Graham SansomUTS Centre for Local Government

Councils exist in systems of governmentLocal government is government:

Not an ‘industry’ or ‘business’ or lobby group or local club

Not just service deliveryComplexity and changing functions are inevitable

‘Core business’ is very difficult to defineInter-government relations are fundamental

Local leaders must understand state and federal systems and learn how to manage relationships

Local government itself is a systemElements must be in sync to get good outcomes

and build capacity

Australia’s federation at a crossroads?A federation in name only?

Commonwealth financial dominance (80% 0f tax)States lack meaningful autonomy (even GST not

guaranteed) Commonwealth decisions are critical to regional

development, infrastructure, metro planning etc

Significant capacity differentials between statesQuestionable future of SA and TasmaniaImplications for State-local relations?

Forthcoming White PaperWill the Abbott government turn back the clock?

Budget and COA messages for local governmentNot just medium-term cuts in FAGs?End of a 40 year relationship with Canberra?

State

Commonwealth

State

Local

Commonwealth

Local

But will ‘Local’ stay there?

NSW Review Panel 2012-13Options for governance models, structural

arrangements boundary changes:To improve the strength and effectiveness of

local governmentTo drive key strategic directions in

‘Destination 2036’ and the NSW 2021 State Plan

Goal:A more sustainable system of democratic local

government that has added capacity to address the needs of local and regional communities, and to be a valued partner of State and Federal Governments.

Context152 councils, about half <10,000 populationClimate of fiscal restraint

Financial difficulties facing State and LG, especially infrastructure backlogs, revenue shortfalls

Static or declining federal supportDeclining populations across most of inland NSW,

but growing ‘regional capitals’Increasing imbalance/inequity between LGAs Importance of Sydney as a ‘global city’ Vital importance of the regional dimension:

Capacity building in non-metro areasState-local cooperation (agencies cannot/will

not deal with 152 councils effectively)

Relative levels of ratesLocal Government Area

Average Residential Land

Value 2011/12 ($)

Average Residential Rates

2011/12 ($)

Rates as % of Land Value 2011/12

Woollahra 1,036,898 1,006 0.10Ku-ring-gai 529,412 591 0.11North Sydney 366,043 484 0.13Waverley 563,832 796 0.14Kogarah 446,270 887 0.20Palerang 237,770 770 0.32Penrith 229,634 957 0.42Blacktown 183,763 808 0.44Clarence Valley 152,449 784 0.51Campbelltown 154,348 817 0.53Bathurst 100,403 810 0.81Albury 115,128 1,045 0.91Warrumbungle 30,648 452 1.47Broken Hill 28,802 674 2.40

Strategic capacityFundamental goal was to enhance ‘strategic capacity’

Securing LG’s future in troubled times

Coping with complexity and unpredictable change

More robust revenue base (static/declining grants: stronger councils must be more self-sufficient)

Scope to undertake new functions/major projects

Ability to employ wider range of skilled staff

Knowledge, creativity and innovation

Credible and ‘real’ partner for State and federal agencies

Panel was NOT focused on economies of scale/cost savings LG as government, not just service delivery

‘Strategic Capacity’

Relevance Role in system of government Wider agendas Places and communities

Credibility Political renewal Mayors Benchmarking Leadership by larger councils

Resources Finance/asset management Rates Skills (inc strategy, policy, IGR)

A package of proposalsStructural reform necessary, but just one element

Need to balance increased capacity with ‘keeping the local’

Three components: some amalgamations (esp metro Sydney), strong regional organisations, new forms of local governance

Other complementary proposals including: ‘Fiscal responsibility’ agenda (including audit)Improvements to the rating system (equity issues)Re-distribution of grant fundingState-wide finance agencyBetter governance (eg role of mayors)Consistent data and benchmarkingChanges in State-local relationships

‘Joint Organisations’Voluntary ROCs, alliances patchy, vulnerable, limited in

scope

Proposed mandatory organisations/shared services:But flexible arrangements (individual proclamations)

Proposed core functions:Strategic regional and sub-regional planningRegional advocacy and inter-governmental relationsCollaboration on key infrastructure (water utilities, road

network planning, major projects)Regional economic developmentLibrary services ‘High level’ corporate services

Integration with State regional coordination system

Member Councils

Governing Body(Mayors plus others

as agreed)

Subsidiaries:Existing County

Councils;Regional Water

Alliance; Shared Services;

Others

Inter-Government

Relations

Regional Strategic Planning

Other Activities

Regional Partnerships:

Roads and Transport Group;

Strategic Planning; Others

Shared Services

Centres of Excellence

Other Key Stakeholders

RGM and Secretariat

Statements of Intent

Partnership Agreements

Reviewing the evidenceNo single ‘right’ approach to structural reform:

Amalgamations and shared services/regional collaboration both have role to play

Both may ‘succeed’ or ‘fail’Fundamental questions concern:

Role of local government (‘maximalist’ government or ‘back to basics’ service deliverer?)

Objectives of reform (enhance capacity or cost savings?)

Process is critical:Sound information base? Consultative? Proper pre-

planning? Robust governance arrangements?Applies equally to amalgamations and shared servicesHoffman’s paper to FOLG 2013

AmalgamationBoundary Change

Shared Services

Regional Collaboration

Efficiency and Economies of Scale

Strong link

Potential strong link: depends on re-shaping of councils

Strong link Weak link

Strategic Capacity

Strong link

As above – benefits for larger ‘new’ council/s

Medium-strong link subject to governance

Weak link

Service Improvement and Innovation

Strong link As above

Strong link for services that are effectively shared

Depends on nature and scope of collaboration

Potential Diminution of Local Democracy

Distinct risk, but can be managed

Some risk – can be managed

Risk where decision-making ceded to joint agency

Little or no risk

AmalgamationsBenefits are not ‘automatic:

Amalgamations don’t always deliver efficiencies/savings, can be disruptive and costly

No ‘straight line’ link between size and efficiency (Dollery et al studies)

May be a difference between ‘forced’ and ‘voluntary’ mergers (Dollery et al), but most likely process is the key

A wide range of studies (ACELG, Dollery et al, Hoffman and Talbot) do point to significant benefits:Economies of scale Economies of scope and increased capacityEnhanced sustainability

…continued

Tiley’s 2010 study of Clarence Valley (2004 forced merger)The larger organisation has been able to increase

outputs and projects that were beyond the capacity of the former councils … CVC has developed the capacity to deliver services over a wider footprint than its LGA…there is sufficient evidence to suggest that the financial strength and stability of CVC is now greater than that of each of the former councils …

…the weight of empirical evidence … proves that the economic benefits have outweighed the fiscal disadvantages of this amalgamation… at least from a fiscal standpoint, bigger is indeed better, but not obviously cheaper.(emphasis added)

QTC review of 2007-8 amalgamationsCosts were indeed substantial: the 24 councils

involved claimed a total cost of $184.71mBut QTC’s assessment reduced this figure to

$47.21m, largely by excluding ‘discretionary decisions’ to adopt the wage and salary levels of the previously highest paying council

QTC argued that additional costs would be progressively offset by savings – but savings were often ploughed back into improved services rather than made explicit

All the councils had the financial capacity to meet the costs of amalgamation, which represented only 0.3-1.5% of operating revenues (or perhaps 1.2-6%?)

Shared servicesGiven that compulsory council consolidation seldom achieves its

intended aims, and given that scale and scope economies do exist in some specific local government services… the best way to achieve larger scale economies in these selected functional areas is for councils to enter into collaborative shared services agreements… (Dollery et al 2012)

… it is important not to ‘oversell’ this message by way of exaggerated claims for what shared services models can realistically achieve … shared services models have their limitations which must be recognised. (ibid)

… the degree of success varied considerably from case to case … there are often significant barriers to the implementation of shared service arrangements, which are difficult to overcome, including the loss of ‘local identity’, the complexity of the processes involved, conflicting objectives between participating councils and uncertainty surrounding potential benefits. (Dollery et al 2011)

Findings confirmed by ILGRP research into ROCsFailure of NESAC in NSW

‘Joint Board’ modelDollery and Johnson 2007:

… the retention of autonomous existing councils and their current spatial boundaries, but with a shared administration and operations overseen by a joint board of elected councillors from each of the member municipalities. In essence, constituent councils would each retain their current political independence, thus preserving extant local democracy, while simultaneously merging their administrative staff and resources into a single enlarged bureau, in an attempt to reap any scale economies, scope economies, or other benefits that may derive from a larger aggregated administration.

ConclusionsLocal government faces an uncertain future:

Growing fiscal constraintsShifting inter-government arrangements

It will need to enhance its capacity, its independence, and its credibility as a valuable part of our federal system

Further structural reform has an important role to play in this endeavour

Such reform will be multi-dimensional:Drawing ‘battle-lines’ between amalgamations, shared

services and other approaches is pointless and damaging

We need a mature conversation about what type of reform to apply in what circumstances, and sound processes to make those decisions