How State/Local Budgets & Bureaucratic Rules Make Good Government Impossible
What Happens After You Win on Competence? Fiscal Straitjackets and Procedural Quicksand
Imagine you’re a newly elected mayor. You ran on a platform of making government work better. Not a partisan agenda, just competence. Better infrastructure. More efficient permitting. Safer streets. Professional, responsive administration.
You won decisively. You have a mandate. Your buddies control the city council, not backstabbers from the party. You’re ready to govern.
So you sit down with your budget director to talk about investments in municipal capacity. You want to hire more engineers so your transportation department can plan projects in-house instead of paying consultants triple the cost. You want to modernize the 311 system that crashes every time there’s a snowstorm. You want to increase starting salaries for building inspectors so they stop leaving for private-sector jobs, add staff to the planning department so zoning applications don’t sit for eighteen months, and create a rainy day fund so you’re not forced to slash services during the next recession.
Your budget director looks at you sadly.
“Mayor,” she says, “we can’t afford any of that.”
“But we have a budget surplus!” you protest.
“We have to spend the surplus on the pension fund. It’s $4 billion underfunded and the state is requiring us to catch up on payments. Also, health care costs for city workers are up 8 percent. Also, we’re legally required to balance the budget, our bond rating will tank if we borrow for operations, and property tax revenue still hasn’t recovered from the last reassessment. Also, if we raise taxes, businesses will move to the suburbs and residents will move to cheaper cities.”
“Okay,” you say, “what if we just try to make existing agencies work better?”
“Well,” the budget director says, “every rule change requires a public hearing. The community boards get advisory votes on land use, except everyone treats them as vetoes. Environmental review takes two years minimum. Any citizen can sue, and judges scrutinize everything. Union contracts specify how many workers we need for each task and prohibit reassignments. Civil service rules mean it takes nine months to hire anyone and two years to fire them. Oh, and if you try to build anything, you’ll need sign-offs from fourteen different agencies, each with its own timeline.”
You slump in your chair. “How does anything get done?”
“Slowly,” she says. “Very, very slowly.”
This is not a hypothetical. With variations, this is the reality facing every mayor and governor who wants to govern effectively. Cities and states don’t just face different political problems than the federal government; they face fundamentally different structural constraints. These constraints fall into two categories: fiscal and procedural. The fiscal constraints mean cities can’t afford to invest in capacity even when they want to. The procedural constraints mean that even when they have the money, bureaucratic and legal requirements make government action slow, expensive, and vulnerable to obstruction.
Together, these constraints create a trap. It’s harder for anyone on the local and state level to build the operational capacity they need to govern effectively. And the more they struggle, the more citizens and interest groups demand additional restrictions, making the problem worse.
Understanding these constraints is essential to understanding America’s state capacity crisis. Unlike many federal problems (polarization, the filibuster, interest group influence), these aren’t primarily about politics. They’re about structure.
Part I: The Fiscal Straightjacket
Why States Can’t Manage Money Like the Federal Government
Here is a basic truth that shapes everything about state and local governance: States and cities must balance their budgets. This seems reasonable. Households balance their budgets. Businesses balance their budgets (eventually). Why shouldn’t governments?
The requirement has profound consequences that limit state capacity in ways that don’t apply to the federal government. What’s worse, this common sense idea of households, businesses, and balanced budgets may not be an accurate idea.
Every state except Vermont has some form of constitutional or statutory balanced budget requirement. According to the National Conference of State Legislatures, NCSL has traditionally reported that 49 states must balance their budgets, with Vermont being the exception. The details vary: some restrict governors, some restrict legislatures, some apply to proposed budgets, some to final budgets. But the basic principle is universal. States cannot spend significantly more than they take in.
Why does this matter? Two related reasons. First, states can’t print money. The federal government both borrows in dollars and prints dollars. Unless it chooses to, it can’t default. As former Fed Chair Alan Greenspan once said, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” Warren Buffett has made similar arguments, noting at the 2020 Berkshire Hathaway shareholders meeting that countries that borrow in their own currency simply don’t default. This might cause inflation, but that’s a different problem. States have no such option. They borrow in dollars but can’t print dollars. If a state can’t pay its debts, it defaults. There’s no monetary policy escape hatch.
Second, states/counties/local/whatever face real constraints on borrowing. The federal government can run enormous deficits and markets will keep lending (because, again, it can always print money to pay back debt). States face much tighter constraints. State constitutions often limit how much debt can be issued or require voter approval. And even without legal limits, markets discipline state borrowing much more aggressively than federal borrowing. A state that borrows to cover operating deficits will see its credit rating collapse and borrowing costs spike.
The balanced budget requirement seems like common sense, households and businesses can’t spend indefinitely beyond their means without an insane amount of hype (but hype does run out when you least suspect!), so why should governments? But this intuition misses the key distinction. The constraint exists not because states are more virtuous than the federal government, but because they lack monetary sovereignty. The federal government borrows in dollars and prints dollars; it can always service its debts. States borrow in dollars but can’t print them. If they can’t pay, they default. There’s no monetary escape valve.
The Cyclicality Death Spiral
The balanced budget requirement creates a devastating dynamic: State budgets are pro-cyclical when they should be counter-cyclical.
What does this mean? When the economy is growing, tax revenues increase, and states can spend more, cut taxes, or save for later. When the economy contracts, tax revenues fall, and states must cut spending, raise taxes, or draw down savings. From a macroeconomic perspective, this is exactly backward. During recessions, government should spend more, not less, both to provide services when people need them most and to stimulate the economy. During booms, government should spend less and save, building up reserves for the next downturn.
The federal government can do this. It ran massive deficits during the 2008 financial crisis and the COVID-19 pandemic, pumping money into the economy precisely when private spending collapsed. This helped prevent both recessions from becoming depressions. States can’t do this. When recession hits, their revenues crater and their expenditures surge (more people need Medicaid, unemployment insurance, food assistance). But instead of borrowing to cover the gap, they must either raise taxes or cut spending.
The consequences are visible in the data. After the 2008 financial crisis, state and local governments lost approximately 595,000 jobs from the July 2008 peak to the March 2013 trough, according to research from the Lincoln Institute of Land Policy. Other estimates place the number closer to 750,000 when accounting for the full recovery period. These weren’t just numbers on a spreadsheet. They were teachers, firefighters, police officers, social workers, health inspectors, and other public employees providing services that communities needed. Meanwhile, the federal government was expanding unemployment insurance to respond to the crisis. The same pattern repeated with COVID-19. Many states faced dire fiscal projections and prepared for massive cuts. Only unprecedented federal aid prevented a catastrophe. When that aid expired, states again faced difficult choices despite ongoing needs.
This cyclicality destroys state capacity in multiple ways. It prevents long-term planning: one cannot build administrative capacity while constantly hiring during booms and firing during busts. Institutional knowledge disappears. Talented people leave for more stable careers. Training investments are wasted. Beyond that, the cuts come exactly when needs are greatest. During recessions, people need more help from government, but that’s when state services get cut. Unemployment offices can’t handle the surge in claims because they’ve been downsized. Schools have larger class sizes because teachers were laid off.
Further, pro-cyclical budgeting makes recessions worse. When states cut spending and raise taxes during downturns, they amplify the economic contraction. This is basic Keynesian economics: in a recession, you want fiscal expansion, not contraction. State budget cuts are a major reason why recovery from the 2008 crisis was so slow.
And it creates political pressure for gimmicks. Politicians don’t want to cut services or raise taxes during recessions; that’s electoral poison. So they look for ways around the constraints. This brings us to pensions.
The Pension Crisis (not just underfunding them)
If states can’t borrow for operations and they must balance budgets, how do politicians cope during fiscal stress? Simple: They underfund pensions.
This is, in a perverse way, ingenious. When a government underfunds a pension, it doesn’t cut services today. It doesn’t lay off workers. It doesn’t visibly raise taxes. It just doesn’t put as much money into the pension fund as actuaries say it should. The problem shows up later, sometimes decades later, when different politicians are in office. Eventually, pension obligations come due. But that’s Future Governor’s problem.
The scale of this problem is staggering. State and local governments have between $1 trillion and $1.5 trillion in unfunded pension liabilities. As of June 2025, aggregate state and local public pension assets totaled $6.51 trillion, an enormous sum, but still insufficient to cover promised benefits. The NASRA Public Fund Survey reports that the aggregate funding level in fiscal year 2023 was just 76.4 percent, meaning roughly one-quarter of promised benefits lack dedicated funding. To put that in perspective, it’s as if every state and local government in America borrowed an additional 25 percent without issuing any bonds, just by promising to pay retired workers without setting aside the money to do so.
Why does this happen? The answer lies in political incentives that systematically favor short-term expediency over long-term solvency. Joshua Rauh at Stanford explains the core mechanism. Governments pay employees a salary but also accrue new pension obligations each year, which is essentially deferred compensation. Aggressive discounting makes that deferred amount look smaller. By assuming high investment returns, governments can report smaller pension liabilities, justify smaller contributions, and free up money for current spending. As Rauh puts it, this has enabled politicians to defer the problem for a long time, and that tab will ultimately have to be paid by future generations.
The Manhattan Institute’s analysis of pension board governance identifies the structural problem: both types of public pension board members have incentives to neglect the fiscal health of the pension fund. Political appointees are responsive to constituencies (such as local industry or the governor’s budget) that steer them away from acting in the long-term interest of pension fund fiscal integrity. But union representatives are also tempted to trade pension savings tomorrow for higher salaries today. The result is that boards make decisions about assumed rates of return that artificially reduce the appearance of underfunding.
Academic research confirms this pattern. A peer-reviewed study in Financial Management using data from over 2,000 Pennsylvania local pension plans found that in politically competitive jurisdictions, there are strong electoral incentives to underfund public pensions in order to keep current taxes low. Another study from Villanova found that political pressure creates incentives for elected officials to choose higher discount rates to value defined benefit pension promises, thus artificially reducing the short-term reported cost of these benefits.
Underfunding is only half the pension disaster. The other half is what happens to the money that is set aside: a significant portion gets extracted by Wall Street through fees for underperforming investments.
Over the past two decades, public pension funds have dramatically increased their allocation to “alternative investments” such as hedge funds, private equity, real estate, and private credit. According to the Pew Charitable Trusts, from 2019 to 2022, the share of investments directed to equities dropped from 47 percent to 42 percent while the share in alternative assets grew from 27 percent to 35 percent. The rationale was that alternatives would deliver higher returns. The reality has been different.
Richard Ennis, a prominent pension consultant, analyzed 54 public pension funds from 2008 to 2023 and found that alternatives dragged down annual returns by about 1 percent for portfolios with a 28 percent average allocation to alternatives, and up to 1.5 percent for those with 40 percent allocated. The Center for Retirement Research at Boston College corroborates this finding: the long-term annualized return for pension funds is almost the same as that of a simple 60/40 index portfolio, about 6.1 percent for both. All the complexity, all the consultants, all the fees, and the result is no better than what a retiree could achieve with two Vanguard index funds.
The fee extraction is staggering. According to NBC News, the Ohio State Teachers Retirement System paid over $4.1 billion in fees to private equity and hedge funds over the past decade while those investments returned an average of 6.7 percent, well below the almost 10 percent goal. Analysis by Hedge Clippers found that on average, Ohio’s three major pension funds paid 63 cents in fees for every dollar of net return to the fund. CalPERS, the nation’s largest public pension with over $530 billion in assets, shows similar patterns. According to NBC News, CalPERS paid private equity managers $569 million in investment fees in its most recent fiscal year, and its private equity has underperformed its benchmark in three of four time frames measured.
Pension dysfunction destroys state capacity in multiple ways. Pension costs crowd out investment in capacity: if a state is spending 15 percent of its budget on pension obligations and another several percent on fees to Wall Street, that’s money not going to hiring competent staff, modernizing systems, maintaining infrastructure, or building reserves. Pension crises lock in fiscal stress: unlike other debts that get paid off, pension obligations are ongoing. One can’t refinance them away or sell assets to cover them. The state just has to keep paying, year after year, reducing fiscal flexibility. And the market punishes pension debt: credit rating agencies look at pension funding levels when rating state and local bonds. Poor pension funding leads to higher borrowing costs for everything else, making infrastructure and other capital investments more expensive.
The Medicaid Squeeze
Even without recessions or pension crises, state and local governments face a structural fiscal problem: Government services get more expensive over time, faster than inflation.
The evidence is clear. A 2015 study by Laurie Bates and Rexford Santerre published in Social Science Quarterly found that Baumol’s cost disease accounts for a significant portion of non-federal public sector cost growth in the United States. State and local government prices have grown faster than the general price level for decades. Between 1993 and 2017, state and local government consumption expenditures per capita grew by 80 percent in real terms. But output (measured by things like students educated, roads maintained, public safety provided) didn’t grow proportionally.
Healthcare makes it worse. Healthcare costs are growing even faster than other government costs, driven by technology, aging populations, and the structure of healthcare markets. Since state governments are major healthcare providers (public hospitals, Medicaid), they’re hit especially hard.
Occupational licensing makes it worse still. States control who can work in various professions through licensing requirements. These requirements have proliferated dramatically: roughly 30 percent of American workers now need government permission to do their jobs, up from less than 5 percent in the 1950s, according to the Brookings Institution. Some licensing serves legitimate purposes (one probably wants one’s surgeon to be licensed). But much of it is occupational rent-seeking, with existing practitioners using government power to limit competition and raise their wages. When states require years of training to braid hair or excessive credentials to teach elementary school, they’re making their own services more expensive without improving quality.
Medicaid deserves special attention because it’s simultaneously the largest and fastest-growing component of state budgets. According to MACPAC, Medicaid’s share of state budgets has grown substantially over recent decades, and data from the Peter G. Peterson Foundation shows Medicaid spending grew from 20.5 percent of state budgets in 2008 to 29.8 percent in 2024 (including federal funds). Looking at state-only funds, Medicaid accounted for about 19 percent of spending from state general funds. In some states, it’s over 20 percent. The federal government pays for the majority of Medicaid (the “federal match” ranges from 50 percent to about 80 percent depending on the state’s per capita income), but states still pay a lot. And more importantly, Medicaid spending is highly cyclical and mostly outside state control. When recession hits, Medicaid enrollment surges as people lose jobs, lose employer coverage, and become eligible for Medicaid. Exactly when state revenues are falling, Medicaid costs are rising.
States have limited ability to control these costs. Federal law sets baseline requirements for who must be covered and what benefits must be provided. States can seek waivers to try different approaches, but the federal government must approve them. States can cut provider payment rates, but only so much before access suffers. The result is that Medicaid spending crowds out everything else. When states face budget shortfalls, they can’t easily cut Medicaid (it’s legally protected, politically popular, and serves vulnerable populations). So they cut other things: higher education, infrastructure, parks, environmental protection, economic development.
The dynamics are getting worse. Recent congressional proposals would significantly reduce federal Medicaid funding through block grants, per capita caps, or enhanced work requirements. If enacted, states would face hundreds of billions in lost federal funding while still being required to serve enrolled populations. The gap would have to be filled by either massive state tax increases or devastating service cuts.
The Inequality Multiplier
Here is another structural fiscal problem that gets too little attention: Federalism and localism concentrate both resources and needs geographically, making fiscal disparities between jurisdictions extreme.
Rich jurisdictions with valuable property tax bases can provide good services with relatively low tax rates. Poor jurisdictions must tax heavily just to provide basic services, and still often come up short. This matters because local governments, in particular, fund services through local tax bases. School quality depends largely on local property values. City services depend on the city’s tax base.
The scale of disparity is striking. Consider Connecticut. According to the Connecticut Office of Policy and Management, wealthy Westport has a property tax mill rate of about 18 while funding excellent schools and ample services. Nearby Bridgeport has a mill rate of about 43 (taxing more than twice as heavily) while struggling to fund adequate schools and basic services. Why? Property values. Westport has a much larger tax base per resident. This pattern repeats across America. Wealthy suburbs surround struggling cities. Affluent neighborhoods coexist with poor neighborhoods, often separated by municipal boundaries specifically drawn to hoard resources and exclude the poor.
The historical context matters. Local government fragmentation wasn’t accidental. As Jessica Trounstine documents in Segregation by Design, the proliferation of small, exclusive municipalities was often driven by white residents’ desire to concentrate public spending on white areas while excluding Black residents and other minorities.
The result is that the people who most need effective government services live in the jurisdictions least able to provide them. Poor communities have higher crime, worse health, more unemployed residents, older infrastructure, and more children in poverty. But they have lower property values, fewer high-income taxpayers, more residents who need services rather than pay taxes, weaker credit ratings, and less political influence. States do some redistribution through school funding formulas and other mechanisms. But it’s often inadequate. Disparities remain enormous. This destroys state capacity geographically. Effective government requires resources. The jurisdictions that most need to build administrative capacity are the ones that can least afford it. And because poor communities disproportionately serve people of color, the incapacity falls hardest on them, perpetuating racial inequality through government dysfunction.
The Fiscal Trap
Put all of this together, and the picture is grim. States and cities must balance budgets but can’t print money, so they can’t engage in counter-cyclical fiscal policy. When recession hits, they must cut spending exactly when needs surge, destroying capacity and making recessions worse. To avoid visible cuts, they underfund pensions, creating massive long-term obligations that crowd out capacity investments.
Even without recession, cost disease means services get more expensive over time, squeezing budgets. Medicaid spending is growing faster than revenues, crowding out other priorities. Fiscal capacity is unequally distributed, with poor communities least able to invest in the capacity they most need.
The result is a fiscal environment where state and local governments struggle to invest in administrative capacity even when they want to. They’re too busy managing crises, plugging holes, and robbing tomorrow to pay for today.
Part II: Death by Procedure
Now imagine a state agency head. Through some miracle, she has budget to hire more staff and upgrade her systems. She wants to make her agency more effective.
But to do almost anything, she needs to go through procedures: notice and comment rulemaking, public hearings, environmental review, legislative approval, judicial review. Each procedure, viewed individually, seems reasonable. Public participation is democratic. Judicial review prevents abuse. Environmental protection matters.
But collectively, these procedures act as a tax on government action. And for state and local agencies (smaller, less well-resourced than federal agencies), the effective tax rate is crushing.
State Administrative Law: More Restrictive Than Federal
Here’s something that surprises people: State administrative law is often stricter than federal administrative law.
Every state has its own Administrative Procedure Act. Every state has its own Freedom of Information Act. Many states have procedural requirements that don’t exist at the federal level.
Legislative vetoes are an example. At the federal level, legislative vetoes (where one or both houses of Congress can override agency actions) are unconstitutional after the Supreme Court’s 1983 decision in INS v. Chadha, 462 U.S. 919. But at the state level, they’re common. According to the State Democracy Research Initiative at the University of Wisconsin Law School, at least twenty-four states give legislatures the right to veto or suspend agency rules. Eleven more give legislatures other tools to push back on agency actions. Imagine trying to run a regulatory agency knowing the legislature can undo your work without passing a new law, just by voting to reject your rule.
Non-delegation is stricter too. The federal non-delegation doctrine (limiting how much power Congress can give to agencies) is mostly toothless. The Supreme Court hasn’t struck down a federal statute on non-delegation grounds since 1935, when it invalidated provisions of the National Industrial Recovery Act in Panama Refining Co. v. Ryan, 293 U.S. 388 (1935) and A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). State courts are more aggressive. They more frequently invalidate delegations to agencies as too broad, forcing legislators to write more detailed statutes or forcing agencies to seek specific legislative authorization for actions.
This matters because effective administration often requires flexibility. If agencies can’t adapt rules to changing circumstances without going back to the legislature, government becomes rigid and slow.
The Hearing Requirement
At the federal level, agencies adopting rules must provide notice and an opportunity for written comment. But they don’t have to hold in-person public hearings.
States are different. Many states require public hearings for any rulemaking, either automatically or if enough people request it. California, Florida, North Carolina, Michigan, Washington, and Massachusetts require public hearings for all rules. Illinois, Georgia, Texas, and Virginia require public hearings if 25 people request it.
Public hearings take time and resources. Agencies must schedule the hearing, publicize it, staff it, attend and conduct it, and review and respond to testimony. For a large federal agency with hundreds of staff, this is manageable. For a state agency with dozens of staff, or a local agency with a handful, it’s a significant burden.
California takes it further. In California, even guidance documents (not just legislative rules) must go through notice and comment. This means informal agency interpretations that in other states or at the federal level would just be posted on a website must instead go through full procedural requirements. Florida requires workshops before proposing rules. Agencies must hold public workshops to discuss potential rules before even issuing a notice of proposed rulemaking. This adds another layer of process before the process. Some states require detailed impact analyses. Texas requires cost-benefit analysis and additional analysis of the economic effects of new rules. New York requires extensive regulatory impact analyses describing fiscal impacts, effects on small businesses, and alternatives considered.
Each requirement is defensible individually. But collectively, they make state rulemaking slower and more expensive than federal rulemaking.
It’s Raining NEPAs
The National Environmental Policy Act (NEPA) has become a poster child for procedural excess in federal government. Environmental review of major projects can take years or decades. Litigation over NEPA compliance delays projects further.
But here’s what the federal-focused state capacity literature misses: At least sixteen states plus D.C., New York City, and Puerto Rico have their own “mini NEPAs,” and they’re often stricter than federal NEPA.
California’s version is particularly demanding. The California Environmental Quality Act (CEQA) requires environmental review of projects, plans, and policies; analysis of environmental impacts; “feasible mitigation measures” to address harms (stricter than NEPA’s language); public comment periods; responses to comments; and findings and statement of overriding considerations. CEQA applies not just to government projects but to private projects requiring government permits. Want to build housing? If you need permits from the city, CEQA applies. The result is that virtually all development in California triggers environmental review, adding cost and delay.
Massachusetts and Minnesota require “all practicable means and measures” to address environmental concerns, even stricter than California’s “feasible mitigation.” Hawaii’s version requires consideration of effects on “cultural practices of the community,” a broad standard that invites litigation over what counts and what impacts matter.
The compounding problem: For projects involving both federal and state approval (which is most infrastructure projects), officials must satisfy both NEPA and the state equivalent. This isn’t just double the work; it’s potentially contradictory requirements, different timelines, duplicative analyses, and multiple opportunities for opponents to delay projects.
Want to build a transit line? You’ll need federal environmental review (NEPA) because you’re getting federal funding, state environmental review (mini NEPA) because the state is involved, local environmental review (in some cities), plus all the other federal, state, and local permits. Each review has its own procedures, timelines, and litigation risks.
States can’t just hire more staff to handle this. Remember the fiscal constraints from Part I? State agencies don’t have unlimited budgets. They can’t simply hire dozens more environmental planners. So procedural requirements don’t just slow things down; they prevent things from happening at all.
Judicial Review: Stricter and More Accessible
When agencies act, courts review them. How intensely matters enormously.
Standing is much looser in states. Only about half of states have adopted the federal “injury in fact” standard from Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). Many allow taxpayer standing (any taxpayer can sue over how government spends money), public importance exceptions (courts hear cases that don’t meet normal standing requirements if the issue is sufficiently important), and citizen standing (any citizen can challenge certain types of government action).
Pennsylvania’s constitution explicitly guarantees “a right of appeal in all such instances” when rights are affected. Michigan’s constitution makes all quasi-judicial agency decisions “subject to direct review by the courts.” This means more litigation. When standing is easy, more people can sue. When more people can sue, agencies face more litigation, which slows everything down and makes agencies more cautious.
Deference is weaker. According to the State Court Report, only about fourteen states have adopted something resembling Chevron deference (and the Supreme Court recently eliminated Chevron at the federal level anyway in Loper Bright Enterprises v. Raimondo (2024)). Most state courts apply “weak deference” or no deference at all to agency interpretations of law. Ohio has anti-Chevron rules: In TWISM Enterprises v. State Board of Registration for Professional Engineers & Surveyors (2022), the Ohio Supreme Court held that “the judicial branch is never required to defer to an agency’s interpretation of the law,” and that any uncertainty in legal interpretation should be construed in favor of the person or entity affected by the law, not in favor of the agency. This is the opposite of Chevron: systematic deference to regulated parties over agencies.
Substantive review can be more intense. While intensity varies, many state courts apply something like the federal “hard look” standard, searching review of whether agency decisions are arbitrary or capricious. Some apply even stricter standards. Money damages are more available. In at least ten states, including New York, New Jersey, and Michigan, money damages are presumptively available for constitutional violations by government officials. This is broader than the federal regime after the Supreme Court cut back on Bivens actions. The threat of personal financial liability makes officials more cautious, which can be good (preventing abuse) but can also paralyze administration.
Judges are elected in most states. Unlike federal judges with life tenure, most state judges face elections. Judicial elections require money. The biggest sources of judicial campaign money are business groups (supporting Republican judges) and trial lawyers (supporting Democratic judges). Both groups benefit from active judicial review of agency action: businesses want judges to constrain regulation; trial lawyers want opportunities to sue. This creates pressure for activist judicial review of administration.
The Participation Trap
Perhaps the most distinctive feature of state and local administrative law is the emphasis on public participation.
Every state has open meetings laws. These typically require advance notice of meetings, public access to meetings, public agendas, and limitations on private communications between officials. California’s is particularly strict. The Bagley-Keene Act (for state bodies) and the Brown Act (for local agencies) require all multimember governmental bodies to meet in public, dates, times, and agendas to be posted in advance, private communications about agenda items between a majority of board members to be prohibited, even one-on-one communications to be prohibited if they’re part of a daisy chain that reaches a majority, and the public to be able to attend and observe all meetings.
Many states require public comment periods. California and at least a dozen other states require government bodies to allow public comment at meetings. Not just observation: actual participation. This sounds democratic. But the reality is more complicated.
Who actually shows up? Research by Katherine Einstein, Maxwell Palmer, and David Glick found that participants in local government meetings are wealthier, older, whiter, and more likely to own homes than the median resident. Their study, “Who Participates in Local Government? Evidence from Meeting Minutes”, confirms that these individuals overwhelmingly oppose new housing construction. A study of San Francisco planning commission meetings between 2018 and 2019 found the same pattern, noting a crucial structural barrier: planning meetings usually happen during weekdays, and most working-class people impacted are unable to attend them.
The participants aren’t representative. And they certainly don’t represent people who might want to live in the community but currently don’t, like aspiring homebuyers priced out by restrictive zoning.
The land use disaster illustrates the problem. State enabling acts, often based on the 1924 Standard State Zoning Enabling Act developed by Herbert Hoover’s Department of Commerce, typically allow any “citizen” to participate in zoning decisions, even if they’re not directly affected. Combined with open meetings laws, this means zoning changes require public hearings, these hearings are dominated by homeowners opposed to change, officials who want to approve new housing face a room full of angry NIMBYs, aspiring homeowners aren’t there (they don’t live there yet), and renters often don’t attend (less time, less stake in property values). The result is that development gets blocked. Half of states require public hearings even for variances, individual exceptions to zoning rules. In tight-zoning jurisdictions, virtually all development requires variances, which means virtually all development requires public hearings dominated by opponents.
As Anika Singh Lemar argues in her article “Overparticipation: Designing Effective Land Use Public Processes”, 90 Fordham Law Review 1083 (2021), “public participation is utterly dysfunctional” in land use, and “poor people bear the brunt of that dysfunction.”
That said, the participation story may be more nuanced than the simple NIMBY framing suggests. A recent study in the Journal of Urban Affairs finds that regulatory preferences, rather than simple proximity, drive public acceptance for densification, suggesting that the focus on proximity oversimplifies the political dynamics at play. People’s opposition often reflects genuine concerns about regulatory design (who builds, how it’s built, what affordability requirements apply) rather than pure self-interest. This suggests the participation problem might be partially addressable through procedural reforms (evening meetings, remote participation, better notification of renters and prospective residents) rather than requiring wholesale elimination of public input.
Beyond land use, participation requirements empower organized interests across the board. Public employee unions dominate hearings about labor rules, industry groups dominate hearings about regulations, neighborhood groups dominate hearings about local services, and single-issue activists dominate hearings about their issues. Diffuse majorities, everyone who benefits from better government services, more affordable housing, or faster permitting, don’t organize to show up.
The Small Agency Problem
Here’s the crucial point about all these procedural requirements: They impose roughly fixed costs.
Holding a public hearing costs about the same whether you’re EPA with thousands of employees or a local planning department with five staff. Conducting environmental review takes roughly the same effort regardless of agency size. Defending against litigation requires similar resources whether you’re DOJ or a city attorney’s office.
But the effective burden is much higher for smaller agencies.
The federal government has enormous administrative agencies. According to USAFacts, EPA has roughly 17,000 employees; the FDA has approximately 19,700; the Department of Education has about 4,000 in 2024, down from 4,930 in 2000 and the smallest staff of the Cabinet agencies; and the Department of Transportation has around 55,000. These agencies can absorb procedural requirements. They have dedicated staff for FOIA compliance, rulemaking procedures, legislative affairs, and litigation defense. A public hearing is a routine matter.
State agencies are smaller. State environmental agencies typically have 100 to 1,000 employees, state education departments typically have 100 to 500, and state transportation departments typically have 1,000 to 5,000. They’re a fraction the size of federal counterparts, but face comparable procedural requirements (often stricter, as we’ve seen).
Local agencies are tiny. City planning departments often have 5 to 50 employees. Local health departments often have 10 to 100 employees. Municipal housing authorities often have 20 to 200 employees. For these agencies, procedural requirements are crushing. A small city planning department might have one person handling all environmental reviews, another handling all public hearings, and a third trying to actually do planning. When litigation hits, the city attorney’s office (maybe 5 to 10 attorneys total) must defend against law firms with dozens of lawyers.
The effective tax rate of proceduralism is inversely proportional to agency size (or for operations focused people, we have Ashby’s Law to explain why)
This has serious implications for where state capacity is weakest. The jurisdictions that most need effective government (poor cities, rural counties) are precisely the ones with the smallest agencies facing the highest effective procedural burden.
Part III: The Vicious Cycle
How Fiscal and Procedural Constraints Reinforce Each Other
The fiscal straightjacket and procedural hyperactivism don’t just coexist. They reinforce each other in a vicious cycle.
Fiscal limits prevent addressing procedural costs. States can’t hire enough staff to handle procedural requirements efficiently. They can’t invest in technology to streamline compliance. They can’t afford specialized expertise in environmental review, legislative affairs, and so on. They can’t build institutional capacity to handle litigation.
Procedural requirements multiply fiscal problems. Delays increase costs as inflation hits projects and financing costs mount. Litigation is expensive in terms of attorneys, experts, and staff time. Excessive process means fewer projects get completed per dollar spent. Public hearings dominated by status quo defenders prevent cost-saving changes.
Poor outcomes generate demands for more restrictions. Government fails to deliver, so citizens distrust government. Distrust generates demands for more oversight, more transparency, more participation. More oversight means more procedures. More procedures mean worse performance. Worse performance means more distrust.
Interest groups exploit the complexity. Complex procedures favor those with resources to navigate them. Organized interests can use procedures to block changes they dislike. Diffuse majorities can’t effectively counteract this. The result: procedures protect the status quo and prevent capacity-building reforms.
The California-Texas Natural Experiment
We can see the vicious cycle most clearly by comparing states that have escaped it with states that remain trapped. California and Texas represent near-ideal natural experiments: both large, diverse, economically significant states with very different regulatory and fiscal regimes. Recent research provides striking comparisons that illuminate how fiscal and procedural constraints interact.
A 2025 RAND Corporation study analyzed cost data from more than 140 completed apartment projects across California, Colorado, and Texas. The findings are stark: The cost of building multifamily housing is 2.3 times higher in California than Texas, and the time to bring a project to completion in California is more than 22 months longer than in Texas. Municipal impact and development fees average $29,000 per unit in California, compared to less than $1,000 per unit on average in Texas and $12,000 per unit in Colorado. That’s a 29-fold difference in fees alone.
What drives these gaps? As Multifamily Dive reported, RAND attributes the gulf to differences in state and local policies that contribute to long permitting and construction timelines and higher local development fees. While California does have higher land prices, more expensive labor, and seismic safety requirements, the report found that most of the higher costs stem from policy choices.
The California YIMBY analysis of the RAND data breaks down the mechanisms. California’s slow permitting timelines impose a “time tax” of $1,284 per unit per month. California’s impact fees average more than 20 times higher than Texas. California’s predevelopment phase takes 27.9 months versus 13.1 months in Texas. Overly prescriptive design standards go far beyond legitimate safety requirements, with cost-of-living differences explaining only 10 percent of variation.
As Jason Ward, the RAND study’s lead author, wrote for CalMatters: “The average apartment in Texas costs roughly $150,000 to produce; in California, building the same apartment costs around $430,000, or 2.8 times more.” A privately financed apartment building that takes just over two years to produce from start to finish in Texas would take over four years in California.
The policy implications are clear. RAND recommends that California adopt a policy similar to Texas state law that requires local jurisdictions to approve or deny a proposal for a housing development within 30 days, or else it is presumed to be approved. Texas has such a rule; California does not. As Planetizen summarized: just two Texas metropolitan areas (Dallas and Houston) approved more new housing permits in 2024 than the entire state of California.
We should be clear about what we’re observing here. These are not merely “constraints” imposed on hapless California officials. They’re choices that California voters and legislators have made, repeatedly, over decades. Californians have chosen to prioritize environmental protection, worker rights, and public services in ways that Texans have not. The costs that result are the price of those choices.
This doesn’t mean California’s choices are wrong. Many Californians genuinely prefer stronger environmental protection, even at higher cost. They prefer prevailing wage requirements, even if they make public construction more expensive. They prefer a larger public sector, even if it requires higher taxes.
The state capacity critique is most powerful when focused on genuinely wasteful procedures: duplicative environmental reviews, excessive litigation, capture by narrow interests. It’s less powerful when applied to policy choices that reflect genuine democratic preferences about what government should provide and who should pay for it. A state that chooses high taxes, strong labor protections, and extensive environmental review isn’t failing to build capacity; it’s building a different kind of capacity, one that reflects different values. The question is whether the specific procedures are well-designed to achieve those values, or whether they’ve become captured by narrow interests that use them to block development regardless of broader public benefit.
Private Thrives, Public Struggles: Why?
Here’s the puzzle we opened with: Why does private enterprise in America work relatively well while public services struggle?
It’s not that Americans hate government or prefer small government. If that were true, we’d expect limited government to work well. Instead, we see something more complicated: Government is constrained in ways that prevent it from working effectively.
Conventional wisdom states that private sector faces competition (if you don’t serve customers well, they go elsewhere), profit motive (efficiency creates value that can be captured), customer feedback (people vote with their wallets), flexibility (can reorganize, change strategies, try new approaches quickly), investment incentives (can borrow against future returns), hard budget constraints (bankruptcy is real), and consequences for failure (firms that fail actually fail). It a lot more complex and complicated in reality with hype mongers and monopolies often showboat in being the exception.
The federal government faces electoral accountability (people pay attention to presidential and congressional performance), significant fiscal capacity (can borrow easily, print money, run deficits), some procedural burden (NEPA, APA, and so on), professional norms (civil service protections, expertise), and soft budget constraints (can always borrow more).
State and local governments face weak electoral accountability (voters don’t pay attention), severe fiscal constraints (balanced budgets, no money printing, limited borrowing), heavy procedural burdens (equal to or greater than federal, applied to smaller agencies), fragmentation (over 90,000 local governments including special districts, 50 state systems), organized opposition (data center lobbyists, incumbent businesses, NIMBYs), and no exit (unlike private firms, government agencies rarely close; unlike federal agencies, they can’t just expand budgets).
State and local governments have the worst of all worlds: They lack both market discipline and strong democratic accountability, while facing the strictest fiscal and procedural constraints.
We should be clear about what this comparison does and doesn’t show. It shouldn’t be taken as a blanket indictment of public sector workers or agencies. Many public employees are talented and dedicated. Many agencies accomplish remarkable things despite the constraints they face. But the structural environment makes sustained high performance much harder than in either the private sector or the federal government.
The comparison also shouldn’t obscure real problems within public agencies themselves. Public sector unions, while serving important functions, often resist reforms that would improve efficiency or accountability. Agencies sometimes gold-plate projects, adding features and requirements beyond what’s necessary. The California high-speed rail disaster isn’t just about CEQA; it’s also about governance capacity, project management failures, and an inability to learn from peer countries that build rail infrastructure at a fraction of the cost. These internal problems compound the structural constraints.
The Accountability Vacuum
The structural constraints we’ve described should, in a functioning democracy, generate pressure for reform. Voters who experience poor government services should vote for candidates promising to fix them. Politicians seeking reelection should have incentives to build capacity and deliver results.
But this feedback loop is broken at the state and local level.
Start with turnout. According to a study compiled by Portland State University for the Knight Foundation, in 20 of America’s 30 largest cities, voter turnout for electing community leaders like mayors and city councilors was less than 15 percent. School board turnout is even lower: the National School Boards Association estimates often just 5 or 10 percent.
The National Civic League documents the demographic skew. Affluent voters have 30 to 50 percent higher turnout in local elections than low-income voters. Those 65 and older are seven times more likely to vote in local elections than voters aged 18 to 34. White voters participate at rates 20 percent higher than non-white voters.
According to FairVote’s analysis, a 2013 study of 340 mayoral elections in 144 U.S. cities found that average turnout was just 25.8 percent. In some cities, mayors have been elected with single-digit turnout. Dallas’ 1999 mayoral election saw just 5 percent of eligible voters participate.
The Center for Effective Government at the University of Chicago summarizes the research: The relatively few voters who do turn out for local elections are unrepresentative of the overall electorate. White voters are significantly more likely to turn out than nonwhite voters, with Latinos and Asian Americans especially underrepresented. Voters have notably higher incomes and education levels than nonvoters.
Why does turnout matter for state capacity? Because the people who bear the costs of government dysfunction (renters priced out by slow permitting, workers who can’t afford housing near jobs, communities suffering from underinvested infrastructure) are systematically underrepresented among those who vote. Meanwhile, the organized interests who benefit from procedural complexity (homeowners protecting property values, incumbent businesses avoiding competition, unions protecting jobs) vote reliably.
Research from the University of Wisconsin confirms that moving local elections to coincide with presidential elections would have by far the largest impact on voter turnout. Switching to presidential-year elections yields an 18.5 percentage point jump in turnout; switching to midterm elections yields an 8.7 point increase. When Baltimore aligned its local elections with presidential contests in 2016, turnout soared from 13 percent to 60 percent.
Yet most cities maintain off-cycle elections. The stated rationale, that voters will pay more attention to local issues when not distracted by federal races, has it exactly backwards. What actually happens is that organized interests dominate low-turnout elections while diffuse majorities stay home.
This is why the constraints we’ve described persist despite their obvious costs. The people who bear those costs don’t vote in the elections that matter. The people who benefit from the status quo do. And so the trap endures.
Part IV: Escape Routes
Evidence That Reform Works
The picture we’ve painted is grim. But history suggests that structural reforms to state capacity can work.
has an whole series of articles on State Capacitance, American Affairs, and others on the topics, here are a select fewOn top on what Kevin write about, I want to bring up research by Abhay Aneja and Guo Xu published in the American Economic Review examined the Pendleton Act, the landmark 1883 federal civil service reform that shielded bureaucrats from political interference. Using newly digitized records from the Post Office, they found that civil service reform reduced postal delivery errors and increased productivity. These improvements were most pronounced during election years when the reform dampened bureaucratic turnover.
The Special District Model
Some jurisdictions have found ways around the fiscal and procedural straitjacket, and those escape routes actually work. (YES THERE ARE ISSUES AND WE WILL COVER THEM IN ANOTHER ARTICLE)
The mechanism? Special districts: independent, limited-purpose governments that exist separately from cities, counties, and states. According to the 2022 Census of Governments, there are now over 39,555 special districts in the United States, making them the fastest-growing category of local government. When we say there are “17,000 local governments” in America, we’re dramatically undercounting. That figure typically includes only general-purpose governments, not the sprawling universe of water districts, fire districts, transit authorities, and development districts that increasingly deliver public services.
The Government Finance Research Center at UIC calls these “shadow governments” that now comprise roughly 43 percent of all independent local governments. Their growth has been explosive: from just over 8,000 in 1942 to nearly 40,000 today.
Why does this matter for state capacity? Because special districts often serve precisely to escape the fiscal constraints we’ve described. They can issue debt that doesn’t count against city or county limits. Their obligations don’t threaten municipal bond ratings. They create self-financing mechanisms for new development.
Texas Municipal Utility Districts (MUDs) are the paradigmatic example, and they work at massive scale. According to official Texas government documentation, MUDs function as independent, limited governments authorized to issue bonds and levy taxes for infrastructure (water, sewer, drainage, and roads) without burdening the city’s balance sheet. The mechanism works like this: A developer finances infrastructure construction upfront. After completion and state approval, the MUD issues bonds to reimburse the developer and levies property taxes on residents to service the debt.
The fiscal engineering directly addresses the constraints we’ve described. As the City of Austin’s MUD overview explains, a MUD may issue bonds to reimburse a developer for authorized improvements and will utilize property tax revenues and user fees to repay the debt, with bonds that are not an obligation of the city. The city bears no risk for the development or the MUD while controlling infrastructure quality.
The scale is significant, and the results are undeniable. According to Harris County MUD 500, more than 1 million Texans live in special districts like MUDs, which have been used to develop numerous master-planned communities including The Woodlands (27,000 acres), Clear Lake City/NASA (15,000 acres), First Colony, Sienna Plantation, Cinco Ranch, and Bridgeland. In 2010, it was estimated that more than 2.1 million people resided in the approximately 650 special districts in the Houston metropolitan area alone.
The Texas Infrastructure Program has pioneered MUD receivable financing, allowing developers to access capital upfront using tax-exempt bonds backed by future MUD reimbursements. Since completing the first such financing in 2021, TIP has helped raise more than $1.4 billion of non-recourse debt to fund infrastructure projects across the state. A single March 2025 transaction secured $196 million for Starwood Land developments.
Whatever theoretical concerns one might have about MUDs, Texas is building housing at scale and California is not. For the families who can afford homes in Texas that would be unattainable in California, the practical difference matters more than abstract concerns about governance structure.
That said, the tradeoffs are real. The UIC Government Finance Research Center notes that higher levels of overlapping special districts correlate with 10 to 25 percent higher local government revenues, money that appears to go toward “excess spending” due to lack of coordination between independent entities. When multiple special districts overlap the same territory, each with its own overhead, administration, and board, inefficiencies multiply.
Special districts also have democratic deficits. Political participation in local government elections is already low; participation in special district elections is lower still. Board members are often appointed rather than elected, and when elections occur, turnout is minimal. Residents of MUDs may not fully understand the tax obligations they’re assuming or the governance structures that will shape their communities.
But here’s the key point: The existence of these escape valves complicates any simple story of structural constraint in this (political) economy. Texas has developed institutional workarounds that enable infrastructure needed for a lot more housing supply. The question is not whether MUDs have costs (they do) but whether those costs outweigh the benefits of actually building housing and infrastructure that people need. For advocates of state capacity, the Texas model suggests that when general-purpose governments are too constrained to act, specialized institutional arrangements can fill the gap.
The deeper question is why these mechanisms haven’t diffused more broadly. California could, in principle, create similar special district structures to bypass its procedural constraints. That it hasn’t reflects California’s political economy, not structural impossibility. The interests that benefit from California’s current arrangements (incumbent homeowners, techno optismtic billionaires, environmental groups ) have successfully blocked reforms that would enable Texas-style development. The structural constraints are real, but they’re also politically maintained.
Well-Run Pension Systems
The contrast between well-run and poorly-run pension systems shows that governance choices matter.
South Dakota’s Retirement System has maintained a funded ratio at or above 100 percent every year since 2013 and was the only state where actual returns did not fall short of investment targets between 2001 and 2017. How? According to the Pew Charitable Trusts, the South Dakota Investment Council’s disciplined processes and low-cost investment management have consistently produced some of the top long-term returns in the country among state plans.
Analysis by ValueWalk found that South Dakota and Minnesota, the two best performing pension funds in one ranking, didn’t allocate any of their portfolios to alternative investments. South Dakota also maintains unusually high cash reserves (about 18.7 percent of its portfolio compared to a nationwide average of 1.8 percent), giving it flexibility to buy assets when markets are cheap rather than being forced to sell when they’re down.
The Wisconsin Retirement System offers another model. According to the Reason Foundation, while national public pension plan funding averaged 72.1 percent in 2017, WRS reported a market value-based funded ratio of 102.9 percent and an actuarial value-based funded ratio of 100 percent. This wasn’t something that happened by chance, but rather through a series of careful considerations and thoughtful, timely reforms.
The key feature, as Urban Milwaukee explains, is that post-retirement benefit increases can be “clawed back” if investment performance dictates, a risk-sharing feature that was the major reason WRS was able to climb back to the 100 percent funded level so quickly after the 2008-2009 meltdown. Wisconsin also maintains a conservative assumed rate of return and, crucially, has been disciplined about contributions. As the state investment officer told Route Fifty: “We never postponed a penny. We paid 100 percent on time, every time.”
According to Pew’s research, from 2007 through 2023, five states (Arkansas, Idaho, Nebraska, South Dakota, and Wisconsin) maintained their contribution volatility within 3 percent of payroll while maintaining well-funded pension plans. Meanwhile, Kentucky, New Jersey, and Pennsylvania had high levels of contribution volatility as policymakers struggled to address past shortfalls and policy mistakes.
These aren’t accidents or lucky circumstances. They’re the result of deliberate policy choices sustained over decades. Other states could emulate them if they mustered the political will.
Public pension funds also represent one of the largest pools of patient capital in the American economy: $6.5 trillion that could, in principle, be deployed strategically for infrastructure, economic development, and other long-duration investments that match pension liabilities. The Bank of North Dakota offers a glimpse of what strategic deployment of public capital could look like. Founded in 1919, BND is the only state-owned, general-service bank in the United States, using state deposits to fund short-term loan and bond financing for local and state infrastructure projects, direct lending to private borrowers, and banking services for local banks. Analysis by Ellen Brown found that the BND’s average return on equity from 2000 to 2023 was 19.51 percent (substantially higher than JPMorgan Chase’s 11.38 percent over the same period) and more than $1 billion has been transferred to the state’s general fund and special programs.
The Institute for Pension Fund Integrity compared all 50 states’ pension performance to a simple 60/40 passive index portfolio and found that only five of the 52 pension funds analyzed outperformed the 60/40 passive portfolio. IPFI’s president, a former Connecticut Treasurer, concluded bluntly: if a fund can’t outperform a basic balanced passive investment strategy, it is time to fire the fiduciaries and outsource the management of the pension fund to a simple, no cost, passive mutual fund.
Incremental Reform
Some jurisdictions are trying to reform existing institutions rather than bypass them.
California’s recent CEQA reforms represent incremental progress. According to the California Governor’s Office, Governor Newsom signed legislation in June 2025 including CEQA reforms to accelerate housing and infrastructure by streamlining CEQA review for infill housing, high-speed rail facilities, utilities, broadband, community-serving facilities, wildfire prevention, and farmworker housing. Whether these reforms will meaningfully close the gap with Texas remains to be seen. The history of CEQA reform is littered with modest changes that failed to shift the underlying dynamics.
Election timing offers another lever. Moving local elections to coincide with presidential elections would dramatically increase turnout, changing who participates and potentially shifting political incentives toward broader public interests rather than organized stakeholders.
What Would It Take?
Neither path out of the trap is fully satisfying. Reforming existing institutions requires overcoming the organized interests that benefit from the status quo. Creating alternative institutions risks fragmenting governance further. But the evidence that reform is possible (from Texas MUDs to South Dakota pensions to the Pendleton Act) should temper pessimism about the state capacity trap.
State constitutions are easier to amend than the federal constitution. State administrative procedure acts can be revised. Local budget rules can be changed. Election timing can be synchronized with federal races to boost turnout. Public participation requirements can be redesigned. Pension investments can be shifted to low-cost index funds.
Some reforms are harder than others. Unwinding decades of pension underfunding is more difficult than changing election timing. CEQA reform faces more entrenched opposition than shifting pension investments.
But reform requires coalitions. The people who benefit from change (renters who want housing, commuters who want infrastructure, taxpayers who want efficient services) are diffuse and poorly organized. The people who benefit from the status quo (homeowners, incumbent businesses, public employee unions, Wall Street asset managers) are concentrated and politically active.
Building coalitions for state capacity reform means making the stakes visible. When people can see the concrete costs of the status quo, pressure for change can build. The trap is maintained by political economy, not natural law. It can be escaped by political economy too.
Conclusion: The Trap Is Real, But Not Inescapable
Let us return to where we began, with a governor who wanted to make government work better.
The fiscal straightjacket means she can’t borrow to invest in capacity, can’t save enough for counter-cyclical spending, must cut during recessions when needs surge, faces pension obligations crowding out everything else, fights cost disease with inadequate revenue growth, watches Medicaid consume the budget, and sees poor communities struggle most.
The procedural trap means every action requires multiple hearings, environmental review takes years, any citizen can sue over almost anything, courts scrutinize decisions intensely, organized opponents exploit every procedure, small agencies can’t handle the burden, and projects take forever and cost fortunes.
The accountability vacuum means local election turnout often falls below 20 percent, voters who do participate are older, whiter, and wealthier, organized interests dominate policy processes, diffuse majorities stay home, and politicians face little pressure to reform.
These constraints are real. But they’re not natural laws. They’re the accumulated result of decades of political choices, each defensible individually, collectively creating a system where effective government is nearly impossible.
The evidence shows that escape is possible. Texas has built housing at scale through special districts that bypass general-purpose government constraints. South Dakota and Wisconsin have maintained fully funded pensions through disciplined contributions, conservative assumptions, and low-cost investment strategies. The Pendleton Act transformed federal administration by shielding bureaucrats from political interference. These are the result of deliberate choices, sustained over time.
Structural constraints explain much about why state and local government fails despite employing millions of capable people. But structures can be changed. The constraints are political, not natural. They’re maintained by interests who benefit from the status quo and changeable by coalitions willing to challenge them.
Whether American state and local government can meet the demands of the 21st century depends on whether such coalitions can be built.
The trap is real. But it’s a trap of our own making. We can unmake it.