M&A

Cities Mull Cost-Cutting Mergers

Expected reductions in federal and state aid have more cities considering deals to merge with surrounding counties.
Craig SchneiderFebruary 23, 2005

A dozen cities from Buffalo to Topeka are reportedly considering mergers with surrounding counties to slash expenses and attract revenue generating economic development.

Each of the cities, according to The Wall Street Journal, have populations greater than 100,000, as well as a distinct economic and geographic base. But nearly all cases, the metro areas exhibit escalating costs that greatly outpace state and federal funding.

Cities with heavily industrial economies have also faced dwindling tax bases as companies and residents move elsewhere, the paper noted. For example, Cleveland and its county — Cuyahoga County — together lost 71,000 jobs since 2000, and expect to lose a combined $20 million in state funds.

In Buffalo, pensions and healthcare expenses for city workers have risen 123 percent and 67 percent, respectively, over the past five years, according to the Journal. But state aid has remained flat. “There just isn’t the revenue in the city,” Mayor Anthony Masiello said in the story.

A proposed Buffalo-Erie County merger, however, could potentially save between $15 million and $30 million annually by eliminating redundant services, such as zoning and maintenance, according to Joel A. Giambra, county executive and a leading merger proponent, who was quoted in the paper.

The inspiration to commingle comes from fast-growing cities, such as Athens, Ga., and Jacksonville, Fla., which have used mergers to streamline government as well as improve land-development and tax planning.

The odds that voters will sanction the unions, however, don’t favor cities. On average, only 20 percent of merger proposals receive voter approval, according to Suzanne Leland, a professor of political science at the University of North Carolina, the Journal noted. She notes that since the first city-county consolidation in 1805 (New Orleans and New Orleans Parish), only 35 consolidations have taken place.

Still, the merger of city and county has been gaining traction, according to Leland’s research, which points out that 20 mergers have occurred since 1960. Voters need more convincing, she said, because there’s no guarantee, and mergers require staff reductions and potential layoffs. Elected officials who support the process often lose their positions.

Some business leaders reportedly complain that consolidating governments don’t create the fundamentals that attract businesses — such as universities, natural resources, ports, and skilled workers — because state tax and regulatory system can dissuade businesses, Andrew Rudnick, chief executive of the business development organization Buffalo Niagara Partnership, said in the story.

Others disagree. Officials of International Speedway Corp., whose Kansas Speedway draws 100,000 spectators annually and spawned a nearby 400-acre entertainment and retail site, credit the merged city-county operations as one reason for moving to Kansas City. (The city merged with Wyandotte County in 1997.) “Having one layer of government to deal with facilitated the approval process,” a company spokesman, told the Journal.

Proponents also argue for the psychological benefits of mergers. Re-branding “Greater Buffalo” as the tenth-largest city in the U.S. “would show the world, and show ourselves that we are a world-class, progressive region,” says the Greater Buffalo Commission’s Web site.

But the fiscal woes of cities is still the most compelling reason for city councils to consider funding alternatives. A recent National League of Cities study, which included a survey of 288 municipal CFOs, found that 61 percent of municipalities will be less able to meet their financial obligations in 2005 than they were in 2004, according to the February CFO magazine cover story, “Big City Blues.”