The Myths of Municipal Mergers

It’s said that consolidation brings more clarity to regional leadership and creates tax equity, since the tax burden is distributed over a larger entity. Cost savings from economies of scale are often touted as well. But as my colleagues Alan Ehrenhalt and Justin Marlowe have written in these pages, a look at consolidation as currently practiced reveals holes in all of these theories.

First, in many consolidations, there is really little consolidation at all. In the case of the “Unigov” system in Indianapolis, virtually none of the existing municipalities in the county were legally eliminated during consolidation. Police and fire departments were left unconsolidated, as were 11 school districts. Similarly in Louisville, Ky., where the city and county merged, neither existing municipalities nor fire departments were abolished. This hardly clarifies leadership and lines of authority.

There’s also limited tax sharing, thanks to the political deals needed to get mergers approved. In Nashville/Davidson County, there are not only six “satellite” cities, but there is also a separate “urban services district” with a higher tax rate. Louisville has a similar designation for its former city territory.

As for cost savings, evidence suggests that these are vastly exaggerated and that the cost of government can actually go up. This was the case in Indianapolis, where in 2007 the city finally consolidated police departments. The move was projected to save $8.8 million per year. A post-merger audit by the firm KSM Consulting found that actual savings were “negligible.”

 

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