Building Capacity: Amalgamation or….?

1. Building Capacity: Amalgamation or….? Graham Sansom UTS Centre for Local Government

2. Councils exist in systems of government • Local government is government: • Not an ‘industry’ or ‘business’ or lobby group or local club • Not just service delivery • Complexity and changing functions are inevitable • ‘Core business’ is very difficult to define • Inter-government relations are fundamental • Local leaders must understand state and federal systems and learn how to manage relationships • Local government itself is a system • Elements must be in sync to get good outcomes and build capacity

4. 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 states • Questionable future of SA and Tasmania • Implications for State-local relations? • Forthcoming White Paper • Will the Abbott government turn back the clock? • Budget and COA messages for local government • Not just medium-term cuts in FAGs? • End of a 40 year relationship with Canberra?

5. Constitution vs reality? Commonwealth Commonwealth State State Local Local But will ‘Local’ stay there?

7. NSW Review Panel 2012-13 • Optionsfor governance models, structural arrangements boundary changes: • To improve the strength and effectiveness of local government • To 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.

8. Context • 152 councils, about half <10,000 population • Climate of fiscal restraint • Financial difficulties facing State and LG, especially infrastructure backlogs, revenue shortfalls • Static or declining federal support • Declining 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 areas • State-local cooperation (agencies cannot/will not deal with 152 councils effectively)

10. Relative levels of rates

11. Strategic capacity • Fundamental 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

12. ‘Strategic Capacity’ • Relevance • Role in system of government • Wider agendas • Places and communities • Resources • Finance/asset management • Rates • Skills (inc strategy, policy, IGR) • Credibility • Political renewal • Mayors • Benchmarking • Leadership by larger councils

13. A package of proposals • Structural 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 funding • State-wide finance agency • Better governance (eg role of mayors) • Consistent data and benchmarking • Changes in State-local relationships

14. ‘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 planning • Regional advocacy and inter-governmental relations • Collaboration on key infrastructure (water utilities, road network planning, major projects) • Regional economic development • Library services • ‘High level’ corporate services • Integration with State regional coordination system

15. Member Councils Governing Body (Mayors plus others as agreed) Other Key Stakeholders Regional Partnerships: Roads and Transport Group; Strategic Planning; Others Subsidiaries: Existing County Councils; Regional Water Alliance; Shared Services; Others Statements of Intent Partnership Agreements RGM and Secretariat Shared Services Centres of Excellence Inter-Government Relations Regional Strategic Planning Other Activities

16. Reviewing the evidence • No 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 services • Hoffman’s paper to FOLG 2013

19. Amalgamations • Benefits 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 capacity • Enhanced sustainability

20. …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)

21. QTC review of 2007-8 amalgamations • Costs were indeed substantial: the 24 councils involved claimed a total cost of $184.71m • But 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%?)

22. Shared services • Given 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 ROCs • Failure of NESAC in NSW

23. ‘Joint Board’ model • Dollery 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.

24. Conclusions • Local government faces an uncertain future: • Growing fiscal constraints • Shifting 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