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Aus research says bigger not better in local government – will business leaders notice?

  • April 28th, 2016

Do mergers make for better councils? The evidence is against ‘bigger is better’ for local government“. That’s how The Conversation on 31 March summarised some unequivocal Australian research findings.

They confirm just how lucky Wellington region, Hawkes Bay and Northland were to dodge the amalgamation bullets prepared by the nobs of New Zealand local government, and recent Ministers. The Australian research is consistent with international evidence reviewed by economist Phil Barry of TDB Advisory before his advice confirmed for Hutt City Council that resisting amalgamation was in the interests of their city and ratepayers.

Of course that resistance attracted snobbish scoffing from the Wellington great and good. They’d planned a fait accompli. They feared that the Hutt bourgeoisie might not comprehend that rule by their betters in Wellington would be best for them. Fortunately, law changes to nobble voter resistance to amalgamation were poorly drafted. A poll could not be prevented. And as voters learned more, they stayed suspicious of what the nobs were telling them.

Astonishingly no authority who pushed for amalgamation has ever thought it necessary to respond to the research. No media “opinion leader” has pressed them to explain themselves. Our Local Government Commission has never thought to apologise to the public for peddling baseless claims. Nor has LGNZ demanded evidence based policy. Instead, with divided membership it has struggled to stay out of the debate.

Wellington “business leadership” organisations came out for amalgamation, with slogans, not analysis. Property Council branches around the country spent time and money pushing amalgamations as solutions to problems they never dissected.  I’m not sure why, but I  speculate that brown-nosing to bigness comes naturally to many in business.

The voter rejection of that takeover wave gives New Zealanders another opportunity to become aware of the evidence. As the Aussie researchers report:

“NSW experienced a sharp dose of forced mergers in 2004. Queenslanders underwent draconian council consolidation under the Beattie government in 2008.

NSW is now on the cusp of a further round of mergers being inflicted on unwilling councils.

In all three cases, the architects of compulsory amalgamation have been under the sway of the dogma that “bigger is better” in local government. Ratepayers are told amalgamation will herald a new dawn of lower rates, cheaper services, improved service quality, enhanced financial viability and superior administration and planning.

In NSW, the Baird government has especially emphasised the financial advantages of municipal amalgamation. These claims are typically presented as the outcome of careful research and deliberation.

In New Zealand there were similar claims but little pretence of research. Most  assertions had little more to them than the ‘rank’ of those who devised them. The Conversation’s report carries on:

Are these claims consistent with the empirical evidence? My colleagues Brian Bell and Joseph Drew and I investigated this question for NSW’s 2004 forced amalgamations.

We took advantage of being able to use 2014 data to compare the performance of merged councils with their unmerged counterparts over ten years.

We compared amalgamated “general purpose” councils with their un-amalgamated peer councils in the same local government classification. We thus had the benefit of a “natural experiment”, being able to compare the two groups of “like” councils against a common set of performance indicators.

Our peer-reviewed research paper will be published shortly.

The criteria we used for this comparison included four the Baird government is using under its “Fit for the Future” program – operating performance, own-source revenue, building and infrastructure renewal, and asset maintenance ratios – as well as council employees per capita.

We found no statistically significant differences in the performance of the two groups of councils against these criteria.”

No difference, and this does not take into account the transition risks, the extraordinary costs they often incur, the loss of local self determination and democratic accountability, losses in potential for local initiative and local experimentation and reduction in available seedbeds for emergence of local leadership.

But the researchers also:

“examined the outcomes of forced amalgamations in Queensland in 2008. These reduced the number of councils from 157 to just 73.

Our research demonstrated that this resulted in a greater proportion of councils exhibiting diseconomies of scale. That is, mergers created entities that were simply too large to be run efficiently.

Furthermore, of the 31 new councils the mergers created, 58% exhibit decreasing returns to scale. Comparing their efficiency through time, we found merged councils performed worse than unmerged councils.

This is more blunt than the Hutt’s TDB Advisory report to which the LGC failed to respond. But there is more. The 31 March report refers to other research that:

tested the claim that “bigger is better” by examining the financial performance of Australia’s largest council by population, Brisbane City. In our recently published analysis, we compared Brisbane City Council to Sydney City Council, the average of six southeast Queensland councils and the average of ten metropolitan NSW councils.

We did so using four measures of financial performance – financial flexibility, liquidity, debt service capacity and asset management. Between 2008 and 2011, the three comparator groups outperformed Brisbane Council in financial flexibility, liquidity and debt-servicing ability.

Taken together, these three papers cast doubt over the continuing dogma that “bigger is better”. They also add to the empirical literature on municipal mergers by demonstrating that “biggest is not best” either.

In particular, the financial performance of local authorities does not improve as advocates of amalgamation contend. On the contrary, amalgamated municipalities often perform worse than their unmerged counterparts.

…our findings underline the foolishness of making public policy in an “evidence-free” manner.

If forced amalgamations proceed, we may well see hundreds of millions of dollars in taxpayer and ratepayer funds squandered simply because policymakers preferred dogma to empirical evidence.”

The mayors of the Local Democracy Coalition beat the amalgamators. I’m proud of my firm’s work for them

But unfortunately the nobs are fighting back. A 44 page Cabinet Committee Paper obtained under the OIA treats voter rejections as mere  interruptions in the march to the sunny uplands of consolidation. It is just possible that cost benefit analysis was excised from the release copy, but there is no sign of a disciplined statement of assumptions, let alone questioning of them. There is no indication that evidence could be important. Instead the LGC which failed so abysmally in the last round is to get more authority, including to impose solutions.

Cabinet seems to be relying for more wisdom on recent changes of LGC Commissioners. So far, however, nothing from the new LGC shows more disciplined thinking. The Cabinet paper may not be theirs, but the LGC should have made unlikely such unpenetrating advice to Ministers. It should be educating us all.


  • mike moller
  • May 1st, 2016
  • 11:38 am

Thank you Stephen for bringing this research to my attention. As a 20 year Northland resident I was glad to see that our region had the good sense to throw the amalgamation proposition out.

It has struck me over the years that thew Local Government Commission has only ever produced the hoary old argument that merging will lower the costs.

As a participant and observer of many mergers both in the private and public sectors coupled with the perspective of career as a lifelong Information Systems professional I have seen the evidence all too often that bookkeeping savings are usually marginal or non-existent while the operational disruptions involved in large mergers are always hugely costly while their impacts on their most valuable staff resources are almost always catastrophic

  • Colin Askin
  • May 3rd, 2016
  • 4:04 pm

Good stuff Stephen this confirms what many have suspected for a long time big is mostly bad.

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