Municipal amalgamation failed to deliver predicted benefits

The Fraser Institute has found that municipal amalgamation in Ontario in the 1990s has failed to deliver cost-savings and efficiencies promised for both large and small cities.

Says the institute’s press release of May 26:

“In the late 1990s, the government of the day wanted to consolidate municipal governments in an effort to reduce waste and lower property taxes. While that may have been a laudable goal, it’s become clear that those benefits never materialized,” said Lydia Miljan, Fraser Institute senior fellow and co-author of Municipal Amalgamation in Ontario.

While there’s a plethora of research about the shortcomings of amalgamation in Ontario’s big cities, Municipal Amalgamation in Ontario examines the experiences of some of the province’s rural communities to see if cost savings were achieved when smaller municipalities were amalgamated.

Specifically, the study compares pre and post amalgamation financial indicators in the amalgamated communities of Kawartha Lakes, Essex Township and Haldimand-Norfolk relative to comparable un-amalgamated communities.

In almost all cases — in both the amalgamated and un-amalgamated communities — the study finds significant increases in property taxes, compensation for municipal employees, and long term debt between 2000 and 2012. In other words, un-amalgamated and amalgamated municipalities appear to exhibit similar trends suggesting there was no tangible benefit to amalgamation.

Notable cost increases (between 2000 and 2012) for the amalgamated communities include the following:

• In Haldimand County, property taxes increased 50 per cent
• In Kawartha Lakes, municipal employee compensation increased 52.8 per cent
• In Norfolk, long-term debt increased 111 per cent

“If amalgamation had in fact led to cost savings and lower property taxes, then one would expect an amalgamated municipality’s financial indicators to exhibit a downward trend over time, at least in the initial years of the amalgamated community. That didn’t happen,” said Miljan.

Why didn’t the predicted cost savings materialize?

The study finds that the provincial government pressured municipalities to amalgamate too quickly which resulted in poor planning and execution.

For example, in Haldimand-Norfolk — because there was not enough time to negotiate new labour contracts with the public sector— the new municipalities agreed to harmonize wages upwards, mitigating any chance at cost savings.

Moreover, when rural areas were amalgamated with urban areas, residents demanded similar services and amenities that had been available in more urbanized communities. Even Essex, which managed to hold the line on taxes and decrease remuneration, saw its long-term debt increase by 41.5 per cent, which was directly related to its increased spending on recreation facilities.

“Our study reinforces earlier research about amalgamation of larger cities which suggests that amalgamation in Ontario didn’t achieve cost savings, and in some instances might have actually raised costs,” Miljan said.

“If the government of the day was truly interested in finding efficiencies at the local level, it might have been better off to pursue policies such as shared service agreements rather than municipal restructuring.”