Is Government Consolidation Always Good?

In tight times, governments push for more centralization. But it doesn’t always produce the positive results that are hoped for.

Over the course of the last four years, the 911 call center in Kent County, Mich., has been merging steadily with a similar operation in nearby Grand Rapids. Although there have been critics of the consolidation, reports thus far seem to indicate that the effort has a good chance of ultimate success. Once complete, the merged system should increase efficiency and provide superior service.

This Michigan case is far from unique. In the past few years, the idea of consolidating operations has been steadily gaining steam, often in specialized service areas. “We are not seeing wholesale consolidation of general purpose governments,” says Chris Hoene, director of research and innovation at the National League of Cities. “It is harder to do and gets mixed up with state government laws.” However, regarding the narrower form of consolidating specific services, he hears people talking about that almost everywhere he goes.

“Consolidation will be a big talking point for local politicians this year,” a story in The Grand Rapids Press noted recently. “As municipal budgets shrink, it’s seen as a no-brainer by many.”

As we’ve been hearing more and more about the potential benefits of consolidation, which inevitably leads to greater centralization, we’ve thought back to dozens of past interviews with officials in cities and states that had made great efforts to decentralize their government functions. They had offered up a litany of compelling reasons why they were better off that way -- keeping service closer to the population, they had said, can best serve individual populations as they have more autonomy to tailor their practices appropriately. There also tends to be fewer layers of oversight in a smaller entity, which can help speed things up. Smaller entities can also be more nimble.

So the question arises: Were they wrong? Is it possible that the silver bullet of central control is just silver plated?

One thing seems abundantly clear to us. Although there’s a lot of discussion about the idea that centralization will improve the quality of the services themselves, sometimes that line of argument seems crafted to help sell the idea. The real impetus for this trend has far less to do with the quality of the services and much more to do with budgets. “My experience on these questions of consolidation is that they are often motivated by cost savings,” says Michael Jordan, Oregon’s chief operating officer and director of the Department of Administrative Services. “Practically every state is [asking], ‘How do we squeeze another dollar out of our budget?’ I think you do see people rush to the conclusion that centralization is the answer.”

A former state official in Texas ticks off a variety of flaws with this knee-jerk move to centralization -- flaws he’s seen exposed during his years of service.

— The cost savings are often overstated in order to get legislators or other officials to agree to the change.

— The consolidations are always harder than they seem at first and always take much longer than anticipated.

— Sometimes the consolidation or centralization has to be undone. Either it isn’t working out, the state risks forfeiting federal funds or officials risk angering key constituencies. That happened when Texas consolidated agencies within its Health and Human Services department and ended up backtracking.

— Though a lot of these efforts are sincere, there’s a kind of magical thinking associated with them that says, “We have 200 agencies. Surely we can consolidate them by 10 percent.”

One other major problem with centralization, of course, is that the folks who are being squished together may not be altogether happy. In Ohio, the Kasich administration has been pushing to have the state take over billions of dollars in local income tax collections. The reason Gary Gudmundson, spokesman for the state taxation department, gives is a concern that, since the municipal income tax is so widespread and so varied from city to town to village, it’s a burden on business taxpayers who have to function in many different locales.

But officials in the municipalities are worried. They fear that the state won’t do as good a job at auditing and enforcement as they do. Additionally, they’re concerned that the state could take a larger chunk of the tax revenues for administrative purposes than it currently costs the municipalities.

Both sides make good points. It’s sensible for a government to want to minimize tax compliance burdens for big companies. And it’s reasonable to worry about how this will affect the bottom line.

That’s why we’re not arguing against centralization. Clearly, there are a number of instances in which it can be a valuable money-saving technique that may even improve service quality. Our concern here is simply that it seems to be used as a one-size-fits-all solution. It isn’t. It needs to be preceded with rigorous analysis and thought.

We think the only stakeholders who are inevitably big winners in the centralization versus decentralization debate are the consultants. They can find the rationale to advise their clients to move away from whatever they’re doing now -- and then collect a fee.

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