Almost two-thirds of NSW councils have been declared “not fit” by an Independent Pricing and Regulatory Tribunal (IPART) report released today and again forcefully pressed to merge by NSW Premier Mike Baird under the government’s Fit for the Future campaign.

IPART received 139 proposals from 144 councils – which included only four merger proposals – but rejected 87 of them as being ‘not fit’, mostly because the Tribunal said they failed the scale and capacity test.

The situation was even more extreme in metropolitan Sydney, with IPART labelling 71 per cent of councils ‘not fit’ while 56 per cent of regional councils were slapped with the same verdict.

The criteria used to judge council’s fitness were: scale and capacity and various financial criteria including financial sustainability, infrastructure and service management and efficiency.

But it appears ‘scale and capacity’ was the driving force behind IPART’s recommendations to the government, not financial stability.

IPART failed around 43 per cent of the state’s councils for not having the ‘scale and capacity’, i.e. the population, despite the fact it considered them financially sound.

In metropolitan Sydney this figure rose to 92 per cent. Only three of the 36 Sydney Metro councils that submitted a council improvement plan to stand alone were knocked back because they did not meet the financial criteria.

The report said: “In general most Metropolitan Sydney councils demonstrated their current and forecast financial performance was relatively strong.”

Even money bags glamour council the City of Sydney was declared “not fit” when judged under Global City Council criteria – the only council that was – because, despite being financially buoyant, did not have sufficient scale and capacity under this higher benchmark.

To achieve this benchmark, City of Sydney would need to merge with Waverley, Randwick, Woollahra, Botany Bay Councils, said the IPART report.

However, the report said the government could chose not to apply this criteria and the council could instead stand alone under the lower Fit for the Future benchmarks.

Asked why councils that were considered financially stable in the IPART report should still consider merging Mr Baird said: “There’s a massive opportunity cost if they keep going the way they are. We obviously need fewer councils … I’m not going to put a number on it but it’s very clear.”

The mixed messages appeared to continue in the IPART report with many councils criticised for using special rate variations to bolster their business cases to stand alone while the “poor financial position” of Blue Mountains and Woollondilly Councils was ignored (and they were left to stand alone) by the tribunal because they might achieve future stability using rate rises.

The report said: “In the case of Blue Mountains and Woollondilly Shire Council, whilst their current financial performance is poor, their projected financial performance shows significant improvement. This is due primarily to recently approved large special rate variations.”

Blue Mountains City Council has had a special rate variation approved of 40.3 per cent over three years – 28.5 per cent above the rate peg – and recommended that it could stay solo.

Woollondilly Shire Council has an approved special rate variation of 50.7 per cent, cumulatively over four years – 39 per cent over the rate peg. IPART did not consider that either council could meet its infrastructure backlog.

Councils have 30 days to submit their responses to the report but Mr Baird was at pains to ram home that councils would not wriggle out of amalgamation so easily.

“Four years of independent research, analysis and NSW Government consultation with councils and the community has shown that the current system of local government is not working as well as it should be,” Mr Baird said.

“With 60 per cent of councils not fit for the future, this IPART report shows the situation is now critical and that action is needed to ensure ratepayers get value for money and the services and infrastructure they deserve.

“For many councils this is a final opportunity to do the right thing for the future of their communities, which in many cases may include merging with neighbouring councils.”

He said he was disappointed in the responses from councils.

“I think we have come to the end of the road. We’re asking councils to respond within the next 30 days in an approach that says they are putting ratepayers’ interests first. We believe that they can do much better,” Mr Baird said.

“We want to say to councillors in this state: ‘it’s time we put the ratepayers first. That’s what this process was about.”

Meanwhile the government is throwing everything it can to get councils to merge including: cheap, long-term TCorp loans, up to $10 million per council to fund mergers and up to $15 million for each new councils to splash out on community infrastructure in a new Stronger Communities Fund.

The government has claimed that mergers will save $2 billion over the next twenty years among Sydney councils alone, along with other merger benefits touted including: better service delivery, stronger economic growth, more strategic planning and service delivery, more effective partnerships with government and stronger advocacy for local communities.

The Premier accused some councils of suppressing the studies they had commissioned on the business case for or against mergers and refusing to release positive, pro-merger findings.

Mergers remain a deeply unpalatable option amongst most councils and ratepayers.

Of the 144 councils that submitted Fit for the Future applications – the eight Far Western Councils did not have to – only four proposals (involving nine councils) included plans for a merger. The remainder were ‘council improvement proposals’, where councils opted to stand alone or they were rural council proposals.

The two Sydney metro merger proposals received were for Randwick City and Waverley and a merger between Auburn City, Burwood and the City of Canada Bay.

The other two mergers proposed by NSW councils were between Young Shire Council and Boorowa Council (and Harden Shire Council but without its agreement) and amalgamating Cootamundra Shire Council and Harden Shire Council.

Many councils commissioned community consultation and opposition to mergers ran high among respondents, generally at above 80 per cent against or more.

Labor, the Greens, the Christian Democrats and the Shooters and Fishers Party have all vowed to block forced mergers in the Upper House but Government News understands that the premier could avoid this situation with some fancy footwork.

In June this year, Government News asked Professor Graham Sansom, who chaired the Independent Local Government Review Panel’s initial October 2013 report on council reorganisation, whether forced mergers could be blocked by the Upper House and he replied:

“No, under the current Act the Minister can ultimately do what he likes, although he has to go through a fairly complex process to get there.”

One option Mr Baird could take is to reconvene the Boundaries Commission. More on this here.