Why maintain two police departments when you can consolidate into one? Why have two school districts, etc.? On the surface, the advantages of consolidation are obvious. Suppose you have two factories, each with a boss, an accountant, a lawyer, and 100 workers. If you merge the two factories, you don’t need two bosses or two accountants, or two lawyers, and you may not even need all 200 workers. You can cut out the unneeded overhead and save money easily. In organizational theory, the concept is known as economies of scale. Why not apply that to government? The answer is, it won’t always work in government.

In the factory example above, suppose you merge two local governments instead of two factories. One of the two bosses moves on, but within a year or two, due to the enhanced size and visibility of the new, larger unit of government , the remaining boss needs a new deputy, an ombudsman, and a public information officer. You expect to eliminate one of the two lawyers, but in reality it takes three lawyers to work out the details of the consolidation, write the ordinances, and lobby the Legislature to fix unintended consequences. You expect to eliminate one of the accountants, but in reality, he stays on to help with the transition. Meanwhile, since the two accounting systems are not compatible, a new one is purchased, which costs more than the original two combined. Since you now have 400 employees instead of 200, management is farther removed from the front lines, so middle management is needed, an HR department is born, a purchasing department is born, and more lawyers are needed. Ten years later, instead of two lawyers, you have ten.

The technical term for this phenomenon is diseconomies of sale. Or, as a respected former Indiana local elected official, now an academic, once explained to me:

“Economies of scale work in reverse in government.”

An anecdote from my own experience is a good illustration. I was Marion County Auditor in the late 80’s, when the kinks were still being worked out of the original Uni-Gov consolidation. Marion County government was not small, but some of our county offices, headed by independent elected officials, had as few as half a dozen people. Some were balking at making their purchases through the City-County Purchasing Division. They felt they could do better on price, buying on their own. You may ask, how could a six-person office get a better price than the powerful Indianapolis Purchasing Division? Easily. They could walk across the street to the office supply store and pick up just about anything, cheaper and faster. That is because the Purchasing Division was hampered by so many laws, rules, and regulations. A six person office falls below the threshold of a lot of purchasing rules, and can cut through or ignore a lot of bureaucracy.

We argued about whether it was legal for a six-person office to declare itself to be an independent purchasing entity. The fact that such a question had to be debated proves my point. The larger a unit of government becomes, the more time and money it has to spend debating such questions. It costs time and money to cross these T’s and dot these I’s.

The more general axiom was taught to me by a very wise county political chairman:

“Government is not designed to allow a good person to do a good job. Government is designed to keep a bad person from doing a bad job.”

Government has to have layers of rules and regulations that have the explicit purpose of slowing things down and making it difficult to get things done. The larger the unit, the more burdensome the rules and regulations become. Smaller units can avoid jumping through a lot of the hoops, because many laws don’t apply to smaller transactions and because internal regulations simply aren’t needed.

Theories exist as to the ideal size of the firm or organization. Generally, manufacturing organizations benefit from being large, and service organizations benefit from being small. Take automobiles for example. Automobile manufacturers benefit from being few in number, very large, and highly consolidated. By contrast, automobile dealers, who provide a service, are relatively small and numerous. They are also quite duplicative. That explains why there can be six auto dealers on one street, all busy and all making profits.

Local government is largely engaged in delivering services to consumers. A local government may benefit in many ways from the tactical advantages of being small.

On the other hand, size is helpful, for example, when a local fire chief needs access to national and state guidelines, training, and standards, to equipment developed, tested, and acquired in a national, state and regional basis, to regional communications systems, and to mutual aid.

However, a local fire operation may not necessarily be helped by being absorbed into a large hierarchical command structure. Wise legislators recently made it easier for small units to buy items on a voluntary basis from the purchasing bids of the State and other units. Similar efforts have allowed local units to combine other functions on a case-by-case basis. As opposed to mandating or forcing units to combine or consolidate, leading to conflict and unintended consequences, these voluntary combinations and consolidations can be productive because they allow local officials to fit their unique situations to the opportunities available.

This article is intended to provide information of general interest to local government officials in Indiana. The information is not guaranteed to be applicable or appropriate in particular circumstances. Local officials should consult competent professionals before acting on any information contained in this article. We are not attorneys. Advice of a legal nature should be sought only from qualified attorneys.

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