Secret KPMG report brings NSW council mergers unstuck

By Julian Bajkowski

Tuesday March 28, 2017

The deliberate suppression of key advice to the New South Wales government on the forecast financial workings of the state’s embattled council merger process has come back to haunt policymakers, after the NSW Court of Appeal upheld a crucial appeal on grounds of denial of procedural fairness.

In a stinging result for the Office of Local Government, Ku-ring-gai council, which is fighting off amalgamation with its neighbour Hornsby council, successfully gained a stay of execution after its lawyers argued that withholding a key KPMG analysis from the person recommending the amalgamation (called a delegate) essentially undermined his ability to make a proper call on the issue.

Costs were awarded against the state government.

Although the decision is unlikely to deter the NSW government from persevering with its program of metropolitan mergers — especially as the state holds the ultimate whip hand in how councils are constituted — the successful appeal has thrown a spanner in the works in terms of how the merger process is played out.

Ku-ring-gai’s successful appeal is also quickly shaping-up as a reference point in why not to bury key documents and evidence under official secrecy in order to get a process or significant changes moving.

Councils in NSW have spent more than a year fighting for the release of the KPMG report that spells out the financial modelling and analysis of the mergers being instigated by the government.

While councils themselves have not had access to the document itself, many of them have directly contested its conclusions as inaccurate or flawed based on their own financial analysis.

Ironically, KPMG also undertook modelling for some NSW councils, results that were made public.

Many believe that a key risk for the government is that much of KPMG analysis being used to justify the mergers as financially beneficial are either underwhelming or unrealistically narrow to actually result in savings.

Leaked elements of the KPMG report have also identified the task of integrating different council IT systems as high risk but did not put a price tag on what the ultimate integration bill may be.

One of the three judges hearing the case, Justice Basten, put the paucity of information this way:

“The Minister acknowledged that the document referred to in the second footnote, the main title of which was “Merger Impacts and Analysis”, was a “long form document” prepared by KPMG, which had not been made available publicly, or to the delegate or to the appellant. The Minister acknowledged that there was no other apparent source for the information contained in the passage set out in the proposal. Although a short version of the “Merger Impacts and Analysis” document had been publicly released (and was before the Court), the long form of the document had not (and was not). However, the short form document suggests that the long form document addressed, on a case-by-case basis, the “Long-Term Financial Plans” for the councils involved in specific amalgamations,” Basten said in the judgement handed down on Monday.

The peak body for councils, Local Government NSW, wasted no time in firing a broadside at ministerial suite where it has already won a reprieve from instigating regional and rural council mergers on the back of bad electoral jitters.

“The old saying is that loose lips sink ships, but in this case it looks like secrecy and a lack of transparency has done a job on the SS Forced Council Amalgamation,” LGNSW president Keith Rhoades said.

“Today’s judgment poses a real problem for the government, because every delegate for every forced amalgamation that has taken place relied on this unseen KPMG Report.”

The successful appeal could also pose a future problem for councils that unhappily agreed to amalgamate rather than go to court to fight for their independence (which can always ultimately be quashed by the state government). Councils in NSW are prevented from jacking up rates without the state governmet’s blessing under a regime known as ‘rate capping’.

In the event of serious cost blowouts resulting from amalgamations, council administrators are likely to hit-up the state government for extra funding to prevent services being scaled back to cut costs, a situation that helped dispatch the Beattie/Bligh government in Queensland when mergers there were botched.

According to the office of NSW Local Government Minister Gabrielle Upton, the NSW government remains committed to the merger of Hornsby and Ku-Ring-Gai councils and is considering the judgement.

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