| Chapter 1: | Introduction |
services that would come with the consolidation of nonschool taxing districts. These scale economies would be concentrated in the smallest counties, with only about 20% of the savings occurring in the largest counties. It is important to note that we estimated the savings that would be due to scale economies based on changing the size of the served population for the “average” not the most efficient unit of government.
For the aggregate efficiency model, we tested the relationship between the number of taxing jurisdictions and the property tax rate. The results of this model tell us that there is a strong positive relationship between the number of taxing districts in a county and the county's mean tax rate. This strongly suggests that average tax rates increase as the number of taxing jurisdictions increase—a form of inefficiency.
In even our most modest estimate, we found potential savings of $422 million per year that could be realized due to consolidation and its associated reductions in G-inefficiency. Of this $422 million in savings, more than $371 million of potential total savings would occur in counties with populations greater than 50,000 residents. Once again, we estimated savings based solely on changing the number of governmental units to achieve the average level of efficiency. The potential savings could be dramatically larger should any improvements in the average efficiency of local governments occur coincident to restructuring efforts.
From our first two estimates, we found that for small counties, considerable cost savings could be realized by spreading out the cost of government over more residents (i.e., consolidating), which would result in increased economies of scale. In our G-efficiency model, we found that local government was less efficient in counties with an abundance of taxing authorities. These were primarily the larger (more populous) counties.
Data and Modeling Strategy
for Functional Area Estimates
In the final chapters of the book, we explore economies of scale and efficiency for several functional areas, including police and fire protection,