Leading by example

Picture a city council meeting where officials passionately advocate for shopping local, urging residents to support Main Street businesses. The irony? That same week, the city awarded a $500,000 construction contract to an out-of-state firm, purchased fleet vehicles from a dealer three counties away, and hired a consulting firm from another state to design a community development plan that may never be implemented.

This disconnects between rhetoric and action represents one of the most significant missed opportunities in community economic development. While local governments and businesses encourage residents to spend locally, they often overlook their own purchasing power—power that dwarfs individual consumer spending by orders of magnitude.

The Hidden Economic Drain - Consider the mathematics: A typical city government might spend three to five million dollars annually on services, products, vehicles, and contractors. When this money flows out of town, it’s equivalent to 3,000 to 5,000 residents each spending $1,000 elsewhere. Put another way, losing this spending has the same economic impact as losing a mid-sized employer with 60 to 100 workers earning $50,000 annually.

The real cost extends far beyond the initial transaction. Economic research consistently demonstrates that local spending generates a multiplier effect, with each dollar circulating three to seven times within a community before leaving. A dollar spent at a local contractor pays local workers, who buy groceries at local stores, which employ residents, who patronize local services. This compounding effect transforms a single dollar into several dollars of economic activity.

When government spending leaves the community, this multiplier vanishes. That $500,000 construction contract doesn’t just represent lost revenue for local contractors—it represents lost wages for local workers, lost sales for local suppliers, lost deposits in local banks, and lost revenue for local businesses where those workers would have spent their paychecks.

The Flawed Bidding Process - Most government entities rightfully seek the lowest responsible bid, fulfilling their fiduciary duty as stewards of taxpayer dollars. However, this approach contains a fundamental flaw: it measures only the initial cost, not the total community impact.

Does the lowest bid calculation include the multiplier effect of keeping dollars local? Does it account for sales tax revenue generated when local workers spend their wages? Does it factor in the property tax base stabilized when local businesses remain viable? Does it consider the social costs of job losses or the benefits of job creation? The answer to all these questions is typically no.

A genuinely comprehensive fiduciary analysis requires examining the complete financial picture. When a local bid comes in 10 to 15 percent higher than an out-of-town competitor, it may actually represent better value once the full economic impact is measured. The additional tax revenue alone—from business taxes, employee income taxes, and sales taxes generated by local spending—can offset much of the price differential.

A Path Forward - Communities facing financial pressures intensified by economic disruptions must maximize every dollar’s impact. This requires implementing systematic changes to purchasing policies:  Establish a local preference framework that quantifies the community benefits of local spending. Calculate the true cost difference after accounting for lost tax revenue and multiplier effects.  Create transparency in major purchases. When significant contracts go to out-of-town businesses, require public documentation of why local options were insufficient and what the community cost will be.

Set measurable local spending targets. If a community currently spends 40 percent locally, establish a goal of 50 percent within two years with specific strategies to reach it.  When local governments and major employers commit to local spending, they signal to residents that these matter. Leadership by example proves more powerful than any marketing campaign. The path to community vitality doesn’t require expensive consultants or elaborate studies that never materialize into action. It requires commitment to a simple principle: spend locally first and spend elsewhere only when truly necessary. 

Every dollar invested in the local community generates returns far exceeding any other available investment—returns measured not just in economic growth, but in the distinctive character and resilient spirit that make a community worth calling home. The question isn’t whether communities can afford to prioritize local spending. The question is whether they can afford not to.

John A. Newby is the author of the “Building Main Street, Not Wall Street” column dedicated to helping local communities, government and business combine synergies allowing them to thrive in a world where truly-local is being lost to Amazon and Wall Street chains. His email is john@truly-local.org