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How to Reduce
the Costs
of Services

Marc Holzer  John Fry
By Marc Holzer, Dean, School of
Public Affairs and Administration (SPAA)
at Rutgers-Newark, Executive Director pf SPAA's
National Center for Public Performance (NCPP)
& John Fry, Director, NCPP's Shared Services Institute

This article is based on a white paper prepared for the League’s Educational Foundation. The complete paper can be found at www.njlmef.org/FoLG%20v2_1.pdf.

In a time of fiscal stress, the primary goal of improving municipal service delivery must be efficiency—cutting the costs of government. Of course, cost-cutting jeopardizes other goals of government service delivery such as equity, democracy, quality and local control. Alternative mechanisms for service delivery emphasize different goals and vary in cost reductions, providing our motivation for examining them.

Defining Service Levels Local government determines how a service is accomplished, how much it costs, how it is funded, and even whether it is delivered by government. Solid waste pickup and recycling is a good example because of the range of delivery provisions in New Jersey:

• Once a week pickup curbside
• Twice weekly pickup
• Backyard pickup
• Collection through a utility with user fees
• No provision of service. Public may pay a private carter directly for service.

Provision is the determination of the nature and the funding of the service; production is the actual delivery of that service. The most common form of production in New Jersey remains direct delivery of service. Contracted service is a growing method of production: through a private company, a shared service contract, or another form of government collaboration. When a municipality relinquishes production responsibilities, it usually retains provision responsibilities, paying for and specifying the service through a contract.

Seeking Improvements in Service Delivery Through Structural Changes Service consolidations can be cost effective or improve the quality of the services delivered, or both. “Economies of scale” can play a part, but often not in the simplistic manner assumed by many.

When consolidating a service, and not merely sharing equipment, a municipality will find that the effect on salaries and benefits will mean staff reductions, either when the services are consolidated or with a practical attrition-based plan. Our research demonstrates successes even in the difficult arena of public safety, which has a strong labor tradition. Ironically, the literature suggests that police services are not affected by economies of scale, because they are labor-intensive, rather than capital-intensive services (which are affected by scale).

A consolidated department reduces costs when it is smaller than the total of the pre-merged departments. Smaller departments require excess capacity at some times in order to have adequate capacity at others. The larger consolidated department has flexibility to respond to absences, ancillary activities, and demand peaks. The logistics of coverage also benefit crossing the borders.

The notion of excess capacity is important, and perhaps more fruitful than economies of scale. Sources of excess capacity include absences, response to events, and infrequent tasks requiring a high level of expertise or specialized equipment. Building on the example of police services, providing detective skills and crime lab analysis in a small municipality can yield poor quality in the service or high cost for the underutilized service, but collaboration can make such services available and fully utilized. Regional or county-based solutions are common in other states and are getting attention in New Jersey.

To Find the Answer, One Must Understand the Problem Municipalities need to analyze their services to determine where there are excess capacities, unmet needs, or other misalignments between the service and the needs. Characteristics of services differ:

  • Some services can be scheduled; others cannot, requiring response to unpredictable demands. Fire response is different from
    fire prevention.
  • Some services are needed universally and simultaneously by all municipalities (seasonal leaf pick-up).
  • Some services require a high level of expertise or specialized equipment, but are needed infrequently (crime lab analysis).
  • Some require expensive infrastructure (sewer treatment).
  • Some are transaction based, depending on labor in an amount proportional to the workload, negating the benefits of economies of scale. Many tasks in court administration require resources proportional to the number of summonses, but other costs of courts may be spread with a greater workload.

Services are analyzed at a task level, rather than at a department level, recognizing the same individuals may perform tasks with different characteristics. For example, a patrol officer, in addition to routine patrol, responds to calls and crime activity, attends court, and completes administrative tasks. The specific combination of the characteristics of any service may suggest particular delivery mechanisms.

An Array of Answers While we caution against finding the answer and applying it despite the nature of the problem, the first step of an analysis of the services is informed by understanding the available delivery tools. In addition, it is important that practitioners in New Jersey are aware of some “best practice” mechanisms that are effective in other states or countries.

A municipality can involve other governments in the production of the service at a lower per unit cost, while retaining the responsibilities of provision, thus controlling and monitoring how their citizens receive the service. Shared Services, the most common arrangement, is a contract with one partner as the lead agency, responsible for producing the service and paid by the partner that receives the service.

Joint Services involve all partners in production and share costs through payment mechanisms in the agreement, usually specified by allocating different parts of the costs as direct payments rather than as payments to the lead partner. Because the responsibility for production is not relinquished, loss of control is reduced. Joint services work when there is good cooperation and a practical reporting relationship to all partners.

Municipalities can form a Special District to deliver one or several related services. An appointed or elected board makes the provision decisions and oversees service production. In New Jersey, special districts include Authorities, Commissions, Fire Districts, and Joint Meetings. This new government duplicates an existing administrative structure and is removed from direct control of the municipality. Many states are dissolving special districts because of costs, redundancy, mismanagement, and loss of local control. Regional Special Districts can provide economies, when size is a factor, offsetting administrative redundancy.

Outside of New Jersey, other variations in the creation of a separate entity to deliver a service address issues of local control and service monitoring.

  • A Joint Board produces one or a few related services. Participating municipalities retain provision responsibilities, determining the amount, quality, and cost of service. Electing representatives increases local control over the service, compared to other forms of special districts.
  • A Virtual Government cedes the production of all services to an administrative service center, with no board, since the virtual governments retain responsibilities for provision and maintain a small staff to monitor service delivery.
  • In the Agency Model, the municipality retains responsibility for provision, but a central government controls the overall cost of all services for the municipality, usually based on a formula. A municipal provision decision must be offset in another service, so the total cost of all services does not change.
  • Centralization is less common in New Jersey than in other states with a tradition of county provision and production of various services. Centralization precludes administrative duplication, because administrative capacities already exist in the county.
  • Regional Policy Groups (a Council of Governments is an example) provide representation of all constituent municipalities to oversee the production organization. A regional policy group is usually advisory, is concerned with multiple services, and often promotes new areas of collaboration.


Alternative service delivery mechanisms which do not entail collaboration with another government include Privatization, Franchising (the municipality defines the parameters of provision, but does not fund or produce the service), and Co-production (volunteer organizations or homeowner associations may be responsible for aspects of service delivery). Joint Contracting (the municipality produces some of the service, perhaps in specific areas) or well-specified agreements address concerns about relationships affording less control than those with another government.

What Can You Do in Your Municipality? There is no formula as to how best to align a service delivery mechanism with the characteristics of a particular service. Studies of consolidation or shared services must be rigorous and comprehensive; they must be undertaken without preconceived assumptions about cost-saving conclusions.

The Division of Local Government Services (DLGS) has good materials on its website (www.state.nj.us/dca/lgs/share/index.shtml), but it lacks information quantifying the success of the collaborations in which it has assisted. Municipalities can help by documenting costs and service levels both before and after collaboration, providing this information to DLGS following implementation.

County Shared Service Offices have demonstrated their worth in many counties, both as a clearinghouse of collaboration needs and as a technical resource. Additionally, managers and consultants who have studied and implemnted collaborations can provide guidance.

Community Services Profiles can provide a base for initial discussions or feasibility studies with potential partners. The profile details how and in what quantity a town delivers its services and provides some basic indicators of workload or output to evaluate the effort expended.

Whatever is decided, it should be the best alignment of the service delivery mechanism to the service characteristics. It should also consider the specific conditions in your municipality and take advantage of scenarios as they unfold.


Marc Holzer is Dean of the School of Public Affairs and Administration (SPAA) at Rutgers-Newark, and the Executive Director of SPAA’s National Center for Public Performance (NCPP). He may be contacted at mholzer @rutgers.edu. John Fry is a former municipal administrator and the Director of NCPP’s Shared Services Institute. He may be contacted at jfry76@comcast.com.

 

This article appeared in New Jersey Municipalities, Volume 87, Number 6, June 2010

 

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