Topic: Miller College of Business

January 26, 2009

Consolidating local government agencies at the county level could reduce costs by an expected $622 million annually, says a new study by Ball State University.

"Local Government Reform in Indiana" finds that consolidating local governments as recommended in the Kernan-Shepard report would improve efficiency of various fire, police, sewerage and other services as well as reduce operational and administrative costs, said Michael Hicks, director of the Center for Business and Economic Research (CBER).
"Dissatisfaction with local government in Indiana has been brewing for decades," said Dagney Faulk, CBER's director of research, who co-authored the study with Hicks. "Residents perceive government spending to be out of line and consolidation is one way to address this.
"However, the savings could much be higher than we estimate if local government consolidation creates a better than average improvement in efficiency. In the end, merging these overlapping agencies would provide taxpayers with improved services at a much lower cost."
The study's findings focus on recommendations from the 2007 Kernan-Shepard Report by former Gov. Joseph Kernan and Chief Justice Randall Shepard. Many of the report's suggestions have been included in legislation being considered during the current session of the Indiana General Assembly.
Multiple agencies, less efficiency

Faulk and Hicks found government spending in Indiana's fragmented government was very inefficient. A resident may live in an area with as many as 11 local government taxing units, including county, municipalities, townships, school districts and other special districts. The study found that local government is less efficient in counties with an abundance of taxing authorities.
"The current structure of local government in Indiana is commonly viewed as resulting in unclear lines of authority, which limit accountability, decrease efficiency and increase the cost of government," Faulk said. "With property tax reform, spending caps and the corresponding local government budget cuts, many local governments are in a crisis climate and are considering some level of consolidation."
The study found that consolidation would cut annual costs for various services, including:

  • Fire services would be reduced statewide by $74.3 million, a savings of $12.07 per person.
  • Police protection expenses would be cut by $85.3 million, a savings of $13.85 a resident.
  • Sewerage savings would be $111.5 million, or about $18.11 per person.
  • Administrative expenses in counties with a population of more than 100,000 would be cut by $52.3 million, a savings of $8.48 per resident.
  • Libraries would see a savings of $62.7 million, or about $10.16 per person. 

The study also found that for smaller counties, the cost savings due to scale economies would be greater than for larger counties, but other types of inefficiencies are more extensive in Indiana's larger counties. 

In order to spur local government consolidation, Faulk and Hicks suggests that state government leaders review incentive programs implemented in recent years around the globe.
State government could create a consolidation transition fund that would authorize grants or the ability to increase a local tax to be used for economic development and transition purposes.
Another option is to reduce or remove state support for certain local government functions after a transition period. For example, after a set amount of time, townships and their associated counties that do not consolidate would lose financial support, or the township property tax levy would be incrementally reduced.
The authors believe the current economic climate will force Indiana lawmakers to take action on consolidation during the current session of the Indiana General Assembly.
"It would be simplistic to say that all the financial and organizational problems of county government would be immediately improved through consolidation, but we would see an immediate cost savings," Hicks said. "We are at a point in the recession that Hoosiers should seriously consider consolidating government agencies in each county in order to improve efficiency and cut costs."