Merge with Hornsby Shire - ITEM WITHERS ROAD/THE WATER LANE, ROUSE HILL

ITEM WITHERS ROAD/THE WATER LANE, ROUSE HILL - INTERSECTON CONTROL

Option 3 Merge with Hornsby Shire

A merger with Hornsby would result in a local government area of 890 sq km and a population of around 340,800 as at the 2011 census. That population is forecast to grow to around 482,650 by 2031. That is a very large population base and would exceed Blacktown (forecast 473,300) and the combined Parramatta/Holroyd (forecast 389,900).

That could raise questions about the southern boundary and its suburbs with Parramatta and could result in parts of Hornsby and The Hills being redistributed in the Parramatta LGA to provide greater scale to the second CBD.

A Hills/Hornsby merger raises no community of interest issues and, like Hawkesbury, would be a compatible merge. It would also deal with the division of many suburbs along the current boundary and would produce a very capable, strong local authority.

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Hornsby “Fit for the Future” Proposal

Hornsby Council has been declared not fit due to not meeting its scale and capacity but it does, however, meet the financial and efficiency criteria. As a result no detail analysis of Hornsby Council was undertaken. It did provide a business case for a merger with the Hills and the EY assessment suggested it had $85m in net benefits compared with $88m over 20 years with the merge with Ku-rin-gai.

Rating Information

As detailed below a Hornsby Resident, already pays more in Rates and Charges than Hills Residents. If a Hills/Hornsby merger is to occur it is estimated that Hills residents will have an increase in Rates in all the categories, whereas Hornsby residents are likely to experience a reduction in all categories. Hornsby’s General Business rate is very much higher compared to The Hills.

They are listed below:

FY 15/16

Average per Assessment

Hills Hornsby Forecast Hills plus

Hornsby

Residential $1,037 $1,105 $1,069

Farmland $1,612 $1,792 $1,690

Business $1,972 $3,121 $2,088

Hornsby CBD $6,437 $6,437

These estimates assume keeping the current Hills rating structure. Further analysis is required to see whether a more equitable rating distribution can be achieved. The above information is based on publicly available data and will vary for individual properties.

Waste Management Charges

Hornsby Council provides similar Waste Management Services to the Hills, however they also offer a commercial waste service. Comparative data is detailed below:-

FY 15/16 Hills Hornsby

% Increase compared to

Hills Waste Management

3Bin - 140lt Service $395 $346 (12.4%)

3Bin - 240lt Service $485 $476

(2,140lt bins) 15.5%

No. of Assessments 65,879 56,200

Total Income $24.4m $19.2m

*Charges extra for lost/stolen bins and missed collection Financial Sustainability

Hornsby Council received a “Sound” financial sustainability rating with a Neutral Outlook from TCorp which indicates that it has been well managed and will continue in the future.

Hornsby Council has a positive Net Operating Result and is forecast to continue.

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Hornsby’s total employment cost of $47.7m to total Rates income of $67.5m is 70%

compared to Hills of 66%. This comparison is difficult as the type of services provided by each council varies. Hornsby staff service 295 residents Compared to Hills 340 residents.

Budget comparison

Hornsby Council FY 15/16 Operational plan forecast an Operating Surplus of $ 5m after providing for depreciation. If a merger occurred and if economies of scale can be achieved, it is estimated that further savings can be made.

Hornsby Council operates Aquatic and Leisure Centres, Sports Stadiums, Arts & Cultural Centres, Early Childhood Centres, Foreshore Facilities, a Materials Handing Facility, a Quarry and manages 3 former land fill sites.

Cash and Investments

Unrestricted current ratio shows a positive result, Hornsby Council’s Cash and Investments and liabilities are listed below.

Cash and investments total as follows:

• $48.0m External Restrictions,

• $40.8m Internal Restrictions and

• $ 5.6m Unrestricted

Current Assets

• $6.6m Receivables

Liabilities (Excluding Borrowings)

• $11.2m Payables

• $14.6m ELE Provisions (ELE Reserve $8.1m) Outstanding Debt

Hornsby Council currently has an O/S loan balance of $6.8m. It is planned to repay this debt by 2023. ( Source LTFP)

Infrastructure Backlog

Hornsby Council has used a similar methodology to The Hills Shire to calculate their BTS cost. Council’s June 2015 BTS is reported at $7.03M for all asset classes.

Hornsby Shire Council has declared that they have no assets in Condition 5 and only 1.1% in condition 4.

Hornsby Quarry

The State Government has announced to remediate the Hornsby Quarry and to obtain fill from the North Connex project to part fill the Quarry (approximately one quarter) at an estimated cost of $22 million, Hornsby Council’s share is $7.33m. According to Hornsby’s “Fit for the Future” proposal they have estimated that they will have additional estimated costs of $15 to $20 million for quarry stabilisation and landform, and $10 million for recreational facilities. Hornsby Council has advised that all amounts are fully funded. However it is not clear from publicly available data where this sourced. As the

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stabilisation work has not been completed there is significant risk involved in completing this project.

Benchmarks

As detailed below, Hornsby Council’s benchmarks are within the Industry benchmarks, except the Asset related benchmarks.

FY 14/15

Financial Statements Hills Hornsby Hills Plus

Hornsby Benchmark Net Operating Surplus before

Capital & Gains/Losses and FV Adjustments $’000

$15,520 $14,762 $30,282 Break even

Operating Performance ratio 10.6% 10.9% 10.7% >= 0%

Own Source Revenue Ratio *50.6% 73.1% 59.8% > 60%

Real Operating Expenditure per

capita Decreasing Decreasing Decreasing Decreasing

Unrestricted Current Ratio 20.01 3.33 12.09 > = 1.5

Employment Cost $’000 $49,584 $47,724 $97,308

Staff No’s 540 571 1,111

Staff to Population 340 295 317

Asset Renewal Ratio 231.52% 84.56% 153.35% > 100%

Infrastructure Backlog Ratio 1.03% 0.76% 0.93% < 2%

Asset Maintenance Ratio 231.52% 82.54% 173.32% > 100%

*Will not meet Due to Capital Grants & Subdivider dedications in a Growth Council CONCLUSION

The Hills Shire Council is in a position to stand alone and is fit for the future.

Strategically, Council needs to consider whether it wishes to express a preference for a merger partner. On one hand to do nothing approach seems appealing however in the context of the relative lack of fitness of neighbouring Council’s the strength of The Hills might be a means by which the NSW government could strengthen local government in the region.

As assessment of merger partners has been undertaken and a Hornsby merger will result in Hills residents having to pay more on rates. It is also not clear as to the level of future expenditure on the Hornsby quarry. However as seen in the research, Hornsby Council while assessed as not fit, is in better financial position than Hawkesbury and the backlog methodology is comparable with The Hills meaning the comparative levels of service on critical infrastructure is similar. It could be argued that the Hornsby/Hills merger does not do enough to reform local government in this part of metropolitan Sydney and it does not resolve the fitness of Ku-ring-gai. It also does not respond to the ILGRP merger preference of The Hills and Hawkesbury.

A Hills/Hawkesbury merger is entirely consistent with the ILGRP recommendation for future mergers and there are very clear advantages for Hawkesbury residents for that merger option to be bought forward. In a Hills/Hawkesbury merger, even if economies of scales can be achieved to balance budgets, over time the new organisation will be required to address the Hawkesbury Council Infrastructure backlog and that could require between $68m - $100m to match its infrastructure with The Hills standards.

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There are options to manage this transition and one might be to only address it as far as their current community needs and risks have determined.

In the event that Councils agree to merge and the NSW Government agrees with that proposal only, the NSW Government will provide funds of $10M to cover merger costs and a further $10M to fund infrastructure. In this scenario as Hawkesbury Council has not agreed to merge, if the Hills was to indicate a willingness to bring forward the merger it would be appropriate for the NSW Government, if it agrees, to make these funds available.

In terms of nominating a merger preference, the logical suggestion is Hawkesbury as it addresses the fitness in the area and is consistent with the findings of ILGRP and IPART.

IMPACTS Financial

If a merger is approved by the State Government there will be a financial impact to this council.

The Hills Future - Community Strategic Plan

The adoption of a new governance framework for Local Government based on many of the principles outlined in the panel’s recent report will result in a much stronger and better Local Government industry.

RECOMMENDATION

1. Council write to the Minister for Local Government and the Local Members of Parliament to advise that The Hills Shire is prepared to bring forward the Independent Local Government Review Panel’s recommendation to merge with Hawkesbury City Council.

2. Given that Hawkesbury City Council has resolved to stand alone, any merger with The Hills should remain eligible for the funding package to cover merger costs and to part fund the infrastructure backlog of Hawkesbury City Council assets.

ATTACHMENTS

1. Extracts from ILGRP Research Paper Vol 2 Part 1 (28 pages) 2. Local Government Community Profile (1 page)

3. Mayoral Minute – Hawkesbury Council (6 pages)

4. Mayoral Minute – The Hills Shire Council, 27 October 2015 (3 pages) 5. Office of Local Government Circular 15 – 36 (2 pages)

6. Letter from Parramatta City Council (2 pages) 7. Extracts from IPART Report (18 pages)

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