That’s the suggestion from University of Illinois at Chicago and University of Notre Dame researchers, who are the first to look at the relationship between public finance and newspaper closures. They found that municipal borrowing costs increased by as much as a tenth of a percent after a newspaper shuttered, even when accounting for declining economic conditions. For the local governments included in the study, that translated to millions more in additional costs between 1996 and 2015.
The reason for these changes, researchers say, is that the closure of a local newspaper creates a “local information vacuum” that is unlikely to be filled by the national news media, which needs to appeal to a much broader audience, or online outlets, which have not generally filled the investigative journalism gap left when a local newspaper shuts down. Therefore, the study says, “potential lenders have greater difficulty evaluating the quality of public projects and the government officials in charge of these projects.”
Dozens of papers have folded in the last 15 years. According to the Pew Research Center, local newspaper circulation has declined by 27 percent over that time period, while the number of statehouse reporters has fallen by nearly 40 percent.
Researchers arrived at their conclusion by comparing borrowing costs for counties with three or fewer local papers before and after one shuts down, to counties where no local papers closed. It found that three years after a newspaper shuttered, counties paid anywhere from 0.05 to 0.11 percentage points more. Counties with just one or two local papers paid the biggest penalty because there weren’t enough media outlets to absorb the shock.
What’s more, borrowing costs increased more -- by 0.12 percentage points -- in states with low-quality governance after a newspaper stopped running. The study used previous research by Harvard University's Filipe R. Campante and Quoc-Anh Do that measures a state’s quality of governance.
The extra costs aren’t limited to financing. The study also found a correlation between newspaper closures and higher government wages and tax dollars per capita.
Some investors take issue with the idea that a local news vaccum leads to higher borrowing costs.
A lack of good local news coverage is more likely a symptom of an inefficient government than a cause of it, says Ksenia Koban, vice president and municipal strategist at the Los Angeles-area investment firm Payden & Rygel. While credit ratings agencies and insurance analysts are likely to incorporate local news coverage into their evaluations, Koban says, investors are “much less likely to have access to, or be able to incorporate local news content into their long-term credit analysis of an issuer on a consistent basis.” This, along with other barriers, she adds, “makes local newspaper content useful but in no way pivotal for an investor when making a valuation decision.”
Bill Bergman, director of research for the public finance watchdog group, Truth in Accounting, also questions whether the research gives the media too much credit. “Some papers hold public officials accountable, but other papers are part of the system. You can't paint all newspapers with the same broad brush."
Still, it’s hard to ignore stark examples like the Chicago Tribune’s series documenting mismanagement in Harvey, Ill., which prompted the Securities and Exchange Commission to investigate. “Local newspapers play an important watchdog role for local governments that is not easily substitutable by other sources,” says Dermot Murphy, a study co-author.
*CORRECTION: A previous version of this attributed the newspaper study to University of Chicago. It was conducted by University of Illinois at Chicago.
