As 19 brand new NSW councils work furiously behind the scenes to merge their teams and operations most ratepayers only want to know one thing: how will mergers will affect council services?

Government News spoke to experts in the NSW local government sector in an attempt to answer how services might change under new councils, whether the promised savings will be achieved and what this means for rates further down the track.

Harmonising local council services: the challenges

The first task, says Associate Professor Roberta Ryan, Director of University of Technology Sydney’s Australian Centre for Excellence in Local Government, is for new councils to agree on what services are already being delivered, how they are being carried out and what they’re costing.

Councils often categorise and run their services differently and from different parts of their organisation. For example, parks and recreation could fall under community facilities, infrastructure or community development.

The broad range of services councils provide also makes harmonisation a complex undertaking. Councils are not just about the three R’s (roads, rates and rubbish) but an amalgam of numerous services, including childcare, community centres, libraries, pools and leisure centres, parking, beach patrols, dog control, food safety and planning. Some also provide aged care and deliver water and sewerage services.

Councils plan services based on a number of factors, demographics and local needs being paramount and this will affect the service mix of each organisation. For example, a council with a high population of working parents is likely to invest more heavily in childcare. Another with an older population might focus on community transport and providing services for older people.

Annalisa Haskell, CEO of Local Government Professionals Australia, NSW, which offers councils a range of resources to manage mergers and benchmark their services, says councils are not one size fits all.

“Each has a different mix of services based upon how a council has decided to play a role in their local area. They are made up of very disparate services – both in nature, skills and process,” Ms Haskell says.

Another major headache for councils is they may measure the cost and efficiency of service delivery differently. User fees and charges and council regulations also vary.

The state government has asked new councils to complete service reviews by the end of September, setting out how services are currently delivered and how they will be aligned. Councils have also been asked to assess the impact and cost of service harmonisation, including on council staff.

Inner West Council’s Community Services Director Simone Schwartz said councils had a “huge program of work” ahead of them to harmonise service delivery, while integrating the cultures of several councils and working out practical details, such as the co-location of staff.

“To the outside it’s looking like it is one council. Behind the scenes everybody is focused on making sure we continue to ensure seamless service delivery,” Ms Schwartz says.

Asked if staff were worried about their jobs or if posts would be left unfilled if people left, Ms Schwartz said: “We think there’s more than enough work for everyone and then some.”

Will services get better, worse or stay the same?

The general consensus appears to be that services will rise to the highest level under the new, larger councils because new councils are unlikely to risk irritating ratepayers in any of the former council areas by reducing services.

“If you’ve got really happy residents and you’re doing something really well, you’re not going to cut back on a service,” Ms Schwartz says.

On the plus side, this provides an opportunity for merged councils to adopt the ‘best practice’ of the best council performer in each area, upskilling staff and benefitting residents.

Ms Ryan said there was a great deal of optimism amongst council staff, who felt that mergers presented an opportunity to reflect and improve on services. The new, larger councils also give staff the chance to move into more senior, co-ordinator roles being created.

But increased service levels means greater costs and council resources are tight. How will these rising costs square with NSW Premier Mike Baird’s insistence that former councils maintain their rates trajectory for four years, outlawing new rate rises?

Ms Ryan said councils would need to engage their communities in a conversation about trade-offs because bankrolling higher service levels in every area was not possible.

“There’s a fixed bucket of money and in many cases a declining bucket of money. Councils are getting better at asking people “do you want this or that?”

Add into that mix, the rate capping system, which has been in place since 1978, the freezing of financial assistance grants to councils (their main source of income) and other levels of government increasingly shifting responsibilities onto local councils without providing the funds to cover them.

One prediction is that the yawning NSW infrastructure gap – estimated at a whopping$7.4 billion in 2012 by Department of Premier and Cabinet, will be aggravated as cash is funnelled into boosting service levels instead.

Council merger sceptic Professor Brian Dollery from the University of New England’s Centre for Local Government predicts NSW will fall further behind in maintaining its roads, bridges and buildings, hitting regional NSW residents hardest.

“Less and less will be spent on infrastructure because it’s not as urgent,” Prof Dollery says. “They say, “we can do it next year” and of course it comes around and bites you.”

Prof Dollery said people in regional NSW were used to “pretty low levels of service” but compensated by paying low rates.

“People in regional council areas that are forcibly merged, all they want is their roads properly cared for,” he says. “Roads are a hell of a big deal outside metropolitan areas.”

Because the main driver of local government costs is population density, says Prof Dollery, road upkeep is less of a problem in the city. It is more expensive to keep the road network going in regional areas and there is a lower rates base for councils to work with.

Worse, the state government is trying to move responsibility for some of its roads into the hands of local government without providing ongoing funding.

There is a theory that at the heart of forced council mergers is the state government’s desire to beef up local government’s clout so councils can borrow more and narrow the infrastructure gap.

Ms Ryan says councils are also falling behind in maintaining vital stormwater infrastructure.

“Often councils can’t even afford to put the cameras down there to see what state they’re in. These things are already a significant issue,” Ms Ryan says.

She agrees that the impact of higher service levels and lower infrastructure investment will be variable but residents in the metro areas would probably notice less change under new councils than in regional areas, where people would be more likely to experience a negative impact.

Can service harmonisation save money?

NSW Premier Mike Baird has claimed council mergers will deliver $2 billion in over the next 20 years. The government has made a big song and dance about the cash that will be saved from integrating service delivery and procurement but how realistic are these claims?

Economies of scale are generally easier to achieve where there is capital intensity. Examples include water services (the driver behind the creation of Sydney Water), roads, bridges and buildings, particularly in metro areas.

Labour-intensive services, such as customer service and running community facilities, make such economies less achievable. They are also the most expensive services to deliver.

Add to that the fact that councils have been moving towards a more people-oriented service mix for a while, where they had previously specialised in services to property, partly to pick up the slack from other levels of government.

Ms Haskell says that councils are essentially a composite of many, heavily operational and people-centred services so savings may not be that easy to find.

She says: “It is evident that perhaps state government doesn’t understand this well.”

She contrast councils to banks, insurance companies and telcos who also run complex services with many customer and product transactions. They can drive economies of scale more easily because they have consistent products across multiple locations.

It may be difficult to find enough organisational synergies to reduce costs by integrating services, especially where there are complex areas of state legislation governing compliance, procedures and processes.

Ms Haskell says: “Let’s face it, even if councils do more shared services, joint service delivery or regional service delivery – something that is being encouraged to consider seriously with the implementation of the Joint Organisation framework coming into place – there are still some of the same physical and geographical constraints for some of the services councils run.

“There are still the same number of pools, parking or restaurant inspections, kilometres of coastline to manage, tourist inflow and traffic outflows, as well as number of dangerous dogs to catch – regardless of where you draw the boundary line!”

In fact, service harmonisation and council mergers could push council wage bills higher as service levels rise and a more complicated managerial structure is needed to supervise more staff.

But procurement could be an area where bigger savings are possible, although disentangling legacy systems such as payroll, rostering and finance could be an expensive business, especially under deadline pressures. Read more here.

The KPMG report to NSW government identified IT as a high-risk area for cost blowouts.

Prof Dollery argues that councils could gain more procurement advantages if there was a state procurement agency, as Local Government Association of Queensland, or through regional and joint organisations.

“You can’t be selective with amalgamations, you can’t select out specific functions. It’s all or nothing,” he says.

Rates

It will be four years until rates can begin to be harmonised as the NSW government has banned any new rate rises by merged councils during this time.

Interestingly, as services equalise across former council areas it will mean ratepayers could be paying different rates for the same service.

While this is already the case for some household bills, for example, utilities, rates tend to be more contentious and their differences more obvious.

Ms Ryan says that while this need not necessarily need to be a problem, it is important for councils to move towards rates harmonisation sooner rather than later.

Prof Dollery predicts an eventual, large rate hike under new councils once the moratorium on rate rises is removed.

“What it really means is that rates rise to the highest levels in councils and service levels do too.”

The pressure to increase rates will not just come from the likely rise in service levels, local government wages are expected to settle at the highest level too. Since wages make up more than one-third of their councils’ costs this is significant.

Larger councils will mean the creation of more senior roles and new managerial positions, raising the demand for skilled labour and inflating its cost as new councils compete for the best people.

While these new positions and higher wages open up opportunities for existing council staff it makes it harder for the NSW government to substantiate claims that council mergers will bring savings. However, ratepayers may be happy to pay higher rates for more and better services.

As opportunities open up, the pressures are converging upon councils.

Ms Ryan says: “The crunch has got to give somewhere. I just don’t know that there’s that many efficiency gains to be had.”