Testimony by Michael LaFaive,
Director of Fiscal Policy, Mackinac Center for Public Policy

Before the Employment Relations, Training and Safety Committee of the Michigan House of Representatives

Oct. 22, 2003

Good afternoon. Thank you for inviting me to testify. I am, as you mentioned, director of fiscal policy for the Mackinac Center for Public Policy, a free market research and educational institute. I have worked with the Center for 10 years and have had the good fortune to study, write and speak on the good and often bad ideas produced at all levels of government. I have been asked to briefly address the issue of "consolidation," and field any questions that you may have with respect to House Bill 5190.

Consolidation of often decentralized and highly varied assets and services is nothing new to the world, let alone Michigan, in either the private or public sectors. Indeed, the idea of reorganizing scarce resources either to improve a particular product or service, to save money, or both, is so common there are likely few areas of private and public industries where it has not been tried to some degree.

In preparing for my remarks I sifted through more than one hundred academic journals on the subject and several hundred newspaper and magazine accounts of specific consolidations. I would like to briefly share just a few examples with you now, just to give you an idea of how sweeping consolidation efforts are:

  • In 2002, the state of Florida launched a plan to consolidate its human resources reform. The reforms included the consolidation of human-resource employees and duties into a more centralized system.

  • Los Angeles County consolidated its Health and Human Services human resource functions with the county’s Department of Human Resources in 1995.

  • In Texas, just yesterday, hearings were held on the state’s plan to consolidate 12 Health and Human Service agencies into just five. Texas expects to save $1 billion in just two years through this consolidation.

  • According to an Oct. 6 Crain’s Detroit Business, Wayne State University has "consolidated 11 administrative positions into five as one step in a plan to trim up to $40 million" from its budget. These consolidation efforts included some human resource services consolidation. The University is now looking to consolidate its College of Liberal Arts with its College of Science.

One very popular area in which municipalities are consolidating is in emergency service providers. Municipalities such as Orange County, Fla., and Salem, Wisc. have consolidated their emergency services

In Georgia, whole cities such as Augusta and Athens have actually merged with the counties in which they are located in order to increase government efficiency.

In 2001 Grand Rapids Mayor John Logie encouraged local government consolidations in Michigan through what he called a "metropolitan rebate," whereby the state would give back a portion of an areas’ total income tax back to units of government that agreed to consolidate.

But consolidation is, of course, not limited to the public sector. I’ve known for-profit firms to consolidate to save rental space; real estate syndicates have consolidated into a single-purpose legal entity; company warehouse consolidations are also common. I’ve read studies of large-scale consolidations, of airline industries in Europe, for example, or of biotechnology and hardware retailers in the United States; and also of smaller-scale, more exotic consolidations, for example, of perfusion services in Royal Oak. Perfusion service is a way of describing the heart-lung machine work that is necessary for open-heart surgeries.

Private sector companies also have adopted consolidation to make their human resource departments more efficient. Recent examples include General Electric, Honeywell, Pfizer, Marriott, and Lucent.

Clearly, the use of consolidation as an effective management technique to save money or improve services is widespread. Will it work here? The short answer is that it can and it should if, and this is vital, if you do it right. I stress this because consolidation, as with so many other management techniques, can be done wrong which is worse than not doing it at all.

One real-world example of where consolidation was done wrong was in Orange County, Calif. Apparently the County expended substantial resources in developing and executing a plan to consolidate its emergency services. But when the plan met with extreme opposition, officials lost their nerve and didn’t follow through and implement the plan. One thing you have to be prepared for with consolidation plans is for there to be opposition to changes in the status quo.

That being said, what can you do to ensure a successful consolidation of human resource services? There are several key steps to consider:

  1. Appoint a champion. Someone should be the acknowledged leader of the effort. A member of this committee could be a candidate, or perhaps a staffer this committee identifies could be the project manager.

  2. Develop a written plan. This is a common business practice. In Florida, officials created a comprehensive business plan to help guide them in reorganizing their human resource apparatus. I am told that they also contracted with a firm to help them manage the entire project. Just last week, the state of Texas published its 100-page plan for consolidating its health and human services agencies.

  3. Push the button. What I mean by this is that if you intend to consolidate human resource services please don’t do everything except actually go through with the consolidation. As in California, it would be a waste of the taxpayers’ money and time.

  4. Monitor the results. It is important that you set up a monitoring system to ensure that your goals are met in the short and long term.

Consolidating varied resources has become a "best practices" management technique in both the private and public sector. Done right, it can save money and improve services.

I would be happy to take any questions you may have.