It depends on what you share: the elusive cost savings from service sharing

Abstract

Inter-municipal cooperation is the most prevalent alternative service delivery method for US local governments. While aspirations for budgetary savings are one motivating factor, increased service quality and regional coordination are also important goals. We use an original 2013 survey of local governments in New York State to assess the level of service sharing and outcomes. We match our survey with twenty years (1996-2016) of service-level costs data to explore the relationships between sharing and costs across twelve common local government services. We contribute to the literature by providing the first multivariate assessment of the effect of cooperation and costs in the US, and we contribute theoretical insights on the objectives and type of cooperation to explain differences in the effects of cooperation on costs across a variety of services. Our multivariate time series regressions find that service sharing leads to cost reductions in solid waste management, roads & highways, police, library, and sewer services; no difference in costs for economic development, ambulance/EMS, fire, water, and youth recreation; and higher costs in elder services and planning & zoning. These differences are explained by whether services have characteristics such as asset specificity and the ability to achieve economies of scale on the one hand, or if sharing leads to greater administrative intensity or promotes other objectives such as quality and regional coordination outcomes on the other hand. We also analyze the effect of sharing on service costs over time, and find solid waste, roads & highways, police, and library are the only services where costs show a continued downward trend. These results show the limited role for economies of scale, even in asset specific services. Because cost savings are elusive, public sector reformers should be careful not to assume cost savings from sharing. The theoretical foundations for service sharing extend beyond economies of scale and transaction costs. Scholars should give more attention to organizational form and the broader goals of sharing.