What’s the Value of Being a State Capital?

February 10, 2021
New Jersey state capitol building
The study found the overall benefits that accrue to New Jersey residents across the state from having Trenton as the capital are significantly larger than the amount of subsidy provided by the state to the city.

Cambridge, MA -- In a new study released today by Harvard Kennedy School, Linda Bilmes, the Daniel Patrick Moynihan Senior Lecturer in Public Policy, and a team of researchers published a detailed examination of the costs and benefits that accrue to capital cities that come from hosting state government. Specifically, the study, launched at the request of Trenton Mayor Reed Gusciora, examined the unique costs incurred by the City of Trenton and the overall economic value generated to all New Jersey residents by hosting the capital.

Bilmes and co-authors Tom Ellington and Michael Bruckner found that the overall benefits that accrue to New Jersey residents across the state from having Trenton as the capital are significantly larger than the amount of subsidy provided by the state to the city. Additionally, the costs to the City of Trenton due to hosting the state capital exceed the benefits it derives.

New Jersey as a whole reaps at least $80 million in total annual benefits from having Trenton serve as state capital. “As the state capital, Trenton provides tangible benefits to New Jersey residents, such as centralization, as well as intangible benefits, such as serving as a symbol of the state and a venue for its democratic processes,” Bilmes said.

In addition, the city of Trenton itself incurs costs for hosting the state and county seats of government. These include $7.6 million in direct costs (e.g. uncompensated municipal services related to maintaining state and county properties) and another $43-$78 million in foregone revenues (e.g. lost property taxes and other revenues).

“When you consider the benefits that Trenton provides to the rest of New Jersey and the costs it incurs in hosting the seat of government, there is no question that New Jersey is getting a bargain – even if the state doubles the amount of state aid” study co-author Tom Ellington said.

The research team found that although many state capitals suffer from this disparity, Trenton’s situation is especially dire for several reasons. Compared to similar state capitals, Trenton has a larger state government footprint, which decreases the available tax base, and its tax base itself is more diverse, poorer, and more highly taxed than in peer cities. “Trenton bears a unique burden. New Jersey cities are much more dependent on property taxes than most American cities, while at the same time, high levels of poverty limit Trenton’s capacity to replace revenue that would otherwise come from state-owned properties,” Ellington said.

“Our research shows a clear justification for policy changes to compensate Trenton for the costs it bears as New Jersey’s capital,” added Bilmes. “One obvious place to start would be expanded Capital City Aid. Other possibilities include parking levies and incentives to encourage state employees to contribute to the local economy.”

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About the Ash Center
The Ash Center for Democratic Governance and Innovation at Harvard Kennedy School advances excellence in governance and strengthens democratic institutions worldwide. Through its research, education, international programs, and government innovations awards, the Center fosters creative and effective government problem solving and serves as a catalyst for addressing many of the most pressing needs of the world’s citizens.

Contact Information 
Daniel Harsha
Ash Center for Democratic Governance and Innovation
Daniel_Harsha@hks.harvard.edu

Sarah Grucza
Ash Center for Democratic Governance and Innovation
Sarah_Grucza@hks.harvard.edu