Mergers Do Not Always Save Money


The WSJ has published an analysis that concludes that political expediency often results in causing mergers to result in increased spending as opposed to taking advantage of economies of scale. The reason of course could easily be interpreted as consolidation committees like our local one deferring the examination of “sacred cows” far into the future.


“But a number of studies—and evidence from past consolidations—suggest such mergers rarely save money, and in many cases, they end up raising costs.”

“the consolidated city finds it politically expedient to take on the more-expensive version of everything.”

“The logic often cited behind consolidations is saving money by shedding layers of management or having departments share equipment such as snowplows. But managers and equipment account for far less than half of local governments’ expenses—most of their cost is rank-and-file labor.”

“Still, when it comes to controlling local government’s largest cost—labor—smaller governments generally do better.”

“In government, the whole idea of economies of scale is turned on its head,” said Wendell Cox, who produced the report for Township Officials of Illinois, an umbrella group for the state’s townships.”

“But Mr. Cox, the consultant, and a visiting fellow at the conservative Heritage Foundation, has prepared reports for township organizations in other states, including New York and Pennsylvania, that all found small governments cost less than big ones. “Anyone who looks at the data is going to come to the same conclusion,” he said.”