Cost Ramifications of Municipal Consolidation: A Comparative Analysis

By Martin, Joseph; Scorsone, Eric A. | Journal of Public Budgeting, Accounting & Financial Management, Fall 2011 | Go to article overview
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Cost Ramifications of Municipal Consolidation: A Comparative Analysis


Martin, Joseph, Scorsone, Eric A., Journal of Public Budgeting, Accounting & Financial Management


ABSTRACT. In 2001, the first municipal consolidation occurred in over 100 years in Michigan between two cities and one village in Michigan's rural Upper Peninsula, forming the City of Iron River. The three units of government combined to have a population of 3,391 within the newly incorporated boundaries. Driving the consolidation was continual population loss and erosion of the economic tax base of the individual municipal governments since the 1960s. This study sought to assess whether, five years after the consolidation, the governments had saved money as compared to a peer group of governments in Michigan. The findings indicate that the new city of Iron River was able to provide some evidence of cost control and savings following the consolidation.

LOCAL GOVERNMENT CONSOLIDATION

Local government consolidation has been a constant running theme in public administration and public finance for nearly a century. Over that period of time, claims and counterclaims regarding the cost and benefits of such consolidations have continued to occur. For example, state policies have generally sought to encourage school district consolidation in response to falling populations and declining economies. Although the pace of consolidation has declined since the early 1970s, data shows that the number of school districts in the United States fell from over 128,000 in 1932 to 13,506 in 2002 (U.S. Bureau of Census, 2002). Considerable research effort has been spent examining the cost economies of school district consolidation. The studies have found potential savings on administrative and instructional costs when moving from a very small district, fewer than 500 pupils, to enrollment levels between 2,000 and 4,000 (Andrews, Duncombe, & Yinger, 2002).

In the general government arena, there have been investigations of larger municipal jurisdictions' consolidation efforts and the potential impact on costs such as that of Jacksonville, Florida. A 1984 analysis of the city county consolidation in Jacksonville looked at the time period between 1955 and 1981 whereas the merger took place in 1969. The findings from this study indicated that cost savings and taxes were not exhibited as a result of the merger. In a study of Unigov in Indianapolis, Bloomquist and Parks (1995) found that there was little evidence of cost savings or tax reductions from that city-county consolidation. The articles that do exist on the topic of measuring and assessing cost savings from municipal consolidation appear to indicate evidence that such savings do not exist; this in spite of the enormous conceptual and anecdotal discussion that such savings are critical (Benton & Gamble, 1984; Brunch & Strauss, 1992).

IRON RIVER, MICHIGAN: A CASE STUDY

This paper seeks to extend empirical knowledge of the cost and implications of government consolidation. Given the infrequency of municipal consolidations in the United States, it has often been difficult to muster empirical evidence regarding this issue. In the upper peninsula of Michigan, a municipal consolidation occurred in 2000, the first one in over a century. This consolidation provides a test bed case study to assess the cost savings and arguments of the consolidation movement. The modern city of Iron River, Michigan, and the comparison units of this study are located in rural portions of Michigan's Upper Peninsula or northern half of the Lower Peninsula. Preconsolidation of the two cities and one village provided a unique opportunity to examine the potential cost savings from the consolidation of small units of municipal government (Table 1).

Michigan's Upper Peninsula is home to numerous small cities and villages that evolved from the iron and copper mining communities that flourished for over century in Michigan starting in the mid-1800s. Throughout this period, copper mining was prevalent in Keweenaw, Houghton, and Ontonagon counties. Copper mining in Michigan effectively ceased in 1969, although small operations continued until the last mine closed in 1997.

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Cost Ramifications of Municipal Consolidation: A Comparative Analysis
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