Economic Value and Costs of Capital Cities: The Trenton Case Study

Capital cities serve as the administrative centers of state governments and perform many functions, such as housing the seats of state government and often serving as the focal points of culture and history in their states. Many capital cities across the United States incur large direct and indirect costs (Reitmeyer, 2019) to host their respective state governments. Additionally, capital cities generate benefits for citizens across their respective states; however, due to the “public good” nature of such services, a substantial portion of the economic value generated is likely what economists call non-market value (Haefele et al, 2016; Choi and Marlow, 2012). There is a real need to understand the costs and benefits to capital cities that come from hosting state government, especially for cities like Trenton that depend heavily on intergovernmental transfers . Little academic research has been conducted into the costs and benefits of capital cities. At the request of Mayor Reed Gusciora, the Harvard Kennedy School team examined the unique costs incurred by the City of Trenton and the economic value generated to New Jersey by hosting the capital city. This paper presents quantitative order-of-magnitude estimates for costs incurred by the City of Trenton in providing services to host the New Jersey State Government, and conservative estimates of economic benefits generated by the City of Trenton in hosting the state capital (Figure 1). Although this study is not intended to be a full cost-benefit analysis, insights can be gained through comparison of cost and benefit estimates. The cost estimate includes both direct and indirect costs to the City for provision of municipal services to host the State and County. The benefits estimate includes an estimate of New Jersey residents’ willingness to pay for municipal services to host the state capital in Trenton. We find that the benefits that accrue to New Jersey residents from having Trenton as the capital are significantly larger than the costs incurred by the City of Trenton in hosting the state capital.