Municipal Consolidation: Theoretical Inquiry and Case Study - City of Iron River, MI

The City of Iron River was created as a consolidated municipality in the upper peninsula of Michigan during the late 1990's. The consolidation consisted of two cities and one village with a combined 2000 census population of 3,391. Persistent population loss, combined with the decline of the economic base, reduced the viability of the individual municipal governments, placing consolidation at the forefront of options. The analysis of small, rural municipalities is outside the focus of most consolidation studies, however, the theoretical considerations examined in this study apply to all consolidation questions. These questions revolve around theories of local government organization and size; addressing key points including, economies of scale, size, and scope, transition and social interaction costs, local government competition, and spillovers. The case study presented in this paper uses a two-pronged approach; the first examines the cost structure of three governments in a pre and post consolidation setting; and the second uses a quasi-experimental technique to ensure that cost savings were related to consolidation and not other exogenous factors. Recognizing that concerns extend beyond expenditures, anecdotal evidence was gathered from city officials and stakeholders in relation to service level and quality in the consolidated Iron River.