Fiscal stress in government and the political economy of law enforcement

Since the Tax Revolt that swept across the US in late 1970s, especially in the wake of California’s adoption of Proposition 13 in 1978, mass opinion has rarely been in favor of expansion of government taxation. A tax increase is understood as an extremely risky agenda for elected office holders who are sensitive to voter sentiments. Numerous studies have shown that reelection prospects drop significantly when politicians implement or publicly advocate for a tax increase (Sobel Reference Sobel1998; Niemi et al. Reference Niemi, Stanley and Vogel1995; Mikesell Reference Mikesell1978; Besley and Case Reference Besley and Case1995). While cross-national comparisons of government taxation and expenditures are complicated, income taxes combined with mandatory social-insurance contributions for Americans are generally lower compared to most of the economically developed nations (Desilver Reference Desilver2017). The budget constraints have been more severely experienced by state and local governments that do not have the same access to deficit spending or other means to cope with fiscal distress that the federal government enjoys (Deller et al. Reference Deller, Maher, Amiel and Stallmann2013; Joyce and Mullins Reference Joyce and Mullins1991).

This financial pressure has had a significant effect on the political economy of law enforcement. Fines, forfeitures, and related fees that are used during law enforcement bring lucrative cash that complements the weakening tax bases of the government, especially at the local level. The dependency of municipalities on law enforcement revenues to keep up with service demands and secure operational continuity is getting stronger and more institutionalized (Colgan Reference Colgan2017; Shoub et al. Reference Shoub, Christiani, Baumgartner, Epp and Roach2021). In some cases, the money goes directly to the law enforcement agencies. For example, speeding ticket revenues are allowed to fund court or law enforcement operations in most US states (Boddupalli and Mucciolo Reference Boddupalli and Mucciolo2022). In one out of every ten police forces, fine and forfeiture revenues cover approximately one-third of the operating expenses (Makowsky Reference Makowsky2019). Equitable sharing is a particularly controversial example. According to the Comprehensive Crime Control Act of 1984, the federal government may partner with state and local police agencies for civil asset forfeiture and allocate up to 80% of the proceeds to the participating agencies as a kickback (Executive Office for Asset Forfeiture 1994). Blumenson and Nilsen (Reference Blumenson and Nilsen1998) made a relevant observation: “At a time when state and local government budgets are shrinking, equitable sharing offers a new source of income, limited only by the energy police and prosecutors are willing to commit to seizing assets.” (p. 51)

The fact that law enforcement revenues may directly benefit the agencies creates a path towards a classic principal-agent problem where the agencies are tempted to chase self-interest rather than exercising their authority in the public’s best interests. Profit motivation was also pointed out as the culprit in an array of recent high-profile incidents of police misconduct and unwarranted use of excessive force. Most notably, in the aftermath of the police killing of Michael Brown in Ferguson, Missouri, the US Department of Justice investigated the case and concluded that the city police were under pressure to bring revenues from traffic tickets to help the local government cope with weakening tax bases (US Department of Justice 2015).

There is ample empirical evidence that the incentive to raise money affect the agencies’ decisions to utilize financial penalties. Makowsky and Stratmann (Reference Makowsky and Stratmann2009) showed that when drivers are non-residents from out of town, they are more likely to get ticketed with a higher fine. This implies that the police are serving their local government’s preferences by exporting taxes to non-residents. In a similar vein, Makowsky et al. (Reference Makowsky, Stratmann and Tabarrok2019) found that police arrests of minorities increase with local deficits when retaining revenues from forfeited property is made easier. More recently, Su (Reference Su2020) found that in California from 2004 to 2015, counties increased traffic fines per capita by more than 40 cents after a 10-percentage point decline in tax revenue in the previous year but did not reduce traffic fines when there was an increase in tax revenue. The study concluded that county governments are likely viewing traffic fines as an easy source of cash to offset tax revenue loss. Goldstein et al. (Reference Goldstein, Sances and Young You2020) further showed that police departments in municipalities that generate a greater proportion of their revenue from fees display significantly lower rates of solving violent and property crimes.

The shift in focus from public safety to public finance may undermine public attitudes toward law enforcement agencies. The apparent conflict of interest will likely lead people to question whether the agencies are acting like pirates in pursuit of money rather than as devoted servants of the community. Not only do the people who are directly subject to the financial penalties experience a sense of frustration and even anger, but also those who encounter information about how financial penalties may benefit law enforcement agencies may feel that the agencies are abusing their authority for budgetary reasons. Over time, this rift may widen: low trust in the agencies hampers law enforcement by consent (Goldsmith Reference Goldsmith2005), further escalating tensions in officer-civilian encounters and attracting more aggression (Lea and Young Reference Lea and Young1984; Goldsmith Reference Goldsmith2002). This creates a vicious cycle that erodes the foundation of ‘policing by consent’, a modern approach to governing law and order in democratic societies.

Redirecting law enforcement revenues toward funding local nonprofits: A design proposal

Extensive studies have examined various reform initiatives pertaining to profit-centered law enforcement. For instance, many argue that the courts should perform more thorough examinations of the due process behind financial penalties (e.g. Reynolds and White Reference Reynolds and White2020). Others claim that abolishing the controversial aspects of police discretion, such as civil forfeiture that does not necessitate arrest or criminal conviction, is the most urgent (e.g. Chigbrow Reference Chigbrow2021). Some economists and criminologists suggest that law enforcement revenues may be deposited in the state’s general fund and redistributed to municipalities strictly based on the population size, which is referred to as “per capita municipal block grants” (Makowsky Reference Makowsky2019, p. 15).

These proposals promote positive changes and have their own strengths. However, a key dilemma that complicates the issue is the fact that it is inherently difficult to untangle the agencies’ pursuit of profits from their genuine dedication to law enforcement operations. Are the revenues generated from fines and forfeitures merely incidental outcomes of legitimate performance? Or are they intentional results driven by a money-seeking motivation that agencies are not fully transparent about? Worrall and Kovandzic (Reference Worrall and Kovandzic2008) recognized the dilemma and made the following statement: “Our study lends a measure of support to the arguments espoused by forfeiture’s critics, namely that forfeiture may be pursued for financial reasons. We cannot, however, … assert that forfeiture supersedes other criminal justice goals, such as enforcement of antidrug laws.” (p. 219) Indeed, financial penalties are often justified and supported as an indispensable, less-intrusive alternative to physical detention, arguing that these cannot be eliminated in the profession of law enforcement.

One way to overcome this dilemma is to redirect revenues from monetary sanctions in law enforcement to an independent external entity. By cutting the ties between the revenues and the agencies or their affiliated government entities, potential conflicts of interest are alleviated. As such, it becomes significantly less likely that the use of financial penalties will be driven by the agencies’ self-serving budget interests, without any constraints over the agencies’ use of financial penalties. The idea builds upon the core assertions in the bureaucratic control literature (McCubbins and Schwartz Reference McCubbins and Schwartz1984; Weingast Reference Weingast1984; Weingast and Moran Reference Weingast and Moran1983; Miller and Whitford Reference Miller and Whitford2007), highlighting the importance of a proper incentive structure for public bureaucrats to promote their responsiveness to public interest. As Moe (Reference Moe1984, p. 756) stated, “The agent has his own interests at heart, and is induced to pursue the principal’s objectives only to the extent that the incentive structure imposed in their contract renders such behavior advantageous.” Having the right incentive structure overcomes various limitations of external controls, which can inadvertently undermine agency morale (Marvel and McGrath Reference Marvel and McGrath2016).

Local nonprofit organizations emerge as strong candidates to serve as the external, independent entities to which law enforcement revenues can be redirected. Nonprofit organizations occupy a crucial role in public service delivery, operating with the primary goal of addressing various social, environmental, and cultural issues. They are uniquely characterized by their distinct mission-driven nature (Salamon Reference Salamon2012). As tax-exempt organizations serving public purposes, nonprofits benefit from tax-deductible donations, thereby further recognizing their contribution to public welfare and encouraging increased private donations. In exchange for these fiscal advantages, nonprofits are required to maintain stringent financial transparency and accountability. They are bound by non-distributional constraints, ensuring that residual incomes must not be distributed among any stakeholders, and their involvement in political and lobbying activities is limited. Failure to comply with these legal obligations may lead to the revocation of their tax-exempt status. These defining attributes, including being mission-driven, adhering to non-distributional constraints, and maintaining a non-political nature, partly explain why members of society tend to hold higher trust in the nonprofit sector compared to their public and for-profit counterparts (Chapman et al. Reference Chapman, Hornsey and Gillespie2021; Hansmann Reference Hansmann1980; Young Reference Young1998; Van Slyke Reference Van Slyke2007; Herzlinger Reference Herzlinger1996).

Nonprofits at a local level tend to represent community values more closely (Shier et al. Reference Shier, McDougle and Handy2014). They address specific community issues, including homelessness, education, health care, and environmental conservation, which are closely related to community welfare but are either overlooked or inadequately served by other sectors. Their activities are often specifically tailored to the distinct contexts and needs of the communities they serve. Additionally, local nonprofits demonstrate active engagement within their communities by soliciting input, encouraging participation and volunteerism, and nurturing a communal purpose. This extensive level of community interaction not only democratizes their operational approach but also bolsters public trust (Becker et al. Reference Becker, Boenigk and Willems2021; Chapman et al. Reference Chapman, Hornsey and Gillespie2021). Such facets – a shared sense of purpose and active public engagement – mean that support for these nonprofits is viewed not just as backing the organizations themselves, but as a more effective and targeted investment in community needs and priorities.

Allocating revenues from monetary sanctions in law enforcement to local nonprofits will further enhance people’s perceptions of agency performance and trust in the agencies. The body of research on causal attribution and the folk concept of intentionality provides micro-level theoretical support for this expectation. In many areas of everyday life, such as reading newspapers or socializing with colleagues at work, people make attributions about “why” certain events occurred, looking for salient causes of social reality (Wegener and Petty Reference Wegener and Petty1998; Heider Reference Heider1958; Kelley Reference Kelley1973). Causal attribution is rooted in a fundamental human desire to be in control of the surrounding environment (Regan Reference Regan, Harvey, Ickes and Kidd1978). When the event to be explained is an “intentional” human behavior, the intention in itself seldom has any explanatory value (D’Andrade Reference D’Andrade, Holand and Quinn1987). For example, “Why are the police ticketing drivers on the road?” – “Because they intend to ticket drivers.” Instead, people make sense of the behavioral intention by referring to the “reasons behind the intention” (Heider Reference Heider1958, p. 110; see also pp. 125–129) which cites the actor’s beliefs and desires. This is called a reason explanation (Malle Reference Malle1999): “Why are the police ticketing drivers on the road?” – “Because they intend to ticket drivers in order to collect cash.” When there are salient background factors that enable reasonable speculations about the actor’s beliefs and desires, such as culture or a situational context, a reason explanation extends to a causal history explanation (O’Laughlin and Malle Reference O’Laughlin and Malle2002; Malle and Knobe Reference Malle and Knobe1997; Malle Reference Malle1999; Malle et al. Reference Malle, Knobe, O’Laughlin, Pearce and Nelson2000): “Why are the police ticketing drivers on the road?” – “Because they intend to ticket drivers in order to make some cash, given that traffic ticket fines are sent to the police themselves.”

When the law enforcement revenues go to the agencies or related government entities, people will likely be suspicious about the self-serving, profit-generating motivation. This is a subjective inference that does not necessarily require verification from hard evidence. Even when the agencies use financial penalties for legitimate operation and collect revenues as an unintended byproduct, the apparent conflict of interest is sufficient for people to infer a corrupt, profit-chasing motive. Sending law enforcement revenues to local nonprofits that maintain no direct ties with the agencies precludes the emergence of a causal history explanation. This, in turn, should translate into more positive public perceptions about the agencies’ performance and public trust in the agencies.

Both the outcome and process of government operation are important pillars of public trust in government (Van Ryzin Reference Van Ryzin2011). In this respect, the instrumental utility of financial penalties in law enforcement should also affect people’s judgment of the agencies’ performance and trust in the agencies, in addition to how the revenues are allocated. The request for effectiveness in maintaining law and order is not as purely utilitarian as it may seem. It is in part a normative condition upon which the authority of law enforcement agencies is validated and justified (Bottoms and Tankebe Reference Bottoms and Tankebe2012; Tankebe Reference Tankebe2013). Na et al. (Reference Na, Lee and Kang2023) conceptualizes police effectiveness as a public value, which refers to “an appraisal of what is created by government on behalf of the public” (Nabatchi Reference Nabatchi2012, p S310). They argue that people’s attitudes about the police hinge on their perceptions of police effectiveness because effectiveness is a key public value “that should be pursued by the police as a publicly funded government institution” (p. 4). From this point of view, fines, forfeitures, and related fees must be enforced in ways that effectively contribute to public safety and order in order to enhance public attitudes toward the agencies (Sun et al. Reference Sun, Wu, Hu and Farmer2017; Tankebe Reference Tankebe2013; Kochel et al. Reference Kochel, Parks and Mastrofski2013).