From parks and libraries to sewers and cemeteries, there are few aspects of civic life that local governments do not touch. People have been relying on them to provide these and many other services for hundreds of years. And until recently, local governments had been remarkably resilient, weathering economic cycles better, in most instances, than private-sector organizations.
Today, however, the ravages of the Great Recession have left municipalities from Waco, Texas, to Wellington, New Zealand, awash in red ink—and struggling to stanch the flow.
The dimensions of the current funding crisis are dramatic. In the United States, for example, declining property values and chronic joblessness shrank state government revenues by 18 percent between 2007 and 2008. Meanwhile, at a time when demand for public assistance programs is mounting, state funding for local government in the United States is predicted to fall by between 10 percent and 15 percent annually between 2010 and 2012; that’s significantly more than the 9 percent drop in the period from 2001 to 2003, following the collapse of the dot-com bubble. Expenses, meanwhile, are soaring, driven by underfunded pension entitlements as an aging public-sector workforce approaches retirement.
Still, funding the pensions of public-sector workers may well be only the tip of the iceberg. For example, according to a report released in October 2010, the cities, counties and government authorities in the state of New York have set aside virtually nothing to pay for more than $200 billion worth of health benefits promised their retirees.
The situation is not unique to the United States. Madrid will be carrying a debt burden equivalent to between 115 percent and 170 percent of expected revenues through 2012. In Venice, battered public finances have persuaded a reluctant city council to sell off several historic palazzi. Even North Rhine-Westphalia, one of Germany’s richest states, was forced to borrow record amounts in 2010.
But selling assets and borrowing are only stopgap measures for a problem likely to endure for many years to come. In the United States, for instance, state revenues are expected to remain stagnant or sluggish through fiscal year 2012—just as demand for core government services accelerates. With cash-strapped national governments unlikely to come to the rescue and citizens’ resistance to tax increases intensifying, tough times for state, regional and local governments are the new normal. They have little choice but to find new ways of delivering essential services.
The good news is that they have begun to do so. Indeed, when Accenture recently investigated government responses to the crisis, we discovered that more and more jurisdictions worldwide are joining forces to tackle it. By merging, coordinating or consolidating services such as police, fire and transportation, for example, city councils in California have significantly reduced wasteful duplication. And some jurisdictions have reached outside the public realm, seeking efficiencies by partnering with private entities—or by outsourcing services to them.
Cross-jurisdictional models come in all shapes and sizes.
Some forms of collaboration are well established, originally as money-saving measures. Local governments in New Zealand, for instance, have been working successfully together for decades—spurred by successive pieces of legislation designed to create more efficient and cost-effective service provision (see sidebar 1).
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However, our research, which was conducted in the summer of 2010 and included in-depth interviews with more than 30 public-sector leaders in the United States and experts in government, and from which we developed more than 70 case studies, also revealed newer models of collaboration. Such collaboration is reinventing the provision of public services so radically that local government may well never look the same again.
In Suffolk, England, for instance, the county council plans to act as a virtual authority, outsourcing all but a handful of services to private companies or to so-called social enterprises (businesses and nonprofits with primarily social or environmental objectives—environmental protection, for instance, or support for specific minority interests). The idea could save substantial sums of money, shaving some 30 percent off Suffolk’s £1.1 billion budget. Transforming councils from direct providers into service enablers represents a philosophical paradigm change in the way public services are delivered.
Such a dramatic shift would be politically unacceptable to many, of course. In fact, the plan has already run into opposition from UK labor unions and other critics who warn that at a time of rising unemployment, thousands of public-sector jobs could be at risk.
Indeed, for all its success, the Suffolk model highlights the difficulties involved in implementing almost any kind of collaboration initiative—whether coordinating services across jurisdictions, merging or creating new entities to provide those services, or contracting them out to external providers.
Labor union opposition can be particularly powerful. In the United States and many other developed countries, public-sector workers have negotiated contracts over the years that ensure them tenure and guarantee multiple benefits, from health insurance to pensions. If cross-jurisdictional collaboration leads to the creation of shared services organizations at which benefits are reduced, organizations will have to work through necessary changes with their labor partners.
Organized labor isn’t the only stumbling block. Plans to consolidate jurisdictions in the United States, for instance, have often floundered because citizens accustomed to their own school districts and municipal boundaries have made it clear they would vote against attempts to change them. People may not be entirely delighted with the current quality of public services, but persuading them that radical new collaboration models will do a better job promises to be a struggle.
A collaborative approach doesn’t have to alienate large sections of the electorate, however, or labor unions fearful for their jobs. On the contrary: Some leading organizations have managed to enlist the support of all stakeholders by creating innovative collaboration models that, besides cutting costs and boosting efficiencies, actually improve services, simplify interactions with citizens and even reduce inequities.
Take Sacramento, the capital of California, which has contracted out the provision of health and human services information, planning and training to a specialized nonprofit organization, and coordinated with a local employment and training agency to jointly deliver child, family and job-seeker services. Consider, too, the 2009 merger of the cities of Preston and Weston with Webster County, Georgia, which has resulted in an entirely new (and leaner) local government entity, eliminated the duplication of services and is expected to save more than $100,000 in property taxes.
A new social contract
These organizations are not only saving money for themselves and the electorate. Leading local authorities also recognize that times, and citizens, have changed.
The traditional social contract, the administration of which has become sclerotic with bureaucracy, is evolving. Local voters, now accustomed to high levels of accessible, accountable and transparent service from the private sector, have started to demand the same of City Hall. By collaborating across internal jurisdictions to create efficiencies and by partnering with specialized providers outside the organization, governments stand a better chance of meeting those demands.
What’s more, they will be much better positioned to respond to new and potentially costly longer-term imperatives, such as climate change, traffic congestion and air quality. In California, for example, one of the initiatives of the Joint Venture: Silicon Valley Network, a public–private partnership, is a renewable energy project funded with pooled resources (see sidebar 2).
Avoiding the pitfalls
There are, to be sure, plenty of pitfalls on the path to more collaborative government. It’s crucial, for example, to clearly define roles and responsibilities within the new power-sharing structure. And best practice requires strong leadership and a structured process to evaluate collaboration opportunities especially as these may expand over time. The most successful efforts have achieved consolidation by following a systematic methodology, prioritizing desired outcomes and working backward from there (see chart).
In Oregon, for example, Metro is a directly elected cross-jurisdictional regional government serving 25 cities in the Portland metropolitan area with a council president and an auditor elected regionwide, six councilors elected by district and a COO appointed by the council. The authority was originally responsible for managing urban growth, transportation, waste disposal and the Oregon Zoo in Portland, but it now has a much wider environmental and cultural mandate.
As its portfolio has grown, Metro has been careful to ensure that it isn’t viewed as just another mushrooming layer of government. Its more than 1,600 employees include specialists across all its areas of responsibility, from park rangers to stagehands. What’s more, the regional authority’s financial strength—only 18 percent of its operating budget derives from property taxes; 54 percent comes from current revenues (with enterprise activities, such as solid waste disposal, providing the largest amount of fee-generated revenues, at 49 percent), and the rest comes from excise taxes paid by users of Metro services—has bolstered public perceptions that the authority is efficient as well as effective.
One roadblock to consolidation is the fact that many governments simply don’t know what their business processes cost, or how their costs compare with those of similar organizations. That can be a significant handicap in developing a business case that justifies cross-jurisdictional collaboration. Which is why, when Ohio moved to a statewide shared services model in 2008, it brought in outside help to conduct a thorough benchmarking analysis before moving forward. Ohio’s public-sector unions also participated in the operations design process (see sidebar 3)—a move that secured the support of this key group of stakeholders.
Making the leap to cross-jurisdictional collaboration can be challenging, to be sure. But it is, increasingly, a necessity—and not just because governments urgently need to be able to do more with less as the global economic downturn moves into year four and high unemployment continues to weigh heavily on state and municipal services.
A more sophisticated citizenry, advances in technology and transportation, and a growing awareness of environmental threats have rendered the old, bureaucratic government structures, with their multiple levels of service provision, obsolete. By embracing new, cooperative models of public-service provision, organizations can find new efficiencies, generate new sources of revenue and deliver better programs, products and services. Cross-jurisdictional government, in other words, is good government.
Sidebar 1 | New Zealand: A nationwide approach
New Zealand first started reviewing the role of the state back in 1984. In subsequent decades, this small Pacific nation has introduced some of the world’s most radical and far-reaching government reforms.
Successive legislation designed to improve the efficiency, effectiveness and accountability of government has not only dramatically shrunken the number and size of jurisdictions—it has also encouraged collaboration among city, district and regional councils across the country.
In 2002, the Local Government Act required local authorities to collaborate with the community and outside agencies on strategic planning, contracting or tendering out services. It also called for the establishment of council-controlled organizations, or CCOs—companies or organizations in which one or more local authorities (or their appointees) control at least 50 percent of the votes. A CCO pays taxes and is accountable to its local authorities for its performance, and the local authorities, in turn, are accountable to the community for both their involvement with the CCO and the performance of the CCO itself—to deliver services from water and forestry to car parks and property management.
The results have been encouraging indeed. One district council, for example, has achieved cost savings of 30 percent to 40 percent by contracting out the bulk of its work and services. And when New Zealand’s Department of Internal Affairs recently surveyed the country’s 86 councils—down from about 830 in 1989—7 out of 10 said that the benefits of collaboration, in terms of both better value for money and better outcomes, were so significant that they would be intensifying their efforts in the coming year.
As a small, highly centralized, unitary state with a unicameral parliament and no single document for a constitution, New Zealand, to be sure, enjoys some unique advantages as a pioneer of radical government reform. But support for reform has been strong because citizens—including labor union members—have accepted the need for change.
Sidebar 2| A joint venture in Silicon Valley: A platform for post-recession imperatives
The Great Recession has taken a heavy toll on California’s Silicon Valley—the 30-mile-long strip of real estate south of San Francisco that’s home to such iconic companies as Google, Apple, Facebook and Yahoo. Between 2008 and 2009, about 90,000 jobs were lost. Indeed, hovering around 11 percent, unemployment in the region is above the US national average. And a combination of California’s legislative gridlock and the rise of high-tech rivals from China and India casts a long shadow over the area’s legendary status as the world’s innovation hub.
Sustaining that status has been the core mission of the eponymous nonprofit Joint Venture: Silicon Valley Network ever since its formation, back in 1993.
A public–private partnership, its current co-chairs are the mayor of San Jose and Accenture’s managing director for California. And since the onset of the recession, the organization’s collaborative approach to local challenges has come into its own.
Recently completed initiatives include the Alliance for Teaching, which set out to boost flagging educational achievement in the region’s schools by partnering with Stanford University and the Resource Area for Teachers to motivate and improve the training of teachers, especially in math. A related workforce development program brought together private businesses, local government, labor and community organizations in an effort to improve skills among job seekers.
Most innovative of all, however, is a renewable energy procurement project, which claims to be the largest such multijurisdiction initiative in the United States 70 public-sector sites, from bus depots and health centers to prisons and police stations from nine local government jurisdictions under the umbrella of a single regional power purchase agreement. Local authorities are working to reduce the upfront costs of purchasing and installing renewable energy technologies.
What’s more, thanks to an emphasis on local vendors and technologies, they are encouraging the creation of the carbon-neutral jobs and businesses that could reignite Silicon Valley’s innovation engine. While overall patent registrations in the region have been in decline, those for green technologies surged between 2006 and 2008, and Silicon Valley now accounts for a growing proportion of green patents nationwide.
Sidebar 3| Ohio Shared Services: A pioneering partnership
With shrinking taxes, slumping revenues and soaring expenses—all at a time when a high proportion of its workforce approaches retirement—Ohio’s challenges are no different from those facing state governments across recession-mired America. Its response to these challenges, however, has been groundbreaking.
In fact, Ohio Shared Services, which the Buckeye State set up in 2009 as the first statewide shared services center for back-office functions in the United States, could provide a model for more efficient and cost-effective government worldwide.
By processing a number of key financial tasks—accounts payable, invoice processing, travel expense reimbursements, and vendor maintenance and management—that were previously siloed among individual state agencies, Ohio Shared Services is reducing duplication, freeing agencies to focus on their core functions and driving significant cost efficiencies.
The state has already realized 15 percent to 20 percent improvements in productivity, while its costs for processing travel and expense reports have been cut by two-thirds, from $37 to $12 per transaction. In time, Ohio expects to achieve about $26 million in average annual savings, or about $500 million over 20 years.
Perhaps most significant of all, in light of the labor union resistance that has proven to be one of the biggest stumbling blocks to cross-jurisdictional collaboration initiatives (see story), Ohio Shared Services enjoys the support of the state’s largest employee labor union, the Ohio Civil Service Employees Association. In fact, labor leadership was intimately involved in the design of its operations. And all employees working at the center transferred voluntarily from other state agencies—fully aware that work in their new environment would be metrics-based and that performance would be closely monitored.
It plainly helps that the shared services center, which is housed in a former aircraft facility, was designed to encourage close, collaborative working practices and boasts state-of-the-art, virtualized IT that can be shifted seamlessly to different workplaces as needed. Moreover, employees are provided with incentives to be trained in four different functions, or “skill blocks”: accounts payable, travel and expense, vendor maintenance and contact center. The greater the number of skill blocks employees are certified for, the higher their compensation will be. The result? A more flexible and knowledgeable workforce that can move within the organization, depending on work volume, staff changes and other variables that can have an impact on productivity.
Plans call for the center to expand. Human resources may soon be added. Thanks to a scalable IT platform, Ohio Shared Services could eventually double in size. With one exception—travel reimbursement and expense reporting—agency participation in the center remains voluntary. But as the benefits of its single, standardized approach to common transactions become increasingly apparent, more and more agencies are likely to take full advantage.
About the authors
David A. Wilson is the managing director for Accenture’s Canada and US State & Local Government group. In his 26 years with the company, he has worked with numerous governments and universities to help them operate more effectively and efficiently, with a focus on back-office transformation and shared services. Mr. Wilson is the co-lead for Accenture’s Minneapolis, Minnesota, office.
Michael Henry is a New York-based senior executive in Accenture Strategy. Mr. Henry works with clients in North America, Europe and the Asia Pacific region, helping them develop innovative growth strategies, improve operational performance and redesign their organizations to better suit their business strategies.
Daniel J. McClure, a senior manager in Accenture’s Health & Public Service group, has extensive experience working with government agencies on organizational design, human capital development, strategic planning, performance management and project leadership. Based in San Francisco, Mr. McClure has authored several articles for leading military and defense journals.
Jason B. Wolenik is a San Francisco-based manager in Accenture Strategy. Mr. Wolenik, who develops innovative operating models for public-sector clients, led Accenture’s cross-jurisdiction collaboration research effort in partnership with Joint Venture Silicon Valley Network and designed cross-jurisdiction collaboration models for organizations across the United States.