Michael A. Kortt

Did the Big Stick Work? An Empirical Assessment of Scale Economies and the Queensland Forced Amalgamation Program

Abstract In 2007, the Queensland Government imposed forced amalgamation with the number of local authorities falling from 157 to just 73 councils. Amalgamation was based inter alia on the assumption that increased economies of scale would generate savings. This paper empirically examines pre- and post-amalgamation (2006/07 and 2009/10) for scale economies. For the 2006/07 data, evidence of economies of scale was found for councils with populations up to 98,000, and thereafter diseconomies of scale. Eight percent of councils in 2006/07 (ten councils) – representing 64% of the state’s population – exhibited diseconomies of scale. For the 2009/10 data, the average cost curve remained almost stationary at 99,000 residents per council, but almost 25% of all councils (thirteen councils) were now found to exhibit diseconomies of scale. The compulsory merger program thus increased the proportion of Queensland residents in councils operating with diseconomies of scale to 84%.

Economies of Scale and Local Government Expenditure Evidence From Australia

Controversy surrounds structural reform in local government, especially efforts aimed at involuntarily reducing the number of local authorities to secure scale economies. We examined whether scale economies exist in local government outlays by analyzing the expenditure of 152 New South Wales councils. Initially, council expenditure is characterized by scale economies. However, given the correlation between population and population density, it is important to determine whether the influence of population on expenditure is due to variations in population density. When areas are decomposed into subgroups on the basis of density, the evidence of scale economies largely disappears.

A Cautionary Tale: Council Amalgamation in Tasmania and the Deloitte Access Economics Report

Contemporary Australian public policy has come to rely increasingly on technical reports produced by commercial consultants in contrast to the traditional approach, which employed disinterested public servants to generate the specialist information required to inform decision makers. This approach is fraught with problems, not least the fact that ‘hired guns’ have strong incentives to create the ‘answers’ sought by their employers. By way of a ‘cautionary tale’, this paper examines the empirical evidence adduced in favour of radical amalgamation of Tasmanian local authorities in Local Government Structural Reform in Tasmania, produced by Deloitte Access Economics (DAE) (2011), and commissioned by the Property Council of Tasmania. In particular, the paper provides a critical analysis of the econometric modelling undertaken in the DAE (2011) Report. We find that if the DAE model is re-estimated – employing alternative functional forms – then the empirical evidence in support of Tasmania council merges evaporates.

No Aladdin’s Cave in New South Wales? Local Government Amalgamation, Scale Economies, and Data Envelopment Analysis Specification

Local government structural reform programs are often based on the purported benefits of increased scale. We examine this question in relation to the proposed amalgamation program for New South Wales (NSW) by the NSW Independent Local Government Review Panel using Data Envelopment Analysis (DEA). We find evidence that a significant proportion of municipalities scheduled for amalgamation already exceed optimal scale and that the great majority of “amalgamated” entities will initially exhibit decreasing returns to scale. Our findings thus stand in stark contrast to the Independent Local Government Review Panel (ILGRP) contention that municipal mergers are the optimal approach to capturing economies of scale in NSW local government.

A Normative Model for Local Government De-Amalgamation in Australia

Ongoing local community dissatisfaction in some newly amalgamated local government areas resulting from the 2007 Queensland forced amalgamation program has raised the prospect of de-merger in that state. One catalyst has been the Oppositions commitment to de-amalgamation should it acquire government. Apart from some descriptive discussion of actual de-amalgamation episodes, almost no prescriptive analysis exists on the optimal form any de-merger process may take. Using two documented cases of de-amalgamation in metropolitan and regional settings, this exploratory paper seeks to address this gap in the literature on local government by presenting a ‘stylised’ approach to de-amalgamation designed for Australian local government conditions built around five generic principles.

Determining the optimal size of local government: the case of Tasmanian councils

We estimated the optimal size of the most significant functions performed by Tasmanian councils between 1999 and 2008 using a non-parametric technique based on the shared input data envelopment analysis model. The principal advantage of this technique is that it not only provides an overall estimate of efficiency but it also allows for the estimation of ‘partial efficiencies’ and ‘cost shares’ when one input is shared among multiple outputs. Our results indicate that water supply and sewerage services, on average, were more efficient, whereas activities related to community health and safety and information systems warrant improvement. However, because the costs associated with water supply and sewerage services are considerably higher than the costs related to community health and safety and information systems, the elimination of these inefficiencies would result in greater cost savings for the Tasmanian local government sector.

Religion and BMI in Australia

We estimated the relationship between religion and body mass index (BMI) for a general and representative sample of the Australia population. Data from the Household Income Labour Dynamics survey were analysed for 9,408 adults aged 18 and older. OLS regression analyses revealed that religious denomination was significantly related to higher BMI, after controlling for socio-demographic, health behaviours, and psychosocial variables. ‘Baptist’ men had, on average, a 1.3 higher BMI compared to those reporting no religious affiliation. Among women, ‘Non-Christians’ had, on average, a 1 unit lower BMI compared to those reporting no religious affiliation while ‘Other Christian’ women reported, on average, a 1 unit higher BMI. Our results also indicate that there was a negative relationship between religious importance and BMI among Australian women.

Can't Get No Satisfaction? The Association Between Community Satisfaction and Population Size for Victoria

Traditionally, the problem of determining the optimal size in local government has been empirically assessed by estimating the relationship between population size and the costs of services (usually measured in terms of per capita expenditure). These studies, however, have proved largely inconclusive. In comparison, an empirical analysis based on the relationship between the size of government and community satisfaction offers a potentially fruitful contribution to the debate regarding the optimal size of local government. However, to date, few studies have followed this approach. We therefore contribute to this literature by exploring the relationship between population size and community satisfaction for Victorian councils. Our findings provide evidence of an inverted ‘U-shaped’ relationship, which predicts low community satisfaction at very large and very small population sizes.

De-amalgamation in Action: The Queensland experience

Abstract While a substantial theoretical and empirical literature has examined compulsory local government consolidation, little is known about de-amalgamation after forced mergers. Following the controversial 2008 Queensland local government amalgamation programme, which saw a radical reduction in the number of local councils, four forcibly merged councils have finally begun to de-amalgamate following successful plebiscites. This paper traces the extraordinary Queensland de-amalgamation process from its inception and attempts to place it in a broader conceptual framework. The paper provides a critical assessment of Queensland de-amalgamation policy development and implementation and seeks to draw broader public policy lessons for structural reform in local government.

Is there a case for mandating directly elected mayors in Australian local government? Lessons from the 2012 Queensland local government elections

A ‘semi-executive’ model for Australian mayors, inclusive of direct election, is presently being explored in the Australian local sector (see, in particular, Sansom, 2012). This paper takes advantage of the differences across Australias federation to examine the recent experience of directly elected mayors in Queensland, especially the results of local government elections held in 2012. It is argued that several factors contributed to the high turnover rates of both mayors and councillors, including the 2012 Queensland state election and the 2008 amalgamation process. However, the requirement for directly elected mayors was an important factor contributing to what the Local Government Association of Queensland (LGAQ, 2012, 12) described as a ‘significantly high’ proportion of ‘corporate knowledge’ being lost. Moreover, the direct election of mayors, in particular those charged with ‘semi-executive’ authority, is fraught with problems and thus should not to be implemented in all Australian local government systems.