Making Shared Services Happen

Despite a national robust economy, many local governments are coping with budget operating pressures and persistent funding shortfalls. This is especially true for many distressed communities that have not shared in the economic expansion. These municipalities have faced stagnant revenues for years and have struggled to reverse tax base contraction, even in the strong economy.

To address these pressures and secure new efficiencies, state and local officials are turning to shared services. In New Jersey, Governor Murphy has appointed a shared services “czar.” In New York, Governor Cuomo is expanding existing shared services initiatives citing the new federal tax laws as reasons to reduce local spending. Other county and local governments across the country have set up shared services panels and related programs to streamline costs.

Intergovernmental cooperation and sharing services are not new ideas. Though it is getting renewed attention now, governments have been trying to eliminate redundancies and/or enhance services through intergovernmental provision arrangements for a long time. So, why don’t governments work together more often?

First, intergovernmental cooperation agreements are probably more common than most citizens think. Local governments cooperate in many areas including multi-jurisdictional utility authorities, procurement and joint-purchasing, fund balance investment, regional transportation, tax collection, and even simple equipment sharing. It is even becoming more common for municipalities to create regionalized police and fire departments.

One of the more common forms of intergovernmental cooperation is regional economic development and planning. ESI was part of a team that prepared the first-ever joint Comprehensive Economic Development Strategy for the City of St. Louis and St. Louis County. The City and County recognized that as economic drivers of the region, their prosperity and future direction are intrinsically linked. Collaborating on economic development was a low-risk/high-reward proposition. The two governments engaged in the process that jointly identified key issues, challenges, and desired outcomes are still working together to implement their high-level strategies.

There are plenty of examples of successful intergovernmental service stories; however, these arrangements still often face resistance. There are many challenges to implementing shared services, but the most significant obstacle may be the lack of incentives to pursue shared services in the first place. Shared services initiatives often require an upfront investment, especially initiatives that are capital intensive. Return on the investment, especially in terms of future cost savings or enhanced services, from such activities are sometimes unclear, which gives decision-makers pause.

Political concerns and loss of local control are another major obstacle to intergovernmental service arrangements. Even with the successful implementation of a shared service initiative, elected leaders often face the public perception that local residents are the “losers” in a deal with a neighboring jurisdiction. There is often the sense that the net benefit of an agreement is one-sided with the stronger partner subsidizing the weak. Moreover, shared services can pose a threat to local fiefdoms. Eliminating redundancies may mean fewer contracts and employees to hire. Also, streamlining services may also mean laying off existing employees, which some leaders are reluctant to do.

There is no cookbook recipe for implementing a shared service program, but most successful efforts typically share common characteristics. After a business case is made for more efficient service provision, a pragmatic approach is essential to successful implementation. Any shared services initiative must be politically feasible. Favorable financial models and expected economies of scale do not matter if the project is not politically realistic or otherwise unimplementable.

ESI recently worked with a municipality that is pursuing regionalized fire service. A similar initiative was attempted several years ago but failed for a variety of reasons, but ultimately because a lack of political will. Now, the deteriorating fiscal position of the municipality is creating a new political dynamic both for elected officials and the firefighters at the affected fire companies. Unfortunately, as in this case, short-term political realities don’t always align with the long-term interests of the community.

A successful shared service initiative will also target the right services. Municipal administrators should ask themselves, What projects offer the highest likelihood of success? What does success mean? Is the project capital intensive or labor intensive? Is the project frontline/resident facing or does it support the back office? The answer to these questions will depend on the circumstances.

Finally, localities can maximize the chance for success by working with communities they already do business with. A shared service arrangement obviously requires two reliable partners, so working with another municipality where trust is already established is common sense. Especially for communities without a long history of sharing services, municipal officials should start with smaller, more manageable shared service initiatives with familiar partners and build towards more complex, but rewarding, arrangements.

 

Daniel Connelly is a Director at ESI and has over 15 years of financial consulting experience at the federal, state, and local government levels. Prior to joining Econsult Solutions, Mr. Connelly leads engagements such as five-year financial planning and budgeting, financial feasibility studies, and strategic planning. Mr. Connelly currently works on the financial Recovery Coordinator teams for the City of Chester and Borough of Colwyn.

 

Brooke QueenanBrooke Queenan is an Associate Director at ESI. Ms. Queenan is involved in a variety of economic development and public policy projects including assignments focused on evaluating affordable housing policy and government reform and oversight. Ms. Queenan has municipal consulting experience and assists communities through both the Pennsylvania Department of Community and Economic Development Early Intervention and Act 47 Financial Distress programs.

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