With a little help from my friends?
Fiscal stress and collaboration for public service delivery
José Sánchez (University of Colorado Denver), Jun Li, Aamer Ranjha and Michael Siciliano (University of Illinois Chicago)
Cities around the world face declining revenues and increasing demands for public services by residents and commuters. Large metropolises have been navigating times of deficit for a long time. The pandemic only intensified these dynamics, particularly in big cities. Cross-boundary dynamics, such as contracting out or joint production of services, are well-known practices intended to (a) lower the costs of services, (b) increase service quality, and/or (c) enable access to certain services.
The logic behind these promising goals is fairly simple: cities can transfer the responsibility of producing a service to a third party that produces the service more efficiently. Engaging in these cross-boundary service dynamics can allow local governments to achieve economies of scale or purchase capital-intensive services that require large investments, or personnel-intensive services (like policing) that would be difficult to provide given their revenue and population size.
In this sense, one might assume that cities under higher fiscal pressures are more likely to seek more efficient arrangements. However, cross-boundary arrangements like contracting out or joint provision of services have their own set of costs. Searching for partners, negotiating contracts, and monitoring compliance to ensure coverage and quality of services require time and resources. Fiscal stress can, therefore, motivate local governments to find more efficient arrangements outside their jurisdiction and simultaneously prevent them from collaborating in these service delivery arrangements due to the high cost of formalized collaborative service provision.
Thinking of contracting services as a transaction, the way potential partners perceive their counterparts before engaging in cross-boundary dynamics can be influenced by the fiscal condition of the parts involved. Highly fiscal-stressed local governments can be seen as risky collaborators that could be unable to comply with the conditions of service delivery agreements both from the supplier and the consumer side.
Literature on service delivery and contracting out has explored the role of fiscal stress on the likelihood of collaboration at the local level. Research on this question has produced mixed evidence partly due to data limitations but also due to the distinct nature and characteristics of public service domains. Thinking of fiscal stress as a potential driver or deterrent of collaboration, we studied Interlocal Agreements (ILAs) in the state of Iowa across an 11-year span on four service areas: (1) economic development, (2) street and roads systems, (3) public safety, and (4) water systems. Using archival data stored at the repository of the Iowa Secretary of State, we constructed service delivery networks involving cities and counties and analyzed the relationship between fiscal stress and the likelihood of creating and maintaining an ILA. Our selection followed the general criteria of choosing two service areas in which economies of scale are generally achievable (street and roads and water systems), and two where economies of scale generally do not apply (economic development and public safety).
Stochastic Actor-Oriented Models (SAOMs) are a fascinating network analysis tool suitable for studying cross-boundary interactions across time. SAOMs work under the assumption that actors in a network take micro-steps by choosing to create, maintain, or dissolve a tie with another actor. Moreover, SAOMs embrace the idea that the decision of one actor in the network is not independent of the decisions of creating, maintaining, or dissolving a tie of the rest of the actors in the network. Applying these assumptions to this case, local governments in each of these four service networks make decisions in terms of creating, maintaining, or dissolving an ILA. These decisions are influenced not only by their own characteristics -fiscal stress, population, type of government- but also by the decision of other local governments to create, maintain, or terminate ILAs with other partners in the network.
Figure 1.
The results of our network models support the idea that fiscal stress can reduce the likelihood of collaboration in one service area where economies of scale are not possible for economic development, and increases the likelihood of creating or maintaining an ILA in one service domain where economies of scale are achievable, such as street and roads systems. That these findings apply to only one service domain in each of the categories related to economies of scale suggests that the distinct nature of service domains and the activities that these services provide is formed not only by their potential for economies of scale but by a more complex set of attributes that might make fiscal stress more or less relevant to the local governments involved in the agreement. This may also point towards fiscal stress as a driver or a deterrent for engaging in cross-boundary dynamics.
Understanding the role of fiscal stress in collaborative dynamics is critical within a larger conversation of public services and resource disparities at the regional level. In the United States, these disparities persist and can create reinforcing cycles of fiscal stress and reduce opportunities to achieve more efficient arrangements for service delivery. This has the effect of worsening the quality of life of their communities, losing attractiveness and competitiveness, and compounding their fiscal stress. Identifying which services local governments can overcome the limitations of fiscal stress can create paths to a more balanced resource allocation across local governments.
José Sánchez is an Assistant Professor at the University of Colorado Denver School of Public Affairs. Pepe studies cross-boundary dynamics, governance, and collaborative arrangements for public service delivery in metropolitan regions. His work addresses questions related to public issues in large cities and institutional responses to borderless challenges.
Jun Li is a PhD candidate in the Department of Public Policy, Management, and Analytics (PPMA) at the University of Illinois Chicago. With a background in economics and international trade and teaching experience in higher education internationally, Jun has an established research focus on government, public and private organizations, at the intersection of collaborative governance, representative bureaucracy, coproduction, and smart government. Jun Li is an established member of the Networks and Governance Lab at PPMA.
Aamer Shaheen Ranjha is a PhD candidate at the Department of Public Policy, Management and Analytics, University of Illinois, Chicago (UIC). He is a civil servant by profession and belongs to a generalist cadre. He has a prior academic background in Economics and Public Administration. His research interest areas include public finance in general and fiscal federalism and municipal finance in particular.
Michael D. Siciliano is an Associate Professor of Public Policy, Management, and Analytics at the University of Illinois Chicago and Co-Director of the Networks and Governance Lab. Michael studies how humans and organizations collaborate to improve society. His work explores the cognitive, social, and institutional factors influencing the formation and performance of networks.