Is Municipal Consolidation the Answer? (or ... Is Bigger Always Better?)

Fragmentation Reconsidered

We're all familiar with the criticism that our system of local government is "too fragmented." The existence of numerous cities and towns together with a sometimes bewildering array of special purpose districts is frequently criticized in the popular media as being uncoordinated, inefficient, and wasteful. While seldom defined, the "scourge" of fragmentation is usually "proven" simply by counting up the number of governments in a given county or region and concluding that there are too many.

Having thus diagnosed the problem as one of "too many" governments, the critics-turned-reformers typically propose consolidation as the remedy, promising such benefits as improved efficiencies and economies of scale. The arguments are compelling and track with the conventional wisdom on the subject that says fragmented local government structures are inherently inefficient.

But are "many governments" always "too much government"? Could it be that our complex and fragmented system actually promotes, rather than detracts from, efficient and responsive government? As it turns out, there is a growing body of evidence suggesting that smaller and more flexible governments may actually operate more efficiently and cost less than larger governments, challenging some of the key assumptions of the pro-consolidation reformers.

The Arguments for Consolidation

The idea that consolidating or merging local governments will improve services has its roots in the progressive reform movement that began during the late nineteenth and early twentieth centuries in the United States. Metropolitan areas with large numbers of local governments were viewed as organizationally "fragmented" and prone to a variety of ills, including inefficiencies and inequities. Fragmented authority, either within a government or between several local governments, was viewed as a source of weakness.

The proponents of consolidation argue that fewer and larger local governments will be more efficient and effective than many small governments. Costs can be held down and perhaps reduced through the elimination of duplicative services, personnel, and equipment. Larger governments may also be able to take advantage of "economies of scale" or lower per-unit costs for government services. Further, a single unified government will be better able to coordinate policies and decisions for activities, such as regional planning and economic development, than several independent governments.

In fragmented government systems, some services may benefit citizens in adjoining areas who neither pay for the service nor share in the effort involved in its delivery. The proponents of consolidation argue that "spillover effects" like this will be eliminated when the boundaries of the service area are the same as the boundaries of the taxing jurisdiction. In this way, the tax burdens within communities can be equalized through the creation of governments that more clearly match area needs.

The Arguments against Consolidation

The opponents of consolidation counter that greater fragmentation of local governments and increased competition between them will promote reductions in service costs, increased public access, and greater political accountability.

The superior fiscal performance of governments in a fragmented system comes from the effects of inter-jurisdictional competition and from their ability to choose from a variety of service arrangements of various scales (ACIR, 1992). Where contracting out is an option, even the smallest cities can take advantage of economies of scale, where they exist, through contracts with outside (public or private) service providers.

The opponents also charge that consolidation undermines community identity and reduces political accessibility and accountability by further removing elected representatives from their constituents. They argue that decentralized structures are inherently more democratic for the simple reason they are closer to the people.

Findings from Consolidation Research and Case Studies

The most popular argument advanced by the pro-consolidation advocates is that of cost savings through "economies of scale." The assumption is that consolidation will result in cost savings by reducing duplication and the number of employees. However, many of the case studies on consolidations in both the U.S. and Canada over the last 20 years have failed to find significant economies of scale for most municipal services. The findings from these and other studies have shown that costs for many services actually go up following large municipal consolidations.

Costs appear to rise with size for several reasons:

• Consolidated city services that are labor-intensive and must be replicated from one neighborhood to the next (e.g., police patrols, fire stations, and parks) often do not achieve economies of scale and may end up costing the same or even more.
• When local governments consolidate, the wages of the consolidated government's employees usually increase to the level of the highest-paid comparable employees.
• A similar "averaging up" phenomenon occurs with service levels and standards for equipment and facilities, which also tend to rise to the highest level among the consolidating organizations.

As a result, many of the cost savings that may be achieved by streamlining services and staff are often offset by the absence of scale economies and the averaging up of wages and service standards.

In contrast, the evidence from various studies has led many researchers to conclude that the least expensive local governments are found in complex systems of small and medium-sized municipalities that both compete and cooperate with one another (Bish, 2001).

Where are the Economies of Scale?

The consensus among researchers who have studied consolidation efforts is that nearly 80 percent of municipal services and activities don't possess economies of scale beyond a population of approximately 20,000 residents. The remaining 20 percent tend to be services that are highly specialized, such as police crime labs that are used only infrequently, or those that require large capital investments, such as sewage treatment plants or landfills (Bish, 2001).

The Federal Advisory Commission on Intergovernmental Relations concluded that per capita costs generally fall for municipalities with populations up to 25,000, remain fairly constant for those up to 250,000, but then rise significantly (ACIR, 1987).

In general, services that require large capital investments, like sewage treatment plants or landfills, may possess economies of scale and will benefit by spreading the cost over a large population. Activities that are labor-intensive, like police services, on the other hand, are likely to experience diseconomies of scale such that average costs actually increase with the size of the jurisdiction (Bish, 2001).

While the research findings do not appear to support the claims of the pro-consolidation proponents in cases that have involved consolidations of large communities, the evidence from these same studies does suggest that scale economies may still be achievable through consolidations of smaller communities (e.g., those under 20,000 population) (Bunch and Strauss, 1992). In fact, most of the consolidations in this country have been between very small cities below 10,000 population or between one small and another relatively large city (Halter, 1993).

Source: www.mrsc.org

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