The slow death of local news media is helping fuel the steady growth of government, according to a new study by academics at the Universities of Illinois at Chicago and Notre Dame.
After analyzing local newspaper shrinkage and government performance, business professors Dermot Murphy, Chang Lee and Pengjie Gao concluded that as newspapers shrink and their role in government oversight declines, local communities and states borrow more, spend more and grow their bureaucracies.
American conservatives have seemed at times almost giddy by the death of what is widely perceived as the “liberal media,” but the study would indicate that conservatives – or at least conservative fiscal values – are the biggest losers when media dies.
“Other papers have shown that the loss of a local newspaper leads to worsened political outcomes…and we illustrate that there are worsened financial outcomes as well,” the professors write. “In particular, we show that long-run municipal borrowing costs increase by as much as 11 basis points following a newspaper closure, and we utilize several identification tests to show that these results are not being driven by underlying
economic conditions in the region.
“We also show that government efficiency outcomes are substantially affected by newspaper closures. In particular, we find that government wage rates, government employees per capita, tax dollars per capita, and the likelihoods of costly advance
refundings and negotiated sales all increase following a newspaper closure. From a finance perspective, our results suggest that local newspapers are important for the health of local capital markets.”
The paper was published as SSRN.com, the Social Science Research Network earlier this month.
A national overview
The researchers reported coming to their conclusions after identifying 1,596 newspapers serving 1,266 counties at some point between 1996 and 2015. Whittling that list down, they found 204 counties where journalistic horsepower had significantly declined or altogether disappeared.
Newspaper closures, they noted, are happening all over the country. There are more closures in the most populous states than the least populous states, they noted, but that is because there are, or were, more newspapers there from the beginning.
“Yet, we observe a sizable number of newspaper closures in states with lower population levels as well,” they wrote. “Lastly, the political orientation of a state also does not seem to affect the incidences of newspaper closures, in that newspaper closures tend to occur in both Democratic and Republican states.”
The loss of newspapers, however, costs taxpayers whether in red or blue states.
“The focus of this paper is on the long-run effect of newspaper closures on municipal finances,” they wrote, “particularly municipal bond yields.”
To discern what happened on the bond front, they looked at non-newspaper counties three years after the death of the local newspaper and found that “our results indicate that long-run municipal borrowing costs are higher following a newspaper closure.”
When they compared similar counties with higher borrowing costs and lower borrowing costs, the researchers could find no significant statistical differences in size, per capita income, population growth, employment growth or total wage growth.
That led them to conclude the local media’s watchdog role – even if the local media was a crappy watchdog – has a significant effect on financial outcomes.
“Revenue bonds are commonly issued to finance local projects such as schools and hospitals, and are backed by the revenues generated by those projects. General obligation bonds, on the other hand, are typically used to finance public works projects such as roadways and parks, and are backed by local taxes and fees,” they write.
“Revenue bonds should be subject to greater scrutiny because of the free cash flows that these projects generate, and these bonds are rarely regulated by the state government. A local newspaper provides an ideal monitoring agent for these revenue-generating
projects, as mismanaged projects can be exposed by investigative reporters employed by the local newspaper. When a newspaper closes, this monitoring mechanism also ceases to exist, leading to a greater risk that the cash flows generated by these projects will be mismanaged. Thus, we hypothesize that the adverse effect of a newspaper closure on borrowing costs will be even greater for revenue bonds.
“Consistent with our hypothesis, we find that the effect is more pronounced for this subset of bonds. In particular, we find that, following a closure, the average secondary and offering yields increase by 9.9 basis points and 10.6 basis points, respectively.”
Though the authors of the study repeatedly underline the value of “investigative reporting,” it is apparent that they are talking about reporting in general. The biggest loss of newspaper reportage in most areas of the country these days has been in so-called beat reporters who cover local government day-in and day-out and in that way learn its minutiae.
The best of them – and there aren’t many good ones left – open a clear window into how local government is – or isn’t – working.
The Middle America authors of the study titled “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance,” it should be noted, went to considerable lengths to identify reasons other than newspaper closures for local government ballooning in the absence of any oversight.
They couldn’t find any. They did, however, find some other correlations that should be of particular interests to Alaskans worried about statewide spending.
Citing a 2014 study by other researchers concluding “that the distance between a state’s economic and political centers is a useful measure of the quality of public governance and accountability in the state,” the trio went looking for the statewide consequences of diminished news coverage.
“Governments face less scrutiny by citizens and the media when the distance between these (economic and political) centers is large, and Campante and Do (2014) show that the quality of governance is worse as a result,” they eventually wrote.
Alaska is the national leader in distance between economic and political centers. Juneau, the state capital, is 575 miles south of the Anchorage metropolitan Area, home to more than half the state’s population, and the economic center of the 49th state.
Given the current economic makeup of the state, Alaska having its capital in Juneau is comparable to the state of Massachusetts locating its capital in Cleveland, three states to the west.
The study found the data “supports our hypothesis that newspaper closures lead to worse public finance outcomes in states with low quality governance.”
The study defined “low quality governance” as that which occurs in “high isolation” states such as Alaska. The state has many times discussed moving the capital to somewhere in its urban underbelly, but with no results.
The study also pose a question particularly pertinent in these times:
“Do other forms of media fill the vacuum created by local newspaper closures?”
Saved by the internet?
The data, the authors confessed, is insufficient to allow a definitive conclusion, but it “might suggest some degree of substitutability between information obtained from local newspapers and online sources, the difference is also statistically insignificant. Thus, our results indicate that online sources do not provide a sufficient substitute
for the monitoring mechanism provided by local newspaper.”
At least at this time.
This could change, the authors admit. There is hope, they suggest, that online news sources could someday fulfill the watchdog void left by fading mainstream media, even if no one has as yet found the financial model to make online news work.
“In the long-run, perhaps an equilibrium will be reached in which these online-based organizations contract out work to local reporters and tailor their news to the local areas,” they write in the last lines of their study. “In 2009, former Baltimore Sun reporter and famous television producer David Simon stated the following: ‘The day I run into a Huffington Post reporter at a Baltimore Zoning Board hearing is the day that I will be confident that we’ve actually reached some sort of equilibrium.’ We concur, and our evidence suggests that economic growth at the county level will be better off in that equilibrium.”
The conclusion is the near perfect bookend to the quote from former President Thomas Jefferson, one of the country’s founding fathers, that prefaces the report:
“The functionaries of every government have propensities to command at will the liberty and property of their constituents. There is no safe deposit for these but with the people themselves, nor can they be safe with them without information. Where the press is free, and every man able to read, all is safe.”
The press is now free – or at least a lot of that press on the internet, but there are legitimate questions as to the substance of the stories that make it into the tubes and the significance given them by readers who have invested lifetimes in crediting the news on-paper – whether they liked it or not – with a certain stature.