Gravity & Antigravity

Economics + Government + Public + Tax
October 12, 2013
Read this in 11 minutes

This is an analysis of an unusual pattern in public employment numbers at the municipal/county level in three jurisdictions. The pattern is known as gravity because in these places local employment numbers fell with declining economic conditions (measured in terms of population decline, and thus public employment per capita), thus exhibiting a gravitational effect. Antigravity is the opposite, and, generally speaking, the usual pattern. That is, when economic conditions decline, local public employment numbers tend to hold steady. There are several reasons why antigravity is generally the norm, e.g. the interplay of public unionism and democracy, which is an interesting topic that has been explored in depth elsewhere. Here we are looking at something different, and in three places at particular points in time, to consider whether there is a common thread, and to thereby better understand the relationship between public employment and macroeconomic conditions.

First, here is a look at some antigravity data.

Now, here is a look at the gravity data.

The antigravity data could be a documentation of Keynesian policies of public reinvestment during recessionary periods in the mid 70s, early 80s, and early 90s. The historical momentum of such policies slowed during the stagflation, New Federalism and rise of privatization experienced and implemented in the 70s and 80s. As a result, Wayne County, Baltimore City and St Louis City may have been impelled by interrelated political and structural differences to implement austerity during those periods. Each of these jurisdictions’ public employment numbers exhibit a steady and positively correlated reaction to economic decline between 1970 and 1990. Thus, this review focuses on them.

A brief on each jurisdiction follows. In sum, Wayne County simply had to right its fiscal ship, which had completely run aground. Its reorganization during the late 70s and early 80s instated the central management functionality necessary to accountability. Baltimore City and St Louis City are more complex cases. Each withered under the pressures of urban decay during those periods. But in those places it was an amalgam of factors that ushered in the era of austerity, including the nature of city-cum-county government, paradigm shifts in federal policies, and fluctuating demographics coupled with reapportionment.

Wayne County 1

Wayne County fell into shambles in the 70s. It was the poster child for urban decay. Reorganization was necessary and therefore pressed by the state. So in 1983 Wayne County became Michigan’s first county governed by home rule charter. (Most Michigan counties are governed by state law and don’t have a local charter.) An outcome of the process was to put personnel and labor relations under an executive directly accountable to the electorate. Cuts were made to pull the County back from the brink.

The structural options available to Michigan counties can be viewed on a spectrum. First, the general law structure employs a multipurpose commission and multi-headed executive. This model leaves separation of powers, checks and balances, and accountability wanting. The commission performs both executive and legislative functions, and the executive function is splintered among several directly elected officials. Most Michigan counties are organized this way. Second, a unified form employs a county administrator (appointed by the county commission). Third, a second unified form employs an elected county executive with veto power. This latter form is the most radical change from the general law available to Michigan counties, and Wayne County made that change in 1983. It now employs an executive with defined authority. A structure like that employed by the Federal government is not available to Michigan counties.

By the end of the 70s, Wayne County was ready to break. It was deep in debt. Its records were not auditable. County employee costs were exorbitant. Cronyism flourished. It could not determine which employees were covered by benefits. There were no reserves for some earned benefits, and management of what was on reserve was inadequate. Too many officials were seated at the table, yet no one was in charge. The structure of the governing commission, at once too broad to disaggregate legislative and executive functions, and too narrow to reign in semiautonomous agencies, was proven flawed.

The Michigan Municipal Finance Commission ordered the County to balance its budget in 1976, but the county’s deficit continued to deepen. The County attempted to raise revenue by selling tax notes, but it could not meet the requirements to get the offering off the ground. Late in 1979 Wayne County became the first county since the Great Depression to default on employee payroll. Governor Milliken pressed specific systemic changes, including a central elected executive. State aid was made contingent on the changes. But local officials preferred status quo over reform. As of 1980, Wayne County was the only county of its size in the nation that had the option to reorganize but had not done so.

The pre-charter dysfunction is easily discernible, particularly when compared to relative post-charter linearity. Prior to 1983, the multipurpose commission appointed the members of a civil service commission acting as the head of personnel for examination and hiring purposes. That commission in turn appointed a personnel director. A second facet was a labor relations board, to which the multipurpose commission appointed five of its members. The chairman of the multipurpose commission nominated a director of labor relations. The labor relations board was responsible for policy, contracting, and grievances. The bifurcation of responsibility between these departments was a cause of major dysfunction. The charter streamlined this by establishing a personnel department directly accountable to the executive. That department is composed of a division of labor relations, a division of employment planning which manages classifications and examinations, and a three-member civil service commission which hears grievance cases.

When reorganization was put to the voters, they chose a stronger executive function over the objections of the multipurpose commission. The first executive under the new charter took on the employee labor unions and other primary problems related to costly social welfare programming. The AFSCME contract expired in June 1982 and the first executive was elected in November 1982. Labor contract negotiations were undertaken immediately. Impasse was unofficially declared in August 1983 and the county’s last best offer was imposed, including suspension of COLA and the elimination of paid lunches. (Eventually this declaration of impasse would be found premature and damages would be paid.) The deficit was slashed from $117 million to $35 million in the first year.

Baltimore City 2

Though Baltimore City was not Detroit, it had problems too. When its urban decay overlapped with changes in macroeconomic policy at the federal level, the consequent milieu would pressure Baltimore City to layoff municipal workers before reaching Detroit-like status. The gravitational effect seen in the data can perhaps be attributed somewhat to the fact that Baltimore City is essentially an urban county that does not include its surrounds. The data from this period are sensitive to exclusively urban phenomena because federal policies heavily impacted cities in the 70s and 80s. The lessons coming out of Baltimore City are thus applicable to St Louis City, which is similarly structured.

Baltimore City experienced population loss throughout the second half of the 20th c. As other demographics left the city, the urban population declined and became proportionately more black. Public administration was greatly impacted because the political paradigm was shifting from urban social welfare targeting national distortions caused by segregation to privatization targeting economic competitiveness in globalized markets, and Baltimore City was a model of urban socio-economic distortion in the 70s and 80s. It would have to feel the impact of the shift.

Baltimore City was home to an infamous strike during this period, the 1974 Police Strike (similar to the 1919 Boston Police Strike). But it was more than just a police strike. AFSCME, representing the police officers, led a citywide effort that included employees from sanitation, parks and recreation, and education, causing pandemonium. Though effective at drawing attention to municipal employment, the strike only portended inevitable layoffs. What follows is a detailing of the political-economic chronology that led to those layoffs.

The 60s, 70s and 80s represent a continuum along which degrees of social policy are situated, particularly for urban areas. Presidents Kennedy and Johnson put faith in Keynesian economics to work on federal investments in anti-poverty initiatives. The public sector expanded accordingly. In Baltimore City, many of those new jobs were taken by African Americans. Moreover, in 1969 the Baltimore City Council passed an ordinance giving hiring preference to residents. By 1970, the percentage of African Americans in municipal positions was up from 26% to 40%.

Concomitantly, Baltimore City began to depend heavily on that intergovernmental aid. The tax base withered with an exodus of manufacturing firms and residents. Because Baltimore City is its own jurisdiction and not contained within a county, it lost the revenue of tax paying persons and entities that moved out of its urban limits. Moreover, some measure of dependence on federal aid had by then been normalized by tax competition between states, which drives rates down.

Corporate competition from abroad triggered public disinvestment pressure from the private sector. Under President Nixon, targeted programming grants became categorical revenue sharing grants. Power in Baltimore City thus shifted from the agencies serving citizens to an executive seeking private investment. Mayor Schaefer took office in 1971 and remained there throughout these tumultuous periods until 1987. He sought to revitalize Baltimore City as a global economy characterized by mobile capital took hold. He prioritized the courtship of external investment from private firms and, for example, kept watch over the city’s credit rating. By the end of the 70s, the federal government’s commitment to privatization gradually undermined the remaining Baltimore City residents’ influence. President Carter’s focus on public-private partnerships and the subsidization of physical development at the expense of human development only helped Baltimore City officials align with business. The cuts in federal assistance therefore necessitated a reduction in Baltimore City’s municipal workforce and its provision of services.

Then came President Reagan, under whom overall federal aid declined for the first time since the 40s, including social services by 25%, community services by almost 50%, and training and employment by more than 66%. Baltimore City in particular lost $569 million in funding for its 1982, 1983 and 1984 budgets. Categorical grants reaching local jurisdictions became block grants for states to encourage local jurisdictions to compete for revenue. Nixon’s policies eroded the influence of African Americans within Baltimore City government, but Reagan’s policies transferred decision making authority out of Baltimore City entirely. The Baltimore City delegation was not equipped to defend itself at the state level. In the early 80s it represented 19% of the Maryland’s residents, but 63% of public assistance recipients. Reapportionment at the same time weakened it further.

Baltimore City officials knew that tax increases would only accelerate the population exodus at the heart of its problems. They had no choice but to cut jobs and services. Between 1980 and 1990, 18,400 municipal jobs were eliminated, reducing the workforce by 37%. Certain public services were also turned over to private management. For example, the public hospitals were ceded to Johns Hopkins, where former public employees were moved off the rolls and made private employees.

St Louis City 3 4 5 6 7 8

In 1976, AFSCME took out an ad in the St Louis Post-Dispatch criticizing governmental policy that forced layoffs in Detroit, for example, saying that instead of investing abroad we should “give aid . . . to our cities at home.” The population and decay problems facing other American cities at the time, including Baltimore City, were the same problems facing St Louis City. St Louis City is structured as Baltimore City is. It is a stand-alone, extra-county jurisdictional unit. It experienced the same macroeconomic policy shocks that Baltimore City did in the 70s and 80s, and it did so in the same way.

St Louis City underwent significant suburbanization and population loss throughout the 20th c. The surrounding St Louis County expanded rapidly, doubling from 1910 to 1920. In the 30s the City began to lose people while the County gained 30%. The vast majority of residential construction in the area took place in the County. In the 50s, the automobile and fluctuating demographics helped to accelerate changes. In the 60s, 34% of white residents moved out of the city, and the city’s black population rose almost 20%, bringing the proportion of black residents up from 29% to 41%.

Layoffs in St Louis City were, again, experienced as a result of the same policies rippling through Baltimore City. For example, research conducted at the Harvard Graduate School of Education in the 80s showed that 1982 was an especially hazardous year for St Louis City teachers hired in 1975 or later because in Spring 1982 federal budget cuts were beginning to take their toll on the local school districts. At that time, the St Louis City school district anticipated a $20 million cut in aid. A property tax increase was defeated by local referendum. The district therefore had to lay off about 18% of its staff, including 790 teachers in Summer 1982.

Outro

There is an ancillary issue not much discussed in the literature (though a recent article by Richard Schragger9 addresses it in a parallel context): private capital has become mobile and global while public capital remains fixed by definition. The strong gravitational effect of employment seen in the retail space helps make this point. Private resources can be more readily scaled up and down and mobilized to capitalize on the rise of activity in new markets. A municipal corporation must make do with its land and infrastructure, come what may.

It brings economies of scale into relief. The same Main Street that may have once supported trade among tens of thousands of taxpaying citizens may at some point need to be maintained for trade among only hundreds. For municipal corporations to react as nimbly as private corporations can and do in declining markets they would have to be similarly structured, regulated and interested. They are not, nor can they be.

Given the downward spirals that can ensue in these situations, revenue sharing from the federal level is a means of supporting and thereby potentially reversing decline in jurisdictions of strategic importance, though it may carry with it a forfeiture of control over policy. In that sense, the federal government might act like something of a receiver and fiduciary to troubled locales. Periods of municipal disinvestment at the federal level may have been undertaken while overlooking that fundamental difference between private and municipal capital: mobility.


[1] A Review of the Effects of Home Rule on Wayne County Government, Citizens Research Council of Michigan (1986)

[2] There is Tragedy on Both Sides of the Layoffs: Privatization and the Urban Crisis in Baltimore, Jane Berger, International Labor and Working-Class History, Vol. 71 No. 1 (2007)

[3] Detecting Involuntary Layoffs in Teacher Survival Data: The Year of Leaving Dangerously, Judith Singer & John Willett, Educational Evaluation & Policy Analysis, Vol. 10 No. 3 (1988)

[4] St Louis Post-Dispatch Article 1

[5] St Louis Post-Dispatch Article 2

[6] St Louis Post-Dispatch Article 3

[7] St Louis Post-Dispatch Article 4

[8] St Louis Post-Dispatch Article 5

[9] Mobile Capital, Local Economic Regulation & the Democratic City, Richard Schragger, Harvard Law Review, Vol. 123 No. 2 (2009)

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