Optimal consolidation of municipalities: An analysis of alternative designs

Abstract

In this paper, we present an analytic framework for the geographic aggregation of municipalities into larger and more populous municipal districts in order to reduce the costs of providing public services. We first develop a simple model for estimating the cost of providing local government services, and then introduce the notion of the ‘optimal’ size of a municipality. The model allows us to determine the optimal number of districts for a fixed population size in a given geographic area, and to arrive at the extent of cost savings possible in the absence of additional considerations. We statistically estimate a municipal cost function and use this to construct a least cost consolidation plan subject to certain constraints on how far the socioeconomic characteristics of the new, consolidated districts can differ from those of their constituent parts prior to consolidation. The constraints make the combinatorial problem of consolidation computationally more tractable. More important, the constraints reflect the fact that the plan would have to be accepted (and voted on) by the municipalities to be consolidated, and there is evidence that citizens are much less likely to accept a consolidation plan that greatly disturbs the existing tax and service levels. In this formulation of the consolidation problem, there is thus a tradeoff between financial efficiency (the economic benefit of consolidation) on the one hand, and political feasibility (the socioeconomic constraints) on the other. We illustrate the use of the model by developing a least cost consolidation plan for the municipalities in Allegheny County, PA, and compare this plan with two alternative consolidation schemes proposed unsuccessfully in the past. Our consolidation scheme scores better than the other two alternatives on costs and on satisfying the socioeconomic constraints. Also, it is reassuring that is has strong parallels with some aspects of the other two schemes, since these reflect existing school district and cooperative schemes that have evolved over time.