The Hidden Costs of Losing Your City’s Newspaper

MAY 30, 2018, Kriston Capps
Modified 2019.

Without watchdogs, government costs go up, according to new research.

When local newspapers shut their doors, communities lose out. People and their stories can’t find coverage. Politicos take liberties when it’s nobody’s job to hold them accountable. What the public doesn’t know winds up hurting them. The city feels poorer, politically and culturally.

Local news deserts lose out financially, too, according to a new working paper. Cities where newspapers closed saw increases in government costs as a result of the lack of scrutiny over local deals.

Interruption in local news coverage are soon followed by higher long-term borrowing costs for cities. Costs for bonds can rise as much as 11 basis points. After the closure of a local newspaper—a finding that can’t be attributed to other underlying economic conditions, the authors say. Those civic informants make a difference to the bottom line.

Paul Gao, an associate professor at the Notre Dame University, looked into the issue. After listening to an episode of Last Week Tonight with John Oliver . “He was focused on two things: unification of national news media and closure of local news media. His show really gave us the prompt for the circumstances. We started thinking about it from an economist’s point of view.”

The survey covers some 1,596 English-language newspapers serving 1,266 counties in the U.S. over the study period. This paper excludes counties without any daily local newspaper (1,863 in all). Depressingly, the paper finds that news reduction is a nationwide phenomenon.

Discounting the media-rich counties, which could absorb the hit of a lost daily. Places that added a newspaper (they exist!). As for these counties, the researchers were able to suss out a relationship between local newspaper closures and public finance outcomes. In the three years following a newspaper closure, the costs for municipal bonds and revenue bonds increased for these cities. That’s likely the result of losing the investigative services those ink-stained wretches once provided.

“You can actually see the consequences that have to be borne by local citizens as a result of newspaper closures.”

“There are already papers that show consequences, or political outcomes, when local newspapers close,” says co-author Chang Lee.

“But that’s not really a direct impact on local residents. We wanted to show that, if you look at the municipal bond market, you can actually see the financial consequences. They have to be borne by local citizens as a result of newspaper closures.”

Without investigative daily reporters around to call bullshit on city hall. Three years after a newspaper closes, that city or county’s municipal bond offering yields increased on average by 5.5 basis points. While bond yields in the secondary market increased by 6.4 basis points—statistically significant effects.

Think of a municipal bond’s offering yield as the interest rate that communities pay for borrowing money in the market. High offering yields mean that a city or county has to promise to pay more in coupons. More principal for whatever the city is borrowing. Secondary yields, are the interest rates for bonds as they trade in the market. More of a proxy or indicated rate of a city’s financial wellbeing.

Rate hikes are more pronounced for bonds, and they run higher in states with low internet usage and poor governance. Here’s a tidy explanation from the paper for the relationship between hard-nosed local reporters and revenue bonds:

Revenue bonds are issued to finance local projects such as schools and hospitals, and are backed by the revenues generated by those projects. General obligation bonds, are used to finance public works projects such as roadways and parks, and are backed by local taxes and fees. Revenue bonds should be subject to scrutiny because of the free cash flows that those projects generate, and these bonds are rarely regulated by the state government. A local newspaper provides an monitoring agent for these revenue-generating projects, as mismanaged projects can be exposed by reporters employed by the local newspaper. When a newspaper closes, this mechanism also ceases to exist, leading to a risk that the cash flows generated by these projects are mismanaged.

The Rocky Mountain News, won four Pulitzer Prizes in the 2000s before it closed at the end of that decade. Three years after that paper shuttered, the median yield spread for new local municipal bonds increased by 5.3 basis points. In the meantime, the Denver Post has been subject to devastating budget cuts.

One task for the investigators was to establish that higher bond costs were the result of a decline in reporting. They addressed this concern in a number of ways. First, to keep things local, they excluded state bonds from their analysis. Second, in order to compare apples with apples, they looked at the difference in borrowing costs. Between a county that lost its fishwrap with a similarly sized and scaled neighboring county—a control—that didn’t.

“There could be an underlying economic state that drives both variables, the newspaper closure and borrowing costs,” says Dermot Murphy, the paper’s third author, also at the University of Illinois at Chicago. “That’s where we have to get a little bit more sophisticated with our tests, to establish the causal connection from newspaper closures to borrowing costs.”

Gao, Lee, and Murphy also looked at Craigslist as an indicator. A harbinger of doom for newsprint media, Craigslist’s arrival in a city could spell disaster for smaller regional newspapers, as residents moved from selling their junk or searching for roommates in paid classifieds to online (and other advertisers left with them). For counties within 30 miles of a city where Craigslist opened up shop, the probability of newspaper closure increased by 9.6 percent. Similarly, outside the central Craigslist hubs (think Boston or San Francisco), municipal bond costs rose, too.

The team presented its findings at the Society for Financial Studies Cavalcade at Yale University earlier in May, and it’s the subject of a discussion at the Brookings Institution in July. It joins a growing body of research examining the wide-ranging impacts of local-news desertification, from heightened susceptibility to post-truth politics to alarming gaps in our national surveillance of infectious diseases.

>For fans of local newspapers, the outlook isn’t rosy. As important as local investigative reporting may be to local capital markets, the researchers don’t expect local newspapers to rebound on their own—even though it might cost taxpayers a lot more in the long run to lose a local daily than it would to subscribe to one.

“Our analysis suggests that newspaper companies, or the information they provide, is a public good and it’s worth providing,” Lee says. “But if we don’t finance it, no one will produce it.”

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