Implications of Low Fertility and Declining Populations for the Operations of US State and Local Governments
Roughly half of US counties lost population between 2010 and 2020, a trend driven overwhelmingly by declining fertility rather than changes in migration. Looking ahead, the Congressional Budget Office forecasts that the number of births will first exceed the number of deaths nationwide in 2033. Even under optimistic immigration assumptions, U.S. population growth will stagnate by mid-century.
This emerging trend poses significant challenges for state and local governments responsible for providing a range of services to citizens, including education, health care, and infrastructure. In Implications of Low Fertility and Declining Populations for the Operations of US State and Local Governments, Jeffrey Clemens outlines the scope of this challenge and the nature of public-sector management problems that come with retrenchment.
Using data on public school districts, Clemens provides preliminary evidence that scaling down capital-intensive services, particularly schooling, is considerably more difficult than scaling up services. Looking at school district enrollment and expenditure data, he estimates that the per-enrollee cost increases associated with a 10 percent enrollment decline were four times larger than the cost decreases associated with a 10 percent enrollment increase.
Scaling down can be more difficult than scaling up, he explains, because difficult and politically costly decisions surround closing underutilized facilities and because staffing costs are often slow to adjust to population contraction. On the other hand, the opportunity to close underperforming facilities can be cast as an opportunity amidst what most will recognize as a painful adjustment process.
Clemens further points out that regions with contracting populations will face additional challenges as a smaller working-age population bears the burden of funding pensions and retiree health plans for larger aging cohorts. Indeed, the costs of these underfunded benefits have the potential to give rise to adverse feedback loops: if a rise in the burden faced by remaining taxpayers results in additional taxpayer exit, a further increase in the burden per taxpayer ensues, which can induce yet more taxpayer exit.
Clemens ends by pointing out that lower fertility can create a short-run fiscal dividend as local governments serve fewer children. Policymakers should use that time to prioritize efficient retrenchment to accommodate the declining need for education and other public services.