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Proposed amalgamation of Kiama Municipal and Shoalhaven City councils


Shoalhaven City council was found by IPART to be financially strong and sustainable as a stand-alone council, and it's population size made it 'fit for the future.' Kiama Municipal Council's infrastructure and service management was found to be financially satisfactory.

Kiama was declared as meeting the Scale and Capacity requirements. But it was declared Not Fit because it did not satisfy the "sustainability and efficiency" components of the financial assessment.

As a non- metropolitan council, Kiama should have been given the opportunity to resubmit financial data (a standard that was applied elsewhere), but instead Kiama was required to consider an amalgamation proposal . Since then, the council has corrected the depreciation rate that was applied, as it was far too high in comparison with other councils. The revised financials show Kiama as FIT, yet the opportunity to present this information has not been provided.

The government claims a forced amalgamation would see a total financial benefit of $53 million over a 20 year period. This includes a $15 million grant from the NSW government, which artificially inflates the so-called benefit and is paid for by the taxpayer. The ‘saving’ component is $38 million represents 1.43% of the combined resources of the councils, a saving comprised almost entirely of a reduction in their combined workforce. This means it would be paid for almost entirely through job cuts to council staff.

The government has chosen to release only selected extracts and a high level summary from the study undertaken by its consultants, KPMG to support these alleged savings. It is impossible for the community to make a full submission on the government's financial case for amalgamation without having access to the complete study for each and every council. What is apparent from the publicly information about the KPMG study is that it:

+ inflates any potential savings from future contracting arrangements in amalgamated councils, especially given the councils already enter into many contracts through Regional Organisation of Council contract tenders when there are identifiable economies of scale from doing so

+ assumes large staff losses in the merged council that will inevitably impact on local services an the local economy

+ grossly underestimates the likely costs to councils from renewing each council's IT infrastructure following the merger

+ fails to consider the very real costs the council and local community will incur with a less responsive and larger council that has less intimate knowledge of local needs

+ ignores the large loss of council staff time and resources in implementing an unwelcome and often unsupported amalgamated council, and

+ has no regard to the informed academic opinions based on detailed empirical studies of past council mergers that proves forced amalgamations typically fail to generate financial sustainability for local councils.

The merger proposal mentions vague savings such as “efficiencies generated through increased purchasing power of materials and contracts.” However, there is no further detail given on the basis by which such assumptions were formed. For example, such savings seem less likely given that Kiama Municipal Council and Shoalhaven City Council have already been collaborating in a number of ways, including through sharing contracts for materials and trade services (as reported in their IPART submissions). Indeed, all Illawarra Councils - that includes Shoalhaven, already participate in the Illawarra Pilot Joint Organisation (IPJO), which achieves precisely this benefit anyway. 

More Detailed Financial Material Relevant to Each Council

The following analysis is based on the proposal released by the government in December 2015. The government has since removed its proposal and replaced it with a proposal containing the correct figures. Since the Government has not released its financial modelling, it is impossible to verify whether the proposal is sound. We suspect that the numbers in the original proposal were the numbers that were used for the financial modelling.  

The Government's merger proposal contains numerous financial errors. At page 7 of the merger proposal it claims that the 2013/14 operating revenue of Kiama Municipal Council was $46.8 million, though its LTFP projected $48.1 million and its actual results disclose operating revenue of $51.6 million in FY 2013/14and $52.8 million in 2013. The government cites KPMG analysis, with no further avenue to verify the data.

Similarly, the proposal often mentions vague savings such as “efficiencies generated through increased purchasing power of materials and contracts.” However, there is no further elucidation of the basis on which such assumptions were formed. For example, such savings seem less likely given that Kiama Municipal Council and Shoalhaven City Council have already been collaborating in a number of ways, including through sharing contracts for materials and trade services (as reported in their IPART submissions).

Relevant to the proposal is IPART's finding regarding Kiama that “our analysis has not identified evidence for a better alternative to the council’s proposal to stand alone.” Kiama’s operating performance ratio, which is outside the government's suggested range, arises from a commitment to such capital projects as the $62 million Centre of Excellence in Aged Care. Relevantly IPART has noted that “lower returns on capital are appropriate for councils pursuing social or other objectives supported by the local community.”