NewsBeat

22 NewsBeat August 2018 By DERMOT MURPHY D uring the past 15 years, local newspaper circulation numbers dropped by roughly 30 percent, while the number of statehouse reporters covering local government issues dropped by 35 percent. Academic studies suggest that a lack of local media coverage is associated with fewer informed voters, lower voter turnouts, and less engaged local politicians. My colleagues and I, as finance professors, wondered whether a decline in local journalism would also lead to higher borrowing costs for local governments. Local governments frequently borrow money to finance public works projects such as schools, hospitals, and roadways. Lenders demand higher interest rates if they think they are lending to a riskier borrower—that is, a borrower who is more likely to default on a loan. We suspected that if local media is not present to keep their government in check, then there would be a greater likelihood of mismanaged public funds and other government inefficiencies. As a result, governments lacking local media coverage would be perceived as riskier borrowers and forced to pay correspondingly higher interest rates on the funds they borrow for public works projects. The costs stemming from higher interest rates would ultimately be borne by local taxpayers. ICYMI: How one AP veteran exposes corruption in Illinois We conducted a systematic study of newspaper closures and government borrowing costs in the United States, for the period ranging from 1996 to 2015. We identified newspaper closures using hand- collected newspaper data from the Editor and Publisher yearbooks. Newspaper closures were especially prevalent during that time period because of the rising popularity of online news outlets (which do not focus as strongly on local government issues) and online classified ad sites such as Craigslist (which, as part of the larger effect of the internet on local newspapers, significantly eroded newspaper advertising revenues). We then collected government borrowing cost data from the Mergent Municipal Securities Database and cross- referenced this information with the newspaper closure data. We found that local government borrowing costs significantly increased for counties that have experienced a newspaper closure compared to geographically adjacent counties with similar demographic and economic characteristics without newspaper closures. Our evidence indicates that a lack of local newspaper coverage has serious financial consequences for local governments, and that alternative news sources are not necessarily filling the gaps. One challenge in this study was establishing a cause-and-effect relationship between newspaper closures and local government borrowing costs. (For example, depressed local economic conditions could drive both the closures and higher borrowing costs.) To establish a clear, causal relationship between newspaper closures and borrowing costs, we examined the gradual entry of Craigslist into different counties over time. (Craigslist founder Craig Newmark is a member of CJR's Board of Overseers.) Recent studies show that Craigslist had a strongly negative effect on newspaper revenues. We found that the introduction of Craigslist to a local area significantly increases the likelihood of a newspaper closure, which then has a strong subsequent effect on local government borrowing costs. We also examined government borrowing costs in a county that experienced a newspaper closure and a neighboring county with similar demographic and economic characteristics that still had its own newspaper operation. In this case, we found that borrowing costs only increase in the county that experienced the closure, but not for the neighboring county that did not experience a closure. Both approaches When local papers close, costs rise for local governments

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