It's Back
Like proportional voting, the idea of municipal consolidation (or amalgamation) never dies. Its promoters just hibernate during a backlash, only to re-emerge as the public's memory begins to fade. As we've noted in previous commentaries, there are a number of special interests who have much to gain from municipal mergers. [You can read the summaries of that series on amalgamation here.] So, they will continue to promote it whenever the opportunity arises. And, not surprisingly, we have heard it being discussed in several jurisdictions in recent months. That means it's time to dust off the results of previous consolidations as a refresher for those who may be put in the position of having to choose ... to merge or not to merge. For the benefit of our newer readers, I will start by ...

Putting the Question in Context 
In most of the world's democracies -- including Canada, Australia, New Zealand, and the U.K., consolidation is almost always top-down. That is, it's imposed on local governments by senior government. The major exception is the U.S. where, in a number of states, it can only happen if voters in the affected municipalities give their approval. That said, there is also variation among the states that we have examined. Of those states, Pennsylvania has rules which are the most people-first. [If you are aware of others with the same or similar protections, please let us know.] While our discussion today will focus on amalgamations mandated by senior government -- on forced mergers -- even the bottom-up consolidations which may occur in people-first states share some of the same problems. If there are problems with municipal consolidation, ...

What's the Big Attraction? 
If you haven't heard the 'siren song' already, the lyrics go something like this. Merging municipalities will streamline local government. It will make local government more efficient by reducing duplication, by ending overlap, and by reducing the number of politicians. It will eliminate 'harmful' competition among municipalities for new economic development. It will make local government more responsive to its citizens. And -- the icing on the cake -- it will save taxpayers money. When you first hear this song, its message may sound pretty compelling. But, before joining the chorus, it's not a bad idea to have ...

Some Sober Second Thoughts 
Since the lyrics of the siren song were examined line by line in Issue 01.25, I won't repeat all of that here. [You can read the summary of that commentary here.] Instead, here is an example taken from personal experience. I first became immersed in amalgamation in the early 1970s when our firm was retained by a town of 10,000 located in a county to the west of Toronto. Their municipality had been told by provincial officials that the province (Ontario) expected them to merge with their neighbours. When we contacted provincial officials to request their cost-benefit analysis for the proposed amalgamation, we were told that there was no need for a study since the benefits were self-evident. They claimed that, by reducing the duplication and overlap of people, activities, facilities, and equipment, improved performance would be a given. I must admit to having had some sympathy with their position. Over the years, I've been an avid reader of the business press. Back in the 1970s, the conglomerate was still the rage in business circles. Companies were still achieving savings by buying up other companies and merging them with their existing operations. And, that held even though many of the newly acquired were in different lines of business. But, the mayor of our client municipality -- who also ran a business -- reminded me that what works for business may not always work in government. So, ...

Who Was Right?
In addition to completing a cost-benefit analysis for our client municipality, our team (that included the accounting firm which conducted the analysis as well as a consulting engineering firm) also examined the track record of other forced amalgamations which had taken effect in 1971. The analysis concluded that the costs of the proposed amalgamation would outweigh its benefits for those in our client municipality. Nor did the examination of other forced mergers show any better results. Instead of improved performance, those limited savings which had been realized by the mergers were considerably less than the cost increases following consolidation. What the provincial officials had taken as a given and what experience in the private sector seemed to indicate did not stand up when it came to these forced mergers of local government. The mayor had been proven right. But, before continuing our look at the record of forced consolidations, there is an ironic twist from that early experience. As the late Paul Harvey used to say, ...

Now for the Rest of the Story
When the findings of our investigations were presented to the provincial officials who attended the council meeting in our client municipality, they said they were simply attending as a courtesy. One of them even joked that, if the mayor were so unhappy that the decision had been made already, there would be elections for the new municipality. And, anyone would be eligible to throw a hat in the ring. This turned out to be a case of 'be careful what you say' -- even in a joke of such poor taste. The amalgamation did proceed -- just as they said it would. What they hadn't expected was that the mayor of that small town -- the former Town of Streetsville -- later became the mayor of the amalgamated municipality, a position she holds to this day. Yes, this is Canada's best-known mayor, Mayor Hazel McCallion of the City of Mississauga. And now, you know the rest of the story. Well, not quite ...

How Have Other Consolidations Fared? 
To this day, we have yet to find a single merged municipality anywhere in Canada which outperformed its predecessors. And, from our discussions with those who have investigated mergers in the U.S., the experience has been much the same. Yet, despite the dismal record of mergers here in North America, I retain an open mind on the question. On a number of occasions, I have invited our readers to alert us to examples of merged municipalities -- forced or voluntary -- which have improved the productivity and accountability of their predecessors. Over the years, a number of candidates have been submitted. However, when the layers of the onion were peeled back, the bottom line was the same. That said, we have very little information comparing the before-and-after-merger performance of municipalities in Australia, New Zealand, or the U.K. So, I urge our readers in those jurisdictions to bring any potential candidates to our attention. In the interim, the question remains ...

Why the Difference Between Projections and Reality? 
In theory at least, it would seem that the economies of scale and their resulting savings should be there. And, there have been many studies produced by reputable firms which project significant savings if mergers occur. The only problem is that these projected savings never seem to materialize. This is not a slap at the consultants who did the studies. As a former consultant myself, I understand how an exhaustive study that showed potential annual savings of $400 million could be used by others to promote a merger which, in fact, resulted in no savings. And, it generated transition costs which are said to have exceeded the amount of those projected savings. That example is the 1998 Toronto amalgamation. The reason for the 180 degree difference between the projection and the actual is the product of the decisions made by those -- both elected and employed -- charged with mandating the merger and those charged with carrying it out. Cost-benefit analyses are rarely able to quantify this factor. Nor do most terms of reference given to consultants even request that input. So, the most comprehensive and diligent studies can be rendered valueless if policy-makers and central planners follow a different script. In Issue 01.26, there are more explanations of why municipal mergers have failed to measure up. [You can read the summary of that commentary here.] But, ...

What About All Those Private-Sector Successes? 
Even if we have been unable to find examples of successful mergers in the public sector, surely there must be many in the private sector which cannot be disputed. Well, as competition from Germany, Japan, and, to a lesser extent, the other Asian 'tigers' increased, companies here in North America began to scour their operations for improvements to make them more competitive. What they found shocked many observers. Company after company found that the value of the conglomerates they had created had become less than the value of the sum of their component parts. Even those organizations which had achieved real savings in the immediate aftermath of their mergers saw that those savings were quickly absorbed by the growth of bureaucracy. The initial savings were not sustainable over time. Those revelations led to major divestments as company after company sought to refocus on its 'core' business(es). Non-core components were spun off. Smaller was more nimble, more responsive, more productive, more ... profitable. Business owners across the continent were discovering that there were diseconomies of scale as well. All that said, ...

Where Does That Leave Us Today? 
I would welcome a demonstrated example of real improvement in municipal performance as a result of a merger. That's because such an example could be used to show those forced to undergo it how to make it work. Our Institute is interested in promoting any solution which can be shown to improve productivity and accountability in local government. What we lack to date is a proven amalgamation success story. Rest assured that, if you alert us to a potential candidate, we will be pleased to consider it. But, given the sorry track record of forced amalgamation here in North America, I trust that you can understand why we approach this subject with some skepticism. And, that takes us to ...

The Bottom Line 
Just because mergers have failed to live up to their billings doesn't mean that we should give up trying other ways to achieve economies of scale. The economies which seem to have eluded amalgamations are much more likely to be realized by sharing services and by other means of inter-municipal co-operation -- as long as these arrangements stop short of political union. 

*David Barber is Director of the Cordillera Institute, an independent public policy organisation dedicated to excellence in Local Government based in Canada.