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Shared services and the economies of scale they provide local governments

by Timothy Davis
last updated: Tuesday, April 19, 2005 10:29 AM

Background and Mechanisms

With shrinking revenues and growing service demands, Michigan communities are joining forces to provide services to their constituents. Joint, or shared, services are agreements between local governments to combine resources to provide a service to their communities. This combination is a cost saving method for municipalities that want to maintain service levels but find that tax laws inhibit their ability to fund them individually. The result is a classic example of economies of scale, providing a community with increased general fund flexiblity and improvements to quality of life that contribute to the supply side of economic development. Stable general funds will allow communities to finance capital improvement projects and offer incentives to potential firms, while offering services that will attract residents that build tax bases and provide employees to those potential firms.

Michigan’s mixture of townships, cities, and villages, combined with a state tax structure that reduces municipal revenues while expenses increase is a growing example of why intergovernmental cooperation should be used. The Michigan Constitution permits political subdivisions to enter into contracts or joint agreements with any other political subdivisions.[1] The Michigan Legislature has also enacted many statutes permitting intergovernmental cooperation. Basically, any local governments authorized to engage in a given activity or provide a given service may do so collaboratively. The resulting agreements still must meet the required test for public purpose.[2] Many of the statutes that provide for intergovernmental contracting and cooperation are aimed at specific opportunities, such as joint fire departments or sewer and water authorities, but most intergovernmental collaboration arises from local desire to reduce costs through specialization or taking advantage of economies of scale in producing and providing services.[3] The concept has growing support in Lansing, with the governor considering incentives—such as higher state payments—to communities that partner with neighboring communities for services.[4] The governor is also supporting a survey being conducted by the Citizens Research Council of Michigan to determine how communities are currently providing various services. Results of the surveys will help determine how communities can better fund programs and encourage development.[5]

The two basic methods of providing joint services are either a contract agreement, where one municipality sells excess services to another municipality that may not have the need nor the resources for a similar full-time department; or a joint authority created with a separate administrative body comprised of appointed officials from each municipality. These organizations may have the power to be self-funding, but often operate with contributions from the participating governments.

Fire and police services are logical candidates for joint services, with fire services being the most common in Michigan. High employment costs, coupled with substantial equipment purchases and maintenance fees, make them perfect for neighboring localities to jointly provide, thus saving money and gaining synergies from broader viewpoints and expertise. Additional joint services such as recreation programs, waste collection services, administration buildings, brownfield consortiums, and educational programs are occurring in many communities. Libraries, cities, townships, school districts, and development authorities are working together to improve communities. These actions make those communities and the region more attractive to residents and businesses through lower tax rates and broader availability of services.

The Southeast Michigan Council of Governments (SEMCOG) is a strong supporter of joint services. They have a detailed database with examples of success stories from the region. They recognize that there are concerns when entering such agreements, and have published pamphlets to aid local officials in the transition. In addition, they have recognized programs and administrators with awards since 1998. They also have created a series of reports in conjunction with the Metropolitan Affairs Council (MAC) to assist communities with the creation of intergovernmental services.

Examples of Shared Services

Western Wayne County has a large number of shared services. Recently, leaders from Canton Township, Northville Township, Plymouth Township, and the Cities of Northville and Plymouth met to discuss how they could work together to assist with services such as technology, public works purchasing, police programs, and planning inventory. The program was attended by 70 community leaders and moderated by a representative from the MSU extension office. Governor Granholm sent a liaison from her office and the area’s state representative attended.[6]

These communities are not new to shared services. Northville Public Schools, Northville Township and the City of Northville have a long history of coordinated efforts. The Northville Parks and Recreation Department was started in 1980 with the signing of a joint services contract between the municipalities that created the joint recreation authority. The department oversees a substantial recreation program, a youth services organization, and a senior citizens program. The township and city have a formula for funding contributions, and the school district has provided facility assistance and commission members.

Recently the City of Northville and Northville Township entered into an agreement to combine police dispatch services. Even with the long history of success in the recreation department, the idea was met with some opposition. Typically, the most common reasons for opposition are concern for quality of service and the fear of losing control and community identity.[7] City residents attended several contentious meetings, and recall petitions were filed for council members that supported the merger.[8] Eventually, the dispatch did combine and is expected to save the communities $300,000.[9]

Northville is not the only Western Wayne community that has had successes and struggles with joint services. The City of Plymouth and Plymouth Township participate in both a joint dispatch and a community fire department, both of which are contractual arrangements with the city purchasing from the township. The cost savings are estimated to be $6 million over ten years and have increased community collaboration, but it was a process that took some cultural learning by both sides. The agreements are reviewed periodically to see if they still provide benefit to both sides, and they are also looking into the possibility of creating a joint recreation program.[10]

Officials can be creative when it comes to combining resources. In South Lyon, the city and school district built the first combined administration building in the state.[11] The building saved the school district from the costs of a bond issue and saved the city the expense and efforts to purchase land. The agreement has the city leasing school land for 99 years and renting a portion of the city-owned building back to the school district. Completed in 1998, it is a long-term agreement that produced a significant community project at reduced costs to residents.[12]

Concerns and Keys to Success

It seems natural that communities should work together to save money and provide services for constituents. However, government officials’ territorial issues and concerns over control and risk exposure can act as roadblocks to cooperation. Turf wars and the time commitment to reaching a sound agreement can pose a challenge to the best financial decisions. The pricing or funding structure and cultural differences can also prohibit municipalities from finding solutions.

Strong leadership, community support, and detailed contracts can help the chances of success. Contracts that clarify each participant’s role and options, details of funding and length of agreement should be defined to give maximum return to all members. Funding models can be based on populations, taxable values, services usages, or a weighted average of all three.[13] Increasing community support with communication of the benefits and recognizing the venture as a source of community pride and accomplishment can increase the potential for success.


With increasing demands on communities to provide quality services, but without relief for municipalities’ funding concerns, working with neighboring communities and other government entities is a sound practice to maintain the quality of life of their citizenry and provide municipalities with funding to continue capital improvements while promoting business development. Increasing or even maintaining current levels of service are critical for keeping a sound residential tax base and encouraging employers to a community. Intergovernmental services are an excellent tool to provide opportunities for officials to move forward; and build coalitions for future development possibilities.


[1] Article 3, section 5 and article 7, section 28 of the Michigan Constitution of 1963.
[2] SEMCOG/MAC “ Michigan’s Legal Tools for Cooperative Arrangements,” April 2003,
[3] “Local Government Organization and Issues,” Michigan in Brief, 6 th edition,
[4] Kathleen Gray, Kim North Shine, and Alexa Capeloto, Communities set to trim beyond the fat,” The Detroit Free Press, March 4, 2003,
[5] Citizens Research Council of Michigan,
[6] Naomi R. Patton, “ State, school, civic leaders convene,” The Detroit Free Press, November 26, 2004, .
[7] Ibid.
[8] Naomi R. Patton, “ From Big Boy to barns to IKEA,” The Detroit Free Press, December 30, 2004, .
[9]“Merge Police and Fire Dispatch for Northville City and Township,” The Detroit News, March 24, 2004,
[10] Jennifer Brooks, “Suburbs get neighborly,” The Detroit News, June 17, 2004,
[12] SEMCOG database search results,
[13] SEMCOG/MAC “Financing Joint Public Ventures: Alternatives and Consequences,” December 2003,