Charles Dickens’ Fiscal Lessons for Government

Managing the taxpayers’ money wisely is about more than balancing the books. The daily lives of ordinary people are at stake.
by | April 12, 2012 AT 11:00 AM

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Thus spoke Charles Dickens' Mr. Micawber in "David Copperfield," and the Micawber Principle is as relevant to government as it is to personal finance. A public official's first responsibility is fiscal stewardship. If you bungle that, you bring pain and misery to the people you are supposed to serve.

Last week, Los Angeles' chief administrative officer, Miguel Santana, warned of possible bankruptcy for that city without tax hikes and layoffs. That makes the nation's second-largest city, with nearly 4 million residents, just the latest to find itself on the edge of financial disaster. And make no mistake, financial disaster means disaster in every other area as well. The stories in the news about Stockton and other cities in California in fiscal trouble and the New York Times piece a few weeks ago about Jefferson County, Ala., illustrate starkly the negative impact of the financial mismanagement of local governments on the daily lives of ordinary people.

Santana says that without cutting costs and coming up with new revenue, "we're facing a complete devastation of city services." However, dramatic increases in taxes and big cuts that lead to declines in services are both problematic since they drive away businesses and residents and thus erode the tax base. Local and state governments are not immune from market forces. They compete for businesses and residents in terms of both product — the quality of life within their borders — and price — the cost that businesses and residents pay in taxes and fees.

It's easy for governments to get caught in a negative spiral in which tax increases and service cuts actually make their financial situations worse. Just ask the Detroit's mayor and city council. Detroit has lost 250,000 residents in the last decade, and its leaders have been dragged kicking and screaming into a deal with the state to avoid an imminent financial collapse.

And that, as the residents of Vallejo, Calif., Benton Harbor, Mich., and Central Falls, R.I., will tell you, is another part of the pain. If you don't elect folks who manage the money well, your city will eventually be run by folks you didn't elect and who are not accountable to you for the decisions they make.

Whatever it is that you think government should do — help the homeless, save the children, support the arts, keep the streets safe, improve the business climate or prevent global warming — will not be done if the government does not manage its finances well.

On the other hand, governments that do manage the money well, such as the state of Arkansas under Gov. Mike Beebe and Washington, D.C., under former mayors Anthony Williams and Adrian Fenty, tend to thrive. In 2011, Beebe was honored by Governing as a Public Official of the Year. In its profile of him, the magazine noted that Arkansas then ranked sixth in the nation in education and, despite talk of a "Texas miracle," had a lower unemployment rate than either Texas or the nation.

Washington, a basket case in the middle 1990s, is now one of the hottest cities in the country, with the highest per-capita income, the best-educated and fastest-growing population of any big U.S. city, and a reserve fund of more than $1.1 billion. The turnaround for Washington began when a congressionally mandated control board took over the city's finances and Williams, a Governing Public Official of the Year in 1997, was appointed as the city's first independent chief financial officer.

The question to ask about a candidate for public office is not whether you'd like to have a beer with him or her or whether the candidate cheats on his wife. The question to ask is whether he or she understands the value of a dollar and can be trusted to manage your money wisely. Look 'em over carefully, and then vote for stable, steady Mr. Micawber.