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A Normative Model for LocalGovernment De-Amalgamation inAustraliaBrian Dollery a , Michael Kortt b & Bligh Grant ca University of New Englandb Southern Cross Universityc University of New England

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To cite this article: Brian Dollery, Michael Kortt & Bligh Grant (2011): A Normative Model for LocalGovernment De-Amalgamation in Australia, Australian Journal of Political Science, 46:4, 601-615

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A Normative Model for Local Government

De-Amalgamation in Australia

BRIAN DOLLERY

University of New England

MICHAEL KORTT

Southern Cross University

BLIGH GRANT

University of New England

Ongoing local community dissatisfaction in some newly amalgamated localgovernment areas resulting from the 2007 Queensland forced amalgamationprogram has raised the prospect of de-merger in that state. One catalyst hasbeen the Opposition’s commitment to de-amalgamation should it acquiregovernment. Apart from some descriptive discussion of actual de-amalgamation episodes, almost no prescriptive analysis exists on theoptimal form any de-merger process may take. Using two documentedcases of de-amalgamation in metropolitan and regional settings, thisexploratory paper seeks to address this gap in the literature on localgovernment by presenting a ‘stylised’ approach to de-amalgamationdesigned for Australian local government conditions built around fivegeneric principles.

Keywords: Australian local government; compulsory consolidation; de-amalgamation; local government reform

Anne Vince (1997, 151) has aptly described the use of forcible amalgamationof small local authorities into larger municipal entities as ‘a golden threadwhich runs through Australian local government history’ since it has almostalways been the main instrument of Australian local government reformprograms. This stands in stark contrast to most other developed countries,where compulsory consolidation has been used sparingly (see, for instance,Dollery, Garcea and LeSage 2008; Dollery and Robbotti 2008; Faulk and

Brian Dollery is Professor of Economics and Director of the UNE Centre for Local Government.Michael Kortt is Senior Lecturer in the Southern Cross Business School at Southern CrossUniversity. Bligh Grant is Research Lecturer in Local Government Studies and Deputy Directorof the UNE Centre for Local Government.

Australian Journal of Political Science,Vol. 46, No. 4, December 2011, pp. 601–615

ISSN 1036-1146 print; ISSN 1363-030X online/11/040601-15 � 2011 Australian Political Studies Association

http://dx.doi.org/10.1080/10361146.2011.623670

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Hicks 2011; Sancton 2011). For this reason, the debate surroundingamalgamation has been more pronounced in Australia than in comparablecountries.In an examination of past episodes of compulsory consolidation in different

state jurisdictions, Dollery, Byrnes and Crase (2008) have argued thatAustralian structural reform programs typically share four main features: (a)a heavy emphasis on unconditional mergers of local councils rather than othermodes of structural change; (b) state government coercion in implementingmunicipal amalgamation ‘ranging from outright compulsion to financialincentives and penalties’; (c) ‘protective policy measures’ aimed at minimisingthe immediate negative effects of amalgamation, especially in terms of councilemployment; and (d) a complete absence of any efforts to evaluate theoutcomes of consolidation programs after their imposition.Despite these commonalities, significant differences between past episodes of

amalgamation programs are evident. Over the past two decades, SouthAustralia, Victoria, Tasmania, New South Wales, and more recently Queens-land and the Northern Territory, have all witnessed extensive municipalrestructuring, typically focused on compulsory council consolidation. While theSouth Australian, Tasmanian and New South Wales reform processes werecomparatively mild, placing more emphasis on community consultation priorto the implementation of amalgamation, the Victorian, Queensland andNorthern Territory episodes by contrast epitomised ‘top-down’ policymakingcharacterised by limited public consultation (see, for example, Dollery andGrant 2011). One consequence of this has been a greater degree of populardiscontent towards the larger local government entities in these latter states,which is especially evident in some amalgamated Queensland local authorities(see, for instance, Dollery, Ho Chong Mun and Alin 2008).Given the speed with which the Queensland amalgamation program was

conducted, the ongoing public discontent over local government merger insome post-amalgamation local authorities in Queensland is hardly surprising.In 2005, the Local Government Association of Queensland (LGAQ) and theQueensland government launched a Size, Shape and Sustainability (SSS)program to assess the sustainability of local councils and seek solutions (LGAQ2005; 2006). Despite assurances by the Queensland government that the SSSprocess was proceeding well, it summarily abolished the SSS program in April2007 and replaced it with the Queensland Reform Commission charged withinvestigating council mergers. On 27 July 2007, the Reform Commissionproposed that the number of local councils be reduced from 157 to 73 (LocalGovernment Reform Commission 2007). These recommendations were enactedon 10 August 2007 (Dollery, Ho Chong Mun and Alin 2008).The sheer pace of the Queensland amalgamation process, together with

limited community consultation, alienated some residents in some newconsolidated councils and a degree of discontent seems to have remained. Insome new councils, such as the Sunshine Coast Regional Council (Gardiner2010), vocal de-amalgamation campaigns have been launched, whereas in othermerged councils, like the Moreton Bay Regional Council, councillors haveactively explored de-amalgamation options by engaging consultants (Spearritt2011). Moreover, limited available polling suggests public opinion isantipathetic to the larger councils. For example, a poll of 900 respondents

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conducted in April 2011 for the LGAQ showed that 65 per cent of peoplesupported de-amalgamation on grounds that ‘value for money for rates,standards of service, and planning and management of population growth haveall gone backwards since the new councils were formed’ (Passmore 2011). TheOpposition Liberal National Party (LNP) has sought to accommodate thisdiscontent by adopting a de-amalgamation platform (Dorizas 2008), and its de-merger policy has been advanced by David Gibson, LNP Shadow Minister forLocal Government (Gibson 2011). There are therefore good prospects thatsome de-amalgamations may take place should the LNP take government at thenext election.These developments raise interesting questions for students of Australian

local government. In practice de-amalgamation is rare, not only in Australia,but also abroad. The primary reason for this in the Australian context is that(a) the structure and composition of state and territory local governmentsystems is defined by state government legislation and not by local communitiesor local government and (b) amalgamation and de-amalgamation can only takeplace if state governments provide the necessary legislative foundations.Accordingly, we should not be surprised that state parliaments, who haveexpressly initiated amalgamation programs, have not provided the legal basisfor unravelling these merger programs, not least because it could prove costly.Perhaps the resultant rarity of de-amalgamation explains the fact that almostno scholarly attention has been focused on the problem. Given the possibilitythat de-amalgamation might occur in Queensland however, there is a need toexamine the question. In particular, from the perspective of policy analysis, it isimportant to identify the key ingredients in a de-amalgamation process.Accordingly, this exploratory paper considers the problem of de-amalgamationand proposes a tentative ‘stylised’ model for a local authority contemplatinga de-merger.While a voluminous international scholarly literature exists on local

government amalgamation (see, for example, Dollery and Robotti 2008), witha significant Australian strand (see, for instance, Australian Centre forExcellence in Local Government [ACELG] 2011; Dollery, Crase and Johnson2006), almost no analytical work has been undertaken on de-amalgamation,apart from some descriptive material (ACELG 2011; Chen 2002; Sancton2011). Quite apart from the light that an analytical investigation of de-mergermight shed on the structural dimensions of local government more generally, itis important for scholars of local government to offer policy makers at leastsome guidance. This paper thus represents a tentative exploratory attempt atdetermining the basic factors that should be considered in any de-mergeranalysis. In order to avoid institutional minutiae, the paper seeks to construct a‘stylised’ or abstract model for appraising any proposed de-amalgamationwhich focuses on the main elements involved, following common practice in thepolicy analysis literature.The paper itself is divided into three main parts. The first section provides a

synoptic review of two de-amalgamation episodes in a metropolitan contextand a regional context respectively in order to illustrate the complexitiesinvolved. The second proposes a provisional ‘stylised model’ for tackling thequestion of council de-amalgamation. In the final section some brief concludingremarks are forwarded.

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De-Amalgamation in Practice

As we have seen, apart from some limited descriptive work on a few historicalde-amalgamation episodes, such as ACELG (2011), Chen (2002) and Sancton(2011), in the peer-reviewed academic work no analytical literature exists oneither optimal de-amalgamation design or on how to minimise the costs of de-amalgamation processes. This has complicated the task of developing a genericblueprint for Australian de-amalgamation processes, which could assist publicpolicy makers. Given the paucity of scholarly work in the area, the best way ofacquiring an appreciation of the economic and political difficulties involved inattempts at ‘unscrambling the egg’ of local authorities previously consolidatedinto a larger unified local government entity is to consider real-world examplesof de-mergers. Even this ‘minimalist approach’, however, is problematic againdue to the paucity of scholarly literature on de-amalgamation. At the very least,we need to consider capital city and non-metropolitan examples in order toreflect the structure of Australian local government. Fortunately, the only twodocumented case studies we could find in the peer-reviewed academic literaturerepresent these two categories. In this section we thus examine amalgamationand subsequent de-amalgamation in Montreal in Quebec, as well as the mergerand de-merger of Delatite Shire Council in Victoria. These synoptic ‘casestudies’ are selected on the pragmatic basis that they provide instances ofmetropolitan and regional de-mergers respectively, and they are the only well-documented cases we could find in the peer-reviewed literature within thisalmost entirely neglected academic field.Despite the marked similarities between Australia and Canada, Canadian

provincial governments have been much less inclined to embark on programs offorced amalgamation than their Australian state counterparts (Dollery, Garceaand LeSage 2008; Garcea and LeSage 2005). Nevertheless, episodes ofcompulsory consolidation have occurred in some of the more populous Easternprovinces, including Quebec. For instance, in Quebec, between 1961–2000, thenumber of local authorities fell from around 1,750 to slightly in excess of 1,300,and over the period 2001–02, suburban municipalities surrounding central citylocal councils were merged in the larger cities, including Montreal (Sancton2011). Using the Bernard Report as its basis, the 28 municipalities comprisingthe greater Montreal Urban Community were amalgamated in 2001. TheBernard Report had recommended a three-tier system comprising the newMontreal Metropolitan Community, which covered the entire area of greaterMontreal, a new City of Montreal based on Montreal Island, and 27 boroughs.Each borough would continue to run a significant range of local services andlevy property taxes to finance its operations. Most of these recommendationswere enacted, with the important exceptions of property taxation powers forboroughs and their right to enter into collective bargaining with trade unions(Collin and Robertson 2005).In March 2003, a protest movement took root. Sustained political pressure

led the provincial government to provide a referendum mechanism for de-amalgamation, and a de-amalgamation referendum took place. The net resulthas been the establishment of 15 de-amalgamated municipalities with similarfunctions to the pre-amalgamation arrangements. The City of Montreal nowcomprised 19 boroughs which remained part of the municipal corporation of

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the city. Borough councils had the same functional responsibilities as the de-amalgamated municipalities, but could not levy taxes without permission fromthe City Council.What conclusions should be drawn from the experience of greater Montreal

with de-amalgamation? Andrew Sancton (2011, 164–65) has argued that threemain lessons emerged. In the first place, ‘it is no small accomplishment that theCharest government . . . followed through on its promise to create a mechanismfor de-amalgamation’. Second, the Quebec government ‘did absolutely nothingto harm the post-amalgamation fiscal position of the central cities, including thecity of Montreal’ and the ‘de-amalgamated municipalities escaped neither oldnor new fiscal burdens’, but regathered ‘the undisputed authority to tax theirproperty-owners to pay for local services at whatever rate they desired’. Finally,the net result has been ‘a single Canadian municipal corporation [with] threedistinct levels of political decision-making authority (borough, city, agglomera-tion)’.In 1994, the Kennett government reduced the number of Victorian councils

from over two hundred to just 78 local authorities. The forced amalgamationprogram was conducted under the Local Government (General Amendment) Act1993 which conferred upon the Governor-in-Council the powers to makeboundary changes to local government. Elected councils were dismissed andadministrators appointed to implement the compulsory consolidations recom-mended by the Local Government Board. In contrast to metropolitan areas,where council boundaries were comparatively arbitrary and residents imbuedwith little ‘sense of place’, the process was controversial in country Victoria,where there is stronger community of interest factors, more feeling ofattachment to local government jurisdictions, and the tyranny of distance.The amalgamation process sought to increase the efficiency of local

government through a combination of scale economies and competitionstimulated by Compulsory Competitive Tendering to induce cost savings. Sincethe costs of forced mergers had to be borne by affected councils themselves, andCommissioners were simultaneously instructed to secure 20 per cent in costsavings, the pecuniary consequences of the process were harsh for less affluentmunicipal entities.In November 1994 Delatite Shire was established through an amalgamation

of the City of Benalla, much of Benalla Shire, Mansfield Shire and parts ofViolet Town Shire. The resulting 22,000 population entity was ‘a very long andthin municipality stretching approximately 155 kilometres from end to end’, butonly 40 kilometres wide, with the ‘relationship between the northern section ofDelatite and the Mansfield region limited, reflecting the different economicbases of the northern and southern ends of the new Shire’ (Chen 2002, 3). Initialcommunity reaction to the amalgamation decision was ‘strongly negative’,especially in Mansfield, ‘with between 700 and 1,000 residents undertaking aprotest in the main street of the town’. Nonetheless, the forced mergerproceeded apace.Chen (2002) has argued that from the onset the ‘transition to democratic

government in the Shire of Delatite was problematic’. The transfer of authorityfrom the Commissioners to the new elected Delatite Council in 1997 coincidedwith several problems: the Shire’s CEO departed; financial stress flowed fromthe freeze on rates, the costs of amalgamation, and superannuation liabilities;

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and the Shire’s road base deteriorated as a consequence of reduced expenditure.As mounting problems emerged, the Mansfield community ‘continued tocriticise the new Council, arguing that the merger had not been successfullyconsidered or implemented’. Moreover, ‘as resources that had previously beenspent on service delivery were diverted towards finalising the amalgamationprocess, these complaints began to take the form of a call for de-amalgamatingthe Shire’ (Chen 2002, 5).The Kennett government lost power at the 1999 election, raising the

prospects that the new government would permit de-amalgamation. Inaddition, in 2000 the Mansfield and District Ratepayers’ Association(MADRRA) was formed on an anti-amalgamation platform and rancandidates in subsequent council elections. In the second post-amalgamationelections, four MADRRA members were elected, giving it four of eightcouncillors. The resultant stalemate provoked the Minister for LocalGovernment to set up a review by a Local Government Review Panel (LGRP)funded by Delatite Shire. The review process produced a report entitled Reviewof the Possible Restructuring of Delatite Shire: The Report of the LocalGovernment (Delatite Shire Council) Review Panel (Victorian State Govern-ment 2002).The LGRP focused on the financial viability of de-amalgamated municipal

entities centred on Benalla and Mansfield, and concluded that the proposednew local authorities would be financially sustainable with substantial rateincreases. The Victorian government accepted the recommendations of theLGRP Board’s findings. In 2002, it announced that the Delatite Shire would beabolished and replaced by Benalla Shire with 13,500 residents and MansfieldShire with a population of 6,600.What lessons can be learned from the amalgamation and ensuing de-

amalgamation of Delatite Shire? The Australian Centre for Excellence in LocalGovernment (2011, 124–25) contended that six general conclusions can bedrawn. In the first place, ‘hasty and poorly planned amalgamations, which donot involve adequate consultation, will result in poor outcomes and disaffectedcommunities’. Second, ACELG (2011, 124) stressed that the Delatite Shireepisode does not represent ‘an argument against amalgamations per se’ ongrounds that an ‘adequate consideration of strategic capacity probably wouldhave highlighted the lack of a substantial rationale for merging such disparateand far-flung communities as Benalla and Mansfield and looked at otheroptions instead’. Third, it concluded that ‘well-organised grassroots campaignscan achieve significant outcomes’, such as de-amalgamation. In addition,the success of the Delatite anti-amalgamation campaign has inspired similarcrusades in councils faced with forced mergers in other states, like Pittwater andHunters Hill in New South Wales, as well as Walkerville in South Australia. Inthe fifth place, ACELG (2011, 124) claimed that ‘there is a lingering questionmark over the extent to which Mansfield residents – let alone the whole Delatitecommunity – supported de-amalgamation and the attendant costs’ since nodefinitive referendum was ever held. Finally, ACELG (2011, 124) reiterated that‘there are obvious lessons for governments that community consultation hasto be undertaken comprehensively and seriously when major structural changesto local government such as amalgamations (or de-amalgamations) arecontemplated’.

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If we combine the broad inferences which can be drawn from these two casestudies with the wider empirical literature on local government size andeconomic efficiency, then a more general conclusion would point to the genericdifficulties surrounding the amalgamation of non-metropolitan councils – withthe partial exception of so-called doughnut shires encircling substantial countrytowns characterised by high levels of inter-jurisdictional externalities derivedfrom residents simultaneously living and working in contiguous council areas,and with no costly distance factors (Dollery and Crase 2004). Dollery, Wallisand Akimov (2010) have demonstrated the economic significance of localcouncils in the economies of small towns, especially in employment terms, andthe commercial consequences of moving councils out of small towns. TheAustralian Centre for Excellence in Local Government (ACELG 2011) hasargued that worthwhile scale economies do not normally flow from mergers, afinding borne out in numerous empirical studies (see, for example, Byrnes andDollery 2002; Dollery, Byrnes and Allan 2007). Similarly, council amalgama-tions seem to threaten the ‘sense of place’ for residents, and engender a fear of aloss of ‘local voice’ and ‘local choice’. Chen (2002) and ACELG (2011) andhave drawn attention to the high transactions costs attendant upon mergers,and the inhibitive constraints imposed by distance on amalgamation as aninstrument of reform in country regions.Evidence exists however, which seems to suggest that greater administrative

and technical capacity can arise as a result of amalgamation. For instance,Dollery, Crase and Johnson (2006) have argued that greater local governmentcapacity is a function of council size. Similarly, ACELG (2011, 10) pointed toenhanced ‘strategic capacity’ emerging from council consolidation programs. Itadded the caveat however that other forms of structural reform can also achievethis end, including regional organisations of councils, shared service arrange-ments, and the like.From the brief sketches of amalgamation and subsequent de-amalgamation

in both the metropolitan and regional contexts, it is evident that these episodesare not only financially costly, but also divisive in the communities concerned.The two case studies illustrate that the net result of de-amalgamation may notbe a return to the original status quo but rather a different configuration of localcouncils and patterns of local representation; a fact which should be borne inmind when contemplating de-amalgamation.

Proposed De-Amalgamation Processes and Principles

The possibility of local government de-amalgamation attempts in Queenslandraises hitherto unexplored questions about how the problem should best beapproached by state and territory departments of local government policymakers, state local government associations, amalgamated councils, and localcommunities contemplating de-merger. In particular, what key elements need tobe addressed to evaluate de-amalgamation proposals and what formal andinformal criteria should de-merger proposals satisfy?Before we develop the key ingredients involved in de-merger processes, it is

worth briefly considering the drivers and preconditions necessary for de-amalgamation to occur. As we have seen the ACELG (2011, 124) concluded thatwhile hasty and inadequate community consultation prior to amalgamation,

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‘poorly planned amalgamations’ with disappointing outcomes, pursuit of costsavings ‘without regard to strategic outcomes’, and combining ‘disparate andfar-flung communities’ sowed the seeds of amalgamation, the catalyst forsuccessful de-mergers may be found in ‘well-organised grassroots campaigns’. Ifthese conditions are present, together with state legislation allowing de-mergersto occur, the situation may then be ripe for de-amalgamation. In this part of thepaper, we advance five basic elements that must be considered for a de-amalgamation process to proceed with sound prospects of success:

(1) De-Amalgamated Entities Should be Carefully Designed

In common with most other political institutions, local government is to a largeextent a product of past historical forces and subsequent trends in economicdevelopment and population growth. This has imbued most local authoritieswith ‘path-dependency’ characteristics, which have yielded a contemporarystructure and boundaries that are seldom optimal. It follows that when two ormore of these local councils are compulsorily consolidated, the newgovernmental entity often tends to inherit these path-dependent characteristics.If a sufficient degree of community discontentedness flows from a forcedamalgamation of this kind, and de-amalgamation is seriously contemplated,then a new sub-division is unlikely to simply revert back to identical pre-mergerboundaries. A much more probable prospect is that state government-initiatedreviews will try to design new entities to maximise council sustainability andlocal community wellbeing. De-amalgamation proposals should thus try to planthe new fragmented council spatial structures to incorporate current and futurepatterns of economic development, population growth, urbanisation, and thelike. Not only is this approach desirable in its own right, but it is also essentialgiven the political realities in which Australian local government operates in allstates and territories.Local councils in Australian local government systems are ‘creatures of

statute’ in the sense that their existence, boundaries, functions, powers andstructures depend on their parent state and territory governments, as expressedin their respective local government enabling acts (Aulich 1999). The sweepingauthority that Australian state and territories possess over local councils intheir jurisdictional local government systems (Dollery, O’Keefe and Crase 2010)necessarily demands that advocates of de-amalgamation proposals must be ableto convince state and territory governments, departments of local governmentand ancillary agencies, that the new de-merged local government entities meetreasonable standards of coherence: such as enjoying substantial local politicalsupport, comparatively low transactions and transformation costs, and ongoingprospects of financial viability.

(2) De-Amalgamation Proposals Must Command DemonstrableCommunity Support

In common with other tiers of government, the lifeblood of local governmentderives from its democratic legitimacy. It follows that, in an analogous fashionto the Quebec legislation, some formal process must be created by stategovernments to provide a mechanism for eliciting community views on

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de-merger proposals in a procedurally sound manner. As we saw in the case ofMontreal, a de-consolidation referendum could take place provided that 10 percent of eligible voters signed a petition requesting a referendum. A seconddecision rule would also be required in terms of minimum required support inthe actual referendum itself, such as a bare majority of 50 per cent of the votes infavour of de-amalgamation.Legislation of this kind already exists in some Australian local government

systems, albeit concerned with amalgamation rather than de-amalgamationproposals. For example, the Western Australian Local Government Act (LocalGovernment Act, Western Australia [LGA WA] 1995) stipulates that shouldthe Local Government Advisory Board submit a report to the Minister forLocal Government recommending an amalgamation proposal be accepted, itmust notify electors of their right to petition the Minister for a poll on therecommendation. A valid petition must contain the signatures of either 250electors or 10 per cent of electors of one of the local government areascontained in the proposal, whichever is the lesser. If a petition meets thiscriterion, then a poll must be conducted in one or more of the affected localgovernment jurisdictions. A valid poll requires at least 50 per cent of electors ofan affected local government to vote. If one or more of the polls returns amajority against amalgamation, the result is binding on the Minister and theamalgamation cannot proceed (LGA WA 1995, xx3.61–6.38).In addition to formal requirements along these lines, in practical terms state

governments would be most unlikely to support any proposed de-amalgama-tion unless it enjoyed a demonstrable degree of political support in the affectedlocal communities prior to petitions and referenda. From the perspective ofboth proponents and opponents of de-mergers, this would obviously involve acontest for the ‘hearts and minds’ of residents in amalgamated local authorities,to garner sufficient political support to induce departments of local governmentto initiate formal democratic processes ruling on de-amalgamation proposals,as exemplified by the activities of MADRRA in Delatite Shire.

(3) New Entities Must be Viable

Over the past decade, Australian local government policy makers have focusedheavily on the question of the ‘financial sustainability’ of individual localcouncils to the virtual exclusion of other factors impinging on the broadersustainability of local government. For instance, at the state level: the SouthAustralian Financial Sustainability Review Board’s (2005) Rising to theChallenge, the Independent Inquiry into the Financial Sustainability of NSWLocal Government’s (2006) Are Councils Sustainable?, the Queensland LGAQ(2006) Size, Shape and Sustainability program, the Western Australian LocalGovernment Association (2006) Systemic Sustainability Study and the LocalGovernment Association of Tasmania (2007) Review of the FinancialSustainability of Local Government in Tasmania all had at their core theproblem of assessing financial sustainability in their respective local govern-ment systems. Similarly, at the national level, the PriceWaterhouseCoopers(2006) National Financial Sustainability Study of Local Government consideredthe problem of financial sustainability across all Australian local govern-ment jurisdictions, and the Productivity Commission (2008) examined the

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revenue-raising capacity of Australian local government. These inquiries serveto demonstrate that Australian local government faces severe fiscal distress,typically manifested in a massive and growing infrastructure backlog. Financialsustainability is thus a central concern in any proposed de-amalgamationprocess.It has been argued however, that not only does ‘financial sustainability’

have no agreed meaning in Australian local government, but also it representsonly a single dimension of overall council sustainability (Dollery, Byrnes andCrase 2007). Indeed, available evidence suggests that the primary cause oflocal government failure lies in ‘infighting’ in elected councils and in attendant‘policy gridlock’ rather than financial collapse. Dollery, Crase and Grant(2011) have argued that other attributes apart from financial sustainabilitymust be included in order to arrive at an accurate assessment of aggregate‘overall sustainability’ in local government. They contend that ‘many factorsclearly play an important role’, including ‘local government democracy’, ‘localgovernment capacity’, a local ‘sense of place’, ‘community sustainability’,‘local social capital’, ‘local preference diversity’, ‘local leadership’ and ‘localeconomic development’. Dollery, Crase and Grant distilled these factorsinto three main ‘clusters’ of attributes of overall local council sustainability:(a) the ‘vibrancy of local democracy’; (b) ‘local social capital’; and (c) ‘localgovernment capacity’.While this serves as a welcome reminder that local government sustainability

cannot simply be reduced to financial sustainability per se, it nonetheless seemsto swing the pendulum too far away from the importance of fiscal viability. Amore balanced analysis has been offered by Dollery, Goode and Grant (2010)who proposed ‘four pillars of sustainability’ as guiding principles in the designof structural reform programs in small non-metropolitan local authorities, suchas Benalla and Mansfield, which can inform debate on de-amalgamationprocesses. These ‘four pillars’ consist of financial sustainability (i.e. localcouncils must be financially viable), economic sustainability (i.e. the economyof a local government area must be viable), community sustainability (i.e.education, health and other community services of a local government areamust be adequate) and environmental sustainability (i.e. a local council must beable to administer adequately environmental legislation).Against this background, it is argued that the new smaller local government

entities should be demonstrably viable in terms of the Dollery, Goode andGrant (2010) ‘four pillars’. A test of viability of this kind would not onlyincorporate local government financial sustainability, but also ensure that it didnot become the only (or even main) standard by which the viability of theproposed derivative local councils would be judged.

(4) Transaction Costs and Transformation Costs Must be Minimised

An important corollary to the question of ongoing viability resides in the initialcosts involved in de-amalgamation being minimised since many of these will beborne by the councils concerned. Not only is this question of considerablepolitical importance to protagonists in the debate surrounding the desirabilityof any de-merger, but it would be vital for state politicians as well asDepartment of Local Government policy makers.

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An important distinction in this regard should be drawn between transactioncosts (Williamson 1981) and transformation costs (Wallis and North 1986).While it is difficult in practice to draw a definitive distinction betweentransaction costs and transformation costs (see, for instance, Langlois 2006), inthe context of structural change in local government, transaction costs refer tothe costs associated with deciding on whether or not to de-merge a constellationof previously consolidated councils, including the imposts on the public purserelated to consultant reports, Department of Local Government inquiries,petitions, referenda, and the like. By contrast, transformation costs refer to thecosts of implementing any subsequent decision to de-amalgamate, whichinclude the expenses surrounding the de-establishment of the existingamalgamated council and the establishment of the new municipal entities.Whereas both transaction costs and transformation costs will be typicallyconcentrated in the early stages of a de-merger, they can extend beyond thisperiod, especially transformation costs.Various strategies can be designed to limit the extent of transformation costs.

For example, instead of a de-amalgamation process spawning several separatelocal authorities, each with its own administrative and service provisionstructure, the new entities could be politically independent each with its ownelected council, general manager and central administration, while relying stillon inherited shared service arrangements from the ‘old’ amalgamated localauthority administration. Put differently, this would entail the creation of newpolitical entities, with some managerial, administrative and advisory capacity,to facilitate independent decision-making, with the retention of the existingservice providing entities as far as possible. Not only will this serve todrastically reduce the transformation costs of a de-merger, but it will alsogenerate other pecuniary and non-pecuniary benefits, such as some scaleeconomies, economies of scope, and comparatively high levels of administrativeand technical capacity known to be associated with shared service models inAustralian local government (see, for instance, Dollery and Akimov 2009;Dollery, Grant and Akimov 2010). In terms of sheer pragmatic politicalconsiderations, it need hardly be added that efforts to minimise the costs of de-amalgamation are likely to appeal to local communities and state governmentsalike.

(5) Potential Sources of Conflict Must be Minimised

As we have seen, in common with episodes of amalgamation, de-mergerscontain many of the ingredients which can ignite conflict and division in theaffected local communities. While the sources of such conflict are likely todiffer from case to case, they usually centre on the perceived equity of the‘division of the spoils’. It follows that careful consideration should be given tothe thorny problem of the dissolution of the amalgamated council anddistribution of post de-amalgamation assets, debt, endowments, investments,and the like. It is argued that two principles should guide decisions in this area.In the first place, to the extent that this is feasible, assets, debt, endowmentsand investments held by pre-amalgamated municipal entities should beallocated to de-merged councils on the basis of earlier council boundaries,and on pro rata grounds where earlier council boundaries do not exactly

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coincide with de-amalgamation boundaries. Second, assets, debt, endowmentsand investments acquired by the amalgamated council after the compulsoryconsolidation should be distributed upon dissolution in accordance with thesize of the new entities, as measured by population, spatial area, or some otheragreed criterion.It is recognised that the implementation of these two principles is bound to be

fraught with difficulties and tensions. Two factors can serve to minimise thesedifficulties. First, we have already argued that de-merged councils should relyon inherited shared service arrangements as much as possible. If this is done,then the need for the extensive distribution of assets, debt, endowments,investments, and so forth, will diminish since the great majority of assets will beinvolved in joint service platforms for member councils. Second, ex ante stateregulation in the form of ‘commonsense’ rules for the distribution of assets, aswell as judicious ex post Department of Local Government guidance, couldreduce the potential sources of conflict.At least two further considerations should be borne in mind. In the design of

their ‘sustainable amalgamation model’, Dollery, Goode and Grant (2010, 300–01) made careful note to incorporate safeguards against ‘a common fearfrequently attendant upon amalgamation in country areas’ revolving around‘reserve funds accumulated over the years by the constituent shires [which]would simply be ‘‘swallowed’’ by the new entity’. They argued that the bestmeans of ameliorating these concerns ‘would be to stipulate that such fundsmust be utilised for the purposes for which they were established and thereforeexpended within the district in which they were raised’, which could involve‘establishing a Community Trust which can accept and manage any funds onbehalf of a designated local community, as well as accepting funds fromindustry for designated community projects’. It seems that this approach couldalso be used in reverse in the context of de-amalgamation to manage assetsacquired by the former consolidated entity.The question of staff devolution must also be addressed. From the

perspective of employees, both amalgamation and de-amalgamation mustinevitably invoke disquiet over job security and future career progression. Ifexisting amalgamated service provision arrangements are maintained in theform of ongoing shared service platforms by the new decomposed councils, thenfor the bulk of workers these apprehensions will be at least partially stilled. Forthe remainder of the staff however, it is suggested that workers be allowed toindicate preferences for which of the de-consolidated councils they would mostlike to work, with the caveat that preferences will be accommodated as far aspractically possible.

Concluding Remarks

Of all the policy instruments in the arsenal of local government policy makers,structural reform is by far the most controversial, especially in the form offorced amalgamation. It is thus hardly surprising that state and territorygovernments intent on significant local government reform through far-reaching compulsory consolidation typically use ‘Blitzkrieg’ tactics in orderto rapidly force targeted amalgamations and thereby forestall the mobilisationof effective opposition, as exemplified by the Kennett government in Victoria

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(ACELG 2011; Chen 2002) and more recently by the Beattie government inQueensland (Dollery, Ho Chong Mun and Alin 2008). While this approach isunderstandable from a pragmatic political perspective, it is little wonder thatmany people in affected local communities are left aggrieved and that thehurried implementation of compulsory consolidation is prone to error. The netresult is often festering discontent which can quickly bloom into effective localcampaigns for de-amalgamation, as illustrated in the case of Delatite Shire.From the perspective of optimal public policy design, the question then arises ashow best to proceed in order to minimise costs and maximise the benefitsattendant upon any de-amalgamation.In the context of an almost total absence of analytical work on the problem

of an optimal approach to local government de-amalgamation, this exploratorypaper has sought to at least partly fill this gap in the literature by proposing atentative prescriptive model for tackling the question in the Australian localgovernment milieu. While our model should perforce be regarded as apreliminary and exploratory attempt at engaging with the thorny problem ofhow to design a de-merger process to minimise conflict and disharmony, limitsocial costs and maximise the prospects of success, it is argued that the fivegeneric principles developed in this paper can form the bedrock of real-worldpolicy formulation across the various Australian state and territory localgovernment jurisdictions. Although the model can be seen as equally relevantfor metropolitan and regional de-consolidation processes, we think it is perhapsbest suited to non-metropolitan cases, where local government plays a muchlarger role in the economic, political and social fabric of society. Given thedivisive nature of forced amalgamation, as well as the tensions which wouldinevitably follow any subsequent de-merger, particularly in non-metropolitansettings, our approach has focused special attention on trying to limit the degreeof local community division.

Acknowledgements

The authors would like to sincerely thank two anonymous referees for their most usefulcomments on an earlier draft of the paper.

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