Municipal Shared Services and Consolidation
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Municipal Shared Services and Consolidation

A Public Solutions Handbook

Alexander Henderson, Alexander Henderson

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eBook - ePub

Municipal Shared Services and Consolidation

A Public Solutions Handbook

Alexander Henderson, Alexander Henderson

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Municipal Shared Services and Consolidation provides a comprehensive and clear review of the theories and practices of structuring and managing complex local government services. Intended for both students and practitioners, this volume in the Public Solutions Handbook Series addresses concepts and processes of shaping collaborative arrangements in public service with goals of effectiveness and efficiency in mind. The Handbook begins with a review of theories of shared services and consolidation, highlighting conceptual foundations, practical barriers, and cultural considerations related to these efforts. Specific, practical advice follows, highlighting the processes of creating, implementing, and managing shared services and consolidation agreements. Municipal Shared Services and Consolidation is exceptionally well written and is amplified by examples, cases, illustrations, and a comprehensive bibliography.

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Part I

Introduction and Theoretical Considerations


Municipal Size, Resources, and Efficiency

Theoretical Bases for Shared Services and Consolidation
Mildred E. Warner
The United States has a fragmented system of local governments, and many ills are blamed on this fragmentation. Inadequate watershed management, inequality and segregation in public education, poorly integrated regional transportation systems, suburban sprawl, and local government fiscal crisis are all blamed in part on our fragmented local government system. The problem is not unique to the United States. The challenge of suboptimal local government size has bedeviled government reformers for more than a century. The problem is common across continental Europe, Australia, and North America (Lago-Peñas and Martinez-Vazquez 2013). When local government units are too small or too fragmented in a region, this makes it difficult to provide quality services or to coordinate services across jurisdictions. While urban planners typically look to political consolidation as the solution (Rusk 1993; Orfield 2002), public choice theorists point to the possibility for voluntary shared service arrangements even inside a fragmented polycentric local government system (Bish and Ostrom 1973). Such voluntary shared service arrangements offer the possibility for a solution short of political consolidation, which is both unpopular and uncommon (Leland and Thurmaier 2004, 2010). But how can such shared service arrangements be promoted? What guidance does theory offer?
This chapter explores some theoretical bases for shared service arrangements. A theoretical framework must be grounded in an understanding of culture and history and recognize the path dependence of the problem of governmental fragmentation and the possibilities for its solution. We must give attention to political considerations that address service responsibilities, finance, and accountability in a multilevel federalist governmental system, equity considerations that look at externalities and spillovers across jurisdictions in an urbanizing world, and economic considerations of efficiency and economies of scale at both the governmental unit and the service level. Each of these issues is critical to a comprehensive theoretical framework (see Figure 1.1).
In this chapter, I give special attention to the concerns and insights raised by economic, political, and equity considerations. Theories that give emphasis to one or the other of these considerations offer contrasting views regarding the problem of governmental fragmentation and its solution.
Regarding political considerations, fiscal federalism and public choice theories generally celebrate the efficiency and democracy potential of a fragmented local government system. While fragmentation may create coordination problems, it also offers the solution with economic incentives for collaborative action. For example, Nobel laureate Elinor Ostrom (2010) argued that fragmented government systems create apolycentric system of many independent local governments, which in turn promotes innovation, enhanced citizen voice and diversity due to localism, and a marketplace for public services that promotes efficiency and fiscal equivalence. If coordination and allocational efficiency problems arise, they can be addressed voluntarily through shared service arrangements.
Figure 1.1 The Theoretical Framework
Theories that emphasize economic efficiency, by contrast, often focus on economies of scale as a solution to the problem of suboptimal local government size. This can lead to a consolidationist view. However, achieving efficiencies in a fragmented government system depends on the nature of the service and changes in the technology of service production, and this offers a wider array of possible solutions (Holzer and Fry 2011). Both production and transaction costs must be considered in assessing alternative arrangements—unit consolidation, functional consolidation, or shared services. Governance arrangements are critically important in determining transaction costs of alternative shared service arrangements (Feiock 2009).
Finally, regional equity considerations give attention to the heterogeneity of need and resources across local governments and the need for coordination. Geographic differences by metro status create different challenges in rural and metropolitan regions (Warner 2006). Coordination and allocative efficiency questions are paramount. Differences in interests may undermine the potential for voluntary solutions. Regional equity theories explore the political bases for cooperation and often argue for consolidation approaches, although some recent research has focused on the possibility for voluntary action as well (Leland and Thurmaier 2004; Pastor, Benner, and Matsuoka 2009).
Each of these perspectives provides a diagnosis of the problem and a basis for its solution. While celebrating fragmentation and efficiency, fiscal federalism and public choice theory acknowledge the problem of suboptimal size but point to the positive potential of a voluntary approach to shared services. Economies of scale give attention to service characteristics but also acknowledge the transaction costs associated with different governance arrangements. Regional equity theory explores the political interests and challenges in a fragmented governance system and the means to overcome them. In each of these considerations we find the seeds of a theory for shared service delivery—the role of a market, the nature of service, the nature of governance arrangement, and the means to address differences in interests. Under the economic efficiency paradigm, concern about public goods, externalities, economies of scale, transaction costs, and market failures justify the use of consolidation or coordinated service provision (Boadway and Shah 2009).
However, society is not only interested in economic efficiency. Values such as equity, equality of opportunities, and security matter. And political concerns regarding the roles of the government, the importance of self-determination, and the appropriate level of centralization or decentralization all come into play (Mikesell 2007; Boadway and Shah 2009). More recent theoretical attention has focused on a framework for understanding collective action at the local government level and the role of norms, networks, and political interest groups (Feiock, 2009; Leland and Thurmaier 2004, 2010). But first, let us turn to a discussion of history.


The United States has a tradition of fragmented local government that began with the founding of the nation (Warner 2013). In many ways, local government structure reflects economic development trajectories. In the Northeast and Midwest, early settlement patterns were based on a small farm yeoman economy. Economic democracy led to a form of direct local democracy captured in the town meeting form of local government. Township boundaries were roughly determined by the distance a person could travel to do business and return in a day.
In the South and West, this township tier is not found. Plantation agriculture in the South and ranching in the West did not require (or desire) a township tier of government, in part because of the larger territorial expanses of these economic forms. In these regions, county governments (without townships) were established. With urbanization, cities formed within counties to address the more complex service coordination needs that urbanized settlements require. As new cities and suburbs formed, they created their own city governments, leading to what is today a dense, fragmented system of 38,910 multipurpose local governments (townships, villages, cities, and counties), according to the 2012 Census of Governments.
This historical layering of local government organization reflects the economic realities of an earlier time. The challenge for the twenty-first century is that the earlier layers are locked in a palimpsest that makes difficult the creation of a local government layer that better reflects the coordination needs of a modern-day economy and society. Urban geographers argue that we are now in the era of the “city region,” and that this is the relevant economic unit for a global economy (Brenner 2004). Similarly, rural planners point to the need to coordinate activity across a resource base—such as a watershed—and the challenges that a fragmented underlying local government system creates for environmental management and coordination (Homsy and Warner 2013).
It is in this context that this book explores the possibility for shared services and consolidation. Given the rich palimpsest of history, how can we achieve a more geographically and economically rational form of local government today? This volume explores two possibilities: political unit consolidation or functional consolidation via shared services.
Political unit consolidation has not been an attractive option for U.S. local government. Scholars who study consolidation note the importance of crisis in generating interest in consolidation, and the role of trust, power, and policy entrepreneurs in providing the leadership for change (Leland and Thurmaier 2004, 2010; Carr and Feiock 2004). Political support for localism is very high in the United States because it supports local voice and democracy, and because it justifies differentiation in local services by race and class (Briffault 2000). While regional planners have called for consolidation as a solution to the problems of coordination on a regional scale, the number of consolidations that actually have occurred is minimal. Empowered counties, where cities merge with their surrounding county, have been recommended (Rusk 1993, 1999), but these, too, are rare.
Instead, scholars and practitioners have shifted attention toward voluntary forms of coordination—from councils of governments and metropolitan planning organizations at the regional scale, to intermunicipal cooperation for shared production and delivery at the service scale (Holzer and Fry 2011). Such voluntary intermunicipal cooperation is quite common. The International City/County Management Association tracks the level of intergovernmental contracting at the service level. The most recent 2007 data show that cooperation accounts for 16 percent of all local government service delivery, an increase of 30 percent from 2002 (Hefetz, Warner, and Vigoda-Gadot 2012).
Such intermunicipal contracting is sometimes understood as functional consolidation, because the cooperating governments join in producing and delivering a single service without consolidating the entire political unit. This preserves localism but allows for a level of consolidation at the service level.
This chapter explores the theoretical bases for understanding shared service delivery given the problem and context of our fragmented local government system. It covers theoretical bases focused on political structure (fiscal federalism and public choice), economic considerations regarding economies of scale and transaction costs, and equity considerations for externalities and spillovers. The critical importance of governance structure is then presented, and challenges relating to the factors that promote or limit governance of intermunicipal collaborative agreements are explored.


Fiscal federalism does not see a problem with fragmented local government. Fragmentation creates a market, which provides the solution to concerns with productive efficiency. Coordination, to the extent not achieved through a competitive local government market, can be accommodated with a voluntary cooperative approach. This is the basis for polycentric collective action articulated by Ostrom and colleagues. Prospects for cooperation are wide.
The U.S. government is a federal system built up from the states. Local government structure and authority is determined by the states. This creates a lot of diversity in local government form, local government autonomy, finance, and service delivery (Frug and Barron 2008). Fiscal federalism is an institutional arrangement for governmental finance and administration in a multilevel system. It is based, in part, on public choice theory, which argues that such fragmentation promotes productive efficiency, fiscal discipline, diversity, and citizen voice (Oates 1998).
Writing in the middle of the great suburban post-World War II development wave, Charles Tiebout, in his famous 1956 article A Pure Theory of Local Expenditures, argued that the multitude of local governments created a market for public services. This market is the basis for the efficiency claims of the fiscal federalists. Competition on both the supply and demand sides creates the basis for efficient production of local services. On the supply side, local government managers see a market of competing local go...

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