**From GOVERNING's Outlook in the States and Localities 2010**

"Consolidate, consolidate, consolidate." If there was one overarching theme of the first day of Governing's Outlook on the States and Localities conference (being held this week here in Washington, D.C.), it was the idea that cities and counties must work together if they're going to survive the current economic downturn. Everyone who spoke agreed on one thing: The key to reducing costs is consolidation.

"Perhaps now more than ever, cities and counties have got to get together," said Memphis mayor A C Wharton, Jr.  "There's really no room for division between our cities and our counties, given what we're up against. We need to pursue with as much vigor as we can the functional consolidation of services."

But don't expect any full-out city-county mergers coming anytime soon (although that is something Wharton is pursuing for Memphis and Shelby County). Rather, look for more and more cooperation between cities and counties in information technology and procurement, as well as in providing services such as health care, education and public safety. "I think it's highly unlikely there will be more consolidations" of governments into a metropolitan city-county unit, said Don Borut, executive director of the National League of Cities. "People identify with the city where they live, and that's not going to change."

Of course, what's driving this push for shared services is the current economic recession. And if anyone at the Governing conference has been hoping for good news on that front, they must have been roundly disappointed. The economy as a whole may have flattened out and may even be starting to recover, but for cities and counties, the worst is still to come. "It's fairly bleak," said Chris Hoene, research director for the National League of Cities. "We're really right now just heading into the eye of the storm."

Because city and county revenues lag the general economy by 18 months to two years, the revenue stream for governments is only going to get worse. "Over the next two to two-and-a-half years, we're going to see a significant decline in property tax revenues for cities ans counties," Hoene said.

To put this in context, Hoene pointed out that the recession in the early 1990s hit its low-point in 1991. Local government revenues, however, didn't bottom out until 1993. That's why, according to Hoene, cities are looking at a $50 billion - $85 billion budget gap for 2010-2012.

As cities and counties struggle with epic deficits like that, the functional consolidation of services is increasingly going to become a necessity.