In California, the obvious answer is usually the wrong one. Unhappy about the scandalously high salaries in the city of Bell? Well, the obvious answer would be for the state to come in and put limits on what local governments can do. And that's what's happening. Atty. Gen. Jerry Brown is investigating how the salaries got so high. State Controller John Chiang is demanding more disclosure by cities. There's talk of all sorts of legislative action to clamp down on locals.
The trouble with these solutions? They won't work. In fact, it is precisely all the limitations on the power of local governments that produced the scandal in Bell (as well as scandalously high salaries and pension benefits in any number of California cities).
Ever since the 1970s, California voters (with some help from California courts) have added limits on the ability of local governments to make funding decisions for themselves. In particular, voters have put a series of restrictions on the power of locals to raise taxes.
Local, state and national politics
The theory was these limits would keep cities out of trouble. It hasn't worked. To the contrary, by making it hard for local communities to raise taxes, there are fewer incentives for cities to be responsible. Local governments, because they are unable to tax, are little more than spending entities that receive money from the state and other levels of government and then spend it. Since they don't have much in the way of power to tax, businesses and other tax-fearing interest groups don't pay attention to local government. This means that fewer groups are watching the store. The only entities that care about local government are the beneficiaries of spending -- mainly public employee unions.
Hence, the Paradox of Bell. The real way to prevent more Bell-type scandals is to give California's local governments more power to raise taxes and other revenues themselves. When cities can tax, the citizens and business who might see their taxes raised have a strong incentive to watch what's happening in City Hall. And when taxpayers are watching, it's much more difficult to give your city manager an $800,000 salary.