Economists’ study outlines negative impact of newspaper closures on public finance


The value of journalism’s watchdog role for a community has been touted for decades.

Now, three university economists have statistically shown that the closure of a newspaper negatively impacts the cost for local governments to issue bonds.

Pengjie “Paul” Gao of the University of Notre Dame’s Mendoza College of Business, Department of Finance; and Chang Lee and Dermot Murphy of the University of Illinois-Chicago, College of Business, Department of Finance, plan to publish “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance.

Looking at the impact of newspaper closures, the trio found municipal borrowing costs increased from five to 11 basis points within three years of the closure. Ten basis points on every million dollars would be $1,000. That translates into $50,000 if a school district was pushing a $50 million bond to upgrade facilities.

The data suggested that alternative sources of media, such as the Internet, doesn’t sufficiently make up for the closed newspapers. The professors looked at results for newspaper closures in states with high Internet usage. They found there wasn’t a difference in the negative results on public financing between the high and low Internet usage states.

Gao, Lee and Murphy say the closure of a daily newspaper that leaves only one or no newspaper in the community leads to less efficient government. Without newspapers reporting on local government, the paper says county employee wages increase, the number of government employees per capita and tax revenue collected per capita all increase.

Newspaper closure leads to a 1.3 percentage point increase in the government wage ratio. For the median county of their nationwide study, that represented a payroll increase of $1.4 million.

Over time, the number of government employees increases by four workers for every 1,000 residents and the tax revenue per capita increases by $85.

The paper stresses the important role newspapers play in informing local residents, quoting a 2011 Pew Research Center study: “Among all adults, newspapers were cited as the most relied-upon source or tied for most relied upon for crime, taxes, local government activities, schools, local politics, local jobs, community/neighborhood events, arts events, zoning information, local social services, and real estate/housing. This dependence on newspapers for so many local topics sets it apart from all other sources of local news. The Internet, which was cited as the most relied upon source for five of the 15 topics, was a distant second to newspapers in terms of widespread use and value.”

The study also referenced other studies that examined the relationship between newspapers and political economy. “Mondak (1996) and Gentzkow et al. (2011) examine the impact of media coverage on political elections and show that newspaper closures are associated with less informed voters and lower voter turnouts. Snyder and Stromberg (2010) show that governments become less efficient when a newspaper is no longer there to monitor the government operations.”

In the paper’s conclusion, Gao, Lee and Murphy say they found that when a newspaper dies, municipal borrowing costs increase by as much as 11 basis points, government wage rates, government employees per capita, tax dollars collected per capita, and the likelihood of costly advance refundings and negotiated sales all increase.

“From a financial perspective, our results suggest that local newspapers are important for the health of local capital markets,” they write.

The professors acknowledge that online news outlets or changing the way people consume news, but say they aren’t providing “a substitute for high-quality, locally-sourced, investigative journalism.”

“In 2009, former Baltimore Sun reporter and famous television producer David Simon stated the following: ‘The day I run into a Huffington Post reporter at a Baltimore Zoning Board hearing is the day that I will be confident that we’ve actually reached some sort of equilibrium.’ We concur, and our evidence suggests that economic growth at the county level will be better off in that equilibrium.”

Protecting their wallet from government waste should be added to the list of reasons Hoosiers should continue to support their local newspapers.