A study into the possible merger of three inner-west Sydney councils highlights significant risks and benefits to NSW councils as the deadline for merger proposals draws nearer, on November 18.

The Morrison Low report, commissioned by Marrickville Council and published in November, explores the business case for a possible merger between the inner Sydney councils of Marrickville, Leichhardt and Ashfield and compares them on a range of indicators including their debt, financial performance, strategic direction, councillor representation, staffing levels and rates.

Marrickville Council meets tomorrow night (Tuesday)  to consider the merits of submitting a merger proposal or continuing to defy the government’s merger demands and missing out on cash and cheap loans.

The Morrison Low report states that a merger of the three councils would reap $75 million in savings over ten years – or $2.5 million per council per year – but Marrickville Council’s General Manager Brian Barrett argues that these savings may never eventuate because around $101 million represents staff cuts, which a new council may not have the stomach to pursue.

The report identifies three main risks of a council merger: difficulty realising the benefits of a merger, managing the transition to a single council and clashing community interests within a newly-formed council area.

The savings identified in the report also include $10 million in state government handouts per new council to encourage amalgamations.

Mr Barrett – who is careful to advocate neither for nor against a merger for Marrickville Council – is concerned that the projected savings may be difficult to achieve if the new council does not effect a reduction in staff.

The three councils currently have 1150 full-time equivalent staff between them.

“I think the biggest risk is you’re talking about a reduction of 200 staff in order to reach the sort of savings that the government is talking about,” he says. “It’s one thing to knock off a few GMs and directors; it’s another to reduce actual staffing levels. You’ve got to have a fair bit of political will to do that.

“I think that the greatest risk is that the savings will not materialise or they won’t materialise as fast as assumed in the report.”

The report seems to reinforce his case: “Perhaps the largest risk arises from the fact that the future council who will make many of these key decisions is yet to be elected,” it says. “Its political alignment, policy program and priorities will not be known for some time and may impact on the realisation of planned benefits.”

Mr Barrett points to Queensland and Auckland council mergers, where he says service levels, staff numbers and wages have risen to the highest level among merging councils.

Senior staff were also likely to be paid more as they had more staff reports.

“The experience of most councils that have gone through mergers is that councils have operated by increasing service levels, rather than reducing them, and savings haven’t materialised,” Mr Barrett says.

The report warns that “organisational inertia” could delay the realisation of merger benefits and that new councils created during the Queensland mergers “were reluctant to commit the incoming council so decisions were often taken with a short term view or deferred if possible” during the transition.

Another problem for councils could be funding the transition process up front. The study on a possible merger between the three councils identifies $35 million in costs of transitioning to a single IT system in the first three years, though much of this is recouped in savings by year 10.

A further $6.4 million will be needed in the first three years to establish a transition body to smooth the passage of a merger and to cover redundancies and rebranding.

“The difficulty in any of these numbers games that Morrison Low and Ernst & Young bandy about is that it is premised on being able to fund the upfront costs of the transition,” Mr Barrett says.

“Both reports plan $40 million [in merger costs] over three councils. We’ve got to fund about $40 million in the first three years and we’ll have $10 million cash up front.”

Extra government assistance, whether it was more money to merge or interest-free loans will be critical, he says.

The Baird government has offered new councils up to $10 million towards merger costs and between $10 and $15 million for community infrastructure but this funding is reserved only for councils that agree to merge before next week’s deadline. They can also access cheap TCorp loans.

But Mr Barrett says he has “no doubt” that procurement savings can be achieved via the extra purchasing power of a larger council, although some of these economies of scale could be accessed under regional organisations.

As well, the study identifies that the three local government areas have “many similarities” such as household wealth, dependence on the City of Sydney for employment and leisure and demographic and employment profiles.

“There’s no question that it [a merger] has the potential to result in a community benefit,” Mr Barrett says. “Whether that community benefit is actually savings in operating costs or increased services, I don’t think it’s a complete furphy to suggest that’s not a potential outcome.

“What I want to premise it on is that every report has the disclaimer that we have actually got to have the political will to do the hard things,” he says. “A new council and a new community may have some difficulty making these hard decisions.”

Aside from financial arguments over whether to merge or not, many councils have voiced concerns that mergers will weaken local democracy.

A new council resulting from a merger of the three inner-west councils would have a population of around 183,964 and 13 councillors – with each councillor representing around 14,150 people. It will necessarily increase the burden on councillors, most of whom have other jobs and are entitled only to modest councillor allowances.

The report says: “One of the biggest negative impacts from a merger of the councils is on representation. The number of people represented by each council is likely to increase significantly under a merger making it more difficult for residents to access their councillors and the council.”

It says measures –including local or community boards – could be introduced to address this but adds: “Additionally and importantly the modelling does not include the costs associated with that.”

For example, Auckland Council has 21 local boards that provide local input into council services, strategies and policies as well as making decisions about non-regulatory local matters such as parks, pools and libraries and linking with local community groups.

Mr Barrett says that representation is the biggest issue for local politics, “that loss of local voice.”

“The government is intent on going ahead with this, notwithstanding the fact that the local community – whether rightly or wrongly – has said they like it the way. It appears to be intent on ignoring local councils and one can only ask why?”

The Independent Pricing and Regulatory Tribunal Report (IPART) declared Ashfield, Leichhardt and Marrickville were “not fit for the future” in its assessment because they lacked “scale and capacity”. However, the three councils satisfied financial benchmarks.

The 2013 Independent Local Government Report recommended a six-council merger, along with Burwood, Canada Bay and Strathfield or that they form a Strong Joint Organisation.

The deadline for merger proposals is November 18 but the government has been silent on the consequences for those councils who refuse to comply. One suggestion is that councils could be sacked and administrators appointed.