Can shared services save state and local budgets?

It is hard to find a time in recent history where the budget picture for state and local government looked as bleak as it does now. Faced with a multi-trillion dollar federal budget deficit, credit rating downgrade and shrinking revenues, state and local governments are forced to find ever more creative ways to provide services or make potentially damaging cuts. In light of this, shared services models are being examined more closely by state and local governments as a means of saving money and fostering efficiency.

Shared services as an idea is nothing new. The private sector has been implementing shared services models for years and the idea has been floating around the public sector equally as long. But recently, as state and local governments are faced with making massive budget cuts, shared services models are being examined with renewed interest. New Ohio Governor John Kasich is making shared services a priority for his state as a means of closing budget gaps without raising taxes. Larger municipalities in cash strapped states are also looking at ways they can share services with smaller cities and towns nearby. The city of Muskegon, Michigan is undertaking a feasibility study along these lines.

As a model, shared services can be a less painful way to implement cost cutting measures in government. Rather than forcing pay and service cuts or drastically reducing headcount, shared services models allow for cost savings by reducing redundant processes and consolidating systems. Public offices and agencies can realize savings by reducing the number of redundant time keeping systems in place for example, or combining processes across agencies or jurisdictions.

Accenture is advancing the cross-jurisdictional model of shared services for public sector. The company has partnered with Harvard Business School to create a community of practice around implementing cross jurisdictional shared services. In June, the company held a shared services summit that brought together public sector leaders to share their experiences of implementing such a model and how it impacted their localities. The series will continue in the fall with a focus on Human Services best practices. The company is focused on bring a performance based culture to public sector service delivery through shared services and other management models such as Lean Six Sigma.

Despite private sector vendor support and commercial best practices to follow, implementing shared services still faces significant hurdles in the public sector. New Jersey offers a high profile example of this. As Governor Chris Christie entered into office he quickly found common ground with Senate President Steve Sweeney over implementing shared services statewide. Yet, the Governor never actually sat down with Sweeney on this issue. Now, Sweeney is sponsoring a bill that would authorize the state to identify communities that could readily combine services and allow the residents to vote to do so through public referendum.

So far, the bill has met with steep opposition from the League of Municipalities due to a line in the bill that says that if cities and towns voted against combining, the state would withhold municipal aid in the amount of savings estimated from implementing shared services. What’s more, the agency that would be tasked with managing consolidation the Local Unit Alignment, Reorganization and Consolidation Commission (LUARCC) has seen little to no support from the Governor. Staff positions remain vacant and the funding for consolidation studies and initiatives has not been allocated.

The issues in the New Jersey case are not new. Residents want to see their cities manned by local police with the city name on their vehicles. And yet, many public sector officials and analysts note that overall most state and local governments have more government than they can realistically afford.

According to Accenture, this is why cross-jurisdictional models of shared services are so important. State and local tax collection declined 2.3 percent in the fourth quarter of 2010 due to declining property tax rates – a trend that is only expected to continue. Combine that with less federal aid to the states and lawmakers are going to be faced with increasingly tough choices. Implementing shared services now, may be able to stave off damaging future cuts and mitigate the opposition to losing hyperlocal government services in favor of better service delivery overall.

The jury is out on whether state and local governments will begin to make a serious effort to implement shared services. But we are left to wonder regardless of what model is ultimately chosen, what’s worse in an era of anti-tax orthodoxy – surviving significant cuts in vital services such as law enforcement or sharing the police force across two or three small towns.

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