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Shared Services

Do Taxpayers Expect
Too Much?

Greg-Fehrenbach
By Gregory C. Fehrenbach
Coordinator, League Interlocal
Cooperation & Management Advisory
Service and Principal, Government
Management Advisors, LLC

people shaking hands

Are statewide office holders expecting and promising excessive savings from shared services?

Since the tax levy caps starting in 2007 and the special legislative sessions of 2006 there has been much made of the ways in which municipalities might relieve municipal property tax payers of their perceived excess property tax burden through the sharing of services among municipalities.

Several speakers in August 2006 informed the Joint Legislative Committee on Shared Services and Governmental Consolidation that the extent to which sharing services might save taxpayers’ monies, while important, was not really significant. Their testimony, that was true then and even truer today, referenced the average portion of a property tax bill that is within the control and responsibility of a municipality to be about 25 percent.

On an average property tax bill of $10,000, this meant that the base bill we were dealing with was about $2,500. Based on a couple of decades of experience, recent research work and studies, the speakers opined that one might expect to see savings of about 10 percent if significant services, such as police and fire, were shared.

  These opinions came from the Somerset County Partnership’s experience encouraging sharing of services and national research on shared services. Would taxpayers actually believe that a savings as high as $250 in the first year of a sharing agreement, which will diminish over time, could be sufficient to give up their own service? To save more money, would they be interested in consolidating with a neighboring municipality? Branchburg Administrator Gregory Bonin, a long-time participant in the Somerset Partnership’s sharing efforts noted in testimony before the committee that “Shared services are crucial to defraying taxes, not to solve them.”

Interlocal Services, or shared services as they are called today, have been used by local government officials to lower the cost of services since the 1970s, at least, and probably have been used earlier. This is not a new concept for dealing with local government management issues. It has always been and will continue to be dependent on the idiosyncrasies of the participating municipalities. Sometimes shared services produce sufficient savings and sometimes they don’t.

While after 40 years of studies and attempts to consolidate, the Princetons have finally decided to do so; this does not seem to be the mind set of residents and leaders of other municipalities who have recently explored this option. From a public policy perspective, we must recognize that New Jersey is composed of many municipalities because the residents of those municipalities want it that way. As a democratic political system, they have the right to want inefficiency in the structure of their government. They like the individual character of their borough or their township. Many do not wish to be incorporated with their neighbors. Why this is the case is not clearly evident to many of us, but this is reality.

While courting the idea of requiring consolidation in 2006, the Legislature came to the conclusion that forcing municipalities to consolidate was both impractical and unrealistic. They opted for the Local Unit Alignment, Reorganization and Consolidation (LUARC) Commission to encourage consolidation and sharing of services. The Uniform Shared Services and Local Option Consolidation Law was also passed to reduce the hurdles to sharing and consolidating.

Today we are in a more difficult financial condition. What do we need to do?

First, we must change our expectations for savings through shared services. Expectations of tax payers must be realistic. We must educate them accordingly. Although extolling the savings possible through shared services might make a good sound bite for state officeholders, their hyperbole raises false expectations.

Second we must make these statewide office holders understand that residents demand and expect services. Many municipal services have been reduced or eliminated just to stabilize or lessen property tax increases. The public, listening to this hyperbole, seeks cuts in their property taxes, not reduced increases.

Third, most of us as local government managers accept that there is constantly a need to improve efficiency in the management of any organization. We are familiar with the need to discarding the unproductive activities of an organization to focus resources on the more productive or innovative activities. This concept is called “creative destruction” by economists.

While sharing of services not a panacea for the current concern about the cost of government, it must continue to be an ingredient in the overall pursuit of more cost-effective government. So where do we look for sharing opportunities in the future? The following are some suggestions.

Towns should consider regionalized local public health services and shared or joint municipal courts. Both areas of consolidation tend to be popular with the public and there are a number of opportunities still untapped.

Leaders also need to accept the reality of shared service outcomes. When it appears that the “other partner” in a shared service partnership will save more money, the negotiations should not break down. Instead, each side should negotiate for the best possible allocation of savings and then move ahead to save something for taxpayers and residents.

Also, keep in mind that ironing out the problems in a shared service can take time. Be sure to allow enough time in the sharing agreement, so

the parties must stay “married” for a sufficient time to manage the inevitable problems that will arise in the new relationship. I recommend at least three to five years.

Finally, if the savings are not what were expected, analyze the conditions to determine why this happened. Can it be fixed or modified? Do not attempt to reject the sharing agreement because it failed to meet expectations. Modify the operations to move closer to the objective.

Another way to save money on services is to work with another level of government to provide services on a more regional scale. For example, more counties should consider offering their municipalities fleet maintenance services, as Somerset County does. In addition, the counties could offer road paving services, as Middlesex County does. Ocean and Sussex counties’ county-wide library systems are models that many other municipalities might consider.

While you consider the savings available through consolidation, also recognize that “bigger is not always better.” Studies at Syracuse University have shown that there is an optimum size for a school district. Those smaller and those larger than the optimum size experience inefficiencies which grow as the district gets smaller and larger. The same concept probably holds true for municipalities as well.

 

First Published in New Jersey Municipalities, Volume 90, Number 3, March 2013

 

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