The Rise of Sublocal Governance

Robert H. Nelson

Local Governance -- America’s Most Important, Least Studied Issue

• Regulates Residential and Commercial Land Markets

• Provides Schools• General Purpose Local Governments – 39,044• School Districts – 14,561• Other Special Districts – 39,381

General Purpose Local Governments

• 3,033 Counties (US)• 19,492 Municipalities (US)• 16,519 Townships (US)• New Jersey – 566 Municipalities, 324 Townships• Maryland – 157 Municipalities, No Townships• Virginia – 229 Municipalities, No Townships• Pennsylvania – 1,016 Municipalities, 1,546

Townships

U.S. Asset Ownership

• Residential Property Ownership (US) -- $22 Trillion (2006), $15 Trillion (2009)

• Commercial Property Ownership -- $5.3 Trillion (2007)

• New York Stock Exchange -- $13 Trillion (2000), $7.2 Trillion (2002)

• NASDAQ $5.5 Trillion (2000), $1.8 Trillion (2002)

Land Use and Local Government – A Neglected Area of Scholarship

• Urban economics – brief flurry 1970s, loss of interest in economics profession since then

• RFF – Major focus in 1950s-1970s, Marion Clawson leading US land economist, almost no remaining presence at RFF

• The Urban Institute – now study poverty, health, fiscal policy – little on land use, local government

• Advisory Commission on Intergovernmental Relations – Abolished 1995

• Left to urban planning departments – weak intellectual tradition

Difficulties of Land Use, Local Governance Research

• In Same State, Hundreds of Often Overlapping Political Units

• Wide Variation from State to State• Poor Data Availability• Progressive Antagonism -- Local Governments

Seen as All Political, Poorly informed, “Feudal” Throwbacks

• National Government is Modern, Center for “Scientific Management” of the Nation

An Outlier -- The Bloomington School

• Much of early work on local government• Required unusual combination of interests,

skills in academy• Emphasis on field investigation, case studies• Multi-disciplinary approach• Unusual awareness of core value and policy

assumptions and blind spots of social science disciplines (often unconscious)

Law Journals – Best Scholarly Source of Information on Local Government• Law journals more useful than social science

journals• Legal profession is more practical, closer to the

real world, less controlled by limiting disciplinary tunnel visions

• Lawyers are generalists (ie., multidisciplinary)• More legal case studies• Richard Briffault, Columbia Law School – “The

Rise of Sublocal Structures in Urban Governance” (1998)

Briffault - The Need for Sublocal Governments

• Large Local Governments Apply Uniform Rules, Service Levels over Large Areas

• Smaller Areas Within the Larger Jurisdiction Often Have Quite Different Service Demands, Ability to Pay

• The Needs of the Smaller Areas Are Neglected by the Uniform Policies of the Wider Jurisdiction

• Sublocal Governance Allows Greater Territorial Variation, Specialization within Wider Jurisdiction

Growth of Sublocal Structures

• Special Zoning Districts• Business Improvement Districts• Historic Districts• Tax Increment Finance Districts• Enterprise/Empowerment Zones• Private Streets (St. Louis)• Charter Schools (Sublocal governance, if not

geographically based)

Private Community Associations

• 1970 – 10,000 Community Associations, • 2008 – 300,000 Community Associations • 1970 – 2.1 million residents of Community

Associations,• 2008 – 59.5 million residents (20 percent of

U.S. population)• Half of new housing units from 1980 to 2000

built in a community association

Types of Community Associations

• Homeowners Associations (55 %)• Condominiums (40%)• Cooperatives (5%)• First condominium built in US in 1962, the

Greystoke development in Salt Lake City• Most community associations have exterior

common elements and involve multiple buildings

Advantages of Community Associations

• Form of Sublocal Governance, Allows Greater Territorial Specialization

• Tighter Local Controls – Sought By Many, if Sometimes a Source of Controversy

• Collective Service Levels Meet Specific Demands of Sublocal Jurisdiction

• Easier to Form Community Association, Compared with Sublocal Public Entity

• Private Status Promotes Governmental Efficiency

Local Governments Confound “Market” v. “State” Distinction

• Community Association is Form of Government

• Strong Private Coercive Controls, Imposed by Majority (or Supermajority) -- e.g., allowable house paint colors, shrub placement

• Private “Taxes”• Private Security Guards, Private Fines and

Other Private Enforcement, “Judicial” Appeals Process

Also Large Public Role – Nevada Controls the Following (1997, 1999,

and 2003 Laws)• Capped fines HOAs could levy at $50 (now up to $100). • Required HOA boards to receive approval from their residents

before starting litigation. • Required board elections every two years and prohibited proxy

votes during board elections. • Banned foreclosure based on nonpayment of fines. • Required education for property managers. • Mandated annual meetings with announced agendas. • Created a mechanism for recalling HOA board members. • Created first an ombudsman's office and later a state commission

to hear complaints and enforce regulations. • Required that new home buyers be informed of CC&Rs and sign off

on surrender of rights before closing.

The “Privateness” of Local “Public” Governments

• Choosing to Move into a Municipality of Say 3,000 People is a Voluntary Act – No Less Voluntary Than Moving Into a New Community Association

• A Well Financed “Public” School in a Rich Small Suburb Is the Educational Equivalent of a High Quality Private School

• R. Nelson (1977), W. Fischel (1985) – Suburban Zoning is Effectively a “Collective Property Right”

• Suburban Municipal System Produces Marketlike Social Distribution of Local Public Goods

Tiebout Model (1956) – The De Facto Privatization of Local Government

• Small Suburban Municipalities are Like Private Clubs (Provide Collective Services, Collect Revenues)

• Intense Competition Among Suburban Municipalities• If Zero Transactions Costs, Perfect Information, and No

Economies of Scale, Municipal Competition Will Achieve Perfect Market Efficiency in Allocation of Collective Goods

• Tiebout (1956) – “The allocation of Resources Will Be the Same as it Would Be If Normal Market Forces Operated” in a System of Private “Municipal” Clubs.

Local “Public” versus “Private” = Alternative Local Constitutional

Regimes• – Local “Public Government,” versus Local

“Private Government” -- Two Alternative Constitutional Sets of Rules

• Each Has Elements of Publicness and Privateness• Legal Fiction – Clear Distinction Between “Public”

and “Private” Local Government• Fiction Serves Useful Purpose – Allows Judges to

Permit Overlapping Sets of Alternative Local Constitutional Rules

An Example of Local Rules Regime Differences – Initial Creation

• Local Municipality – Must Be Created as Act of Municipal Incorporation (According to Widely Varying State Rules of Incorporation)

• Municipal Incorporation Occurs After the Fact of Residential Occupancy

• Community Association -- Created by Developer as Part of Development (New Government Technically Created Through Filing Covenants)

• Community Association Established Before First Residential Occupancy

Other Constitutional Differences

• Municipalities Change Regulatory Rules By Simple Majorities, Community Associations Usually by Supermajorities

• One Person One Vote in Municipalities, Voting by Property Ownership in Community Associations (A Few Do Allow Renters to Vote)

• Elected Mayors and Councils in Municipalities, Private Corporate Organization (Elected Boards of Directors) in Community Associations

“Public” versus “Private” = Competition Among Alternative Local

Constitutional Rules• Small Local Municipality and Similar Size Community

Association are Alternative Forms of Local Governance • Or, Might Equally Well Say Alternative Forms of Land

Tenure• Before Fact of Development, Governance/Tenure

Choice Is Often Available• After Development, Competition is Practically

Infeasible• But Many Local Governments Now Require

Community Associations as Condition for Development Approval – Large Fiscal Gains

The Transformation of Local Government

• Traditional Northeast and Midwest – Large Center City, Hundreds of Surrounding Small Municipalities

• New Pattern in South and West – One or a Few Large County or Municipal Governments, Hundreds of Private Community Associations

• Chicago metropolitan area – 569 General Purpose Local Governments

• Las Vegas metropolitan area – 13 General Purpose Local Governments

Older Metropolitan Areas, Local Governance Patterns

• Older Metropolitan Areas Number of Local Governments

Buffalo (1.2 million population) 65Chicago (9.2 million) 569Cincinnati (2.0 million) 233Cleveland (2.9 million) 243Detroit (5.5 million) 335Milwaukee (1.7 million) 113Minneapolis (3.0 million) 318Philadelphia (5.1 million) 442Pittsburgh (2.4 million) 418St. Louis (2.6 million) 314

Newer Metropolitan Areas, Local Governance Patterns

• Newer Metropolitan Areas Number of Local Governments

Austin (1.2 million population) 49 Las Vegas (1.6 million) 13Orlando (1.6 million) 40Miami (3.9 million) 62Raleigh-Durham (1.2 million) 30Phoenix (3.3 million) 34San Diego (2.8 million) 19Tampa (2.4 million) 39

SubLocal Governance

• Adds to Range of Local Constitutional Rules Regimes

• Might Be Seen As District “Amendments” to Wider Local “Public” Rules Regime

• Sublocal “Public” Governance Often Resembles Community Association Set of Rules

• Sublocal Governance Allows a Private “Retrofit” in an Existing Public Setting

Historic Districts• Rapid Spread Since 1970s• U.S. National Park Service Estimates 2,300

historic districts in the United States (2007)• Regulate the Smallest Details of Exterior Property

Changes – Like a Community Association• Wide Use of Historic “Fiction” to Gain New

Sublocal Regulatory Regime• Historic District Creation Does Not Require

Unanimous Consent (as Would a New Community Association in an Existing Neighborhood)

Business Improvement Districts• Rapid Spread Since 1970s• More than 1,500 BIDs in North America• Fund Environmental Enhancements (Cleanups,

Signs, etc.), Address Disruptive Social Problems (Homelessness in District)

• Governed by Board of Directors • Can Assess District Tax• Created Through Business Owner Approval

(Majority or Supermajority)• Like a Community Association for Business

Charter Schools• New Form of Education Sublocal Governance• Charter School Has Own Governance Rules,

Partially Replaces City or District Rules• But Not Organized Around Common Geographic

Boundaries• 4,500 charter schools in the United States with

1.5 million students (2008)• Community Associations May In Future Include

New Charter School as Part of Development Process

“Charter Neighborhoods”?• A Possible New Form of Sublocal Governance• Draw from Business Improvement District

Experience• Transfer Neighborhood Governance Functions to

New Neighborhood Associations• Include Limited Neighborhood Regulatory and

Taxing Authority• Mercatus Policy Comment No. 20 (May 2008) –

“From BIDs to RIDs: Creating Residential Improvement Districts”

A Sublocal Future

• At Present, a Limited Set of Sublocal Constitutional Regimes Available

• Might Design Whole new Sublocal Constitutional Regimes that Are Not Now Legally Available

• Create More Competition Among Rules Regimes

• Geographic Districts Choose their Preferred Constitutional Scheme

The Secession Option

• Sublocal Alternative Assumes that District Remains within Same Wider Local Jurisdiction

• Some Rules Sublocal, Other Rules Jurisdictionwide

• A More Radical Alternative – Secession• Could Have Regime of Free District Secession

– Within Framework of Wider Rules Controlling Process of Secession

Metropolitan Governance as a Free Competitive Process

• Have Alternative Constitutional Rules for Local Governance

• Allow Local Governments to Choose Their Own Rules

• Allow Sublocal Variations from Such Rules• Allow Secession Altogether to Establish a New

Local Jurisdiction with Its Own Free Choice of Constitutional Regime

• In Sum, Local Government as Free Competition