The NSW government’s 2016 policy of local government amalgamations resulted in an average 11.2 per cent increase in costs at affected councils and raised staff expenses by more than 15 per cent, new research has found.

Joseph Drew, Associate Professor of Local Government at the UTS Institute for Public Policy and Governance, believes botched amalgamations not only left councils struggling to this day but are affecting residents across the state who are now being forced to bail them out.

His comments come after the government appointed an administrator at Central Coast Council, after throwing it a $6.2 million lifeline so it could pay staff.

Council revealed it faced an $89 million deficit in the days before the government stepped in, citing amalgamation as one of the factors contributing to its woes.

Increased staff expenses

Professor Drew and colleagues from two universities in Japan analysed six years of data comparing the fiscal outcomes of amalgamated councils with non-amalgamated ones.

The research has been accepted for publication in the journal Public Administration Quarterly next March.

Professor Drew looked at increased costs across a range of areas including staff, materials and contracts.

“The headline result from this research is that amalgamation has resulted in an average 11.2 per cent increase in unit costs at affected councils,” he says.

It was wrongly assumed that staff expenses would decrease as a result of amalgamation, Professor Drew says. Instead, most diseconomies of scale created by amalgamation came from staff expenses, which rose by 15.2 per cent.

This was because in some cases an extra layer of middle management was needed, as well as extra staff to coordinate systems and processes.

Directors’ salaries also increased to reflect their increased responsibilities.

Avoidable mistakes

Yet it was all entirely avoidable, Professor Drew argues.

He says amalgamation isn’t inherently bad, and it can be another tool to correct waning financial sustainability.

But it needs to be done right.

“If amalgamation’s done well it can save money and bring big benefits, but there are so many things that can bring bigger benefits and cause less disruption,” he told Government News.

He says the first mistake made in 2016 was relying on commercial consulting firms rather than turning to experts, something he compares to getting a GP to perform brain surgery.

Amalgamation also needs to bring together homogenous communities with similar expectations of government services to avoid service levels being harmonised upwards.

“This is the big risk that no one was talking about,” Professor Drew says.

“In just about every case service levels went up, and that was a cost that was never ever considered. “

Local government systems also need to have homogenous accounting systems, software and institutional structures to avoid what he says can be huge IT costs and huge organisational disruptions.

Are administrators to blame?

Professor Drew also questioned the value of responding to the plight of councils like Central Coast with ministerial intervention and administrators.

If the administrators weren’t going on a spending spree … if they weren’t committing the council to projects and expenditure which were not in the normal unit business practice of that council, we might have had different outcomes.

Associate Professor Joseph Drew

He has been working with councils that are struggling after amalgamation to get them back on their feet, and says he knows of at least half a dozen merged local governments that are also in deep financial trouble.

In some cases, the problems go back to decisions made by the administrator, he says.

“Money couldn’t be accounted for, big consultancies were given to associates of the administrators, lots of things were done that shouldn’t have been done by the administrator.

“If the administrators weren’t going on a spending spree … if they weren’t committing the council to projects and expenditure which were not in the normal unit business practice of that council, we might have had different outcomes.”

Professor Drew says councillors don’t have financial training and shouldn’t be blamed for the misteps of administrators.

Instead, the solution lies in capacity building and providing support for councils to engage with their communities with regard to revisiting service levels and harmonising fees, charges and rates.

“Working closely with councils and taking a positive approach that uses local knowledge and relationships delivers better outcomes than the common administrator or commercial consultancy models that fail to take account of local situations and community needs,” he says.