Local Government Fragmentation

Local governments spent about $1.9 trillion in 2017, collectively. This was more than all fifty states together when we remove money passed through to local governments. While this might seem surprising, it might be less surprising when you consider that there are over 90,000 units of local government in the United States providing services such as education, public safety, public health, utilities, transportation, recreational opportunities, vital record keeping, natural resource conservation, and more.

Given the vast sums of money and the number of governments involved, it is reasonable to ask: Is there too much fragmentation in local government? Could public funds be better used if there was less fragmentation? Fragmentation refers to the number of local governments and how power is diffused among them. In this four-part report series, we’ll look for solutions for this problem through the lens of GFOA’s Financial Foundations Framework.

There are over 90,000 units of local government in the United States providing services such as education, public safety, public health, utilities, transportation, recreational opportunities, vital record keeping, natural resource conservation, and more.

Given the vast sums of money and the number of governments involved, it is reasonable to ask: Is there too much fragmentation in local government? Could public funds be better used if there was less fragmentation?

A networked enterprise connects separate actors in the pursuit of a shared vision and objectives and multiplies their collective power to achieve that objective by tying them together in a system of mutual accountability. Networks are often associated with information technology (e.g., a social media application like Facebook or a cryptocurrency like Bitcoin). Networks, however, do not have to exist purely as bits and bytes. The distributed and essentially free communication made available by information technology has given rise to the increasing prevalence of networked organizations in the physical world.

In a traditional governmental model, the departments of the government are the service provider. Government as a platform is about working with the community to determine the service objectives of government and then “plugging in” the most effective service provider, regardless of whether it is the local government itself, a private, non-profit, or another public organization, or if it is an activity performed directly by the citizens themselves.

Two features make government as a platform distinct:

• Government as a platform is a systematic approach to public service provision. It aims to look comprehensively across the entire government and find the best service providers. This contrasts the more ad hoc approach local governments traditionally have taken to looking beyond their traditional way of providing services.
• Government as a platform is agnostic on who the service provider is. It only matters if they can do the job. The idea of “privatization” and the “contract city” gained notoriety, but these ideas were rooted in the assumption that private sector service providers were inherently preferable to public sector service providers. Government as a platform does not care if a service provider is from the public sector, private sector, or non-profit sector.

Resource inequities can exist between local governments. The most well-known example of fiscal disparities is the disparity between school districts that happens when schools are funded mainly by local property taxes and when some districts have a higher value of taxable property in their boundaries than others. This will result in some children getting a worse education, or others paying more for education, based on where they live. Fiscal disparities can occur in governments due to the value of taxable property in the jurisdiction relative to the need for public services. Another example of resource inequities between local government is demonstrated in states where sales taxes are an important source of revenue and are distributed to municipalities based on point of sale. For example, a city that has a large shopping mall might get all the revenue from the associated commerce even though residents of area communities shop at the mall too (and it might absorb externalities associated with the mall, such as traffic, etc.).

In the aftermath of the Great Recession, more local governments have recognized that regional collaboration can benefit everyone and is preferable to competing with other local governments for a piece of a stagnant or shrinking economic pie. Regional collaboration for addressing fiscal disparities often must also address economic development.