By: Mark Glennon*
The Silo Effect is a new book by the Financial Times’ U.S. Managing Editor, Gillian Tett. Read it thinking about Illinois and its municipalities and you’ll cringe, even though it’s not expressly about that. The silo effect permeates Illinois government as well as coverage of our financial crisis by ratings agencies, municipal bond analysts and the press.
“The silo effect” is Tett’s term for an old problem at which she takes a modern look: In large organizations and on complex topics, fragmentation and specialization undermine cooperation and make it nearly impossible to get an interconnected view of the whole. She has spoken before about the importance, as a journalist, of the antidote, which is “connecting the dots” between different stories. (Hey, wouldn’t that be a great tagline for a news site?) Her conclusion chapter is labeled just that — “Connecting the Dots.”
She runs through a list of current examples where the silo effect ended in disaster, including the 911 attacks, Sony’s decline as a tech power and the meltdown of credit markets during the recession. Neither workers in the silos, managers at the top, nor regulators thought they were acting imprudently, but they missed the big picture and blew it. She quotes Chicago economist Austan Goolsbee on the subprime mortgage crash: “No one imagined silos like that inside banks. The silos were so strong they did the exact opposite of what [everyone] expected. It was completely crazy.”
She could have done the whole book on Illinois. We have over 8,400 units of government, far higher per capita than any other state, and more than Texas which is twice our size. We have 675 public pensions, each with its own board of trustees. That alone should make your eyes roll about silo effects, but it’s worse in Illinois than anything the book covers.
For starters, there’s rarely anybody at the top of our silos who cares much about other silos. When Cook County rushed through a sales tax increase recently was it mindful that other units needed their own increase or was it just trying to be the first through a door it knew would be small? When Chicago politicians ask Springfield to pay more into Chicago schools do they really care about the tax impact on people in Cairo? If Evanston wants to raise property taxes for its pensions does it really care about property taxes in Park Ridge? Even where they don’t overlap, all government silos in Illinois get filled from the same pond to a big degree. Today’s fights in Springfield are largely about how much goes into each silo, who puts it in what and who gets it back. That’s what fights over school funding formulas, local responsibility for pensions, shares of sales and income taxes that get passed back to muncipalities and more are about.
That’s in contrast to what Tett’s book covers. CEOs do care about the consolidated performance of their companies, which they have to answer for every quarter. Regulators do care about systemic risk to the country as a whole.
That’s also why unfunded mandates from the state to municipalities are so pernicious and are the root of the crises for Chicago and many municipalities. All basic rules about pension benefits, pension contribution, as well as prevailing wage rules and much more, are set by state law in Springfield. The state found an easy way to make its public union constituency happy — sticking those obligations into the municipal silos, which left Springfield unaccountable for cost. They didn’t care.
The effect is particularly horrid in the Chicago area. Its taxpayers are on the hook for eleven pensions that overlap Chicago, including the four for the city itself, all of which are desperately short. In past years, some politicians and voters may have thought they had a fixable problem when looking at any one of them, but they didn’t look at the whole picture.
Why? For one thing, the consolidated story has never been adequately compiled and reported. We need an honest, independent compilation of how much new tax would be required to fix both the structural budget and pension deficits in all overlapping units of government in the Chicago area. We’re driving blind without that, which we wrote about in detail earlier. Taxpayers would be stunned if they had that and would know that taxes cannot be raised enough to fix it. We’ve already shown that even the $500 million property tax increase proposed for Chicago won’t solve much even for the city’s four pensions.
Ratings agencies, supposed municipal finance experts and most reporters aren’t helping. They, too, work and think in silos, reporting on one bond issue, one government or one pension at a time. On the rare occasions when they do try to connect the dots on Chicago’s overlapping problems their work is superficial, usually relying on rough collections of incomplete, outdated, government-manufactured numbers.
Tett does have one interesting chapter expressly about Chicago, but it’s not on finance and it’s one of Tett’s examples of successfully overcoming silos. It’s about a young tech guy named Brett Goldstein who left his job at OpenTable, the online restaurant reservation site founded by Chicagoan Chuck Temple. Goldstein became a cop and applied his data skills to information he collected across all police districts, successfully identifying areas where gang violence was likely to erupt. Chicago used his work to preemptively deploy foot patrols and mobile strike units to predicted hot spots, helping reduce the murder rate. Goldstein later became Chicago’s first Chief Data Officer.
Gillian will be in Chicago speaking at the Chicago Council on Global Affairs public event on September 29 about her book. Maybe she’ll elaborate on how it applies to Illinois. She’s exceptionally articulate, like so many of her fellow Brits.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.