Sunday, March 7th, 2010

Downsides of Consolidation #2 – Cost Increases, Dilution of Urban Interests, Deferred Problems

This is the second and last installment in my mini-series on the downsides of city-county consolidation, or “big box” vs. “small box” government. Part one covers neighborhood redevelopment challenges. For those of you who didn’t read that, I’m not opposed to city-county consolidations at all, and generally think they’ve been positives in places that have pursued them. I am merely examining some of the trade-offs that come with that choice. Like any form of government, this one too has its challenges.

Cost Increases

Proponents of government mergers and consolidations typically tout efficiencies and economies of scale that make a consolidated government less costly to operate than separate governments. While I think there may be areas where this is true, it’s easy to find scenarios where the opposite is the case.

One reason mergers make costs go up is because it is almost certain that wages and benefits for the employees in the various districts will be harmonized to the high water mark. For example, fire departments were not part of the original Indianapolis-Marion County merger, but the city has been pursuing additional mergers in this area lately. The merger of the Indianapolis Fire Department with the Perry Township Fire Department is is an interesting case study. 120 Perry Township fire fighters are getting $2,000-$3,000 raises to bring them up to IFD levels. This is actually increasing the cost of providing fire service by $600,000 a year. This is real cash money out the door. There may be valid reasons for merging these departments, but saving money isn’t one of them.

I can’t name a single government merger where salaries weren’t harmonized to the high water mark. There probably are examples, and I’d be interested to hear them, but this is likely the exception more than the rule.

The second reason mergers increase cost is Brook’s Law. Originally coined for the software industry as “adding more manpower to a late software project only makes it later”, this draws attention to the downside of larger teams and bureaucracies. While always an over-simplification, and not directly applicable outside of projects, it is still an interesting insight that productivity goes up linearly with bodies unless you substitute capital for labor, while organizational complexity increases at an increasing rate over time. For something like fire fighting, where there are fewer benefits to raw scale, the overhead itself eventually imposes costs with few benefits in return. For example, the Indianapolis Fire Department already has hazmat teams, dive teams, high rise capabilities, etc. It’s not like combining with Perry Township will enable them to do something they couldn’t do before. IFD already had minimum efficient scale. There would appear to be no opportunity to substitute fixed for variable costs. There are likely some purchasing benefits and the like, but those could have been gotten without merger. On the other hand, this will clearly create a more complex bureaucracy.

In short, I believe mergers, particularly those of general purpose governments or highly visible agencies, typically increase costs.

Dilution of Urban Interests

This is the core of the argument laid out by Savitch and Vogel that I discussed previously. Basically, merger dilutes the voice and clout of the urban core. Among the implications:

  • Dilution of minority voting power. (I should note that in places like Europe, expanding the local government box beyond the core might actually bring in more minorities. But their entire systems are different).
  • Limiting the power of grass roots or outsider candidates and strengthening the establishment. It should be noted, however, that in Indianapolis complete outsider Greg Ballard was elected mayor in the last election, so clearly this is not entirely the case.
  • One size fits all solutions. It is the nature of government to promote uniform rules. Combining an urban core with more suburban areas may result in rules appropriate to neither, or even tilted in favor of the suburbs, such as by adoption of suburban style zoning, which is the case in Indianapolis.
  • Shifting of spending to the periphery. Outlying areas, particularly if it is still a developing county, may result in a shift of spending towards infrastructure hungry suburbs. For example, the major parks initiative in Louisville-Jefferson County is a huge ring of new parks in outer Jefferson County called “City of Parks”.
  • Limited income redistribution. While not technically a requirement for merger, separate “urban services districts” that cover the old city are designed to firewall off the former suburbanites from contributing towards central city services are common features. I’ve even seen this in smaller scale mergers, such as the merger of the town of Zionsville, Indiana with two surrounding townships.
  • Parasitization of the urban tax base. The central city tax base is forced to support region-wide amenities on its own “inside the firewall” tax base, while region-wide revenues to go build suburban infrastructure. Tax increment financing is a typical vehicle for this.

Carol Coletta called regionalism “identity theft for cities.” As a type of regionalism solution, city-county mergers suffer from this. I think that’s a good way to sum it up. Actually, Brookings style regionalism might be better than merger in a way. An approach like the Minneapolis-St. Paul regional tax sharing solution actually allows revenues to flow to places where they are needed, without the firewalls of urban services districts typically created during mergers.

Problem Deferral

The other challenge of city-county mergers is that they basically kick the can down the road in terms of the problems facing the urban core and inner suburbs. For example, the Louisville-Jefferson County merger “solved” the problem of the suburbanization of jobs (and hence the tax base in a state where local income taxes are a key revenue source). But it didn’t solve anything for the long term. This works today because Louisville has not experienced significant development in its collar counties, outside of a small area of southern Indiana that is itself more or less an “inner city” type of place. When Jefferson County itself fills up, and all the new office parks are being built in Oldham or Shelby County, it will be right back where it started. Unless local leaders use the time between now and when that happens to built a long term sustainable product in the urban core and suburban areas of Jefferson County, this won’t really have accomplished much. No one should be breathing a sigh of relief just because a merger passed. Urban success is not just about lines on the map, it’s about the product.

15 Comments
Topics: Public Policy
Cities: Indianapolis, Louisville

15 Responses to “Downsides of Consolidation #2 – Cost Increases, Dilution of Urban Interests, Deferred Problems”

  1. Christopher Hylarides says:

    This could read Toronto’s megacity merger in the late 90s perfectly (which was forced by the province). http://www.fcpp.org/publication.php/1829

  2. Alon Levy says:

    Christopher, I stopped reading the article after the byline.

    Toronto is actually a counterexample to urban dilution – it remains about 50% visible minority and 50% foreign-born, has a mayor who Jane Jacobs campaigned for, doesn’t have any urban service district, and doesn’t neglect downtown neighborhoods. It has a smaller city/suburb income and whiteness gradient than most American cities, but it still has this gradient in the American direction rather than the French direction.

  3. DetBurbs says:

    While “one size fits all” zoning is a possible outcome of city-county consolidation, it doesn’t have to be that way. There’s plenty of examples of cities with well-defined urban cores and zoning that matches it that also have outlying neighborhoods covered by suburban-oriented zoning. Indianapolis appears to suffer from a lack of understanding of what are appropriate development standards for a downtown area.

  4. Wad says:

    One other problem of mergers of service-providing districts can be turf wars that get fought in the new agency.

    The formation of the Los Angeles County Metropolitan Transportation Authority was one of a chain-reaction of catastrophes that had marked transit in the 1990s.

    The state legislature forced the merger of county transportation commissions and transit systems in Los Angeles, Orange and Santa Clara counties. The latter two went smoothly. In L.A., a civil war brewed.

    MTA was a merger of the L.A. County Transportation Commission and the Rapid Transit District, which at one time provided local service in neighboring counties as well until they formed their own systems. It seemed like the logical thing to do.

    Except the commission and the RTD had always been adversaries. They didn’t work well together when they merged. There were two camps: the CTC “planning types” and the RTD “operation types”. As people began leaving, planning types would administer operations roles and vice versa. It was disastrous.

  5. IndyWorks! says:

    You analysis of township fire consolidation in Indianapolis/Marion County assumes you are comparing apples to apples and that the same number of personnel would be required after consolidation takes place.

    When “IndyWorks!” was originally proposed in 2004, IAFF Local 416 estimated that 105 fewer fire fighters would be required for full county-wide fire consolidation. At an estimated $100,000/fire fighter this would amount to over $10M/year in personnel saving alone.

    One might ask why the fire fighters’ union would advocate for reduced ranks. This is because the reduction in forces can and should be achieved through attrition. Couple this with the superior training and resources already in place for IFD (check the insurance ratings), means better service for residents and safer working conditions for the men and women on the streets- more personnel on equipment, protecting more territory with shorter response times.

    Solely focusing on cost savings was a mistake of the Peterson Administration. Immediate cost savings is a myth. There are inherent transition costs, but the real savings comes in cost containment associated with long-term economies of scale and lessening the bloated ranks of the last bastions of patronage in Indiana’s government- township government (If IFD has a sophisticated dive team, what need is there for any township dive team in Marion County?)

    It is well known that Mayor Ballard has issued a stark warning to those who refuse to recognize the inevitable- the days of IFD subsidizing township fire departments is over. As the tax rates in the townships catch up with years of paying on credit through “emergency loans” and the citizens demand answers, it will not be IFD laying off fire fighters- it will be the responsibility of those “trustees” who chose to cling to their fiefdoms for a few more years.

    It is why all township/IFD consolidations must be tax neutral for existing IFD territories. It is why townships are scrambling to consolidate…residents of Pike, Wayne and Decatur beware…

    Consolidation is not all about immediate tax savings. It is a long term investment, with long term benefits. It is not easy to compare apples to apples in such a scenario, but that is what makes the leaders of such efforts visionaries.

  6. How many fire fighter positions have been eliminated to date?

  7. IndyWorks! says:

    None to date. The true efficiency comes through full, county-wide consolidation, not township by township as is currently the case. It is likely that future consolidations will be more difficult unless forced. This is because IFD cannot absorb the current staffing levels of the township departments to achieve desired efficiency. Still, those departments refuse to consolidate, choosing rather to operate on borrowed money (emergency loans) not included in the annual budgets. One way to solve this without consolidation would be to require City-County Council approval of township budgets- a proposal recently discarded by the Indiana General Assembly.

  8. Christopher Hylarides says:

    Alon Levy: I’m not saying Toronto is a failure, but it’s fiscal issues as well as polarization of it’s politics and “one size fits all” planning has been detrimental, whether it was under rightist (and suburban elected) Mel Lastman or the current lefty (and inner city backed) David Miller. Also, Aaron’s points on salary reconciliation and top-down planning exactly happened as he described.

  9. IndyWorks, that’s the challenge. The benefits are theoretical, and only happen at some indeterminate time in the future, while the costs are real and immediate. Savitch and Vogel cited academic literature on consolidations that showed no cost savings. The multiple accounting reports commissioned in Louisville showed no savings.

    I happen to have run post-merger integration projects in the corporate world. Firstly, most large mergers in the corporate world destroy value. The accommodations you have to make to get mergers passed in the public sector world are the equivalent of overpaying for an acquisition.

    There are real and tangible cost cutting benefits from private sector mergers. There is usually a focus on capturing these quickly, usually within a year. The results have often been promised to shareholders and have to be delivered. Upwards harmonization is generally not an issue. A lot of the savings come from things like IT redundancy, which would not appear to be the case in something like fire departments. Layoffs are much easier to accomplish. Etc.

    It will be interesting to see what happens. I’ll monitor the situation.

  10. By the way, I think the fire mergers are a good idea regardless of whether or not they save money. A city deserves common institutions, common service levels, and as many common tax bases elements as possible. That’s my rationale.

  11. Anonymous says:

    “Indianapolis appears to suffer from a lack of understanding of what are appropriate development standards for a downtown area.”

    Indianapolis has several downtown zoning classifications that are most assuredly not suburban: CBD-1, -2, and -3. They are largely applied in the core downtown (the old “mile square”, which is the original 1820’s plat). It also has a “Regional Center” overlay zoning that includes the expanded urban core, as well as “hospital” and “campus” zoning classifications that apply to large tracts in the Regional Center area.

  12. Alon Levy says:

    Toronto doesn’t have any more top-down planning or polarization than Southern California, which is decidedly unconsolidated. In one way it has less polarization within the city – namely, the race wars have moved elsewhere. In SoCal, you have entire sections of Los Angeles plus a zillion smaller cities that scream things that all boil down to “We’re better than everyone else because we’re still majority-white.” In the GTA, this exists, too, but you need to go to Mississauga to see it. Overall Toronto does a much better job actually listening to minorities than the unconsolidated American cities, except for those that have been black-majority for a long time.

  13. John Morris says:

    Been to busy to follow this thread or even really read the post in depth.

    I do think the general category, “dilution of urban interests” is a doozy reason to be worried about consolidation.

    The bottom line is that small cities should have a strong incentive to maximize land use and land value in the most rational way. Putting basically suburban interests in charge of the city takes away that incentive at least for a while.

    This is why, my strong guess is that NYC had it never consolidated would have made a faster transition to a fully urban transit oriented city.

    Look at the weird things going on with NYC’s recent zoning changes. Large areas near transit were upzoned and there are all kinds of car limiting strategies–great, great awesome! But, then at the same time low density areas like Bayside, College Point and Belrose near the border of Nassau County pushed for down zoning and car oriented policies.

  14. DetBurbs says:

    “Indianapolis has several downtown zoning classifications that are most assuredly not suburban:”

    Don’t confuse zoning classifications with development standards. One can allow urban core density without requiring the elements of urban development that yield a livable downtown. I’ve only been to Indianapolis a couple of times but I found areas close to downtown unwalkable, including one notorious area that was featured here in a critique of Indy’s development standards. I’ll leave it to the Indy locals to hash out this battle but from my limited experience, Indianapolis has a ways to go in that regard.

  15. cdc guy says:

    In Indianapolis, the zoning code spells out development standards for each zoning classification. They are inextricably linked.

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