By Chris Johnson*

With council elections in NSW complete and submissions to a government review of the viability of local government submitted in September, now is the time to rethink the third tier of government.

Many councils seem to want to remain as they are, but research shows that up to half of NSW councils could be financially unsustainable.

The Urban Taskforce has developed a report on the reform of local government with former head of NSW Treasury, Percy Allan, that demonstrates significant concerns about financial viability, large backlogs of infrastructure and a worrying trend to increase operating expenditure five times more than capital expenditure.

Percy’s understanding of councils is significant as he undertook a detailed study of local government in NSW in 2006 and since then has examined the viability of nine separate councils.

Many organisations have suggested the answer to these financial concerns is to make councils bigger by forced amalgamations into super councils. Our research shows that bigger is not better with many examples of bigger councils actually increasing rates.

But there is a third way that keeps the local in local government while improving efficiency and this is through the use of shared service centres where 10 or so councils take a regional approach to service delivery. Over time, the services should be opened up to a private sector service delivery approach to ensure competitive tension is maintained.

The shared service centre is not new. Three of Australia’s biggest banks have a shared service centre to process cheques as do NSW Government departments for functions like information technology.

The best example of NSW councils using a shared service centre is Hunter Councils in the Hunter Valley where 11 councils share legal services, procurement, training and other services. Hunter Councils is run as a business, with the 11 councils represented on its board.

But we need to go further than Hunter Councils. Most planners from individual councils should be pooled into the shared service centre. They would provide a service back to individual councils’ independent assessment panels for projects below $10 million and to Joint Regional Planning Panels for projects over $10 million.

The planners would have more colleagues to discuss projects with and a better career structure. The grouping of 10 councils around a shared service centre begins to create a regional system without adding another layer of government.

It would seem sensible to align this grouping of councils with the area covered by a Joint Regional Planning Panel and that of the Regional Planning Boards proposed in the NSW planning Green Paper.

Many planning, infrastructure and economic development issues are in reality shared between state government and local government. The structure we are proposing enables this joint role to be serviced by a shared service centre at a regional scale.

The NSW state government needs to take a leadership role in managing many of the functions that local governments become involved in. Australian councils, when compared to councils around the world, are already bigger than most – but receive far less funds. Australian councils receive two per cent of GDP compared to eight per cent in the United States and 12 per cent in the United Kingdom and Europe.

Most of our councils are living beyond their means. The Percy Allan report sets out a structure and role for local government that keeps a local focus, supports regional decision making and improves financial viability.

While the Urban Taskforce report has focused on NSW councils, the issue is clearly a national one. In Queensland, the new government has encouraged the de-amalgamation of councils and 19 have responded. Australian politicians seem to have been influenced by the discussion around the Localism Act in the UK which appears to give more control back to the local level.

My reading of the Act, however, is that it is about connecting the local agenda more with national issues. The biggest concern local communities have is the impact of growth and change, particularly if it leads to increased densities. In Sydney, 64 per cent of people surveyed by the Productivity Commission were against growth and change. Yet it is the federal government’s immigration policies that impact on this growth.

The Australian system of government has created confusion by having a local government level that is underfunded and represents communities who are often against what they see the state government is delivering through planning policies and lack of infrastructure expenditure.

The Urban Taskforce report supports keeping councils as local place managers, but says to operate economically they need to network through clusters of 10 or so councils with a shared service centre – and through this same 10 council regional structure relate to the big picture planning and infrastructure issues that sit between state and local government responsibilities.

*Chris Johnson is the chief executive of Urban Taskforce Australia. The detailed Urban Taskforce Percy Allan Report is available at www.urbantaskforce.com.au