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Strained Cities Looks to Service Sharing for Savings and Efficiencies

Strained Northeast cities are increasingly looking to service sharing for savings and cost efficiencies. Harsh economic times have some governments at least thinking of tearing down old barriers between turf and jobs.

“It’s still in the evolutionary process,” said Dean Kaplan, a managing director at PFM Group Inc. Consulting firms such as PFM, which works with some of Pennsylvania’s 27 distressed communities, encourage the practice. Pittsburgh, for example, has an agreement with the nearby, 16,000-population borough of Wilkinsburg to provide fire prevention and trash pickup.

Moody’s Investors Service called a Rhode Island’s launching of a service-sharing task force a credit positive for the three distressed communities affected: Central Falls, Pawtucket and East Providence.

“Sharing of services by local governments is common practice in many states, and is often built into their organizational structure,” Moody’s wrote after Gov. Lincoln Chafee formed the task force.

In New Jersey, Camden County towns outside Philadelphia, notably Collingswood, have begun to collaborate over cost-sharing. The Garden State already has a highly visible case study through the Princeton Borough-Princeton Township merger, approved by voters there in November 2011 after a study projected $3.1 million of savings over five years. The consolidated community, called simply Princeton, will take effect on Jan. 1.

In a recent interview in Providence, Rhode Island revenue director Rosemary Booth Gallogly said consolidating emergency dispatcher service could bring such benefits as a fire station at the edge of a border community answering a nearby call rather than one in the same community five miles away.

But operations far less pronounced than a Pittsburgh fire truck in Wilkinsburg, Pa., or dispatcher service in Rhode Island, lend themselves to service-sharing.

“IT [information technology] is a natural within a community,” said Gallogly. “And if you can combine procurement and provide a real expert for these cities and towns, that can open up a lot of opportunities.”

According to Pennsylvania public finance veteran David Fiorenza, shared services work well when each municipality has something to offer to each other. Fiorenza, a professor at Villanova School of Business, served as chief financial officer of Radnor Township, and borough manager in Kennett Square and West Conshohocken, respectively, all in the Philadelphia area.

Fiorenza’s experiences include sharing equipment public safety, public works, sewer, and parks and recreation.

“When a department head requested a capital expenditure, I always asked is there a neighboring municipality who can share the equipment if we only need to use it for a limited amount of time in a calendar year and vice versa,” he said. “These type of arrangements have actually led to the formation of consortiums in counties where municipalities are densely populated and close in proximity.”

According to Moody’s, ample room exists to share services and reduce costs in the three targeted Rhode Island communities. “One-third to almost one-half of their general fund expenditures are for public works and public safety,” the rating agency said. Even a 5% reduction in public works expenditures could save $537,000 for Pawtucket, $321,000 for East Providence and $65,000 for Central Falls, Moody’s estimated.

“It needs to be a good deal for every community,” Gallogly said.

Barriers include fears of job losses and worries that shared services will lead to an outright merger. Suggestions that Central Falls merge into neighboring Pawtucket, which surfaced when Central Falls went into receivership and later bankruptcy, triggered pushback from its citizens.

“Improvements such as a central fire dispatcher should not be tangled up with identity issues,” Chafee said in a recent interview.

Fiorenza said that politics aside, many municipalities resist because of financial discrepancies.

“If the two are not equal then the financially sound jurisdiction picks up the outstanding debt, shares their healthy fund balances and positive cash flow with the not-so-favorable municipal entity. It is a win for one municipality and a loss for the other,” he said.

PFM’s Kaplan said taxpayers and voters really don’t care who provides IT or accounting as long as it gets done. His firm has crafted workouts for Pittsburgh and Reading — cities of varying size — and Reading’s county, Berks, among other jurisdictions.

“Start with something as simple as meeting regularly about back-office issues,” Kaplan said. “Governments tend to be siloed. It’s easier to coordinate among some governments more than others.”

In the Pittsburgh area, he said, collaborating on accounting systems became easier when software giant Oracle Corp., through mergers, wound up with contracts with neighboring communities.

“That made a good idea even more doable,” Kaplan said.

Reading is collaborating with its parking and water authorities on bill collection. In policing, surrounding Berks County regionalizes detective and SWAT — special weapons and tactics — activities.

Kaplan also encourages his communities to engage in flexibility agreements with Pennsylvania state officials. Benefits, he said, include plowing local streets in Berks County in addition to the highway off ramps.

He said an effective model for service sharing exists in Ohio, where Cuyahoga County Executive Ed FitzGerald created the Department of Regional Collaboration for the Cleveland area. “It’s time to stop competing against each other and start competing against the world,” he said.

Southern New Jersey communities also formed an alliance two weeks ago.

“It became clear that many of our needs were overlapping and it made sense to work together to reduce our costs. If we continue to study how we can plan projects by considering a group of towns, we can start to see a significant savings for our residents,” said James Maley, the mayor of Collingswood, a 14,000-population borough that Moody’s in June restored to the bottom of investment-grade status, at Baa3.

Moody’s last year had dropped Collingswood six notches to junk-level Ba1, questioning the borough’s ability to pay back debt it guaranteed to help finance condominium development.

Joining Collingwood are Audubon, Haddonfield, Haddon Heights, Haddon Township, Mount Ephraim and Oaklyn. “This is just the first initiative,” said Haddonfield Mayor Tish Colombi.

They signed an agreement that appoints a backup construction-code official for each town from a partnering town in the event of emergency or other necessity. Officials have also exchanged master lists of all municipal vehicles and public works equipment to share, and plan infrastructure projects without having to purchase expensive new vehicles.

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