—contend for dominance in the debate over how the structure of metropolitan governance may influence growth in per capita personal income. Centrist Perspectives Centrists argue that large, multiple-purpose governments are most efficient in administration and production. Potential investors are repelled by multiple layers of government, confusing lines of authority, duplication of service, and the transaction costs of interacting with multiple small units of government (Committee for Economic Development, 1970; Ward, 1987). Regional governments, centrists allege, are best suited to internalize the externalities of growth (especially congestion) and realize economies of scale in service delivery (Rusk, 1993, 1995; Wingo, 1972). Centralized systems can draw upon a larger pool of human, material, and financial resources and offer a wider variety of services to residents and businesses than can governance systems comprised of relatively small, resource-limited, sometimes part-time-staffed municipalities (Felbinger, 1984; Frisken, 1991). Centrists are especially critical of interjurisdictional competition for development, which they contend promotes zeroor negative-sum games, leads to inefficiently and inequitably located facilities, encourages haphazard development and overzoning of commercial and industrial land uses, and induces local governments to relax environmental standards (Barlow, 1991; Hanson, 1974; Netzer, 1991; Oates & Schwab, 1988; Peirce, Johnson, & Hall, 1993). Centralized governments, in contrast, can better rationalize metropolitan-wide development, narrow intraregional disparities, and spur investment in central city revitalization (Downs, 1994; Lewis, 1995; Mattoon, 1995; Orfield, 1997; Pastor, Dreier, Grigsby, & Lopez-Garcia, 1997). 310 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 3/1999