Consolidation may not save money for local governments

Feb 4, 2014

Last month’s budget proposal address saw Governor Cuomo put pressure on local governments to consolidate in order to reduce property taxes and save money.

The New York State Association of Counties is holding its legislative conference in Albany this week, and a new report on government consolidation is on the agenda. But, not everyone is convinced the move is a money saver.

In his budget address, Gov. Cuomo said there were more than 10,000 local government entities in the state and reducing that number will result in lower taxes and cost savings.

“Why is the property tax so high, because we have too many levels of government period. You don’t need any calculator to figure this out, when you have as many levels of local government as we have,” Cuomo said.

“So we want to freeze the property tax. Number one, to provide relief to struggling homeowners but number two, to incentivize consolidation and shared services.”

Mildred Warner, professor of city and regional planning at Cornell University, disagrees. Warner says the Cuomo plan assumes that efficiencies will be gained through consolidation.

But, she says, it’s more likely that savings will be realized solely through a service-by-service approach. For example, if highway departments share road work equipment, but snow plough services remain localized.

“Consolidation is like a really crude tool to use whereas service sharing is a much more fine tool where you say, ok for this service it makes sense, for that service it doesn’t so that’s why I’m going to go one direction or another.”

Warner says for cost savings to be realized, it all comes down to realizing economies of scale.

“An economy of scale is when your per unit cost of service delivery drops as the population that you serve rises, that’s when you get an economy of scale. Consolidation can only achieve cost savings when you have an economy of scale that you have not yet realized, which means that when you have two units consolidating into one, your per unit costs of service delivery are going to drop. That’s the only place cost savings can come from if you’re going to keep your quality and quantity of service the same. Now if you’re going to reduce the quantity and quality of service, that’s not a real cost saving, that’s a cost transfer.”

Kevin Gaughan, a government reform advocate from Erie county, sees it differently.

He says the argument that this kind of government restructuring doesn’t result in savings is similar to claiming fewer calories won’t result in weight loss.

“I disagree with the rather creative assertions that some would proffer that reducing government size is not going to result in reduced taxes. It is the only reform that will result in reduced taxes in my experience.”

But, Warner says the solution lies at the state level, not with local governments.

“New York state pushes down the financial responsibility for service delivery to the local government level more than any other state in the union, and that’s why our taxes are higher at the local level because things that other states pay for, New York state makes local governments pay for.”

Warner says it’s time for the state to step up and take some of the burden off local governments.  

Gov. Cuomo’s office says consolidation is not the only option available for local governments to meet the 3% cost savings outlined in the budget address. Service sharing and other creative approaches may also be employed.

“Homeowners will be eligible for the property tax freeze if one, the local government stays within the 2% cap, so it is an incentive for the locality to stay within the cap. But number two, the local government implements an approved plan to save at least 1% a year for three years and a total of 3% reduction in cost. So what this really then lays out is a five year plan,” said Gov. Cuomo during his budget proposal address.