A roadmap for government transformation

Baker Tilly recently had the honor of directing an initiative on behalf of the Local Government Institute on innovative approaches to government transformation. In particular, we were charged with developing a roadmap for local officials to maintain or enhance the delivery of governmental services without raising taxes. This initiative culminated in a roadmap for Wisconsin government leaders to use to proactively encourage movement at the local government level on alternatives for municipal service delivery. The full report can be downloaded from the State and Local Government page at BakerTilly.com. Government page at BakerTilly.com. You can read about the reasons for the effort and the specific recommendations below.

Why is transformation critical?

The need for transformation rests on three fundamental challenges facing local governments:

1. Increasing tax burden, coupled with increasing demand for services, creates instability for local governments.
2. The current approach to local government venues creates difficulty in addressing issues of a regional nature.
3. Wisconsin's economic competitiveness is declining due to increasing tax burden, and a misalignment between jurisdictions, service and revenue sources, and the difficulty in reaching agreement on regional investments.

These challenges are intensified as the transition to a global economy matures and the anticipated economic recovery period lengthens. In short, more market competition and weaker state and regional economies caused by economic downturn, negatively impacts federal, state and local revenues, further expanding existing municipal budget gaps.

What myths exist?

Our research shows the following myths to be unfounded:

• The number of units of government correlates directly to per-capita expenditure levels Based on our review of per-capita costs provided by the US Census Bureau, it appears that factors other than number of local units of government driving per capita expenditure levels.
• Sales tax is the only answer Analysis of changes in tax revenue shows that sales tax revenue collections were among the most volatile of municipal revenue during the past decade. Those with a mix of tax sources experienced less of an impact on overall revenue.
• Only the private sector can impact economic growth Many of the factors evaluated by businesses seeking to expand or locate into a region are, in fact, impacted by how governments in that region approach government service delivery. The ability of local, regional, and state government to offer required services and quality of life within an acceptable operating structure has an impact on a region's capacity for economic development.
• All local governments are not efficient The case studies we conducted show that many local governments within and outside of Wisconsin have already come together in collaborative or innovative arrangements to reduce costs and enhance services. As budgets become tighter, we are hearing clients discuss and consider consolidation opportunities, be it within a functional service area or through creative arrangements with public and private entities. However, there are many more opportunities to provide services regionally or through cooperative arrangements.

What is possible?

It is a fact that the current fragmentation of government service delivery drives cost upward. Functional consolidations and/or cooperative actions most often result in significant cost avoidance and/or reduced annual expenditure increases. In other words, avoided capital costs for duplicative buildings or specialized or costly equipment can reap considerable savings or create economies of scale for the tax payer when considered on a regional basis. For example, a combined county dispatch center often results in significant reduction in the costs for the dispatch system; with radio consoles often costing a quarter of a million dollars each.

Also, containment of annual increases in expenditure budgets is one of the most significant fiscal impacts of delivering service through a more consolidated or collaborative approach. If you have the ability to spread work among a larger staff, staff additions can be delayed, again, positively impacting the annual operating budget.

Further, the ability of local governments to encourage and positively impact economic competitiveness starts with the ability to think of service delivery and program/function oversight on a regional basis. In addition to the research we did in examining more than twenty case studies, both within and outside of Wisconsin, the Brookings Institute recently prepared a study of required state strategy which outlined the need to catalyze transformative changed in governance to lower costs and boost competitiveness as a key element in Restoring Prosperity to the State of Ohio. Specifically, the report advocates for changes in how state and local governments organize themselves given the opportunity to "free up scarce resources to meet more pressing priorities, save taxpayers money, and . . . align government with the metropolitan scale at which the modern economy operates."

What is required?

While each situation is unique and each community must determine whether or not it can support cooperative efforts make sense for them, there are several factors that are common among successful intergovernmental cooperation. Those factors include:

The report encourages several action steps to establish these success factors. Among our key recommendations are the need to:

• Support the creation of Legislative Council Study Committees on Regional Collaboration with the aim of creating enabling legislation for special taxation districts where necessary.
• Create revolving loan funds or other mechanisms that can support the start up costs required for consolidated services.
• Evaluate alternative local government revenue options to encourage regional distribution of resources.
• Address the fight over tax base by providing financial incentives to negotiate boundary agreements.
• Modify the Municipal Aid program to incent regional or consolidated service delivery for highly suitable functional areas.

While consolidation or cooperative efforts can be accomplished across all service delivery areas, there are certain functions that are more suitable based on the community and/or region's situation. For example, if operating cost reduction is the largest driver of the need to explore cooperation, law enforcement, public works, and highways should be considered given the ability to realize the largest savings in absolute terms. However, if geographic limitations play a major role then parks and recreation and information technology may warrant careful consideration.

The case for change is compelling, and the opportunity for innovation and transformation is great. Ask yourself, "What legacy will I leave the community I serve?"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.