Sharing services has saved money for N.J. local governments: Wall Street analysis

This article originally appeared on NJ Spotlight.

–

It’s a simple formula: Sharing equals savings in the Garden State, according to Moody’s Investors Services.

Pooling services has reduced costs for New Jersey’s municipalities and counties while maintaining service levels and preserving resources, Moody’s determined in a research report issued this week.

Moody’s specifically found: “New Jersey local governments will continue to curb expense growth and save money via shared services agreements in an environment of rising costs and declining appetite for raising taxes.’’

The finding is a boon to New Jersey’s “home rule” advocates, who have pushed shared services to reduce costs and limit property tax increases, without forcing actual reductions in the number of municipalities, school districts and police departments in the state.

Moody’s found prime areas “to benefit from economies of scale’’ by shared services agreements in public works, procurement, community colleges, health services and jail operations.

“I think shared services in New Jersey are becoming more popular and publicized, given revenue constraints on the property tax side,’’ said Susanne Siebel, associate lead analyst at Moody’s.

“The main takeaway is this is an opportunity for cost savings,’’ added Siebel, who worked on the study.

Such agreements doubled in 2019

Melanie Walter, the state Department of Community Affairs director of local government services, said the DCA has seen nearly 800 new shared services agreements in New Jersey this year, compared to a range of 300 to 400 new deals in prior recent years.

“We have the opportunity here to maintain the integrity of local units … but also (so) that we’re not duplicating services unnecessarily,’’ said Walter.

The DCA views shared services as a key way to help reduce property taxes in New Jersey, which are considered among the nation’s highest, averaging $8,690 in 2017.

New Jersey Municipalities in Shared Service Agreements Are Curbing Expenses Saving Money and Resources 1 by WHYY News on Scribd

A key example, cited by Moody’s, is a joint effort by Gloucester County and surrounding counties to provide correctional services in recent years, saving more than $21 million in fiscal year 2018.

“Shared services agreements for correctional facilities provide a particular financial benefit because of the heavy costs related to the facilities,” Moody’s determined. “Operations require around-the-clock personnel who receive high salaries, overtime pay and costly benefits. The need for capital investment is also ongoing.’’

Moody’s also pointed to shared health service operations by Passaic County and its municipalities as an example of localities receiving better services, even if savings are not significant.

“I think there’s also just a lot of opportunities at the moment for shared services,’’ said Douglas Goldmacher, an assistant vice president-analyst for Moody’s, who also worked on the report.

Murphy administration supports shared services

Gov. Phil Murphy has wholeheartedly endorsed shared services agreements among counties, municipalities and school districts.

In November 2018, the Murphy administration established an online Shared Services Portal, which gives local officials an array of ways to increase such agreements through feasibility studies, direct connections to administration experts and information on sharing programs.

“It is imperative for New Jersey’s 565 municipalities to collaboratively pursue shared services so they can operate more efficiently and ensure better delivery of services for our residents,’’ said Murphy in a statement on the portal.

Also last year, former mayors Nicolas Platt and Jordan Glatt were appointed shared services “czars’’ by Murphy to help promote the concept throughout the state. Local government officials can seek more information on reducing costs through shared services by reaching out to sharedservices@nj.gov, where Platt and Glatt also can be reached.

“I think local governments … are always looking for reducing costs and increasing efficiency,’’ said Mike Cerra, assistant executive director of the New Jersey State League of Municipalities. “Shared services is one tool. It’s not the panacea.”

Some have recommended less voluntary means to reduce government and costs in the Garden State.

Last year, state Senate President Stephen Sweeney (D-Gloucester) put together a task force of experts on fiscal policy. Their recommendations included mandating consolidation like merging K-9 and smaller school districts and forcing municipal courts with smaller caseloads to consolidate.

It’s not always easy

But such efforts can be difficult from procedural, logistical and perceptual standpoints, said Mike Cerra.

He recalled a resident who voiced concern that she would no longer know her local police officer, once Princeton Borough and Princeton Township finally completed their merger.

“I think the biggest obstacle in many cases to shared agreements is civil service,’’ said Cerra, noting the difficulties for example of consolidating public works services between towns with civil service employees and those without.

Following World War II, New Jersey state government implemented a civil service — or merit-based — hiring system to limit patronage. Most counties and municipalities followed suit via referendum, but others did not.

Debate over consolidation and regionalization in New Jersey has spanned decades.

Outgoing Gov. Jim Florio, in his final address to a joint legislative session shortly before leaving office in January 1994, called for sharply curtailing “home rule” and advocated regionalization as a way to reduce property taxes.

“It’s time to stop living a fantasy where we think ‘small is automatically better,’ when, in fact, the price we pay is the duplication and inefficiency of maintaining 611 school districts and 567 totally independent municipalities, awash in administrative redundancy,’’ said Florio in his speech. “The bottom line cries out for more cooperation, coordination, and, yes — regionalization.’’

Regionalization, however, has been slow over the past quarter-century: Today New Jersey has 565 municipalities — only two fewer since 1994 — and 585 school districts, down 26 districts in the same period.

The Murphy administration, however, has its sights on shared services rather than consolidation.

Walter of the Department of Community Affairs noted, “I think the focus is more on that centralization of service provisions.’’