Greater Hobart: Local Government Reform Final Feasibility Report Clarence City, Glenorchy City, Hobart City & Kingborough Councils January 2017 SGS Final Report_Feasibility Study Greater Hobart 300117 This report has been prepared for Clarence City, Glenorchy City, Hobart City & Kingborough Councils. SGS Economics and Planning has taken all due care in the preparation of this report. However, SGS and its associated consultants are not liable to any person or entity for any damage or loss that has occurred, or may occur, in relation to that person or entity taking or not taking action in respect of any representation, statement, opinion or advice referred to herein. SGS Economics and Planning Pty Ltd ACN 007 437 729 www.sgsep.com.au Offices in Canberra, Hobart, Melbourne and Sydney SGS Final Report_Feasibility Study Greater Hobart 300117 TABLE OF CONTENTS EXECUTIVE SUMMARY I 1 INTRODUCTION I 2 THE CASE FOR CHANGE 1 2.1 Why reform and how? 1 Objectives of local government reform 1 Greater Hobart as a City Region 1 2.2 Serving communities of interest 5 Communities of interest 5 Common priorities & Council services 8 2.3 The reform options 9 Option 1. Business as Usual – stand-alone councils 10 Option 2. Amalgamation of Clarence, Glenorchy, Hobart and Kingborough 10 Option 3. Strategic Alliance between Clarence, Glenorchy, Hobart and Kingborough 11 Option 4. Amalgamation of Clarence, Glenorchy and Hobart 12 Option 5. Amalgamation of Glenorchy and Hobart 13 3 OPTIONS EVALUATION 15 3.1 Financial feasibility analysis 15 Financial costs and savings of the merger options 15 Financial costs Option 3 – Strategic Alliance. 22 3.2 Financial analysis results 23 10 Year Timeframe 23 Sustainability indicators 24 Sensitivity testing 24 Implications of the financial analysis 25 3.3 Wider cost benefit analysis 25 Expected improvements in metropolitan outcomes 25 Calibration of expected improvements in metropolitan outcomes 25 Incremental impacts (wider costs and benefits) 26 Quantification assumptions 27 Quantification techniques & data inputs 29 Performance results 29 Combining improved metropolitan outcomes with the financial feasibility analysis 30 4 RISK ANALYSIS 35 4.1 Risk register 35 Raw risk 36 Residual risk 38 4.2 Conclusions 39 5 TRANSITIONAL ARRANGEMENTS 41 Greater Hobart: Local Government Reform 5.1 Introduction 41 5.2 Transition towards mergers 41 Planning 41 Communication and engagement 43 Organisational culture and performance 44 Leadership 44 5.3 Transition towards a strategic alliance 44 6 APPENDICES 47 6.1 Appendix – Long list of reform options 48 6.2 Appendix –Council strategic priorities 49 6.3 Appendix – Financial Feasibility Analysis Morrison Low 50 6.4 Appendix – Assumptions and Calculations Wider Costs and Benefits 51 Accommodation resources 51 Infrastructure costs 52 Transport functionality 53 Health benefits of active transport 54 Environmental performance 55 Agglomeration economies 56 Tourist yield improvements 57 6.5 Appendix – Risk register 58 Greater Hobart: Local Government Reform LIST OF FIGURES FIGURE 1 SOCIO-ECONOMIC SCORES FOR LOCAL GOVERNMENT AND STATISTICAL AREAS (SA2) IN GREATER HOBART 6 FIGURE 2 FUNCTIONAL CONNECTIVITY OF GEOGRAPHIC AR EAS WITH HOBART LGA 8 FIGURE 3 POPULATION GROWTH DISTRIBUTION BY LGA TO 2037 28 FIGURE 4 JOBS GROWTH DISTRIBUTION BY LGA TO 2037 28 FIGURE 5 ANNUAL BENEFITS OF REFORM OPTIONS (2018-37) 32 LIST OF TABLES TABLE 1 OPTIONS FOR REFORM – KEY ASSUMPTIONS II TABLE 2 FINANCIAL AND WIDER COST BENEFIT MODELLI NG RESULTS, 20 YEAR TIMEFRAME III TABLE 3 FINANCIAL FEASIBILITY MODELLING RESULTS, NET PRESENT VALUES (NPV), 10 AND 20 YEAR TIMEF RAME IV TABLE 4 MERGER OPTIONS PERFORMANCE AGAINST SUSTAINABILITY INDICATORS V TABLE 5 WIDER COST BENEFIT M ODELLING RESULTS (20 YEAR ANALYSIS) V TABLE 6 THE REFORM OPTIONS AGAINST THE KEY PRINCIPLES VI TABLE 7 PROJECTED POPULATION GROWTH RATES FOR THE FOUR LGAS 7 TABLE 8 COSTS AND SAVINGS GOVERNANCE AND EXECUTI VE TEAM 16 TABLE 9 COSTS AND SAVINGS GOVERNANCE 16 TABLE 10 COSTS AND SAVINGS EXECUTIVE MANAGEMENT 17 TABLE 11 COSTS AND SAVINGS CO RPORATE SERVICES 18 TABLE 12 COSTS AND BENEFITS RATIONALISATION OF DUPLICATE SERVICES 19 TABLE 13 EFFICIENCY SAVINGS 19 TABLE 14 STAFF TURNOVER 20 TABLE 15 ICT BENEFITS 20 TABLE 16 MATERIAL AND CONTRACT SAVINGS 21 TABLE 17 PROPERTY SAVINGS 21 TABLE 18 WORK UNITS STAFF SAVINGS 21 TABLE 19 PLANT AND FLEET SAVINGS – ONE OFF 22 TABLE 20 TRANSITION COSTS 22 TABLE 21 FINANCIAL IMPACTS BY LINE ITEM, TEN YEAR TIMEFRAME 23 TABLE 22 MERGER OPTIONS PERFORMANCE AGAINST SUSTAINABILITY INDICATORS 24 TABLE 23 OPTION TESTING TO DIFFERENT SCENARIOS PO ST MERGERS 25 TABLE 24 IMPROVED METROPOLITAN OUTCOMES GENERATED BY REFORM 25 TABLE 25 CALIBRATION OF IMPROVED METROPOLITAN OUTCOMES BY REFORM OPTION 26 TABLE 26 MODELLING ASSUMPTIONS 27 TABLE 27 IMPACT QUANTIFICATIO N TECHNIQUES & DATA 29 TABLE 28 WIDER COST BENEFIT ANALYSIS MODELLING RESULTS, SHORTER TERM TIMEFRAME (10 YEARS) 30 TABLE 29 COMBINED FINANCIAL A ND WIDER COST BENEFI T RESULTS, 20 YEAR TIMEFRAME 31 Greater Hobart: Local Government Reform TABLE 30 COMBINED FINANCIAL A ND WIDER COST BENEFI T RESULTS, SHORTER 10 YEAR TIMEFRAME 31 TABLE 31 RAW RISK SCORE MATRIX: LIKELIHOOD AND IMPACT 36 TABLE 32 RAW RISKS FOR LOCAL GOVERNMENT REFORM OPTIONS 36 TABLE 33 RESIDUAL RISKS OF LO CAL GOVERNMENT REFORM OPTIONS 38 TABLE 34 TYPICAL OBJECTIVES AND TASKS FOR TRANSITION TO A MERGED ENTI TY 42 TABLE 35 OPTIONS FOR REFORM 48 TABLE 36 SUMMARY AND COMPARISON OF COUNCIL STRATEGIC PRIORITIES 49 TABLE 37 TOTAL SURPLUS FROM DWELLING CONSUMPTION UNDER OPTION 2 MERGER OF FOUR COUNCILS (PV$ MILLIONS) 52 TABLE 38 INFILL INFRASTRUCTURE COST SAVINGS 52 TABLE 39 DAILY CAR TRIPS 2037 53 TABLE 40 TRANSPORT FUNCTIONALITY ASSUMPTIONS 54 TABLE 41 DAILY TRIPS BY TRANSPORT MODE 2037 54 TABLE 42 GROSS VALUE ADD UPLI FT BY INDUSTRY GROUP - OPTION 2 56 TABLE 43 TOURISM YIELD VALUE OF ASSUMPTIONS 57 Greater Hobart: Local Government Reform EXECUTIVE SUMMARY Introduction The four Greater Hobart councils – Clarence City, Glenorchy City, Hobart City and Kingborough Councils – have agreed to explore the merits or otherwise of local government reform. Local government reform can involve various forms of collaboration, mergers and/or boundary adjustments. Such reforms have historically sought to achieve: Operational efficiency savings and/ or improved service delivery Enhanced strategic capacity to address strategic issues and regional interests, and/ or Improved advocacy and promotion of shared interests. The four Greater Hobart councils have agreed on these guiding principles for assessing reforms: – Is in the interest of ratepayers – Improves the level of services for communities – Preserves and maintains local representation, and – Ensures that the financial status of the entities is strengthened. The stated potential for efficiency savings from mergers often exceeds what is achieved. Experience elsewhere shows that mergers may come at a net cost instead of savings. But levels of service, the range of services provided and other community benefits generally increase. The same finding applies for collaboration between councils, such as shared service arrangements and resource sharing. Consequently, nationally and internationally the focus in relation to local government reform has shifted from pursuing efficiency savings within local government administration to achieving better strategic outcomes for the community. The analysis in this report clearly shows that these strategic impacts overwhelmingly dominate. For the Greater Hobart councils, the case for strategic opportunities is especially strong. Planning for future growth, i.e. where people are going to live, and where they will work and how they will travel, is most effective at the appropriate geographic scale, i.e. the metropolitan level. Capital city regions, like Auckland, Brisbane, Toronto and Vancouver have been able to capitalise on the benefits of integrated planning and governance of metropolitan affairs. Better planning and decision making across Greater Hobart can deliver: A more sustainable metropolitan area through the progression of a more compact, multi-nodal spatial form of urban development A more efficient transportation system which better supports urban development and reduces car dependency and congestion costs A more productive economic base given the agglomeration economies that result from the above-mentioned benefits A more effective tourism promotion and development strategy, resulting in increased visitation and tourism spending A more resilient pattern of urban development, as natural hazard areas are better managed and damages as a result of extreme events are reduced, and A better coordination and sequencing of social infrastructure and social services delivery. Reform options The detailed feasibility analysis documented in this report assessed the costs and benefits of the following reform options compared to the no reform option (Option 1 - Business as usual): Greater Hobart: Local Government Reform i Option 2 - Merger of all four councils (Kingborough, Clarence, Glenorchy and Hobart) Option 3 - Strategic alliance between all four councils Option 4 - Merger of three councils (Clarence, Glenorchy and Hobart) Option 5 - Merger of two councils (Glenorchy and Hobart). For all reform options, it is assumed a Hobart Capital City Act is introduced that recognises the relationship between the city government and the state government, and the associated responsibilities of being a capital city. Tasmania is currently the