MaineBusiness.com

The problem of government in Maine is not one of growth but of scale.

A generation ago, in the throes of rapid suburban sprawl, we spent hundreds of millions of dollars on new schools. More students required more space.

In the face of this growth, communities were hit with the mysteriously perverse combination of growing state aid for capital construction, and diminishing state aid for operating expenses due to the rise in property values. The situation ensured that the marginal cost – the cost of adding each new student – exceeded the average cost. Thus, average local costs per student rose inexorably.

State revenue sharing tended in the same direction, distributing 5 percent of state sales and income tax revenues to municipalities in proportion to municipal population weighted by tax capacity. Increasing property value per person reduced state aid.

The result of this burst of suburban growth was a rash of growth caps and impact fees designed to hold down taxes. As long as the marginal cost exceeds the average cost, more students, more people, more property will keep driving average costs higher and hence our taxes up. The answer – stop growth. If we have no marginal costs, average costs can't rise, and we can hold the average steady – or so we thought.

Today, we face the opposite problem. Largely because employment and population growth have been so slow over the past decade, and because what population growth we have had has been so skewed toward a naturally aging population and an immigration of retirees, school enrollment has declined.

Today our marginal costs are below the average cost. Schools built for 1,000 students and populated with 800 students operate below peak efficiency. The marginal cost of the 801st student is practically zero. But the marginal cost of dropping to 799 students or 750 students or even fewer is not zero. With the same building and the same staff, the average cost per student of operating the school with 800 students or 750 students will naturally be greater than when it was operating at the 1,000-student level for which it was designed.

The same principle applies to trucks plowing the same streets with fewer occupied houses or police cruisers monitoring the same shopping areas with fewer stores.

Given a particular capacity – a given fleet of vehicles and a specified staff of people – government can operate efficiently over some range of demand, some number of students to teach, some number of miles of roads to plow and maintain, some number of houses and businesses to protect. We pay town managers to find and operate within those ranges.

During the period of rapid suburbanization, many towns moved to the upper ends of their efficiency ranges, and rising marginal costs drove average costs higher.

Today many, if not most, of those towns as well as most of our rural towns and villages face the opposite problem.

The inescapable reality of "economies of scale" are pushing in the opposite direction. Declining numbers of students and households and less business activity are pushing towns to the lower ends of their efficiency ranges. Because the number of units over which costs may be divided are falling, marginal costs are rising.

There are three possible responses to this dilemma. First, maintain current levels of service and watch average costs – and thus taxes – continue to rise.

Second, cut levels of service – lay off staff, don't replace vehicles and equipment, cut programs – and try to maintain current tax rates.

Or, thirdly, reorganize, create new structures with new ranges of efficiency.

Which brings us to the three government efficiency questions on which we must soon vote.

Question 2: The excise tax initiative is little more than petulant table pounding by rich folks who trade cars regularly. Focused on a minor but important source of local revenue, it has no relationship to government efficiency. Hiding its Robin Hood-in-reverse nature under a fig leaf of energy efficiency, it is nothing more than a subsidy for new car buyers that will be financed by all citizens either through higher property taxes or higher auto repair bills.

Question 4: The so-called TABOR II initiative does, by imposing new growth controls, address the question of government spending systematically rather than haphazardly. But it addresses the question of scale only indirectly. "Cut the revenue flow, and we'll figure out how to manage afterwards" is its message.

But rather than create incentives for greater efficiency, it promises to create a California-style direct vote on everything, a form of democracy that bypasses legislative and managerial responsibility altogether. This hardly seems the way to address Maine's legitimate fiscal concerns.

Only Question 3, by asking us to keep the school consolidation law our representatives just passed, really addresses the heart of the issue we face.

With our vote, we could reject the California-style "Let's overturn the work of the people we elected" style of government.

Call it consolidation, call it reorganization, call it finding the form of government that fits who we are and where we live today, addressing the question of scale is the direction we need to follow.

We don't need to kill government, we need to design it to meet our current needs.

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at:

clawton@maine.rr.com