The Decentralization of Governance in Metropolitan Areas

The theory and practice of providing government services in metropolitan areas are subjects that have attracted a great deal of attention in the industrial countries but have been largely ignored in low and middle income countries. With urbanization and the growth of megacities, time is running short for these countries to develop a workable approach to governance and finance in metropolitan areas with several million persons. In this paper by Roy W. Bahl assesses whether the fiscal decentralization model that has been so instrumental in decisions about structuring governance on a nationwide basis can be applied successfully in metropolitan areas.

The author examines three basic approaches to metropolitan governance: jurisdictional fragmentation, which emphasizes home rule; functional fragmentation, which emphasizes technical efficiency; and metropolitan government, which emphasizes coordination and internalizing externalities. Most of the discussion about government structure in metropolitan areas centers on how various forms of governance and fiscal structures match up with the economic efficiency criteria. While advocates of metropolitan government make the case that some combination of scale economies and elimination of duplication will lead to a lower cost of government, area wide governance can be monopolistic and miss out on the cost cutting advantages that might come from competition in a fragmented government setting. The problem becomes how to maintain local involvement in fiscal decision making while expanding jurisdictional boundaries to capture economies of scale and deal with externalities. Political agendas and bureaucratic politics must be addressed in designing the structure of service delivery and finance in metropolitan areas and these often becoming the determining factors shaping metropolitan government.

The author concludes that the subject of providing public services in metropolitan areas will continue to demand more attention from policy makers. The population growth of urban areas, their importance in the national economy, and the large unmet demand for public services will force this. Part of the problem with metropolitan governance is the limited resources available to invest in expanding and maintaining the infrastructure and support basic social services. The reform process should start with a comprehensive fiscal review for the metropolitan area which rethinks the structure of government, analyzes options for the division of expenditures, reviews revenue raising choices, considers the borrowing power of local governments, and integrates fiscal alternatives into metropolitan development and land use planning.

This paper was presented at a 2011 conference at The Brookings Institution organized by the Lincoln Institute of Land Policy and is Chapter 4 of the book Financing Metropolitan Governments in Developing Countries.