ITEM G01 REPORTS 25/02/16  

N O R T H S Y D N E Y C O U N C I L R E P O R T S

 

Report to General Manager Attachments:

1. Council submission - proposal to merge North Sydney and Willoughby Councils SUBJECT: Submission in respect of the Minister’s proposal to merge North Sydney and

Willoughby Councils AUTHOR: Warwick Winn, General Manager EXECUTIVE SUMMARY: Council at its meeting on 10 February 2016 considered a report regarding Council’s submission in respect of the Minister’s proposal to merge North Sydney and Willoughby Councils, and resolved: 1. THAT Council prepare and submit a submission in response to the merger proposal vigorously opposing the proposal, consistent with Council’s long term policy reflecting community opposition and expectations. 2. THAT a poll be conducted online to seek community sentiment regarding the proposed merger, and that this information be used to inform Council’s submission; and that a flyer be distributed to all households informing of the poll and the call for submissions on the merger proposal and Council’s policy position. 3. THAT Council write to the Minister’s delegate requesting that he immediately release the full KPMG report referred to in the Minister’s proposal and that he exercise his delegation to require that a plebiscite be held to allow the two communities to participate fully in the process. 4. THAT Council seek legal advice in relation to the status and legality of the Guidelines issued under s.23 of the Local Government Act in December 2015. 5.THAT Council make all and any relevant GIPA applications to support its submission and any future legal challenge including applications in respect of any meetings held between Ministers, Premier, Department of Premier and Cabinet, Office of Local Government, local MP’s and local elected representatives in relation to amalgamation of NSC with any other Council.

This report details Council’s submission to the Minister. FINANCIAL IMPLICATIONS: Nil RECOMMENDATION: 1. THAT Council lodge the submission, as attached to this report, in respect of the Minister’s proposal to merge North Sydney and Willoughby Councils.

Report of Warwick Winn, General Manager Re: Submission in respect of the Minister’s proposal to merge North Sydney and Willoughby Councils

(2)

LINK TO DELIVERY PROGRAM The relationship with the Delivery Program is as follows: Direction: 5. Our Civic Leadership Outcome: 5.1 Council leads the strategic direction of North Sydney BACKGROUND Council at its meeting on 10 February 2016 considered a report regarding Council’s submission in respect of the Minister’s proposal to merge North Sydney and Willoughby Councils, and resolved: 1. THAT Council prepare and submit a submission in response to the merger proposal vigorously opposing the proposal, consistent with Council’s long term policy reflecting community opposition and expectations. 2. THAT a poll be conducted online to seek community sentiment regarding the proposed merger, and that this information be used to inform Council’s submission; and that a flyer be distributed to all households informing of the poll and the call for submissions on the merger proposal and Council’s policy position. 3. THAT Council write to the Minister’s delegate requesting that he immediately release the full KPMG report referred to in the Minister’s proposal and that he exercise his delegation to require that a plebiscite be held to allow the two communities to participate fully in the process. 4. THAT Council seek legal advice in relation to the status and legality of the Guidelines issued under s.23 of the Local Government Act in December 2015. 5.THAT Council make all and any relevant GIPA applications to support its submission and any future legal challenge including applications in respect of any meetings held between Ministers, Premier, Department of Premier and Cabinet, Office of Local Government, local MP’s and local elected representatives in relation to amalgamation of NSC with any other Council.

CONSULTATION REQUIREMENTS Community engagement will be undertaken in accordance with Council’s Community Engagement Protocol. SUSTAINABILITY STATEMENT The sustainability implications are of a minor nature and did not warrant a detailed assessment. DETAIL The Extraordinary Meeting has been called by the Mayor following a request from

Report of Warwick Winn, General Manager Re: Submission in respect of the Minister’s proposal to merge North Sydney and Willoughby Councils

(3)

Councillors Baker and Beregi, in accordance with clause 10.2 of Council’s Code of Meeting Principles and Practices. Council has resolved to lodge a submission to the Delegate in response to the NSW State Government proposal to merge North Sydney Council and Willoughby City Council. As part of the preparation of the submission Council requested Professor Brian Dollery undertake an assessment of the proposal, with particular consideration of the methodology used by KPMG from which they formed their views on the hypothetical financial benefits a merger might create. A copy of Professor Dollery’s report is incorporated as part of the submission. Submissions to the Council Boundary Review will be received until 5.00pm Sunday 28 February 2016. A copy of the proposed submission is attached to this report for Council’s consideration. The full submission to the Delegate will consist of:

1. Covering letter 2. North Sydney Council: Response to the NSW Government’s proposal to force a

merger between North Sydney and Willoughby City council 3. North Sydney Council - Annual report 2014/15 (not included in attached copy) 4. North Sydney Council - Community Report 2015 (not included in attached copy) 5. A Critical Assessment of Merger Proposal: North Sydney Council and Willoughby

City Council, Professor Brian Dollery, 2016 6. NSW Local Government Amalgamations: Data Key to Community Support,

Glentworth (David Crisafulli and Simon Finn) 7. NSW Council amalgamations: Baird Government urged to avoid Queensland's merger

mistakes, ABC News, Brad Ryan and Kirsty Nancarrow, 16 February 2016

NORTHSYDNEY couNcrroddress 200 Miller Street North Sydnev NSW 20ó0

o ll correspondence General Manager North Sydney CouncilPO Box 12 North Sydney NSW 2059DXt0587

telephone (02) 9936 8100focsimile (02) 9936 BI77

e m o il council@northsl'dpsy.11s¡,.gov.au

i n t e r n e t w\'\¡\\'.llorths)rd1lç¡r.11s1v. gor'. an

ABN 32 353 260 3t7

26February 2016

Mr. Ian Reynolds

Delegate

Council Boundary ReviewGPO Box 5341Sydney NSW 2001

Dear Mr. Reynolds,

RE: Merger Proposal: North sydney council and willoughby city council

Attached please find North Sydney Council's submission, adopted at the ExtraordinaryCouncil Meeting of the 25 February 2016, in relation to the NSW State Government'sproposed forced merger of North Sydney Council and Willoughby City Council.

North Sydney Council, its residents and community oppose the NSW State Govemment'sforced merger proposal.

Further to the submission, Council wishes to make the following points;

Council wrote to you in your capacity as Delegate on the 5 February 2016 andrequested acopy ofthe KPMG report on which rests the NSW State Government's entire amalgamationargument.

Council further wrote to you in your capacity as Delegate on the 15 February 2016requesting you release the KPMG report and that you exercise your delegation to require thata plebiscite be held to allow the communities of North Sydney and V/illoughby to participatefully in this process.

Council notes that you are required, in your role of Delegate, to consider a number of factorsin relation to the NSV/ Government's forced amalgamation proposal.

1. Council notes that you are required, in your role of Delegate, to consider "the

financial advantages or disadvantages of the proposal to the residents andratepayers o.f the areas concerned".

Council must conclude, that as no response has been received, that you are not currently inpossession of a copy of the aforementioned KPMG report. This would concur with the State

Government's position that the report is "Cabinet in Confidence".

I

ATTACHMENT TO GMO01 - 25/02/16

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Council questions however, how you would be in a position to consider the financialadvantages or disadvantages without access to a copy of the full KPMG report.

Council notes the repoft prepared by Professor Brian Dollery; "A Critical Assessment ofMerger Proposal: North Sydney Council and Willoughby City Council", a full copy ofwhich is attached to Council's submission, which critiques the KPMG Technical Paper, and

ftnds "the methodology employed by KPMG is awash with errors which renders itsempirical analysis fatølly flawed. "

Council questions how, given the evidence provided that the methodology employed byKPMG is fatally flawed, you would be in a position to consider that the NSW State

Government's financial merger benefit claims to hold any validity.

2. Council notes you are required, in your role of Delegate, to consider "the attitude ofthe residents andratepayers o.f the ereas concerned".

Council notes the results of the community polling undertaken no less than 6 times since

1983 in relation to Council amalgamations, including the most recent poll undertaken inFebruary 2016 which indicated thaf 75.87% of respondents oppose the merger of NorthSydney Council and Willoughby City Council.

Council notes that a clear majority of the North Sydney community oppose the proposed

forced amalgamation.

3. Council notes you are required, in your role of Delegate, to consider "the impact ofthe proposal on the ability of the council to provide adequate, equitable andappr opriate s ervices and facilitie s "

Council notes that it provides a number of services unique to the North Sydney communityand that these services are likely to be adversely affected by the proposed forced merger, orthat the costs to the North Sydney community to provide these services would rise. Professor

Dollery refers to the impact of services within his attached report.

Council questions how the loss of services, or an increase in the cost to provide the services

would benefit the North Sydney community.

4. Council notes you are required, in your role of Delegate, to consider "the

requirements of the area concerned in relqtion to elected representation .forresidents and ratepayers at the local level, the desirable and appropriaterelationship between elected representatives and ratepoyers and residents and such

2

ATTACHMENT TO GMO01 - 25/02/16 Page 5

Council notes the North Sydney community currently enjoys a councillor to resident ratio ofl:5,463, which will be reduced to 1:11,169 under the NSV/ State Government's forced

merger proposal.

Council questions how the loss of democratic representation would benefit the North Sydney

community.

Council addresses these and other issues further within the attached submission.

Council trusts that you will, in the face of overwhelming evidence, recommend to the NSWState Govemment that they withdraw their proposal to force the merger of North SydneyCouncil and V/illoughby City Council.

Yours sincerely

Warwick WinnGENERAL MANAGER

\J

ATTACHMENT TO GMO01 - 25/02/16 Page 6

February 2015

NORTH SYDNEY

WILLOUGHBY

North SydNey CouNCil:Response to the NSW Government’s

proposal to force a merger between

North Sydney Council and Willoughby

City Council.

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2

ExEcutivE Summary

North Sydney is a progressive, financially viable and highly regarded Council which consistently provides the highest levels of service to its residents and community at the lowest possible cost.

North Sydney council delivers constant positive improvement to the services provided to its residents and ratepayers and this is reflected by high levels of community satisfaction, with a resident satisfaction at 85% as at the 2013 Customer Satisfaction Survey.

Council has undertaken its own analysis, and consulted with the North Sydney Community and is determined to oppose the NSW State Government’s forced amalgamation proposal because:

• Theproposalhasnofinancialbenefitsbutwouldcausesignificant disadvantages to the community of North Sydney

• TheNorthSydneycommunityhasnoCommunityofInterest with the Willoughby City Council community

• PollingclearlyshowsthattheNorthSydneycommunitydoes not wish to merge with Willoughby, and Willoughby City Council polling indicates the Willoughby community does not wish to merge with the North Sydney community.

North Sydney council and its community oppose the NSW Government’s proposal to force a merger between North Sydney council and Willoughby city council.

1983 1987 1999 2004 2014 2015 2016

8993

7874

Average

North Sydney Community’s Response to Amalgamation over time

7176 73

NO

0

20

40

60

80

100

ATTACHMENT TO GMO01 - 25/02/16 Page 8

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1 “Revitalising Local Government” – Final Report of the NSW Independent Local Government ReviewPanel,October2013,page1042FitFortheFuture:ARoadmapforStronger,SmarterCouncils,OfficeofLocalGovernment,September2014,page6

TheNSWGovernment’sforcedmergerproposalandtheprocessit is undertaking are flawed.

TheNSWGovernmentisrushingaprocesswithoutadequatecommunity consultation, debate and participation whilst relying onareport(the“KPMGReport”)tojustifyitspositionwhichitrefuses to publicly release.

Theprocessisdishonest,failsanytestofreasonablenessandifunchecked will result in bad public policy which will adversely affect the residents and community of North Sydney.

TheFinalreportoftheIndependentLocalGovernmentReviewPanel,releasedin2013,recommendedthatNorthSydneyCouncilamalgamatewithHuntersHill,LaneCove,Mosman,WilloughbyandRyde(part),orcombineasastrongJointOrganisation1.

InSeptember2014theNSWGovernmentreleaseditsFitfortheFuture program, with its Roadmap for Stronger, Smarter Councils.

Thisdocumentstatedthat:

“A Fit for the Future council is one that is:

• Sustainable;

• Efficient;

• Effectivelymanagesinfrastructureanddeliversservicesforcommunities;

• Hasthescaleandcapacitytoengageeffectivelyacrosscommunity,industryandgovernment.

ThesefeatureswillensurethatacouncilhasthestrategiccapacitytogoverneffectivelyandpartnerwithindustryandStateGovernmenttodeliverkeypriorities.ThisiscrucialtohelpingSydneygrowandensuring regions prosper.”2

What is the NSW Government hiding?

the NSW Government’s forced merger proposal FaiLS its own goals

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3FitFortheFuture:ARoadmapforStronger,SmarterCouncils,OfficeofLocalGovernment,September2014,page84FitFortheFuture:ARoadmapforStronger,SmarterCouncils,OfficeofLocalGovernment,September2014,page85IBID,Page96IPART:MethodologyforAssessmentofCouncilfitfortheFutureProposals,June2015,Page57IPART:MethodologyforAssessmentofCouncilfitfortheFutureProposals,June2015,Page5

Scale and Capacity was especially highlighted by the NSW Government:

“Scaleisakeycomponentofstrategiccapacity–bothincreatingindividualcouncilswiththeresourcesandskillstoprovideleadershiponregionalplanningandtoadvocateonbehalfofcommunitiesbycreatingasystemoflocalgovernmentwhereStateandLocalGovernmentcanworktogethereffectively.”3

SosignificantwasthisissuethatthedocumentincludedaquotefromIPART:

“Beingoftherightscaleisakeycomponenttohavingstrategiccapacityasitwillenablecouncilstobenefitfromeconomiesofscaleandscopeandbebetterabletoprovideinfrastructureandservicesto their communities”.4

Councilswereaskedtoprepareasubmissionby30June2015outlining how they either were Fit for the Future, or how they intendedtobecomeFitfortheFutureandIPARTwastaskedwithassessing council’s submissions.

TheNSWGovernmentwasclearhoweverthat:“HavingtherightscaleandcapacityisthefirststepinbecomingFitfortheFuture”5, with scale and capacity becoming a “threshold criterion”6

Councils were told: “InmakingaFFTFproposal,councilsmustfirstassesstheirscaleandcapacityagainsttheILGRP’srecommendations..”7

It is noted that the NSW Government removed the option for MetropolitancouncilstoformStrongJointOrganisations,asrecommended as an alternative by the Independent Local GovernmentReviewPanel.

the proposed forced merger between North Sydney council and Willoughby city council WiLL NOt provide the Scale and capacity targets the Government has set.

“The [Queensland] Government certainly sold the idea that there would be economies of scale, better provision of services, but the exact opposite eventuated.” cr Julia Leu, mayor Shire of Douglas

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8IPART:AssessmentofCouncilFitfortheFutureProposals:AppendixC,October2015,Page3079NSWGovernmentMergerProposal:NorthSydneyCouncilWilloughbyCityCouncil10MergerProposal:NorthSydneyCouncilWilloughbyCityCouncil.The“mergerproposal”)Page2

Thismeantthatcouncilshadtoassesstheircurrentsituationwith the only other recommendation available for them within theIndependentPanel’sreport.InthecaseofNorthSydney,thiswasanamalgamationwithHuntersHill,LaneCove,Mosman,WilloughbyandRyde(part).

North Sydney Council argued strongly that it was more than Fit for the Future as a standalone council, within its current boundaries.

IPARThoweverdeterminedthatNorthSydneywas“NOTFIT”,asaresultofnotsatisfyingthescaleandcapacitycriterion.IPARTsaid: “ScaleandcapacityisathresholdcriterionwhichcouncilsmustsatisfytobeFitfortheFuture(FFTF),thereforethecouncilisnotfit...”8

InJanuary2016theMinisterforLocalGovernmentlodgedaproposalundersection218E(1)oftheLocalGovernmentActforthe merger of North Sydney Council and Willoughby City Council Local Government areas 9

Theproposal,usingtheNSWGovernment’sowncriteria,wouldresult in a council area which IS NOT Fit for the Future, as it would fail the scale and capacity threshold criterion.

TheNSWGovernmentistryingtostreamrollaforcedamalgamation agenda without due process and by limiting community consultation.

TheGovernmentclaims“fouryearsofextensiveconsultation”10. Thisstatementisdishonest;theNSWGovernmentwaspreviously proposing North Sydney Council merge with Mosman,LaneCove,Willoughby,HuntersHillandapproximatelytwo-thirdsofRyde.Thecurrentproposalisvastlydifferentandrequiresproperconsultationinitsownright.

the NSW Government moves the goal posts..... again

Denying the community a voice

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TheStateGovernmentreleaseditsmergerproposalon6January2016clearlywithintheannualholidayperiodwhensignificantnumbers of residents, councillors and council staff are on holidays.

Membersofthepublicwerepermittedtoattendoneofonly2publichearingson2February2016.

All written submissions close at 5pm on Sunday 28 February.

Thistimeframeleavesnoroomforproperpublicdebateand/orcommunity consultation.

Thisisuntenableandundemocratic.

TheNSWGovernmenthasreliedontheKPMGreporttoderiveits hypothetical financial benefits.

ThisreportisthefundamentalpillaronwhichreststheNSWGovernment’s position that North Sydney and Willoughby ought to be forcibly amalgamated, and as a result, the NSW Government’s assumptions, figures and modeling must be subjecttopublicscrutiny.

TheNSWGovernmenthowever,refusestopubliclyreleasethereport.

TheNSWGovernmenthascondescendedtoreleaseaKPMGauthored document “Outline of Financial Modelling Assumptions forLocalGovernmentMergerProposals–TechnicalPaper”

Aspartofthepreparationofthissubmission,CouncilrequestedProfessorBrianDollery,onbehalfofNewEnglandEducationandResearchProprietaryLimited,criticallyanalysetheNSWGovernment’sforcedmergerproposalandtheKPMGtechnicalpaper.

“..the methodology employed by KPMG is awash with errors which renders its empirical analysis fatally flawed...” Professor Brian Dollery

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HefindstheKPMGtechnicalpaper;“awash with errors and inconsistencies....” which include:

KPMG erroneously based its costings for staff redundancy paymentsontheCommonwealthFairWorkAct2009NationalEmployment Standards termination pay standards, rather thantheNSWLocalGovernment(State)Award2014anditsredundancyprovisions.Thisseverelyunder-estimatesthecostsof amalgamation.

KPMG erroneously ignored the post-merger costs of service equalisation/harmonisationacrossthelocalauthoritieswhichhavebeenmerged.Experiencegainedfromthe2008Queensland amalgamation program has demonstrated that post-mergerserviceprovisionistypicallyequalisedupwardsand this carries substantial costs. Ignoring this severely under-estimates the costs of amalgamation.

KPMG erroneously claimed that “savings” will apply to 80% ofthecategory“MaterialsandContractsexpenditure”andwill be “phased in” over 3 years. No evidence is provided to supporttheassumptions,andKPMGimplicitlyassumesthatamalgamated councils have not entered into long-term contracts forthereceiptofmaterialsandservices.Thisover-estimateshypothetical “savings”.

AdditionalerrorsandinconsistenciesareoutlinedinProfessorDollery’s report, a full copy of which is attached to this submission.

TheNSWGovernment’sforcedmergerproposalstates:“it is assumedefficiencysavingsaregeneratedfromamerger”. However, ProfessorDolleryfinds,withevidencefromrecentQueenslandcouncil mergers, that “twoyearsfollowingthemergerstheaveragetechnicalefficiencyscoreoftheamalgamatedcouncilswaswellbelowthenon-amalgamatedcohort”

Thisresultsfromincreasingexpenditureonstaffingexpensesand comparatively larger capital inputs.

“..the methodology employed by KPMG... is severely flawed in a number of respects, not least in terms of unwarranted and indefensible assumptions which have no empirical basis” Professor Brian Dollery

a merged North Sydney/Willoughby city council will be less efficient

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Theevidenceisclearthatthecompoundgrowthinemployeecosts was far greater for merged councils, which refutes the centralKPMGassumptionregardingstaffcostsandleadstoKPMGoverstatingthemergersavingsbyunderestimatingstaffcost growth.

ProfessorDollerythereforefindsthattheassumptionthattherewillbe“efficiencysavings”fromamergedentityhasnoempiricalbasis.

North Sydney Council has no local infrastructure backlog, whilst Willoughby has an almost $11 million shortfall.

In2014/15NorthSydneyCouncilspentmorethantherequiredamountof$4.59milliontomaintainitsinfrastructure,whilstWilloughby spent 25% less thanitsrequiredamountasthefollowing table demonstrates:

Council Estimated Cost to Bring Infrastructure to Satisfactory Standard

RequiredAnnual Maintenanceon Infrastructure

Actual Annual Maintenanceon Infrastructure

Over/(under)

North Sydney

NIL 4,598 5,111 513

Willoughby 10,977 8,049 6,060 (1,989){LocalInfrastructureLiabilities2014/15$’000)

ThemergerproposalonPage2outlinesalistofprojectsthat“a newcouncilwillbebetterabletoprovide..”

HMAS Platypus Site Remediation Project.

TheHMASPlatypusSiteRemediationProjectismanagedbytheSydneyHarbourFederationTrust.TheSydneyHarbourFederationTrustisaself-fundingagencycreatedbytheAustralianGovernment.Theresponsibilityforthissitedoes not

“…it is clear that an amalgamation forced upon the residents of North Sydney and Willoughby will generate severe inequities for North Sydney Residents.”Professor Brian Dollery

the NSW Government’s forced merger proposal contains errors of fact

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vest with North Sydney Council, nor would it vest with a merged council.

Despite this, North Sydney Council and the Sydney Harbour FederationTrusthavebeenactivelyinvolvedinthepreservationof this significant public asset.

Upgrades to the Neutral Bay and Cremorne shopping and commercial strip

Thisprojectiscurrentlyunderwayanddoesnotrequireamergertocompleteit.Mergingcouncilsmayactuallystopthe completion of the work if priorities change under a newly elected merged Council body.

Gore Hill Park Recreation development Project

ThisprojectrestswithintheWilloughbyCouncilarea.MergingWilloughby and North Sydney councils will have no effect on theoutcomeofthisprojectunlessanewlyelectedcouncildetermines it is no longer a priority.

Bradfield Park and Kirribilli Foreshore Upgrade

ThisprojectispartofNorthSydneycouncilslongtermplanandisbeingundertakeninastagedwayanddoesnotrequireamergertocompleteit.Mergingcouncilsmayactuallystopthe completion of the work if priorities change under a newly elected merged Council body.

Themergerproposalonpage4statesthat“NorthSydneyCouncilisseekingaSRV(SpecialRateVariation)of4.5%overoneyearin2019-20”.

Thisisfalse.

A reference was made to a hypothetical SRV in Council’s SubmissiontoIPART,however,thisdoesnotformpartofCouncil’sLongTermFinancialPlan,norhasanSRVbeenconsidered by Council.

a merger may jeopardise important community infrastructure projects

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ThebackpageoftheNSWGovernment’sforcedmergerproposalcontainsadisclaimerwhichsays;

“Whileeveryreasonableefforthasbeenmadetoensurethatthe facts contained within this document are correct at the time ofprintingtheStateofNSW,itsagentsandemployees,disclaimanyandallliabilitytoanypersoninrespectofanythingortheconsequencesofanythingdoneoromittedtobedoneinrelianceoruponthewholeoranypartofthisdocument”

TheNSWGovernmentrefusestoreleasetheKPMGreport–thedocument on which its entire basis for forced amalgamations rests.

Councils, the community, the Delegate and the Boundaries Commission are therefore forced to rely on a document which the NSW Government disclaims any responsibility for.

Themergerproposal(Page2)statesthatitwillbeNSWGovernment policy “tofreezeexistingratepathsforfouryears….”

TheservicesofferedtoresidentsbyNorthSydneyCouncildiffertothoseofferedbyWilloughbyCityCouncil.Forexample,North Sydney Council undertakes verge mowing throughout the council area. It also offers free fortnightly household waste cleanups. Both services are highly valued by residents.

Under a merged Council, verge mowing and fortnightly household waste cleanups will either be introduced across the Willoughby City Council area, removed from the North Sydney Council area, or remain in the North Sydney area but notbeprovidedintheWilloughbyarea.Thesearethepossiblecombinations.

the NSW Government’s claims are so tenuous the forced merger proposal comes with a disclaimer

Services to the North Sydney community will be cut or reduced, or costs to North Sydney residents and community will rise

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If the services are provided to Willoughby residents, and rates arefrozen,NorthSydneyresidentswillberequiredtopaytoprovide these services to the Willoughby City Council area by a reduction in other service areas. If Willoughby residents are notaffordedtheservice,thereisamatterofequity,whichispolitically untenable. If the services are removed from North Sydney residents, then North Sydney residents will be worse off under the merger.

ProfessorDollery’sanalysissuggestspostmergerserviceprovisionequalisesupwards.IfthisoccurscoststoNorthSydneyresidents and community will increase.

Cut or reduced serviced levels or rising costs for the North Sydney Community is not acceptable.

Themergerproposalsetsoutthedwellingtypesofbothcouncilareasonpage14:

Dwelling Type North Sydney WilloughbySeparate House 4,517 13% 13,561 48%

MediumDensity 8,985 26% 3,876 14%

High Density 21,204 61% 10,507 37%

Other 191 1% 75 >1%

TotalPrivateDwellings

34,897 28,019

Thistableclearlydemonstratesthedifferences,and not the similarities between the council areas.

•61%ofNorthSydneyresidentsliveinhighdensity,compared to 37% in Willoughby.

•26%ofNorthSydneyresidentsliveinmediumdensity,comparedto14%inWilloughby.

•48%ofWilloughbyresidentsliveinaseparatehouse,compared to only 13% in North Sydney.

the North Sydney community DOES NOt share similar characteristics to the Willoughby community

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TheNorthSydneyresidentialareaisinnerurban,consistingofhighandmediumdensityapartments,joiningavibrantandnationallysignificantCBD.Thisisverydifferenttotheresidentialarea of Willoughby, which is significantly more suburban, as the following graphs clearly demonstrate.

Graph 1

TheNorthSydneycouncilareaisdifferenttotheWilloughbyCityCouncilareainnumerousways;NorthSydneyhaslessthanhalfthelandsize(10.5km2comparedto22.4km2),yethasovertwicethepopulationdensity(67.71perhacomparedto32.94perha);Willoughbyhas593hectaresofopenspaceand211.30kmofroads compared to North Sydney’s 131 hectares of open space

North Sydney is recognised as part of Global Sydney, Willoughby is NOt.

North Sydney has a track record of working with the State Government to deliver State policy and infrastructure, including the North Sydney Station upgrade.

“There will be no long-term economic benefits if the communities are ungovernable because of Divison” (11)

Separate House21% North Sydney

79% Willoughby

Medium Density65% North Sydney

35% Willoughby

High Density62% North Sydney

38% Willoughby

W

NS

NS NS

W W

10

20

30

40

50

60

70

80

48%

13%

Separate House Medium Density High Density

26%

61%

37%

14%

11 NSW local government amalgamations: Data key to community support, Davis Crisafulli, SimonFinn,Feb2016

Graph 2

NorthSydneyCouncilprovidesforthespecificrequirementsof inner urban living, with services such as fortnightly free household waste cleanups – necessary due to the large number of renters in the area and the usual renter turnover. Willoughby City Council does not.

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and 152.10km of roads– reflecting again the suburban nature of Willoughby against the urban nature of North Sydney.

Detailed comparative data is set out at the end of this submission.

NorthSydneyratepayersenjoysomeofthelowestaverageratesintheSydneyMetropolitanarea.

North Sydney WilloughbyAverage ordinary residential rate

$631.90 $864.35

Average ordinary business rate

$3337.20 $6017.66

Domestic waste charge $285.18 (60litrebin)

$468.66 (140litrebin)

(2013/14)

Despite the NSW Government claiming that they will “freeze existingratepathsforfouryears”12, over time, rates will be harmonized to the highest point.

Willoughby’s average ordinary residential rate is 36.79% higher than North Sydney’s.

Willoughby’s average business rate is 80.32% higher than North Sydney’s

North Sydney ratepayers will be worse off.

12 MergerProposal:NorthSydneyCouncilWilloughbyCityCouncil.Page2

rates will rise in North Sydney

“...rates typically rose to the levels of the highest rating constituent council.” Professor Brian Dollery

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0

100

200

300

400

500

285

468

0

200

400

600

800

631

864

3337.2

6017

1000

0

1000

2000

3000

4000

5000

6000

7000

8000$ $ $

Domestic Waste Charge Average Ordinary Residential Rate

Average Ordinary Business Rate

NORTH SYDNEY

WILLOUGHBY

NORTH SYDNEY

WILLOUGHBY

NORTH SYDNEY

WILLOUGHBY

TheNSWGovernment’sforcedmergerproposalwillmeantheloss of democratic representation.

TheNSWGovernmentproposesthatamergedentitywillhaveamaximumof13Councillors.Thiswillmeanadramaticlossofdemocratic representation to the community of North Sydney.

Following a referendum in 2012 North Sydney Council will reduceitscouncillornumbersto10followingthescheduled2016elections.

Thiswillprovideforacouncillortoresidentratioof71,025/10=1:7,103

Under the NSW Government’s proposal the ratio would be (71,025+74,166)/13=1:11,176

Thisisasignificantdifference.

A 2015 study undertaken by Woolcott Research and Engagement on behalf of Council found that 35% of residents had personally contacted a Councillor within the past 12 months, with a further 12% of residents personally contacting a Councillor within the past 2 to 3 years.

Democratic representation will be lost

Graph 3 - Rate Comparisons

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North Sydney has a long history of strong community engagement, which demonstrates the tradition and commitment to the principles of open government.

Theresearchalsofoundthat65%ofrespondentsperceivedthatthere would be a negative impact from having less Councillor representation.

Thelossofdemocraticrepresentationwillhaveadetrimentaleffect on the community of North Sydney.

NorthSydneyCouncil,sincethe1970s,hashadathrivingcommunity precinct system which enables residents to play an active and ongoing role in providing input into the operations of the Council.

ThePrecinctSystemisakeypartofCouncil’scommitmentto open government through ongoing communication and consultation, and encourages resident involvement in Council decisions.

Willoughby City Council has no precinct system.

North Sydney Council has a long history of rigorous community consultation and polling. Council has polled the community numeroustimessince1983regardingamalgamations,andineach case the overarching result has been “No”.

1983 Do you favour the amalgamation of North Sydney Council with anyotherCouncil(s)tocreatealargerlocalgovernmentauthorityfor this area? 89% said NO

1987 Do you favour the amalgamation of the whole of the

North Sydney councils’ community Precinct System will be lost

the NSW Government’s forced merger proposal fails to consider the attitude of the residents and ratepayers of the areas concerned

ATTACHMENT TO GMO01 - 25/02/16 Page 21

16

MunicipalityofNorthSydneyoranypartofitwiththeCouncilofthe City of Sydney? 93% said NO

1999 Are you in favour of North Sydney Council amalgamating with any of the following Councils?

(a)LaneCove ..............................82.08% NO

(b)Mosman .................................63.55% NO

(c)Willoughby ............................76.81% NO

(d)CityofSydney ......................88.23% NO

2004 Are you in favour of North Sydney Council amalgamating with any of the following Councils?

a. Lane Cove ................................73.40% NO

(b)Mosman .................................63.80% NO

(c)Willoughby ............................69.30% NO

(d)CityofSydney ......................78.40% NO

2014 AreyouinfavourofamalgamatingwithMosman,Willoughby,Lane Cove, Hunters Hill and part of Ryde? 71.4% said NO

2015 AreyouinfavourofamalgamatingwithMosman,Willoughby,Lane Cove, Hunters Hill and part of Ryde? 76% said NO

2016 Do you support the State Government’s forced amalgamation of North Sydney and Willoughby City Councils? 73.5% said NO

the community says ‘No’ to forced amalgamations

ATTACHMENT TO GMO01 - 25/02/16 Page 22

17

Willoughby Council surveyed their community before respondingtoIPART.

AclearmajorityofrespondentsfromtheWilloughbyCommunitypreferred to stand alone.

Willoughby residents also want to stand alone

1983 1987 1999 2004 2014 2015 2016

8993

7874

Average

North Sydney Community’s Response to Amalgamation over time

7176 73

0

20

40

60

80

100

Stand Alone W+NS W+NS+LC W+NS+LC+HH+M+2/3R

No Response

44.5

27.3

9.6

3.8

14.7

Willoughby Community’s Response to Amalgamations

W - WilloughbyNS - North SydneyLC - Lane CoveHH - Hunters HillM - MosmanR - Ryde

0

10

20

30

40

50

Graph 4

Graph 5

ATTACHMENT TO GMO01 - 25/02/16 Page 23

18

the proposal fails to consider the St Leonards Strategic centre in any strategic way

Themergerproposalnotesthatamergerwillresultin“Regulatory benefits including consistency in approaches to developmentapprovals…”(Page4),andhighlights“..anumberofregionalprioritiesthataredirectlyrelevanttotheproposednewcouncil.Forexample:strengtheningNorthSydney,StLeonardsandChatswood as strategic centres...”

APlanforGrowingSydneyidentifiesStLeonardsasa“strategiccentre” and states that better governance of strategic centres is desirable. Currently North Sydney, Willoughby and lane Cove Councils all have involvement with the St Leonards Centre as a resultofexistinglocalgovernmentboundaries.

If the State Government truly believed that the St Leonards centre was strategically significant the merger proposal would have included it in its entirety, removing that part of the St Leonards centre which vests with Lane Cove Council area, and incorporating it into the proposed merged Council area along the lines outlined in the following map.

ATTACHMENT TO GMO01 - 25/02/16 Page 24

19

ATTACHMENT TO GMO01 - 25/02/16 Page 25

20

cONcLuSiON

CouncilhasmorethanadequatelyaddressedtheNSWStateGovernment’s forced merger proposal, and the evidence against proceeding is clear.

ThefinancialdisadvantagesoftheproposaltotheresidentsandratepayersofNorthSydneyaresetoutonPages4,6,7,8,10,13

Details of how North Sydney and Willoughby have no CommunityofInterestaresetoutonPages11,12,15

Historical and traditional values, especially as they manifest in theprovisionoflocaldemocracyviathePrecinctcommitteesarediscussedonPage15

TheattitudeoftheresidentsandratepayerofbothNorthSydneyand Willoughby, who clearly do not want to be merged into a singleCouncilareaisdealtwithonPages15,16,17

Therequirementsofthelocalareainrelationtoelectedrepresentation for residents and ratepayers, which would be significantly diminished under a forced merger scenario is dealt withonPages14,15

Council services would be diminished, or costs to provide these serviceswouldrise,thisisdiscussedonPages10,13,14

Otherfactors,suchasthelackofGovernmenttransparency,therefusaltoreleasetheKPMGreport,errorswithinKPMG’smethodology and the lack of a strategic overlay of the St Leonards Centre are dealt with in various parts of Councils submission.

Council trusts that you will, in the face of overwhelming evidence, recommend to the NSW State Government that they withdraw their proposal to force a merger of North Sydney Council and Willoughby City Council.

Each of these relevant legislative criteria have been addressed in this proposal

there is no basis to merge North Sydney and Willoughby councils

ATTACHMENT TO GMO01 - 25/02/16 Page 26

21

attachmENtS:

1. NorthSydneyCouncil-Annualreport2014/15

2. North Sydney Council - Community Report 2015

3. ACriticalAssessmentofMergerProposal:NorthSydneyCouncilandWilloughbyCityCouncil,ProfessorBrianDollery,2016

4. NSWLocalGovernmentAmalgamations:DataKeytoCommunity Support, Glentworth (David Crisafulli and Simon Finn)

5. NSW Council amalgamations :Baird Government urged to avoid Queensland’s merger mistakes, ABC News, Brad Ryan andKirstyNancarrow,16February2016

ATTACHMENT TO GMO01 - 25/02/16 Page 27

MERGER PROPOSAL NORTH SYDNEY AND WILLOUGHBY CITY COUNCILS

COMPARATIVE INFORMATION

COMPILED BY

North Sydney Council

January 2016

ATTACHMENT TO GMO01 - 25/02/16 Page 28

Disclaimer: This document does not express the opinions of the North Sydney Council or its staff. Its purpose is to provide context for consideration of the arguments for and against the State Government’s Merger Proposal: North Sydney and Willoughby City councils (January 2016), in particular the proposals affecting the North Sydney local government area. This document may aid both Council and the local community to form responses to the merger proposal. This is a desktop analysis of information publicly available and has not involved discussion with individual councils, therefore it may include inaccuracies. This information could be refined subject to discussion with Willoughby City Council.

ATTACHMENT TO GMO01 - 25/02/16 Page 29

COMPARATIVE INFORMATION SUMMARY

NORTH SYDNEY WILLOUGHBY SOURCE POPULATION Population 2014 71,025 74,166 A Population forecast by 2031 78,454 85,691 G Population density 2014 67.71 per ha 32.94 per ha F LOCAL REPRESENTATION Councillors incl. popularly elected Mayor 131 13 C Councillors per population 2014 1: 5,463 1:5,705 A Number of wards 4 4 B Mayor remuneration (fees) 2014/15 $60,580 $60,580 B Councillor remuneration (fees) 2014/15 $22,800 $22,800 B Total remuneration (fees) 2014/15 $309,480 $356,980 B Committees with citizen representation Yes No C Precinct System in place Yes No C Open Government Policy in place Yes No C STAFF Staff FTE 2014/15 391 406 B & G Senior staff incl. General Manager 2014/15 6 4 B Residents per staff 2014 1:187 1:180 G VISION AND VALUES Vision Statement To be leading edge in serving

the community of North Sydney by caring for its assets, improving its appearance and delivering services to its people in a financially, socially and environmentally responsible manner.

Willoughby: the vital hub of the region, where residential, cultural, economic and environmental interests are respected and balanced, and our communities enjoy a diversity of lifestyles.

C

Corporate Values • Sustainability • Community Service • Open Government • Ethical Conduct • Justice • Quality • Teamwork

• Creativity • Professionalism

and Dedication • Integrity and

Transparency • Valuing Diversity • Balance Needs of

Today and Tomorrow

• Respect for our Customers and Partnerships with the Community

C

Key Strategic Directions (Integrated Planning & Reporting)

• Living Environment • Built Environment • Economic Vitality • Social Vitality • Civic Leadership

• Community and Cultural Life

• Natural Environment

• Homes • Infrastructure • Economic Activity • Governance

C

1 Three councillors have resigned during the 2012-2016 term; current total number of councillors including Mayor is 10.

ATTACHMENT TO GMO01 - 25/02/16 Page 30

NORTH SYDNEY WILLOUGHBY SOURCE GEOGRAPHY Land size 10.5km 22.4km2 G 2 Open space 131 hectares 593 hectares G Road length 152.10km 211.30km FACILITIES Public pools 22 3 C Public halls 12 21 C Public libraries 1 7 C DEMOGRAPHICS Population aged 19 or less 13.9% 24.3% F Population aged between 20 and 59 68% 57.9% F Population aged above 60 18.2% 17.7% F Language Spoken Other than English at home 20% 35% F Non-English speaking backgrounds 21% 33% F Dominant languages spoken at home other than English

Cantonese, Mandarin and Japanese

Cantonese, Mandarin, Korean and Japanese

F

LOCAL ECONOMY Number of businesses 2014 14,310 11,459 A Number of local jobs 2014 37,793 33,657 A Average household incomes $117,665 $113,234 A Unemployment rate 3% 4.5% A HOUSING/DWELLING TYPE Separate house 2011 4,517 13,561 A Medium density 2011 8,985 3,876 A High density 2011 21,204 10,507 A Other 2011 191 75 A Total private dwellings 2011 34,897 28,019 A FINANCIALS Statement of Accounts Total Income from Continuing Operations ($’000)

2014/15 116,2193 119,097 B 2013/14 120,1574 128,548 B

Total Expenses from Continuing Operations ($’000)

2014/15 93,644 98,188 B 2013/14 93,414 96,411 B

Operating Result from Continuing Operations ($’000)

2014/15 22,575 20,909 B 2013/14 26,723 32,137 B

Net Operating Result for the year ($’000)

2014/15 22,575 20,909 B 2013/14 26,723 32,137 B

Net Operating result before Grants & Contributions provided for Capital Purposes ($’000)

2014/15 7,032 8,080 B 2013/14 15,329 15,175 B

Statement of Financial Position Total Current Assets ($’000) 2014/15 109,100 90,427 B

2013/14 37,888 73,549 B Total Current Liabilities ($’000) 2014/15 (33,575) 31,867 B

2013/14 (28,734) 28,057 B Total Non-Current Assets ($’000) 2014/15 790,949 2,841,133 B

2013/14 747,477 2,822,543 B Total Non-Current Liabilities ($’000) 2014/15 (278) 46,124 B

2013/14 (187) 49,264 B

2 North Sydney Olympic Pool and McCallum Pool, Cremorne Point (ocean pool). 3 Includes $4.9m Fair Value adjustments associated with investment portfolios. 4 Includes $20.6m Fair Value adjustments associated with investment portfolios.

ATTACHMENT TO GMO01 - 25/02/16 Page 31

NORTH SYDNEY WILLOUGHBY SOURCE Total Equity ($’000) 2014/15 866,287 2,853,569 B

2013/14 756,353 2,818,771 B Performance Measurement Indicators Unrestricted Current Ratio 2014/15 4.95X 3.99X B

2013/14 2.25X 4.41X B Operating Performance Ratio 2014/15 1.96% 6.22% B

2013/14 -0.58% 11.81% B Own Source Operating Revenue Ratio 2014/15 81.81% 98.94% B

2013/14 85.05% 81.98% B Debt Services Cover Ratio

2014/15 0.00X 3.01X B 2013/14 0.00X 4.14X B

Rates, Annual Charges, Interest & Extra Charges outstanding

2014/15 0.74% 1.43% B 2013/14 0.63% 1.43% B

Cash Expense Cover Ratio 2014/15 12.27 months 10.82 months B 2013/14 11.1 months 8.39 months B

Infrastructure Asset Performance Indicators Consolidated Buildings Infrastructure & Other Sources Renewals ratio

2014/15 172.78% 70.18% B 2013/14 106.68% 64.46% B

Infrastructure Backlog ratio 2014/15 0% 1.7% B 2013/14 4% 5.03%5 B

Asset Management ratio 2014/15 1.11X 0.75X B 2013/14 1.04X 0.62X B

Capital Expenditure ratio 2014/15 2.00X 0.99X B 2013/14 1.49X 2.01X B

RATES AND CHARGES Average ordinary residential rate 2012/13 $513.40 $828.97 D Average ordinary business rate 2012/13 $2,961.57 $5,941.70 D Average domestic waste charge (DWC) North Sydney’s bin size is 60L Willoughby’s bin size is 140L

2015/16 $2886 $515 Revenue Policy

2014/15

2014/15 $280 $5057 2013/14 $280 $468.668 2012/13 $262 $439.10 D

Year current special rate variation (SRV) ends 2017/189 2016/17 IPART website

Stormwater Levy in place Yes Yes B Pensioner rebates on rates Yes Yes C CUSTOMER SATISFACTION Resident satisfaction - overall Council performance (from customer satisfaction surveys)

89% (2013)

73.6% (2012)

C

DISCRETIONARY SERVICES Verge mowing Yes No Household clean ups - quantity (per financial year) 25 x free On-Call Clean-Up

Collection at a time that is convenient.

3 x scheduled General Household Clean-ups and 1 x free On-Call Clean-Up Collection at a time that is convenient.

C

Child care direct service provision No10 Yes C

5 The Merger Proposal document states this is 6%. 6 North Sydney Council’s DWC is stated in its annual Schedule of Fees and Charges for all four financial years. 7 Delivery Program and Operational Plan 2014/15. 8 Office of Local Govenrment Time Series Data 2013/14 9 The Merger Proposal document incorrectly refers to a further SRV. Council has not resolved such, nor is such included in Council’s current Long Term Financial Plan. 10 Whilst North Sydney Council does not directly operate childcare centres, it does own and maintain properties from which child care services operate.

ATTACHMENT TO GMO01 - 25/02/16 Page 32

NORTH SYDNEY WILLOUGHBY SOURCE DEVELOPMENT Independent Hearing & Assessment Panel in place Yes11 No C Voluntary Planning Agreement Policy in place Yes Yes B CONSULTATION REGARDING AMALGAMATION Recent Community Consultation regarding amalgamations

An online survey was conducted in Mar/Apr 2014. Survey results found 55.9% of respondents supported standing alone (remain as is), 71.4% did not support, 16% prefer amalgamation with the five neighbouring councils and 5.2% preferred another option. In September 2015 the Precinct System presented to Council a petition with 2,085 signatures opposing amalgamation. 559 people signed postcards to the Premier opposing amalgamation with the five neighbouring councils as part of Council’s ‘Stop the Mega Merger’ campaign in late 2015. Community polls, conduct in 1983, 1987, 1999 and 2004, in conjunction with local government elections consistently voted against amalgamation.

Consulted residents via telephone, online and hard copy survey (conducted 2015). Survey results showed that 32% of respondents support standing alone, 27% supported a merger between Willoughby, North Sydney and Lane Cove and 25% supported a merger between Willoughby and North Sydney. Council also established a citizen’s panel to evaluate different options. This panel considers standing alone is the best option due to concerns about democratic representation, the absence of merger benefits and the Council’s financially sound state.

H and E

Key Source Web Address

A Merger Proposal: North Sydney Council/Willoughby City Council, NSW State Government (Jan 2016)

https://www.councilboundaryreview.nsw.gov.au/proposals/north-sydney-and-willoughby-city-councils/#submission

B Annual Report 2014/15 (including Financial Statements) - per council

http://www.northsydney.nsw.gov.au/files/5352e39d-7728-4cd1-9661-a55900cbca78/Annual_Report_2015.pdf / http://www.willoughby.nsw.gov.au/About-Council/Forms-Policies---Publications/Annual-Report/

C Website - per council www.northsydney.nsw.gov.au www.willoughby.nsw.gov.au

D Comparative Information 2012/13, Office of Local Government

http://olg.nsw.gov.au/public/my-local-council/NSW-local-government-comparative-information/previous-comparative-reports

E Assessments of Fit For the Future Criteria, IPART (Oct 2015) - per council

http://www.ipart.nsw.gov.au/files/sharedassets/website/trimholdingbay/north_sydney_city_council_-_fit_for_the_future_assessment_summary.pdf / http://www.ipart.nsw.gov.au/files/sharedassets/website/trimholdingbay/willoughby_council_-_fit_for_the_future_assessment_summary.pdf

F Community Profiles - per council http://www.northsydney.nsw.gov.au/Community_Services/About_North_Sydney/Community_Profiles http://profile.id.com.au/willoughby/home

G Fit for the Future Information Pack, Willoughby City Council (May 2015)

http://haveyoursaywilloughby.com.au/fit-for-the-future/documents/21722/download

H Comparative Information: For the purpose of responding to the Local Government Reform Proposals, North Sydney Council (February 2014)

http://www.northsydney.nsw.gov.au/Council_Meetings/Policies_Plans/Council_Amalgamations/Background_State_Reform_of_Local_Govt

11 North Sydney Independent Planning Panel (NSIPP).

ATTACHMENT TO GMO01 - 25/02/16 Page 33

COMPARISION OF NORTH SYDNEY COUNCIL AND WILLOUGHBY CITY COUNCIL’S 2014/15 OPERATING RESULT AND FINANCIAL POSITION

Source: North Sydney and Willoughby City council’s Financial Statements for the year ended 30 June 2015

1. Operating Result 1.1 Willoughby’s net operating result for 2014/15 was $20.9M, compared to North Sydney’s $22.6M.

1.2 Willoughby’s operating result includes $12.8M of revenue received from grants and contributions

provided for capital purposes (compared to North Sydney’s $15.5M), the offsetting expenditure of which is shown in the balance sheet in the year it is incurred. It also includes unrealised (i.e. non-cash) capital gains of $2.2 million in the value of their investment property portfolio (compared to North Sydney’s $4.9M), a $28K increase in the fair value of the investment portfolio (compared to North Sydney’s $168K), net gains from the disposal of assets of $158K (compared to North Sydney’s $75K) and a $5K loss from their interest in the Shorelink Library Network Joint Venture (the same as North Sydney’s).

1.3 Before recognising capital revenue and adding back aforementioned amounts, Willoughby’s

‘amended result’ was a surplus

of $5.7M, compared to North Sydney’s surplus of $1.9M. The main reason for the difference in these ‘amended results’ was that Willoughby’s depreciation expense for the year was $5.1M lower than North Sydney’s.

1.4 Willoughby’s revenue from rates and annual charges exceeded North Sydney’s by $11M. The following table provides a breakdown of rates and annual charges by category for both councils.

1.5 Willoughby’s revenue from user charges and fees was $6.3M less than North Sydney’s mainly due to lower revenue from parking fees (meters and stations).

1.6 Willoughby’s interest and investment revenue was $1.8M less than North Sydney’s due to their

investment portfolio being smaller. As at 30 June 2015, their cash and investments totalled $90M compared to North Sydney’s $103M. As at 30 June 2015, 94% of their investment portfolio consisted of cash, deposits at call and term deposits. At the same date, 83% of North Sydney’s portfolio consisted of these categories of investments.

1.7 Willoughby’s revenue from Operating Grants and Contributions was $2.4M higher than North

Sydney’s but their revenue from Capital Grants and Contributions was $2.7M lower than North Sydney’s. North Sydney received $15.3M from developer contributions compared to Willoughby’s $7M. Willoughby did receive $5.8M in capital contributions towards housing and community amenities other than from developers.

1.8 Total income from other revenue sources was almost identical for both councils.

1.9 While North Sydney had no debt and therefore no borrowing costs, Willoughby incurred $2.9M,

$2.2M of which was interest. The remaining $700K was a fair value adjustment.

CategoryNorth Sydney

($'000)Willoughby

($'000)Residential Rates 19,423 24,133Business Rates 12,659 18,334Special Rates (i.e. Levies) 3,947 0DWM Levy 9,701 14,199Stormwater Management Charge 543 622Total 46,273 57,288

ATTACHMENT TO GMO01 - 25/02/16 Page 34

1.10 Expenses relating to materials and contracts were almost identical for both councils. 1.11 Willoughby’s depreciation expense was $5.1 million lower than North Sydney’s yet the written

down value of their infrastructure, property, plant and equipment was $2M higher. They have reviewed and now appear to assess the useful economic life of most of their infrastructure assets (particularly roads) to be longer than North Sydney does. They also lease I.T. and office equipment whereas North Sydney purchases.

1.12 Willoughby’s other expenses was $4.7M higher than North Sydney’s, probably due to the costs of

leasing I.T. and office equipment and the management of the ‘Concourse’ venue. 2. Employee Costs 2.1 Willoughby’s total employee costs (including capitalised costs) were $1.3M (3.2%) higher than

North Sydney’s, though at 30 June 2015, they had only 4 more equivalent full-time staff (395 compared to North Sydney’s 391). A major component of this difference was their Workers’ Compensation Insurance Premium which was $600K higher than North Sydney’s. The following table provides a breakdown of employee costs by category for both councils.

2.2 As at 30 June 2015, Willoughby’s Provision for Employee Leave Entitlements (ELE) was $11.3M and 20% of this amount funded in their ELE Reserve. At the same date, North Sydney’s provision was $14.8M and 50% of this amount was funded in our ELE Reserve.

3. Financial Position 3.1 Willoughby’s total equity as at 30 June 2015 was $2.9 billion, compared to North Sydney’s $0.9

billion. They had cash and investments of $90.1M compared to North Sydney’s $103.1M, borrowings of $49.6M whereas North Sydney had none and infrastructure, and property, plant and equipment of $2.8 billion compared to North Sydney’s $0.7 billion.

3.2 Of each council’s cash and investments, North Sydney had significantly more funds internally restricted ($64.3M compared to Willoughby’s $44.7M). The following table provides a breakdown of the restrictions over each council’s cash and investments:

CategoryNorth Sydney

($'000)Willoughby

($'000)Salaries & Wages 28,640 30,430Travelling 444 48Employee Leave Entitlements 5,629 4,862Superannuation 3,534 3,637Workers' Compensation Insurance 426 1,035Fringe Benefits Tax 271 380Training Costs 334 260Other 158 64Total Employee Costs 39,436 40,716less Capitalised Costs -680 -177Total Operating Employee Costs 38,756 40,539

CategoryNorth Sydney

($'000)Willoughby

($'000)Externally Restricted 29,701 32,978Internally Restricted 64,316 44,666Unrestricted 9,124 12,468Total 103,141 90,112

ATTACHMENT TO GMO01 - 25/02/16 Page 35

3.3 Willoughby’s investment property portfolio was valued at $67.7M compared to North Sydney’s $79.6M.

4. Financial and Infrastructure Asset Management Performance Indicators 4.1 Willoughby’s Operating Performance Ratio was 6.22% compared to North Sydney’s 1.96%.

Willoughby’s significantly lower depreciation expense was the main reason for this. (This ratio measures Council’s achievement of containing operating expenditure within operating revenue)

4.2 Both councils’ Own Source Operating Revenue Ratio was just above 80%, both very healthy. (This ratio measures fiscal flexibility. It is the degree of reliance on external funding sources such as operating grants & contributions)

4.3 Willoughby’s Unrestricted Current Ratio was 3.99:1 compared to North Sydney’s 4.95:1, also both

very healthy. (This ratio assesses the adequacy of working capital and its ability to satisfy obligations in the short term for the unrestricted activities of Council)

4.4 While Willoughby had borrowings of $50M, its Debt Service Cover Ratio was 3.01, better than the

benchmark of 2.0. As North Sydney was debt-free, it did not have a debt service cover ratio. (This ratio measures the availability of operating cash to service debt including interest, principal and lease payments)

4.5 As at 30 June 2015, both councils had a very low Rates, Annual Charges, Interest and Extra Charges

Outstanding Percentage. Willoughby’s was 1.43% and North Sydney’s was 0.74%, both well below the industry benchmark. (This ratio assesses the impact of uncollected rates and annual charges on Council's liquidity and the adequacy of recovery efforts)

4.6 As at 30 June 2015, both Councils had adequate available working capital. Willoughby’s had $2M

which was 4.8% of their 2014/15 rates revenue. North Sydney had $4.8M which was 13.3% of our 2014/15 rates revenue. (This ratio assesses the Council’s ability to provide a buffer against unforseen and unbudgeted expenditures for day to day operations and after taking into consideration the nature and level of internally restricted reserves)

4.7 During 2014/15, North Sydney spent $21.6M on the renewal of our buildings and infrastructure

compared to Willoughby’s $5.8M. As a result North Sydney’s Building, Infrastructure and Other Structures Ratio was well above the benchmark at 172.78% compared to Willoughby’s 70.18%. (This ratio assesses the rate at which building and infrastructure assets are being renewed relative to the rate at which they are depreciating)

4.8 As at 30 June 2015, Willoughby’s Infrastructure Backlog Ratio was 1.7%, better than the industry

benchmark of 2%, while a significant increase in funding for infrastructure renewal during 2014/15 saw North Sydney’s backlog eliminated. (This ratio shows what proportion the infrastructure backlog is against the total value of a Council’s infrastructure)

4.9 Willoughby’s Asset Maintenance Ratio was 0.75, below the benchmark of 1.00, whereas North

Sydney’s was slightly above the benchmark at 1.11. (This ratio compares actual asset maintenance to required annual asset maintenance. A ratio above 1.0 indicates Council is investing enough funds to stop the Infrastructure Backlog growing)

4.10 Willoughby’s Capital Expenditure Ratio was 0.99, slightly below the benchmark of 1.10. North

Sydney’s was comfortably above the benchmark at 2.00. (This ratio assesses the extent to which a Council is expanding its asset base through capital expenditure on both new assets and the replacement and renewal of existing assets)

ATTACHMENT TO GMO01 - 25/02/16 Page 36

A Critical Assessment of

Merger Proposal:

North Sydney Council and Willoughby City Council

ATTACHMENT TO GMO01 - 25/02/16 Page 37

Contacts:

Professor Brian Dollery

Telephone: 02 6773 2500

Email: bdollery@une.edu.au

Disclaimer

This Report was prepared by Brian Dollery on behalf of New England Education and Research

Proprietary Limited for North Sydney Council. This Report was produced for North Sydney

Council as a strictly independent Report. The opinions expressed in the Report are thus

exclusively the views of its author and do not necessarily coincide with the views of North Sydney

Council or any other body. The information provided in this Report may be reproduced in whole

or in part for media review, quotation in literature, or non-commercial purposes, subject to the

inclusion of acknowledgement of the source and provided no commercial use or sale of the

material occurs.

ATTACHMENT TO GMO01 - 25/02/16 Page 38

Contents

1. Introduction ...................................................................................................................... 1

2. Outline of Merger Proposal: North Sydney Council and Willoughby City Council ............... 6

3. Veracity of the KPMG (2016) Methodology and Financial Estimates for Mergers .............. 8

4. Data Efficiency Analysis of Impact of North Sydney/Willoughby Merger on Municipal Efficiency............................................................................................................................. 18

5. Analysis of Proposed North Sydney/Willoughby Merger under Section 263(3) (a) of Local Government Act 1993 ......................................................................................................... 23

6. Conclusion ....................................................................................................................... 28

References .......................................................................................................................... 30

ATTACHMENT TO GMO01 - 25/02/16 Page 39

1. Introduction

As part of the broader Fit for the Future local government reform process, the NSW Minister

for Local Government Paul Toole has proposed a radical program of compulsory council

consolidation across NSW, centred largely in the Great Sydney region. As part of this

program of forced amalgamation, under section 218E(1) of the Local Government Act (1993)

the Minister for Local Government has proposed compulsorily merging the North Sydney

and Willoughby local government areas. The purported benefits of this proposed merger are

set out in Merger Proposal: North Sydney Council and Willoughby City Council (NSW

Government, January 2016).

The proposal by the Minister to compulsorily amalgamate North Sydney with Willoughby

follows earlier determinations under the NSW Government Fit for the Future reform process

on the comparative performance of individual local authorities and the public policy

implications flowing from these assessments. The merger proposals derived from these

earlier determinations differed from the current North Sydney with Willoughby merger

proposal, as we will see in this Report.

The Fit for the Future NSW local government reform process had its genesis in the

Destination 2036 Workshop held in Dubbo on 19th August 2011 held under the auspices of

(then) Minister for Local Government Don Page. Destination 2036 spawned the

establishment of the Independent Local Government Review Panel. The Panel commissioned

the NSW Treasury Corporation (TCorp) to provide financial assessments of the financial

performance of all NSW councils. In its Financial Sustainability of the New South Wales

Local Government Sector, TCorp (2013) determined that North Sydney and Willoughby were

‘moderate’ on their Financial Sustainability Ratio (FSR) performance and their ‘outlook’ was

‘neutral’.

ATTACHMENT TO GMO01 - 25/02/16 Page 40

In October 2013, the Panel submitted its final report Revitalising Local Government in

October 2013. Revitalising Local Government proposed the formation of a ‘strengthened’

Boundaries Commission to consider merger proposals and make binding recommendations.

With respect to North Sydney and Willoughby, the Panel (2013, p.104) recommended the

compulsory consolidation of Hunters Hill, Lane Cove, Mosman, North Sydney, part of Ryde

and Willoughby as its ‘preferred option’, with an alternative proposal that these councils

‘combine as [a] strong Joint Organisation’.

In September 2014 the NSW Government formally responded to the recommendations in

Revitalising Local Government through its Fit for the Future reform program. Fit for the

Future accepted the municipal mergers recommended by the Panel and proposed a ‘self-

assessment’ process whereby each local authority would compare itself against a set of

performance indicators, each with stipulated criteria and benchmark values. Councils were

required to submit ‘merge’ and/or ‘stand-alone’ proposals to the NSW Office of Local

Government (OLG) by 30 June 2015. Under the original Fit for the Future process, these

proposals were to be assessed by an Expert Panel which would decide the fate of the council

in question.

However, without warning, on 27 April 2015 the Minister announced that the Independent

Pricing and Regulatory Tribunal (IPART) would assess council submissions. On 5 June 2015

– a mere 25 days from the 30 June 2015 deadline for council submissions under the Fit for

the Future – IPART (2015) released Methodology for the Assessment of Council Fit for the

Future Proposals. This document outlined in detail IPART’s final assessment criteria.

Methodology for the Assessment of Council Fit for the Future Proposals immediately

rendered obsolete much of the Fit for the Future program. In particular, the criteria contained

in Fit for the Future were replaced by new modified yardsticks in Methodology for

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Assessment of Council Fit for the Future Proposals, as well as a new chief ‘adequate scale

and capacity’ criterion.

In its Assessment of Council Fit for the Future Proposals, IPART (2015) assessed all NSW

councils under (a) its ‘scale and capacity’ criterion and (b) on the basis of its revised financial

performance indicators. With respect to North Sydney and Willoughby, IPART (2015, p.106)

found both councils ‘unfit’ under (a) but ‘fit’ under (b). In other words, IPART (2015) agreed

with the earlier TCorp (2013) assessment of the financial sustainability of North Sydney and

Willoughby.

In its Assessment of Council Fit for the Future Proposals, IPART (2015) considered these

outcomes of its analysis in the light of the merger recommendations advanced by the Panel in

its Revitalising Local Government. As we noted earlier, the Panel proposed a forced merger

of Hunters Hill, Lane Cove, Mosman, North Sydney, part of Ryde and Willoughby as its

‘preferred option’. IPART (2015, p.307) endorsed this recommendation by observing that

‘our analysis is consistent with the ILGRP’s preferred option for North Sydney to merge with

neighbouring councils’.

It is thus evident that the forced amalgamation of North Sydney and Willoughby in the

Minister for Local Government’s (2016) Merger Proposal: North Sydney Council and

Willoughby City Council is not only at odds with the recommendation of the Panel and the

subsequent endorsement of this recommendation by IPART (2015), but also with the NSW

Government’s own recommendation in its Fit for the Future merger recommendations!

This Report provides a detailed fiscal critique of the Minister for Local Government’s (2016)

Merger Proposal: North Sydney Council and Willoughby City Council, including its

empirical foundations in the KPMG (2015) Local Government Reform: Merger Impacts and

Analysis. While the NSW Government has refused to release Local Government Reform:

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Merger Impacts and Analysis on the peculiar grounds that it is ‘Cabinet in confidence’, under

pressure it has released KPMG (2016) Outline of Financial Modelling Assumptions for Local

Government Merger Proposals – Technical Paper Prepared for the NSW Department of

Premier and Cabinet, 19 January, 2016. KPMG (2016) sets out the methodology used by

KPMG (2015) Local Government Reform: Merger Impacts and Analysis. In this Report we

demonstrate that the methodology employed by KPMG is awash with errors which renders its

empirical analysis fatally flawed. Since the financial estimates in the Minister for Local

Government’s (2016) Merger Proposal: North Sydney Council and Willoughby City Council

are based on the KPMG analysis and hence grossly inaccurate, they cannot employed as the

basis for a forced amalgamation of North Sydney with Willoughby.

In addition, in this Report we present further evidence, drawn from financial Data

Envelopment Analysis (DEA) modelling, which demonstrates that – compared to pre-merger

scale efficiency - post-merger scale efficiency would fall to only be 79% of optimal scale of

the NSW local government sector as a whole. This shows that the assumption made regarding

‘efficiency savings’ in Merger Proposal: North Sydney Council and Willoughby City Council

(2016) has no empirical basis.

Using financial data on North Sydney and Willoughby rates, fees and charges, as well as

infrastructure liabilities, we demonstrate that compulsory consolidation of these two councils

will inflict substantial fiscal inequities on North Sydney residents. In particular, the

mandatory ‘rate trajectory freeze’ over the first four years post-merger, under the Willoughby

Special Rate Variation (SRV) of 6.7 per cent granted by IPART will exacerbate sharp

existing disparities between average residential and business rates between North Sydney and

Willoughby. Furthermore, given existing stark infrastructure liability differences between

North Sydney and Willoughby, a forced amalgamation will generate a substantial and

inequitable wealth transfer from residents of North Sydney to residents of Willoughby.

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The Report is divided into five main parts:

• Section 2 provides a synoptic account of Merger Proposal: North Sydney Council and

Willoughby City Council (NSW Government, January 2016) and summarises the

pecuniary savings which it claims will flow from a merger of North Sydney and

Willoughby.

• Section 3 provides a detailed critique of the methodology employed in KPMG’s

(2016) Outline of Financial Modelling Assumptions for Local Government Merger

Proposals – Technical Paper Prepared for the NSW Department of Premier and

Cabinet, 19 January, 2016, on which the financial estimates in KPMG’s (2015) Local

Government Reform: Merger Impacts and Analysis are derived.

• Section 4 sets out the results of data efficiency analysis (DEA) of the impact of North

Sydney/Willoughby merger on municipal efficiency against the backdrop of the

expenditure outcomes obtained in the 2008 Queensland forced amalgamation

program.

• Section 5 considers the proposed North Sydney/Willoughby merger under Section

263 of Local Government Act 1993 in terms of sub-section 3(a) ‘the financial

advantages or disadvantages (including the economies or diseconomies of scale) of

any relevant proposal to the residents and ratepayers of the areas concerned’.

• The Report concludes in section 6 with a brief assessment of the policy implications

of its chief findings for the proposed North Sydney/Willoughby merger.

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2. Outline of Merger Proposal: North Sydney Council and Willoughby City Council

As we have seen, the Merger Proposal: North Sydney Council and Willoughby City Council

(NSW Government, January 2016) is based on financial modelling undertaken by KPMG

(2015) in its Local Government Reform: Merger Impacts and Analysis, which the NSW

Government has refused to release. In essence, the Merger Proposal: North Sydney Council

and Willoughby City Council simply provides a summary of the KPMG (2015) estimates

without explaining the manner in which they were calculated.

While the ‘foreword’ by the Minister to Merger Proposal: North Sydney Council and

Willoughby City Council (2016, p.2) misleadingly claims that ‘a total financial benefit of $92

million over a 20 year period’ will flow from the merger, in fact this figure is adduced by

adding KPMG’s (2015) estimated ‘savings’ of $72 million to a $20 million subsidy which the

NSW Government indicates it will provide. In addition, it is far from clear that the $20

million payment will consist of new funds or partly be made up of existing monies already

provided to North Sydney and Willoughby.

Merger Proposal: North Sydney Council and Willoughby City Council (2016, p.8) provides a

synoptic description of the purported savings estimated to flow from the merger:

‘Analysis by KPMG in 2015 shows the proposed merger has the potential to generate a

net financial saving of around $72 million to the new council over 20 years. Council

performance will also be improved with a projected $13 million increase in annual

operating results achieved within 10 years. The proposed merger is also expected to

generate, on average, around $6 million in net savings every year from 2020 onwards.

Consequently, the merged council will have a balance sheet that is stronger and in a better

position to meet local community needs and priorities’.

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The Merger Proposal (2016, p.8) decomposes the sources of this ‘net financial saving’ as

follows: ‘Gross savings over 20 years’ are derived from (a) the ‘removal of duplicate back

office and administrative functions and reducing senior management roles ($66 million)’; (b)

‘efficiencies generated through increased purchasing power of materials and contracts ($13

million)’; and (c) ‘a reduction in the overall number of elected officials that will in turn

reduce expenditure on councillor fees (estimated to be $3 million)’. Furthermore, the NSW

Government will provide a ‘funding package to support merging councils which would result

in $20 million being made available should the proposed merger proceed’.

While no effort is made to estimate the detailed costs of implementation and transformation,

the Merger Proposal (2016, p.9) nonetheless boldly proclaims that ‘the implementation costs

associated with the proposed merger (for example, information and communication

technology, office relocation, workforce training, signage, and legal costs) are expected to be

surpassed by the accumulated net savings generated by the merger within a three-year

payback period’! In addition, the estimated ‘net financial savings’ contingent on a North

Sydney/Willoughby amalgamation could be used ‘improve infrastructure’, ‘enhance service

delivery’ and even ‘reduce rate pressures’.

In sum, the Merger Proposal (2016, p.9) claims that ‘financial sustainability’ of the new

amalgamated municipal entity will be ‘enhanced’ as a consequence of the following factors:

• ‘Net financial savings of around $72 million to the new council over 20 years’;

• An estimated ‘$13 million increase in the operating result of the merged entity within

10 years’;

• Securing ‘efficiencies across council operations through, for example, the removal of

duplicated back office roles and functions and streamlining senior management’;

• The formation of a ‘larger entity with revenue of around $270 million per year by

2025’;

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• ‘An asset base of approximately $1 billion to be managed by the merged council’; and

• ‘Greater capacity to effectively manage and reduce the infrastructure backlog across

the area by maintaining and upgrading community assets’.

3. Veracity of the KPMG (2016) Methodology and Financial Estimates for Mergers

Under the NSW Government’s Fit for the Future local government reform process, 35

compulsory municipal mergers have been recommended across NSW local government by

the Minister for Local Government Paul Toole under section 218E(1) of the Local

Government Act (1993), including North Sydney with Willoughby.

As we have seen, the financial case for each of the proposed council amalgamations is based

on modelling undertaken by commercial consultants KPMG (2015) in its commissioned

report Local Government Reform: Merger Impacts and Analysis. For each proposed merger,

such as North Sydney with Willoughby, KPMG (2015) has estimated the purported savings

and other pecuniary benefits relative to costs. In all cases, it has determined that substantial

financial advantages will flow from the recommended mergers.

However, despite repeated requests from the affected councils for details of the modelling

done by KPMG (2015) in calculating these pecuniary benefits and costs, the NSW

Government has refused to release Local Government Reform: Merger Impacts and Analysis

for each specific recommended amalgamation. Instead, all it has published is an aggregated

summary for all mergers by way of its Council Boundary Review website

https://www.councilboundaryreview.nsw.gov.au/. Given that the public consultation process

conducted by appointed Delegates for each proposed merger ends on 28 February 2016, this

has already severely cruelled the public consultation process.

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The NSW Government has belatedly released the KPMG (2016) Outline of Financial

Modelling Assumptions for Local Government Merger Proposals Technical Paper. We now

provide a detailed assessment of Outline of Financial Modelling Assumptions for Local

Government Merger Proposals Technical Paper. We show that the methodology employed

by KPMG (2015) in its Local Government Reform: Merger Impacts and Analysis is severely

flawed in a number of respects, not least in terms of unwarranted and indefensible

assumptions which have no empirical basis. Our analysis falls into two main parts:

• Section 3.1 offers some general observations on the major problems in the KPMG

(2016) Outline of Financial Modelling Assumptions for Local Government Merger

Proposals Technical Paper,

• Section 3.2 details a number of specific errors in KPMG (2016).

3.1 Major Problems with KPMG (2016)

Three major problems are evident in Outline of Financial Modelling Assumptions for Local

Government Merger Proposals Technical Paper:

In the first place, no verifiable empirical evidence is provided in support of claims on savings

expected to arise from specific municipal mergers. In most cases, savings are simply claimed

with no effort made to justify why these dollars values (or percentage equivalents) have been

chosen. Without evidence that similar savings have been achieved in other Australian state

jurisdictions, or indeed in the 2004 NSW amalgamation program, the KPMG assumptions are

simply guesswork. In the absence of any credible evidence that similar savings have been

achieved in previous mergers, there is thus no reason for the public to have any confidence in

the KPMG modelling.

Secondly, Outline of Financial Modelling Assumptions for Local Government Merger

Proposals Technical Paper is awash errors and inconsistencies. Problems include

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inconsistencies with recent KPMG reports on NSW local government, incompatibilities with

official reports, like the Local Government Remuneration Tribunal Report, errors of logic,

gross oversimplifications and errors in data selection. It is especially troubling that the

KPMG assumptions have been applied to the very broad categories of ‘metropolitan’ and

‘regional’ councils. Not only is this inaccurate (see Drew and Dollery, 2014), but the NSW

Office of Local Government time series data employs 11 categories. These categories are

applied by the NSW Local Government Grants Commission to calculate an isolation

allowance specific to each non-metropolitan council. Furthermore, the NSW Local

Government Remuneration Tribunal employs nine different categories!

Furthermore, KPMG (2016, p.7) based its costings for redundancies on the Commonwealth

Fair Work Act 2009 National Employment Standards termination pay schedule. However,

NSW local government falls under the Local Government (State) Award 2014 and its

redundancy provisions. This makes a substantial difference to the costings. For example,

under the Commonwealth Fair Work Act 2009, an employee with ten or more years’ service

is entitled to 12 weeks’ pay, whereas under the NSW Local Government (State) Award 2014

the same employee will receive 34 weeks’ pay or 283% more! Given the substantial impost

of redundancy costs following the three year post-merger employment protection period, this

means that KPMG (2016) has severely under-estimated the costs of amalgamation.

Finally, apart from these errors and inconsistences, Outline of Financial Modelling

Assumptions for Local Government Merger Proposals Technical Paper is noteworthy for its

neglect of important cost considerations. For example, as we show in Table 1 below, KPMG

(2016) has simply ignored the post-merger costs of service equalisation across the local

authorities which have been merged. It is well known that significant differences exist in the

level and quality of service delivery in NSW local government between different councils,

even those in the same NSW Office of Local Government council classification category. As

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experience in the 2008 Queensland amalgamation program has demonstrated, post-merger

service provision is typically equalised upwards and this carries substantial costs. Ignoring

these costs means that the KPMG (2015) calculations drastically understate the costs of

amalgamation.

3.2 Specific Problems with KPMG Methodology

In addition to these general problems with an Outline of Financial Modelling Assumptions for

Local Government Merger Proposals Technical Paper, it is possible to identify a host of

specific problems. We examine these specific problems in Table 1 below:

Table 1: Specific Problems with KPMG (2016) Modelling Methodology

KPMG (2016) Modelling Approach

Comment on KPMG (2016) Approach

Failure to Model Financial Assistance Grants (FAGs) Changes

Financial Assistance Grants (FAGs) are only subject to constraints imposed as a result of the 7 February 2006 proclamation under subsection 6(4) of the Commonwealth legislation for a period of four years. The KPMG (2016) modelling does not appear to respond to the Local Government (Financial Assistance) Act (1995) (CTH) in any way.

This is disturbing given that FAGs account for around a fifth of council revenue on average. Failure to model changes to FAGs risks over-estimating revenue (after four years) and thus over-estimating the savings arising from the mergers.

Failure to Model Service Harmonisation

Experience both in the 2004 NSW amalgamation process and the 2008 Queensland mergers has shown that - when two or more councils are merged - service levels across the new council entity are ‘harmonised’ by equalising service quality across the entity. The empirical literature on local government in other countries has demonstrated the same process (Dur and Staal, 2008; Steiner, 2003). Service harmonisation occurs to preserve the equitable service delivery within the newly amalgamated entity.

In practice, service levels are typically harmonised at the highest level enjoyed by the residents of each constituent

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council. This means that the costs of providing municipal services will increase as a result of harmonisation. KPMG (2016) has entirely failed to model service harmonisation which results in an overestimate of potential savings arising from amalgamation. Failure to model service harmonisation implies that KPMG believes that frequency and quality of municipal services will remain the same in each of the amalgamating entities post-merger! The net effect of overlooking service harmonisation is that KPMG (2016) underestimates the costs of mergers.

Treatment of Councils that are Split in a Merger

‘A council that is split has its financial statements… split on a per capita basis’ (KPMG, 2016, .p.8)

This is an entirely inequitable method of dividing assets with the potential to lead to unanticipated deleterious outcomes (see Drew and Dollery, 2014a). Indeed, the inequitable division of assets resulted – in part - in the Delatite Shire de-amalgamation in Victoria and the subsequent Queensland demergers.

‘Councils that are part of a merger but lose a portion of its area to another merger cluster …will have its financial statement adjusted to reflect reduced revenue/expenditure profile. These adjustments are generally made on a per capita basis’ (KPMG, 2016, p.8).

This is the entirely incorrect method for adjusting revenue and expenditure. Rates are not levied on a per capita basis, but on a per assessment basis. Thus, the major portion of revenue apportionment must clearly be conducted on a per assessment basis. This data is readily available from the OLG Time Series data.

Moreover, as demonstrated by Drew and Dollery (2014b), the relevant functional unit for municipal expenditure analysis is the number of assessments, not absolute population which is erroneously employed by KPMG (2016).

Savings from Materials and Contracts Expenditure

KPMG claim that ‘savings’ will apply to 80% of the category ‘Materials and Contracts Expenditure’ and will be ‘phased in’ over 3 years.

No evidence is provided to support these ‘assumptions’.

KPMG (2016) implicitly assumes that amalgamating councils have not entered into long-term contracts for the receipt of materials and services. Furthermore, there is no justification for the linear implementation of savings from ‘materials and contract expenditure’. The

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net effect of these assumptions is to overestimate savings.

Value of efficiency saving assumed to be 3% for metropolitan councils and 2% for regional councils.

No empirical evidence is provided to support of these assumptions. Moreover, in its other reports for NSW councils, KPMG has used different assumptions! For example, in its Bombala Council, Cooma-Monaro Shire Council and Snowy River Shire Council Merger Business Case (1 May 2015), KPMG stated that ‘a 1.5 per cent saving on Materials and Contract expenses has been applied’ (KPMG, 2015, p.21).

KPMG needs to explain why its present estimate differs from the estimate provided by it just eight months earlier.

In addition, Ernest and Young (2015) report that the KPMG analysis of Pittwater and Manly assumed a materials and contracts efficiency of 2% (and not 3%).

Moreover, other for-profit consultants have used different values in NSW. Thus, Morrison and Low employ a number of different assumptions for efficiencies derived from materials and contracts which range from 1% through to 5%. There is thus no clear consensus on the likely savings in this expenditure category.

Finally, if savings are possible in the procurement of materials and contracts and KPMG (2016) is correct in asserting that savings ‘are subject to scale’, then it follows that a system of centralised procurement for the entire state – along the lines employed in Queensland by the Queensland Local Government Association (LGAQ) - would produce far greater savings than any single amalgamation. Moreover, councils not subject to amalgamation would be able to share in KPMG’s (2016) assumed savings. State-wide procurement thus represents a far superior method of realising these savings to expensive mergers.

Savings from Councillor Expenditure

KPMG (2016, p. 2) notes that ‘the number of councillors for a

This statement does not reflect the maximum number of councillors allowable under the Local Government Act

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new merged entity mirror the highest number of councillors that currently exist in any one of the councils participating in the merger’.

(1993). Thus KPMG (2016) is asserting that there will be a reduction in the level of democratic representation for merged councils. Moreover, this procedure for determining the number of councillors will inevitably lead to very disparate levels of democratic representation between merged and unmerged councils.

KPMG (2016, p. 3) notes that ‘this figure is grown at a standard wage growth rate of 2.3 per cent over the period’

This is inconsistent with the 2015 Local Government Remuneration Tribunal determination. The NSW Remuneration Tribunal (2015, p. 14) made the following observation: ‘the Tribunal has reviewed the key economic indicators, including the Consumer Price Index and Wage Price Index, and finds that the full increase of 2.5 per cent available to it is warranted’.

KPMG (2016, p. 3) noted that ‘this [sic] savings are offset by the assumption that all newly elected councillors (metro and regional) will receive a fee of $30,000 per annum’.

The most recent determination for councillor and mayoral fees includes nine different rates (depending on the categorisation of council in the NSW OLG classification system). For instance, ‘county councils other’ councillor fees are set at a minimum of $1,660 and a maximum of $5,490. The ‘county council other’ mayoral fees range from a minimum of $3,550 through to a maximum of $10,020.

By way of contrast, councillor fees for ‘principal city’ councils range from $25,040 through to $36,720, whilst mayoral fees for the same category range from $153,200 through to $201,580.

It should thus be clear that an assumption of $30,000 for every council is deeply flawed. Moreover, KPMG (2016) has not attempted to differentiate between savings relating to mayors as opposed to councillors.

Savings from Reduced Salary and Wage Expenditure

KPMG (2016, p. 3) notes that ‘staffing reductions are assumed to occur gradually with a modest level of voluntary attrition in the first three years of amalgamation’.

No empirical evidence is provided by KPMG (2016) to support this claim.

In fact, as we have seen from the 2008 Queensland merger process, total staff expenditure for the amalgamated cohort of councils in Queensland rose for each of the three full financial years following the 2008 amalgamations. This is clear from evidence obtained from audited financial statements of each of the affected

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councils, in addition to the Queensland Department of Infrastructure and Planning Queensland Local Government Comparative Information 2008-2009.

Moreover, the average annualised rate of growth in staff expenditure for the amalgamated cohort in Queensland (7.795% p.a.) was far higher than that of the non-amalgamated cohort (6.031% p.a.) in nominal terms for the first three full financial years.

KPMG (2016) claims there will be savings from Tier 4 and Tier 3 positions

KPMG (2016) do not state what rate of savings were used for these senior management positions. However, given that General Manager and Director entitlements are the subject of individually negotiated contracts, it is highly unlikely that modelling employing a single rate of savings would be in any way satisfactory or reflective of what will occur in a specific merger.

KPMG (2016, p. 3) claim that ‘overall staffing efficiencies were estimated at 7.4 per cent for metropolitan mergers [and] 3.7 to 5 per cent’ for regional councils’.

No evidence has been provided by KPMG (2016) to support this critical claim.

The efficiency estimate for regional councils (3.7 to 5 per cent) by KPMG (2016) in January 2016 differs markedly from the estimate provided by KPMG (2015, p.21) to Snowy River, Bombala and Cooma-Monaro ‘estimated to be approximately 6 per cent on a FTE basis’.

KPMG should explain why this estimate has changed so markedly in the past eight months. Actual empirical evidence based on the entire cohort of Queensland councils suggests that little or no efficiencies relating to employee costs can be reasonably expected. Based on seven full financial years of data following the Queensland mergers, the average annualised rate of growth in employee expense is far higher for the amalgamated cohort (4.997% p.a.) than the non-amalgamated cohort (3.724% p.a.). In making these calculations, we have not made any claims about initial savings made as a result of terminating senior appointments. Our data relates to the rate of change in employee expense for the full financial years following amalgamation. Queensland also had a moratorium on forced redundancies for a period of three years.

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Merger Cost Components

ICT costs Evidence for the KPMG (2016) ICT assumptions is cited as a ‘select number of industry representatives consulted by DPC’ and ‘analysis undertaken by KPMG based on advisory services to Queensland local councils involved in de-amalgamations’ (KPMG, 2016, p. 5).

However, details of the industry experts consulted and the estimates which they advised should be disclosed for full transparency.

The reference to KPMG analysis for the de-amalgamations is curious, given that the figures cited in the modelling assumptions (ranging from $2.26m through to $3.35m) are completely at odds with estimates cited by the Queensland Treasury Corporation which had ‘engaged KPMG to estimate the information and communication technology costs of de-amalgamation’ (QTC, 2012, p. 16).

The QTC (2012) estimate for the de-amalgamation of Sunshine Coast Regional Council was $1,176,000 (QTC, 2012, p. 16).

‘Transition costs are estimated to be 2 per cent of a merged entity operating expenditure in the first year of operation’ (KPMG, 2016, p. 6)

No evidence is provided to support this claim.

However, Drew and Dollery (2015b) noted that the Queensland Treasury Corporation (QTC) (2009) Review of Local Government Amalgamation Costs Funding Submission: Final Summary Report had gathered information from councils forcibly merged in Queensland in August 2007.

Reported ‘first-round’ costs were $9.3 million (mean) for metropolitan councils and $7.994 million (mean) for regional/rural councils’ (Drew and Dollery, 2015b, p. 3).

There is no evidence of an association between amalgamation costs and operating expenditure as hypothesised by KPMG (2016).

Costs from redundancies

Redundancies The KPMG claim is predicated on the assumption that (a) there will be redundancies after the three-year

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moratorium, and (b) that senior staff contracts include redundancy clauses.

However, this claim appears to ignore the constraints imposed on redundancies for rural centres outlined in s218CA(2) of the Local Government Act (1993). Empirical evidence from the Queensland amalgamations calls into question assumptions regarding redundancies (see discussion above on Savings from Reduced Salary and Wage Expenditure).

KPMG (2016, p. 7) claimed that ‘based on established practices and the average tenure for the sector, the redundancy payment would be provided for sixteen (16) weeks’. Reference is then made to the ‘Fair Work Ombudsman (2014), Redundancy pay and entitlements schedule’.

As we have demonstrated in section 2 (iv), local Government general staff in NSW are covered by the Local Government (State) Award, not a federal award as ‘assumed’ by KPMG. Employees are entitled to up to 34 weeks of pay (for employees of 10 years standing or higher) on a scale associated with the number of years of service.

An assumption of 16 weeks (equivalent to the entitlement of an employee with 4 to 5 years of service in terms of the table on redundancy entitlements in NSW Local Government (State) Award 2014, p.308) is a gross oversimplification. It amounts to an assumption that the average person laid off has a period of service of just over 4 years. This does not reflect the reality of local government employment in NSW, especially in country councils, where employees typically have long periods of service.

In addition, it is likely that the assumption is apparently based on the wrong industrial relations document.

The aforegoing analysis has demonstrated that the foundations of the methodology provided

in KPMG (2016) Outline of Financial Modelling Assumptions for Local Government Merger

Proposals Technical Paper are severely flawed. It follows that the analyses of all of the

specific mergers which have been examined by KPMG (2015) in Local Government Reform:

Merger Impacts and Analysis using this methodology, including for North Sydney and

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Willoughby, are thus grossly inaccurate and do not reflect the true costs and benefits

involved.

Given that the estimates provided by KPMG for all the recommended mergers are inaccurate

and greatly inflate the financial benefits involved, it is clear that neither Delegates nor the

NSW Boundaries Commission can employ these KPMG estimates in their decision-making.

It is assuredly the case that controversial and divisive mergers, such as the proposed North

Sydney/Willoughby amalgamation, cannot be prescribed on the basis of demonstrably false

financial estimates.

4. Data Efficiency Analysis of Impact of North Sydney/Willoughby Merger on Municipal Efficiency

Municipal mergers have long been deployed by Australian state and territory governments,

despite ongoing controversy surrounding its efficacy as an instrument of reform. Policy

makers typically assume that larger local authorities will exhibit greater efficiency. This

assumption is evident in the Merger Proposal: North Sydney Council and Willoughby City

Council (2016, p.7), which explicitly notes that ‘it is assumed efficiency savings are

generated from a merger’. A common, if unrecognised, problem with municipal mergers is

that a given council amalgamation aimed at inter alia securing efficiencies through

economies of scale can easily produce a new local government entity which exceeds optimal

scale and thus exhibits diminishing efficiency.

We have previously empirically examined the 2008 Queensland compulsory mergers which

reduced the number of local authorities from 157 to 73 councils. To test the claim that these

mergers enhanced efficiency as a consequence of increasing the scale of post-amalgamation

entities, we conducted locally inter-temporal data envelopment analysis (DEA) over the

period 2003 to 2013 inclusive.

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We found that (a) in the financial year preceding the mergers there was no statistically

significant difference in the average efficiency scores of amalgamated and non-amalgamated

councils and (b) two years following the mergers the average technical efficiency score of the

amalgamated councils was well below the non-amalgamated cohort. We argue this can be

principally attributed to increase spending on staffing expenses, although comparatively

larger capital inputs also served to diminish efficiency.

In the context of this Report, it is noteworthy that Queensland imposed a prohibition on non-

senior staff redundancies in merged councils for a period of three years. This is the same as

the restriction levied by the NSW Government on the proposed amalgamations in NSW and it

thus renders the Queensland experience directly applicable to the likely NSW merger

outcomes.

Figure 1 illustrates our average DEA results for Queensland councils divided into merged and

unmerged cohorts:

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Figure 1: Average Technical Efficiency Before and After the Queensland Amalgamations.

It is clear from Figure 1 that for most of the post-merger period after 2008, efficiency in

unmerged councils exceeded that of their merged counterparts (and by an increasing margin).

This directly contradicts the assumption made by KPMG (2016) on post-merger efficiency,

which is replicated in Merger Proposal: North Sydney Council and Willoughby City Council

(2016).

Apart from the effects of scale on efficiency, we think our Queensland findings can be

explained in part by the fact that employee expenses rose more rapidly in merged councils

than unmerged councils, a result which again underlines the error in the KPMG (2016)

assumption that - after the prohibition of redundancy period ends - staff costs will be lower in

merged councils.

0.65

0.7

0.75

0.8

0.85

0.9

2004 2005 2006 2007 2008 2009 2010 2011 2012

Amalgamated Non-amalgamated

Local, State and Federal Elections

Start of SSS program

LGRC

GFC/ Local, State and Federal elections

Forced Redundencies Allowed/ LNP Announces De-amalgamation Platform

Boundaries Commission

ATTACHMENT TO GMO01 - 25/02/16 Page 59

The average compound growth (nominal) in employee costs in post-merger Queensland

councils are shown in Table 2:

Table 2: Queensland Employee Cost: Mean Annual Percentage Change, 2009 to 2015 Time Period Non-Amalgamated

Councils Amalgamated Councils

2009 to 2010 10.272%

12.037%

2009 to 2011 6.708%

9.000%

2009 to 2012 6.031%

7.795%

2009 to 2013 6.033%

6.404%

2009 to 2014 5.098%

6.140%

2009 to 2015 3.724%

4.997%

Source: 2009 data from Queensland Local Government Comparative Information 2008-09, Department of Infrastructure and Planning 2010, verified to individual financial statements. All other years from audited financial statements.

It is clear from Table 2 that the average nominal compound growth rate in employee cost was

far greater for merged councils for all time periods. This refutes the central KPMG (2016)

assumption regarding staff costs and necessarily means that the KPMG (2015) savings

estimates for the proposed North Sydney/Willoughby merger are overstated since they

underestimate staff cost growth.

In order to answer questions regarding whether a merged North Sydney/Willoughby council

might be expected to display improved technical efficiency post-amalgamation, we

conducted a DEA along the well-known lines proposed by Cooper, Seiford and Tone (2007).

ATTACHMENT TO GMO01 - 25/02/16 Page 60

The results of our estimation of constant returns to scale (CRS) procedure are presented in

Table 3:

Table 3: Technical Efficiency and Scale of North Sydney, Willoughby and a Forcibly Merged North Sydney/Willoughby Council, 2014 Council CRS Efficiency Scale Returns to Scale

North Sydney 0.95065 0.999002 Decreasing

Willoughby 0.650983 0.99354 Decreasing

North Sydney-Willoughby Amalgamation

0.793479 0.838935 Decreasing

Scale efficiency measures the technical efficiency of local councils as their size grows.

Technical efficiency informs us of how efficiently inputs (labour, capital, machinery, etc.) are

transformed into outputs (council’s functions and services) by individual municipalities

relative to the NSW average performance by all councils. Table 3 shows that – at their

existing size – both North Sydney and Willoughby operate with decreasing returns to scale

(i.e. inputs are less than optimally transformed into outputs as a consequence of councils size)

because scale efficiency is less than unity (i.e. 1 > 0.95065 and 1 > 0.650983). If these

councils were combined to make an even larger merged council, then scale efficiency gets

worse not better (i.e. 1 > 00.793479). It follows that a merger will reduce technical efficiency.

Table 3 shows that – relative to other NSW local governments - pre-merger scale efficiency

stands at around 95% of optimal for North Sydney, compared with 65% of optimal for

Willoughby. By contrast, a merged North Sydney/Willoughby local authority would only be

79% of optimal relative to the NSW municipal sector. This demonstrates that the assumption

regarding ‘efficiency savings’ in Merger Proposal: North Sydney Council and Willoughby

City Council (2016) has no empirical basis.

ATTACHMENT TO GMO01 - 25/02/16 Page 61

5. Analysis of Proposed North Sydney/Willoughby Merger under Section 263(3) (a) of Local Government Act 1993

The Local Government Act (1993) Chapter 9 part 3 section 263 sub-section 3 sets out all the

factors that the Boundaries Commission and delegates must consider when examining a given

municipal merger proposal. Section 263 sub-section 3 holds that ‘when considering any

matter referred to it that relates to the boundaries of areas or the areas of operations of county

councils, the Boundaries Commission is required to have regard to the following factors’,

including ‘(a) the financial advantages or disadvantages (including the economies or

diseconomies of scale) of any relevant proposal to the residents and ratepayers of the areas

concerned’.

In this Report, we have concentrated on the financial dimensions of the proposed North

Sydney/Willoughby merger which fall under Section 263(3)(a) of the Local Government Act

1993. We have already demonstrated that the Merger Proposal: North Sydney Council and

Willoughby City Council (2016) is fatally flawed with respect to its financial estimates of the

impact of a North Sydney/Willoughby merger. We now address some of the financial factors

which the North Sydney/Willoughby Delegate must take into account under the Local

Government Act (1993) Chapter 9 part 3 section 263 sub-section 3(a):

(a) The financial advantages or disadvantages (including the economies or diseconomies

of scale) of any relevant proposal to the residents and ratepayers of the areas concerned

Thus far we have concentrated largely on the financial aspects of the case for a merger of

North Sydney/Willoughby as presented in KPMG (2016) Merger Proposal: North Sydney

Council and Willoughby City Council. As we have seen, the purported pecuniary costs and

benefits in the Merger Proposal: North Sydney Council and Willoughby City Council are

based on calculations performed in KPMG (2015) Local Government Reform: Merger

Impacts and Analysis. However, the NSW Government has refused to release KPMG (2015)

ATTACHMENT TO GMO01 - 25/02/16 Page 62

Local Government Reform: Merger Impacts and Analysis. Instead, under pressure it has

published KPMG (2016) Outline of Financial Modelling Assumptions for Local Government

Merger Proposals Technical Paper which sets out the methodology used in the calculations

performed in Local Government Reform: Merger Impacts and Analysis.

Two important implications follow from these facts:

(a) Given that both North Sydney and Willoughby residents have been denied access KPMG,

a problem apparently shared by the Delegate, (2015) Local Government Reform: Merger

Impacts and Analysis, and the fact that the financial case for a North Sydney/Willoughby

merger is based on this document, it follows that the Delegate has insufficient knowledge of

the financial consequences of a North Sydney/Willoughby merger and thus cannot

recommend such a merger in the absence of adequate and accurate information.

(b) Given that KPMG (2015) Local Government Reform: Merger Impacts and Analysis is

based on the assumptions and methodology set out in KPMG (2016) Outline of Financial

Modelling Assumptions for Local Government Merger Proposals Technical Paper, and we

have demonstrated that much of KPMG (2016) is severely flawed, the pecuniary costs and

benefits in the Merger Proposal: North Sydney Council and Willoughby City Council are

inaccurate. This implies inter alia that the Delegate cannot recommend a North Sydney/

Willoughby merger since the estimated savings on which the proposed merger is based are

inaccurate.

Apart from these problems, the financial analysis in the Merger Proposal: North Sydney

Council and Willoughby City Council is misleading in significant other respects as well. We

now consider these other problems in the light of the financial implications of the proposed

merger.

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Fees and Charges and Rating Problems

With respect to rating in North Sydney and Willoughby, the Merger Proposal: North Sydney

Council and Willoughby City Council (2016, p.4) makes the following purportedly factual

statement:

‘Each of the two councils is currently seeking or has recently received approval for an

SRV from IPART. For example: North Sydney Council is seeking a SRV of 4.5 per cent

over one year in 2019–20; and Willoughby City Council received approval for a

cumulative SRV of 6.7 per cent over two years from 2015–16’.

This statement is factually incorrect. North Sydney has not lodged an ‘SRV of 4.5 per cent

over one year in 2019–20’ nor has it formally decided to seek such an SRV.

Furthermore, regarding fees and charges and rating in North Sydney and Willoughby, the

Merger Proposal: North Sydney Council and Willoughby City Council has ignored the

implications of the existing wide divergence in the current fees and charges and rating

regimes between North Sydney and Willoughby. Table 4 illustrates these differences in the

2013/14 financial year (i.e. the most recent available data):

Table 4: Average Municipal Impost in North Sydney and Willoughby, 2013/14 Council Average

Residential Rates

Average Business Rate

Average Domestic Waste Charge

Total Assessments

North Sydney

631.90 3,337.20 285.18 37,406

Willoughby 864.35 6,017.66 468.66 30,493

Source: OLG (2013-14)

With respect to rates, it is clear from Table 4 that both average residential rates and average

business rates are substantially higher in Willoughby compared with North Sydney. Given (a)

the ruling by the NSW Government that the existing ‘rating trajectories’ will be maintained

ATTACHMENT TO GMO01 - 25/02/16 Page 64

for a period of four years in amalgamated councils, including SRVs which have already been

granted at the time of the merger and (b) observed experience in the wake of the 2008

Queensland forced merger program, severe financial problems will beset local residents if the

North Sydney/Willoughby amalgamation proceeds as proposed by the NSW Government.

At least two problems will arise:

• During the mandatory ‘rate trajectory freeze’ over the first four years of the merger,

under the Willoughby SRV of 6.7 per cent, the sharp existing disparity between

average residential and business rates between North Sydney and Willoughby in

Table 4 will widen substantially. We will thus witness the highly inequitable situation

in which ‘service harmonisation’ across the new merged entity will see service levels

equalised but simultaneously Willoughby ratepayers will be increasingly subsidising

their North Sydney counterparts through higher and more rapidly rising rates. This is

obviously offensive in terms of natural justice.

• The experience of forcibly amalgamated Queensland councils post-amalgamation is

salutary. Following compulsory council consolidation in Queensland in 2008, merged

councils were obliged to implement a process of rate and fees and charges

‘harmonisation’ across the new local government area. Drew, Kortt and Dollery,

2013). In practice, this meant that rates typically rose to the levels of the highest

rating constituent council. The net result was that average residential and business

rates rose for most people in the amalgamated entities. Given the likelihood that this

will be replicated in NSW at the end of the mandatory four-year ‘rate trajectory

freeze’, under a North Sydney/Willoughby merger, North Sydney residents can expect

an exponential increase in rates, as well as fees and charges. This runs counter to

Merger Proposal: North Sydney Council and Willoughby City Council which

contends that the upward pressure on rates will abate post-amalgamation.

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Infrastructure Liability Inequities

An additional and substantial problem with Merger Proposal: North Sydney Council and

Willoughby City Council in respect of the financial implications of a merger resides in the

wealth transfers which will occur from residents of North Sydney to residents of Willoughby

if the proposed merger goes ahead. Table 5 contains the latest information on local

government infrastructure in North Sydney and Willoughby derived from Special Schedule 7

of the 2014/15 financial statements of the two councils:

Table 5: Implicit Local Infrastructure Liabilities (2014/15 $’000) Council Estimated Cost

to Bring to Infrastructure to Satisfactory Standard

Required Annual Maintenance on Infrastructure

Actual Annual Maintenance on Infrastructure

Written Down Current Value of Infrastructure

North Sydney Nil 4,598 5,111 470,532

Willoughby 10,977 8,049 6,060 647,141

Table 5 demonstrates that stark existing differences exist between North Sydney and

Willoughby in terms of current local infrastructure. For example, while North Sydney has no

local infrastructure backlog, Willoughby has an almost $11 million shortfall. Similarly, while

North Sydney spent slightly in excess of the required $4.59 million to maintain its

infrastructure, Willoughby’s expenditure fell short by $2 million (or almost 25%). IPART has

recommended that ‘required’ expenditure on maintenance should equal ‘actual’ expenditure

averaged over a three year period. Furthermore, Willoughby has a substantially greater

absolute magnitude of post-depreciation local infrastructure at current value.

Given the information in Table 5, it is clear that an amalgamation forced upon the residents

of North Sydney and Willoughby will generate severe inequities for North Sydney residents.

ATTACHMENT TO GMO01 - 25/02/16 Page 66

In essence, this stems from the fact that North Sydney has no existing infrastructure backlog

and its residents will thus be obliged not only to assume part of the current Willoughby

infrastructure shortfall, but also contribute towards bringing maintenance on Willoughby

infrastructure up to a satisfactory level. Given the fact that a great majority of North Sydney

residents do not want to merge with Willoughby, it is unacceptable to force them to transfer

net wealth to Willoughby residents by way of local infrastructure pooling.

6. Conclusion

In this Report we have demonstrated not only does the merger set out in Merger Proposal:

North Sydney Council and Willoughby City Council differ substantially from the earlier

recommendations made by the Independent Panel, Fit for the Future and IPART, but that the

financial basis for the proposed merger in the Merger Proposal: North Sydney Council and

Willoughby City Council is fatally flawed in a number of key respects:

• The assumptions and methodology in KPMG (2016) Outline of Financial Modelling

Assumptions for Local Government Merger Proposals Technical Paper is awash with

errors and thus the pecuniary savings in KPMG (2015) Local Government Reform:

Merger Impacts and Analysis are thus wildly inaccurate.

• Since the savings and other pecuniary benefits identified in Merger Proposal: North

Sydney Council and Willoughby City Council are based on KPMG (2015) Local

Government Reform: Merger Impacts and Analysis, they are unsound and do not

reflect the true costs and benefits involved in the proposed merger.

• Our DEA analysis has shown that the proposed merger of North Sydney and

Willoughby will result in an over-scale municipal entity in which scale efficiency will

be lower than in the pre-merger North Sydney and Willoughby councils.

ATTACHMENT TO GMO01 - 25/02/16 Page 67

• Severe fiscal inequities will flow from the proposed merger for the residents of North

Sydney. After the end of the post-merger four-year ‘rating trajectory freeze’, North

Sydney residents will face an exponential increase in rates, as well as fees and

charges, as part of the process of ‘rate harmonisation’, as experience from the 2008

Queensland amalgamation program has emphatically demonstrated. Similarly, North

Sydney residents will be forced into a substantial wealth transfer as they are forced to

assume part of the Willoughby infrastructure liabilities.

ATTACHMENT TO GMO01 - 25/02/16 Page 68

References

Commonwealth of Australia (1995), Local Government (Financial Assistance) Act (1995).

Cooper, W., Seiford, L. and Tone, K. (2007), Data Envelopment Analysis, Springer: New York.

Department of Infrastructure and Planning (2009), Queensland Local Government Comparative Information 2008-09. Department of Infrastructure and Planning.

Drew, J. and Dollery, B. (2014a), ‘What’s In a Name? Assessing the Performance of Local Government Classification Systems’, Local Government Studies, DOI: 10.1080/03003930.2015.1007132

Drew, J. and Dollery, B. (2014b), ‘Keeping It In-House: Households as an Alternative Proxy for Local Government Output’, Australian Journal of Public Administration, 73(2), 235-246.

Drew, J. and Dollery, B. (2015a), ‘Less Haste More Speed: The Fit for the Future Reform Program in New South Wales Local Government’, Australian Journal of Public Administration, DOI: 10.1111/1467-8500.12158.

Drew, J. and Dollery, B. (2015b), ‘Breaking Up is Hard to Do: The De-amalgamation of Delatite Shire’, Public Finance and Management, 15(1), 1-23.

Drew, J., Kortt, M., and Dollery, B. E. (2013), ‘Did the Big Stick Work? An Empirical Assessment of Scale Economies and the Queensland Forced Amalgamation Program’, Local Government Studies, DOI: 10.1080/03003930.2013.874341.

Dur, R. and Staal, K. (2008), ‘Local Public Good Provision, Municipal Consolidation, and National Transfers’, Regional Science and Urban Economics, 38, 160-73.

Ernest and Young (2015), Fit for the Future: Review of Business Case Estimates of Merger Net Benefits for Sydney Metropolitan Councils IPART Confidential Report October 2015, Ernest and Young: Sydney.

Independent Local Government Review Panel (ILGRP) (2013), Revitalizing Local Government, Sydney: ILGRP. Independent Pricing and Regulatory Tribunal (IPART) (2015a), Methodology for Assessment of Council Fit for the Future Proposals, IPART: Sydney. Independent Pricing and Regulatory Tribunal (IPART) (2015b), Assessment of Council Fit for the Future Proposals, IPART: Sydney. KPMG (2015), Bombala Council, Cooma-Monaro Shire Council, Snowy River Shire Council Merger Business Case Report 1 May 2015, KPMG: Sydney.

KPMG (2015), Local Government Reform: Merger Impacts and Analysis, KPMG: Sydney.

ATTACHMENT TO GMO01 - 25/02/16 Page 69

KPMG (2016), Outline of Financial Modelling Assumption for Local Government Merger Proposals – Technical Paper Prepared for the NSW Department of Premier and Cabinet, 19 January, 2016, KPMG: Sydney.

Local Government Remuneration Tribunal (2015), Annual Report and Determination 13 April 2015, Local Government remuneration Tribunal: Sydney

NSW Government (2016), Council Boundary Review. Available at: https://www.councilboundaryreview.nsw.gov.au/

NSW Government (2016), Merger Proposal: North Sydney Council and Willoughby City Council, NSW Government: Sydney.

NSW Local Government Grants Commission (2015), 2014-15 Annual Report. NSW Local Government Grants Commission: Sydney.

Office of Local Government (2015), 2013-14 Time Series Data. Office of Local Government: Sydney.

Office of Local Government (2015), Comparative Information on NSW Local Government 2013/14, OLG: Sydney.

Parliament of New South Wales (1993), Local Government Act (1993).

Queensland Treasury Corporation (2012), De-amalgamation Analysis of Sunshine Coast Regional Council, QTC: Brisbane.

Steiner, R. (2003), ‘The Causes Spread and Effects of Inter-municipal Cooperation and Municipal Mergers in Switzerland’, Public Management Review, 5(4), 551-71.

TCorp (2013), Financial Sustainability of the New South Wales Local Government Sector, Sydney: TCorp.

ATTACHMENT TO GMO01 - 25/02/16 Page 70

NSW local government

amalgamations: Data key to community support February 2016

Authors: Glentworth – data and information management specialists.

David Crisafulli Former Minister for Local Government, Community Recovery and Resilience, Queensland

Government.

Simon Finn Former Minister for Government Services, Building Industry, Information and Communication

Technology, Queensland Government.

ATTACHMENT TO GMO01 - 25/02/16 Page 71

When change occurs in government, it is often large, complex and disruptive; amongst the most complex and disruptive changes are those that occur during local government amalgamations.

Local government amalgamations involve the transition of corporate memory, systems and up to 140 years of records into a new or merged entity, while continuing to provide seamless local service delivery and minimise the cost of the change to the community.

These competing challenges were highlighted during the 2008 Queensland local government amalgamations and the subsequent de-amalgamations of four local governments in 2013.

New South Wales has recently embarked on its own journey of local government reform. This paper provides insights that Glentworth has gained through its work with Queensland councils post local government reform that directly relate to the use and impact of local government data.

Data and a justification to amalgamate

Australia’s local governments are facing significant economic challenges, created by a combination of rising costs and falling revenue. This well-known fact was, and is, a major driver for amalgamation and the major focus of economic assessments.

The case for council amalgamation in Queensland was largely built on an economic assessment – the benefits of economies of scale through reduced duplication and overlap. This included both the integration and where possible the streamlining of underlying data and information systems.

While on paper the figures may show a positive return, the complex nature of the modern public sector in the information age means that the reality can be very different. This approach to local government reform risks inadequate consideration of the closeness of local governments to their communities or the direct impacts that these reforms can have on the provision of services – such as waste collection, burial and cemetery services, rates, land zoning, building applications and development – to the community.

The case for local government amalgamation should be based on efficiencies that provide tangible benefits to the community, such as lower rates and improved services. It is important to understand that these community benefits also contribute to community cohesion which is of critical value, and often difficult to measure.

It is essential during any large-scale reform to ensure all views are heard, sentiment is understood, and compromises are made as needed. In the information age there are now ways to measure, analyse and manage how a community is feeling through methods such as sentiment analysis and data insights. Application of the tools and expertise available to us today during periods of local government reform in Queensland could potentially have saved significant angst and money.

Queensland saw the greatest resistance to amalgamation in the smaller communities that were fearful of their services and voice diminishing at the hands of a larger community. For many Queensland communities these fears were realised with the closure of local customer service centres. The closure of service centres rightly gave these communities the impression that local service delivery was no longer a priority. While the economic assessment made sense, the changes immediately impacted on the proposition of a united region and sowed the seeds for ongoing distrust of the new Queensland local governments.

ATTACHMENT TO GMO01 - 25/02/16 Page 72

Respecting the data and the need for planning a transition

Once a decision is made to amalgamate there must be a level of planning to ensure a successful transition. As a consequence of poor planning, many councils in Queensland are still paying a high price (cost, time and reputation) for not planning the integration of their information and data.

Learning from that experience, it is essential that the integration of core data systems is well planned. This is a specialist area that needs a combination of expertise in community engagement, data analysis and public sector administration. Of primary importance is engaging companies that have the capacity to gather and interpret data using the best tools available to interpret community sentiment.

The need for strong, informed, local leadership

Another message from the Queensland experience is that leadership matters. Whether it be mayors, councillors or the administration, decision makers in newly amalgamated local governments need to proactively address any perceived bias that one community is benefiting more than another. In the Queensland experience, one of the main factors that continually intensified the cause for de-amalgamation was the perception that smaller communities were getting a raw deal.

These perceptions were further exacerbated when community concerns were dismissed with sterile economic arguments without evidence. Instinctually, and perhaps logically, council leaders sought to defend their performance and dispute claims of bias. However, in some areas the lack of data and information planning saw the smaller community having to wait longer as their old council integrated with the larger community information and data systems. While often relegated to back office functions, not being able to find basic details of the community in the digital age is unacceptable and is a major cause for community angst.

Don’t forget the people you’re elected to serve

The final point is very much about the people and the emotional elements. Communities experiencing amalgamation do not necessarily see cost of living savings as the most significant factor when judging the merits of amalgamation. We have come to this opinion on the back of the results from the de-amalgamation votes in Queensland. In this case all four communities given a vote chose overwhelmingly to break away from the larger entity.

In each case there was some form of information made available to these communities that showed the potential for significant increases in costs due to de-amalgamation. While supporters of de-amalgamation rightly disputed this information because it lacked consistency, the size of the vote leads us to believe that people were prepared to risk higher costs in an effort to protect their sense of community and quality of community services.

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Long-term benefits

There is no doubt that under some circumstances amalgamations must happen. The financial challenges facing local government means that small-scale local government areas do not make sense in the long term and will lead to severe shortages in infrastructure and service delivery.

There is also no doubt that the process must involve more than just an economic rationalist argument. Local government is different to other levels of government – it is the level of government that communities engage with directly on a daily basis. Local governments are ingrained in the social fabric of communities and so there is a significant emotional connection between communities and their local governments.

Queensland’s experience has shown us that understanding community sentiment directly from local data used to inform decisions prior to amalgamation, and planning for the large scale integration of information systems and services to not only ensure continuity of service delivery, but to offer tangible benefits to the community, is paramount to success.

Economic benefits derived by amalgamation need to be realised over the long term, not the short term. Local governments should not seek to realise economic benefits immediately at the expense of creating a new cohesive community. There will be no long-term economic benefits if the communities are ungovernable because of division.

Guest editors:

David Crisafulli was the Minister for Local Government, Community Recovery and Resilience in the Queensland Government between 2012 and 2015. Between 2004 and 2012 he was a councillor in Townsville, Queensland, culminating as Deputy Mayor between 2008-2012.

Simon Finn was the Minister for Government Services, Building Industry, Information and Communication Technology in the Queensland Government between 2011 and 2012. He is currently a senior business executive and a non-executive director on the Glentworth board.

ATTACHMENT TO GMO01 - 25/02/16 Page 74

PHOTO: Proposals to merge NSW councils have

sparked protests across the state.

(AAP: Paul Miller, file photo)

RELATED STORY: NSW council amalgamation public

meetings a farce, critics say

Key points:

• Report highlights risks of merging councils without factoring in residents' views

• Former Queensland ministers warn new councils will fail if financial savings are prioritised over social factors

• Queensland communities affected by failed mergers say rates rose while services suffered

• NSW Government says 35 merger proposals are subject to ongoing consultation

NSW council amalgamations: Baird Government urged to avoid Queensland's merger mistakesBy Brad Ryan and Kirsty Nancarrow

Updated Tue 16 Feb 2016, 6:20pm

Forcing NSW councils to amalgamate could create "ungovernable"

communities if residents' concerns are not properly considered, two

former ministers who worked with merged councils in Queensland

have warned.

The ex-ministers, from both sides of politics, produced a report that said

"many councils in Queensland are still paying a high price" for mergers that

were not well planned.

The NSW Government is considering 35 local government amalgamation

proposals.

Similar amalgamations took place in Queensland in 2008. Many were

considered successes, but several were reversed in 2014 after relentless

local campaigns.

The report was written by former Labor government services minister Simon

Finn, whose government oversaw the amalgamations, and former LNP local

government minister David Crisafulli, who ordered the "de-amalgamation" of

four of the merged councils.

It said amalgamations in NSW would be necessary "under some

circumstances" because of financial challenges facing the local government

sector.

But it warned newly created councils "should not seek to realise economic

benefits immediately at the expense of creating a new cohesive community".

"There will be no long-term economic benefits if the communities are

ungovernable because of division," the report, which will be distributed to

NSW councils in coming days, said.

"Queensland saw the greatest resistance to amalgamation in the smaller

communities that were fearful of their services and voice diminishing at the

hands of a larger community.

"The closure of service centres rightly gave these communities the impression that local service delivery was no longer a

priority.

"While the economic assessment made sense, the changes immediately impacted on the proposition of a united region and

sowed the seeds for ongoing distrust."

Costs went up, services suffered under failed mergers: mayors

In 2013, Queensland's LNP government held referendums in four communities that had spent years lobbying for council

amalgamations to be reversed.

In all four cases, the referendums succeeded, leading to the de-

amalgamation of the Noosa, Douglas, Livingstone and Mareeba councils

from the larger shires they had been merged with.

Locals and mayors in those areas said NSW should learn from mistakes

made in their shires, which they said were merged against residents' wishes

with councils that had incompatible cultural and geographical differences.

MAP: NSW

Page 1 of 3NSW council amalgamations: Baird Government urged to avoid Queensland's merger ...

24/02/2016http://www.abc.net.au/news/2016-02-16/nsw-urged-not-to-repeat-qlds-council-amalga...

ATTACHMENT TO GMO01 - 25/02/16 Page 75

PHOTO: Douglas Mayor Julia Leu vividly remembers

the community rallies against the council's merger with

Cairns. (ABC News: Kirsty Nancarrow)

We've had a look at those

decisions that have been

made in other states and ... in

New South Wales we want to

make sure that we don't

make the same mistakes.

Local Government Minister Paul Toole

PHOTO: Douglas residents Jo Dau and Brian Roberts

said the shire suffered when it was merged with

Cairns. (ABC News: Leon Nancarrow)

Douglas Mayor Julia Leu – whose far north Queensland council was de-

amalgamated from Cairns – said promised economic benefits were never

delivered.

"The [Queensland] government certainly sold the idea that there would be

economies of scale, better provision of services, but the exact opposite

eventuated," Cr Leu said.

"There was a loss of service delivery, particularly in the Douglas area.

"Rates went through the roof."

Mossman Boat and Fishing Club president Brian Roberts said the

organisation's members were angered by new costs imposed by the Cairns

Regional Council.

"We had extra charges put on that we didn't have before [the amalgamation], and as far as the club I'm a member of goes,

we were $3,500 worse off than we were before," he said.

Resident Jo Dau said local councillors no longer felt accessible to residents after the merger.

Further south, Noosa Mayor Noel Playford said residents in his region felt

they "couldn't have a say anymore" after their shire became part of the

amalgamated Sunshine Coast Regional Council.

"Noosa's had a long history of doing things its way, looking after the

environment and not having high-rise [buildings] and so on because that's

what underpins the local economy," he said.

"All of that then was at risk as part of a much bigger Sunshine Coast area

with the [amalgamated council] simply wanting more and more

development."

Cr Playford said the "mega-council" became an expensive bureaucracy,

which prevented promised cost savings from being delivered.

In a submission to a parliamentary inquiry last year, the Local Government Association of NSW argued council rate revenue

in Queensland grew by 27.4 per cent after the amalgamations, compared to 13.4 per cent in NSW over the same period.

'Economically smart can be socially dumb'

The NSW Government has argued there are big differences between the Queensland amalgamations and the NSW

amalgamation proposals.

Local Government Minister Paul Toole said caps on rates would protect

ratepayers from large increases, and more financial support would be made

available to councils.

"We've had a look at those decisions that have been made in other states

and it's really important to learn, and in New South Wales we want to make

sure that we don't make the same mistakes," he said.

Mr Toole said local delegates who had been appointed to review the

proposals would be taking residents' concerns into account.

"No decision has been made by the New South Wales Government," he

said.

"We're giving the community an opportunity to have a say."

Community meetings have already been held in most affected areas and public submissions are being accepted until the

end of February, but some have criticised the consultation process as a "farce".

Mr Crisafulli said many of the Queensland mergers "worked brilliantly", particularly when local leadership was strong and

local views were factored into decision-making.

"In other cases, where that wasn't the case, where the small things continued to fester, we had a situation where

communities grew more and more passionate about getting their shires back as the years went on," he said.

"Things that appear to be economically smart can be socially dumb, and if you don't get the mix right you will not take the

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community on the journey.

"If that happens, they won't be a success."

More on this story:

• Southern NSW residents turn out in droves to oppose proposed amalgamation• Newcastle and Port Stephens merger plan is 'sour grapes', says former mayor• NSW council amalgamation public meetings a farce, critics say• Hundreds protest NSW Government's plan to merge councils• 152 NSW councils to be forced to merge into 112; elections delayed

From other news sites:

• Cooma Monaro Express: Cooma-Monaro residents express views on council merger

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Topics: local-government, state-parliament, nsw, qld, sydney-2000, newcastle-2300, wollongong-2500, lismore-3324, coffs-harbour-2450,

port-macquarie-2444, bega-2550, wagga-wagga-2650, dubbo-2830, orange-2800, tamworth-2340, broken-hill-2880, gosford-2250, noosaville-4566,

cairns-4870, port-douglas-4871

First posted Tue 16 Feb 2016, 6:06pm

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