SS7 Information over last 5 years
SUBMISSION 2 MERGER PROPOSAL PART PARRAMATTA CITY COUNCIL, PART AUBURN CITY COUNCIL, PART THE HILLS SHIRE COUNCIL, PART HORNSBY
SHIRE COUNCIL AND PART HOLROYD CITY COUNCIL
Introduction
The Hills Shire Council at its Ordinary meeting of 10 November 2015 considered a report on potential whole mergers within our region. Councils were given until 18 November 2015 to provide those preferences to the OLG. The Hills Shire Council was assessed by IPART as being “fit” but is surrounded by Councils (Hawkesbury, Parramatta, Blacktown, Gosford and Hornsby) that were assessed as being “not fit”. Councils that were “fit” but surrounded by a Council that was “not fit” due to scale and capacity were asked to consider a preferred merger partner before the Government proceeded to exhibit proposals. The Hills Shire Council was in that situation and considered the two most obvious mergers being Hornsby and Hawkesbury. The Hills Shire Council nominated Hawkesbury on the basis that the ILGRP foreshowed that merger at a future date and that it responded to the desire for complete merger of the two organisations as its preference if a merger is warranted. This nomination was on the condition that it is a merger of both Councils fully and incorporating all existing boundaries. The merger proposals are contrary to this view and therefore represent less effective solutions in our area.
Council’s overall preferred position remains its “Fit for the Future” boundary adjustment with Hawkesbury, Hornsby and Parramatta. This proposal was one that dealt with disruptive boundaries, united divided communities, used more substantive topographical features, contained communities of interest, used the strong position of The Hills and would result in less Councils in our region. This proposal has never been seriously assessed by Government. In its review, IPART ignored it as it had insufficient financial backing and that was due to Hawkesbury Council refusing to co-operate. Councils own financial analysis found that proposal to be fit for the future. None of Council’s preferred outcomes is reflected in the Hawkesbury City Council and part The Hills Shire Council merger proposal. Should this merger proposal proceed, The Hills Shire Council would prefer that the merger proposal with Hawkesbury not proceed.
MATTERS FOR CONSIDERATION (THE LOCAL GOVERNMENT ACT S263 (3)(a) - (f))
(a) The financial advantages of disadvantages (including the economies or diseconomies of scale) of any relevant proposal to the residents and rate payers of the areas concerned.
KPMG DATA
The merger proposal documents present financial and asset data on the mergers obtained through work done by accountancy firm KPMG. The report was not made available to the public nor Councils. Unfortunately, there were errors that needed to be corrected in the documents during the latter part of January 2016. KPMG have said in personal communications with Council Officers that they have based their findings on comparative data provided to them by the OLG and have used population and land area splits to arrive at the figures.
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016
The KPMG report (Based on FY 13/14) had indicated that The Hills would contribute $24.0m of its operating income or $19.6m of its operating surplus towards the new Parramatta Council. This is not correct because KPMG have adjusted the Income to remove Capital Grants & Contributions to arrive at the income but did not adjust the same with the Operating Surplus. When this adjustment is made correctly, the contribution reduces from $19.6m to $4.4m.
This analysis has been based on apportioning the total income and operating surplus over population. (KPMG report page 5 detailed below)
Operating Revenue quoted above has excluded Capital income & one off adjustments. If the principle is applied to the Operating result it should only be $ 4.4m.
+$6.0m projected improvement will not be accurate as it’s based on Hills Shire Council contribute $ 19.6m to this new entity, and not the corrected amount of $4.4m
(FY 13/14 )
KPMG Report Page 7 detailed below, states a net financial saving of $ 44m over 20years.
Whereas on the same report page 15 in its conclusion states $ 69m net financial benefit.
No detail information is available to determine how this conclusion was made.
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016
The KPMG report, in its conclusion, also states that the newly formed Parramatta Council would have a net financial benefit of $69m over 20 years and also a projected 63%
improvement in the annual operating result. This conclusion is based on The Hills Shire Council contributing the higher operating result of $19.6m instead of the corrected figure of $4.4m. When this correction is made, the operating result reduces by $15.2m per annum and there will be no financial benefit for the new Parramatta Council. It will also leave the proposed merger proposal of the remainder of The Hills Shire with Hawkesbury under resourced for a number of years.
This submission will provide a more accurate financial impact than the KMPG data. The KPMG data needs to be treated with caution as it cannot be relied upon to portray an accurate picture of merger costs, merger savings nor long term benefits.
FINANCIAL ADVANTAGES & DISADVANTAGES- EXECUTIVE SUMMARY
The merged Council to be viable and financially responsible the following issues are relevant:
Impact to Hills Shire Council if South of M2 is lost to Parramatta:
1. Rates income will reduce by $ 10.7m per annum (FY 16/17 )
2. This loss could take at least 6 or 7 years to recover from additional rates income from new subdivisions. However in reality it will be more than 6 years as part of this additional income is required to service the infrastructure and other services in the new release areas.
3. The standalone Hills Shire Council (without the area of south of M2) will have Operating Deficits for at least the first 6 years. This will certainly affect the current level of services provided to the Hills residents but is a better outcome than combining a weakened Hills Shire with Hawkesbury.
Projected Deficits are as follows:
MODEL - INCOME STATEMENT 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Net Operating Result before Grants and
Contributions for Capital Purposes &
Gain/Loss on asset sales 5,173,053 (2,332,094) (2,178,155)(2,353,054) (1,167,349) (1,284,471) (830,143) 1,211,263 2,665,092 2,579,461
The Hills Shire Council (with Loss of M2)
10 Year Financial Plan
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016
FINANCIAL ANALYSIS BACKGROUND
The merger proposal for an enlarged Parramatta local government area does not appear to be based on financial advantages. This is, by any measure, a very complex merger that ignores agreements already made between Burwood, Auburn and Canada Bay Councils. The proposal ignores the suggested merger of the ILGRP with all of Auburn, Holroyd and part Hills and Part Ryde. The proposal also ignores the views already expressed by The Hills Shire Council. It is also not what Parramatta Council wanted.
IPART assessed Parramatta Council as meeting the financial sustainability criteria overall but was declared “not fit” based on scale and capacity.
As at the 2011 census, Parramatta had a population of 174,800. The NSW Department of Planning’s projections for Parramatta show it to grow to about 253,900 by 2031. This compares quite favourably with Sydney City with 183,300 people in 2011 and a projected 273,500 by 2031. Like Parramatta, Sydney City was assessed by IPART as being “not fit” due to scale and capacity criterion as benchmarked against the criteria for global cities yet Sydney City is not the subject of any merger proposal.
IPART has not assessed the financial criteria for the proposed merger. It did, however, assess the ILGRP’s proposed merger and, using an analysis by Ernst and Young (EY), IPART suggested the ILGRP merger could realise $150M in net benefits over 20 years.
By comparison, the NSW Government’s merger proposal is supported by a report by KPMG and it suggests the current merger proposal as providing only $69M over 20 years. That result is even questionable as this merger will have significant staff merger costs, less income than modelled and probably, when assessed against the “Fit for the Future” criteria, is “not fit”.
If this merger takes place, there will be no financial benefit to the new Parramatta Council and has the potential to damage the financial viability the part Hills/Hawkesbury merger proposal.
HILLS SHIRE OPERATIONS SOUTH OF M2
An analysis of The Hills Shire Council’s services was undertaken to determine the activities that are carried out south of the M2. This analysis was at a very high level given the time constraints in trying to prepare this submission.
The chart below details all of Hills and the area of Operations that will be affected.
As detailed below, The Hills Shire Council has the potential to lose 52.3% ($6.5m) of its operating surplus or 12.5% ($ 17.9m) of its operating income excluding capital grants and one off income if suburbs south of the M2 are lost to the new Parramatta LGA. (This information was previously reported based on based on FY 14/15 data)
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016
As detailed above, it is estimated that 48.2 FTE’s from a total FTE count of 575 as at 30 June 2015 will be lost to Parramatta Council if this merger takes place. The 48.2 FTE’s represent 39.4 staff who delivers a direct service and 8.8 staff in Corporate Support services. They represent 8.4% of The Hills Shire’s total FTE count.
It has been stated that when the proclamation is made, all staff relating to the new entity would be transferred to the new entity from that day. It is somewhat easy to identify the direct service staff, but it is difficult to identify indirect corporate support staff as they are made up of parts of FTE’s adding up to a total of 8.8. It is also difficult to see how this proclamation deals with the Industrial Relations landscape relating to local government in NSW.
FINANCIAL PROJECTIONS
Financial projections given below have been based on the following assumptions:
1. In the absence of current data , these high level projections are based on the adopted FY 15/16 Long Term Plan (LTFP) for both Councils.
2. Rate increases are limited to the Rates Peg amounts in both Councils’ LTFP.
3. Operating Surplus /Deficits listed below refer to Surplus /Deficits after adjusting for Capital Grants & Contributions and Gain on sale of assets. These Grants and Contributions are used for building new assets and they in turn will bring maintenance burdens to the Operating Budget. Hills Shire Council projections have taken these into consideration in the future years.
Hills SM2 Hills SM2 Hills SM2 SM2
Income Inc Lost Expenditure Exp Lost Op Surplus Op Surp
SM2 FTE
Forward Planning (941) 0 3,116 0 2,175 0 0.0% 0.0
Infrastructure & Transp Planning (2,794) (273) 7,893 618 5,099 345 6.8% 2.3
Infrastructure Projects (1,665) 0 (30) 0 (1,695) 0 0.0% 0.0
Infrastructure Maintenance (2,936) 0 21,143 2,776 18,207 2,776 15.2% 17.4
Community & Economic Dev (3,929) (493) 11,911 118 7,982 (375) -4.7% 0.2
Children's Services (5,465) (1,160) 5,107 1,126 (358) (34) 9.5% 9.8
Hills Community Care (6,961) 0 6,825 0 (136) 0 0.0% 0.0
Fire Control (561) 0 3,400 0 2,839 0 0.0% 0.0
Development Assessment (2,710) (271) 4,807 453 2,097 182 8.7% 2.5
Subdivision & Dev Certification (3,557) (102) 3,143 93 (414) (9) 2.2% 0.7
Environmental Health Services (842) (56) 3,142 210 2,300 154 6.7% 1.4
Resource Recovery (24,671) (4,037) 24,810 4,051 139 14 10.1% 0.0
Regulatory Services (1,097) (83) 3,205 242 2,108 159 7.5% 1.7
Library Services (712) (97) 6,568 524 5,856 427 7.3% 3.2
Property Dev & Management (1,663) 0 2,740 27 1,077 27 2.5% 0.1
Corporate Support (82,434) (11,351) 2,593 0 (79,841) (11,351) 14.2% 8.8
Depreciation 0 0 20,233 1,230 20,233 1,230 6.1% 0.0
Total before Capital income (142,938) (17,923) 130,606 11,468 (12,332) (6,455) 52.3% 48.2
Capital income (236,337) 0 0 0 (236,337) 0
As per Financial Statements (379,275) (17,923) 130,606 11,468 (248,669) (6,455)
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016 Current Stand Alone Hills Shire Council adopted FY 15/16 LTFP
As it can be seen from the above table, Hills Shire Council is projecting Operating surpluses.
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016 The Hills Shire Council with Loss of South of M2
As it can be seen from the above, standalone Hills Shire projected a Surplus of $4.4m in FY 16/17. If South of M2 is lost it will reduce this surplus by $6.8m (previously reported
$6.5m in FY 14/15) resulting in $ 2.3m operating “Deficit”.
As previously outlined it will take Rates growth of at least 6 years in order to turn this situation around. In reality it will take longer as part of this growth is required to service the infrastructure and other services in the new release areas. If this income is lost, it will be difficult to continue providing the same level of services to the Hills residents.
If this merger proposal proceeds The Hills Shire Council will at least take more than 6 years to return to surplus. This in turn could have an impact on the level of service provided to residents.
It was said from the outset that these mergers are being considered due to a large number of Councils not being able to be financially sustainable. It is not clear why the government has suggested the merger proposals for The Hills that creates two entities (New Parramatta & Hills/Hawkesbury) that will struggle to be financially viable. This is effectively breaking up one of the most successful Councils that has sufficient scale, capacity and financial sustainability to stand alone.
ORDINARY MEETING OF COUNCIL 23 FEBRUARY, 2016
Impact on losing South of M2 to Parramatta