Reshaping Australia's Local Government: Finance, Governance and Reform

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<ul><li><p>R E S H A P I N G A U S T R A L I A N L O C A L G O V E R N M E N T</p></li><li><p>RESHAPING AUSTRALIAN</p><p>LOCAL GOVERNMENT</p><p>FINANCE,GOVERNANCE AND REFORM</p><p>E d i t e d b y </p><p>Brian Dol ler y, Nei l Marsha l l and Andrew Worthington</p><p>UNSWPRESS</p></li><li><p>A UNSW Press book</p><p>Published byUniversity of New South Wales Press LtdUniversity of New South WalesSydney NSW 2052AUSTRALIAwww.unswpress.com.au</p><p> UNSW Press 2003First published 2003</p><p>This book is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under theCopyright Act, no part may be reproduced by any process withoutwritten permission. While copyright of the work as a whole is vested in UNSW Press, copyright of individual chapters is retained by thechapter authors. Inquiries should be addressed to the publisher.</p><p>National Library of AustraliaCataloguing-in-Publication entry:</p><p>Reshaping Australian local government : finance, governanceand reform.</p><p>Bibliography.Includes index.ISBN 0 86840 653 8.</p><p>1. Local government - Australia. I. Dollery, Brian.II. Marshall, Neil, 1950- . III. Worthington, Andrew.</p><p>352.140994</p><p>Printer BPA</p></li><li><p>List of contributors ixForeword xiii</p><p>1 INTRODUCTION Brian Dollery, Neil Marshall and Andrew Worthington 1</p><p>Outline of the book 4</p><p>PA RT A I N T E R N AT I O N A L C O N T E X T 1 1</p><p>2 LOCAL GOVERNMENT: REFORM IN COMPARATIVE 13</p><p>PERSPECTIVE Janice Caulfield</p><p>United Kingdom 20Australia 21New Zealand 21Germany 22The Netherlands 23Switzerland 23Sweden 24North America 24Japan 25Other OECD countries 26The data 28Analysis 28Conclusion 32</p><p>PA RT B F I N A N C E 3 5</p><p>3 FINANCING LOCAL GOVERNMENT IN AUSTRALIA 3 7</p><p>Andrew Johnson</p><p>The nature of the problem 38</p><p>C O N T E N T S</p></li><li><p>The genesis of the problem 41Commonwealth financial assistance grants 53Managing the problem 59Conclusion 62</p><p>4 L O C A L G O V E R N M E N T F I N A N C I A L R E P O R T I N G 6 4</p><p>Christine Ryan</p><p>External reporting 64Conclusion 77</p><p>5 A M A L G A M AT I O N A N D V I R T U A L L O C A L 7 9</p><p>G O V E R N M E N T Paul MayCharacteristics of Australian government 80Tensions between efficiency and democratic representation 85Pursuing the economic panacea: optimum size 87Virtual governments 89Chasing the pot of gold 91Conclusion 96</p><p>PA RT C G OV E R N A N C E A N D M A N AG E M E N T 9 9</p><p>6 R E A S S E R T I N G L O C A L D E M O C R A C Y ? 1 0 1</p><p>Rosemary Kiss</p><p>What is community? 105Community and local government legitimacy 107Local government, democratic representation 111and the franchiseConclusion 115</p><p>7 M A N A G E M E N T R E F O R M I N L O C A L 1 1 7</p><p>G O V E R N M E N T Geoff Baker</p><p>Top-down management reform the role of the States 118and the CommonwealthLocal government and the new public management 124Conclusion 137</p><p>8 T H E R O L E S A N D R E S P O N S I B I L I T I E S 1 3 9</p><p>O F C H I E F E X E C U T I V E O F F I C E R S A N D </p><p>C O U N C I L L O R S I N A U S T R A L I A N L O C A L</p><p>G O V E R N M E N T : A C O R P O R AT E G O V E R N A N C E </p><p>P E R S P E C T I V E Neil Marshall</p><p>The context of corporate governance 140The public sector 141</p><p>V I R E S H A P I N G A U S T R A L I A N L O C A L G O V E R N M E N T</p></li><li><p>Corporate structure in local government 142The role of councillors 144The role of chief executive officers 147Some corporate governance perspectives 152Conclusion 155</p><p>PA RT D P O L I C Y R E F O R M 1 5 7</p><p>9 P O L I C Y N E T W O R K S A N D L O C A L G O V E R N M E N T 1 5 9</p><p>Joe Wallis</p><p>Local government involvement in multi-organisational 160partnerships (MOPs)</p><p>Overcoming co-ordination problems through alternative 161governance mechanisms</p><p>The capacity of councils to supply local governance 171Conclusion 175</p><p>1 0 L O C A L G O V E R N M E N T E F F I C I E N C Y 1 7 6</p><p>M E A S U R E M E N T Andrew Worthington</p><p>The theory of efficiency measurement 179Efficiency measurement techniques 181Problems in measuring local government efficiency 186Studies measuring efficiency in local public services 188Determinants of local public sector efficiency 195Conclusion 198</p><p>1 1 . L O C A L G O V E R N M E N T F A I L U R E Brian Dollery 2 1 2</p><p>Taxonomies of local government failure 213A new taxonomy of local government failure 215Conclusion 228</p><p>PA RT E F U T U R E D I R E C T I O N S 2 2 9</p><p>1 2 F U T U R E D I R E C T I O N S F O R A U S T R A L I A N 2 3 1</p><p>L O C A L G O V E R N M E N T Brian Dollery and Neil Marshall</p><p>The achievements of Australian local government 232Future directions 238</p><p>References 251Index 268</p><p>C O N T E N T S V I I</p></li><li><p>Geoff Baker has worked on reform of the legislative framework forlocal government in Queensland since 1989. His roles have includedbeing instructing officer for the development of Queenslands newLocal Government Act in 1993. He was appointed to the QueenslandGovernments Senior Executive Service in 1994. He has also had part-time academic roles at a number of universities in Queensland since theearly 1990s. He is currently undertaking further postgraduate studies atthe Australian Graduate School of Management.</p><p>Janice Caulfield is Research Assistant Professor in the Department ofPolitics and Public Administration, University of Hong Kong, whereshe teaches public sector management and public policy analysis. Hercurrent research interests include performance and accountability in thepublic sector, public sector reform and development administration.She is co-editor with Helge O. Larsen of Local Government at theMillennium, which was published in 2002 by Leske and Budrich.</p><p>Brian Dollery is Professor in the School of Economics at the Universityof New England, Armidale, and Visiting Professor in the InternationalGraduate School of the Social Sciences, Yokohama National University,Yokohama, Japan. He has previously held academic positions at theUniversity of South Africa, Rhodes University, East Carolina StateUniversity, the University of Cape Town and Creighton University. Brianhas published extensively on the economics of Australian local govern-ment and is a founding member of the University of New EnglandsCentre for Local Government. Together with Neil Marshall, Brian co-edited Australian Local Government: Reform and Renewal in 1997. </p><p>C O N T R I B U T O R S</p></li><li><p>Andrew Johnson is the Director of Finance and Administration ofGuyra Shire Council in New South Wales. Andrew holds an MBAdegree from the University of New England (specialising in local gov-ernment) and is a chartered public accountant. He is presently workingon a doctorate at the University of New England dealing with the finan-cial problems confronting contemporary local government in Australia.</p><p>Rosemary Kiss is Senior Fellow in the Department of Political Scienceat the University of Melbourne. She served as an elected councillor forsome years in Melbourne and is a past member of the Victoria GrantsCommission. She has published widely in the area of local government.Along with Peter Johnstone, she co-edited the 1996 volume, GoverningLocal Communities The future begins.</p><p>Neil Marshall is Associate Professor in the School of Social Science atthe University of New England and teaches in the areas of Australianpolitics, public policy and public sector management. He has publisheda number of articles and edited volumes in these areas, including the1997 book Australian Local Government: Reform and Renewal, whichhe co-edited with Brian Dollery. Neil is a founding member of theCentre for Local Government at the University of New England. </p><p>Paul May has 29 years experience in local government. He spent 23years working in planning departments at Manly, Shellharbour andEurobodalla Councils in New South Wales. For thirteen of those yearsPaul occupied senior management positions. In 1997 he establishedPlanning Initiatives, his own consultancy practice specialising in localgovernment policy, research and urban and rural planning. Paul assist-ed Professor Kevin Sproats on the Inquiry into the structure of localgovernment in eight council areas in the inner city and eastern suburbsof Sydney. He is presently completing a PhD with the University ofTechnology, Sydney, that involves examining approaches to regionalgovernance.</p><p>Christine Ryan is Senior Lecturer in the School of Accounting at theQueensland University of Technology, Brisbane. She has published anumber of papers on accounting standards and the Australian publicsector.</p><p>Joe Wallis is Senior Lecturer in the Department of Economics at theUniversity of Otago, Dunedin, New Zealand. Joe holds a PhD in eco-nomics from Rhodes University and has previously held academic posi-tions at Rhodes University and the University of Cape Town. He has</p><p>X R E S H A P I N G A U S T R A L I A N L O C A L G O V E R N M E N T</p></li><li><p>co-authored Market Failure, Government Failure, Leadership and PublicPolicy and The Political Economy of Local Government (both with BrianDollery). Joe has also written extensively on organisational leadershipand the public sector during periods of comprehensive public sectorreform.</p><p>Andrew Worthington is an Associate Professor in the School ofEconomics and Finance at the Queensland University of Technology,Brisbane. Andrew has a PhD in financial economics from the Universityof Queensland and has previously worked in both economics andfinance at the University of New England. He has published widely inthe area of public sector economics, and especially on the measurementof efficiency in the public sector. Andrew has also produced consider-able research output on the efficiency and productivity of the Australianfinancial sector. The past year has been personally difficult for him andhe especially thanks his family and friends for their loving support dur-ing this time. He dedicates his contribution to the fond memories of hiswife Leanne Michelle Cummings.</p><p>C O N T R I B U T O R S X I</p></li><li><p>As we enter the new millennium with new global configurations theneed for strong structures of governance at the sub-state and local lev-els is increasingly important. Despite the reform initiatives of the latteryears of the twentieth century, in this country local government struc-tures remain largely as they were at the beginning of the century. Theremay be fewer of them, and they may be providing a different range ofservices more efficiently, but by and large they still reflect theirantecedents. Local governments are not universally valued highly by cit-izens. Too often they are seen as havens for self-seeking politicians andover-regulating bureaucrats. </p><p>A recent publication by the United Nations Centre for HumanSettlement (2001) raised challenges for governance in our cities, including: </p><p> to ensure the benefits of globalisation are shared more equally;</p><p> to redress the unbalanced emphasis on economic growth and accumulation</p><p>of wealth by placing renewed emphasis on social justice and environmental</p><p>sustainability;</p><p> to develop enabling strategies that include support for the exercise of </p><p>citizenship;</p><p> to provide local government with more political legitimacy, </p><p>responsibilities and resources;</p><p> to develop co-operative partnerships between government, private sector</p><p>and civil society;</p><p> recognition that the complementarity of civil society and government is at</p><p>the core of good governance.</p><p>F O R E W O R D</p></li><li><p>In October 2000 I was commissioned by the New South WalesGovernment to conduct an Inquiry into the structure of local governmentin eight council areas in the Inner City and eastern suburbs of metropoli-tan Sydney (Sproats 2001). At the end of that Inquiry in May 2001 I cameto the firm judgement that local government structures in the area shouldbe recast to provide fewer, better resourced, more strategically focussedcouncils. The very few voluntary attempts at structural reform in NSW upto that time had involved simplistic amalgamations of two or more adjoin-ing councils. But the Inquiry found that restructuring needed to be sub-stantially broader than simply achieving scale. It also highlighted theimperative of more strategically focused attention to the characteristics andaspirations of suburbs at one level and regions at another level. </p><p>In general I found that while the present structures of councils hadprovided services and facilities to their communities with varying levelsof satisfaction, there were significant inadequacies in their fundamentaloperations. These related especially to:</p><p> deficient strategic planning;</p><p> inadequate formulation and communication of policy and sustained com-mitment to it;</p><p> minimal regional perspective and focus;</p><p> poor inter-governmental cooperation;</p><p> unresolved aspects of the roles and functions of mayors and councillors;</p><p> inability to manage cross boundary issues, particularly on several keyregion-level sites;</p><p> inequitable distribution of, and access to, resources.</p><p>A voluntary approach had proven to be not sophisticated enough toachieve this scale and scope of reform. I argued that recasting was needed,recasting of what local government was, what it did, and how it did it. </p><p>No significant change has yet emerged from either local or state gov-ernments as an outcome of the Inquiry. Equally, I have lamented at thelimited debate on the big questions of transformation of local governmentand recasting of council structures. I am delighted that the editors of thisvolume have drawn together academics and practitioners to address someof the issues raised in the international forums and those to emerge frommy local Inquiry. Strong, highly valued local government in Australia isessential. The contributions here provide substance to the debate. </p><p>Professor Kevin SproatsUniversity of Western Sydney</p><p>X I V R E S H A P I N G A U S T R A L I A N L O C A L G O V E R N M E N T</p></li><li><p>Scholars have invested a vast amount of effort into the theoretical andempirical analysis of government in representative democracies. Despitethis impressive literature, local government can nevertheless justly bedescribed as the poor cousin of its more exalted state and federal relativesin terms of the attention it has drawn from the research community. Atleast three factors may explain the existence and persistence of this unfor-tunate state of affairs. In the first place, in many advanced economiesexpenditure by local government often comprises a relatively small pro-portion of total public sector outlays and thus it may have been con-strued as somewhat less deserving of scholarly inquiry than relativelylarger provincial and central governments. This certainly appears to havebeen the case in Australia where around 730 municipalities outlay $13billion, representing some five per cent of total government expenditureor about 1.6 per cent of gross domestic product (NOLG 2001). </p><p>Secondly, even when local government expenditure in absoluteterms is high and $13 billion can hardly be deemed negligible in theAustralian context the constitutional fact that local governments aretypically statutory creatures of higher tiers of government generallyimplies that they are manipulated and constrained by state and...</p></li></ul>