When local governments face critical reductions in revenues, decision makers have several options:
- Across the board budget cuts
- Hiring freezes
- Delays in maintenance and equipment purchases
- Refinancing of debt
- Extending payment cycles
Decision makers often consider merging departments in an attempt to save money in both the short- and long-run. The goal of a merger should be to both improve services and reduce costs. But do mergers accomplish both? Merger planning needs to consider the following to achieve both objectives:
Do the departments provide similar services?
Governments can provide various types of inspections through a consolidated agency if the skill sets are comparable. This allows for use of a single intake, scheduling and tracking system. Inspector workloads can be balanced to handle seasonal peaks. Adjoining governments providing public health services could provide public health and inspection services to serve neighboring communities or for a city and its county.
Are the departments already efficient and economical?
Departments may already be at or near peak performance. If policy makers suggest mergers, will management know if operations are already efficient? It’s important to define performance metrics and track performance against peer agencies and other standards. If the “as-is” situation is subpar, a merger may solve little but other approaches may be more effective.
Is there an impact on revenue?
Departments that rely on fees, transfers, federal revenue, and/ or grant reimbursements will need to determine the impact on revenue, cash flow, and revenue recovery. If grants are a factor, cost allocation plans and indirect cost rates will need to be updated because of changes to organizational structure, staff responsibilities, and/or changed funding sources. Consolidations may decrease the amount of federal revenue realized as costs may shift from being direct to indirect, or be allocated over a wider pool. Cost/benefit analyses can determine the net impact of consolidations on revenue. Business processes, financial reporting, and various rates may also need to be updated. If revenues are generated through internal or external fees, the costs associated with the services may require change as well.
What will it cost to merge the departments?
Different departments may have different tools, especially use of technology. Building a uniform platform to coordinate the activities of multiple agencies can be expensive. Also, physical relocation, renovations, and moving costs could reduce hoped-for savings. For example, do the departments need to:
- Combine websites? Standardize computer hardware, as well as enterprise software such as email and accounting applications?
- Merge physical locations? If the merged departments require significant investment or will not reduce staffing, a merger may not
save any money.
What will the new organization structure look like and who will lead the merged department?
Departments often need to reassign staff who perform similar functions. This may be a case of reassigning department managers. However, post-merger, a larger department may need more experienced or more diverse staff to handle a larger workload. Regardless of the specifics, it may be advisable to take a fresh look at duties, skills and reporting relationships to help ensure the best people are in the right jobs.
Is there a need to address culture?
Leadership may need to address different operating styles and policies such as:
- Performance metrics
- Office hours and remote work
- Dress code
- Vacation schedules
- Staff evaluations and career development
How does compensation compare across the departments?
In some governments, department directors set staff compensation. If departments merge, there may be equity adjustments to salaries for staff with similar experience and responsibilities. After addressing the above questions, there may be other options to an outright merger. For example, shared service agreements can consolidate functions from across several departments. Instead of each department having a procurement or human resources or technology unit, can these functions be more efficient if consolidated? Sharing of some administrative functions would allow direct service departments to focus on their core missions. For smaller units of government, services could be shared by several governments.