Final Report (Summary)

On 11 October 2000 Professor Kevin Sproats was appointed as Commissioner to conduct an Inquiry to the structure of local government in the areas of Botany Bay, Leichhardt, Marrickville, Randwick, South Sydney, Sydney, Waverley and Woollahra. The Inquiry concluded on 20 April 2001. Interest in the Inquiry was very high and the range and scope of issues raised extensive. Almost five hundred written submissions were received and eighty-nine oral presentations made.

Considerable emphasis was made of the special characteristics of this region globally and nationally. Its distinctive place in metropolitan Sydney was also acknowledged. One of the striking things demonstrated to this Inquiry was the strong identification peoplehad with the suburbs. Whether it had to do with community identity, property values, participation in local affairs, voluntary associations, it was clear that in the vast majority of cases this was at the level of the suburb not at the local government area. It is apparent many people identify with their local council only to the extent that it is the responsible local government authority in which their suburb is located.

The present boundary arrangements divide a number of suburbs, split between two or more councils. Early on in this Inquiry it became clear that any changes should at least maintain, if not strengthen, the integrity of the existing suburbs.

It is clear that councils in this region face additional pressures arising from their location. The effective population – people actually in the area at any one time – may be substantially larger than the resident population. These inner-city councils must also address problems of drugs and homelessness. Local interest and participation in governance is very active is some parts of this region.

Finding
Councils must look beyond physical and financial capital. Communities are more than good roads and drains, and balanced budgets. Councils must develop structures and polities to build better communities. For instance it is apparent that it is the culture of Leichhardt communities that has generated the council philosophy of participation rather than the other way around.

Local Government in this inner city area needs to become more outward looking whilst retaining its ability to be responsive and enhance a robust system of local democracy. The continuing reform of local government is obliged to facilitate enhanced social, economic, environmental, intellectual and political capital that enables adequate responses to existing and future issues. One of the issues to emerge from this Inquiry is the need for local government to understand between management plans that guide the organisation and strategic plans for the communities within the councils' jurisdiction.

Councils' abilities to think and act strategically need to be enhanced. The ability to take a wider perspective requires encouragement. Several submissions made the point that NSW legislation needs to mandate comprehensive strategic planning. Structures need to be propagated which lift the profile of strategic planning within local government. Strategic planning needs to be resourced so that it is driven both at the community and political level, achieves the necessary import from appropriate professional experts and is adequately funded over the long term.

Strategic planning requires councils to be outward looking, creative and responsive. It allows councils to produce better results for the communities they represent. Strategic priorities for the inner city area, the subject of the Inquiry, include:

• intergovernmental relations
• infrastructure management
• development of structures and ways of doing things which enhance local
• democracy
• environmental management
• traffic management
• affordable housing
• approaches to social problems such as homelessness and drug addition
• impacts of globalisation
• enhancement of the urban environment
• service delivery.

Local government's regulatory role in respect of the processing of development applications is often a contentious topic. This Inquiry demonstrated the widespread nature of concern. The processing of development applications is a fundamental local government task. Inconsistency of decision-making, particularly across borders, was raised. The community and elected councillors have a direct role to play as often decisions are a matter of judgement rather than science.

Finding
An emphasis by councils on the inclusive formulation of appropriate plans and development policies by the elected body that are clearly articulated to both residents and applicants would be a good starting point. The inference by a number of submissions was that larger, better resourced councils would be more capable of achieving that outcome.

Any restructuring of councils should facilitate the ability of elected representatives to focus to a greater extent on planning policy formulation and communication. Significant commercial areas or areas that have a high profile in respect of planning issues should ideally come under the umbrella of one local government authority. Councils need to be able to manage cross-border development issues in a consistent manner. In any event, individual councils need to examine innovative ways to deal with development applications in a transparent manner but which also frees up the time of elected representatives to focus more on planning policy development and clear articulation of those policies to the wider community.

Philosophical approaches tended to dominate the wider debate about service delivery. The advantages of big versus small, contracting out as compared to utilising council staff, and the need for efficiency rather than profit were all topics.

Finding
Councils' flexibility to pursue philosophies and approaches to service delivery and to determine priorities should be reinforced. Experimentation and innovation should be encouraged. Unrestricted current ratio is the performance measure considered to be the most pertinent in terms of a council's financial health. A ratio of less than 1:1 indicates that a council has liquidity problems and needs to take actions to improve the situation. All of the eight councils had ratios of better than 1:1 in the financial years of 1998/99 and 1999/00. In the short term, at least, they are viable. Long-term viability however, appears to be something of a mystery. When it came to discussing financial viability and resourcing the emphasis from all the councils was on revenue or the lack of it. There appeared to be an almost total absence of projected savings in expenditure to be made within the existing structures. Councils argue that expenditures have already been 'cut to the bone' but this is rarely substantiated. It appears that the most significant challenge to the viability of councils in the future relates to the cost of infrastructure, bringing assets up to satisfactory levels.

Finding
It is reasonable to conclude that a number of the councils are likely to be under some financial strain in the future due to the limited ability to raise revenue and the infrastructure requirements in respect of upgrading and maintenance. At the same time, councils are still expected to provide an increasingly broad range of services.

Councils and others submitted that the current government policy of rate pegging was creating significant problems for local government. The basic claim was made that rate pegging limits a council's revenue base. Not only does it limit a council's revenue base but the gap between costs and income increases because rate pegging has not even kept up with the Consumer Price Index (CPI). This situation is exacerbated by the fact that many fees and charges are prescribed in legislation so councils are further restricted in their revenue raising sources. The point was also made that even if rate pegging was lifted the current inequities between council areas would mean that rate increases would need to be so high as to be unacceptable in any event. The Independent Pricing and Regulatory
Tribunal examined rate pegging as part of its report on benchmarking local government performance in New South Wales, issued in April 1998. That tribunal concluded that a limit on rate increases was needed in the present circumstances in New South Wales. The Tribunal went on to recommend that the State Government should consider alternatives to the current rate pegging mechanism.

A number of submissions from organisations such as the City of Sydney, the Property Council and the Tourism Taskforce provided economic analysis which demonstrated that economies of scale could achieve substantial savings. The point is often made that there are efficiencies to be gained by increasing the size of councils. Methodologies used to demonstrate this can be debated endlessly and often are. The Independent Pricing and Regulatory Tribunal in its report on local government examined operating costs per capita for the then 177 New South Wales councils and concluded that whilst an analysis illustrated that operating costs per capita reduce with increasing size of councils, the evidence was suggestive rather than conclusive.

Finding
Even though conclusive evidence is not available it is considered that any reconfiguration or reshaping local government within the area covered by this Inquiry should create potential to achieve efficiencies, savings and facilitate the opportunity for councils to address the community concerns and requirements of the future. In the case of councils there is potential to reduce the cost of representation, senior staff and operational costs per service. The extent of any savings depends, nevertheless, upon philosophical approaches. The City of Sydney introduced the concept of "community dividend". A community dividend is basically the cost savings achieved due to economies of scale. The City of Sydney makes the point that these dividends should go to benefit the community through reduction of the level of rate increases and utilised to fund enhanced services and facilities. It is agreed that any financial benefits should flow on to the communities within the area of the Inquiry. External relations – i.e. relations across council boundaries, with State and Federal governments and with the private sector - were brought up in the majority of council submissions and other organisations. The nature of relationships was also an issue. The general consensus was that relationships needed to be partnerships rather than ones of supervision or blatant exercise of power. An underlying theme was the need for better coordination and cooperation. The need for coordination within the State Government itself was an issue raised. Intergovernmental cooperation and partnerships between the public and private sectors are perceived to be essential if the pursuit of successful strategies in dealing with issues such as infrastructure management, sustainability, affordable housing and appropriate transport systems are to be achieved.

Finding
The implication here is that larger councils would be more influential in terms of establishing partnership relationships as distinct from subservient ones. Any restructuring of local government in the Inner city area should have the objective of enhancing potential partnership relations. Ratios of councillors to electors, methods of election, division of councils into wards, and popular election of mayors and their powers, were all matters put to the Inquiry.

Finding
No information put before the Inquiry enables a definitive conclusion about the ideal number of councillors or the ideal representation ratio. What appears to be important is how opportunities are created which enhance democracy and allow the community to participate in information sharing and decision making. It would be appropriate that any recommended changes enhance the credibility of governance at the local government level. Leadership and the opportunities for community participation should be strengthened and recognise local communities of interest. At the same time the structure of elected representation should enhance councils' abilities to be more strategic and outwardly focused as these are critical requirements of future local government. It is clear that further examination is necessary into wards and popular election of mayors.

The areas: solutions offered
From the start boundaries dominated the public debate. This was fuelled partly by the
mayors and taken up in the media. Territorial claims and counterclaims were made. Some boundary disputes were very long standing between councils and between suburbs and their respective councils. The major solutions can be summarised as:

• Leave us alone...
  ... although if you are considering changes
• Larger councils
• Small (virtual) councils
• Seven options from Sydney City
• CBD models
• Bondi Junction
• The Ports.

Managing and restructuring
Perhaps the greatest challenge to reforming local government generally, and particularly in the instance of the inner city is to properly manage change. The immediacy of the Canada Bay experience was not helpful to the Inquiry. It did however demonstrate the need for strong leadership in the change process. The implementation process must be thought through properly and roles and responsibilities clarified during the implementation period. If change is to be implemented, the opportunity should be taken to learn from past experience and establish an implementation process that has credibility and integrity. Councils such as Leichhardt, South Sydney and Woollahra suggested that before any change occurs there should be the use of techniques such as citizens forums, plebiscites or referendums. Many of the individual submissions also suggested the use of plebiscites or referendums before any restructuring of local government occurs.

Finding
Although the use of referendums and plebiscites was raised it is not considered that they would advance the changes considered necessary for local government in the inner city region. Plebiscites and referendums are inherently conservative and often used to protect the status quo.

Recommendations:
Having evaluated the structure of local government in the region I have concluded that there is an opportunity to recast local government structures in the area as building blocks of stronger, more innovative and more democratic governance at this sub-state level. To do as I recommend could produce four beacon councils in this area and constitute a model for advancing reform. In my view much of the momentum for reform has been lost in the transfer from leadership by the State to a voluntary approach by local government. Experience of the last few years has shown that councils are unable to voluntarily advance the reform process in any substantial way. It is clear to me that a policy of "no forced amalgamations" is used too often as a pretext for inertia and self-interested preservation. It will remain inherently counterproductive to leave local government reform in the hands of councils. Advancing
local government reform in the directions envisaged here will be best facilitated by strong partnership between the State Government and the community. The State will need to take the initiative, at least in the initial stages.

Recommendation 1
To address the significant issues enunciated in this Inquiry the momentum for local government reform should be reactivated through a strong partnership between the State Government and the community. This Inquiry has demonstrated that communities of interest centre on suburbs. It is essential to provide structures that promote new, innovative approaches to local governance at that level. Suburbs can become the laboratories of concrete, innovative action and experimentation.

Recommendation 2
That the prominence of the suburb be recognised both for its expression of community identity and its potential as a unit for local democracy and place management. Any changes to local government in this region must strengthen the integrity of the suburbs.

Recommendation 3
That council strategic and management plans identify specific provision on for service delivery and governance in the suburbs within its jurisdiction. At the end of this Inquiry I have come to the firm judgement that local government structures in the area should be recast to provide fewer, better resourced, more strategically focussed councils. The very few voluntary attempts to date in NSW have involved simplistic amalgamations of two or more adjoining councils. But as this Inquiry has shown restructuring must be substantially broader thatn simply achieving scale. It has also highlighted the imperative of more strategically focused attention to the characteristics and aspirations of suburbs at one level and region at another level. A voluntary approach has proven to be not sophisticated enough to achieve this scale and scope of reform. Recasting is needed. In reaching this conclusion I have been conscious of the much quoted "no forced amalgamations" policy. I have already made the point that this is too often used to avoid confronting essential changes that should be made for the wellbeing of communities. Equally, a significant weakness in such a wholesale policy is its exploitation as a "one size fits all" blanket covering every situation. Such a policy should not be allowed to bind the State Government from ever implementing changes needed for the benefit of citizens. By selecting this region as the subject of Inquiry the State Government has rightly differentiated it from local government in general and demonstrated the strategic approach needed to achieve reform. This region is not typical of other regions of the state, the Inquiry has demonstrated unique characteristics and aspirations that are different and merit special considerations. It is my strong conclusion that the time has come that this
policy should be reviewed. At least it should be set-aside in this case.

Recommendation 4
That the structure of local government in this region be recast by creation of four new councils
Council No.1 - An enhanced City of Sydney
Council No. 2 - A mixed residential/industrial city
Council No. 3 - A beachside/harbourside residential city
Council No. 4 - An Inner West residential gateway city

Recommendation 5
Managing the change from eight to four councils could be achieved by:

• adopting the boundaries as delineated
• existing councils continuing to operate during transition period
• appointing an independent task force (three members plus departmental support) to set up structures and employ new general managers
• work with new general managers to reallocate assets, establish staff structures and appoint staff to new councils
• holding elections for new councils as soon as possible

Central to the findings and recommendations of this Inquiry is the need for structures to
drive more multi-layered governance in the region, councils and suburbs. Regional Forums of Mayors operate in many regions as mechanisms for the political leadership needed. They are different from ROC's and I see little prospect that the ROC's could evolve into this role. These are forums of the local government political leaders, the mayors, meeting in concert.

Recommendation 6
That the Department of Local Government examines appropriate mechanisms – including a Regional Forum of Mayors - for inter-governmental relationships at both the local and State level, regional leadership, strategic planning, and delivery of region-wide services. Despite the entreaties to recommend that rate pegging be abandoned, based on the investigations undertaken by the Inquiry team I find no reason to do so.

Recommendation 7
That rate pegging be maintained but that:

• the formula for determining the level of pegging be reviewed in line with the Independent Pricing Tribunal's recommendations
• consideration be given to extending the criteria for general rate pegging.

The degree of rate pegging to be applied to the ensuing year be made available to councils prior to formulation of their draft management plans.

A number of issues have been raised in this Inquiry both at the macro and micro levels that have not been specifically dealt with in the recommendations. Examples of specific issues raised include:

• the role of elected representatives
• infrastructure provision and maintenance
• long term financial planning
• effective elected bodies (e.g. number of councillors)
• wards
• popularly elected (mayors)
• the need for restructuring local government in other parts of the State.

Consistent with Recommendation 1 the Department of Local Government should devise and implement a program of ongoing reform.

Recommendation 8
That the Department of Local Government formulate and communicate to the community a program of ongoing reform which will be pursued in a consultative and transparent manner.

Alternatives to Recommendation 4
I stress that a full recasting of councils (Recommendation 4) is my preferred option. If this is not acceptable because of the current policy, the following boundary adjustments could be initiated. I regard these adjustments as a minimalist approach.

Sydney CBD
A minimal expansion to the east could include Darlinghurst/Kings Cross, Woolloomooloo, Potts Point, Rushcutters Bay, and Elizabeth Bay. This is in effect that part of South Sydney City north of Campbell, Flinders and Oxford Streets. Expansion to the west could include Glebe and Forest Lodge.

Bondi Junction
On balance I have come down on the side of a boundary adjustment such that Bondi Junction would fall entirely within Waverley Council.

Port Botany and Sydney Airport
The boundaries between Randwick and Botany Bay councils should be adjusted such that all of Port Botany would be within Randwick City Council..The boundaries between Botany Bay, Rockdale and Marrickville Councils should be examined in consultation with the Sydney Airport Corporation to determine the extent and location of any boundary adjustments.