Public corruption, transparency, and the payback of being a good government state

Co-authored by John Mikesell of Indiana University (a “name” in public finance circles that confers instant credibility on the work), “The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending” examines the effect of public corruption on state spending, public resource allocation, and budgeting from 1997-2008. Corruption was defined concretely and objectively based on the number of public officials convicted during this ten-year period for violation of federal corruption laws while in office. (More than 25,000 convictions nationally!) Among the findings:

• Public official corruption was a statistically significant determinant of total state expenditures joining expected variables like personal income, political ideology of the population, and urbanization among many others. All else being equal, total state expenditures are likely to be larger in states with higher levels of corruption.

• The nature of spending is also impacted by corruption. States with higher corruption levels are likely to favor capital, construction, highways, total salaries and wages, correction and police protection spending at the expense of elementary and secondary education, health, and related human service spending.

• The fiscal efficiency impact of corruption is big. According to the study, the nine most corrupt states could have spent on average a whopping $1,308 less annually per capita if they had succeeded in maintaining only a “national average” corruption level.

Living up to its reputation, Minnesota ranked 3rd in “least corrupt states” behind Oregon and Washington. The southeast U.S. featured the greatest concentration of corruption joined by a couple of states somewhat notorious for their politics (Pennsylvania and Illinois) and an occasional oddball (South Dakota, whose performance in this study will never make it into their economic development radio ads).

Despite our ranking, the study still offers some lessons Minnesota should pay attention to. For starters, rigorous financial oversight of government offers real economic returns to taxpayers. As we have recently discussed, while it may lack sex appeal for voters, the importance of this function in government cannot be overstated. State auditors can do far more good for taxpayers by sticking to the knitting of their core obligations and responsibilities rather than engaging in mission creep.

More fundamentally, the study communicates the crucial role fiscal transparency plays in accountable, efficient government. Scholars have defined corruption as the misuse of public office for private gain. But as this study notes, “according to this perspective public officials’ corruption seems to exist everywhere and all the time.” Elected officials may pursue policies which benefit private interests to obtain their support. Meanwhile government managers and employees may resist redesign efforts or other innovations because of power, turf and/or economic self interest.  As the 1995 Brandl Weber Agenda for Reform noted, it makes no more sense to expect those working in government are always watching out for the public interest than it does to assume that those working at 3M or Cargill are doing so.

Subordination of the public good to private interests operating within and outside of government isn’t corruption but it can have the same effects – wasteful spending, misallocation of resources, and paying for costs beyond the level needed to meet the public’s demands. Getting a handle on whether any particular government has this problem isn’t easy. Budgets describing how much government programs spend but providing insufficient information on why they cost what they do make informed judgments difficult.  Determining to what extent the public interest is being sacrificed to private interests is a lot tougher than looking up corruption conviction statistics. As the authors of this study note in discussing the conceptual models of government informing their investigation:

With monopolistic information on the true costs of publicly provided goods and services, bureaucrats are able to overstate these costs to receive a larger budget…Budget maximizing desire and monopolistic control of information may push budgets beyond the competitive level that would have been the median voter’s preference.

The antidote is greater investments in government transparency. We now live in an era when governments are willing to spend time, money and effort to track, benchmark, and communicate trends to citizens on issues and areas over which it has only indirect influence at best. It would be nice to see governments use some of those resources to engage in the same types of initiatives regarding their own operations too.

This post was written by Mark Haveman and originally published on Fiscal Fitness, the blog of the Minnesota Center for Fiscal Excellence.

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