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Consolidation, Interlocal Cooperation and the Recent
Special Legislative Session

Gregory Fehrenbach
By Gregory Fehrenbacha
League Interlocal Advisory Service
See Caption Below
Interlocal cooperation is not a new idea that has just come into its own. It has been used to improve service and reduce costs for decades.

For decades, New Jersey municipalities have been pursuing cooperation with neighbors. Yes, there have been disagreements between municipalities about the location and impact of “ratables.” Yes, there have been the statements such as “my town is better than your town.” But when it comes to keeping the cost of providing services as low as possible, municipalities have eagerly sought to cooperate with their neighboring towns.

Signs of this have been everywhere. Informal public works agreements to share a piece of equipment or to help a neighbor during an emergency are long-time examples of interlocal cooperation. Mutual aid agreements among various fire or police departments in a region are another example. Regional health commissions such as the Monmouth County Regional Health Commission, county-based health departments and joint animal control programs are additional examples of these efforts started long ago that continue today. Interlocal cooperation is not a new idea that has just come into its own. It has been used to improve service and reduce costs for decades.
However, some legislators have seemed not to have noticed.

Special Legislative Committees
Speaker Roberts and Senate President Codey established four Special Joint Legislative Committees in the summer of 2006. One of these focused on Public School Funding Reform and another dealt with Government Consolidation and Shared Services. From early August until late October the dedicated members of these committees and their hardworking staff recruited experts, listened to both expert testimony and baseless complaining, showed enormous patience and forthrightly attempted to understand and explain to the public the vagaries of these subjects. Members sought to identify methods to resolve some of the conditions that appear to cause the present day crisis of the highest in the nation property taxes suffered by New Jersey’s weary tax payers.

Some members sought simplistic solutions that ignored obvious and known cost-drivers. Some even suggested that the decisions be removed from the hands of the governed because the voters could not be trusted to make financially prudent decisions regarding their local governments and school districts. As is often the case in a democratic society, extreme positions were tempered and milder actions were taken. By now many of us understand the results of this crusade by the Governor and Legislature to slay the property tax dragon. A recent poll suggested that less than 10 percent of New Jersey residents believe that the final actions will result in property tax relief. This is not the outcome that the legislators who gave of their time and energies expected at the start of this mission. This is not the outcome that residents of New Jersey hoped for either.

There are many ways to examine what happened over the past several months. Here the objective is to simply discuss the issues of consolidation and shared services as they were considered by these two special legislative committees.

Condition #1—NIMBY
From news reports and conversations it was quite evident that some elected state officials believed that the public was very receptive to the concepts of regionalization and consolidation. An article in late summer in the Star Ledger quoted a gentleman living in Jackson Township (Ocean County) who talked about the need to regionalize governmental services to save money. However, when asked about his own community, he did not see the need to regionalize. This anecdote points out one significant fact that was missed by some of those studying the issue: voters want others to regionalize, consolidate or take other actions to save themselves taxes. Voters clearly do not wish to regionalize or consolidate themselves.

Senator Bob Smith (D-Middlesex) offered a bill to consolidate administrative services for school districts at the county level. His proposal was quite reasonable. Economies of scale are presently enjoyed in Pennsylvania through the use of “Intermediate Units.” These “Intermediate Units” are agencies that sell non-educational services to school districts based upon the Unit’s ability to provide these services at a lower cost than the school district could acquire those services in the market place. These services include, among many others, joint purchasing, transportation and food services. The Intermediate Unit funds its operations with a small administrative fee it adds onto the cost-based fee charged to the local school district. In Pennsylvania, this system has been operating for over three decades. (The current New Jersey county educational services commission model could imitate the intermediate unit model quite easily.)

When the ideas of forced consolidation for local governments and school districts and county based educational services were subjected to public hearings around the state, the citizen reactions were quite negative and severe. This is essentially another case of NIMBY.

The League’s efforts to ensure that voter self-determination directs any regionalization or consolidation were successful due to the strong efforts of members, the outcry that accompanied the aforementioned public hearings and individual assemblies of citizens as occurred in Metuchen under the leadership of Mayor Ed O’Brien.

Condition #2—
“Money isn’t everything”

In 1996, voters in the Borough and Township of Princeton considered a recommendation from a Joint Municipal Consolidation Study Commission to merge municipal governments. The playing field was not exactly even. At the time, the merger would have financially benefited the borough and disadvantaged the township. Interestingly, the township approved of the merger while the borough, by a narrow margin, rejected the proposal to merge.

This experience points out that voters can choose the more expensive governmental arrangement for non-financial reasons, whatever those reason might be.

It is still not clear if the legislators sitting on these committees understood the meaning of this condition and how vital it is for citizens to self-determine their future, even if it does not satisfy a legislator’s concept of rational decision-making.

Condition #3—
“Bigger is not always better”

During these hearings, if it was said once it was stated 100 times, the economies of scale that would accompany merged municipalities had to save money for the affected residents. All municipalities had to do was consolidate their local governments and school districts. The benefits of a larger municipality would bestow financial benefits on its residents forever.

Pay no consequence to the testimony of Professor Slack from the University of Toronto who has studied and participated in the Metro Toronto process over the past 30 years. Pay no attention to the testimony of Professor Yinger of Syracuse University who has studied school district consolidation for much of his career. The legislators know that economies of scale work and they will work for local governments and school districts, was the policy response of the Joint Committee members. Because the aforementioned testimony did not meet their preconceived notions of efficiency, it did not seem that the members noticed its warning.

Professor Slack spoke convincingly about the reasons why consolidation should not be used to save money. She did however speak strongly in favor of consolidation to advance more rational transportation and land use planning on a regional scale. However, she warned the Joint Committee members that consolidation will not save any money: in reality it will probably cost more. If saving money is the Legislature’s intent, she advised that the Legislature should abandon the pursuit immediately. The Joint Committee did not heed her advice.

Professor Slack informed the committee that indeed there are apparent economies of scale achieved by consolidation. Duplication of effort can be eliminated. Specialization would increase efficiency. However, all of these benefits are lost as the result of the “harmonization of wages” and the “harmonization of services.” What did she mean by these terms?

“Harmonization of wages” is the effect of bringing together employees of different jurisdictions who have been compensated at varying levels but now work for the same entity doing the same job. The wages always rise to that of the highest paid worker.

Similarly, the “harmonization of services” is the effect of bringing together service recipients of different jurisdictions who have received differing services levels. In the consolidated government those who have receive once per week garbage collection will not accept continuing once per week collection when other residents are receiving twice per week collection. Therefore, service levels for all municipalities rise to that of the highest level provided to any of the consolidated municipalities.

In effect, the harmonization of wages and service eliminated any savings gained through achieving economies of scale. Actually, overall costs often rise as the result of this endeavor.

Professor Yinger appeared before both committees. Essentially, he testified that his study of school mergers indicates there is an optimal size for a school district, not an individual school. He found that as the size of school district increased from less than 3,000 pupils, economies of scale improved. However, as the size of the school district exceeded 4,000 pupils, diseconomies of scale occurred. He therefore concluded that the optimal size of a school district was between 3,000 and 4,000 pupils.

Condition #4—
“Experience does not portend relief from the property tax burden”

On the first day of hearings before the Joint Legislative Committee on Government Consolidation and Shared Services two experienced municipal managers informed the committee that committee members needed to understand the scale of the beneficial impacts that arise from sharing or consolidating services. While the Somerset Partnership strongly endorsed the benefits of sharing services within their county where the tool has been developed to a very sophisticated level, Gregory Bonin, Township Administrator of the Township of Branchburg, advised the Joint Committee members that the savings from shared services are small in comparison with the many sizable costs borne by local governments in the delivery of vital municipal services to their constituents. He talked about the frustration of property tax payers with their burden and the motivation this condition provides municipalities to seek cheaper solutions to problems. He strongly endorsed the use of shared services but cautioned the members that shared services were not a panacea to cure the property tax burden.

Reagan Burkholder, now the principal of Summit Collaborative Advisors, LLC, formerly the City Administrator for the City of Summit, echoed Mr. Bonin’s advice. Mr. Burkholder has been spearheading a performance measurement effort along with the managers/administrators of nine municipalities since 2003. These municipalities have been developing performance measures by which they will be able to measure increases in productivity and practices that reduce the cost of municipal services to their constituents. Participating municipalities include Aberdeen, East Brunswick, Maplewood, Milburn, Rahway, Scotch Plains, Sparta, Summit and Wall Township. Based upon the past two years of work with this consortium, Mr. Burkholder testified in August 2006 that the benefits of sharing or consolidating services would be worthwhile. However, the savings would not impact the tax levy very much. He told the Joint Committee members:

When analyzing solutions, I like to do the math. And the math suggests that meaningful savings—of 5 or 10 percent of the municipal budget —are not likely to come from shared services. Even sharing most towns’ most expensive service—police—does not yield meaningful tax relief. The math is just not promising.

The majority of experts have forthrightly and clearly informed the Joint Committee members that their objective could not be achieved by forcing consolidation of municipal operations. Assemblyman Robert Gordon (D—Bergen) responded that the testimony was “sobering.” Yet, the members continued to pursue their prejudiced hypotheses “that was gold them there hills.”

Advocacy by the League of Municipalities
The League of Municipalities primarily advocated the following in reaction to the position of the Joint Committee members:

  • Respect the constitutional rights of the state’s citizens to choose the local government in which they wish to live. Voters must decide the form of government under which they wish to live. Consolidation and forms of governance cannot be forced upon voters.

    While this might seem to be a rather basic concept in a democracy, some legislators were calling for new bureaucracies to force local governments and school districts to merge with others solely for seemingly beneficial financial purposes. In the end the final compromise made the recommendations of a state commission that will investigate opportunities for consolidation advisory in nature without imposing penalties on municipalities that do not comply with the advice.

  • Clearly and honestly examine the true costs of government. If the Legislature is going to achieve any relief for the property tax payer, they must closely examine the cost drivers. Since personnel related costs on average constitute about 70 percent of the cost of local government and school district expenses, they must begin to look there. Specifically, a special League committee of mayors and technicians have been pursuing improvements to the Binding Interest Arbitration law (affecting public safety unions) to lower the corridor of settlements and include the cost of increments in the calculation of annual increases. Efforts to advance this proposal over the past two years and during these legislative sessions were fruitless. Not only did legislators not consider the proposal, they would not even talk about any aspect of the matter. Does this not speak volumes about the effectiveness of certain special interest groups?

  • Do not diminish existing state aid that has failed to match inflation for the past decade. When the property tax makes up 50 percent of the revenues and all other revenues remain stagnant, if the budget rises by 3 percent, the property tax of necessity must rise by 6 percent! The legislators also failed to heed this advice as they decided to transform the Legislative Municipal Block Grant aid from a formula based grant to what will be in two years a “performance based grant program.” It should be noted that the performance standards have yet even to have been devised!

  • Support Speaker Roberts CORE legislation embodied in the original A-4 with recommended improvements by the League. Municipal governments have used shared services as a cost savings tool for decades in New Jersey. This tool offers an opportunity for modest savings and should be encouraged. The bill will eliminate impediments to advancing interlocal cooperation and facilitate consolidation processes for interested local governments. The Joint Legislative Committee accepted and appears to have agreed with this advice as have the Legislature and the Governor’s office.

Will the property tax burden affecting all residents of New Jersey be lessened as the result of these actions? The jury is still out and it will be some time before we truly understand the outcome of this work.

We, however, can do our share to affect this condition by seeking out every possible economy, regardless of the source. Increasing cooperation with our fellow municipalities is a modest but guaranteed way of “wringing out” whatever efficiencies might lurk in the services we provide. For example, take a quick look every once in a while at the website to see if a fellow municipality needs something that you have or has something that you need. This and other actions will ensure that we’re doing all we can to reduce property taxes in New Jersey.


Article published in New Jersey Municipalities Magazine, May 2007


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