Local Governments in Peril; ARM Industry Could Help

Mike Ginsberg

Local governments across the country continue to feel the financial impact of the most severe economic downtown since the Great Depression.  Plummeting property tax receipts, shrinking budgets and rising pension and health-care costs have pushed many municipalities to the brink of financial collapse.

The Wall Street Journal recently ran an article about some state governors taking matters into their own hands.  In Michigan, for example — a state with 1,773 municipalities, 609 school districts, 1,071 fire departments and 608 police departments — the governor is taking steps to bring about the consolidation of municipal services, even whole municipalities, in order to cut budgets and eliminate redundant local bureaucracies.

Various state legislatures are moving toward consolidation. The idea is that local governments can operate with fewer workers and smaller budgets if they do things like combine fire departments, create regional waste authorities and fold towns and cities into counties.

New Jersey, which has 566 municipalities, recently made it easier for communities to pursue mergers, and several states are contemplating similar rules. In New York, which has more than 1,547 overlapping local governments, the Senate passed a bill in 2009 that gave voters the power to consolidate local municipalities and services. In Indiana, which has 1,008 townships, a legislative panel earlier this year unanimously backed offering financial incentives to local governments that seek efficiencies through consolidation.

The concept of consolidation is not new; 27 such mergers have passed since 1902, according to the Wall Street Journal. The most recent was in 2000, when Louisville, Ky., merged into Jefferson County. In March, Memphis voters approved a merger of the city and county school systems, over strong suburban opposition. The county board of education has sued to block the merger.

While I applaud the efforts to find creative ways to cut costs and improve efficiency, researchers have raised questions about whether such consolidation actually delivers the results they are seeking. Typically, they say, only a few administrative positions overlap between jurisdictions, and further savings can’t be realized without compromising service. Instead of combining forces, some local governments are forced to increases taxes.

Earlier this year, half a dozen struggling communities in Oakland County, Mich. held votes on property-tax increases to avoid consolidation of services with neighboring towns or the county. All but one of the increases passed comfortably.  In Hazel Park, one of the county’s poorest communities, residents voted overwhelmingly for a five-year tax increase to avert deep cuts to the police and fire departments whose costs, including retiree benefits, account for 64 percent of the city’s $13.7 million budget.

All of this talk about consolidation and tax increases got me thinking if any of the counties sited in the article outsource their collection needs to third party specialists.  I called my friend and expert on government outsourcing initiatives Nick Bernardo (visit his site www.mygovwatch.com) and found out that some do and some don’t.

His records indicate that from 2008 to 2010, the states of NY and NJ have outsourced collections.  The cities of Louisville, Memphis, and the counties of Shelby County TN, Duval County FL, Miami-Dade County FL, and Oakland County also outsourced collections.

What about the others?  Why haven’t they turned to the experts to handle their collection needs instead of raising taxes, cutting spending and/or consolidating with other jurisdictions?  Seems like a no-brainer to me.

Mike Ginsberg is President and CEO of ARM advisory firm Kaulkin Ginsberg, and can be reached by email. The firm is celebrating its 20-year anniversary in the ARM market.