Local Government Fragmentation: Potential Solutions from the GFOA

March 8, 2021

By Shayne Kavanagh 

Senior Manager of Research for the Government Finance Officers Association

Local governments spent about $1.9 trillion in 2017, collectively. This was more than all 50 states together when we remove money passed through to local governments. But, given the huge diffusion of power, and the vast amounts of money spent, it is reasonable to ask: “Is there too much fragmentation in local government? Could public funds be better used if there was less fragmentation?”

In the Government Finance Officers Association’s (GFOA) research series on local government fragmentation, this question is explored through the lens of the GFOA’s Financial Foundations for Thriving Communities. This framework is based on the Nobel Prize-winning body of work about how to solve shared resource problems, like local government budgets.  

In this blog item for the Government Finance Research Center, and as a part of the larger series to which it is hyperlinked, we explore the following four models as ways for improving coordination of resources between local governments. 

Networked Enterprises Single local governments often lack the authority, capacities, or resources needed to face all their challenges. This is especially true as local governments contend with tight budgets and more complicated problems like child literacy or drug addiction. 

In an effort to deal with these issues, local governments can turn to “networked enterprises” as a partial solution. A networked enterprise multiplies the collective power of the entities involved to achieve their objectives by tying them together in a system of mutual accountability. There are substantial gains available from wide-scale cooperation, and coordination is needed for the best use of shared resources.

A number of local governments are starting to rely on networked forms of organization to solve community problems, without the need for larger public budgets. Two examples of local governments utilizing this technique include San Bernardino County’s Community Indicators Report as well as the City of San Antonio’s Community Vision SA2020. 

Government as a Platform In a traditional governmental model, the departments of the government are the service provider. The concept of “government as a platform” focuses on a local government working with the community to determine its service objectives and then “plugging in” the most effective service provider, regardless of whether it is the local government itself, a private business, a non-profit, another public organization or even by the residents themselves. 

Based on lessons from the examples further detailed in the GFOA report, sharing services needs to be motivated by a clear goal. As a result, local government ought to share services with organizations where the interest of both parties are compatible. An example of this is the City of Englewood, Colorado which merged its fire services with the City of Denver, saving Englewood about $3 million annually.

The research surrounding government as a platform suggests that it can positively impact economization, efficiency and value. It’s also important to note that government as a platform requires some new capabilities, such as developing a program inventory, defining goals and standards for service, and managing contracts. 

Tax Base Sharing Resource inequities are a fact of life in local governments. The best-known examples of fiscal disparities, within a single community are those in school districts when schools are funded mainly by local property taxes and some districts have a higher value of taxable property in their boundaries than others. 

The same phenomenon exists among neighboring communities, which typically make efforts to provide similar services, but with sometimes dramatic differences in the resources available to them to do so. In the aftermath of the Great Recession, more local governments have recognized that regional collaboration can benefit everyone and is preferable to competing with other local governments for a piece of a stagnant or shrinking economic pie. 

Four models to address such resource inequities are tax-base sharing, regional revenue sharing tied to regional services sharing, removing inefficient development incentives that are all cost and minimalbenefit, and redistributive state-shared revenue. 

Consolidation This term refers to combining multiple local governments into a single, larger unit. Given the similarity in services offered by different local governments in the same region, consolidating those government into larger unit are intended to result in a better use of resources. 

Though consolidation is intended as a direct solution to government fragmentation, research suggests that consolidation of fragmented local governments has little potential to reduce costs. Technical costs involved in consolidating local governments are considerable. What’s more, since the efforts are often controversial, the political opportunity costs can be daunting. 

It should be noted, however, that this research should not be interpreted as indicating that consolidation never has efficiency or economization benefits – some smaller governments or a government facing unique conditions may find benefits in consolidation. 

There are a variety of considerations when it comes to dealing with fragmentation in local government. The above solutions are possible ways in which it can be addressed. I encourage you to visit the GFOA webpage dedicated to this topic. Here you can learn more about this research series, see additional examples, and share your feedback of the research and provide examples or contribute a case study based on your own experiences with local government fragmentation.