Point of View

Charting cities' financial stewardship

February 21, 2012 

The primary responsibility of local government is to provide essential services in an effective and cost-efficient manner. But without any metrics to measure whether they are accomplishing this objective, holding elected officials accountable is problematic. So I developed an index that shows how much North Carolina's 25 largest cities or towns charge their citizens for basic services.

When I teach my MBA classes on governance, I focus on three concepts that business and political leaders should carry with them: transparency, accountability and stewardship. Without transparency, there can be no accountability. Accurate information is needed to hold people accountable; otherwise any debate degenerates into quibbling over the facts.

I recently requested information from local officials to help me understand the basis for the costs of essential services provided by my local government. The information I was given was either misleading or incomplete; in some cases there was no response at all. So to bring greater transparency to local governments I created the "N.C. Stewardship Index."

The word that most accurately describes good governance is stewardship. According to Wikipedia, "Stewardship is an ethic that embodies responsible planning and management of resources." The term refers "to a responsibility to take care of something belonging to someone else," like the taxpayers' money.

There are countless nonprofits and non-governmental organizations whose primary mission matches up with just about anyone's personal, social or environmental agenda. But there is no other body charged with keeping us safe, paving our streets, educating our children and providing healthy drinking water. Local governments need to provide basic services efficiently to justify their existence.

To build the index, I looked at what we are charged for basic services in each of the 25 largest municipalities in North Carolina. Since the index ranks cities relative to each other, the measure remains essentially the same regardless of the economic circumstances of the taxpayer. In the attached numbers, I presumed a middle class family of four.

While most costs of home ownership are dependent on discretionary choices about consumption, no homeowner can live in a community without paying property taxes and consuming water. And both of these costs are established at the local level. The Index assumes that the family's house has an appraised value of $300,000 and that they consume 10,000 gallons of water for the six cold months of the year and 20,000 gallons of water during each of the six hotter months, for an average monthly consumption of 15,000 gallons.

Admittedly, there are unique demographic circumstances in each municipality throughout the state. And no index can effectively measure the quality of all local services (some of which are provided by agencies separate from municipalities). But just as in business, if we benchmark costs, it provides a greater incentive for cities and towns to adopt "best practices." Often the solutions to poor quality come through improved execution, rather than from raising prices.

Curiously, there seems to be no correlation between the size of the city and the cost to live there. North Carolina's second-largest city, Raleigh, is in the best quartile, while its next-door neighbor, the fourth-largest city, Durham, is in the worst quartile. The role model of stewardship, which tops the list, is Wilmington, a mid-sized city led by a pragmatic, bipartisan mayor and home to a major academic institution. Yet the town that ranks last - by a very wide margin - is also mid-sized with a major academic institution: Chapel Hill.

The way to read the index is that the cost of services in the municipality is higher than the lowest-cost city (Wilmington) by the percentage amount represented by the index. In other words, the costs of property taxes and water in Charlotte are 142 percent of those in Wilmington; so the cost of basic services in Charlotte is 42 percent higher.

Regardless of where your home town ranks, to be responsible voters we need to have the facts to hold our elected officials accountable. I hope this information will inspire some constructive dialogue about stewardship in local government.

Michael Jacobs is professor of the practice of finance at UNC's Kenan-Flagler Business School and former head of corporate finance and corporate governance policy at the U.S. Treasury Department. He is also CEO of Jacobs Capital.

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