Phillips: Local newspapers help taxpayers as watchdogs on government

Daily newspapers long have been the barking – and oftentimes biting – watchdogs that keep the public informed about what their government is doing, be that rescuing people from massive flooding in Austin in 2015, or the mismanagement of $2 billion in contracts by the Texas Health and Human Services Commission, which came to light that same year.

This week, the American-Statesman reported on the financial challenges that have befallen the Austin Film Society and its arthouse theater, the AFS Cinema. It seems the enterprise has come up short on its financial goals.

It’s true the film society is a nonprofit, and as such, its financial peaks and valleys might not seem any of our business. But through the years, it has received more than $5 million in support from Austin taxpayers — money it has used to help grow the film society and Austin’s film economy. That public investment makes it our business.

READ: New cinema has strained Austin Film Society’s budget, documents show

We know about the film society’s financial matters not because it told the public. It would have preferred the information be kept confidential. The Statesman reported the story. Is the nonprofit inclined to be more efficient in its financial dealings because it is being watched?

That is the question that several economists set out to answer regarding governments and local daily newspapers.

Their research shows that the watchdog function of daily newspapers also provides a financial benefit to taxpayers in the public financing arena — and therefore, when newspapers close, taxpayers lose.

Despite that crucial role, daily newspapers are taking a financial beating as more Americans consume their news from digital sources that deliver news almost instantly to our mobile phones and devices. Consider that on a typical weekday, three-quarters of U.S. Latinos get their news from internet sources, according to the Pew Center.

Put cable television, radio and various other news outlets in the diverse mix of news providers. The more the better doesn’t work as a check on local governments, however, because those news outlets are less likely to focus on local, investigative news compared with local newspapers.

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Statesman city hall reporters aren’t likely to bump into writers from the New York Times or Wall Street Journal on any regular basis at marathon council meetings, unless the issue has national appeal. As watchdogs go, daily newspapers are the pit bulls.

That is no surprise. But what did surprise me is learning that our watchdog function also provides a financial benefit to taxpayers. Sounds remarkable, but it makes total sense, as the lead researcher, Dermot Murphy explained in a recent interview on NPR’s “Here and Now.” 

“Our intuition was that if a local newspaper closes, it no longer is providing a crucial watchdog role for local governments,” Murphy said. “When a local government is not being watched it is more likely to engage in bad behavior and just be more inefficient in general.”

By way of credentials, Murphy, a co-author of the study, is an assistant professor of finance at the University Illinois at Chicago.

The way it works, Murphy explained, is that local governments borrow money to finance public works projects – hospitals, roadways and schools — as the Austin Independent School District Board is doing following voters’ approval last year of a $1.1 billion bond package.

The idea is that if newspapers are not there to keep local governments in check, then the local government is considered a higher risk for a loan, and interests rates are higher, which means taxpayers pay more. That concept was confirmed by a study Murphy and other economists conducted of borrowing costs in the United States for the period from 1996 to 2015.

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The team identified newspaper closures, then cross referenced that data with government borrowing cost information during the same period.

They found that local government borrowing costs increased significantly for counties that experienced a newspaper closure, compared to nearby counties with similar demographic and economic characters without newspaper closures. Interest rates went up about .1 percentage point on average, Murphy said, or about $650,000 per issuance. In one case, that amounted to $70 on average per taxpayer.

Another interesting finding that emerged after a newspaper shut down was the increase in county government employee wages (as a percentage of all wages in a county, where a newspaper closed).

Murphy added that while local television news outlets can do some things as watchdogs, they “are spread pretty thin.”

The study by Murphy offers another reason we still need vigilant watchdogs.

At the state health and human services department, watchdog coverage led to big changes in personnel and procedures following the scandal uncovered by the Statesman. Last year, watchdog coverage forced the Austin City Council to tell the public the names of the finalists being considered for the key post of city manager. And while the film society is not a government, it knows there is a watchdog at its door.

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