Amalgamation issues -- another perspective.

In response to the Letter to the Editor (attached) a blog reader provided a copy of an interesting speech about amalgamation delivered to the Annual Meeting of the BC Municipal Finance Authority in 2001 by Brian Lee Crowley, President, Atlantic Institute for Market Studies.

The amalgamation of the City of Halifax, City of Dartmouth, Town of Bedford and the Municipality of the County of Halifax into a single municipality named Halifax Regional Municipality or HRM for short happened in 1996 and was ordered by the Provincial Government of Nova Scotia. For a brief history of the events please visit HRM.

Here is an excerpt from above presentation (for the full presentation please visit Amalgamation).

The Premier and his minister of finance got it into their heads that there were major efficiencies to be had in amalgamating the municipalities. Now if they had actually wanted to test these ideas properly, if they had wanted to engage in that dangerously radical practice known as evidence-based policymaking, they could easily have consulted the literature on local government and amalgamation, a literature which is now quite vast. Had they done so, they would have discovered the following:

First, they would have discovered that local government is not merely a device for supplying municipal services, but also for finding out what services people want and how much they are prepared to pay for them. The smaller the government unit, the better they are at discovering this, because the empirical evidence is very strong that local government is closest to the people. Amalgamation tends to undermine this relationship and therefore can only really be justified if there are pretty remarkable efficiencies to compensate for dilution of responsiveness and democratic accountability.

But, second, they would have discovered that the evidence is quite strong that creating single-tier local government monopolies doesn’t reduce costs — it increases them. It levels costs up to the highest common denominator in the pre-existing units, and seems to result in higher trends of cost growth over time. This is especially true where amalgamation has eliminated competition between pre-existing municipalities both in terms of attracting residents and industry and in terms of tax and service levels. It seems that the most dynamic force helping to keep costs down is not a highly centralised and bureaucratic monopoly provider of public services, but a decentralisation of authority and decision making within several municipalities within an urban area where residents cannot vote themselves benefits at the expense of other taxpayers in other parts of the city. This ensures that people only demand services that they’re prepared to pay for, and municipalities have powerful incentives to keep costs low and satisfaction high, or risk the erosion of their tax base as people and businesses vote with their feet.

Third, they would have discovered that it is a fairly small part of public services where there are significant returns to scale — in other words where the bigger you are, the cheaper it is to produce a unit of a given service. The evidence says pretty unambiguously that the lowest observable level of per unit costs for most services are compatible with very small municipal units (on the order of 5,000-10,000 residents). Moreover, there are significant diseconomies of scale beyond relatively small population numbers — on the order of 250,000 residents. And, finally, that the supposed savings from smaller councils and elimination of several city halls and other trappings of multiple local governments, is so paltry as to be not even worth mentioning.

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