Read my book about Municipal Financing — you can find it on Kindle and Amazon.

Every major city that adopted its budget during the past several weeks found a way to close its shortfall while preserving the missions, goals, and activities that define the status quo.

New York City confronted a multibillion-dollar fiscal challenge. Los Angeles closed a nearly billion-dollar gap. Chicago adopted a budget after confronting another massive deficit. San Jose resolved a roughly $50 million shortfall while acknowledging that deeper structural problems remain. Oakland reopened its two-year budget to address a roughly $265 million gap while continuing to wrestle with insolvency concerns.

In each case, elected officials eventually did what they were charged to do: they adopted a budget. And with that, the status quo was preserved for another year.

The budget-balancing tactics varied somewhat. New York relied on new taxes and massive state support. Los Angeles reduced headcount and cut spending. Chicago relied on spending reductions and tax measures. San Jose froze positions and drew down reserves. Oakland eliminated vacant positions and raised taxes and fees. Each approach had its own flavor of pain, but they shared the same pattern: find money somewhere and use it to continue doing what the city was already doing.

The same pattern plays out in smaller cities across the country, only on a different scale.

But why do the same fiscal problems keep returning? Why are large budget deficits so common?

Over the years, I championed the reforms commonly associated with good government and sound financial management: better budgeting, greater transparency, improved accountability, performance measures, efficiency initiatives, better incentives, and more.

These reforms certainly address relevant issues. Yet they have failed to improve the fiscal stability of local government. If such reforms were sufficient, we would expect better results.

At some point, I discovered that these efforts were aimed at symptoms rather than the sources of chronic budget scarcity.

Organizations are defined by what they do and how they do it. Conventional reform efforts focus on improving how a city does what it does—its execution.

But that leaves a more fundamental question largely untouched:

Why does the city do what it does?

Consider the mission statements adopted by local governments.

The City of Ranson, West Virginia states its mission this way: “Our mission is to maximize services to our customers in the most cost efficient manner.”

San Jose’s mission speaks of creating a “great place to live, work, learn and play.”

Neither statement provides a principled basis for determining where governmental responsibilities begin and end.

The problem is not merely their breadth. It is that they assume an unbounded role for government. What goals and activities do such missions include and exclude?

Across the country, mission statements read like aspirational poetry—broad enough to encompass almost anything and precise enough to exclude almost nothing.

These missions incorporate no limiting principles.

They are blank checks.

And accounts that issue blank checks cannot be balanced.

If a city’s mission excludes nothing, it limits nothing. Any goal that purports to improve any aspect of the community acquires a presumption in its favor. As goals proliferate, so do the activities required to fulfill those goals. And those activities drive costs.

Eventually, budget pressures emerge and attention turns to cost-cutting, oversight, incentives, operational improvements, and countless other efforts to improve how the organization does what it does.

Such issues matter. But they arise downstream from a more fundamental question:

What should the city do, and why?

Mission statements do more than describe goals. They embed assumptions about what government is, what it should accomplish, and how broadly its powers should be employed.

Those assumptions are often implicit rather than explicit.

Which raises another question:

Should we acknowledge what government is before deciding what it should accomplish?

Government possesses powers that individuals do not. It can tax. It can regulate. It can compel. Such powers require justification. The nature of these powers should inform how broadly they are employed. And the consequences of misapplying such powers are not merely financial.

Some governmental activities are essential because they define and protect rights and establish the conditions in which people can freely pursue their goals and values.

But every commercial and charitable activity government undertakes consumes resources and displaces private initiative, investment, innovation, entrepreneurship, and voluntary cooperation that might otherwise emerge through residents, businesses, charities, churches, and civic associations.

When government assumes broad and unbounded missions, it becomes easy to substitute political solutions for voluntary ones.

The result is not simply higher spending and taxation. It is the crowding out of institutions, relationships, investment, innovation, and problem-solving capacity that create wealth, solve problems, and strengthen communities outside of government.

Over time, I came to see that questions about mission and scope point to still deeper questions about the relationship between government and the people it serves.

Does the city exist as a means to the ends of residents and business owners, providing the political environment in which they can freely pursue their goals? Or are residents and business owners the means through which the city pursues goals detached from their own?

Those questions changed how I viewed many of the reforms I had spent years advocating.

I still believe budgeting methods, transparency, accountability, and efficiency matter. But I no longer believe they can solve problems whose sources lie upstream in missions, goals, and activities rather than in the execution of those activities. In other words, improving how an organization does what it does cannot compensate for an unbounded scope of activity and purpose.

The relationship between government and the people it serves points to something even deeper.

If a city is considered an end rather than a means to the ends of residents and business owners, conventional financial reforms can only take us so far. At best, they manage symptoms. At worst, they encourage us to perfect the administration of an ever-expanding mission rather than reconsidering the mission itself.

In that sense, they can reinforce the very way of thinking that gave rise to the problem in the first place.

If broad aspirations are accepted as the mission, then every activity defended by appealing to a purported desirable outcome acquires a presumption in its favor.

Every new activity creates new constituencies. Every new constituency invites new costs. Under such a framework, budget scarcity is inevitable. And this is how cities across the country now operate.

By accepting the premise that government should address every aspirational outcome and then focusing our efforts on administering that ever-expanding mission more efficiently, we leave the source untouched.

No budget process can solve a problem created by an unlimited mission.

But chronic budget scarcity is not embedded in the nature of city government. It is the predictable consequence of an unbounded mission pursuing open-ended goals and activities through the special powers of government. Perhaps that explains why large budget deficits are so common and why cities so often find themselves back in fiscal crisis mode.

Year after year, elected officials do what they are charged to do. They adopt budgets. The immediate crisis passes. The status quo is preserved. And before long, the cycle begins again.

Cities do not need bigger budgets nearly as much as they need clearer missions.

And clearer missions require prior answers to questions we have not been asking:

What is a city, and what is it for?

Does a city exist as a means to the ends of residents and businesses?

Or do residents and businesses exist to serve the goals of the city?

Subscribe now

The many California agencies that plan to place new taxes on the November ballot owe it to their residents and businesses to wean their organizations from reliance on serial tax increases to remain afloat. It’s disconcerting that such a clearly unsustainable strategy has become the go-to solution for so many municipal leaders.

The problem is that most government agencies begin their budgeting process four to six months in advance of the upcoming fiscal year. By then, they’re already too late. The two major cost drivers – scope (or “mission”) creep and multi-year labor agreements – are locked in. Under pressure, a city council can make cut costs on the margins, implementing hiring freezes, perhaps, or across-the-board budget cuts.

But these do little to affect the agency’s financial trajectory. Soon, there’s talk of raising sales taxes or persuading voters to approve yet another bond. And soon after that, as revenue fails to keep pace with the agency’s expanded mission and residents complain about poor service delivery, officials will find themselves replicating the budget-balancing scramble that no one wants to experience again.

How can municipal leaders remedy the constant state of budget scarcity?

WHAT IS GOVERNMENT FOR?

First, the budget scarcity affecting municipalities throughout California (and the country) has been decades in the making. Organizational scope creep has become systemic as agencies have embraced missions without bounds. Breaking the cycle of budget scarcity will require asking, “What is government for?” – which types of activities are appropriate for a government agency to undertake?

Anything less than this – imposing rigorous limits on mission – will result in the organization’s relapse into the operational path of least resistance. And that will produce the familiar byproducts of intractable budget problems, scarcity as an organizational way of life, and betrayed residents and business owners.

Municipalities must understand that their foundational problem is broad scope creep – government missions so broad, so nearly limitless, that it’s hard to imagine disqualifying any spending proposal on the grounds that it is outside the organization’s purview. Each new proposal that is accepted increases the scope of the organization’s activities, thereby driving costs upward and ensuring budget scarcity. Likewise, every exhausted activity that cannot be retired – despite its obvious ineffectiveness – further binds the organization to scarcity.

An organization that cannot limit what it does creates and sustains its own scarcity. Such is the cause-and-effect relationship unacknowledged throughout most fiscal sustainability plans.

IT’S ALWAYS BUDGET SEASON

Second, treating the budget process as an annual process, rather than an ongoing one, impedes municipal leaders’ ability to affect the budget in the long term. Government union leaders understand this. That’s why they push for multi-year labor agreements that drive 70 to 80 percent of a city’s operating budget.

The impact of labor agreements is not limited to the fact that such agreements set the cost of personnel. Labor agreements also dictate how the organization will deliver services. For anyone who doubts this, try to introduce a cost-savings change to public employee work schedules or implement a technology that changes job duties and job descriptions without conducting a lengthy meet-and-confer process and/or reopening a labor contract.

Unfortunately, entrenched labor agreements with sacrosanct, untouchable terms (e.g., minimum staffing, traditional work schedules, etc.) are kryptonite to management’s ability to exercise its best judgment; such agreements preempt a municipal leader’s ability to call upon better and best practices in deciding how the organization will deliver services. Changing such entrenched conditions of work and work methods may require multiple negotiating cycles – not just multiple fiscal years – to achieve.

CONCLUSION

The Government Finance Officers Association bestows annual awards for municipal budgets and financial statements. Such awards are based on the organization’s successfully following a process rather than achieving any specific organizational or financial results. But defining a limited mission for the organization and successfully taking charge of how services are delivered requires a multi-year commitment. An award for that achievement – for officials’ ability to produce real change in the trajectory of the organization over the course of years – would be an award worth giving.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

We are witnessing a troubling migration—a flight of capital and talent from states that have adopted increasingly aggressive tax policies. Elon Musk moved Tesla and X from California to Texas; Palantir relocated to Colorado. High-profile individuals and corporations are pulling up stakes and relocating to states with more favorable tax policies.

A casual observer might interpret such migrations as a strategic response to changing cost structures. But that framing misses the deeper issue. These departures are not just about lowering costs; they reflect an effort to exit a system that has decidedly turned against them.

These defections are driven by policies that specifically target the wealthy. In California, for example, public sector union activists have bypassed the legislative process to place a “billionaire’s wealth tax” directly on the November 2026 ballot. The state has also made a previously temporary high-income tax tier permanent. Meanwhile, the New York City mayor is pursuing similar goals through proposed levies on second homes.

The Administrative Breakdown

Such tax policy shifts constitute a hostile attack on success itself. For decades, tax policy was based on the idea that the wealthy should contribute more. Regardless of one’s view on progressive taxation, the system operated on an assumption of fairness: you paid into the system, and in return, the system secured the environment in which you could operate freely.

Today, this arrangement has become decidedly one-sided.

Why is this happening now? Why have states like California and cities like New York become so draconian? Their predation is the inevitable consequence of a government that lacks institutional discipline. When leaders fail to define the scope of their organizations, the result is systemic expansion. Public agencies now claim responsibility for everything from social engineering and geopolitical posturing to ensuring equitable outcomes. Because this growth is untethered from both revenue and reality, expenses begin to outpace collections, forcing the state into a perpetual, desperate hunt for new funds.

Behind this fiscal desperation lies a public agency culture resistant to modernization. Public sector unions use their influence to protect entrenched staffing and legacy operations. They also resist attempts to streamline top-heavy organizational charts. Unable to implement cost-saving improvements, government leaders have limited room to maneuver. Instead, they extract more from their existing tax base to maintain the bureaucracy. These agencies are no longer taxing to fund services; they are harvesting their producers to sustain a bureaucratic machine that refuses to evolve.

Historically, the state’s legitimacy was tied to its role as a guarantor of individual rights and private property. It was created to be the institution that secured the conditions under which one could pursue their values. When the state’s scope expands beyond this, the relationship inverts: it begins to view its most successful citizens not as sovereign individuals, but as resources to be tapped for its own ends.

Whether it is California’s Franchise Tax Board or New York’s Department of Taxation and Finance, the state does not bid you a fond farewell when you leave. Instead, the state treats departure as an act of defiance, subjecting you to an investigation that frames your exit as a crime scene. Auditors track your cell phone pings, examine your credit card swipes, and, in the most egregious cases, dig through your veterinary bills or personal calendars to prove where your pets—and your life—are actually living. You have the right to move, but they ensure that the exit comes with a price tag: a granular, intrusive investigation designed to squeeze every last dollar before you go. By doing so, the state effectively frames the taxpayer as a captured asset, rather than an individual with the right to relocate.

The victims of this predation fail to resist effectively because they adopt the predator’s rules and language. When squeezed, tech billionaires and CEOs often cite their existing contributions—job creation, taxes paid—as a defensive shield, hoping to deflect the mob’s outrage. Some, like Salesforce CEO Marc Benioff, proudly submit, declaring that they are happy to pay their “fair share.”

The Concession Trap

Such an approach constitutes hostage bargaining. In doing so, these producers aren’t defending their property; they are negotiating the terms of its seizure. They concede the state’s fundamental premise: that the wealth they created is a public resource, rather than the product of their efforts. They think they are bargaining for a reasonable tax rate, but they are actually bargaining for the terms of their own surrender. You cannot negotiate your way out of a system that views your productivity not as a right, but as a harvestable asset.

We as human beings possess agency; we have a right to our lives and the fruits of our labor. We and the products of our labor are not assets to be managed by a state legislature or a hungry union. Production is not a debt owed to society for the crime of succeeding.

When the most successful among us choose to validate the state’s predatory logic, they do not merely surrender their own sovereignty; they erode the moral foundation upon which the freedom of every other individual depends.

This is the central flaw in the current flight of capital. High-profile departures—like Musk moving Tesla to Texas or Palantir relocating to Colorado—are a necessary retreat, but they are an insufficient defense. Moving across state lines buys time, but it does not stop the encroachment. As long as California and New York are permitted to normalize this predation without a principled challenge, they are writing the playbook for every other state. Success will be a target wherever it lands, because the doctrine of the resident and business owners as fodder can be exported to every jurisdiction that faces a budget shortfall. Until producers stop negotiating their surrender and start advocating for clearly defined limits on government, the predator-state will simply ensure there is nowhere left to hide.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

The City of San Francisco is reeling from rampant crime and facing a commercial real estate crash. Arguably, City policies have created both problems – the former, a result of lax law enforcement, and the latter, a consequence of the first, coupled with unfriendly business policies. Meanwhile, the City faced a $489 million budget deficit in 2024-2025 that is set to grow to $1.3 billion by 2027-2028.

The anatomy of failed municipal decision-making

How does a municipality dig such a deep hole for itself and then proceed to dig itself even deeper? Recently, the City’s Board of Supervisors unanimously approved a plan that exemplifies just how cities bring about such compounding failure. Failure that comes not from corruption, not from the lack of diligent execution, and not from insufficient resources, but from pursuing goals that are undesirable and/or unachievable. Such dysfunctional goals are enabled by unbounded municipal missions that encourage the proliferation of municipal goals without the board/council/supervisor/public scrutiny that could expose why such goals are undesirable and/or unachievable.

On September 5, 2023, City Supervisors unanimously approved a “Final Governance Plan, Business Plan and Viability Study for a San Francisco Public Bank.” Describing the document as a “viability study” suggests that the working group that prepared the report evaluated the prospect of a City-run public bank to help policy makers reach an informed decision. But those closely watching the City over the past several years know – and a review of the June 2021 Administrative Ordinance that established the working group clearly shows – that the City Supervisors have long decided to create a public bank.

Over a nine-year period that began in 2011, City Supervisors commissioned several studies related to the creation of a City-run bank. Within 18 months after the California legislature authorized public banks (AB 857), effective January 1, 2020, the Supervisors had already determined that “a San Francisco Public Bank would create a fiscally safe and sound institution to invest public funds in a manner that aligns with the values and interests of the City, including investments in City residents, businesses, and sectors that serve the public good and that are underserved or unserved by the existing financial industry,” and that a public bank could “create significant long-term benefits for the City, which include allowing local tax dollars to be invested in local priorities while still ensuring the safety and preservation of capital, liquidity to meet City cash flow needs, and return on investments.”

If, in June 2021 when the Administrative Ordinance was being considered, a resident had objected to the City’s pursuit of a banking endeavor, he or she would have been told something to the effect: “This action simply paves the way for the study of a bank’s viability and the development of a plan; it does not itself establish a public bank. There will be plenty of opportunity for public comment before any formal action to create and fund a bank is taken.” When decision-making is orchestrated over several years in such a way, there is no appropriate time to voice concern. Objections are unavoidably either too early or too late. Such is the cloudy decision-making process that leads to the cavalier diversion of funds from core municipal services to sports facilities, convention centers, and now public banks.

The working group’s report

The working group’s report states that “the fundamental need for a City-owned Bank stems from the historic failure of existing financial institutions to equitably serve the needs of low-income communities and communities of color and to deliver financial services that are not extractive or damaging to those same communities.” A City-owned bank would “address the three main areas where financing disparities are most pronounced: affordable housing, small businesses, and green investments.”

The working group reported that when they reviewed outcomes in homeownership rates and lending by gender, race, and ethnicity, they discovered disparities (e.g., lending outcomes that were inconsistent with the City’s demographic makeup). The working group did not pursue causal explanations for the disparate outcomes (e.g., actual instances of discrimination in lending practices or underlying explanatory factors), instead simply concluding that such disparities constitute “a pattern of discrimination.”

The working group proceeded to estimate the “gap in the local financial market” – i.e., the loans and funding expected to go unmet by existing financial institutions – to rest between $1.3 and $2.4 billion per year through 2030. Its report went on to state that “local enterprise lending for small businesses unsupported by existing large banks and other financial institutions likely runs to several tens of millions of dollars annually.”

The working group did not disclose all the assumptions and calculations that led to these estimates, but the broad dollar range in the case of affordable housing and the vague dollar range in the case of small business assistance should not be surprising. If one attempts to quantify all the loans and other financial assistance that did not get made by conventional banks and then uses that estimate as a basis for projecting future “funding gaps,” based on a goal of closing assumed outcome gaps, the possibilities are endless.

But the analysis overlooks a key fact of economics: At any given time, there is a fixed amount of investment capital. Any attempt to close an assumed “funding gap” requires diverting capital from where it otherwise would have gone. For example, City funds appropriated for its public bank are funds that cannot be used for protecting residents, businesses, and their property or for maintaining City property. (Later, I’ll discuss the issues related to using the City’s investment funds to further finance the public bank’s activities.) The report does not acknowledge such consequences. Meanwhile, the Supervisors brushed aside a joint letter from the Office of the Controller and Office of the Treasurer and Tax Collector that points out that “given the significant costs associated with a [sic] forming MFC/Public Bank, policymakers would likely need to divert funding from other initiatives.”

The one initiative that policymakers clearly do not want to jeopardize is the City’s Climate Action Plan (CAP). The CAP begets a $21.9 billion funding gap that the working group takes at face value and suggests can be addressed by the public bank. The CAP declares war on fossil fuels, culminating in a laser-focused goal of achieving “net-zero greenhouse gas emissions by 2040.” While it was not in the purview of the working group to challenge the goals of the CAP, the CAP’s goals are relevant to this discussion because we are examining a crisis in the making. By accepting the legitimacy of the CAP’s strategies, the working group incorporated the CAP’s goals, methods, and assumptions into its recommendations.

The City’s CAP falsely equates some climate impact from fossil fuels with catastrophic climate impact and uses this evaluation to conclude that “it is urgent that San Francisco take aggressive and equitable action to mitigate the catastrophic impacts of climate change.” The CAP fails to acknowledge that the most significant instances of CO2 reductions have come from nuclear energy and the substitution of natural gas for coal. Nowhere in the 300-page CAP does the City acknowledge the positive contributions made by fossil fuels; that fossil fuels are uniquely capable of providing safe, reliable, affordable, and scalable energy; and that their use is essential to protecting residents and businesses from the dangerous effects of climate. Nor does the CAP discuss the impact on its residents and businesses of requiring or encouraging the City government organization, City residents, and City businesses to adopt less reliable, more expensive forms of energy. (For a full account of why “net-zero” is an undesirable goal from the perspective of residents and businesses, see Fossil Future, by Alex Epstein.)

The rush to replace fossil fuels will make San Francisco a more expensive place to live, work, and operate the city government organization. Low-income residents and small businesses – who are particularly sensitive to the cost of energy – will be the most visible victims of the CAP’s implementation. Meanwhile, the CAP’s strategies will benefit green cronies and opportunists who will be happy to partake in loans and grants that require little scrutiny or accountability. The working group’s recommendation to use a public bank to implement CAP strategies encourages such abuse of City funds.

The working group’s plan assumes funding the City-run bank with $60 million in contributed capital by the beginning of year four, the first year of banking operations. This amount is to be appropriated by the City and granted to the municipal finance corporation (MFC) to establish a public bank. The plan calls for an additional “contributed funding” of $250 million over an eight-year period. These funds would also be appropriated from the City but could be reduced by any amounts received from outside grants and donations.

According to the plan, in addition to receiving a $310 million commitment over the eight-year planning horizon, the bank would “serve as the depository for the City’s assets,” including those assets currently held in the Treasurer’s $15 billion Pooled Investment Fund. For now, the State’s public investment requirements might save the City from itself, since the proposed bank will have difficulty complying with the California Government Code for public funds investments. But if the State were to make special provisions for deposits of public funds in public banks, the City Treasurer will be challenged to maintain his professional responsibilities in the face of political pressure to invest in activities that are, by their nature, riskier than those in which the City currently invests.

There is an additional, unaccounted-for effect of converting the City’s pooled investments from their current securities to deposits in a public bank. Such action would reduce the demand for such securities, thus negatively affecting the federal agencies, bond sellers, commercial paper sellers, and money market funds whose securities the City currently holds as investments. The point here is not that such an impact would be large but, rather, that the working group did not consider such an impact. Nor did the group discuss the risk to taxpayers if the City were to deliberately move from a proven investment strategy to one that compromises on safety, liquidity, and return.

The working group’s plan relies heavily on Community Financial Institutions (CFIs) and Community Development Financial Institutions (CDFIs) to carry out many of the details of the public bank’s financing programs. (In San Francisco, there are several such community banks, credit unions, and lending funds whose missions are to support designated sectors of the community.) Such a strategy makes sense from the perspective of operational efficiency. However, this approach puts the City in the position of picking winners from the pool of CFIs and CDFIs. Moreover, as the Office of the Controller and Office of the Treasurer and Tax Collector jointly point out, such an arrangement does not promote accountability: “The impact of City funds may be harder to quantify as compared to existing City programs that involve more direct lending practices.”

What should the city do for housing, small businesses, and its residents’ environment?

The City can help residents who struggle with housing affordability by evaluating its role in sustaining land use and zoning policies that promote racism and its role and that of the State in hampering developers with requirements such as single-family zoning and other building restrictions that make housing less affordable. Such policies have extended the racist housing laws of the past and are at the root of current housing shortages. Rather than divert local tax dollars and other public funds to compensate assumed victims of such policies, it would be more effective – and just – to reform the restrictive land use, zoning, and building policies that continue to create real victims.

The City could help its small businesses by rolling back its burdensome commercial regulations. City officials’ indifference and insensitivity to small businesses were clearly displayed during the pandemic and are further evidenced by the City’s slow post-pandemic recovery. The City’s priorities for small businesses should be to remove its own barriers to the free conduct of all business within the City and to refrain from actions that restrict energy freedom.

In its evaluation of residential lending, home ownership, and business lending, the City should reconsider why it regards individual residents and business-owners only as members of an ethnic group, gender, or income class. That such a superficial, divisive approach to public policy continues unchallenged does not inspire confidence that municipal officials will correctly identify problems, develop effective solutions, or ever be able to clearly define their organization’s mission. A city cannot do justice to its residents – who are merely a group of individuals living in the agency’s jurisdiction – if it does not treat them as individuals.

Finally, the City needs to reevaluate the goals and underlying assumptions put forward in its CAP. It’s bad enough that affordable and reliable energy sources are being abandoned in favor of expensive, unreliable sources. But the implementation of the City’s CAP comes at the expense of residents and business owners who are now pleading with the City to address the rampant crime and deterioration of City-maintained spaces.

Public banks are not a bad idea because they cost too much

San Francisco, a city with a multibillion-dollar budget deficit and a host of serious challenges, is enthusiastically committing over $300 million and jeopardizing its $15 billion investment pool for the sake of a financial venture that incorporates a flawed approach to affordable housing, a counter-productive approach to supporting small businesses, and a fixation on expensive, unreliable energy sources that will further compromise the City’s ability to perform municipal services.

Sadly, San Francisco City leaders now disparage the industry that helped build the City – i.e., the industry that built the Bank of America building and the Crocker Bank Tower (now Wells Fargo) and Galleria. Even New York-based Chase Bank spent $300 million for naming rights to the Chase Center. Instead, these officials should be grateful for the banking industry’s enormous contributions over decades – the commercial, home, and personal loans; the local employment, the local sponsorships, the business and property taxes paid, etc. Whatever deficiencies exist in the highly regulated banking industry will not be overcome by ambitious politicians who want to declare themselves bankers by fiat and execute a plan that promises “profitable operations” while vowing not to “maximize profitability.”

Unfortunately, San Francisco is not alone in its quest to fund and operate a public bank. The Cities of Los Angeles, Seattle, Philadelphia, and Oakland are in the process of creating their own public banks.

Public banks are not a bad idea because they cost too much. Such banks would be undesirable at any cost. Public banks are a bad idea because they are a product of municipalities with an unbound mission using their legislative authority to pursue undesirable and/or unachievable goals at the expense of residents and local businesses. A better idea would be for municipal officials to reform their city missions and bind them to a delimited scope of activity, based upon what local legislative and enforcement authorities can and should do on behalf of their residents and businesses.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

In the years since the National Civic League published Is It None of Our Business?, the trend of city halls tackling national issues has shifted from a novelty to a standard operating model. The League’s 2023 analysis argued that local agencies should embrace a broader national agenda—a shift they championed as a positive phenomenon. However, from the current vantage point, this expansion of municipal scope looks less like innovation and more like a costly distraction. While officials have focused on global optics, they have increasingly struggled to manage the essential local services that support their community.

A striking recent illustration of this trend is the wave of municipal foreign policy that gripped city councils throughout 2024 and 2025. More than 100 American cities diverted hundreds of hours toward debating and passing symbolic resolutions on international conflicts—matters where local government has no jurisdictional power and zero impact on outcomes. This shift toward performative diplomacy has occurred at a significant cost to taxpayers. While council chambers were packed for debates on overseas wars, those same municipalities were deteriorating financially, forced to make deep cuts to public works and public safety as the last of their pandemic-era federal funds expired. When a city council prioritizes global optics over its fiduciary duty to maintain local roads and sewers, it isn’t just expanding its scope—it is effectively abandoning its core mission.

The League justifies this expansion by citing national government dysfunction and the relative agility of local decision-making. They suggest that local organizations are well-suited to take on these broader issues, even offering the removal of Confederate monuments and citywide conversations on race as empirical support for their stance.

While some officials remain inspired by the League’s evaluation, residents and local businesses have growing reason for concern. Cities have already taken on more than they can handle, as evidenced by their reliance on serial tax increases, deferred infrastructure maintenance, and reduced service levels to balance their budgets. With each newly adopted budget, we are reminded that most cities operate under a paradigm of scarcity. Vague municipal missions open the door to a wide variety of local governmental activities that add to the organization’s scope once a majority of council members decide that such activities benefit the community.

Meanwhile, environmental initiatives have already expanded the community to include wildlife and inanimate nature, subordinating the interests of residents and business owners to goals that assume any impact on the environment is bad, without regard for the impact of such policy on residents. To further expand a city’s mission to include national and global issues is to paralyze a city council’s ability to define and delimit the appropriate scope of activity for the city organization in relationship to the residents and business owners. Delimitation of scope is critical to the effective operations of any organization; municipalities are not an exception.

Past decisions regarding the structure of our government are not good simply because they prevailed; nevertheless, there are solid grounds for maintaining distinct national and regional levels of government. Achieving a meaningful impact on national issues requires a coordinated, unified approach. While local solutions may appear attractive for widespread issues, a fragmented policy landscape across cities and counties results in ineffective and conflicting local actions. Local agencies, lacking the broader national perspective, are thus more likely to exacerbate problems than solve them. Municipal officials cannot resolve dysfunction at the national level through their exercise of local powers.

For example, what is accomplished if half of the US cities establish environmental policies after concluding that the benefits of fossil fuels outweigh the negative effects while the other half act on a different evaluation? What is accomplished if half of the border cities and towns implement a relaxed border and immigration policy while the other half implement strict policies? And we know what happened when some states implemented blatantly racist laws while others (perhaps not perfectly) abstained from such practices.

But what about the city cited by the League that undertook the removal of a Confederate landmark and the engagement of its residents in improving (among other things) the relationship between the police department and those residents who are “often underrepresented”? Are this city’s actions examples of taking on national issues? Here we need to be precise. A local issue taken on simultaneously by many municipalities can, in aggregate, manifest in a national trend of great importance; but such a phenomenon does not transform such issues from local to national.

The existence of a monument on city or county property is a local issue. And setting aside an evaluation of the outcomes of the “goals and strategies” that emerged from the city’s outreach to address community issues such as race and “equity,” such outreach is purely local. The city’s positive local actions – i.e., removal of Confederate symbols and review of policing policies – were just that – local actions. Such actions do not legitimize the fantasy that municipal leaders can do justice to their local charge and divert municipal resources to undertake bona fide national issues.

Local governments should reaffirm their fundamental roles and responsibilities by defining their business and minding it. At the national level, mission creep has spurred rent seeking, cronyism, and pressure group politics, thus hindering effective government. The National Civic League’s endorsement of the “nationalization” of local government matters invites similar dysfunctional elements to the local level, overwhelming city councils and compromising municipal operations. Maintaining distinct national and regional levels of government is crucial to a coordinated and unified approach to undertaking national issues.

The “’nationalization’ of local government matters,” called for by the National Civic League, amounts to the municipalization of national matters, whereby municipal officials create the illusion that their agencies are effectively responding to wide-ranging issues. But these officials should limit the exercise of their agency’s powers to the fulfillment of their local mission and stay clear of creeping scopes that sabotage the objectives vital to residents and business owners.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

The misguided quest for efficient government

As the wildfires raged in southern California last year, we witnessed bipartisan support for the reintroduction of The Fix our Forests Act, ostensibly designed to reform forest management. At the same time, the Los Angeles Department of Water and Power announced that it will submit to outside investigations to examine the failure of its water system to supply water to firefighters in Palisades. Meanwhile, the Los Angeles Fire Department’s 2025-26 budget discussions are certain to continue the contentiousness over the department’s priorities and methods. Other fire departments throughout the state are likely to receive special attention from their city councils over the upcoming months.

Public officials at all levels of government champion government efficiency. Whenever there is a government failure, public officials call for audits intended to identify mismanagement and wasteful spending. Periodically, there are calls for the reform of bureaucracies and those who influence them (e.g., DOGE, draining the swamp, etc.). Although enthusiasm for such initiatives runs strong, the results have been underwhelming. Should we expect the results from the upcoming wildfire investigations and post-event analysis and remedies to be different?

Why do attempts to reform government fail? – Are such attempts disingenuous? Misguided? Poorly executed? Let’s examine the unsuccessful attempts to reform government for the purpose of understanding why such attempts yield so little satisfaction and improving efforts to reform government at all levels.

When auditors audit a governmental agency’s project or program, they focus on operational performance, compliance with applicable policies and rules, and whether the subject program met the intended objectives. An auditor’s findings are confined to this delimited scope. Thus, an auditor may have findings related to how well a program was managed or executed, incidents of noncompliance with internal policies or applicable regulations or laws, and/or the extent to which a project or program met its objectives (i.e., goals).

But what if the agency’s goals are inappropriate? What if that convention center should not have been built by the city? What if that housing program was an ill-advised attempt to compensate for city zoning and building policies that restrict residential development? What if that “educational program” had nothing to do with education? What if universal overreliance on fire suppression has infiltrated the missions and expectations of other institutions that are critical to fire prevention? The scope of an audit does not include an evaluation of such goals and assumptions.

We are disappointed when audits of government programs tell us what we already knew (or strongly suspected) but leave us without the insights needed to prevent a repeat. Such audits leave public agencies with the same goals that gave rise to the disastrous project or program and thus the same goals that will lead to future unsatisfactory results. The wildfires remind us how much is at stake.

If we passively accept the status quo mission and goals when we “reinvent” governmental agencies or programs, we ensure that little substantive change will result. And if the termination of a redundant or unneeded agency or program is not an option, nothing will be reinvented — only shuffled around or repackaged with little or no benefit. Similarly, there is limited benefit to investing in technology to make public employees more efficient, if those employees are not supporting the right goals. And we do ourselves a disservice if, in our rush to reform fire management, we assume that our predecessors ever got the combination of forest management, public land management, building and zoning, insurance, and fire suppression policy right.

Finally, when we “drain the swamp,” we should be not swap out one set of soggy career bureaucrats, cronies, and influencers for another. Such actions leave the status quo missions, goals, and assumptions largely unaffected, thus ensuring the future abuse of government powers and spending authority.

Shifting the focus of government reform

The inappropriate and misguided goals of government have lured us into adopting ineffective strategies for reforming government. In some cases, we have tacitly accepted vague missions that encourage lofty goals and unbound goal creation, resulting in unchecked spending. In other cases, we do not sufficiently challenge prior assumptions, rendering ineffective any attempts to legislate our way out of life-threatening challenges.

In our rush to make government perform its activities more efficiently, let’s not miss the opportunity to ensure that the agencies under examination are taking on the right activities.

Yes, we want our police to take advantage of the latest technology for managing records and executing law enforcement tactics.

Yes, we want government agencies at all levels to function as modern organizations.

Yes, we want forest management, water and power utilities, fire suppression, and private developers and insurance companies to protect us from the fatal risks of building in geographic areas that are known for their vulnerability to fires.

But – we should be careful not to sacrifice individual rights, due process, and public transparency to streamlined bureaucratic processes. Government is not a business. Residents and business might be frustrated that “government doesn’t move fast enough”; but when those inside a public agency are considering changes to expedite decisions, they need to remember that the proper standard of government effectiveness is not efficiency. The proper standard of government effectiveness is the protection of the rights of individual residents and businesses.

Our first critical task is to audit our government agencies’ missions and goals and examine our assumptions. Then, we can audit our government agencies’ projects and programs for the purpose of improving efficiency, reining in spending, or making us safe from a future disaster. And before we jump to legislate our way out of a problem that took decades to fully manifest, let’s examine all facets of the problem without prejudice.

Only then will we have government programs worthy of streamlining, the ability to control spending, and statewide policies that protect our lives and our property.

It’s understandable that Klein and the others want to discontinue policies that have unnecessarily increased government bureaucracy and slowed development. But from the perspective of sound governance, they have it backward. We don’t have a capacity problem; we have a scope problem. By attempting to legislate the results of productivity, Klein inverts the causal order of prosperity. He treats the state as an engine to force social goals rather than the protector of the rights and conditions that allow abundance to emerge. The hard truth is that government cannot create abundance; it can only secure the political conditions for innovation and productivity—which chiefly requires that it refrain from obstructing them.

The Justice Trap

The foundation of Klein’s argument rests on a distinction he makes in the introduction: that markets are “fine for goods where access is not a matter of justice.1

By reclassifying economic outputs—like housing or energy—as issues of justice rather than results of production, his framework effectively transfers them from the realm of private action to that of state administration.

But justice is not a state-delivered outcome or a curated collection of subsidies; it is a condition. True justice demands the freedom to associate, produce, and trade. When a city decides that housing justice requires overriding market signals and private property, the government stops being a protector and starts being a central planner. We see this manifested repeatedly at the local level in the goals of affordable housing, permanent supportive housing, and economic development.

By declaring production to be a matter of state-defined justice, Klein strips the individual of any claim to their property or associations if such claims conflict with the state’s goals.2

The Myth of State Capacity

The book is steeped in a collectivist framework, frequently using “we” to describe decisions that should belong to individuals. Klein’s framework operates on the explicit premise that “to have the future we want, we need to build and invent more of what we need [emphasis added].”3 Thus, we must collectively decide what kind of neighborhoods to live in and then build them. But one person wants a quiet cul-de-sac; another wants a high-rise above a train station. When the state steps in to decide how we want to live and what we want to build, it isn’t we deciding—it is a small group of planners overriding the actual preferences of individuals. In almost every instance where Klein uses “we,” you can replace it with “the government.” “We need to build more” actually means “The state needs to mandate that more be built, regardless of property rights.”

Late in the book, Klein argues that the government simply needs to be “better.” But better by what standard, if the government’s relationship to the individuals it was established to serve is disregarded?

If we wish to preserve individual rights and individual justice, government is “better” when it engages in proper, rights-protecting activities and rejects the siren song of central planning. To the abundance advocate, however, “better” means a more efficient technocracy. They want a government that is faster at executing on its central planning—one that can override local hurdles not to protect or restore property rights, but to force the state’s preferred version of density. But making the wrong things faster doesn’t make them right.

We see this most clearly in energy policy: the state seeks abundance for solar panels and transmission lines while restricting the very energy sources—fossil fuels—that power 80% of the world. This is not a quest for abundance; it is a political preference disguised as a supply-side solution. True abundance would require liberating all cost-effective energy, not simply being less bureaucratic about how restrictive policies are imposed and favors are provided. When the state determines the what and the who of production, it is a command economy, notwithstanding how its leaders claim to champion efficiency and production.

This mandate-driven approach doesn’t remain at the state level; it trickles down to city halls in the form of all-electric building mandates and restrictive, often nonsensical, climate action plans. When a California municipality mimics Sacramento by banning natural gas or prioritizing ideological energy targets over grid reliability, they aren’t creating abundance. They are imposing higher costs on local builders and leaving their own residents vulnerable to the instability of a state-managed grid. It is the local taxpayer and energy user who pay the price for this trickle-down technocracy.

The Productivity of the Untied Hand

Klein himself states the truth about halfway through the book, noting that affordable housing is built more cheaply and swiftly when public funds are avoided.4 But his perspective is that this fact is “damning,” an example of the failure of state efficiency. In reality, such results demonstrate the inevitable success of the private sector, something that we should encourage and celebrate. The private sector does amazing things precisely when its hands are not tied by mandates, prevailing wage requirements, and twenty-page social engineering checklists that govern 21^st-century construction.

When local governments try to engineer abundance—whether through municipal fiber networks or subsidized housing—they take on economic risks they are ill-equipped to manage. They aim at a metric while violating the principles that produce actual prosperity. These projects carry a long fiscal shadow. When a private developer fails, the investors lose; when a city-led abundance project fails, the taxpayers lose their future. This failure is inevitable because when a municipality adopts abundance as a goal, it shifts from a principled organization to a metric-driven one. Fixated on a specific number—like “10,000 new units”—the city becomes willing to violate the very principles that produce actual prosperity.

This logic is the driving force behind Klein’s “Invent” chapter, where he advocates for the state to take the lead in funding and directing innovation. However, just because the government uses tax money to fund something that some people want or find useful doesn’t make the act right or the project sound. When the state funds research and development that would have occurred anyway, it simply adds layers of bureaucracy and political favoritism to a process that was working.

Perhaps more concerning is when the government funds projects that would not be funded voluntarily. In a free market, profit is a sign of sustainability; if greedy capital won’t touch it, it is a red flag that the project is not a value-creator. When the government overrides such judgment, it isn’t creating abundance; it is subsidizing inefficiency, or perhaps pet projects, at the expense of the taxpayer.

This same gatekeeping mentality—where the state picks winners in the research lab—extends to how cities manage land use. We see this in the surge of development agreements where cities essentially sell permission to build in exchange for political tribute. The city isn’t protecting your right to use your land; it is gatekeeping the market. If you want to build, you must first fund a park, provide below-market-rate units, or adhere to a specific aesthetic. This isn’t abundance; it’s a toll booth. By the time the goal is met, the underlying right to property has been replaced by a system of political patronage.

A city that functions as a gatekeeper eventually finds itself with less to gatekeep.

Conclusion: Freedom is the Source of Abundance

Ultimately, the Abundance Agenda is a conceptual bait-and-switch. It takes the term abundance—the natural fruit of liberty—and tries to sell it back to us as a product of the state. But abundance is a byproduct, not a goal. It is the natural result of freedom. Our history has shown that if you leave people free to produce, they will satisfy their needs—and then some.

If we make abundance our political target, we invite technocratic schemes that inevitably stifle the very innovation we claim to want. We don’t need a government that aims at abundance. We need a government that aims at the conditions that produce it: the freedom to associate and the freedom to use one’s property as one sees fit.

A true inquiry into abundance would ask: “What policies maximize human flourishing?” The answer is never more central planning; it is the restoration of the rights-protecting activities that allow people to build. No, you cannot legislate morality or abundance. But if you protect the freedom to produce, abundance will take care of itself.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

The headlines are, by now, a wearying routine. In 2025, a federal takedown revealed $14.6 billion in Medicare fraud, involving kickbacks for allegedly unnecessary tests. In Minnesota, the Feeding our Future scandal saw $300 million vanish from a pandemic meal program, while childcare fraud drained another $100 million via ghost students. California, meanwhile, became the gold standard for systemic failure, losing $30 billion in unemployment funds to international crime rings and incarcerated individuals.

The standard response to such financial losses is to lament poor oversight and demand audits and investigations. But these scandals are not simply a matter of social program setbacks. They are the logical, inevitable manifestation of a system that prioritizes political optics over individual rights and justice. Fraud is not a bug in the social program model; it is the natural byproduct of a system built on the shaky premise that a purported good end justifies any means.

The Virtue Fraud and the Free Money Mirage

The primary shield used to protect these programs from scrutiny is the claim that they help people in need. Other considerations, such as the means by which such programs are funded and the corresponding impact on the people who involuntarily fund them, are disregarded. When the government implements social programs aimed at a group declared to be needy, it effectively shuts down the conversation regarding the ethics of the means. But helping is not inherently virtuous because it is not inherently just. Imagine someone who steals your car in order to provide free rides to people who don’t own a car.

When performed by government institutions—as opposed to private individuals or organizations—charity amounts to a paternalistic exercise that creates dependency, disrupts local economies, and, most importantly, requires a prior act of coercion. If the foundation of a program is the forced redistribution of wealth, the virtue of the outcome is already compromised. By treating the taxpayer as a bottomless ATM to serve a political mandate, the state commits an initial injustice that paves the way for secondary injustices of abuse and fraud.

Once the government takes money through taxation, a psychological and moral shift occurs. No consideration is given to the cost—the values, priorities, and, most importantly, rights of the people from whom that money was taken. Instead, the state launders the money, stripping it of its history and ownership until it emerges on the other side as free money. In this environment, fraud is no longer seen as theft from a neighbor; it is seen as a victimless extraction from an abstract, unlimited pool of capital. This creates a spectrum of abuse that is impossible to police:

• Bureaucratic Gaming: At the low end, participants push the limits of poorly written program guidelines. They argue that their billing disputes or differences of opinion on care are justified because they are, after all, serving the virtuous goal of the program.

• Egregious Deception: At the high end, you find the ghost students and the international syndicates. These actors aren’t confused by the rules; they simply recognize that the government has created a push-the-money-out-the-door culture where speed and enrollment numbers are the only metrics that matter.

Because the government promotes these grants so aggressively, participants sometimes feel they are doing the state a favor by taking the money. When a provider feels entitled to the funds, the line between maximizing a grant and committing fraud becomes dangerously thin.

Structural Injustice vs. Private Initiative

The reason we feel trapped in an endless cycle of scandal is that the system lacks a correcting mechanism. Justice should be maintained through voluntary exchange and accountability. If you are irresponsible with money in the private sector, you lose your donors, your customers, or your economic power through bankruptcy. In the realm of government programs, there is no such check. In fact, failure is often used as a justification for increased funding.

True accountability cannot exist without a rigorous re-evaluation of government scope—a fundamental questioning of which functions belong to the state and which must be returned to the realm of voluntary association.

The most troubling part of this dichotomy is the modern hostility toward private initiative. We have been conditioned to trust a corrupt, fraud-riddled bureaucracy over the voluntary efforts of individuals. This misplaced trust is sustained notwithstanding clear evidence that private charities are enormously efficacious.

Organizations like Samaritan’s Purse or Team Rubicon are routinely on the ground faster and more effectively than public authorities. They operate on a fraction of the budget because they have to answer to donors who demand efficiency. Similarly, peer-led organizations like Alcoholics Anonymous provide more successful personal transformation than top-down, government-funded curricula like D.A.R.E., which persisted for years despite documented failure.

The difference is that these private organizations respect the property rights of their donors and the agency of their recipients. They don’t assume that a declared good end allows them to ignore the appropriateness of their means.

The Inevitable Conclusion

We won’t fix government fraud because we refuse to acknowledge that its charitable goals are often just a cover for bureaucratic expansion and political posturing. To fix the fraud, we would have to stop treating taxpayer money as free. We would have to admit that taking $30 billion from the productive economy to lose it to crime rings is a moral failure, not just an accounting error.

The current system sacrifices integrity and quality to compliance. As long as you fill out the forms correctly, the government is satisfied. This attracts the worst elements—those who are skilled at navigating paperwork but have no interest in the supposed beneficiaries. Fraud in government social programs is unavoidable because the programs themselves are built on a fraudulent premise: that you can achieve a just end through the unjust taking of other people’s money.

If we want to address the billions lost to ghost students and kickback schemes, we can’t be seduced by the advertised virtue of the ends. We must commit to a standard of justice that respects the individual, values voluntary association, and recognizes that free money always carries a devastating price. The abuse and fraud will stop only when we stop pretending that coerced compassion (strictly speaking, a contradiction) is preferable to voluntary charitable action.

The first step to a fix isn’t a new audit or investigation; it’s a new honesty about the moral failure of the system we’ve built and a fearless re-assessment of what the proper scope of government should be.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

Economic development departments are often celebrated as promoters of prosperity and local employment. Each year, local governments spend tens of billions of dollars on economic development incentives—tax abatements, fee waivers, and direct subsidies—intended to lure private investment. Cities across the nation tout their ability to entice marquee employers, generate buzz with ribbon-cuttings, and implement incentive programs designed to attract private capital. Even small-city councils establish these departments to signal support for economic growth and to boost city revenues.

Yet beneath the surface of city branding, press releases, and fiscal sustainability strategies lies a more troubling reality: economic development departments, far from facilitating genuine development and demonstrating the appropriateness of their spending, entrench inefficiency, distort markets,1 and perpetuate the very obstacles they purport to overcome.

Incentives, Barriers, and the Illusion of Progress

Development incentives—tax rebates, fee waivers, and similar carrots—are meant to attract business investment. However, these incentives negate the tax and fee structures that cities themselves have painstakingly devised, often at great expense and through a protracted political process. For example, cities pay development and impact fee consultants tens of thousands of dollars to analyze and implement fee structures—purportedly based on the true cost of municipal services.2

Yet these very fees are then slashed or waived to lure preferred employers. The result is not a win-win, but a double loss for taxpayers. Carefully constructed revenue systems become arbitrary, and the cost of public services is obscured (taxpayer loss #1). A vicious cycle emerges: Cities rely on fees and taxes to fund infrastructure and services, only to compromise such revenue structures through selective abatements—thus necessitating higher fees and taxes (taxpayer loss #2).3

What’s often overlooked are the full effects of incentive-driven development. When cities allocate limited resources to court or subsidize select firms, they divert funds from core functions—such as road maintenance and public safety. This misallocation not only undermines neutrality but also erodes the foundational infrastructure that supports long-term economic vitality.4 Between 2017 and 2022, local governments reported a cumulative $93 billion in foregone revenue due to tax abatements. Over that period, waived revenue grew by 28% overall—and by 42% for school districts, which rely heavily on property taxes.5 According to a 2024 analysis by the Harvard Kennedy School, cities spend at least $30 billion annually on tax incentives—even though such incentives influence firm location decisions only 2% to 25% of the time.6

Cities themselves create economic barriers—through high fees, byzantine approval processes, and regulations—that make it arduous and expensive to start or expand a business. When such obstacles prove prohibitive, the economic development department creates subsidy programs and fast-track approval processes, selectively distributing relief to the fortunate few, and then claims credit for solving a problem that the city created.7

A similar dynamic plays out in housing policy. The city’s building and zoning regulations discourage development, leading to a shortage of housing. Rather than address the cause,8 cities establish housing departments that promote subsidized housing. Taxpayers pay for a lucky few (often, the winners of housing lotteries), yet housing shortages persist because the city has done nothing to address its contributions to the problem.9

The Gatekeepers of Privilege

The very title “economic development” suggests a community-minded mission. But in practice, these departments function as gatekeepers of privilege. Decisions about which businesses receive support are often opaque—frequently shaped by personal connections, lobbying efforts, or perceived prestige.10 This lack of transparency undermines public trust and invites political patronage. The selective nature of support means that well-connected firms benefit disproportionately, while smaller or less visible businesses struggle to navigate the system.

Moreover, the incentives themselves are rarely subject to rigorous analysis. Cities may tout job creation numbers or projected tax revenue, but these estimates often rely on optimistic assumptions and lack independent verification. A 2023 report by the Urban Institute found that only 12% of local incentive programs included any form of post-award performance auditing.11

Reclaiming Urban Prosperity

The lifeblood of urban prosperity is not taxpayer subsidy, but private capital and innovation. Local governments are at their best when they focus on the essentials: maintaining public safety and ensuring reliable infrastructure. Cities should be neutral with regard to growth—neither artificially promoting nor stifling it. Certainly, they should never become financially reliant on growth such that they begin to favor growth at any cost. A city’s goal should be to secure a reputation as a welcoming, low-friction destination for business—a place where entrepreneurs can flourish with neither interference nor favoritism.

Over time, the patchwork of incentives and interventions creates a brittle economic landscape—one dependent on continual taxpayer support rather than resilient private enterprise. Cities risk becoming less adaptive to economic shocks, as businesses conditioned to expect subsidies may be unable to weather downturns without them.

The impotence and ineffectiveness of today’s economic development departments are not simply a matter of bureaucratic inertia or misaligned incentives. They are the logical product of a system that confuses activity with achievement, and intervention with improvement. By revisiting government fundamentals—eliminating unnecessary barriers, focusing on core services, and allowing private ingenuity to manifest—cities can reclaim their role as protectors of prosperity, rather than architects of their own dilemmas.

Hayward, the Bay Area’s sixth largest city, is facing a self-inflicted financial crisis. By failing to responsibly budget, municipal leaders are failing the 162,000 residents who pay the city’s high taxes and rely on municipal services.

At its June 17, 2025, meeting, the Hayward City Council adopted the city’s operating budget for Fiscal Year 2025-26.1 According to the budget document, expenditures for Fiscal Year 2024-252 were projected to exceed the adopted budget by $8.5 million ($226.7 million vs. $218.2 million). In the absence of a catastrophic event, such unauthorized spending is an inexcusable breach of legal authority—and raises serious questions about the organization’s fiscal controls and management discipline.

But it gets much worse. On August 29, just ten weeks later, the city issued a press release announcing updated general fund projected expenditures of $248 million, “which was $21 million over budgeted spending for the fiscal year [ended June 30, 2025].” Thus, in this short period, projected excess expenditures for the year had ballooned from $8.5 million, or four percent of authorized spending, to $21 million, or nearly ten percent of authorized spending.

Let’s go back to early June, when city staff were preparing for the final budget hearing and council action scheduled for mid-June. By that time, finance staff would have known the actual expenditures through at least April 2025, and payroll and benefit costs through at least mid-May. In other words, roughly 85% of the city’s general fund annual spending should have been available to support projections for total Fiscal Year 2024-25 expenditures. This spending number is critical because it affects the general fund reserve balances that the city would have on hand to begin the new fiscal year on July 1.

The city has yet to explain the source of excess general fund spending. The city manager’s press release cites post-pandemic staffing increases, new labor agreements from 2023 and 2024, and an $8.6 million loan to the Hayward Economic Development Corporation. But none of these qualify as unforeseen or emergent events. Their fiscal impact should have been incorporated into the Fiscal Year 2024-25 budget. (The appropriateness and wisdom of making loans is a separate issue.) https://californiapolicycenter.org/wp-admin/index.php

While budgeting negligence can be corrected, a deeper challenge remains: aligning the city council on the seriousness of the city’s financial condition. The city has been through serial budget crises throughout the years and received a D grade from California Policy Center’s fiscal dashboard based on its most recent audited financials. But, in the words of one of its leaders, “It’s always worked out.” However, the same statement could have been uttered in any number of cities in the months preceding their declarations of fiscal emergency or Chapter 9 bankruptcy filings.

City leaders cannot afford to indulge in superficial solutions. For example, the August press release highlighted “vacancy management” as one of the measures to boost the city’s fiscal health. Holding vacant positions open is not “management”—it’s abdication. It surrenders the organization to the randomness of attrition, rather than employing strategic staffing. Such management passivity will never result in the assemblage of personnel best suited to provide city services.

At its May 13 budget meeting, city staff recommended other mitigation measures, such as “identify revenue enhancement,” “evaluate all programs,” “redefine core services,” and “encourage staff, council and community feedback.”

Revenue enhancements in the form of higher taxes are not sustainable. Nor are they defensible without first verifying that the city is operating within a proper scope and delivering services cost-effectively. (The inability to comply with approved operating budgets suggests that there is room for improvement.)

Evaluating all programs and redefining core services sound like promising steps, but only if there is a clear standard by which to evaluate the programs and determine what truly is a core service. Unfortunately, the status quo activities and methods of service delivery are so entrenched, cities typically throw their hands up at the first signs of pushback and conclude that higher taxes and fees are the path of least resistance.

Finally, obtaining feedback from the community is great, but only if the city shares up-to-date, accurate information. Transparency is impossible when the organization itself lacks clarity about its own operations, obligations, and financial resources.

With the city already in fiscal distress, Hayward must adopt a disciplined, transparent framework for forecasting and accountability as part of its first Fiscal Year 2025–26 budget review. The City Council cannot afford to treat deep fiscal fissures with surface-level remedies. Cosmetic fixes like vacancy management and vague program reviews only entrench the illusion of control. They do not solve anything. Meanwhile, the fault line widens beneath them. The crisis is here, and if city leaders continue to manage perception instead of reality, they are not responding to it—they are perpetuating a pattern of fiscal erosion that endangers Hayward’s solvency, credibility, and capacity to serve its residents.

Read my book about Municipal Financing — you can find it on Kindle and Amazon.

It has been four years since my book, The Municipal Financial Crisis, was published by Palgrave Macmillan. I wrote the book to bring to light the root causes of why our local governments are failing to manage administratively, operationally, and financially. Looking back today, I find myself, on one hand, more confident than ever in the book’s core thesis and, on the other, increasingly alarmed by the lack of substantive change at the municipal level. City councils and local agency boards are as lost today as they were four years ago and ten years ago. The failed, recycled solutions to fiscal stability1 have convinced many that municipal financial stability is unachievable.

If I were to sit down and write the book today, my formulations would be sharper and my communication more refined—but the tragic reality is that the subject of my writing, municipal government itself, has remained stubbornly stagnant.

Refined Formulations, Same Fundamental Facts

With four more years of consulting, observation, and dialogue behind me, I have learned better ways to communicate the primary hurdle: the faulty goals of government.

The fundamental problem is not just bad budgeting or unfunded mandates. It is a philosophical failure to identify what government is and what it should be doing.

For example, we have blurred the distinction between a city government–i.e., a legislative body with enforcement powers, and private institutions which rely on voluntary association and trade. Commercial firms are subject to market discipline, while charitable organizations operate under donor discipline. We should not be surprised then, when cities fail at their commercial ventures (e.g., utilities, hotels, convention centers, entertainment venues, etc.) and their charitable ventures (e.g., homelessness, affordable housing, etc.). When a municipality fails to acknowledge its nature and set its scope accordingly, it loses any hope of functioning well. Worse, such government activity crowds out private capital, innovation, and charity.

The Persistence of Scope Creep

Even though most municipalities claim fiscal sustainability and financial accountability as chief governing values, municipal leaders hold a tight grip on the status quo goals, assumptions, and ways of operating that led their organizations to the current brink. The systemic scope creep that I identified years ago continues unabated. This creep is the direct result of vague, open-ended goals and a refusal to define the boundaries of municipal authority.

When a city government views its mission as solving local social ills rather than performing specific, delimited functions, it enters a state of perpetual expansion without the ability to support it. This lack of focus is not a harmless byproduct of good intentions; it is a structural defect that makes organizational and financial stability impossible. The residents and business owners then suffer the consequences.

The Warning Signs are Now Realities

Four years ago, I wrote about a coming crisis. Today, we are watching it play out. We witness cities assuming a zombie-like existence—a state of functional bankruptcy where the lights are still on, but the foundation is rotting. This failure manifests in a predictable, devastating trend:

• Reliance on Serial Tax Increases: Serial tax increases are required to fund ever-expanding organizational scopes. Cities now treat their residents as a financial means to their organizational ends.

• Deteriorating Services and Neglected Infrastructure: As a municipality’s scope expands, the unidentified core suffers. Road maintenance and public safety have become secondary to new, trendy initiatives.

• The Retiree Benefit Burden: Many cities are now in a position where they can never catch up on pension and retiree medical benefit funding. They are running on a financial obligation treadmill that is accelerating faster than they can sprint.

The Need to Budget for Scope

The solution I proposed in the book—Budgeting for Scope2—remains the only viable path forward, yet it requires a wholesale reclamation of the purpose of municipal government. Municipal government should be a means to the ends of the residents and business owners – i.e., it should protect the conditions whereby they can flourish freely. Such a restatement of government requires leaders to stop asking “What else can we do?” and start asking “What should we be doing?”

And, once they answer the question of what they should be doing, municipal leaders need to answer the question of how they should do it. The current service-delivery methods are dictated by tired traditions and the comfort level of long-term employees – all codified in labor agreements that render operational streamlining and optimal use of technology impossible. Cities cannot manage when management’s right to manage has been bargained away.

Many observers view the current municipal financial crisis as a series of unfortunate, disconnected events: rising costs here, declining tax revenues there. But these are, at most, symptoms. The disease is a principled vacuum at the heart of municipal decision-making.

Looking Ahead

As I look at local government today, I see a nationwide struggle that confirms my earlier study. A government that cannot define its purpose cannot fulfill it. Until municipalities confront this simple fact, no reform, no grant, and no temporary windfall will save them. The $65 billion in federal COVID relief that briefly masked structural financial weakness is nearly gone, and the underlying rot is visible again. The municipal financial crisis was never a failure of resources; it has always been a failure of discipline and restraint.

If municipal leaders fail to define and delimit the scope of their organizations, their organizations will continue drifting toward insolvency disguised as normal operations. The crisis is not hypothetical — it is the current operating condition of local government. The only question now is whether municipal leaders will finally confront the root cause or continue managing decline until there is nothing left to manage. The drift will not stop on its own; only disciplined leadership can pull cities back from the edge.

I have also written a book about Municipal Financing — you can find it on Kindle and Amazon.