One in ten Americans are actively involved in entrepreneurship (either owning their own business or actively pursuing starting one) and between 600,000 and 800,000 new businesses are started each year. 

There is no question that these small businesses are an important part of the national economy and they deserve the attention of economic development professionals.  Last week, economic development professionals in the Northeast were fortunate to have the International Economic Development Council (IEDC) professional development training program return to New York State with a curriculum dedicated to this topic. In partnership with the Northeastern Economic Developers Association (NEDA) and Camoin Associates, IEDC hosted their Entrepreneurial and Small Business Development Strategies course in Albany, NY. The training program focused on issues related to how economic development professionals can support small businesses and entrepreneurs.

The training program included a session on a technique called economic gardening, which is defined as supporting and cultivating economic growth among existing companies to encourage local job and wealth creation.  Rather than economic development professionals investing their time and resources into that one “big get” of a new 500 person manufacturer, economic gardening focuses on assisting entrepreneurs and small businesses to succeed and expand within the community.  Economic development organizations can provide information, market analysis, infrastructure, connections and much more to help the businesses in areas where they do not have internal capacity, time or skill. Examples of successful economic gardening can be seen in Littleton, Colorado and Beaverton, Oregon. These communities provide services such as financing, assistance with city procedures, GIS database research, connections to other resources and access to demographic databases. Most of the economic gardening work is occurring in the western United States at this time, but it is becoming a more relevant economic development tool throughout the country.   

Last week’s training program attracted people from all over the United States, including individuals from California, Montana, North Carolina, Washington, Georgia and Iowa. It was great to have the opportunity to talk to others and see the similarities and differences in the issues that many of us are facing throughout the country.  The program was well received by all I spoke with and I know I left feeling inspired and ready to take the new skills back to the municipalities I work with. 

Camoin Associates, NEDA and IEDC will be hosting a second training on May 17^th and 18^th that will focus on Economic Development Strategic Planning.  If you are interested in learning more or registering, click here:   http://www.iedconline.org/?p=Training_Planning_NY

Local governments everywhere in the U.S. have been asked to “Do more with less” for many years now.  In particular, across the Northeast, a movement has been afoot to trim costs through the consolidation, elimination or reorganization of various levels of local government.  And yet, after many analyses, reports, public meetings and referenda, precious few communities have, in fact, undertaken a substantial municipal reorganization.

There are many reasons for this outcome, all of which have bearing on the future of the municipal consolidation movement.  For some stakeholders, there is an issue with community identity and historic preservation.  Others see it as a loss of adequate representation, control over local decisions and the comfort and protection of a tight-knit community bound together by an elected body.  Some question the cost savings that might occur: how a presumably larger municipal entity could possibly deliver the same services at a lower cost and whether the costs and disruption of the transition will ever be recovered in presumed long-term savings.  And then there is the all-important question of “fairness”, as it is widely accepted that reorganizations typically shift tax burdens from one group to another, sometimes without the consent of those adversely affected.

Despite these objections, the financial case for reorganization seems to be clear.  Of the host of reports completed to date on reorganization propositions, the vast majority show a savings of some degree to the constituency in question, whether it be Village residents in a dissolution process or school district voters in a district consolidation referendum.  In fact, the savings projected in a few of these instances seem immensely compelling.  And yet, residents have not embraced such measures.  For example, since New York State substantially altered the process of village dissolution in 2010 through its GML Article 17-A law, 15 referenda have been held in various villages across the state. All but 2 of those referenda have returned a “no dissolution” outcome.  A similar pattern can be seen in school district consolidation votes and other municipal reorganization initiatives.

This seeming incongruity may have an explanation that has been given short-shrift in the public discourse to date on municipal consolidation: the element of uncertainty.  Human beings are, by their nature, pre-disposed to prefer the known over the unknown.  In countless clinical studies by psychologists, human subjects have shown an unconscious bias towards things that are close to them, known and understood.  In one extreme example, when presented with several objects to choose from, simply having touched one of the objects is enough for the typical subject to prefer it, statistically speaking, over an equal substitute.  Why exactly this occurs is not completely understood, but a case can be made that evolution has equipped us with survival skills that include the inherently conservative preference for the comfort of the known (our family, our tribe, our land, our customs) to the unknown.  This translates across many of the domains of modern life: for example, when choosing among particular investment opportunities at a given rate of return, a person will naturally prefer an investment that offers less risk because the likely result obtained is better understood (i.e. is less uncertain).  Consider the voter to be a savvy “investor” determining how to allocate resources in public vote on reorganization, and it is not surprising that the voter/investor favors the lower risk alternative.

What is true for individuals is doubly true of municipalities, which are essentially a grouping of those same risk-adverse people.  Governments are not set up to be entrepreneurial in nature (nor should they be) and regularly have to make decisions whose results will echo through the years if not decades to come.  Municipal officials are seldom rewarded for taking risks but are often punished, electorally speaking, when risky decisions take an unfavorable turn.  In asking governments to make major changes to their organization and even jeopardize their very existence, it seems only natural that the burden of proof should rest squarely on the shoulders of those advancing the agenda of change.  It is not sufficient to say that savings are “likely”, even if statistically speaking that may, in fact, be the outcome.  And therein lies the problem.

This burden of proof has not been met in many instances and may be a very difficult target to achieve under current conditions.  In the example cited above regarding village dissolution votes under New York State GML Article 17-A, an intriguing lesson can be learned.  The Article 17-A process was put into place with the express intent of facilitating municipal consolidation, one feature of which was an accelerated and fixed time table for putting the matter to referendum.  Unfortunately, in many instances, that has meant that local governments, both the village and town or towns in question, have not been able to study the matter in sufficient detail and disseminate the information to the public. The voters have therefore had to vote with a high degree of uncertainty: “Will this really save me money?”, “Will all the services I currently receive continue or be terminated?”, “What will happen to the employees, assets and debts of the Village?”, etc.  As shown, voters have clearly preferred the status quo.  Rather than expedite the process, Article 17-A has brought municipal reorganization to a screeching halt.

In contrast, under the previous New York State statute governing village dissolution (Article 19 of Village Law), the process was quite different.  There was no fixed timeline and local governments had ample time to evaluate alternatives, ponder outcomes and prepare the public with sufficient detail.  In each instance under Article 19, a complete Village Dissolution Plan was published and reviewed prior to the vote and the public had the opportunity to air grievances and be heard.  The outcomes were markedly different: of the 13 most recent referenda on village dissolution under the Article 19 law, fully 7 returned a vote in favor of the proposition.  We compare this 54% passage rate to the 13% rate under Article 17-A, and a case can be made that uncertainty played a significant role.

Thorough examination and dissemination of information are, however, not the only barriers to removing uncertainty from the process.  Wholesale municipal reorganization has many inherent uncertainties that may never be fully extinguished.  For example, village dissolution can be proposed by a village board, studied by a village-appointed committee, and voted on by village residents.  But the actual village dissolution is largely accomplished by the town board, which is charged with providing for the continuity of services in the now defunct village.  That town board answers to a larger set of constituents which may not align completely with the intent of the village’s plan.  This is especially true when a large tax burden shift may occur.  While too complex to describe herein, the execution of a dissolution process is a somewhat subjective affair with respect to the town’s obligations to respect the plan.  Further, some matters cannot be dictated via the village dissolution plan: does the town board hire former village employees or not?  Does it respect their previously accrued seniority, benefits and wage scale?  What happens if, after two years and a new election at the town level, the board wishes to discontinue a service being provided in the former village?  Will the town board charge costs to the former village residents for services only provided to them or will those costs be spread across the entire town tax base?  Which services might be discontinued by a future town board?  Will the town substantially alter the zoning laws of the former village sometime in the future? 

In light of the above, there are a number of ways states that wish to promote local government reorganization can help to remove uncertainties in the reorganization process.  First, states should provide maximum flexibility to local governments in terms of providing ample time and resources for data collection, deliberation, examination, planning and public hearings.  This will give voters some level of confidence that the matters have been addressed thoroughly.  Secondly, states should mandate that any effected level of government be involved in the formulation of a reorganization plan.  In the case of village dissolution, for example, the town should have an equal seat at the table during the planning process and a strong if not dominant influence on the outcome of the final plan.  Third, states should clarify the obligations of the surviving entity to abide by the plan to all reasonable extent.  Fourth, states should set up a clear means of arbitrating disputes over the execution of the plan.  Currently, the defunct entity is, by definition, no longer in existence and cannot itself defend the plan’s intentions.  Fifth, states should provide some protection to zoning ordinances and other laws of the non-surviving entity for a fixed period, so that such laws remain in effect for a meaningful period of time.  Sixth, states have significant legislative and, in same instances, constitutional work to clarify and ameliorate the processes by which reorganization can occur.  For example, in New York State, towns are prohibited from absorbing village fire departments due to a conflict in law (they must instead contract with third parties) and cannot form special policing districts without a specific act of the legislature.  Since public safety is one of the most fundamental aspects of local government, this presents a tremendous level of uncertainty as to the outcome of reorganization.

In some instances, of course, local government reorganization simply does not make sense financially or organizationally and should not be pursued.  But there is a mounting body of evidence that consolidation and reorganization have the potential, in fact, to save money in some cases.  To make the best possible “investment decision” for or against municipal consolidation, citizens need to be given surer footing and clearer assurances of the likely outcomes.  By removing these elements of uncertainty, states can advance their municipal reorganization agendas. 

Acknowledgement: Data on municipal consolidation votes in New York State provided courtesy of Wade Beltramo of the New York Conference of Mayors.