best practices in local government fiscal management · pdf filelocal government services and...

Best Practices in Local Government Fiscal Management

Local Government Services and Consolidation Issues

Tim Horner, Troy Cumings and John LogieWarner Norcross & Judd LLP

Government Consolidation IssuesWhat is government consolidation? Two forms.

Municipal consolidation.For example, a village merging with a township to create one municipality.

Service cooperation or consolidation between two or more municipalities.

Why is government consolidation relevant to emergency managers?

Local Government and School District Fiscal Accountability Act (EFM law) authorizes an emergency manager to:

Enter into agreements with other local governments, public bodies, or entities for the provision of services, the joint exercise of powers, or the transfer of functions and responsibilities.

Government Consolidation Issues

Enter into agreements with 1 or more other local governments or public bodies for the consolidation of services.Recommend to the state boundary commission that the municipal government consolidate with 1 or more other municipal governments if:

Consolidation would materially alleviate the financial emergency of the municipal governmentConsolidation would not materially and adversely affect the financial situation of the government or governments with which the municipal government in receivership is consolidated.


Why consolidate?Cost savings.Promote economic improvement.

Does municipal consolidation result in cost savings and economic improvement?

Evidence is mixed.


Senate Fiscal Analysis report from August 2010 concludes that less units of governments do not necessarily result in cost savings.Eric Scorsone, Local Government Consolidation: Assessing the Evidence for Cost Savings and Economic Improvement (Senate Fiscal Agency, Summer 2010)

Michigan has 2,314 units of government – 14th most in U.S., but fewest in the Great Lakes region – and its average cost of government is $4,609 per person.Ohio, Wisconsin, and Pennsylvania have more units of government but less cost than Michigan.No clear relationship between number of governmental units and per-person costs.


Some evidence shows, however, that particular consolidations may result in cost savings and economic improvement.

Iron River, Michigan.Analysis five years after consolidation shows that consolidation did result in lower per-person costs. Scorsone and Martin. “Cost Ramification of Municipal Consolidation: A Comparative Analysis” Journal of Public Budgeting, Accounting and Financial Management (Forthcoming, 2010).


What about service cooperation and consolidation?

Efficiency: more output for the same amount of inputEvidence is mixed. It depends on the particular service.

Labor-intensive.Capitol-intensive.Skill-intensive.


A Michigan Municipal League survey released on March 3, 2011 identified 640 examples of sharing services among 129 communities.Alternative: Internal restructuring based on best practices from other municipalities to reduce costs and improve efficiency, such as reducing a service level, streamlining processes, and adopting lean management strategies.


Bottom line: Consolidation of government or services does not necessarily result in cost savings and economic improvement. But there are situations where it could. An emergency manager should carefully consider feasibility studies, best practices from other municipalities, alternatives, and other factors before deciding to consolidate.

How can local governments be consolidated?

Consolidation of municipalities.Consolidation under the EFM law “shall proceed as provided by law.”Boundary commission process.

Service coordination and consolidation.Michigan Constitution.

Article VII, Section 28 – The legislature by general law shall authorize two or more counties, townships, cities, villages or districts, or any combination thereof among other things to:


Enter into contractual undertakings or agreements with one another or with the state or with any combination thereof for the joint administration of any of the functions or powers which each would have the power to perform separately.Share the costs and responsibilities of functions and services with one another or with the state or with any combination thereof which each would have the power to perform separately.Transfer functions or responsibilities to one another or any combination thereof upon the consent of each unit involved.Cooperate with one another and with state government;Lend their credit to one another or any combination thereof as provided by law in connection with any authorized publicly owned undertaking.


Statutes.77 Michigan statutes authorize local governments to work together in various forms.Citizens Research Council of Michigan, Authorization for Interlocal Agreements and Intergovernmental Cooperation in Michigan (April 2007).

Urban Cooperation Act.Provides for the joint exercise of any power that each unit of government could exercise separately.Implementing through an interlocal agreement approved by the participating units of government.


Intergovernmental Transfers of Functions and Responsibilities Act.

Units of government may contract for the transfer of functions or responsibilities to each other.A contract must be approved by each unit of government.

Intergovernmental Contracts between Municipal Corporations Act.

Authorizes municipal corporations to enter into contracts with other municipal corporations “for the ownership, operation, or performance jointly, or by any 1 or more on behalf of all, of any property, facility, or service which each would have the power to won, operate or perform separately.Intergovernmental contract required.


Emergency Services to Municipalities Act.Units of government may form authority to coordinate “emergency services”, including fire-protection, emergency medical services, police protection, and other emergency health or safety services.

Many other statutes address interlocal cooperation in connection with particular services and activities, including planning, study committees, administrative tasks, economic development, utilities, public safety, libraries, education, parks and recreation, health and hospitals, public buildings, roads and bridges, airports, ports and channels, mass transportation, waste, and water control.

Effect of EFM law on existing statutes?

What are the legal barriers to government consolidation?

Collective bargaining agreements and rights.Public Employees Relations Act and Act 312 (Binding arbitration for public safety).

Hold-harmless and Most-favored-nation clauses.Urban Cooperation Act.Intergovernmental Transfers of Functions and Responsibilities Act.Emergency Services to Municipalities Act.

Minimum staffing requirements.


Current legislation – HB 4309-4312.Effect of EFM law on legal barriers?

Collective bargaining agreements. After meeting and conferring with the appropriate representative and, if in the emergency managers sole discretion and judgment, a prompt and satisfactory resolution is unlikely to be obtained, reject, modify or terminate 1 or more terms and conditions of an existing collective bargaining . . .


[continued] agreement. The rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement under this subdivision is a legitimate exercise of the state’s sovereign powers if the emergency manager and state treasurer determine that all of the following conditions are satisfied:

The financial emergency in the local government has created a circumstance in which it is reasonable and necessary for the state to intercede to serve a significant and legitimate public purpose.


Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is reasonable and necessary to deal with a broad, generalized economic problem.Any plan involving the rejection, modification or termination of 1 or more terms and conditions of an existing collective bargaining agreement is directly related to and designed to address the financial emergency for the benefit of the public as a whole.


Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is temporary and does not target specific classes of employees.

Collective bargaining. Act as sole agent of the local government in collective bargaining with employees or representatives and approve any contract or agreement.


Existing contracts. Reject, modify, or terminate 1 or more terms and conditions of an existing contract.Minimum staffing levels. Notwithstanding any minimum staffing level requirement established by charter or contract, establish and implement staffing levels for the local government.

Bottom line: Proceed with caution. Some or all of these specific grants of authority will likely be challenged in court. An emergency manager should consult with legal counsel when attempting to utilize these grants of authority.

Practical perspectives on emergency managers and government consolidation.

Employment issues and job losses.Constitutional issues.Tax-base sharing.Other issues.

Questions?John [email protected]

Troy Cumings616-752-2731 [email protected]

Tim Horner [email protected]

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