A new study by the Taub Center on the subject of merging municipalities has found that amalgamation could save hundreds of millions of shekels annually
August 11, 2013
A new study by the Taub Center for Social Policy Studies in Israel, conducted by Dr. Yaniv Reingewertz, found that merging small municipalities is likely to save NIS 5 million annually per amalgamation. The savings will allow municipalities to improve municipal efficiency and will lessen the need for government provided parity grants. In these times of significant budgetary cuts, the savings from amalgamating municipalities could replace cuts in welfare, education and health budgets.
Today in Israel there are some 50 municipalities with fewer than 6,000 residents each. The Taub Center study shows that economies of scale in the provision of public service are greatest when municipality size ranges between 7,000 and 10,000 residents. In other words, fixed costs (like salaries for municipal employees) are distributed over more residents, so each resident has to pay less. Dr. Reingewertz shows that expenditure per resident for municipalities that amalgamated in 2003 were lower than in those that did not merge.
To bring municipalities closer to the optimal size, Dr. Reingewertz suggests a plan for municipal amalgamation, showing that it is possible to save some NIS 131 million annually.
Total municipal expenditure amounted to some NIS 43 billion in 2010 – about 16 percent of the government budget. Roughly 35 percent of the municipal budgets are received from the central government; the rest is financed through income to the municipality and loans.
Dr. Reingewertz, an economist at George Washington University in the United States, finds 25 municipalities that fulfill the criteria for optimal success in amalgamation (Table 1): they have fewer than 6,000 residents and they are adjacent to another municipality that is similar to them in social and cultural characteristics. This list includes municipalities like Rosh Pina, Pardesiya, Savyon, and Kfar Shmaryahu. The budgetary savings from such amalgamation would be substantial (Table 2). For example, a merging of Savyon and Ganei Tikva would lead to an expected savings of NIS 7.4 million annually. Likewise, if Elyachin and the Emek Hefer Regional Council were to unite, the savings would be around NIS 17.7 million annually.
In 2003, Israel implemented a partial municipal amalgamation program, although 3 out of the 12 amalgamations were dissolved between 2009 and 2010 following the opposition of both residents and the local political leadership. Dr. Reingewertz notes that to ensure the success of municipal amalgamations, they should be done in cooperation with the municipalities. How should this be done? In Dr. Reingewertz’s words: “The political and administrative levels must be involved and there must be cooperation between the central and local authorities; it is advisable to give adjustment grants to municipalities that merge to help cover one-time costs of amalgamation; and, there should be a reduction in government administered parity grants to smaller municipalities. Such a step would serve as an incentive for municipal amalgamation.”
The Taub Center for Social Policy Studies in Israel, headed by Professor Dan Ben-David, is an independent, non-partisan institution for socioeconomic research based in Jerusalem. The Center provides decisionmakers, as well as the public in general, with a big picture perspective on economic and social areas. The Center’s interdisciplinary Policy Programs – comprising leading academic and policy making experts – as well as the Center’s professional staff conduct research and provides policy recommendations in the key socioeconomic issues confronting the State.
For additional information or to arrange an interview, please be in touch with Gal Ben Dor, Director of Marketing and Communications at the Taub Center: 050-5931577.