An evaluation of amalgamation and financial viability in Australian local government.

Author:Dollery, Brian
 
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  1. INTRODUCTION

    In common with its counterparts in many other advanced nations, Australian local government has faced a bracing bout of vigorous reform for more than two decades (see, for example, Dollery, Garcea and Le Sage, 2008; Dollery, Grant and Kortt, 2012). In essence, Australian state and territory government policy makers have deployed three main policy instruments in pursuit of reform objectives. In the first place, state and territory Departments of Local Government have attempted to enhance the operating efficiency of local government by modernizing the various Local Government Acts on the assumption that greater legislative latitude would enable local councils to adapt more rapidly to changing circumstances. The conceptual basis for this policy presumption derives from New Public Management (NPM) which stresses the importance of giving local authorities the 'freedom to manage', as well as the ability to use market mechanisms in service provision through competitive tendering, outsourcing, public/private partnerships, and so on.

    Secondly, Commonwealth agencies and state and territory governments have concurrently sought to manipulate the conduct of councils by means of prescriptive legislation and hypothecated grant programs in order to influence the composition, quality and quantity of services provided. This has fostered a high degree of 'cost-shifting' through which additional responsibilities placed on local authorities are funded for fixed initial periods only, under-funded or not funded at all (Hawker Report, 2003).

    Finally, Australian state and territory governments have often employed structural reform programs of different degrees of intensity which have almost invariably involved compulsory council consolidation, especially in rural and remote areas of Australia. Thus over the past twenty years New South Wales, Victoria, Queensland, South Australia, Tasmania and the Northern Territory have all witnessed extensive municipal restructuring. Western Australia is the only local government jurisdiction to have escaped forced amalgamation to date. The ongoing concentration on amalgamation as the primary policy instrument for local government reform underlines the traditional view of Australian local government policy makers that 'bigger is better' in local governance (Dollery and Crase, 2006).

    Despite the ubiquitous use of forced mergers in Australian local government, forced amalgamation remains controversial (see, for instance, Dollery, Grant and Kortt, 2012). Advocates of amalgamation typically argue that it represents an effective method of enhancing the operational efficiency of local councils, improving their administrative and technical capacity, generating cost savings, strengthening strategic decision-making and fostering greater political power. By contrast, opponents of consolidation typically underline the divisive nature of amalgamations, the absence of supportive empirical evidence, the equivocal outcomes observed in case studies, and the diminution of local democracy. Moreover, the case for structural change through municipal mergers is often met with the claim that shared services represent a superior means of securing any benefits attendant upon council size and its scale of operations (Dollery, Crase and Johnson, 2006). This paper focuses squarely on the controversial question of amalgamation in Australian local government and more specifically on the impact of municipal mergers on the financial sustainability of local authorities.

    The paper itself is divided into five main parts. Section 2 sets out the magnitude of the financial problems afflicting Australian local government. Section 3 provides a synoptic account of the international and Australian scholarly work on consolidation and local government. Section 4 describes the scale of municipal mergers in Australia since 1910. Section 5 considers the effects of these structural changes on the financial viability of local government through the prism of a series of state-based and national public inquiries into financial sustainability. The paper ends with some brief concluding remarks in section 6.

  2. FINANCIAL CRISIS IN AUSTRALIAN LOCAL GOVERNMENT

    Almost universal consensus exists that Australian local government faces a financial crisis, which has been repeatedly demonstrated in a host of state and national inquiries into local government financial sustainability (see, for example, Dollery, Kortt and Grant, 2013 for a precis of the relevant academic and official literature). For instance, in its analysis of financial sustainability in Australian local government, the Price Waterhouse Coopers (PWC) (2006) National Financial Sustainability Study of Local Government (2006, p. 111) established that 20% to 40% of all Australian local authorities 'could be unsustainable', a further 10% to 30% of all councils countenance 'sizeable sustainability challenges', and the average annual 'underspend' on 'existing infrastructure renewals' accounted for between $1.3million and $1.7 million per municipality. Furthermore, PWC (2006) estimated that the 'average' local authority would be required to expend a further $2.6 million to $3.3 million per year in order to eliminate the annual infrastructure deficit together with the accumulated infrastructure backlog.

    The magnitude of the local government infrastructure maintenance and renewal backlog is disquieting. Although uncertainty surrounds the precise sums involved (Dollery and Mounter, 2010), the National Financial Sustainability Study of Local Government (2006) projected a national local infrastructure backlog ranging between $12.0 billion and $15.3 billion for all local government jurisdictions, an annual shortfall in outlays on existing local infrastructure investment of between $0.9 billion to $1.2 billion. On the basis of these projections, PWC (2006) estimated that some $1.8 billion to $2.3 billion per annum would be required to eliminate the deficit in maintenance spending on existing infrastructure as well as the local infrastructure backlog. From the perspective of individual local government areas, this represented about $87 to $109 per resident per annum or an additional $2.6 million to $3.3 million per council per annum or $87 to $109 per capita per annum.

    Against this background, there is little doubt that Australian local government confronts acute financial problems. While numerous measures can be identified which could effectively address these problems, such as more borrowing to fund long-lasting local infrastructure, greater intergovernmental transfers, higher fees and charges, and a sharper focus on shared services, state and territory governments have remained largely wedded to structural change through forced amalgamation as their primary remedial policy instrument.

  3. MUNICIPAL MERGERS IN AUSTRALIAN LOCAL GOVERNMENT

    As we have seen, structural reform--or more specifically forced amalgamation--has been the most common method of reform applied to local government since federation in 1902 (see, for example, Dollery and Grant 2011; Grant, Dollery and Crase 2009; Marshall 2008; Dollery, Byrnes and Crase 2008; Dollery and Fleming 2006; Aulich 2005; Byrnes and Dollery 2002; Aulich 1999; Vince 1997). Table 1 summarizes the effects of compulsory consolidation on local council numbers over time.

    Looking across Table 1 several observations can be made. First, the aggregate number of councils in Australia has decreased from 1,067 to 556 (a 48 per cent decline) between 1910 and 2012. Second, the only major counter to this historical trend occurred in the Northern Territory, where the number of councils substantially increased from 22 in 1990 to 63 in 1995. Third, the timing of council amalgamation programs has been inconsistent across state and territory jurisdictions. For example, major consolidation occurred in New South Wales in the period between 1967 and 1982 (a reduction from 224 to 175 councils). Analogous consolidation occurred in Tasmania over the period 1990 to 1995 (a reduction from 46 to 29 councils). In Victoria, a period of major structural reform took place during the period 1995 to 2007 (a reduction from 184 to 79 councils). In Queensland major consolidation was implemented in 2007 (a reduction from 125 to 73 councils) and in the Northern Territory in 2008 (a reduction from 63 to 16 councils). This distinct lack of uniformity in timing suggests that amalgamation processes are independent of both national economic conditions and public policy trends at the federal level, despite what several observers have argued is a strong bias towards centralization in Australian politics (see, for example, Moore 1997).

    While it is clear from Table 1 that the long-run reduction in the number of local authorities in Australia has been striking, it should be viewed in the light of a host of other profound changes which have occurred in Australian society over the same period. For example, since 1902 dramatic changes have taken place in communication and transportation which no longer constrain the size of local council areas as much as in the past since residents can communicate with and travel through their local authorities much more easily. Similarly, the relationship between local citizens and local governmental entities as evolved through time in many respects, not least a shift in emphasis from 'face-to-face' communication to public media and electronic information outlets.

    It should be stressed that these episodes of compulsory consolidation have occurred despite long term population growth in Australia, where average council size--defined as the number of persons per council--has increased markedly. Table 2 shows that the average council size for each state and territory jurisdiction (excluding the Australian Capital Territory, which does not have a system of local government) has increased between 1910 and 2012. Perhaps one of the most striking features of Table 2 is that the average...

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