Credible Commitment and Council-Manager Government: Implications for Policy Instrument Choices

Author(s): Richard C. Feiock, Moon-Gi Jeong and Jaehoon Kim

Source: Public Administration Review , Sep. - Oct., 2003, Vol. 63, No. 5 (Sep. - Oct., 2003), pp. 616-625

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Richard C. Feiock

Moon-Gi Jeong Florida State University

Jaehoon Kim Seoul National University of Technology

Credible Commitment and Council-Manager

Government: Implications for Policy

Instrument Choices

The credible constraint of morally hazardous or opportunistic behavior can enhance efficiency. This idea is applied to an examination of local government institutions to identify how council- manager government constrains opportunism in economic development by substituting low-power bureaucratic incentives for high-power electoral incentives. A panel design isolates changes in the

use of development strategies or instruments in 516 cities.

The central argument presented here is that the Progressive ideology of the separation of politics and administration, institutionalized in the council-manager plan, allows administrators and elected

officers to more easily resist opportunistic behavior. Economic and political forces have significant effects that are different for mayor-council communities than for council-manager communities. The influence of strategic planning is evident in council-manager cities, but not in mayor-council communities. Under council-manager government, development is carried out in a discriminating

manner, leading to lower levels of financial incentives but more loan and business-attraction pro- grams. In conclusion, the authors discuss how the career patterns of city managers are shaped by the incentive structures created by the council-manager plan.

Questions about whether and how different forms of

municipal government influence policy choices have oc-

cupied scholars of urban politics and administration for

several decades (Lineberry and Fowler 1967; Ostrom, Bish,

and Ostrom 1988; Ruhil et al. 1999). Much of the theoreti-

cal underpinning of this inquiry derives from the study of

structural reforms introduced by the municipal reform

movement. This article revisits the history of municipal

reform and examines how different forms of governments

influence the incentives of local actors and the problems

of moral hazard and credible commitment.

As in other organizations, governance structures in cit-

ies create incentives for specific behaviors. Some high-

power incentives produce benefits that can be realized

directly by decision makers. In markets, high-power in- centives lead to innovation and enhanced productivity as

entrepreneurial leaders respond to profit motives

(Williamson 1988). Nevertheless, high-power incentives

Richard C Feiock is a professor and director of the doctoral program at the Askew School of Public Administration and Policy, and he directs the local governance program at the DeVoe L. Moore Center at Florida State Univer- sity. He is coauthor of Institutional Constraints and Policy Choice (SUNY Press) and has published widely on issues of local government and governance. Email: [email protected].

Moon-Gi Jeong is a PhD student at the Askew School of Public Administra- tion and Policy and a DeVoe L. Moore graduate fellow. His interests are state and local economic development, regulation, and public finance. Email: [email protected].

Jaehoon Kim is an associate professor of public administration at Seoul

National University of TechnolTy and a visiting scholar at the Askew School of Public Administration and Poicy. His interests are economic development policy, intergovernmental relations, and public budgeting and financial man- a ement. He has published articles in various journals, including the Journal oXPublic Administration Research and Theory and Korean Puglic Adminis- tration Review. Email: jikI [email protected].

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in government may lead to political opportunism and rent

seeking as actors seek private gain through public ad- ministration (Frant 1996; Feiock and Kim 2001). Many

Progressive Era municipal reforms were intended to elimi-

nate the corruption of machine party politics, often by

reducing politicians' ability to deliver particularistic ben-

efits. Reform proposals limited elected officials' ability

to reward supporters and to punish opponents (Frant 1993;

Knott and Miller 1987). From a transaction-cost perspec-

tive, these measures were institutional changes that re-

placed high-power incentives with low-power incentives

(Frant 1996).

Progressive Era reforms sought to improve administra-

tive efficiency and to break the influence of partisan poli-

tics on local decisions (Ostrom, Bish, and Ostrom 1988).

The key municipal reform proposal was the council-man-

ager form of government, in which an elected council and

its employee-the manager-have distinct responsibilities that separate the articulation of policy from its execution.

Recent findings drawn from several policy areas suggest

the institutional rules of the game in reform governments

create low-power incentives that emphasize citywide is- sues and constituencies and enhance the role of profes-

sional expertise in informing public decisions (Clinger-

mayer and Feiock 2001; Feiock and Kim 2001; McCabe

and Feiock 2001).

The Transaction Cost of Local Governance The form of government embodied in the city charter

operates as a constitutional contract that determines the

transaction costs experienced by various actors and inter-

ests in their efforts to influence public choices (Maser 1985,

1998; Miller 1985). Centralized organizations of all types

are distinguished by the broad powers of their leaders to

intervene in lower-level decisions (Milgrom and Roberts

1990). Political intervention in policy and administrative affairs has been a primary concern of reformers because it

can undercut the security of property rights and contract

enforcement (Clingermayer and Feiock 1997). From the

standpoint of business, developers, service suppliers, or other external actors, the uncertainty resulting from politi-

cal opportunism makes entering into relationships with local government risky. Elected officials who are wary of displeasing contending coalitions or alliances of constitu- ents may not be able to make credible commitments to important stakeholders. This is a problem of commitment because government leaders themselves wish to be pub- licly constrained from interventions that may promote their short-term electoral interests, but which harm the commu- nity and their electability in the long term. Constraining themselves ahead of time is a positive action that can en- hance efficiency. Paradoxically, the long-run political and

economic benefits to elected leaders are secured only by

denying themselves short-term political gains.

Control of the apparatus of local government can be used

to extract political rents that undermine the efficiency of

government's actions (Olson 1964; Feiock 2002). Princi-

pal-agent approaches argue that efficiency is enhanced when the agent's goals are the same as the principal's. Fol-

lowing Schelling (1960), Miller (2000) argues just the op-

posite: The usefulness of the agent depends on the agent

having preferences and pursuing goals that are quite dif-

ferent from the principal. Managers can best pursue the

interests of citizens and the council by working toward

professional goals rather than the political interests of the

voters and the council.

There is a value to citizens in a democracy in hiring

public managers who have preferences that are dis- tinct from those of citizens themselves. There is a

benefit to be derived from training a body of profes-

sional bureaucrats who are granted a certain degree

of discretion in the exercise of public trust. In the

United States, that discretion has been enhanced by

the Progressive reform prescription which has pro-

vided bureaucrats with a useful myth and protective

ideology. The useful myth is that of the politics/ad- ministration dichotomy, and the protective ideology

is the ideology of neutral professional competence.

Together, these often provide a credible constraint on the efficiency-undermining rent-extraction activi-

ties of those in political power. (Miller 2000, 314)

The city management profession's commitment to pro-

fessional standards and its attachment to the mythology of

neutral competence enhance efficiency because they pro-

vide bureaucrats with political weapons that can help them

fulfill the public trust (Miller 2000, 325). The politics-ad- ministration dichotomy may be no more than a myth, but it

provides a structure for governance that is biased against partisan political interference and in favor of professional values and expertise. This is exactly the message of Lineberry

and Fowler (1967), who argued that reform institutions in- sulate municipal government from private demands.

The council-manager form of government is presumed

to allow for greater consideration of long-term interests, and

therefore encourages long-term development projects, such

as revenue bond-funded infrastructure projects. City man-

agers' actions may also be constrained by professional norms

embodied by organizations such as the International City/ County Management Association (Nalbandian 1989). Con- versely, the incentive structure of mayor-council government

may lead officials to use development policy as a stage to promote personal and political goals. In cities experiencing economic decline, political leaders may maximize electoral support by promoting costly, high-risk development instru- ments such as financial incentives which can provide short-

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term political benefits. In general, mayor-council govern-

ment has been regarded as responsive to popular demands

and less likely to insulate local decisions from demands and

pressures in the community (Lineberry and Fowler 1967;

Lyons 1978). Mayor-council government can provide in-

centives for the emergence of narrow issues and constituen-

cies, place constraints on the role of professional expertise

in informing public decisions, and lead local officials to be

more attuned to political credit-claiming opportunities

(Clingermayer and Feiock 2001; Sharp forthcoming).

The Roots of Municipal Reform The municipal reform movement of the late nineteenth

and early twentieth centuries left an indelible mark on lo-

cal government structure. The origin of municipal reform

dates back to the early days of the Progressive movement

(Hofstadter 1956). One target of the Progressives was elec-

toral influence on bureaucracies, which was linked to in-

efficiency and corruption. The movement to reform gov-

ernment introduced a number of changes designed to

professionalize local government. The crown jewel of mu-

nicipal-level Progressive reform was the institution of the

council-manager form of government.

Progressive reform efforts were rationalized as a re-

sponse to the widespread corruption created by the patron-

age of urban political machines. The system of patronage

politics can be traced to the Andrew Jackson administra-

tion and reached its peak toward the end of the nineteenth

century. Groups that had been systematically excluded from

the political arena coalesced and mounted full-fledged at-

tacks against patronage politics (Shefter 1994). The Na-

tional Civil Service Reform, formed in the late 1800s,

played a major role in influencing the development and

passage of the Pendleton Act in 1883. These efforts laid

the foundation for the next generation of reformers-the

Progressives, who directed their attention to the local level.

Efficiency was the theme of the Progressives; they

sought to make local governments more efficient and pro-

fessional. Revisionist historians, particularly Richard

Hofstadter and Samuel P. Hays, argued the Progressive

movement was led by elite, upper-class men of old wealth

who had lost power after the Industrial Revolution, when

newly rich corporate leaders allied themselves with the

urban political-machine bosses. Progressivism, in short, was "led by men who suffered from the events of their

time not through shrinkage in their means but through the changed pattern in the distribution of deference and power" (Hofstadter 1956, 135).

At the local level, the principal change in government institutions promoted by reformers was the replacement

of the mayor-council form of executive government with

the council-manager plan. A common set of municipal re-

forms was proposed in an effort to create a "nonpolitical,

essentially technical organization and management"

(Knott and Miller 1987, 3). Municipal reformers believed

the best candidates for administrative positions would be

those with professional training and technical experience.

Council-manager plans essentially abolished the political position of the mayor. Instead, professional administra-

tors were hired by municipalities to conduct the daily ex-

ecutive decisions to operate the city. If the position of the

mayor was not completely eliminated, the mayor was re-

duced to little more than a ceremonial figurehead by mak-

ing the mayor a part-time position and reducing the vot-

ing power of the mayor. Other municipalities also changed their method of electing mayors, so that the city council

members were entrusted to select the mayor rather than

relying on direct election.

In 1912, Sumter, South Carolina, became the first city

to adopt the council-manager plan. Over the next two de-

cades, Progressive reformers succeeded in changing the

forms of government in hundreds of cities across the coun-

try (Karning and Welch 1980; Ruhil et al. 1999). While the municipal reform movement originated in the North-

east, the movement had its most significant impact in the

Southwest. The Progressives had some success in the

Northeast, but it was in the racially and economically ho-

mogeneous West and Southwest that their goals of profes-

sional public management were most fully realized. Ur-

ban scholars' focus on the reform attempts in the urban

settings of the Northeast, to the neglect of other regions, may have led them to underestimate the true impact of the

Progressive movement (Bridges 1997).

Opportunism and Local Economic Development

Economic development presents a policy arena in which

high transaction costs can create a barrier to efficiency,

and high-power political incentives are likely to be present.

Evaluations of economic development programs report

some success in attracting new firms and investment, but

these efforts often do not substantially improve employ- ment opportunities in a community (Feiock 1991). This

has been especially true for financial incentives, which often

are criticized as zero-sum (or negative) transfers or as cor-

porate welfare. This raises a question: Why do so many

cities aggressively pursue development programs despite their failure to generate jobs? Empirical research suggests the answer lies in political opportunism. In cities that face a loss of population or jobs, development policy provides opportunities for elected officials to use certain policy in- struments that allow them to visibly reward loyal constitu-

ents or to solidify political support (Wolman 1988;

Clingermnayer and Feiock 2001).

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While the form of government is often included as a

variable in explanatory models of development policy

(Fleischmann, Green, and Kwong 1992; Neiman and

Fernandez 1996; Neiman and Lewis 2001), the extant work

does not adequately capture whether council-manager gov-

ernments insulate citizens from high-power incentives, for

two reasons. First, most research treats institutional effects

as additive rather than interactive. This specification masks

the mediating role of institutions in shaping responses to

political and economic forces. Second, the literature often

does not differentiate among the policy development in-

struments that are employed. This is critical because some

instruments (such as financial incentives) provide much

greater potential for opportunistic behavior. Each of these

issues will be discussed in turn.

The Mediating Role of Governance Institutions

Rather than directly determining policy and adminis-

trative choices, the form of government influences devel-

opment decisions through its influences on incentives-

and thus the propensity to respond to political and economic

changes in a morally hazardous manner. Reformed gov-

ernment structures are expected to attenuate the relation-

ship between certain economic conditions, administrative

organizations, and economic development activity-an in-

teractive rather than an additive effect. The council-man-

ager form of government has long been viewed as a means

of insulating local decisions from external political pres-

sures (Lineberry and Fowler 1967; Lyons 1978). By insu-

lating development processes, council-manager govern- ments provide local officials an opportunity to respond to

underlying economic problems and to match development

policies to specific needs, rather than simply responding

to political pressures for development. While most scholars have examined the additive effects

of reform institutions, the literature provides limited em-

pirical support for interactive institutional effects on in-

strument choice. Sharp (1991) examines how the form of

government conditions the link between fiscal stress and

the number of financial-incentive programs offered by de-

velopment agencies. She found that "the pressure to re-

spond to fiscal stress with financial incentives and the adop-

tion of many development strategies appears to be

negligible in reformed settings [council-manager], but sub- stantial in unreformed settings [mayor-council]" (1991, 142). However, her conclusions are based on a compari-

son of bivariate correlation coefficients between distress and policies selected under different forms of government which is inadequate for evaluating conditional relationships

(Wright 1976; Aiken and West 1991). Sharp's recent work

on local morality policies examines multivariate relation-

ships between issue characteristics and policy responses

separately for communities with city managers and may-

ors (Sharp forthcoming). She finds that the more politi-

cized character of mayor-council government translates into

outcomes that are responsive to interest-group activism and

mass political pressures. Mayor-council government was

found to be more favorable toward entrepreneurial action

and its associated credit-claiming opportunities. The fol-

lowing section extends this approach to test how govern-

ment structure mediates the influence of social, economic,

and political contexts on cities' choices of development-

policy instruments.

Instrument Choice and High-Power Incentives

In recent years, the public policy and welfare econom-

ics literature has directed attention to the specific policy

instruments that governments employ to pursue policy

goals (Salamon 1989, 2002; Weimer and Vining 1999;

Peters and van Nispen 1998). Policy instruments refer to

the different means available to governments to achieve a

particular outcome. While a growing literature explores

how context can affect the choice of policy instruments,

most attention has narrowly focused on comparison of

markets with public bureaucracies. Moreover, this work has focused on national-level policy, to the neglect of in-

strument choices at the local level.

Research on the tools of government action has classi-

fied a variety of instruments available to address govern-

ment and market failures (Hood 1986; Linder and Peters

1989; Salamon 1989; Weimar and Vining 1999; Feiock and

Stream 2001). While policy-instrument typologies some-

times apply different labels to strategies, each describes

generic policy instruments that address the failure of mar-

kets or government to efficiently deliver goods or services.

A wide array of policy instruments is available for govern-

ments seeking to attract economic development. At the

aggregate level, economic development programs combine

various generic policy instruments and reflect the interests

of multiple constituencies. In the analysis that follows, we

identify separate policy instruments as interventions with

unique implications resulting from distinct institutional

contexts and opportunity structures.

Several distinct types of policy instruments character- ize economic development policy. These include loan pro-

grams that provide or guarantee funding to private firms to

support development; incentive programs to subsidize new

development through supply-side tax incentive policies; business attraction, which consists of promotional activi-

ties to advertise a community as a desirable place for in-

vestment; regulatory reform, which seeks to streamline the

development approval and permitting processes; and land

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management, which seeks to organize, assemble, and man-

age land to be used for new development. In addition, his-

toric preservation, infrastructure, and aesthetic improve-

ments can be coordinated with development goals to make

a community more attractive to investors. While all seek

to enhance economic growth, each policy instrument has a

unique political economy (Salamon 1989) and varies in

terms of cost, visibility, targetedness of benefits, and other

potentially salient dimensions. We contend that the desir-

ability of various instrument choices reflects the incentives

created by specific institutional arrangements for local

governance.

The political incentives of mayors and council mem-

bers to gain reelection can result in policy-instrument

choices that are inconsistent with the interests of the me-

dian voter. The costs of financial incentives are diffuse or

are borne by groups that are not politically mobilized. On

the other hand, the benefits of economic development are

often highly visible and provide politicians with opportu-

nities to claim credit and reward specific constituents or

supporters that provide instrumental political resources.

This can give local officials a short-term incentive to pur-

sue growth through these instruments, even when the eco-

nomic costs exceed their benefits (Feiock 2002). Reese and

Fasenfest (1996) explicitly link this moral-hazard prob-

lem with development competition: "An increasingly in-

tense and destructive competition results in incentive pack-

ages that become remarkably similar. As in any auction

market, the highest bidder wins. Because it is the commu-

nity (defined as its residents), not the actual bidder (the

local government officials or planners), who pays, the scope

for moral hazard is wide. Elected officials 'buy' jobs at

any price with other people's money, because this is both

the scientifically recommended course of action and the

self-interested means to retain their own jobs" (1996, 200).

Previous work has found that economic and demo-

graphic forces-such as income, poverty, population

change, owner occupancy, and previous development-can

be linked with political and organizational factors-such

as the locus of development policy, debt, and the use of

strategic planning-to aggregate economic development

policy activity (Sharp 1991; Feiock and Kim 2001). To

examine the implications of government form for specific

instrument choices, we observe the influence of these po-

litical and economic forces on communities' reliance on

specific policy instruments in both mayor-council and coun- cil-manager cities.

Analysis Extant work almost exclusively focuses on the aggre-

gate number or level of policy tools or programs relied

upon at a specific point in time. This static approach is

problematic because it cannot test dynamic explanations

of policy changes. A panel design that controls for devel-

opment policies in place five years earlier is employed to

address this design limitation. Policy instruments used in

1984 and 1989 were examined for the same sample of cit- ies. Cities' use of various development strategies were iso-

lated by merging city level data from 1984 and 1989. This

allows estimation of the use of economic development strat-

egies and specific strategies in 1989, controlling for past use of these policy instruments.

The effects of bureaucratic arrangements on develop- ment policy adoption were tested using data from surveys

conducted by the International City/County Management Association (ICMA). In 1984 and 1989, the ICMA sur-

veyed more than 2,000 local governments regarding their

economic development policies and programs (Farr 1990). The ICMA surveys encompass a wide array of develop-

ment policy tools adopted during this period. Many of the

questions on the 1984 survey were replicated in 1989. In-

formation on the use of specific development programs in

both years for 516 cities was obtained. This represents 53.4 percent of the 1989 respondents.'

During the late 1980s, the U.S. economy experienced

major structural change that caused cities to become in-

creasingly innovative, active, and competitive in their use of economic development. The survey reported the use of

various strategies and the specific policy programs or tac-

tics employing a particular strategy. For each strategy or

instrument, we coded programs 0 if it was not used and 1

if it was used, and we sum the programs within each strat-

egy for each year. The specific programs used in 1984 within each of the 12 categories reported for the subsample

of 1984 respondents included in our panel were factor-

analyzed to identify whether the strategies delineated on

the ICMA survey constitute unique policy instruments (Fleischmann, Green, and Kwong 1992). Eight of the 12

strategies were unidimensional and consistent with the full

sample. Revitalization activities were eliminated from fur-

ther analysis because questions on specific programs were not replicated on the 1989 survey. The remaining seven

strategies constitute unique policy instruments that cities

employ to promote development. Additive indices of the

number of programs used each year were constructed for

these seven strategies.

Summary statistics for these strategies in 1984 and 1989 are presented in table 1. Even though the mean number of development programs used in 1989 increased only a small

amount from 1984, this masks substantial variation in the

use of specific strategies. The use of regulatory reforms and historic preservation for development purposes de- clined between 1984 and 1989. On the other hand, more

aesthetic improvement programs, land management, busi- ness attraction and retention programs, and financial and

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Table 1 Mean Policy Instruments for Economic Development, 1984 and 1989

Policy instruments Wilcoxon signed 1984 1989 ranks test

Mean N Mean N Z-score Signifi- cance

Loan incentives program .392 513 .806 515 8.495 .00

Financial incentives .795 513 1.136 515 5.433 .00

Business attraction/retention 1.643 512 3.118 515 15.269 .00

Regulatory reform 2.633 510 1.544 513 4.762 .00

Development land management 2.070 510 3.814 515 7.09 .00

Historic preservation 2.881 511 .763 515 12.953 .00

Aesthetic improvements 2.027 513 2.248 515 6.973 .00

Total development instruments 16.17 490 16.35 513 .184 .854

loan programs were reported in 1989. In addition to com-

paring mean differences, a Wilcoxon signed ranks test was used to evaluate differences between the 1984 and 1989 samples. This nonparametric statistic identifies differences

across two related samples (Siegel and Castellan 1988). As table 1 shows, significant differences exist across the two samples. However, even though the use of specific policy instruments changed, the total number of programs

remained relatively stable.

While these data indicate the extent to which a particu-

lar policy instrument has been employed, they do not mea-

sure resource efforts. Nevertheless, the use of particular development programs and strategies, even if unaccompa- nied by extensive resource commitments, provides signals to external actors about the business climate which can

reduce transaction costs (Mintrom and Ramsey 1995). The use of these development strategies was examined based

on the form of government and the factors previously linked

to development policy. The form of government was clas- sified as mayor-council (coded 0) or council-manager

(coded 1). For each equation that estimated development policy strategies in 1989, the number of programs used in 1984 was included as a lagged dependent variable.

Empirical models were specified to include the factors empirically linked to development policy in previous re- search. The 1984 ICMA survey collected information on

whether the locus of organization for development policy is public or private. The locus of development was coded 0 if a quasi-public or private organization led development promotion efforts, and coded 1 if a government organiza- tion led those efforts. An indicator of whether the local government had officially adopted a strategic plan for eco- nomic development as reported in the 1984 survey was added.2 In addition, indicators of cities' economic condi- tion and population characteristics were included. Respon- dents to the 1984 ICMA survey assessed whether the eco- nomic base of the community had experienced rapid expansion (greater than 25 percent); moderate growth (10 percent-25 percent); slow growth (greater than 10 percent);

no significant growth or decline; modest de-

cline (less than 10 percent); or significant de-

cline (greater than 10 percent) over the previ-

ous five years. Population growth or decline

was measured as the percent population

change between 1970 and 1980. We expect

economic and population decline to result in

increased economic development activity, par-

ticularly for incentive programs under mayor-

council government. Personal income, the per-

centage of the population below the poverty

level, owner occupancy, and per capita mu-

nicipal debt were also included to capture eco-

nomic needs or demands. Larger cities are also

expected to adopt more programs, both because of their

diversity of resources and the pressures to do so (Fleisch-

man, Green, and Kwong 1992; Neiman and Fernandez

1996; Neiman and Lewis 2001). Metropolitan status, based on whether a community is a suburb, was coded 1, and

central cities and independent cities were coded 0. Because

suburbs benefit from the dispersion of activity within met-

ropolitan areas and have less need to promote growth, we

expect less development policy activity in suburban com-

munities. An indicator of whether cities are located in the

Sunbelt South and West census regions was also included.

Table 2 reports ordinary least squares estimates for re-

liance on each of the seven development strategies for

mayor-council and council-manager cities. While the im-

pact of most variables is consistent across government

types, we find important differences in the direction and

magnitude of certain factors in mayor-council and coun-

cil-manager government. To test whether the slopes for the mayor-council models are different from the council- manager models, we compared full models with interac-

tion terms, allowing different slopes within each type of city with restricted models that had the restriction that

the slopes for each type of city were equal. The F-test,

which compares explained variance in the restricted and unrestricted models, was statistically significant for each equation.3

For cities with mayor-council government, economic

factors were important in distinguishing policy instrument

choices. When financial incentives, which provide the greatest potential for opportunistic behavior, were com- pared with the other instruments, dramatic differences were found. The proliferation of financial incentive pro- grams is related to decreased population, declining eco- nomic base, and low median incomes. Income had an in- verse relationship with the use of each of the development

strategies in mayor-council cities, and this relationship was statistically significant for loans, financial incentives, and business attraction. Lower median income encour-

aged mayor-council cities to be more active in their choice

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Table 2 Estimates of Development Instruments Adopted for Mayor-Council and Council-Manager Cities

Loan policies Financial incentives Business attraction Regulation reform Land management Historic preservation Aesthetic improvement

Mayor- Manager- Mayor- Manager- Mayor- Manager- Mayor- Manager- Mayor- Manager- Mayor- Manager- Mayor- Manager- council council council council council council council council council council council council council council

Policy .376" .301 A 0.0384 .144 .321 A .298" .027 .175" .225 .109 .16A" .152" .361 A .210" 1984 (-2.59) (-3.64) (-.32) (-2.15) (-2.85) (-4.09) (-.22) (-3.28) (-2.17) (-2.09) (-3.44) (-5.62) (-2.94) (-3.15)

Population .0005 .0011 .0074 .0025 .0207" -.0005 .0085 .0035" .0014 .0041 .0017 .0011 .001 .0017 (1.19) (-.81) (-1.6) (-1.67) (-4.12) (-.24) (-1.66) (-2.17) (-1.34) (-1.13) (-.45) (-.90) (-1.38) (-.79)

Population .0265 .0285 -2.240 .091 4.676 .0168 5.371 -.0198 1.970" .0265 3.279 -.0118 1.232 .0299 change (-.89) (-1.34) (-1.64) (-.37) (-1.16) (-.56) (-1.31) (-.77) (-2.4) (-.49) (-.10) (-.62) (-.21) (-.84)

Economic -.63 .0637 .3798 -.0094 -.0495 -.0107 -.092 -.0299 -.12 -.197 .110 .0327 -.0235 -.0517 decline (-.76) (-1.62) (-1.87) (-.19) (-.49) (-.17) (-.87) (-.55) (-.59) (-1.80) (-1.8) (-.85) (-.16) (-.71)

Poverty -.0625 .0356 -.0209 .0293 -.0644 .0479 .0123 .0149 -.016 .0239 -.0197 .0453" .031 .0405 (-1.75) (-2.08) (-.48) (-1.46) (-1.38) (-1.98) (-.23) (-.69) (-.17) (-.52) (-.52) (-2.86) (-.45) (-1.37)

Median -.099" -.0013 -.0642 -.0026 -1.614 A -.0374 -.0517 -.0048 -.0079 -.0036 -.0329 .0011 -.0188 -.0011 income (-2.79) (-.09) (-1.72) (-1.43) (-3.49) (-1.63) (-1.09) (-.24) (-.86) (-.87) (-.90) (-.77) (-.28) (-.39) Government .117 .113 .376 .0687 .488 .0415 .288 .0915 .785 .0344 .0525 .019 .338 .0767 locus (-0.56) (-.95) (-1.5) (-.48) (-1.79) (-.24) (-1.02) (-.61) (-1.92) (-.1 1) (-.02) (-.17) (-.85) (-.37) Strategic -.234 .185 .109 -.497 -.297 .199 .008 -.125 -.192 -.152 -.0618 -.0636 -.0685 .0188 plan (-1.09) (-1.96) (-.42) (-1.85) (-1.02) (-1.76) (-.01) (-.83) (-.33) (-.48) (-.28) (-.59) (-.16) (-.09)

Suburb -.440 -.217 -.481 -.0057 -.362 -.667" -.139 -.0298 -.529 -.419 .143 -.263 .137 -.0936 (-1.67) (-1.55) (-1.52) (-.34) (-1.06) (-3.18) (-.39) (-.16) (-.76) (-1.12) (-.52) (-1.94) (-.27) (-.38)

Sunbelt -.119 -.306" .686" -.0733 .252 -.296 -.152 .336 .479 .549 .0098 .11 .346 .331 (-.49) (-2.51) (-2.29) (-.51) (-.77) (-1.67) (-.448) (-2.19) (-.72) (-1.7) (-.03) (-.97) (-.74) (-1.58)

Debt -.0489 .0545" -.0682 .0283 .1042 .0259 -.0083 .001 -.0603 .0021 -.0321 -.0041 -.0487" .0022 (-.42) (-2.84) (-.49) (-1.08) (-.70) (-.80) (-.55) (-.36) (-1.98) (-.35) (-2.77) (-.20) (-2.23) (-.57)

Owner 0.0089 -.0036 .01791 .0075 .0213 .0129 -.0108 .0107 -.0306 .0128 -.0058 .0763 -.0188 .0666 occupancy (-.91) (-.69) (-1.51) (-1.19) (-1.68) (-1.66) (-.81) (-1.55) (-1.18) (-.89) (-.56) (-1.51) (-.99) (-.71)

Constant 2.655 .599 .651 .812 4.214 2.742 1.552 .42 6.83 3.486 1.089 -.647 2.282 .994

N 98 343 98 343 99 341 97 341 99 340 97 342 98 343

Adjusted R2 .35 .21 .24 .09 .44 .22 .12 .09 .27 .08 .37 .2 .26 .08

Note: t-scores are in parentheses; *significant at .05 with 1 tail test; **significant at .01 with 1 tail test

of development instruments. Debt also had a significant

negative effect on development policy instruments which

was not evident in council-manager cities. Where local

government played the lead role in development, the re-

sult was greater overall use of business-attraction and

land-management instruments. While the locus of devel-

opment was important under mayor-council government,

it made no difference to policy choices under the coun-

cil-manager system.

The results for council-manager cities differed in sev-

eral respects. Population and population change generally

had less effect in council-manager than in mayor-council

communities. The form of government dramatically af-

fected the relationship between population and economic

decline on the use of financial incentives. That is to say,

population and economic decline led to the use of more

financial incentives in mayor-council cities, but these ef-

fects were completely absent in council-manager commu- nities. Mayor-council and council-manager cities also di-

verged with regard to the influence of poverty. In council-

manager communities, financial incentives were more

likely in the context of population growth, not decline.

Moreover, low income levels and economic decline did not stimulate the use of financial incentives.

The proportion of the population below the poverty level

was positively related to several development programs in

council-manager cities, but not in mayor-council cities.

Perhaps development activities are used as an alternative

to redistribution in council-manager cities (Tao 2001). Per-

haps the most interesting institutional finding to emerge

regards strategic plans: The presence of a strategic plan

had no effect under mayor-council government, but it in-

fluenced several development strategies under council-

manager government. The influence of strategic planning

on development was in different directions depending on

the particular strategy. Strategic plans led to less use of

financial incentives, but greater use of loan and business-

attraction strategies in council-manager cities. This dis-

criminating effect is consistent with the goals of strategic

planning.

Discussion Our results suggest that the form of government makes

an important difference in the choice of policy instrument.

In understanding how the institutional reforms of the Pro-

gressive movement reduce transaction costs and high-

power incentives, we examined the interactive or mediat-

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ing effect for council-manager government, not its addi- tive effect. The findings demonstrate that government struc-

ture mediated the effect of political and economic condi-

tions on development policy. Council-manager government

constrains administrative officials' opportunistic behavior

by substituting low-power bureaucratic incentives for high-

power electoral incentives. The Progressive ideology of

the separation of politics and administration, which has

been institutionalized in the council-manager plan, allows

administrators and elected officers to resist opportunistic

behavior.

The form of government interacts with economic forces

to shape development policy. While population and me-

dian income are more important influences on develop-

ment policy in mayor-council cities, poverty and owner

occupancy are more powerful forces in council-manager

communities. It is notable that the divergence between the

influence of population and economic decline on develop-

ment activity in council-manager and in mayor-council

communities is greatest for financial incentives. This strat-

egy includes tax-exempt bonds, cash contributions, and

deferred tax payments, which are some of the most costly

and controversial development programs. Despite their

questionable effectiveness, they may be politically advan-

tageous because they provide targeted and visible benefits.

In mayor-council cities, the use of financial incentives is

strongly linked to declines in population and economic

base, yet financial incentives are unaffected by these eco- nomic declines in council-manager systems.

This analysis brings new evidence about the role of gov-

ernment institutions in local economic development. The

credible constraint of morally hazardous or opportunistic

behavior can enhance efficiency in development policy. Our

results highlight the value of measuring the specific tools

or policy instruments that communities employ to promote

economic development, rather than using a measure of

aggregate development policy activity. Our findings also have implications for the role of stra-

tegic planning in local government. The influences of stra-

tegic planning on development policy were evident in council-manager cities, but not in mayor-council com-

munities, and the direction of the effects of strategic plan-

ning depended on the particular strategy. Strategic plans led to lower levels of financial incentives, but more loan

and business-attraction policies. This discriminating ef- fect may enhance the rationality of development deci- sion making by facilitating selection among policy strat- egies and options, as opposed to indiscriminate prolif- eration of all instruments with development as their goal. Strategic plans constrain development programs and may institutionalize professional-development norms (Kemp 1993). The differences reported here indicate that strate- gic development plans are more effective in discriminat-

ing among development strategies under council-manager

systems of government.

Finally, this article has argued that the separation of

administration from electoral control enhances efficiency

because it removes high-power incentives for executives, reduces transaction costs, and makes commitment more

credible for elected officers. If this argument has merit,

the city management profession and scholars of local in-

stitutions may be too sanguine about the movement to-

ward adapted cities in which council-manager governments

alter the architecture of local institutions by adding a di-

rectly elected mayor (Frederickson and Johnson 2001).

For several generations, social scientists have bemoaned

the fact that reformed institutions are intended to make

government less responsive to citizens. This may be one reason for the success of the adapted model; it makes the

council-manager form more political. The analysis pre-

sented here suggests this may be an unacceptable trade-off

if one values efficiency in local government institutions.

In the economic development arena, nonreformed cities

are more responsive, but the price of responsiveness is high:

It results in costly development choices that are largely

symbolic and ineffective at the ostensible purpose of cre-

ating jobs. In this context, the ICMA's endorsement of

adapted city charters is difficult to understand. Perhaps the

popular legitimacy of council-manager government has

been secured at the price of undercutting the institutional

incentives that make this form efficiency enhancing in the

first place.

Acknowledgments

An earlier version of this article was presented at the Paul

Van Riper Symposium of the annual meeting of the American

Society for Public Administration, March 23, 2002, Phoenix,

AZ. This work was supported by the DeVoe Moore Center, Pro-

gram in Local Governance at Florida State University and the

Seoul National University of Technology Research Fund.

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Notes

1. While more recent survey data are available from ICMA, the

surveys conducted in the 1990s had a substantially reduced

response rate. Some regional bias has been demonstrated in

the ICMA surveys (Fleischmann, Green, and Kwong 1992).

Our panel of respondent cities underrepresents the Northeast

by 13 percent and overrepresents the West by 7 percent (see

Feiock and Kim 2001 for a more detailed description of this

data set).

2. Cities that use strategic planning are expected to adopt fewer

costly financial incentives than their less discriminating com-

petitors (Flesichmann, Green, and Kwong 1992, 680). How-

ever, limited evidence suggests that cities with a strategic plan

used more, rather than less, development incentives than cit-

ies without one (Flesichmann, Green, and Kwong 1992).

Nevertheless, this may indicate that cities with a larger num-

ber of incentives in the first place adopt a strategic plan to

manage their development efforts, rather than strategic plans

encouraging the nondiscriminatory adoption of multiple de-

velopment instruments. By constraining the range of policy

options considered, strategic planning should lead to more

rational development decision-making processes. For this

reason, we expect strategic plans to encourage the expansion

of some development strategies but discourage the use of oth-

ers, particularly the use of costly financial incentives.

3. We modeled the interactions between the form of govern-

ment and the independent variables in two ways. First, we

estimated our models separately for each form of govern-

ment to examine differences in the coefficients for each of

the independent variables under each form of government.

Second, we estimated an unrestricted model for all cities

which included interaction terms for the products of coun-

cil-manager government form and each independent vari-

able in the model. This allowed us to test whether differ-

ences in the effects of the political and economic factors

under each form of government are statistically significant.

A full model that included interaction terms and allowed

different slopes for each type of city was compared with the restricted models from column 1, which had the restric-

tion that the slopes for each type of city are equal. The F-

test, which compares explained variance in the restricted

and unrestricted models, was statistically significant, as were interaction terms for population, population change, pov-

erty, and strategic planning.

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