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Getting It Right:

Structural Change in

Perth Local Government

CONTACTS

Professor Brian Dollery

Telephone: 61 2 6773 2500

Email: bdollery@une.edu.au

Mr Stephen Tindale

Chief Executive Officer

City of Subiaco

Telephone: 61 8 9237 9284

Email: stephent@subiaco.wa.gov.au

DISCLAIMER

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

Research Proprietary Limited for the City of Subiaco. This Report was produced for the City

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

exclusively the views of its authors and do not necessarily coincide with the views of the City

of Subiaco 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.

TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................................................... 1

1. INTRODUCTION ............................................................................................................................................ 2

2. AMALGAMATION IN PRACTICE: WHAT WORKS AND WHAT DOESN’T .......................................................... 5

2.1 DELATITE SHIRE AMALGAMATION AND DE-AMALGAMATION IN VICTORIA .................................................................... 5

2.2 AMALGAMATION OF CITY OF ONKAPARINGA IN SOUTH AUSTRALIA ............................................................................. 9

Cost reductions and greater efficiency ......................................................................................................... 11

Improved strategic capacity ......................................................................................................................... 11

Democratic representation .......................................................................................................................... 12

Enhanced service delivery ............................................................................................................................ 12

2.3 AMALGAMATION AND DE-AMALGAMATION IN QUEENSLAND .................................................................................. 13

2.4 IMPLICATIONS FOR WESTERN AUSTRALIA ............................................................................................................. 19

3. GUIDING PRINCIPLES FOR MERGERS IN LOCAL GOVERNMENT .................................................................. 21

3. 1 ENTITIES DESIGNATED FOR AMALGAMATION MUST BE CAREFULLY DESIGNED ............................................................... 22

3.2 AMALGAMATION PROPOSALS MUST MEET MINIMUM LEVELS OF COMMUNITY SUPPORT ................................................. 23

3.3 NEW AMALGAMATED ENTITIES MUST BE VIABLE ..................................................................................................... 25

3.4 TRANSACTION COSTS AND TRANSFORMATION COSTS OF AMALGAMATION MUST BE MINIMISED ....................................... 27

3.5 POTENTIAL SOURCES OF CONFLICT MUST BE MINIMISED ........................................................................................... 29

4. CONCLUDING REMARKS ............................................................................................................................. 30

REFERENCES ................................................................................................................................................... 32

APPENDIX ...................................................................................................................................................... 35

Getting it Right: Structural change in Perth Local Government 1 | P a g e

EXECUTIVE SUMMARY

Structural change to local government through forced amalgamation and associated boundary

changes has been employed in all Australian local government systems, with the sole

exception of Western Australia, where the WA Government is presently pushing ahead with a

program of forced mergers in the Perth metropolitan region.

While earlier work by the author which has been published in the Australian Journal of

Public Administration in 2014 has previously empirically examined the proposals for local

government reform in the Perth metropolitan area, this Report puts the findings of that study

in the wider context of ‘what works’ and ‘what does not work’. In particular, this Report

considers three recent instructive examples of amalgamation and de-amalgamation in

Australian local government in order to determine ‘what works’ and ‘what does not work’.

It attempts to distil the lessons which can be learned from the disastrous forced amalgamation

and subsequent de-amalgamation of Delatite Shire Council in Victoria, the successful City of

Onkaparinga merger in South Australia, and the drastic program of forced amalgamation in

Queensland in 2008 and the ensuing de-amalgamation and restoration of Douglas Shire

Council, Mareeba Shire Council, Livingstone Shire Council and Noosa Shire Council.

Five main policy lessons are derived from these real-world amalgamation episodes:

Entities designated for amalgamation must be carefully designed

Amalgamation proposals must meet minimum levels of community support

New amalgamated entities must be viable

Transaction costs and transformation costs of amalgamation must be minimised

Potential sources of conflict must be minimised

The most important of these policy lessons centres on demonstrating through polls, referenda,

and other formal measures that strong support exists in affected local communities for any

amalgamation proposal. If mergers are forced upon local communities, then amalgamation

can fail with disastrous consequences.

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1. INTRODUCTION

Structural reform through compulsory council consolidation has frequently been used by

national and regional governments across the world in an effort to improve the operations of

their respective local government systems (see, for example, Dollery, Grant and Kortt, 2012,

for a survey of the literature). Thus, for example, in Australia, Britain, Japan and New

Zealand, as well as across many European countries, policy makers have employed local

government amalgamation to substantially reduce the number of local authorities. The current

drive to forcibly amalgamate local authorities in Perth thus mirrors a long history of

compulsory council consolidation both in Australia and elsewhere.

The proposition that industry structure has predictable and systematic effects on industry

behaviour and industry performance in a given industry was advanced in the industrial

organization literature in the form of the structure-conduct-performance (SCP) paradigm by

Mason (1949), Bain (1951) and other economists. The SCP paradigm holds that a stable

causal relationship exists between the structure of an industry, organizational conduct and

organizational performance. In the realm of local government, it is argued that structural

change will have beneficial effects on the operation of local authorities without diminishing

the efficacy of local democracy. Policy debates mostly centre on the claim that ‘bigger is

better’ or ‘bigger is cheaper’ in local government. It is argued by advocates of amalgamation

that structural change should aim to reduce the number local councils in order to increase

their size (as proxied by population size) in order to generate scale economies, cost savings,

efficiency gains, enhanced administrative and technical capacity, greater ‘strategic capacity’,

and other desirable outcomes contingent upon size.

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Municipal mergers have attracted a voluminous literature and scholars have examined the

impact of compulsory council consolidation in many different countries. For instance, a

sizeable body of empirical work exists on amalgamation in the United States (see, for

example, Leland and Thurmaier, 2010; and Faulk and Hicks, 2011) and Canada (see, for

instance, Reese 2004; and Vojnovic 2000). Scholars have also examined the consequences of

local government amalgamation in a number of European countries. For example,

contributors to the volume edited by Dollery and Robotti (2008) considered council mergers

in France, Germany, Italy and Spain. Similarly, a Special Edition of Local Government

Studies assessed European amalgamation programs in Eastern Europe (Swianiewicz and

Mielczarek 2010), Denmark (Vrangbæk 2010), Germany (Wollmann 2010), Greece (Hlepas

(2010), Macedonia (Kreci and Ymeri 2010), and Belgium and the Netherlands (De

Ceunincka et al. 2010). In a double Special Edition of Public Finance and Management

(volumes 13(2) and 13(3) in 2013) contributors examined the impact of mergers on fiscal

viability in local government in Australia, England and Wales, Estonia, Finland, Korea, New

Zealand and the United States. The bulk of this empirical literature is decidedly sceptical on

the efficacy of compulsory amalgamation in improving the performance of local government.

This Report is set against the background of a review of the thirty local authorities

constituting local government in the greater Perth metropolitan area, which was initiated by

the Minister for Local Government on 24 June 2011. The Metropolitan Local Government

Review panel, which conducted this review, proposed a radical reduction in the number of

local authorities in the Greater Perth metropolitan region. The draft findings of the

Metropolitan Local Government Review were released in April 2012, with public comments

sought by 25th May, 2012. A Final Report recommending inter alia a reduction in the

number of local authorities in the Greater Perth metropolitan region to 12 local entities, dated

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12 July 2012, was released in October 2012. Under the Minister for Local Government’s

current proposal, nine existing local authorities will be absorbed into 11 other local councils

through boundary adjustments. This proposal does not sanction any of the affected local

communities to participate in a poll on these proposed de facto mergers, despite the fact that

this has been longstanding practice in Western Australian local government.

In a paper published in the Australian Journal of Public Administration, Drew and Dollery

(2014) considered in detail the evolution of local government in Western Australia, which has

seen the emergence of the spectre of forced amalgamation in the Perth metropolitan region,

and modelled the economic effects of the proposed mergers. They found that the claimed

scale economies, cost savings, and other pecuniary benefits purportedly flowing from the

recommended amalgamations were largely illusory, with costs savings attached to only two

of the ten main local government functions. The full paper by Drew and Dollery (2014) is

included in this Report as Appendix 1.

Against this background, this Report has two main aims:

With the aid of illustrative examples of amalgamation and de-amalgamation drawn

from real-world Australian local government experience, the Report considers ‘what

works’ and ‘what does not work’ in structural change through amalgamation in

Australian local government.

On the basis of this experience, the Report seeks to distil guiding principles which

should be used to formulate and implement council amalgamation proposals.

The Report is divided into three main parts. Section 2 discusses three recent instructive

examples of amalgamation and de-amalgamation in Australian local government in order to

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determine ‘what works’ and ‘what does not work’. Section 3 then sets out various central

principles which should underpin local government mergers. The Report ends with some

brief concluding comments in Section 4.

2. AMALGAMATION IN PRACTICE: WHAT WORKS AND WHAT

DOESN’T

2.1 Delatite Shire Amalgamation and De-Amalgamation in Victoria

Under the radical reform program launched by the Kennett Government in 1994, the number

of Victorian councils was reduced from over two hundred to 78 local authorities. The

program was conducted under the auspices of the Local Government (General Amendment)

Act 1993 which conferred upon the Victorian Governor-in-Council the powers to make

boundary changes to local government without the threat of legal appeal. Elected councils

were dismissed and administrators appointed in their place to implement the compulsory

consolidations recommended by the newly-created Local Government Board. The process

proved highly controversial and spawned an ongoing and longstanding legacy of bitterness

and division in Victorian local government (Dollery, Grant and Kortt, 2012).

The explicit aim of the Victorian amalgamation process was to increase the efficiency of

local government through a combination of scale economies and competition stimulated by

Compulsory Competitive Tendering (CCT) harnessed to induce cost savings. Since the costs

of forced mergers had to be borne by affected councils themselves, and Commissioners were

simultaneously instructed to secure 20 per cent in cost savings, the pecuniary consequences

of the process were especially severe for less affluent municipal entities, resulting in financial

hardship, a sharp decrease in service capacity, and a fall in service provision.

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As a direct consequence of the Kennett local government reform process, in November 1994

Delatite Shire was established through an amalgamation of the City of Benalla, a substantial

proportion of Benalla Shire, Mansfield Shire and parts of Violet Town Shire. The resulting

22,000 population merged entity was ‘a very long and thin municipality stretching

approximately 155 kilometres from end to end’, but only 40 kilometres wide, with the

‘relationship between the northern section of Delatite and the Mansfield region limited,

reflecting the different economic bases of the northern and southern ends of the new Shire’

(Chen, 2002, p. 3). Initial community reaction to the amalgamation decision was ‘strongly

negative’, especially in Mansfield, ‘with between 700 and 1,000 residents undertaking a

protest in the main street of the town’. However, the forced merger proceeded with the

dismissal of the three Councils and the appointment of three Commissioners to administer the

new Shire (Chen, 2002).

Chen (2002) has argued that from the onset the ‘transition to democratic government in the

Shire of Delatite was problematic’. The transfer of authority from the Commissioners to the

new elected Delatite Council in 1997 coincided with several problems: the Shire’s CEO

departed; financial stress mounted from the statutory freeze on rates, the costs of

amalgamation, and superannuation liabilities; and the Shire’s road base began to deteriorate

rapidly as a consequence of reduced expenditure. As growing problems emerged, the

Mansfield community ‘continued to criticize the new Council, arguing that the merger had

not been successfully considered or implemented’. Moreover, ‘as resources that had

previously been spent on service delivery were diverted towards finalising the amalgamation

process, these complaints began to take the form of a call for de-amalgamating the Shire’

(Chen, 2002, p. 5).

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Community unease at the new shire was further crystallised by the new Council’s decision to

consider purchasing new facilities in Bennalla, which was interpreted as a move towards the

centralisation of Council staff in Bennalla at the expense of Mansfield. Furthermore, the

Kennett government lost power at the 1999 state election, raising the prospect that the

incoming Victorian government would permit de-amalgamation. In addition, in 2000 the

Mansfield and District Ratepayers’ Association (MADRRA) was formed on an anti-

amalgamation platform and ran candidates in the subsequent council elections. In the second

post-amalgamation council elections, four MADRRA candidates were elected, giving it four

of eight councillors. The resultant stalemate induced the Minister for Local Government to

set up a review to be conducted by a Local Government Review Panel (LGRP) funded by

Delatite Shire. The review process produced a Green Paper, an economic evaluation of the

viability of new councils, an extensive community consultation, which included a call for

written submissions, and a survey of community attitudes, as well as a report entitled Review

of the Possible Restructuring of Delatite Shire: The Report of the Local Government (Delatite

Shire Council) Review Panel (Victorian State Government, 2002).

The LGRP focused special attention on the question of the financial viability of de-

amalgamated municipal entities centred on Benalla and Mansfield and concluded inter alia

that the proposed new local authorities would be financially sustainable with rate increases of

12 per cent for Benalla and 16.8 per cent for Mansfield. However, the LGRP (2002, p. 18)

added the caveat that ‘the new southern shire (Mansfield) will be very small, able to provide

very basic services only and will have difficulty in providing for capital works, despite a

significant increase in rates’.

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Despite these misgivings, the Victorian government accepted the recommendations of the

LGRP Board’s findings. In 2002, it announced that the Delatite Shire would be abolished and

replaced by Benalla Shire with 13,500 residents and Mansfield Shire with a population of

6,600 people.

What lessons can be learned from the amalgamation and ensuing de-amalgamation of

Delatite Shire? In its Consolidation in Local Government, the Australian Centre for

Excellence in Local Government (ACELG) (2011, p.124/125) contended that six general

conclusions can be drawn. In the first place, ‘hasty and poorly planned amalgamations, which

do not involve adequate consultation, will result in poor outcomes and disaffected

communities’. Secondly, ACELG (2011, p. 124) stressed that the sorry Delatite Shire episode

does not represent ‘an argument against amalgamations per se’ on grounds that an ‘adequate

consideration of strategic capacity probably would have highlighted the lack of a substantial

rationale for merging such disparate and far-flung communities as Benalla and Mansfield and

looked at other options instead’. Thirdly, Consolidation in Local Government unsurprisingly

concluded that ‘well-organised grassroots campaigns can achieve significant outcomes’, such

as de-amalgamation. In addition, the success of the Delatite anti-amalgamation campaign

inspired similar crusades in councils faced with forced mergers in other states, like Pittwater

and Hunters Hill in New South Wales, Walkerville in South Australia, and numerous

compulsorily consolidated councils across Queensland. In the fifth place, ACELG (2011, p.

124) claimed that ‘there is a lingering question mark over the extent to which Mansfield

residents – let alone the whole Delatite community – supported de-amalgamation and the

attendant costs’ since no definitive referendum was ever held. Finally, ACELG (2011, p. 124)

reiterated that ‘there are obvious lessons for governments that community consultation has to

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be undertaken comprehensively and seriously when major structural changes to local

government such as amalgamations (or de-amalgamations) are contemplated’.

A more general conclusion would point to generic difficulties surrounding the involuntary

amalgamation of local authorities in local government systems worldwide (Dollery and

Robotti, 2008). In particular, it is hardly surprising that local residents everywhere resent

having compulsory council consolidation forced upon them. People value ‘local voice’ and

‘local choice’ and are thus naturally unhappy when higher tiers of government arbitrarily

impose forced amalgamation upon their communities. Indeed, opinion polls taken of local

sentiment towards enforced municipal mergers have consistently shown that the great

majority of local people oppose forced amalgamation (Dollery and Robotti, 2008). These

universal concerns were doubtless compounded in the case of Delatite Shire given the fact

that it was comprised of non-metropolitan councils. The economic significance of local

councils in small centres, especially in employment terms, and the sheer spatial size of many

proposed council consolidation plans mean that any attempt at forced amalgamation is

typically fiercely contested.

2.2 Amalgamation of City of Onkaparinga in South Australia

Situated on the outskirts of Adelaide, the City of Onkaparinga arose as a consequence of the

1990 South Australian amalgamation process from the merger of Happy Valley and

Noarlunga Councils, together with most of Willunga Council. The result was the creation of

the largest South Australian local authority with a population in excess of 145,000 people

(now about 160,000 residents). An ACELG (2011) study of the Onkaparinga amalgamation

interviewed some participants and drew on ‘a detailed review of the process of forming

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Onkaparinga and its initial year of operation’ by the South Australian Local Government

Boundary Reform Board (LGBRB) in 1998.

In common with the Queensland amalgamation program, but unlike its Victorian counterpart,

existing local councils stayed in place until the new Onkaparinga Council was elected. The

number of councillors was reduced from 28 to 21, with nine wards plus a popularly elected

mayor. About 75% of these representatives were from previous councils, providing some

continuity.

ACELG (2011, p. 89) noted that the Onkaparinga amalgamation was ‘unusual’ on several

grounds:

It created the ‘largest South Australian council by population (though Onkaparinga is

well below the size of the largest Queensland or NSW councils)’.

The merger ‘involved the division of an existing council area, with a small part being

involved in a separate amalgamation. This was rare in the South Australian amalgamations

where there was a strong preference to amalgamate whole councils wherever possible’.

Affected councils made an ‘explicit decision to regard the amalgamation as an

opportunity to create a completely new organization. Even though Noarlunga was

considerably larger than the other two councils and its offices became the main

administrative base of the new council, a key objective was that the amalgamation was to

result in a completely new council and not just a takeover’.

The ‘new council’ objective was addressed through several strategies, including (a) a process

of assessing and selecting the best of the existing systems from across the three councils and

not just adopting those from the largest council; (b) the early appointment of a new CEO not

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from the merging councils and (c) the decision to adopt a new name that was symbolic of the

whole region to be represented by the new council and which did not involve any of the

names of the old councils. With respect to outcomes, in 1998 the Reform Board found the

Onkaparinga amalgamation was a success. This seems to have been confirmed by subsequent

developments.

ACELG (2011, pp. 91/93) considered four main outcomes:

Cost reductions and greater efficiency

The LGBRB concluded that the new council would save over $7 million in the first three

years and $4.5 million in the third year. The costs of the amalgamation process itself were

offset by one-off savings, through the sale of surplus equipment and properties, etc. ACELG

(2011) has argued that ‘the Board’s early findings appear to have been borne out in the longer

term, as the council has been able through its expanded expertise and strategic capacity to

achieve greater economies of scale after the initial “bedding down” period. While all parts of

the council area have benefitted from this, it is probably the communities of the smaller

former councils that have gained the most in relative terms’.

Improved strategic capacity

ACELG (2011) observed that the ‘new council’s increased size in both a geographic and

population sense also gives it a greater ability to deal with growth issues in a more holistic

way. In effect, Onkaparinga operates as a regional council for the whole area of Adelaide’s

southern suburbs, eliminating the previous jurisdictional boundaries to growth management’.

In addition, ‘the increase in strategic capacity has also improved the ability of the

amalgamated council to apply for substantial state and federal government grants and to

undertake major projects at a larger scale than was possible in any of the previous councils’.

Furthermore, ‘Onkaparinga’s increased strategic capacity as well as its increased size has

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enabled it to attract high-quality staff and to provide enhanced career paths within council for

its existing employees’.

Democratic representation

The amalgamation ‘did not involve a significant overall reduction in councillor numbers,

with the new council having 20 councillors initially in nine wards and a popularly elected

Mayor’, and the result was ‘little change in the level of representation’.

Enhanced service delivery

ACELG (2011) noted that ‘while there were early improvements in service levels in areas

such as infrastructure provision, inspectoral services, library services and environmental

services, it was soon recognized that at least in the initial period after amalgamation’ - which

flowed from the adoption of a ‘best of the best policy’ in terms of service levels and service

quality - it was realized that ‘strict adherence to this policy would increase costs beyond the

level anticipated in the amalgamation proposal’. However, ‘subsequent improvements have

been achieved because of the potential the council merger provided to take a fresh look at

approaches to service delivery, as well as the opportunities to reallocate staff across a wider

area and to engage employees with more specialised skills’. Moreover, ‘Onkaparinga’s size

and relatively large resource base also means that council has greater flexibility to experiment

with innovative projects and service delivery models’.

In sum, it would appear that the Onkaparinga amalgamation has, on balance, proved

successful. However, it should be stressed that ACELG (2011) investigated neither whether

cost savings had actually been achieved nor whether scale economies had in fact been reaped.

In addition, no attempt has been made to calculate the direct costs of amalgamation and thus

claims that these costs were somehow recouped should not be taken at face value.

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What general conclusions can be drawn from the Onkaparinga amalgamation episode?

Perhaps the most important aspect of the Onkaparinga merger, compared to the vast majority

of local government mergers in Australia, lay in its implementation. The South Australian

structural reform process in the 1990s was characterised by its consultative and participatory

nature. For instance, Tiley (2010, p. 29) has stressed the cooperative manner in which the

South Australian Government approached structural reform in partnership with the South

Australian Local Government Association (SALGA), noting that LGBRB ‘sought voluntary

structural reform proposals from councils, established performance criteria to determine

whether or not a local community would benefit from structural reform and used a checklist

of key questions to ensure a consistent approach and to confirm that proposals met the

requirements of the legislation’. Furthermore, he stressed that ‘the Board used an approach

which assisted local government to secure optimal structural arrangements for their

communities’, wherein ‘extensive engagement occurred in consultation, communication and

building and maintaining good relationships with the local government sector’. Given

constructive and voluntary nature of the structural reform process, it is thus hardly surprising

that the Onkaparinga amalgamation has succeeded.

2.3 Amalgamation and De-Amalgamation in Queensland

As we have seen, not only have forced municipal mergers been a ubiquitous feature of

Australian local government policy making, but they have also proved especially

controversial and divisive. However, the radical 2007 Queensland forced merger program

stands out as an especially bitter chapter in the long and contentious history of Australian

amalgamations (Dollery, Wallis and Crase, 2007).

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At least some of the rancour engendered in the Queensland episode can be traced back to its

genesis. In 2005, the Local Government Association of Queensland (LGAQ) (2005; 2006;

2007; Dollery and Akimov, 2008) and the Queensland Government launched a Size, Shape

and Sustainability (SSS) program to assess the sustainability of local councils in Queensland

and to generate solutions to the problems the SSS program was intended to uncover. Despite

subsequent repeated assurances from the Queensland Government that the SSS process was

progressing satisfactorily, as well as a $25 million contribution in financial assistance from

the Queensland Government, in a shock announcement on 17 April 2007 the Queensland

Government unilaterally abolished the SSS program and established a Reform Commission to

consider compulsory council amalgamation.

The official rationale for the abandonment of the SSS process was set out in Local

Government Reform: A New Chapter for Local Government in Queensland (DLGPS&R,

2007) and effectively amounted to a claim that local councils had not proceeded with

sufficient haste and vigour in pursuing the SSS program. In its Final Report released on 27

July 2007, the Local Government Reform Commission (2007) recommended drastic forced

amalgamation which would reduce the number of local councils from 157 to just 73 entities

(Dollery, Ho Chong Mun and Alin, 2008). These recommendations were enacted amidst

great acrimony in the early hours of 10 August 2007.

The Reform Commission (2007) presented its case for forced amalgamation in Chapters 3

and 4 of its Final Report, which included a discussion of the ‘costs and benefits’ associated

with amalgamation. The Reform Commission examined inter alia the outcomes of previous

Queensland local mergers in the 1990s (Cairns, Ipswich, Mackay, Warwick and Cooloola), as

well as SSS appraisals of four councils (Crows Nest/Rosalie and Goondiwindi/Waggamba).

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From this limited evidence, drawn exclusively from Queensland, the Commission classified

the benefits of structural reform into four categories, one of which was economies of scale.

However, no empirical analysis was conducted by the Reform Commission in order to

ascertain whether substantial scale economies in fact existed at the time of the Final Report.

Moreover, it is noteworthy that the Queensland Treasury Corporation (QTC) (2009), which

later reviewed of the amalgamation process, also placed significant reliance on economies of

scale. Given the mixed and inconclusive evidence on this question in the Australian and

international empirical literature (see, for example, Byrnes and Dollery 2002; Dollery, Grant

and Kortt, 2012; Lago-Penas and Martinez-Vazquez, 2013), this is disconcerting.

Given the astonishing ‘about face’ by the Queensland Government, the speed with which the

Reform Commission process was completed, and the concomitantly constrained opportunities

for community consultation, it is hardly surprising that the forced amalgamation program

provoked a wave of public disquiet. Despite the passage of time, community discontent

continued in many communities affected by compulsory consolidation. One consequence of

public disaffection lay in ongoing calls for de-amalgamation of numerous merged local

entities, which has set in train a sequence of events which will see the restoration of Douglas

Shire Council, Mareeba Shire Council, Livingstone Shire Council and Noosa Shire Council.

The nature of the amalgamation and subsequent de-amalgamation episode in Queensland is

not only without precedent in Australian local government history, but it has no modern

counterpart in any other country, even though de-mergers have occurred elsewhere, perhaps

most notably in Montreal (Sanction, 2011). As we have seen in this Report, while forced

mergers of comparable severity have been implemented in other parts of Australia in the face

of public opposition, especially by the Kennett Government in Victoria, apart from the

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isolated example of Delatite Shire (Chen, 2002), never before in Australia have local

communities voted without exception to de-merge in spite of the fact that the costs of de-

amalgamation would fall exclusively on these communities. The extraordinary character of

the Queensland de-amalgamation has been placed in further stark relief by the twists and

turns in its policy on de-mergers by the Liberal National Party (LNP) which steadily ‘stacked

the deck’ against de-amalgamation after assuming power.

Prior to the election, Queensland Premier Newman had promised to heal discontent

surrounding the 2008 amalgamation program. However, after the Queensland elections held

on 24 March 2012, it soon became apparent that marked differences existed between pre-

election and post-election LNP policy on de-amalgamation. For instance, proposals now had

to be submitted directly to the Minister for Local Government, who alone would decide

which councils were eligible for pursuing de-amalgamation. Similarly, local community

groups which sought de-merger received estimated de-amalgamation costs, which the

demerged councils would have to bear, from the QTC.

In the event, the Minister only allowed five de-amalgamation proposals (Douglas, Isis,

Livingstone, Mareeba and Noosa) of a total of 19 proposals to proceed to the Queensland

Boundary Commission (QBC) for assessment. This caused considerable community dismay.

On 28 November 2012, the QBC (2013) provided reports to the Minister assessing the

viability of the five proposals allowed to proceed by the Minister. The analysis of each

proposal considered ‘the impact of the de-amalgamation from service, community, financial

and economic perspectives’, ‘de-amalgamation costs’, and a recommendation as to ‘whether

the de-amalgamation proposal should proceed to a poll to determine whole-of-community

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support’ (QBC, 2013). Based on these QBC reports, four de-amalgamation polls took place in

March 2013. However, acting on QBC (2013) advice, the Minister ruled that the Isis de-

amalgamation process not proceed due to cost considerations and that Isis should remain a

part of the Bundaberg Regional Council. Table 1 summarises the poll results, together with

the immediate and ongoing estimated costs of de-amalgamation per ratepayer:

Table 1: De-amalgamation Poll results and Costs per Ratepayer

Community proposing

de-amalgamation

QTC Estimated costs ($)

Poll Results Cost per ratepayer

in the first year ($)

Cost per ratepayer

every year

thereafter ($)

Mareeba Shire Council

(MSC) 872 240 57.90% YES

Douglas Shire Council (DSC) 701 462 57.64% YES

Livingstone Shire Council

(LSC) 429 194 56.59% YES

Noosa Shire Council (NSC) 260 142 81.38% YES

Source: QTC (2012a/f); ECQ (2013)

As a result of the successful poll outcomes, the Minister allowed these four de-amalgamation

proposals to proceed.

From the perspective of policy analysis, what wider lessons for structural reform in local

government emerge from the Queensland amalgamation and subsequent de-amalgamation

process? In the first place, it may well be asked if ‘the game was worth the candle’ in terms

of whether the forced amalgamation program has achieved its overall aims in improving

Queensland local government. Existing empirical evidence paints a depressing picture. For

example, Drew, Kortt and Dollery (2013) examined pre-and post-amalgamation scale

economies in Queensland and found that the compulsory merger program had increased the

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proportion of Queensland residents in councils operating with diseconomies of scale to 84%.

Similarly, a QTC (2009) analysis of the costs of amalgamation showed that the process had

been far more costly than expected. Given that de-amalgamation had never been anticipated

by the architects of forced mergers, the costs of demergers thus represent a further heavy and

unwelcome impost on Queensland ratepayers.

These considerations lead naturally to a second broad conclusion. Dollery, Crase and

O’Keefe (2009) have argued that the real value of forced mergers as a policy instrument

resides not in its implementation but rather as a ‘threat’ designed to motivate local authorities

to embark on effective reform to stave off amalgamation. Given the peremptory decimation

of the SSS process by the Queensland Government, which set in motion costly and divisive

forces which eventually led to de-amalgamation, it would have been far wiser for the

Queensland Government to simply have imposed a firm deadline for effective reform under

the SSS process, with an accompanying warning that those councils which prevaricated

would be compulsorily consolidated. The net result could have been significant reform

through extensive regional collaboration, shared services, and the like without the exorbitant

costs of widespread amalgamation (Dollery, Grant and Kortt, 2012).

Thirdly, the expensive Queensland council de-amalgamation episode may have been avoided

altogether had the original 2008 amalgamation process been implemented in a more

measured manner. Hoffman (2013) has argued persuasively that when structural reform

through council consolidation has been accompanied by a thoroughly articulated ‘case for

change’, together with exhaustive and inclusive public consultation, then its prospects of

success are much better. In a comparative analysis, Hoffman (2013) examined the

Queensland local mergers undertaken in the 1990s (Cairns, Coolola, Ipswich, Mackay and

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Warwick) relative to the 2008 blitzkrieg amalgamation process and concluded that not only

had the earlier approach proved much less costly and divisive than its 2008 counterpart, but it

had not seen any determined push for de-amalgamation. In other words, structural change

processes can have decisive positive effects on structural change outcomes, provided they are

inclusive, participatory and voluntary.

Finally, the convoluted de-amalgamation process used in Queensland has been defective in

many respects. Quite apart from widespread public resentment over the crude manner in

which the Queensland Government has ‘stacked the deck’ against aggrieved local

communities legitimately seeking de-merger through the democratic local poll process, the ad

hoc manufacture of de-amalgamation policy ‘on the run’ by the Queensland Government may

well have serious longer-term adverse consequences in terms of ongoing community

agitation and further de-amalgamations in future.

2.4 Implications for Western Australia

From the perspective of West Australian local government, it is worth noting that had

Queensland had in place longstanding West Australian Government regulations on structural

change in its local government system prior to the 2008 forced merger program, then the

Queensland Government could have largely avoided the debacle it created. For example,

under Western Australian legislation on amalgamation, proposals for merging two or more

local authorities must be referred to the Local Government Advisory Board (LGAB). The

LGAB is then required to examine amalgamation/boundary change proposals against nine

specific criteria: ‘community of interests’; ‘physical and topographic features’; ‘demographic

trends’; ‘economic factors’; ‘history of the area’; ‘transport and communications’; ‘matters

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affecting the viability of local governments’; ‘the effective delivery of services’; and ‘any

other matters it considers relevant’.

If the LGAB recommends a given amalgamation proposal proceed, which involves the

merger of two or more local authorities, then the Minister for Local Government is required

to notify electors of the affected municipalities of their right to request a poll on the proposed

amalgamation under Clause 8 of Schedule 2.1 of the Local Government Act 1995, which

prescribes the nature of the process.

If a poll is requested, then the local authorities in question must appoint the Western

Australian Electoral Commission to conduct the poll. A valid poll requires that fifty percent

of electors of the affected communities must vote. If one or more of the polls held results in a

majority ‘no’ vote, then the result is binding on the Minister and the merger cannot proceed.

However, the Minister of Local Government can also require that a merger endorsed by the

LGAB can be put to a poll of electors in the affected municipalities to assist in the Minister

deciding whether or not to accept the LGAB’s recommendation. This poll is not binding on

the Minister under Clause 7 of Schedule 2.1 of the Act.

However, this longstanding Western Australian approach has recently been subverted, despite

pre-election commitments of no forced amalgamation in the Perth metropolitan region,

subsequently retracted after the election held on 9 March 2013. Instead, metropolitan local

councils were threatened by the Minister for Local Government - under pain of amending the

Act and the Minister’s own merger proposals going directly to the LGAB - to submit largely

‘compliant’ proposals dealing with amalgamation. As a consequence, a strong majority of

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local authorities (at least 20) have now submitted these largely ‘compliant’ proposals under

this duress. The net result has been sub-optimal. Not only has it created the illusion that a

majority of Perth councils seek amalgamation and boundary changes with neighbouring

councils, but it has also served to ignite ongoing animosity between many of the 11 ‘winner’

councils and the nine ‘loser’ councils noted in Section 1 of this Report.

From the broader perspective of local government policy making in Western Australia this

corruption of an otherwise sound legislative foundation for dealing with amalgamation

proposals is most unfortunate. Indeed, it could well lead the Western Australian Government

into a morass akin to the expensive and dysfunctional amalgamation outcomes we have

considered, especially in Queensland. It is thus hard to overestimate the importance of the

Western Australian Government abandoning its present attempt at railroading radical

amalgamation in the Perth metropolitan region and going back to the longstanding approach

set out in the Local Government Act 1995. In particular, the case studies of amalgamation and

de-amalgamation, considered in this Report, have demonstrated the critical importance of

council mergers proceeding only with the consent of a majority of electors.

3. GUIDING PRINCIPLES FOR MERGERS IN LOCAL GOVERNMENT

Section 2 of this Report considered several vivid examples of local government

amalgamation which went badly awry, ending in de-amalgamation, together with the City of

Onkaparinga in South Australia which seems to have worked out reasonably well. As we

saw, much can be learned from these case studies which can inform contemporary local

government policy making dealing with structural change. In particular, had state

governments in these instances had legislation equivalent to the Western Australian Local

Government Act 1995, discussed in Section 2 of this Report, with its poll provisions, then a

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great deal of the divisiveness and expense derived from compulsory amalgamation forced

upon reluctant local communities could have been avoided.

Local councils in all Australian state and territory local government systems are ‘creatures of

statute’ in the sense that their existence, boundaries, functions, powers and structures depend

on the legislative whim of their parent state and territory governments, as expressed in their

respective local government enabling acts (Aulich, 1999). However, the sweeping authority

that Australian state governments possess over local councils in their local government

systems (Dollery, O’Keefe and Crase, 2010) necessarily demands that amalgamation

proposals must be calibrated so as to not only reap economic and other benefits, but also to

meet reasonable standards of coherence, such as enjoying demonstrated local community

support, comparatively low transactions and transformation costs, ongoing prospects of

financial viability, and the like. As we have seen, if all or some of these conditions are not

fulfilled, then considerable economic, political and social damage can flow from bungled

municipal mergers, not least de-amalgamation. Accordingly, in Section 3 of this Report we

attempt to distil from past experience with amalgamation in Australia the minimum

reasonable standards which all proposed council mergers must meet.

3. 1 Entities designated for amalgamation must be carefully designed

In common with most other political institutions, local government is to a significant degree a

product of past historical forces and trends in local economic development, local population

growth and the like. This has imbued most local councils with path dependency

characteristics which have produced current council structures and council boundaries which

are seldom optimal. When two or more of these local councils are compulsorily consolidated,

the new governmental entity often simply inherits these path dependent characteristics of its

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predecessor constituent councils. Amalgamation recommendations should thus try to design

the proposed new council spatial boundaries to incorporate current and future patterns of

economic development, population growth and demographic trends so as to maximise a

common ‘community of interest’ rather than the opposite state of affairs. In addition, policy

makers should be mindful that amalgamating small councils (or parts of councils) with much

larger and potentially dominant councils is likely to provoke political resistance to a merger

from smaller neighbours, whose residents naturally fear ‘domination’ by the larger council.

Not only is this approach desirable in its own right, but it is also essential given the political

realities in which Australian local government operates in all states and territories.

3.2 Amalgamation proposals must meet minimum levels of community

support

In common with other tiers of government, the lifeblood of local government derives from its

democratic legitimacy. It follows that some formal process must be created by state

Departments of Local Government to provide a mechanism for eliciting community views on

merger proposals in a procedurally and democratically sound manner. As we have seen in

Section 2 of this Report, involuntary or forced amalgamation which does not command

demonstrated community support invariably leads to problems. By contrast, the City of

Onkaparinga case demonstrates that voluntary mergers characterised by high levels of

community participation typically result in harmonious and successful outcomes. A formal

process for determining community support must meet at least two minimum conditions:

(a) Some kind of formal poll or referendum should take place on the proposed

amalgamation and its associated boundary changes which involves residents in all affected

areas.

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(b) A second decision rule would also be required in terms of minimum required support

in the actual referendum itself, such as a bare majority of 50 per cent of the votes in favour of

amalgamation.

Legislation of this kind already exists in some state local government legislation on

amalgamation and associated boundary changes. For example, the Western Australian Local

Government Act 1995 stipulates that should the Local Government Advisory Board submit a

report to the Minister for Local Government recommending an amalgamation proposal be

accepted, it must notify electors of their right to petition the Minister for a poll on the

recommendation. A valid petition must contain the signatures of either 250 electors or 10 per

cent of electors of one of the local government areas contained in the proposal, whichever is

the lesser. If a petition meets this criterion, then a poll must be conducted in one or more of

the affected local government jurisdictions. A valid poll requires at least 50 per cent of

electors of an affected local government to vote. If one or more of the polls returns a majority

against amalgamation, the result is binding on the Minister and the amalgamation cannot

proceed.

In addition to formal requirements along these lines, in practical terms state governments

would be wise to only support a proposed amalgamation and attendant boundary changes if it

enjoyed a demonstrated degree of political support in the affected local communities prior to

petitions and referenda. From the perspective of both proponents and opponents of mergers,

this would obviously involve a contest for the ‘hearts and minds’ of residents in amalgamated

local authorities in order to garner sufficient political support to induce state Departments of

Local Government to initiate formal democratic processes to decide on de-amalgamation

proposals, as exemplified by the activities of MADRRA in Delatite Shire.

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3.3 New amalgamated entities must be viable

Over the past decade, Australian local government policymakers have focused heavily on the

question of the ‘financial sustainability’ of individual local councils to the virtual exclusion

of other factors impinging on the broader sustainability of local government. For instance, at

the state level, the South Australian Financial Sustainability Review Board’s (FSRB) (2005)

Rising to the Challenge, the Independent Inquiry into the Financial Sustainability of NSW

Local Government’ s (LGI) (2006) Are Councils Sustainable, the Queensland Local

Government Association (LGAQ) (2006) Size, Shape and Sustainability (SSS) program, the

Western Australian Local Government Association (WALGA) (2006) Systemic Sustainability

Study and the Local Government Association of Tasmania (LGAT) (2007) Review of the

Financial Sustainability of Local Government in Tasmania all had at their core the problem

of assessing financial sustainability in their respective local government systems.

Similarly, at the national level, the PriceWaterhouseCoopers (PWC) (2006) National

Financial Sustainability Study of Local Government considered the problem of financial

sustainability across all Australian local government jurisdictions, and the Productivity

Commission (2008) examined the revenue-raising capacity of Australian local government.

All these inquiries serve to demonstrate that Australian local government faces severe fiscal

distress, typically manifested in a substantial and growing infrastructure backlog. Financial

sustainability is thus a central concern in any proposed amalgamation process.

However, it has been argued that not only does ‘financial sustainability’ have no agreed

meaning in Australian local government, but also it represents only a single dimension of

overall council sustainability (Dollery, Byrnes and Crase, 2007). Indeed, available evidence

suggests that the primary cause of local government failure lies in ‘infighting’ in elected

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councils and its attendant ‘policy gridlock’ rather than financial collapse. Dollery, Crase and

Grant (2011) have argued that this means that an accurate assessment of aggregate ‘overall

sustainability’ in local government must also include other attributes apart from financial

sustainability. They contend that ‘many factors clearly play an important role’, including

‘local government democracy’, ‘local government capacity’, a local ‘sense of place’,

‘community sustainability’, ‘local social capital’, ‘local preference diversity’, ‘local

leadership’ and ‘local economic development’. Dollery, Crase and Grant (2011) distil these

factors into three main ‘clusters’ of attributes of overall local council sustainability: (a) the

‘vibrancy of local democracy’; (b) ‘local social capital’; and (c) ‘local government capacity’.

While Dollery, Crase and Grant (2011) serves as a welcome reminder that local government

sustainability cannot simply be reduced to financial sustainability per se, it nonetheless seems

to swing the pendulum too far away from the importance of fiscal viability. A more balanced

analysis has been offered by Dollery, Goode and Grant (2010) who proposed ‘four pillars of

sustainability’ as guiding principles in the design of structural reform programs in the context

of local authorities, such as Benalla and Mansfield, which can inform debate on

amalgamation processes. These ‘four pillars’ consist of ‘financial sustainability’ (i.e. fiscal

viability), ‘economic sustainability’ (i.e. conditions met for satisfactory local economic

development), ‘community sustainability’ (i.e. adequate community of interests exists to

sustain community cohesion) and ‘environmental sustainability’ (i.e. new entity has adequate

administrative and technical capacity for effective environmental management).

Against this background, it is argued that newly merged local government entities should be

demonstrably viable in terms of the Dollery, Goode and Grant (2010) ‘four pillars’. A test of

viability of this kind would not only incorporate local government financial sustainability, but

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also ensure that it did not become the only (or even main) standard by which the viability of

the proposed amalgamated local councils would be judged.

3.4 Transaction costs and transformation costs of amalgamation must

be minimised

An important corollary to the question of ongoing viability resides in the initial costs

involved in amalgamation being minimised since the vast majority of these costs will be

borne by the councils concerned. Not only is this question of considerable political

importance to protagonists in the debate surrounding the desirability of any specific merger,

but it should also be vital for state Department of Local Government policy makers.

An important distinction in this regard should be drawn between transaction costs and

transformation costs. In the context of structural change in local government, transaction

costs refer to the costs associated with deciding on whether or not to merge a constellation of

councils, including the imposts on the public purse related to consultant reports, Department

of Local Government inquiries, petitions, referenda, and the like. By contrast, transformation

costs refer to the costs of implementing any subsequent decision to amalgamate, which

involve the expenses surrounding the establishment of new municipal entities. Whereas both

transaction costs and transformation costs will be typically concentrated in the early stages of

a merger, they can extend beyond this period, especially transformation costs.

Some idea of the magnitude of transformation costs for council mergers can be gleaned from

hard-won experience in the Queensland amalgamation program in 2008. For instance, in its

review of the 2008 Queensland experience with amalgamations, the Queensland Treasury

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Corporation (2009) gathered estimates from merged councils on the costs of their

amalgamation at that stage. These are set out in Table 2:

Table 2: Amalgamated Queensland Council Estimates of Costs of Mergers

Council Estimated Costs by Council (AUD$)

Bundaberg 14,705,273

Cairns Regional N/A

Central Highlands 21,533,762

Charters Towers 1,268,268

Gladstone 15,316,400

Goondiwindi 7,117,277

Gympie 2,282,366

Isaac 12,112,850

Lockyear Valley 3,647,603

Logan City 4,884,647

Mackay 7,575,854

Maranoa 2,682,547

North Burnett 7,341,912

Rockhampton 6,520,353

Scenic Rim 12,634,356

Somerset 2,523,929

South Burnett 5,286,920

Southern Downs 5,104,919

Sunshine Coast 13,720,844

Tablelands 10,751,120

Toowoomba 10,152,954

Townsville 3,980,997

Western Downs 8,113,510

Whitsunday 7,235,105

TOTAL 186,493,766

Mean 8,108,425

Median 7,235,105

Source: QTC (2009) Review of Local Government Amalgamation Costs Funding Submissions – Final Summary

Report

As we can see from Table 2, transformation costs had amounted to a mean of $8,108,425 per

amalgamated council (and some $186 million in total) by 2009! Moreover, at this early stage

many costs were still recurring. Given the prohibitively high costs of amalgamation,

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exponents of forced amalgamation in Perth should make clear who will pay for the proposed

amalgamation program: Western Australian taxpayers or Perth ratepayers?

3.5 Potential sources of conflict must be minimised

As we have seen, municipal mergers contain many of the ingredients which can ignite

conflict and division in affected local communities. While the sources of such conflict are

likely to differ from case to case, they often centre on the perceived equity of the ‘division of

the spoils’ following municipal mergers. It follows that careful consideration should be given

to the thorny problem of the use of post-amalgamation assets, debt, endowments,

investments, and the like.

Two principles should guide decisions in this area:

(a) To the extent that this is feasible, assets, endowments and investments held by pre-

amalgamated municipal entities should be expended on the basis of earlier council

boundaries, or on pro rata grounds where earlier council boundaries do not exactly coincide

with post-amalgamation boundaries.

(b) Assets, endowments and investments acquired by the amalgamated council after

council consolidation should be expended as far as possible on council activities and

investments in the council areas from where these assets, endowments and investments

originated.

At least two further considerations should be borne in mind. Firstly, in the design of their

‘sustainable amalgamation’ model, Dollery, Goode and Grant (2010, pp. 300/301) made

careful note to incorporate safeguards against ‘a common fear frequently attendant upon

amalgamation’ revolving around ‘reserve funds accumulated over the years by the constituent

shires [which] would simply be “swallowed” by the new entity’. They argued that the best

30 | P a g e

means of ameliorating these concerns ‘would be to stipulate that such funds must be utilised

for the purposes for which they were established and therefore expended within the district in

which they were raised’, which could involve ‘establishing a Community Trust which can

accept and manage any funds on behalf of a designated local community, as well as accepting

funds from industry for designated community projects’. It seems that this approach could

also be used in the context of amalgamation to manage assets acquired by former pre-

consolidated entities.

4. CONCLUDING REMARKS

This Report has had two main objectives. In the first place, it examined three separate

instances of council amalgamation in three different states, two of which had engendered

such high levels of disaffection that de-amalgamation had ensued, in an effort to determine

‘what works’ and ‘what does not work’ with respect to the proposed amalgamation process in

Perth local government. We examined the forced merger and subsequent de-amalgamation of

Delatite Shire in Victoria, the consolidation of various local authorities into the City of

Onkaparinga in South Australia, and the drastic Queensland forced amalgamation program in

2008, which has seen the restoration of Douglas Shire Council, Mareeba Shire Council,

Livingstone Shire Council and Noosa Shire Council through de-amalgamation.

By far the main lesson which has emerged from this analysis is the fact that the processes

underpinning amalgamation have a decisive effect on whether or not it has proven successful.

In essence, where council mergers and boundary changes are forced upon local communities

with minimal consultation and limited local community participation, this leads to ongoing

bitterness and division in the affected local communities, which could have lasting effects,

including ultimate de-amalgamation. By contrast, where local councils voluntarily assent to

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mergers with their neighbours, and where public participation and involvement are

encouraged, such as with the establishment of the City of Onkaparinga, the prospects of an

amalgamation succeeding are much greater.

The second main objective of this Report was to distil sound guiding principles which should

be used to formulate and implement council amalgamation proposals. As we saw in Section 2

of this Report, under Local Government Act 1995, in Western Australia the LGAB is required

to examine amalgamation/boundary change proposals in terms of nine criteria: ‘community

of interests’;’ physical and topographic features’; demographic trends’; ‘economic factors’;

‘history of the area’; ‘transport and communications’; ‘matters affecting the viability of local

governments’; the ‘effective delivery of services’; and ‘any other matters it considers

relevant’. However, in the light of hard-won experience in other Australian local government

systems which have had ill-conceived and expensive council amalgamations and – in some

instances – de-amalgamations, it is evident that the LGAB criteria are not adequate. This

Report has sought to demonstrate that the LGAB should also take into account additional

criteria, including that proposed amalgamations must enjoy demonstrated local community

backing through a poll, the transaction and transformation costs of amalgamation must be

minimised, and potential sources of conflict must be eliminated as far as possible.

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APPENDIX

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