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Paper: Level of Corruption Linked to Amounts Spent on Large Infrastructure Projects

JUN 6, 2014 12:48pm ET
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DALLAS A direct correlation exists between the level of public corruption in a state and how much the state spends on highways and construction projects, according to a new study that looked at convictions under federal corruption laws over more than three decades.

The millions or even billions of dollars involved in large transportation and infrastructure projects provide opportunities for corruption that otherwise would not be available, said researchers Cheol Liu of the City University of Hong Kong and John L. Mikesell of Indiana University at Bloomington in the paper published in the spring 2014 issue of Public Administration Review.

"State spending on construction, capital, and highway projects often involves large expenditures, a small numbers of contractors and clients, and a lack of transparency, making it vulnerable to bribes, kickbacks, and extortion," Liu and Mikesell said.

Not only does corruption result in higher costs for projects, Liu and Mikesell said, it also distorts spending priorities to favor projects that provide enhanced opportunities for stealing public funds.

"Corruption is likely to distort states' public resource allocations in favor of higher potential 'bribe-generating' spending and items beneficial to public officials directly," they said.

States with a higher level of corruption are likely to favor capital construction, highways, and borrowing, the paper said, while spending less on education, health, and hospitals.

"It is very common to bribe government officials to gain or alter contracts and to circumvent regulations related to construction," it said.

The paper analyzes more than 25,000 convictions of state and local officials for violating federal corruption statutes. It is based on a Department of Justice report to Congress that covers convictions from 1976 to 2009.

"We find that public officials' corruption caused state spending to be artificially elevated," the researchers said. "The 10 most corrupt states could have reduced their total expenditures annually by $1,308 per capita, on average, if their corruption level was at the level of the states' average [of] 5.2% of mean per capita expenditure."

Liu and Mikesell said based on the Department of Justice figures, the 10 most corrupt states over the more than three decades are, in order, Mississippi, Louisiana, Tennessee, Illinois, Pennsylvania, Alabama, Alaska, South Dakota, Kentucky, and Florida. Factors in the ranking include total state population and the number of public employees.

"Corrupt states are more likely to engage in deficit financing, which tends to conceal the true cost of government spending from the public," Liu and Mikesell said.

"[Corrupt states] spent more on high wages, which benefit government employees," the researchers said. "They also spent more on law enforcement and on prisons, reflecting both the legal costs of corruption and the fact that prison construction and operation are potentially lucrative."

The 10 least corrupt states in the study are Oregon, Washington, Minnesota, Nebraska, Iowa, Vermont, Utah, New Hampshire, Colorado, and Kansas.

Investments in highways and debt issues are crucial to a state's economic growth and development, Liu and Mikesell said.

"Increases in state's expenditures on capital, construction, highways, and borrowing are not problematic in themselves," they said. "However, policymakers should pay close attention so that public resources are not used for private gains of the few but rather distributed effectively and fairly."

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