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The Distributional Consequences of Interlocal Agreement Cost Allocation Strategies

Eric A. Scorsone, Michigan State University



In an era of fiscal stress for many local governments in the United States, intergovernmental cooperation has become a focus for cost savings. Cooperation and consolidation is a recognition that existing boundaries and service delivery mechanism simply are too inefficient and burdensome for a community to maintain. City and county officials face a basic tradeoff in assessing the merits of cooperation involving the desire of many citizens for sovereignty and local decision making authority versus the potential cost savings associated with the economies of scale of larger government units. As intergovernmental agreements are negotiated, the issue of cost allocation among various parties often becomes a major issue. Some cost allocation formulas emphasize ease of implementation, while potentially shifting the burden onto one or another party. Complicated cost allocation formulas may reduce burden sharing or donor situations, but at greater cost of implementation and maintenance. A simple economic model is presented in this analysis to highlight the distributional consequences of various cost allocation strategies among parties to intergovernmental agreements.