Agenda of Extraordinary Council Meeting

Extraordinary Council Meeting 23 June 2015

2.1 Fit for Future Submission

TRIM REFERENCE: 2015/1552

AUTHORS: Garry Styles, General Manager

Kathy Woolley, Director Corporate and Commercial Services

EXECUTIVE Summary

This report is provided to Council relating to the required response for the Fit for Future reform program being run by the NSW Government.

Link To Delivery/OPerational Plan

The recommendation in this report relates to the Delivery/Operational Plan strategy “1.2 Our City - Information and advice provided for the decision-making process will be succinct, reasoned, accurate, timely and balanced”.

Financial Implications

Nil

Policy and Governance Implications

Nil

Recommendation

That Council endorse the Fit for Future submission outlining:

1 A standalone proposal showing that Council satisfies the criteria noting that both Blayney and Cabonne declined to proceed with a merger option as recommended by the Independent Local Government Review Panel.

2 That should the NSW Government determine a merger is required for Orange City Council, the Council is willing to work with all parties to complete a thorough due diligence assessment which fully assesses levels of service, risks, costs and long term financial sustainability issues.

3 That Council suggest to the NSW Government that the full due diligence be established as a next step in any merger process along with provision of appropriate funding.

4 Council request of the NSW Government that in the event the NSW Government determines that a merger proceed that incentive funding remain on offer given Orange City Council’s willingness to consider a merger.

5 That should a merger be determined by the NSW Government, and pending appropriate due diligence assessment, that Council would seek consideration of logical boundary adjustments in consultation with neighbours.

6 That should a merger not occur, Council identify to the NSW Government a desire to see full consideration of appropriate boundary changes.

further considerations

The recommendation of this report has been assessed against Council’s other key risk categories and the following comments are provided:


Service Delivery	Issues of costs are directly related to service delivery. A merger process to fully evaluate the impacts of varying levels of service will be identified in the submission as a required action prior to a merger should the NSW Government determine the need for it.
Political	The process is a NSW Government initiative.
Employees	Council has previously been advised of the Local Government Act 1993 clauses regarding the preservation of positions in towns of less than 5,000 persons in merger situations.
Stakeholders	The NSW Government’s reform agenda has created stakeholders in this process that include the State, other councils across the Centroc area (relating to the joint organisation proposal to replace the region of councils), ROCs, County Councils and the community.

SUPPORTING INFORMATION

In 2011, the NSW Government met with all councils across NSW in Dubbo and created the Destination 2036 project. It reflected a broad scale reform of local government.

The appointment by the NSW Government Office of Local Government (OLG) of the Independent Local Government Review Panel (Panel) and their 2013 report making recommendations on the reform processes led to the definition of the reform processes in the “Fit for Future” program. Councils are required to submit a response to the Panel’s recommendations by 30 June 2015.

The Panel recommended a broad range of actions for reform across the local government sector. The focus of the submissions is that councils must show they have scale and capacity to deliver services in a manner to deliver long term sustainability, with efficiency and effectiveness.

Councils must use one of three templates provided by the NSW Government to respond to the Panel’s recommendations.

Councils responses must show how they will perform if the Panel’s recommendations are adopted in template 1 (merger), or, show how they can deliver similar or better outcomes if opting for an option other than that recommended by the Panel (e.g. standing alone) in template 2, or, submit a proposal to be classified as a rural council in template 3.

The Independent Pricing and Regulatory Panel (IPART) has been appointed to review the submissions and they are to be analysed by 16 October 2015.

Recommendations for Orange City Council

The Panel recommended that Orange City Council be a member of a Joint Organisation or that it merge with Cabonne Council and/or merge with Blayney Shire Council.

In September 2014 Council wrote to Blayney Shire Council and Cabonne Council seeking their interest in a merger. Blayney advised they would not be considering a merger. Cabonne agreed to co-fund an independent assessment to prepare a merger business case with Orange. The councils took advantage of the OLG program offering of 50% of the costs to provide a consultant from OLG’s pre-appointed list, providing the councils used the standard OLG brief format and the research had OLG’s final approval.

The key points in the merger business case provided by the independent firm of Morrison Low (copy previously provided to Councillors and a summary exhibited) were:

· The impact of a merger would be more substantial in the Cabonne Council area

· The consultant identified savings of $5.4M (net present value @ 7%). This is after realising any savings and includes the $5M available from OLG to assist with one-off merger costs.

· The report suggested it would be unlikely that Orange’s scale and capacity would be greatly changed by a merger.

· The merged model showed general compliance with the performance benchmarks for ratios set by the NSW Government, with some future years requiring attention. The consultant did however identify that the councils had the capacity to achieve all ratios due to the flexibility both councils had in discretionary spending.

· The merger would impact on the first three years with Operating Performance being achieved at benchmark level of breakeven by year 3. The report cited the cost of the merger to be the contributing factor in not attaining the benchmark in this ratio in the early years. Costs of the merger were estimated in the report to include $2.5M for the transition “body”, $6M for information and communications systems, $300K for branding, $961K for redundancies and $607K to harmonise remuneration (i.e. achieve parity in pay rates). These are estimates only but were based on experiences the consultants have had in other mergers.

· The modelling done by the consultant included processes to “normalise” information across the two councils to enable comparison. This process in itself highlighted a key concern Orange City Council has about the assessment of the impact of a merger in that the analysis was at a very high level with the need to make assumptions in order to compare data from the two councils. The analysis was not comprehensive enough to satisfy a process of due diligence regarding such a significant issue to enable a full assessment.

Ultimately, after receiving and considering the merger business case analysis, Cabonne resolved to submit a proposal to standalone. Consequently, Orange will now also submit a standalone proposal.

Orange City Council’s submission

The submission will be made for a standalone council with the following key points:

· Orange City Council is able to demonstrate how it meets all except one of the Fit for Future benchmarked criteria by 2019/20.

· The ratio that Council fails to reach the benchmark is the Building and Infrastructure Asset Renewal Ratio. This ratio is one that Council has identified in its submissions to the NSW Office of Local Government (OLG) and to IPART to be inappropriate when assessment of assets conditions and renewal processes accumulated over the past two years in Council’s sophisticated assets management systems paint a very different picture than the ratio results do. Rather than failing in this area, Council achieves a zero backlog position following Council’s allocation of $4.7M on average p.a for renewals over the 10 years in the Long Term Financial Plan adopted in May 2015 for 2015/16 onwards. Council’s auditor, Intentus, supported the criticism of this ratio in their report which Council attached to its IPART submission on the methodology being used in the Fit for Future program. Their criticism included commentary that using depreciation and infrastructure spending (whether replacement, renewal or maintenance) in this ratio presents issues because there is significant variability in how a council might measure and interpret these elements. The TCorp assessment of the financial sustainability of all councils in NSW in 2013 identified that Orange City Council was in a sound financial position but had a negative outlook. Very few councils received a positive outlook. The key factor influencing the Council’s outlook was the level of integration of assets management planning processes with the financial planning processes. Council has concentrated significant efforts over the last two years in improving the asset management and financial planning processes to deliver better integration. In preparing the Long Term Financial Plan beginning 2015/16, the assets management system information and financial planning processes have been integrated to address this shortcoming, dealing fully with the TCorp assessment.

· The Panel’s recommended merger with Cabonne was investigated with a low level of savings identified. Councils are required to consider the Panel’s position as the starting point for submissions.

· The merger business case analysis by Morrison Low showed all 7 ratios would be attained over the period analysed (to 2023) with the formation of a merged council. However, two ratios (Operating Performance Ratio and Building and Infrastructure Asset Renewal Ratio) would not be sustained throughout the modelling period. The consultant did comment that the Operating Performance Ratio was showing the impact of the costs of the merger and that the councils had the ability to address the non-compliance with benchmarks for ratios by changing allocation of expenditure given existing financial flexibility. Morrison Low used their own methodology to “normalise” data from Cabonne and Orange in order to compare like with like and thence to model a merger of the two councils. The methodology relied on unaudited financial statement schedules data. Council considers this to be a risky approach even though it did provide the means to enable comparison of different approaches particularly in assets assessment. Part of Council’s concern about the robustness of the fit for future criteria hangs on how reliable is the underlying data being used in the ratios. Additionally, Morrison Low had limited time to assess the data provided.

· Council identified significant risk issues associated with the processes of determining if any council was fit for future or should merge with one or more councils and identified the need for a more robust methodology and longer time frame to determine the impacts. These concerns have been communicated in the submissions to OLG and IPART. The significance of these concerns caused Council to commission assessment of the merger impacts including:

o Making submissions to the OLG and IPART on the methodology and time constraints of the process.

o The aforementioned review of the methodology and in particular the financial ratios designed by the NSW Government to measure sustainability conducted by Council’s auditor Intentus.

o An expansion of the brief undertaken by Morrison Low to further consider asset information in particular.

o Desktop review of published assets management documents of Blayney and Cabonne.

o Council’s Audit and Risk Management Committee assessed the processes Council had used to consider risk issues relating to a possible merger.

o A peer review of Council’s assets systems and processes has commenced to establish its relevance in a best practice sense. Council has also offered Cabonne an opportunity to undertake the same ground proofing of its assets systems using the same methodology.

o The preparation of a specific risk management plan for a merger process.

· The submission will stress the impact of the variability of how individual councils measure their performance, particularly regarding the rating of asset conditions and required maintenance/renewal, as it is such a significant hurdle in the reform process and is a critical issue in properly undertaking any assessment of the impact of a merger.

· Council has identified if a merger is determined by the NSW Government that Council would offer co-operation but would be seeking the completion of a due diligence assessment to properly understand the implications on ratepayers and community members of any merger. In fact, in submissions to both IPART and Office of Local Government, Council has suggested that it may be prudent to build an extra step into the process allowing for the shortlisting of any mergers after considering the IPART assessment. Following shortlisting allowance for a full due diligence of the shortlisted mergers ought be made along with providing for appropriate funding for the further assessment.

· Council has received a request from Forbes Shire Council (attached) that if a merger between Cabonne and Orange councils was to occur, that boundary considerations be discussed with Forbes. The Panel also identifies in its final report (p91) that there have been approaches from the northern and western fringes of Cabonne seeking to move to adjoining council areas. The Panel report also identifies “over spill” from Orange into Cabonne as an issue for consideration (p85, p91). Hence, the submission will identify that discussion with neighbouring councils about boundary adjustments that are supportive of community of interest considerations in particular should be explored if mergers occur.

· Councillors have identified that in the absence of a merger that consideration of sensible boundary changes is needed, particularly given the comments in the panel report.

Community consultation

The submission must demonstrate the community consultation processes Council undertook. The following summarises the range of internal and external processes and outcomes.

· Your Say Orange website, on-line forum, survey, library, Q and A and a feedback portal available for a formal 28 day exhibition period

· Social media engagement

· Public meeting.

· The matter of local government reform was also the subject of eight separate reports to Council that were considered at open meetings of Council between November 2011 and June 2015.

The above engagement opportunities were promoted in a number of ways including print and radio advertising, news items in local media, postings on social media and via the Council website.

There were 277 visits to the Your Say Orange Fit for the Future online consultation.

There are three levels of measuring engagement with the resources of the site.

· 218 Aware visitors (People who visited at least one page)

· 128 Informed visitors (People who have clicked on some links to read documents, read news items, read FAQs, looked at photos)

· 23 engaged visitors (These people have gone the next step to complete a survey, add a comment to an online forum or guest book. Before they can do this they have to register. This step will be an obstacle for some.)

Where people have engaged:

· 21 people have completed a survey

· Among the news items the most popular item is a piece on how people can have their say (45) followed by ‘Mergers: It’s not the first time’ (14) and ‘Council believes it can stand alone’ (11)

· 30 visits to FAQs about mergers

Of the people who completed the survey:

· 68% live in Orange while 27% live in Cabonne

· 63% believed Orange should merge with Cabonne/Blayney or Cabonne while 36% believed Orange should stand alone future

· 54% thought the incentive package offered by the NSW government was not enough to justify a merger

Of the longer viewpoints expressed in a ‘Forum’ section, concerns included:

· ‘A merger should not be pursued due to the difference in urban /rural areas’

· ‘Orange would be forced to subsidise areas which are not as well managed

· ‘There should be further measures to protect existing staff of councils following a merger’

· ‘The asset base of neighbouring areas should be as closely assessed as the assets of Orange before a merger’

The above mentioned public meeting, while advertised in a number of mediums, was only attended by 13 community members. There may be a number of factors for this turnout.

While Orange residents are quick to voice their concerns on any number of issues, local government reform has never been a hot button issue for Orange.

Perhaps more significantly well ahead of Orange City Council’s determination to seek feedback on a merger or standalone option, Blayney Shire Council in March this year had resolved to standalone. In May this year, post the release of the Morrison Low report, but prior to Council’s public meeting, Cabonne Council also resolved to lodge a standalone submission.

What this meant is that while Orange City Council had resolved to exhibit both the business merger case and the standalone option, in the absence of merger consideration by either Cabonne or Blayney a standalone submission was the only option left to Orange as the NSW Government had directed that the merger case is “designed for councils that intend to undertake a voluntary merger.”

The internal consultation with Council staff included:

· Written updates to staff from the General Manager

· Staff Q and A sessions presented by the General Manager

· Information on the intranet

· Discussions at the Staff Consultative Committee

· Links to online discussion forums provided to staff

It is also noted that Orange City Council held discussions with both Cabonne and Blayney councils on the reform agenda.

Cabonne and Blayney councils have also undertaken consultation on this matter.

The following is taken from the Cabonne Council website:

“The Council today (Tuesday 26 May 2015) resolved to submit a Council Improvement proposal with the NSW Government as part of the Government’s Fit for the Future reforms.

In doing so, Cabonne rejected its other option of submitting a proposal to merge with Orange City Council, as recommended by the Independent Local Government Review Panel.
Cabonne’s decision follows the results of a business case study of a possible Cabonne-Orange merger and feedback from several public meetings to discuss the Fit for the Future package.

Almost 340 people strongly backed the stand-alone proposal at information sessions at Molong and Canowindra while about 400 packed a community-organised anti-amalgamation meeting a week later to show their support for the council.”

The following is taken from the Blayney Shire Council website:

“A Blayney Shire ‘Have your Say’ about the options for Blayney Shire was distributed online, at community meetings and promoted in various media channels, closed on Friday 12 June 2015.

There were 193 surveys collected from both online or delivered into the office.

The Stand Alone preferred option accounted for 166 (86%) of respondents. A merger with Orange and/or Cabonne accounted for 18 (9%) of respondents. Council will be utilising this feedback in the submission to be lodged by 30 June to the Independent Pricing and Regulatory Tribunal (IPART).”

At the June meeting held this week, Council resolved to endorse the Improvement Proposal (Existing Structure).”

The NSW Legislative Assembly has also announced an inquiry into Fit for the Future.

This inquiry is seeking submissions prior to 5 July 2015. It is Council’s intention to make a submission to this inquiry.

Attachments

1 Letter from Mayor of Forbes, IC15/8764 ⇩

2 Enterprise Risk Management assessment of merger , D15/18917 ⇩

3 Fit for Future ARMC Committee Report, D15/18798 ⇩

4 Fit for Future Submission (Under Separate Cover)⇨