An installment of Capital Comments written by everybody’s favorite economist, Larry DeBoer, ran in the July 26, Carroll County Comet. Professor DeBoer’s commentary concerns a report (PDF) by the Department of Local Government Finance on 2005 expenditures per capita by local governments. (Senator Kenley had a column in the Indy Star on the report, and I had a blog post.)
Professor DeBoer suggests that the legislature thought it would be a good idea to make comparisons of expenditures per capita by local jurisdiction available so that citizens might be able to ask questions about why some are spending more and others are spending less. However, he says, it’s difficult to know what to make of the reported numbers. First, DLGF says that there are inconsistencies in how jurisdictions report their numbers. Second, operating costs and infrastructure costs are combined. Third, the numbers reported by DLGF don’t seem to reflect patterns seen in previous research such as wealthy jurisdictions spending more per person and jurisdictions with more homeowner property spending less.
Prof. DeBoer notes that at least one pattern that shows up, however. Small jurisdictions spend more per person. Of the 11 counties in the state with fewer than 15,000 people, 9 of them spend more per person than the typical county. The smallest counties averaged $1,570 per person compared to a $1,090 average for all counties. He suggests that this might be a symptom of “economies of size” which I take to mean that there are certain fixed costs for a county which have to be incurred regardless of how many citizens the county has. The bigger counties get to spread these costs over more people.
Last year the General Assembly passed HEA 1362 which might provide some assistance for the smaller counties. It provides a mechanism by which political subdivisions, including the small counties with high overhead, can use cooperative agreements with cities, towns, other counties, or other jurisdictions to deliver services, share equipment and employees, or buy services from one another. Through such cooperative agreements, the small counties might generate the sorts of economies of size currently enjoyed by the larger counties.
Fixed costs makes sense to me – are corelation between rural vs. well, less rural?
By the by, which syllable gets the accent in Masson?
The “Mass” gets the emphasis. The “on” is pronounced like “un”.
B. Havens says
I’m guessing the “economies of size” are more than just fixed costs… they include the premium you pay when you buy smaller amounts of a product or service (or, in more common terms, the discount you get for purchasing larger amounts).
I’m sure you’re right. My formal economics training consists of about 9 weeks during my senior year in high school. So, I grasp a few major themes, then have to sort of reconstruct the wheel to get at the details — like fixed costs and marginal costs both being affected by economies of size.