Merging Small Municipalities
Author: Taub Center Staff
September 10, 2013
A new Taub Center study maps out a plan for municipality amalgamation that could lead to savings of more than a hundred million shekels, along with improved service to residents.
Israel has scores of small municipalities with populations of under 6,000 residents. Such localities have difficulty supplying a full spectrum of municipal services at a reasonable cost. Frequently, these towns adjoin other towns with similar populations. In these conditions, municipal amalgamation can bring both improved service and lower cost.
The advantages of merging municipalities have long been recognized, but actual progress has been limited. A new study from the Taub Center for Social Policy Studies in Israel by economist Dr. Yaniv Reingewertz of George Washington University, breaks new ground in advancing this important policy goal. The study provides a quantitative estimate of the expected savings, identifies those towns for which the conditions for merger are ripe and promising, and maps out a detailed plan to carry out this transition.
The Taub Center study explains that economies of scale are generally achieved when municipalities reach 7,000 to 10,000 residents. At this scale, the fixed costs (such as salaries for essential officials) are distributed among more residents resulting in lower costs per resident. Figures presented by Dr. Reingewertz show that the outlay per resident in municipalities that were merged in 2003 was lower than in similar municipalities that were not merged (see figure).
THE EXPECTED SAVINGS FROM MUNICIPAL AMALGAMATION
Dr. Reingewertz’s study found that merging small municipalities can be expected to save an average of NIS 5 million a year for each merger. The savings result from more efficient provision of public services and can be expected to reduce dependence on grants from the Ministry of the Interior. Dr. Reingewertz calculates that the program he proposes could bring about savings totaling at least NIS 131 million per year.
About 35 percent of municipalities’ outlays are financed by the central government. This means that savings for local government are also savings for the national budget. In an era of significant budget cuts, the savings from municipal amalgamation could offset some of the planned government cuts in welfare, education, and health budgets.
WHO SHOULD MERGE
Alongside the advantages of amalgamation, there is also a downside. Reingewertz explains that mergers are liable to negatively impact the fit between the desires of the citizen and the activities of the town. This problem can be especially problematic when the merged towns have significantly different cultural or economic characteristics, since the new merged municipality has to then deal with widely varying types of services.
Furthermore, realization of amalgamation advantages requires administrative changes necessitating careful consideration, such as merging departments and firing workers. Such changes are not easy to carry out and they are liable to be delayed in the short run or even fail to happen in the long run.
To minimize these potential problems, the Taub Center study identifies 25 towns meeting the criteria for optimal success in municipal mergers: they have fewer than 6,000 residents; the towns adjoin each other; and, they have similar cultural and social makeup.
DOING IT RIGHT
In 2003, Israel undertook a project of town mergers, but three of the twelve mergers were reversed in 2009-2010 due to the opposition of residents and local officials. Dr. Reingewertz states that in order to ensure the success of the amalgamations proposed by the study, it is necessary to carry them out in cooperation with the merging municipalities. According to Reingewertz: “It is necessary to involve the political and administrative officials and ensure that there is cooperation between the local and central governments. It is desirable to give some adjustment grants to the merged towns in order to provide a solution to one-time costs resulting from the amalgamation, and to alter the structure of the parity grants so that the aid given towns that refuse to merge will be reduced. This step will incentivize them to consider the alternative of merger.”