Saving Local Government: Financial Sustainability in a Challenging World 9811643342, 9789811643347

Table of contents :
Contents
Chapter 1: Saving Local Government: Financial Sustainability in a Challenging World
Why Save Local Government?
Why I Wrote This Book
Background
Kal Vahomer and Personal Budgets
A Health Metaphor and Outline of Book
Using This Book as a Manual
My Hope
References
Chapter 2: Principles of Local Government Health
Introduction
Natural Law and Local Government
The Wherefore of Local Government
The Decentralisation Theorem
The Principle of Subsidiarity
Principle of Double Effect
Prescription and Conclusion
References
Chapter 3: Evaluating Public Policy Interventions
Introduction
Three Lenses Through Which to View Success
An Epistemology of Success
A Moral Lens for Evaluating Success
Prescription and Conclusion
Concluding Comments for Part I
References
Chapter 4: Local Government Amalgamations
Introduction
Key Theoretical Concepts Associated with Amalgamation
Economies of Scale
Principle of Double Effect and Local Government Amalgamation
Why Amalgamations Often Fail to Live Up to Expectations
Shoddy Consultants
Sham Stakeholder Consultations
Unplanned and Under-Stated Expenses
Poor Post-implementation Planning
The Special Case of Rural Local Government
Alternatives to Radical Surgery
Conclusion and Prescriptions
References
Chapter 5: Local Government De-Amalgamation and Boundary Reduction
Introduction
Key Theoretical Concepts Associated with De-Amalgamation and Boundary Reductions
Planning an Efficacious Separation – A Detailed Template
Assessing the Patient
Detailing the Costs and Savings Associated with De-Amalgamation
The Moral Dimension of De-Amalgamation
The Transition Manager as Instantiation of Moral Consideration
Other (People) Matters
Post-separation Care
Conclusions and Prescriptions
References
Chapter 6: Moral Expenditure and Revenue
Introduction
Natural Law and Government Finance
Public Goods
A Suitable Tax Base for Local Government
Taxation Categories
Merit Goods, Goods with Externalities, and Subsidium
Private Goods
Conclusions and Prescriptions
Appendices
Appendix 1: Adapting Henry George’s (2006) Ideas to a World of High Density Living and Little Remnant Unimproved Land
Appendix 2: Land Tax Options – Base Rates, Minimum Rates, Taxation Limitations, and Pensioner Discounts.
Base Rates and Minimum Rates
Taxation Limitations (Rate Capping)
Pensioner Discounts
References
Chapter 7: Local Government Debt and Intergovernmental Grants
Introduction
Supplements and Their Effects – The Importance of Perspective
Fiscal Illusion
Local Government Debt
Intergovernmental Grants and Minimising Fiscal Illusion
Conclusions and Prescriptions
References
Chapter 8: Local Government and the Common Good
Introduction
The Common Good
Discovering the Common Good
Planning the Common Good
Two Examples of Planning for the Common Good
Conclusions and Prescriptions
Concluding Comments for Part II
Appendix: The Duties of the King
References
Chapter 9: Local Government Fiscal Emergency Response
Introduction
Warning Signs of Impending Crisis
Emergency Protocol
Local Government Emergency Interventions
Emergency Interventions that Require Co-operation of Higher Tier Governments
A Mentor Model for Providing Help
The Fiscal Physician
Conclusions and Prescriptions
References
Chapter 10: The Prognosis for Local Government
Introduction
Change of Philosophy
Knowledge
Conclusions and Prescriptions
References

Citation preview

Joseph Drew

Saving Local Government

Financial Sustainability in a Challenging World

Saving Local Government

Joseph Drew

Saving Local Government Financial Sustainability in a Challenging World

Joseph Drew University of Technology Sydney and Tokyo Metropolitan University Moonbi, NSW, Australia

ISBN 978-981-16-4331-6    ISBN 978-981-16-4332-3 (eBook) https://doi.org/10.1007/978-981-16-4332-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

1 Saving Local Government: Financial Sustainability in a Challenging World����������������������������������������������������������������������������    1 Why Save Local Government?����������������������������������������������������������������     1 Why I Wrote This Book��������������������������������������������������������������������������     3 Background����������������������������������������������������������������������������������������������     4 Kal Vahomer and Personal Budgets ��������������������������������������������������������     6 A Health Metaphor and Outline of Book������������������������������������������������     7 Using This Book as a Manual������������������������������������������������������������������     9 My Hope��������������������������������������������������������������������������������������������������     9 References������������������������������������������������������������������������������������������������    10 2 Principles of Local Government Health������������������������������������������������   11 Introduction����������������������������������������������������������������������������������������������    11 Natural Law and Local Government��������������������������������������������������������    13 The Wherefore of Local Government������������������������������������������������������    15 The Decentralisation Theorem����������������������������������������������������������������    17 The Principle of Subsidiarity ������������������������������������������������������������������    19 Principle of Double Effect ����������������������������������������������������������������������    24 Prescription and Conclusion��������������������������������������������������������������������    27 References������������������������������������������������������������������������������������������������    28 3 Evaluating Public Policy Interventions��������������������������������������������������   29 Introduction����������������������������������������������������������������������������������������������    29 Three Lenses Through Which to View Success ��������������������������������������    31 An Epistemology of Success ������������������������������������������������������������������    32 A Moral Lens for Evaluating Success������������������������������������������������������    37 Prescription and Conclusion��������������������������������������������������������������������    39 Concluding Comments for Part I ������������������������������������������������������������    41 References������������������������������������������������������������������������������������������������    41

v

vi

Contents

4 Local Government Amalgamations��������������������������������������������������������   43 Introduction����������������������������������������������������������������������������������������������    43 Key Theoretical Concepts Associated with Amalgamation ��������������������    45 Why Amalgamations Often Fail to Live Up to Expectations������������������    53 The Special Case of Rural Local Government����������������������������������������    60 Alternatives to Radical Surgery ��������������������������������������������������������������    62 Conclusion and Prescriptions������������������������������������������������������������������    64 References������������������������������������������������������������������������������������������������    66 5 Local Government De-Amalgamation and Boundary Reduction��������������������������������������������������������������������������������������������������   69 Introduction����������������������������������������������������������������������������������������������    69 Key Theoretical Concepts Associated with De-Amalgamation and Boundary Reductions������������������������������������������������������������������������    72 Planning an Efficacious Separation – A Detailed Template��������������������    74 Post-separation Care��������������������������������������������������������������������������������    82 Conclusions and Prescriptions ����������������������������������������������������������������    84 References������������������������������������������������������������������������������������������������    87 6 Moral Expenditure and Revenue������������������������������������������������������������   89 Introduction����������������������������������������������������������������������������������������������    89 Natural Law and Government Finance����������������������������������������������������    91 Public Goods��������������������������������������������������������������������������������������������    94 Merit Goods, Goods with Externalities, and Subsidium��������������������������   100 Private Goods ������������������������������������������������������������������������������������������   102 Conclusions and Prescriptions ����������������������������������������������������������������   105 Appendices����������������������������������������������������������������������������������������������   108 References������������������������������������������������������������������������������������������������   114 7 Local Government Debt and Intergovernmental Grants��������������������  117 Introduction����������������������������������������������������������������������������������������������   118 Supplements and Their Effects – The Importance of Perspective������������������������������������������������������������������������������������������   119 Local Government Debt��������������������������������������������������������������������������   122 Intergovernmental Grants and Minimising Fiscal Illusion����������������������   127 Conclusions and Prescriptions ����������������������������������������������������������������   131 References������������������������������������������������������������������������������������������������   133 8 Local Government and the Common Good������������������������������������������  135 Introduction����������������������������������������������������������������������������������������������   136 The Common Good����������������������������������������������������������������������������������   138 Discovering the Common Good��������������������������������������������������������������   142 Planning the Common Good��������������������������������������������������������������������   145 Conclusions and Prescriptions ����������������������������������������������������������������   149 Concluding Comments for Part II������������������������������������������������������������   151 Appendix: The Duties of the King����������������������������������������������������������   151 References������������������������������������������������������������������������������������������������   152

Contents

vii

9 Local Government Fiscal Emergency Response ����������������������������������  153 Introduction����������������������������������������������������������������������������������������������   154 Warning Signs of Impending Crisis ��������������������������������������������������������   156 Emergency Protocol��������������������������������������������������������������������������������   160 A Mentor Model for Providing Help ������������������������������������������������������   164 The Fiscal Physician��������������������������������������������������������������������������������   166 Conclusions and Prescriptions ����������������������������������������������������������������   167 References������������������������������������������������������������������������������������������������   168 10 The Prognosis for Local Government����������������������������������������������������  171 Introduction����������������������������������������������������������������������������������������������   172 Change of Philosophy������������������������������������������������������������������������������   173 Knowledge ����������������������������������������������������������������������������������������������   175 Conclusions and Prescriptions ����������������������������������������������������������������   176 References������������������������������������������������������������������������������������������������   177

Chapter 1

Saving Local Government: Financial Sustainability in a Challenging World

Truth does not become more true by virtue of the fact that the entire world agrees with it, nor less so even if the whole world disagrees with it. Maimonides, The Guide for the Perplexed (1956 [1190])

Abstract  In this chapter I make the case for why we should save local government. Following this I discuss a recent consulting engagement for a beautiful community that motivated me to go through the toil of writing yet another book. Thereafter I outline the rhetorical practice of kal vahomer and explain how it can help us gain new insights into morally licit local government finance. I then discuss the major areas that we will examine throughout this book, before revealing my hopes for both this tome and local government.

Why Save Local Government? Local government across the globe provides important public goods and services upon which most of us rely on a daily basis. Curiously though, few of us acknowledge this close dependence on local government – rarely do we give local government a thought as we drive along its roads, take our trash out to the bin, or turn on our faucets. Indeed, you probably take it for granted that you will be able to access these services on a daily basis, and that your children and grandchildren will also benefit from similar services in the future. However, as an increasing number of communities are finding out –  much to their dismay – this assumption is far from an apodictic (beyond dispute) premise. For instance, in the Australian state where I live, Central Darling Shire effectively became insolvent in December 2013 leading to a period of at least ten years of financial administration. Jobs were slashed, services such as rubbish collection deemed discretionary extravagances, and the community was denied a voice in the © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_1

1

2

1  Saving Local Government: Financial Sustainability in a Challenging World

affairs of what is supposed to be the level of government closest to the people (Drew &Campbell, 2016). Indeed, between writing this chapter and going to print yet another local government in New South Wales, Australia, was forced into financial administration – Central Coast (a large metropolitan Council which was amalgamated in May 2016). I know similar bankruptcies and solvency crises have occurred abroad – most notably in the United States, but also the United Kingdom, Germany, South America, and China. The events are not always well-publicised and sometimes clandestine bailouts are executed to avoid public exposure. But what these events have in common is that they show us that our assumptions about continued service provision are probably much shakier than most of us would like to believe. When local governments fail financially people suffer. In addition to the direct job effects and service interruptions that I noted earlier, there are also a number of indirect effects. Especially for the case of rural areas, the failure of a local government represents a large shock to the local economy because invariably local government is both the major employer as well as the employer of choice (in terms of wages and conditions). A reduction in jobs therefore flows on to local retailers. In addition, where municipal bonds are traded (something that doesn’t happen in my part of the world), substantial wealth may also disappear when local governments fail. Moreover, the almost inevitable bailout by higher tiers of government – whether it is done openly or behind closed doors – means that other local governments and taxpayers across the state all end up effectively paying to fix a problem that they had no part in making. For example, in the case of Central Darling Shire in New South Wales (NSW) Australia, intergovernmental grants rose by around twenty-two percent in the first few years following administration, despite a freeze to the overall federal grants programme. What this means is that close to a million dollars was taken out of the grant money pool that would ordinarily have been destined for other local government areas in the state. When the local government in question is an isolated case of financial failure in the remote outback, 970 km from the capital city of Sydney, few know about the consequences and even fewer seem to care. However, as we begin to accumulate multiple failures, as well as failures in much more densely populated areas, then we will end up with much more pervasive effects on people’s lives that will force us to care. In times past, I used to boldly predict that the next financial crisis would be a crisis brought about by sub-national financial failure. However, the economically destructive public policy responses to COVID-19 saw my prophecy fail to be realised. Nevertheless, I haven’t given up my fear that eventually the sub-national financial crisis I predicted will indeed come to pass. Even if we manage to avoid the wide-ranging financial failures of local government that I fear, we will still all lose out if we neglect to save local government. As you will discover throughout this book I have a firm belief in the potential for local government to be much more than it is – to perform more of the functions we rely on and care about (often currently delivered by state and federal governments), provide a greater voice for citizens about matters integral to their lives, and help us all to fight back against Leviathan-like central governments that ‘uses its subjects as beasts, according to the violence of their own wills and inclinations…as wholly carried away with the lust of power’ (the first century historian Josephus Flavius in

Why I Wrote This Book

3

Whiston, 1987, p. 156). In short, I believe that local government could be the key to greater freedom and a more just world,1 but only if it is strong and vigorous – not on life-support as so many local governments appear to be.

Why I Wrote This Book At the beginning of 2020 I had the absolute honour to provide expert help to a struggling rural community of around 10,000 souls reeling from the effects of an unpopular forced amalgamation programme three years earlier. This was by no means my first engagement in consulting, nor likely to be my last. But it got me thinking about the desperate need for real independent expertise which stands in stark contrast to most of the snake-oil commercial consultants I have encountered who take local community money and invariably leave a bigger mess behind them than what motivated the initial engagement in the first place. During the course of three months I worked closely with the elected representatives, executives, media, and the community. What I found myself dealing with was a group of wonderful people all wanting to genuinely do their best but, without the anchor of theory and independent advice, having no idea what ‘the best’ was. Like any group of people there was a mix of perspectives that needed to be responded to. Some simply didn’t want to face the facts – that their local government was quickly going insolvent and that the obvious solutions were either more revenue or less expenditure. Others wanted to avoid hard decisions that would cause pain, and also avoid acknowledging that the longer decisions were put off the more pain would ultimately have to be suffered. Yet others were distracted by every piece of advice they could source from social media or self-professed experts and had to be constantly brought back to focus on the substantive matters at hand. Moreover, a large part of the community were still angry that they had been forced into an unpopular amalgamation, in the first place, and simply wanted to blame the other community and the state government for their woes. It was a challenging mix of emotions and perspectives for an academic – who like most scholars – is more comfortable with books than people. But despite all the chaos and frustrating obstacles put before us by well meaning, and not so well-­ meaning, meddlers we did arrive at a plan for a path forward for the community. What impressed me most about this experience was the willingness and capacity of everyday people to learn about local government, engage with theory, and weigh up the pros and cons of various courses of action. In a public meeting, just as the hysteria of COVID-19 was commencing, around 400 people generously gave up over an hour of their time to listen to an address about the options and a plan for a path forward. Many spoke to me for some time afterwards and I was heartened by the thought and sophistication of the questions they put to me.

1  This is the topic of the third (and last) book of this series, provisionally titled Natural Law and Government, due to be completed sometime in 2022.

4

1  Saving Local Government: Financial Sustainability in a Challenging World

One older lady in particular  – let’s call her Pam  – spoke to me after a public meeting. For months I had been uploading short videos regarding various theories and options pertaining to the community’s situation. She had clearly watched every one of these videos and put a lot of thought into what should be done next. Moreover, she was absolutely terrified that the community would be forced into financial administration and worried about how the failure of the local government would affect her meagre savings. This encounter with Pam reinforced to me the importance of saving local government. Local government is not just an institution  – it is a community of people. Pam’s fears and diligence in researching various options brought into stark relief for me that when local governments fail, people get hurt. This book is an extended answer to the questions posed by Pam – and all the other people like Pam out there.

Background It’s not usual for academics to interact so closely with local government politicians, media and everyday folk. Nor is it easy. However, I fervently believe it is critical that we academics do so in a wide range of endeavours. First, because our wages ultimately come from the community, thus obligating us to return some value. Second, because it forces us to find practical applications for our theories and empirical findings. And third, because I have witnessed so many appalling efforts by commercial consultants who charge a small fortune ($AUD 500 per hour or more), to produce work that I would be disappointed in had my twelve and fourteen year old sons produced it. For instance, in an engagement a few years ago a community asked me to evaluate some work done by one of the Big Four commercial consulting firms, that completely screwed up basic economic concepts (known to most high school students), and even had multiple adding up errors in the so-called empirical evidence tables. $AUD 60,000 doesn’t buy much it seems. Nor is this an isolated case – I have found other poor work by all of the major consulting houses and it is common wisdom within political circles that governments often pay to get the answer they want. I believe that most people need to become more critical consumers of information and understand that even academic perspectives are clouded by the background of the scholar. That’s why in both Reforming Local Government (Drew, 2020) and this sequel (my boys – Tom and Sam – tell me I must write three books so that the local government trilogy becomes complete2) I have disclosed a fair bit about myself. You should know the measure of the person who is providing you with advice, and you should be able to make your own decisions about whether the

2  They also tell me that each book must contain an extended discussion of our goats – two out of two so far (as you will find out)!

Background

5

person is providing you with sufficiently expert and objective information. Most academics probably think that they are beyond needing to prove their bona fides – that they can rest on their professorial salutation alone – but I am wanting you to challenge me and to do so I feel you must at least know the basic facts about who it is that you will be spending the next twenty hours or so with. I am a mixed up person (I mean this in a nice way). I have previously worked as a labourer, bank executive, and school teacher which has provided me with a unique insight into how power is maintained (and often abused) in professional relationships. I also have a diverse academic background which means that I never get boxed into a certain kind of thinking – I have been blessed to gain degrees in physical mathematics, education, theology, professional accounting, and economics. This means that I am as comfortable helping people to understand the finer points of the natural law principle of subsidiarity as I am discussing the failure, use and abuse of accruals accounting. My publication record reflects my diverse training. I pride myself on being frank, innovative and provocative  – as my academic hero Maimonides (natural law philosopher, sage, and physician to Saladin) said in the quote at the start of this Chapter, the truth is the truth and we should not hold back from saying so. I am, as I am sure you have already grasped, an Australian – and a middle age Australian at that. Therefore my perspective on local government will often refer to the unique and rather limited remit conducted by Australian local government. This doesn’t affect the validity or relevance of the theoretical matters that I explain throughout this book – it just means that a good proportion of the examples I appeal to will be, unsurprisingly, Australian. I have also been a landowner in three local government areas over the last quarter of a century (gee that makes me sound old!) that provide a nice illustration of the challenges facing those wishing to save local government. Each of these local governments had a unique nature (see Chap. 2), and unique financial sustainability concerns (sustainability is defined as the ability to provide goods and services needed by the community now and into the future). The first, was in an economically depressed city of around a quarter of a million people (big by Australian standards) – financially sound, but forced into an amalgamation with its more rural (and financially struggling) neighbour a few decades ago. At this local government area I saw good outcomes arise for the citizens residing in the weaker area but I also observed significant increases to my local government taxation bills. The second local government that I moved to was a small rural shire of just 6000 people. This local government had experienced a prolonged period of declining financial sustainability that motivated the state government to propose an amalgamation with a similar adjacent rural community. The amalgamation proposal was vigorously resisted and ultimately defeated. The community has since experienced even sharper declines in financial sustainability and as a result has struggled to fund important infrastructure and to attract suitably qualified executive staff. The local government that I now reside at is what Australians refer to as a large regional town centre (62,000 people). The community here was subjected to

6

1  Saving Local Government: Financial Sustainability in a Challenging World

multiple forced amalgamations a few decades ago. Since this time spending on discretionary services and infrastructure has become increasingly more profligate and evidence of its effects harder to discern as a result of some interesting interpretations of the Australian Accounting Standards. As things stand I expect my current community to also discover that it is financially unsustainable in the near future. Thus, I have personal experience of the three major kinds of local government in Australia, and first-hand knowledge of various approaches to dealing with waning financial sustainability: from denial and gay abandon, through to intervention. I believe these experiences, complemented by the work I have done for the full range of local governments in most states of Australia and abroad, has provided me with a unique perspective on what it is that we are trying to save and the efficacy of various treatments – see my discussion of aitia in Chap. 2 and policy success in Chap. 3. In the next section I will argue that the experience that most of us have in operating personal budgets over a lengthy period of time also provides us with important insights into what we must do to save local government.

Kal Vahomer and Personal Budgets The great Talmudic sage – Akiva – is credited with being the greatest proponent of an important, but rarely acknowledged, rhetorical device called kal vahomer. Essentially one who employs kal vahomer draws on the ordinary or ‘light’ practical examples, to argue for what ought to be done with respect to unusual or ‘heavy’ issues. ‘The structure of the logic is as follows: if X is true in a lesser situation, then kal vahomer (how much more so) should X be used in a greater situation’ (Holtz, 2017, p. 116). For example, if it is important to survey the opinions of people who might be affected by our personal actions, then kal vahomer it is important to get the views of key stakeholders when local government makes decisions that ordinarily have greater impacts. I believe the rhetorical technique of kal vahomer is particularly important to the sound financial operation of local government. We all manage our personal budgets and most of us do so prudently. Kal vahomer suggests that the prudence and care that we show for our personal finances should be mirrored (and even exceeded) by the prudence and care that we collectively show for our local government finances (a less rich version of this idea is sometimes referred to as Personal Finance Theory – see Drew, 2020). For instance, most of us routinely do the following when it comes to our personal finances: • Pay for our needs (such as food), before we spend money on wants (for example, computer games or holidays) • Budget for major expenses such as utility bills • Budget for key asset maintenance and renewal (for example, set money aside for new car tyres and ultimately a new car)

A Health Metaphor and Outline of Book

7

• Budget to fulfil our responsibilities to others that depend on us (such as setting aside money for our children’s education) • Only take out debt for items of enduring value (for example houses), rather than items that are immediately consumed (such as fine dining) • Earn our income in a morally licit way (for example, through employment rather than theft) • Do not believe that others should pay for what we consume • Do not expect strangers to bear the consequences of our financial decisions. Kal vahomer makes the case that this common-sense and responsible approach to our personal finances should be practiced with even more vigilance when it comes to the collective finances of government. However, as we will see in the next chapter, all people (including me) are far from perfect and we often neglect to do what we ought to. Indeed, sometimes it is difficult to know what the right course of action is, and other times we forget to pause and consider the rights and wrongs of a particular action. In this book I provide a robust philosophic foundation for local government, as well as some useful decision-making rules, that will help us to better understand what we ought to do to save local government. Throughout this book I will continuously make explicit and implicit reference to kal vahomer, as I believe that the moral standards we show with respect to our personal finances are often a sound guide to how we should act when it comes to collective government finances.

A Health Metaphor and Outline of Book A further metaphor that will thread its way through our journey on Saving Local Government is personal health. Perhaps my use of this metaphor is a reflection of watching too much of the Good Doctor and Doc Martin on television – but it is, nevertheless, a helpful way of thinking about local government finance. The vitality of local government can be usefully compared to one’s own health. Hopefully all my readers will be in fine fettle and if this is indeed the case then you are probably conscious of the fact that good health is no accident, nor is it the result of one-off ‘miracle’ medical interventions. Rather a healthy body is the product of thousands of everyday decisions regarding nutrition and exercise that most of us would agree should be guided by medical expertise. Indeed, only a ‘fool think[s] that a man (sic) needs a physician during his sickness only and at no other time’ (Maimonides, 2014, p. 32). Similarly, good fiscal health for local government is the product of thousands of decisions regarding suitable revenue (akin to nutrition) and appropriate expenditure (exercise). And only a fool would think that the desired state of fiscal health can be achieved without paying heed to the advice of fiscal physicians. This book is a prescription for good fiscal health delivered by someone who has unfortunately been called upon – too many times – to conduct drastic medical interventions to address

8

1  Saving Local Government: Financial Sustainability in a Challenging World

crises that might have been avoided had local governments instead practiced a sound regimen for health. Accordingly, this book is set out in three parts. In the first substantive section I look at what fiscal experts have to say about the nature of local government health. Following this I present a lengthy account of both the conventional treatments and more novel remedies for the various ailments of local government. I conclude in Part III with an account of emergency interventions (which are required when ‘patients’ eschew good advice) as well as my prognosis for the long-term wellbeing of the institution of local government. Thus, I commence Part I with Chap. 2 in which I outline the relevant theories of local government health that might be drawn upon by the expert to treat not merely the symptoms, but also the underlying cause of ill-health. I know many readers may be tempted to avoid this chapter but doing so would be a mistake, because we can’t possibly save local government until we have a shared understanding of what it is, and what it might become. Following this, in Chap. 3, I consider the oft overlooked question of how we might know if the treatments have been successful in bringing about the desired state of health. I will also discuss the importance of gaining consent for treatment and ensuring that the prescriptions are not only efficacious, but also morally licit. In Part II, I discuss both conventional and non-conventional treatments for various ailments. In Chap. 4, I investigate the efficacy of both amalgamation and co-­ operation treatment regimes. I pay particular attention to the logic underlying the intervention and the iatrogenic (problems arising from the purported treatment) complications commonly encountered. Following this, in Chap. 5, I explain the non-conventional treatment of de-amalgamation, focussing on the symptoms which might suggest this treatment as well as an explanation of the technique for delivering same. In Chap. 6, I explore how local government can generate moral revenue and also conduct it’s expenditures in a way that respects the dignity of citizens and lesser associations. I also spend some time discussing the ‘rules’ for providing morally licit and dignity enhancing subsidies for those who stand in need of help. Thereafter, in Chap. 7, I focus on two supplementary sources of funds for local government expenditure – debt and grant revenue respectively. I point out the dangers in using these monies to supplement funds raised through fees and taxes and also explain how we might overcome these dangers. Following this, in Chap. 8, I explore the legitimate object of local government  – the common good  – and the important role of Councillors in pursuing this collective good. Part III is an account of emergency interventions which are necessary if local governments eschew healthy living or are confronted with an unexpected shock, such as COVID-19. In Chap. 9, I not only deal with treatments for solvency crises, but also discuss the qualities and experience that trauma first-responders should possess. I conclude, both this section and the book, in Chap. 10 with an account of my prognosis for local government, as well as some sobering thoughts about the importance of ensuring that mortalities are minimised, if not entirely eliminated.

My Hope

9

Using This Book as a Manual Each chapter has been written as a stand-alone piece that can help local government representatives, decision makers, and citizens deal with particular problems as they arise. In an ideal world my hope would be that users would read this book from cover to cover. However, I am well aware that the world is far from ideal, and that many of us are often pushed for time and require solutions to pressing problems quickly. If you are one of these people then please feel free to flick to the chapter needed and momentarily skip other chapters that don’t have immediate relevance. I also expect that some readers will be inclined to skip the theory chapters in anticipation that they might be boring or even a little too abstract. I have done my best to liven these first few chapters up and they are all examples of what I refer to as ‘practical theory’ (and hence quite down to earth and ready to be implemented – see my discussion in Chap. 2), but I do acknowledge that theory is not everyone’s cup of tea. If you are one of these people then please feel free to skip these chapters for now – although I honestly believe that you will gain immeasurably if you do decide to push through them all despite any reservations that you might have. Indeed, I suspect that most people will find themselves often flicking back to Part One as they work their way through the rest of the book in order to get a better understanding for the basis of my prescriptions. This is entirely fine – the whole point of writing this book was to help people achieve their best – so whatever you need to do in order to gain maximum value from my efforts is more than okay with me! I should also state plainly that this book is not intended to be a medical manual or a source of inspiration for medical treatments. Each chapter commences with a medical motivation to heighten people’s appreciation of the fact that local government financial unsustainability has much in common with medical crises and chronic illness. However, I do not expect anyone to follow any of the treatments I relate – I am not a medical doctor nor do I think it a good idea to for people to indiscriminately use goat milk as a substitute for blood transfusions, practice leaching, eat washing powder, or starve themselves. Medical decisions should be based on sound evidence from the scientific literature and sage advice from a medical practitioner – not the ramblings of a natural law economist!

My Hope In many ways this book is a prequel to Reforming Local Government (Drew, 2020). In my earlier work I outlined how local government could become truly close to the people and serve them best. In this book I explain how local government can be made fit and hearty, and thus be in the sound fiscal condition required to grow into something bigger and better than it currently is.

10

1  Saving Local Government: Financial Sustainability in a Challenging World

I hope this book provokes conversations and thought amongst all of the key stakeholders of local government. Specifically, I hope that regulators become aware that a lot of the so-called expert advice they receive is mere quackery and that some of the treatments they have practiced in the past have done far more harm than good. I also hope that political representatives and executives come to a better understanding of just how fragile local government fiscal health is and, in response to this heightened awareness, implement some of the important measures I suggest to improve matters. In addition, I hope that citizens will learn about the really tough trade-offs that must be constantly made to save local government. Indeed, I have always believed that an educated citizenry is a critical ingredient to vibrant and sustainable local government. I know that a lot of people really do want to better understand the level of government that they feel closest to and this book will serve them well as they begin their journey. However, most of all, my fervent hope is that this book will help to usher in important changes to thinking so that local government returns to a state of health and can thus become all that it might be. Professor Joseph Drew Moonbi Australia

References Drew, J. (2020). Reforming local government. Springer. Drew, J., & Campbell, N. (2016). Autopsy of municipal failure. Australiasian Journal of Regional Studies, 22(1), 79–102. Holtz, B. (2017). Rabbi Akiva; Sage of the Talmud. Yale University Press. Maimonides, M. (1956[1190]). The guide for the perplexed. : Dover Publications. Maimonides, M. (2014[1198]). The preservation of youth. : Philosophical Library. Whiston, W. (1987). The works of Josephus. Hendrickson Publishers.

Chapter 2

Principles of Local Government Health

‘Our intention in this chapter is to set forth rules that are easy to follow, and which are of great value in the regimen of health’. Maimonides, On The Regimen of Health (1198, p. 21)

Abstract  When systems of local government are managed in the absence of a comprehensive theory of local government health, well-intentioned interventions and policy reforms can easily lead to unexpected and undesirable outcomes. In this chapter I survey the foundations of natural law philosophy as well as some of the important principles derived from it. I also reinterpret some of the well-known economic and political theories associated with local government, in a manner consistent with the natural law. I conclude with a comprehensive prescription for principles of local government health that can be used as the foundation for saving local government.

Introduction People have adopted all sort of ‘crazy’ principles to try to maintain health, often with the backing of the scientific community at the time. For instance, right up until the late nineteenth century regular blood-letting was considered crucial to maintain the balance of one’s ‘humours’ and hence health. Indeed, records indicate that over a 42 month period from 1829 onwards, a single pharmacy in Ireland dispensed a total of 3,649 leaches ‘to the upper echelons of Belfast society’ at about 4 pennies (around $USD2.46 in today’s money) per leech (Sawyer, 2013, p. 432). By the 1920s leeches were losing popularity with the rich and the new rage was radium infused water. Patented as RadiThor, it sold for $USD1 (around $USD13 in today’s money), per bottle. The drink was reputed to provide energy and a healthy constitution. Moreover, ‘at least one scientific paper claimed that radium water

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_2

11

12

2  Principles of Local Government Health

could increase the sexual passion of water newts’ (Jorgensen, 2016). By extension it was believed by some to be an important regime for maintaining sexual health in middle-aged men. With the benefit of hindsight, and data analysis of the outcomes realised by people following these health regimes, we now know ‘scientifically’ that it is not a good idea to attach leeches to oneself on a regular basis, nor take a morning dose of radium water. Personally I would like to think that I wouldn’t have been a victim of these marvellous medical innovations of days gone by, but I am probably humouring myself for I used to be a fervent adherent to the scientific method. Indeed I once believed that the only things stopping me from issuing prescriptions for all manner of local government ills was getting my hands on the data that I needed and having the time to run appropriate regressions (the complicated mathematics practiced by economists). I was wrong. I now realise that data analysis and the scientific method can only generally, at best, tell me about what has already happened (akin to finding out that a daily drink of RadiThor wasn’t such a good idea, after many people have died of radiation poisoning). If we are lucky we might be able to discern emerging trends and avoid some impending harms, but we will generally be unable to improve on what we have through the scientific method alone. To me this seems unsatisfactory as I wish to be able to put forward innovative ideas to make local government better. To do so we need to understand why local government exists in the first place, and also have appropriate cognitive supports to allow us to put forward our dreams for what it might be instead. This kind of knowing is beyond the capacity of scientists and probably sits best within the domain of the physician philosopher (perhaps in the mould of Maimonides). Don’t be alarmed though. I am not proposing to spend the rest of this book talking about abstract matters, divorced from common sense, and entirely unworkable in the real world. No, I prefer to deal in what I like to refer to as practical theory – a counterpart to practical reason that you will learn about in the next section – which one might define as providing good cognitive scaffolding that can form the foundation to practical action. One important reason for why we need to save local government is because many of them are struggling to maintain financial sustainability. However, another important reason is because few, if any, have fulfilled their potential to contribute to eudemonia (a word often horribly (mis)translated as ‘happiness’, but much better rendered as ‘human flourishing’; Messner, 1952). Every time local government extracts excessive taxation or directs revenue to purposes inconsistent with its legitimate remit, the goal of eudemonia retreats further away. In this book you will learn not only about how to save local government from fiscal demise, but also about how local government could play a much more important and productive role in the lives of its citizens. A system of local government bereft of theory regularly displays symptoms of unwanted and unexpected side-effects, public policy interventions that fail to

Natural Law and Local Government

13

improve matters (and often work at odds to previous interventions), as well as a complete absence of good reasons being given for action. Unfortunately, over the course of my career, I have observed many examples of probably well-intentioned policy physicking that have made matters considerably worse – indeed, some have given rise to terminal side-effects. These policy failures suggest to me that we are in desperate need of a comprehensive understanding of the principles of local government health that can be reliably employed as a foundation for saving local government. To this end, the next section will provide a brief outline of the natural law, as it relates to government. I will also spend some time in explaining how we can truly know what local government is, at present  – a prerequisite for knowing what it could be in the future. Following this I will outline the Decentralism Theorem of Oates (1999) with particular reference to its potential as an efficient force for healthier local government. Thereafter I will correct the minimalist accounts of subsidiarity and hence facilitate a better appreciation of what local government could be. In my last substantive section I explore the principle of double effect, which sets out the conditions necessary for moral decision-making. I conclude this chapter with my prescription for a theoretical foundation for saving local government.

Natural Law and Local Government The tradition of natural law asserts that there is a ‘law’ built-into the nature of humans that can be identified through careful use of reason and which, when recognised, will set us on the path to higher levels of perfection. Natural law theorists affirm that we share in common with most animals the desire to pursue good things and avoid supposed evils – the first self-evident principle of natural law – but that we are unique in the animal kingdom for having the capacity to also abstract and reason about our ultimate ends (Maimonides, 1956). Thus, in addition to being impelled by the natural inclinations common to all animals  – such as self-­ preservation and the survival of the species – humans also have a deep desire for knowledge and the pursuit of truth. To help achieve these ends we form societies where through the co-operation of others we can attain benefits far greater than the mere sum of contributions. As Aristotle (1992, p. 60) put it: The real difference between man and the other animals is that humans alone have perception of good and evil, just and unjust….it is the sharing of a common view in these matters that makes a household and a state [or a local government].

There is an additional thing that sets humans apart from mere animals – something that has built the foundations of both our institutions and our way of life – pursuit of knowledge of the divine. Indeed, Aristotle (1992) appealed to the way that the gods governed themselves as ‘proof’ for the need for a political constitution

14

2  Principles of Local Government Health

among people.1 However, nowadays many no longer pursue this kind of knowledge and it is not lost on most natural law philosophers that our abandonment of this quest has coincided with the emergence of important schisms and violence in society. Thus, for many people our need for co-operation, as well as our desire to pursue knowledge and truth, are the two remaining ways in which we substantially differ from mere beasts. It is the contention of natural law philosophers that if we apply our reason carefully and accurately that we will come to universal (shared by all persons, in similar circumstances, at all times) and teleological (relating to the ultimate purpose served) prescriptions for the ideal form and remit of government that assists humans to become all that they wish to be. Indeed, if I had to try to summarise this huge corpus of scholarship into a single statement then I would cite practical reason (good reasons for acting), universalism, and teleological thought as the hallmarks of natural law. There is a lot more to be said about natural law of course  – something that I intend to cover in my next book Natural Law and Government – but what I have thus far set forth is an adequate starting point to help you fully appreciate some of the big ideas, discussed later in this chapter, that will drive us to an appreciation of how we can best save local government. Indeed, in natural law thought government is not considered to be an ontological state of affairs – but rather merely an instrument for preserving the common good2 (which is the help accruing to others as a result of their co-operation; Messner, 1952). True, now as throughout all of civilisation, government is an important instrument for human flourishing, but it must be firmly remembered that it can never be an end in itself (Finnis, 2011). Indeed, when we forget about the needs and capacity of the people that government serves, we undermine the entire justification for the institution.

1  Moreover, Aquinas (2018) tells us that knowledge of the Divine, along with revelation in scripture, is both the highest good as well as the most efficient method for us to come to a right understanding of the nature of humans. This sentiment is an echo of Maimonides (1956, p. 395) who deduced that development of the intellect (by which he meant ‘possession of such notions which lead to true metaphysical opinions as regards G-d’) was the highest perfection of man(sic), because it is the only thing that is truly part of our being, and is the only thing that can conceivably remain after we depart this earth. Indeed, Maimonides (1956) proposed a hierarchy of perfections. At the lowest level were the possessions (necessary to sustain life but external to the person), next a healthy constitution (intrinsic to the person but transient with age), then moral virtue (intrinsic to the person but dependent on interaction with others). Intellect was considered the highest perfection of a person because it was intrinsic, not affected by age and decay, and not dependent on others nor even the body). 2  The common good differs significantly from the better known ‘public good’. To understand the common good one needs to consider both the person and the entire community (rather than just the community as is the case for the public good). Furthermore, the common good is heavily influenced by shared values and an understanding that government only plays a role in fostering the common good and is not directly responsible for all of its production (that is, we all have a role to play in contributing to the common good; see, for example, Mastromatteo & Solari, 2014). A key role of Councillors is to articulate and negotiate a shared conception of the common good that can then be operationalised (see Chap. 8).

The Wherefore of Local Government

15

The take-away message from this section is that the legitimacy and reason for ‘being’ of local government rests entirely in its’ mission to help people to perfect themselves. Our focus in this book is on a particular form of government  – local government – which next to the family is the fundamental form of association. But do we really know what local government is? Aristotle tells us to have true knowledge of anything, including local government, that we must study and describe its’ aitia (sometimes translated as ‘causes’, but best rendered by the archaic English term ‘wherefore’). I imagine, at this point that you may well be rolling your eyes saying ‘of course I know what local government is’  – but bear with me a few minutes, because I think you may well be surprised to find that you (in common with most of us) don’t know local government quite as well as you might think that you do.

The Wherefore of Local Government In the Organon – specifically The Physics and Posterior Analytics – Aristotle (2017, p. 34) asserts that ‘knowledge is the object of our inquiry, and men (sic) do not think they know a thing till they have grasped the why of it (which is to grasp its primary causes)’. He then goes on to claim that any thing can be completely understood in terms of just four aitia – material, form, efficient cause, and final cause. I believe that adopting Aristotle’s epistemology (theory of knowledge) can help us come to deeper levels of understanding than we may have previously held. Moreover, a clear specification of the aitia ensures that we all know precisely what it is that we mean to save – and hence in recognition of the amazing diversity of the wherefore of local government  – we will know to reject ‘one size fits all’ remedies to our pressing problems. The material of local government are the various elements that exist within its boundaries – the things which set the potential of a community. Material includes things like roads, buildings, and most importantly, people. Often public policy architects reduce the incredible diversity embodied in each element of material down to mere numbers – length of roads, number of buildings, population size – but doing so fails to recognise the true nature of these things, in particular their needs and capacities. For example a person from a low socio-demographic with disabilities has entirely different needs and capacities to say a professional on a high income. Ignoring such differences means that we can’t properly understand the necessary remit to help produce the desired state of human flourishing, nor the potential capacity of these people to contribute to the common good. Having worked with a number of different communities I can assure my readers that no two are ever similar, let alone the same. Certainly there is a wide gulf between rural and urban communities, but within each broad category it is amazing how much people differ. Often these differences can’t be controlled for in empirical work (at best we usually control for average characteristics such as income, indigeneity, age, and welfare

16

2  Principles of Local Government Health

dependence) and I am certain that nothing can ever satisfactorily replace spending some time in the community that one wishes to physick. The fact that public policy architects have universally failed to get to know the communities that they ‘doctor’ (moreover often the remedies are dispensed contrary to the community’s preferences) probably explains a good deal of the stunning failures I have seen in local government policy implementation (especially with respect to amalgamations – see Chap. 4). Local governments also have a particular form – which is a description of how the parts are arranged to yield the essence of the entity. Not all local governments do the same thing {I would have thought this obvious, but reading the documentation from the last two episodes of forced amalgamation in Australia it seems that this is not obvious at all}. Each performs different ‘activities’ which reflect both the various needs and aspirations of the community as well as regulatory constraints. For instance, in Australia some local governments provide water and sewer services, whilst others do not – either because they fall within a metropolitan region serviced by a water authority, or because the regulator does not allow local governments to do so. Given that these water and sewer businesses typically account for around a quarter of a local government’s revenue it is clearly very important to recognise this difference in form. Moreover, there are countless of other differences in form – such as the discretionary operation of quarries, childcare, aged cared, aerodromes, stockyards, property development – that mean it is rather foolhardy not to investigate and adapt public policymaking to the specific ‘physiology’ of the local government patient. Indeed, not all local governments are governed the same – some have directly elected Mayors, and in other cases the Councillors elect the Mayor. Nor do they have the same number of representatives, and furthermore each representative is a unique person with their own beliefs, goals, and capacity to contribute to an understanding and pursuit of the common good. Indeed most Councillors are a pleasure to work with, keen to learn and adapt their thinking in order to seek out the best for their communities. However, there is a very small – but often noticed – minority that serve only their own interests and play all sorts of games to achieve their goals. It is thus a mistake to assume universal benevolence and equal capacity in our leaders (as is done by Wallace Oates in the Decentralisation Theorem that we shall look at next). The third aitia is the efficient cause which Aristotle (1901, p.  258) variously describes as the ‘impulse of a thing’, or its ‘moving force’. The efficient cause is the force by which one thing is transformed into another. Thus there was an original efficient cause – fostering of the common good – which caused the material in a local government area to become the local government entity that we observe today. Similarly, an efficient cause will be required to transform a struggling local government into an institution fit to help persons to achieve eudemonia. To discover the appropriate efficient cause for the physiology and ailment of a particular local government is the task of the skilled fiscal physician. Moreover, the evaluation of the efficacy of treatments provided is the job of everyone interested in ensuring that we learn from our mistakes and also improve supposed remedies for future applications (see Chap. 3).

The Decentralisation Theorem

17

Remarkably the efficient cause is almost always missing from analyses of local governments and local government reforms. This is a huge mistake on the part of scholars because only knowledge of the efficient cause can give us a reliable guide to how we might expect a local government to change over time – how we might move from its current state of ill-health to a heartiness which can facilitate a kind of ‘being’ that promotes human flourishing. Moreover, often knowledge of the efficient cause is crucial if we are to understand whether the final cause has been reached through careful and well-executed public policy prescriptions, or by mere chance (see Chap. 3). Aristotle (1901, p. 212) claimed that the final cause was of the ‘greatest importance in the case of contingent matters’. The final cause is the sake for which a thing is done. If we subscribe to a natural law position with respect to government then the sake for which local government is done, is to assist people to reach their perfections – that is, to flourish as humans. Being mindful of the final cause will often entirely change the way we approach the illnesses that might afflict local government – nothing in local government should ever be done as an end in and of itself. It always needs to be about the people that local government serves, their needs and capacities, their desires and goals. Too often local government policy architects are so wedded to a policy that they push it out even against the strident protests of citizens – if they were instead mindful of the final cause they might see the irony of forcing people to take their medicine. The take-away message from this section is that there is no such thing as a standard local government – each is an entirely unique institution made up of unique and special people. Thus, every physician must make themselves familiar with the nature of the community before they commence treatment. Throughout the remainder of this book we will examine various efficient causes with the intent of achieving the final cause which is a healthy local government capable of helping current and future generations to achieve human flourishing. One will need to be mindful of the salience of the precise material and form in which one wishes to work and adjust measures accordingly. Indeed, in Chap. 9 – emergency interventions  – I will place great emphasis on the material and form of both the community and its physician: factors almost always neglected, but of critical importance. It seems Wallace Oates was cognisant also of the importance of material which he implicitly recognised in his Decentralisation Theorem  – the matter to which I now turn my attention.

The Decentralisation Theorem Wallace Oates (1999, p.  1122) once described his most famous work  – the Decentralisation Theorem – as being ‘trivially obvious’. I tend to agree – like a lot of the really great thinkers he managed to crystallise an idea that seems to be just

18

2  Principles of Local Government Health

plain common-sense; but notably a common-sense that had eluded the rest of us until his genius put it into words. Oates’ (1972) famous book is full of graphs and algebraic functions that seem imposing to even seasoned economists, but its conclusion boils down to just one simple idea: that it is at least as efficient (and often more so) for small decentralised governments (such as local government) to deliver services, as it is for larger central governments to do so at standardised levels, in the absence of significant economies of scale. The power behind the theory lies in observations about the material that constitutes local government – people. Oates’ (1972) argues that people tend to sort themselves into more or less homogenous (very similar) groups3 that have relatively similar tastes for local government goods and services. By forming small decentralised local governments built around these homogenous groups, Oates (1999) rightly asserts that we should be able to better tailor goods and services, and thus achieve optimal technical efficiency (which economists define as the use of the least amounts of inputs to achieve a given level of outputs4). There are two mechanisms which drive the technical efficiency outcomes of the decentralisation theorem: (i) tailoring the goods to the tastes of homogenous communities, and (ii) recognising different benefits and costs in analyses. The best, and most fun, way to understand these mechanisms is through an illustration. In the state of New South Wales, where I live, there is a local government called Lismore which is a relatively large regional town surrounded by rural farms. At the north of this local government area is the well-known and tourist-attracting hippy village of Nimbin. It probably goes without saying that these three groups of residents (townies, farmers, and hippies) have very different tastes for local government goods and services – particularly with respect to the vexed matter of water fluoridation. Most townies are likely to think that it is a great idea to add fluoride to drinking water because it allows them to avoid the financial and physical pain of the dentists’ drill. On the other hand, the majority of farmers (like me) probably don’t care because rural properties generally receive only third world services and don’t get to access basic goods such as potable water, sewer services, nor sealed roads. However, most of our happy hippies would be aghast at the idea of having a government seek to control their third eye, and lower the IQ of their children (a hippy acquaintance of mine has told me that Hitler used water fluoridation to stop people envisioning a different world, and that our current governments continue the practice to this very day as a way of controlling us – mind you he also tells me that 5G is responsible for COVID-19, and that Barack Obama is a reptilian). So what to do? Three different sub-populations with three very different tastes when it comes to water (pun 3  Indeed Oates (1972) is responsible for bringing Tiebout’s famous theory – of people expressing their preferences for local government goods and services through their location decisions – out of obscurity; a feat that he seems to have regretted many years later. 4  This is an input orientated account of technical efficiency- the output orientation is framed in the opposite way (most outputs for a given level of inputs). Because local governments generally have way more control over inputs than outputs most local government economist elect to employ the input orientation that I described earlier.

The Principle of Subsidiarity

19

intended). Do we fluoridate the water to keep Lismore townies happy, give the farmers yet another thing to grumble about, and drive our hippies to the waiting arms of spring-water and rain tank producers? Or do we forego fluoridation keep our hippies happy, don’t add to the gripes of farmers, but condemn our townies to dental torture? Either way we go economic welfare will be diminished because the local government extends beyond a single homogenous community. Moreover, the benefit and cost calculus is entirely different for the various communities – for example, costs to fluoridate water in Lismore are likely to be relatively low given the population density, but much higher in Nimbin. When these differing costs are also set against the different benefits appreciated by the various groups of citizens, the business case for supplying fluoridated water to the three kinds of communities contrasts starkly. Thus, on the basis of the Decentralisation Theorem, it seems that we would likely get much more efficient outcomes if we had a separate government for each of the three distinct communities that fall within the boundaries of the Lismore local government area. Indeed, the take-away message from this section is that small homogenous communities will often present the most efficacious way for delivering on the common good. Of course, Oates’ (1972) theorem comes with a few caveats that my astute readers have probably already noted. First, it assumes that centralised governments will not tailor different products to the various tastes of sub-sections of their communities. Second, it assumes that politicians and bureaucrats understand and care about the tastes of their communities (some have uncharitably argued that this is a bold assumption). And third, it assumes that there are no significant economies of scale (the economic concept that predicts that average total costs will decrease as output increases for some local government functions (see Chap. 4)). Notwithstanding these limitations, Oates’ (1972) Decentralisation Theorem provides the proof for a potential efficient cause that could bring our local governments to a more sustainable footing – smaller local governments. However, to link technical efficiency to sustainability, in this way, we must assume that the goods that local governments produce efficiently do in fact accord with their legitimate remit. To know what this remit is we must turn once again to natural law and local government’s final cause.

The Principle of Subsidiarity Even the most technically efficient local governments will prove unsustainable in the long-run if they produce goods and services that fall outside of their legitimate remit. Moreover, doing so is a ‘grave evil and disturbance of right order’ (Pius XI, 1931, paragraph 80) totally incongruous with the final end of local government – human flourishing. The principle of subsidiarity is both a clear statement of the limits of government as well as a blueprint for how we might avoid the destruction

20

2  Principles of Local Government Health

of human dignity (defined as the right to pursue one’s existential ends without undue interference) as well as the dignity of lesser associations.5 The starting point for a more fulsome understanding of the principle of subsidiarity is to recognise that the final cause of government (the common good) always comes at a cost – namely a reduction to human dignity and the dignity of lesser (smaller) associations. For instance, the common good requires governments to raise money which can only be done by seizing some of the wealth of people and business. However, doing so reduces the capacity of these people and business associations to pursue their specific ends. To further compound damage to dignity, governments (generally with good intentions) also tend to encroach on the remit practiced by lesser associations – one has only to recall that schools, hospitals and aged care facilities were all once the sole purview of religious bodies to see how deep this erosion of associations’ dignity can become. Indeed, government is power and it is the natural way of things that ‘power will strive to extend itself’ (Messner, 1952, p. 573). When governments concentrate power and competence it represents a grave risk to people. Both communism and national socialism (Nazism) were examples of the common good being put far ahead of people’s dignity with disastrous results (Drew, 2020). Even in our own time we see pre-eminence given to the common good with grave outcomes for individual people’s lives (for instance, the well-intentioned COVID-19 lockdowns which in my country compelled people to remain in their homes for lengthy periods of time also resulted in a reported doubling to the suicide rate as well as profound economic devastation, especially amongst small businesses). The common good is incredibly important – but it is illogical to promote the common good so far that human dignity is significantly damaged when the whole point of the common good, in the first place, is to help people to flourish (perfect their dignity). Moreover, the other extreme – every person for themselves – is also demonstrably flawed. We have only to recall the disastrous outcomes of laissez faire, propounded by the Physiocrats in eighteenth century France, or Manchester liberalism (nineteenth century England) to realise the devastation wrought on people’s lives by entirely neglecting the common good. Thus, it seems that the only viable path is a middle position, where a balance is struck between the common good and the human dignity it is supposed to serve (consistent with Aristotle’s golden mean6). The principle of subsidiarity is founded on the belief that plural social forms are an ontological state required for human flourishing. The most basic association is

5  One of the unique aspects of subsidiarity is that it confers a dignity onto associations, rather than merely onto people. This conferral of dignity recognises the ontological status of associations reflected in their unique capacity to bring forth specific munera (gifts). 6  The golden mean was integral to much of Aristotle’s work and the work of those who succeeded him such as Maimonides. For example, when discussing character traits (or virtues) Aristotle states that it is not good to be at either extreme, but that we should instead aim for the middle. Thus, he claims that one should be neither a coward nor rash, but rather aim for a courageous disposition (Aristotle, 1998).

The Principle of Subsidiarity

21

the family – the giver of life, transmitter of life skills and values, as well as mediator between the person and society. ‘Next to the family the local community is the smallest of the lesser groups that have functions of their own, and therefore rights, within the state community’ (Messner, 1952, p.  321). This local community is instantiated in local government – thus suggesting that local government forms a critical building block for society. In addition to these two fundamental associations – families and local communities – a plethora of lesser associations also exist, such as businesses, social groups, religious bodies and political associations. Each association brings forth a specific munera (loosely translated as gift) essential for human flourishing. Above all of these lesser associations sits the central state which is assigned an important although limited role as supreme guardian of the common good (Messner, 1952). In general, natural law philosophers favour the widest possible dispersion of power and competence – not only to avoid the real dangers of abuse of power that I highlighted earlier, but also because smaller associations (including local government) are almost always superior at providing help for people to perfect themselves. These superior outcomes arise because smaller associations located closer to the need usually have better knowledge of the problems, greater moral proximity, as well as a greater stake in seeing efficacious implementation of solutions. This last point gives rise to a particularly powerful argument for more government services to be delivered by local government: because local representatives and executives live in the local government area they will naturally have more knowledge and incentive to ensure that programs are effective than say, a federal bureaucrat located in the nation’s capital. For instance, an executive at my local government area, is much more likely to personally see and feel the effects of a program at nearby Moonbi (26 km north of the Council offices in Tamworth) than a federal bureaucrat located 700 km away in Canberra. In addition, the smaller size7 of lesser associations means that they tend to be more nimble and thus better able to respond to new opportunities and emerging needs. Furthermore, small size confers greater transparency and accountability  – put simply it is easier for people to see how their tax money is spent, as well as understand the consequences of their own actions, in a small community than it is in a remote and large nation state. It is also easier for people to have moral empathy for a small community that they know and interact regularly with, than larger communities such as nation states. Indeed, it is reasonable to expect that if the remit of local government were to be expanded then people would have even more reason to keep a close eye on its activities and hence further improve concordance between what local government actually does and the shared community conception of the common good. 7  Small size was also integral to the well-known political economy hypothesis of Leviathan. In this work James Buchanan (2000) noted the importance of small decentralised government for generating competition and also amplifying community voice which he argued would defeat the tendency of central government to ravage its hapless citizens (see Drew, 2020 for a thorough account of the Leviathan hypothesis).

22

2  Principles of Local Government Health

For all these reasons of proximity and size, natural law philosophers heavily favour the provision of goods and services by the smallest level of potential8 ­competent association (notably if a small association does not currently exist – but could be formed – then it is the duty of greater associations to stimulate and encourage the development of appropriate lesser groups; Drew, 2020). When these services are of a private or benevolent nature then businesses and social groups should dominate their provision. However, for services of a public nature – which economists define as things which are both non-excludable and non-rival9 – then in most cases local government will be best placed to deliver these in an efficient and effective manner. The main exceptions to this rule are ‘national’ public goods, such as defence, as well as institutions required for macro-economic stabilisation and the determination of legal rights and obligations, which often can’t sensibly be delivered by decentralised governments (Drew, 2020). To assure that local governments and other lesser associations maintain the vitality and competence required for them to successfully help people towards their perfections, subsidiarity imposes two obligations upon greater associations. The first obligation, unsurprisingly, is a prohibition against larger associations (of any kind) subsuming the functions of lesser associations, or persons. Every time a responsibility is removed from persons or associations, the greater community is denied the particular munera that once emanated from these lesser groups (including the collaborative good which is a side-product of associations). In essence, a thread is pulled from the rich tapestry of society and the whole picture of humanity suffers. Moreover, people become more dependent on greater associations and new burdens are added, in perpetuity, to the heavy load already born by the state. Ultimately, ‘with the taking over of all the burdens which the wrecked associations once bore, the State [becomes] overwhelmed and crushed by almost infinite tasks and duties’ (Pius XI 1931, paragraph 78). The second obligation is a positive one – to provide subsidium (loosely translated as help) to persons and lesser associations who stand in bona fide need. Notably this subsidium is only to be provided for the satisfaction of ‘needs’, not ‘wants’. When larger associations provide help for satisfying mere ‘wants’, doing so puts unreasonable demands on compulsory donors (taxpayers and future inheritors of governement debt) and suppresses the vitality and creative energies of people and their lesser associations. The fact that many people are confused about the distinction between ‘wants’ and ‘needs’ explains most of the explosion in public budgets that has resulted in some governments passing on large and immoral burdens (debts)

8  Because greater associations have transgressed their legitimate remit over many years, some small associations have withered and died. In these cases the principle of subsidiarity clearly states that it is the duty of greater associations – such as local government – to vacate the existential space and encourage the formation of appropriate smaller associations, to better serve the common good (Drew, 2020). 9  Non-excludable means that a government can’t easily stop anyone from making use of a good or service (such as public footpaths). Non-rival means that my use of the good or service does not materially affect your ability to also use it (example, street lighting).

The Principle of Subsidiarity

23

onto future generations (see Chap. 7). It also explains why some local governments are no longer financially sustainable (as we will see in Chap. 9, it is rarely spending on core services such as roads that tips local governments over the fiscal cliff, but rather discretionary spending on popular ‘wants’ such as aquatic parks and the like). To ensure that help does not unwittingly foster dependency and effectively result in subsumption by stealth, the principle prescribes that subsidium must be delivered in a manner designed to make it superfluous as quickly as possible. Therefore, people and organisations receiving help should still be required to show that they are contributing to their utmost capacity, be asked to produce a plan designed to wean themselves off from the assistance, and be aware that the help will expire at a particular point of time (or when particular events occur). Putting these measures in place not only preserves important competencies but also makes the person or lesser association responsible for becoming part of the solution (see Chap. 6). It is important to note that the positive obligation also extends as far as to make greater associations responsible for the establishment and growth of lesser associations should an existential gap emerge. This duty means that the principle of subsidiarity remains relevant into the future as technologies progress and patterns of human behaviour change. Moreover, I have no doubt that this aspect of the positive obligation will prove to be tough work – in many cases it would be far easier and cheaper for government to simply fill voids rather than go to the trouble to help grow appropriate associations for dealing with problems. Thus, a careful application of subsidiarity would see local government take on additional functions currently performed by the higher tiers of government (in Australia’s case this would include things such as education, policing, firefighting, and some welfare functions). However, it would also result in the divestment of a considerable number of discretionary functions that are better located with smaller associations (such as the operation of golf courses, childcare centres, or aquatic centres etcetera). Where associations don’t currently exist to perform these functions, local government would need to help in both their establishment and growth to competency (see Chap. 8). Moreover a careful application of subsidiarity would also include a fundamental change to how support is provided to lesser associations, thus ensuring that the dignity of both the compulsory donor and the association is respected (see Chap. 6). Other functions and programs may simply need to be divested without replacement. Almost three decades ago the great Milton Friedman (1993) astutely pointed out that the problem with government is that programmes are never brought to a conclusion. No matter how ineffective or redundant a program proves to be, government tends to provide discretionary goods and services in perpetuity because both staff and beneficiaries develop a vested interest in their continuation. Moreover political representatives are naturally wary of removing benefits from small but concentrated groups of voters. However, if we respect the rights of donors and also value the sustainability of local government (essential for the continued provision of a wide range of goods and services), then there will sometimes be no other reasonable option. In Chap. 6, I will lay out the basic steps that should be taken prior to the establishment of all discretionary spending programs as well as the review process

24

2  Principles of Local Government Health

that should be implemented at regular intervals to ensure that program funding only continues for as long as is warranted. I imagine that some of you may now see me as a callous and privileged academic who is entirely divorced from the reality of the harsh lives that some are unfortunate enough to live. This is not true. Like many people I know very well the challenges of life. I have flourished despite a poor start to adolescence as a homeless youth and have also had to overcome serious injuries from a highway motorcycle accident that doctors declared would prevent me from ever working again. Indeed, it is precisely because I come from ‘disadvantage’ and have spurned well-intentioned help that I know that most help probably achieves more for the donor than the recipient and that nothing can ever adequately replace ones’ own efforts towards achieving one’s perfections. It is a grave mistake to think that a persons’ final ends can be realised through an efficient force that they aren’t a part of  – and it is even more dangerous to treat people as numbers rather than individuals with their own specific form and material. The great thinkers of our age (Messner, Pius XI, Finnis) have understood this and thus advocated for the principle of subsidiarity. Indeed, the take away message of this section is that the remit of local government should be delivered in ways that protect human dignity and the dignity of lesser associations, whilst promoting the common good. Local governments making good decisions are the keys to both financial health and moral health in government. However, for good decision making to occur we need people to have the skills to participate in practical reasoning. This is especially important in conditions where we are obliged to weigh up the ethical ought against apparent economic musts. As it turns out, a principle for sound decision making in an uncertain world has already been articulated in the natural law tradition – the principle of double effect.

Principle of Double Effect The principle of double effect can be found in the Summa Theologica – the seminal work of Thomas Aquinas – written sometime around 1274 CE. The ‘Summa’ is one of the most influential works in Western philosophy and jurisprudence (the theory of law) and takes the form of a forensic investigation of various questions relating to the final cause of persons. Question 64 poses a number of dilemmas surrounding the question of when it might be morally licit to kill (including inter alia the killing of ‘dumb animals or even plants’, oneself, or a sinner10). Article 7 of Question 64  Aquinas declares that it is morally licit to kill for sustenance (because this is considered the final cause of animals), it is unlawful to kill oneself (because this is contrary to nature), and it is ‘praiseworthy and advantageous’ to kill grave sinners (such as murderers) to ‘safeguard the common good’.

10

Principle of Double Effect

25

asks whether the killing of another in self-defence is morally licit. Aquinas answers in the affirmative as follows: Nothing hinders one act, from having two effects, only one of which is intended, while the other is beside the intention. Now moral acts take their species according to what is intended, and not according to what is beside the intention…And yet, though proceeding from a good intention, an act may be rendered unlawful if it be out of proportion to the end. (Aquinas, 2018, question 64, article 7)

Essentially what Aquinas reasons is that provided there is not intent to kill, and the person defending themselves felt that they were in imminent danger, then the death of the aggressor is not a moral crime. This principle of double effect is now an established element of common law and is often applied to decide legal culpability – particularly in the case of medical ethics (for example, to determine the legality of providing high doses of morphine to terminally ill patients even when doing so will foreseeably result in their death). It has also been applied to business ethics and public policy (see for example Drew et al., 2017). Clearly most decisions of local government will not have quite the same gravity as the hypothetical taking of an aggressor’s life. However, often local government decision makers do pursue good objectives that might foreseeably end in important bad ‘side-effects’ for others. For example, local government decision-makers might need to consider the moral implications of establishing a new program to provide services previously supplied by local business or associations. In these kinds of cases the principle of double effect provides helpful guidance on how to proceed. Philosophers love nothing better than to argue about quite improbable obstacles to applying an ethical rule, and the principle of double effect has become victim to this strange obsession on more than one occasion. Generally the quibbles concentrate on intent, the probability of the side effect occurring, and the gravity of the situation being addressed. To settle these matters, natural law philosophers have come up with various definitions of the principle. My own definition – based on an amalgam of ideas from the leading minds in this field – appears below: It is morally permissible to undertake an action when one foresees that the undertaking may bring about at least one state of affairs, such that, if this state of affairs were intrinsic to the action undertaken, the action would be rendered impermissible, if and only if (i) the ‘bad’ state of affairs is not intended but brought about as a [foreseeable, but not certain], side-­ effect (and that all efforts have been made to mitigate the undesired side-effect) and (ii) there is a proportionally grave reason for undertaking the action (Drew et al., 2017, p.4).

The biggest way in which my definition differs to other work is found in its requirement for all efforts to be made to mitigate bad side-effects. I included this idea to deal with the tricky problem of intent. Natural law, it will be recalled, is all about good reasons for acting in the pursuit of good things. If an agent intends a bad side-effect then the act is inconsistent with natural law and can be morally condemned. Moreover even when good ends (final cause) are the objective, the principle of double effect does not permit bad means (efficient force), because to act contrary to the good is a transgression of the first

26

2  Principles of Local Government Health

self-evident precept of natural law that I outlined (pursue good and shun evil). Indeed, the danger of acting in bad ways –even as a step in a ‘good’ process – is that it could well lead to bad habits11 in addition to setting a poor example for impressionable spectators. Indeed, the prohibition on pursuing good ends through bad means is an important way that natural law differs to utilitarianism – the greatest good for the greatest number – the ethical paradigm that not only forms the foundation of modern economics but which can also quickly be shown to lead to all sort of perverse outcomes.12 Opponents of the principle of double effect point to the fact that we can rarely know, for sure, the intent behind any given act. Intent does matter though, and we often change our evaluation of acts according to our beliefs regarding the agent’s motivations. For instance, none of us would bear the same kind of ill-will towards a careful driver running over a child who unexpectedly ran in front of their car, as we would towards a reckless driver who deliberately swerved in order to run over the same child. In both cases we have the same outcome, but the intent is clearly different and considered by most to be determinative. When we are the ones making the decision, then it should be relatively straight-forward for us to honestly interrogate our own behaviour and understand the true intent. However, opponents of the principle have questioned its usefulness in situations where we need to understand the intentions of others. Sure we can ask the agent responsible, but the answer we received may not be the truth. In response to this problem some have instead suggested that we discern intent by closely observing how an agent responds to unanticipated events. However, this ‘solution’ relies on certain kinds of contingent events coming to pass. My solution – imputed in the definition that I presented earlier – is that we can perceive intent through the actions that agents might take to try to mitigate foreseeable bad side-effects. I believe this is the most reliable indicator of intent – one would hardly put measures in place to reduce bad outcomes if one actually wished them to occur – although it is by no means a perfect solution. However, insisting that measures should be taken to mitigate potential bad-side effects should lead to far less avoidable harm, which can only be a good thing in the final analysis. The next major line of dissent, with respect to the principle of double effect, revolves around the difference between foreseeable bad side-effects, and completely certain ones. Here I agree with the opponents of the principle who claim that if the side-effects are certain then reasonable distinctions cannot be made between the means and the results of the means. However, I also know that we live in an

 See Maimonides (1975), who put particular emphasis on what is now referred to as virtue ethics – the notion that to become a good person one must always be in the ‘habit’ of doing good acts that fall in the mean of extremes of character traits. 12  The classic illustration of this great flaw in utilitarianism is given by considering whether it would be ‘right’ to kill a healthy person in order to use their organs for multiple life-saving organ transplants. Because utilitarianism focusses on outcomes, instead of process and human dignity it is often used to justify immoral acts by governments, such as the compulsory acquisition of peoples’ homes to allow projects with ‘public value’ to proceed. 11

Prescription and Conclusion

27

uncertain world and hence few things do indeed have the kind of certainty postulated by clever philosophers. In sum, I believe that the principle of double effect is probably the best guide that we imperfect humans can have to illuminate the path to morally licit decision-­ making. It is particularly useful because it emphasises three matters that we must always bear at the forefront of our minds: (i) Laudable ends can never justify immoral means (ii) Unanticipated bad-side effects are always a possibility in public policy making – and we should always take the time to consider and mitigate possible contingencies (iii) Grave reasons should always be given for even countenancing an act that could lead to bad side-effects. I don’t think anyone could really put up a reasonable argument against these three propositions – and if I am correct, then it follows that the principle of double effect richly deserves its exalted position in western philosophy and law. It also means that local government decision makers should always consider the principle when making weighty public policy judgements. The take-away from this section is that decision-making in local government should rest on the giving of good reasons, the mitigation of potential bad side-effects, and a prohibition on pursuing good final causes through bad means.

Prescription and Conclusion If we want to save local government then we need to start by recognising that each entity has a specific aitia that will influence both its health as well as the efficacy of treatments designed to improve vitality. As a result there just isn’t a magic bullet solution to all of the ills of local government. Rather a suite of measures need to be adapted and implemented, as required, by skilful and independent fiscal physicians (I commence my explanation of these methods for healing from Chap. 4 onwards and discuss the essential attributes of fiscal physicians in Chap. 9). It is imperative that we know the principles of local government health in the same way that most of us understand the basics of good eating, exercise, and preventative medicine. Failure to understand these fundamentals has sadly exposed numerous local communities, in the past, to the ministrations of quacks dispensing inappropriate remedies akin to blood-letting and RadiThor. The best defence against this kind of vulnerability are theories which go beyond merely telling us what we can now observe, but instead cast light on the potential for what local government might be. To this end I prescribe the following comprehensive account of the principles required for ongoing local government health:

28

2  Principles of Local Government Health

Local government is a collection of unique and important institutions that exist for the purpose of helping people to perfect themselves. The remit of local government should therefore be delivered in ways that balance the need to protect human dignity, and the dignity of lesser associations, against the natural desire to promote the common good. Small homogenous communities will often present the most efficacious way for delivering on the common good, provided that they restrict themselves to a remit that can’t competently be performed by either ­persons or persons in lesser associations. To ensure that local government does indeed contribute strongly to eudemonia decision-making should revolve around the giving of good reasons, the mitigation of potential bad side-effects, and a prohibition on pursuing good final causes through bad means. Now that we have agreed on the basics we can proceed on our quest to save local government – the next step of which is to know precisely how ill our patients are.

References Aquinas, T. (2018). Summa Theologica. Coyote Canyon Press. Aristotle [350 BCE, (1992)]. The politics. Penguin Books. Aristotle. (1998). The Nicomachean ethics. Penguin Books. Aristotle (translated R K Gaye). (2017). The physics. Dover Publishers. Aristotle. (translated by E Bouchier). (1901). Posterior analytics. The Perfect Library. Buchanan, J. (2000). The limits of liberty: Between anarchy and leviathan. Liberty Fund. Drew, J. (2020). Reforming local government. Springer Palgrave. Drew, J., Grant, B., & Fisher, J. (2017). Re-evaluating local government amalgamations: Utility maximisation meets the principle of double effect. Policy & Politics, 45(3), 379–394. Finnis, J. (2011). Human rights & common good. Oxford University Press. Friedman, M. (1993). Why government is the problem. Hoover Institute. Jorgensen, T. (2016). When ‘energy’ drinks actually contained radioactive energy. The Conversation, 3 November, 2016. Maimonides, M. (1956). The guide for the perplexed. Dover. Maimonides, M. (1975). In R.  Weiss & C.  Butterworth (Eds.), Ethical writings of Maimonides. Dover. Maimonides, M. [1198]. The regimen of health. N.P. Mastromatteo, G., & Solari, S. (2014). The idea of ‘common good’ and the role of the state in present day social economics. Revista Internazionale di Scienze Sociali, 2014(1), 85–102. Messner, J. (1952). Social ethics: Natural law in the modern world (trans: Doherty, J.). B Herder Book Co. Oates, W. (1972). Fiscal federalism. Edward Elgar. Oates, W. (1999). An essay on fiscal federalism. Journal of Economic Literature, XXXVII, 1120–1149. Pius, X. I. (1931). Quadragesimo anno: Reconstructing the social order and perfecting it comfortably to the precepts of the gospel in commemoration of the fortieth anniversary of the encyclical “Rerum Novarum”. Australian Catholic Truth Society. Sawyer, R. (2013). History of the leech trade in Ireland, 1750-1915: Microcosm of a global commodity. Medical History, 57(3), 420–441.

Chapter 3

Evaluating Public Policy Interventions

‘Among those with fever there are some in whom drinking cold water causes an unripening of the humours, and the unripening fires their fever and they perish, while for some others, cold water is a remedy’. Maimonides, On The Regimen of Health (1198, p. 21). ‘But laymen who are ignorant of the foundations of this science, yet talk with certainty and without restraint, consider the problem an easy one and do not believe there is an illness that requires much observation’. Maimonides in The Preservation of Youth, (2014, [1198]).

Abstract  When fiscal physicians operate on local governments without any notion of what a successful treatment might look like it is hard for anyone to know whether they have helped or hindered. In this chapter I outline the large body of scholarly work pertaining to the evaluation of public policy success. Moreover, I describe how the existing frameworks lack the important ingredient of an epistemology (theory of knowledge) and how this might be rectified. I also demonstrate the importance of viewing policy success through alternate lenses that acknowledge the proper final cause of local government. I conclude with a comprehensive prescription for a framework that will assist local government physicians to know whether a treatment has contributed to a local government’s recovery or demise.

Introduction Imagine that you are a professional athlete. One morning you hop out of bed, in the same way that you have always done, and suddenly scream in agony. Something is wrong with your foot, it won’t hold your weight, and it is now the source of excruciating pain. This seems serious, so you do the responsible thing and get yourself down to the local physician who happens to be a medicus of great renown. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_3

29

30

3  Evaluating Public Policy Interventions

After hours of waiting (you live in rural Australia where access to essential services is constrained at best) you are finally called in to the consulting room. Somehow you manage to hobble in and take a seat. Without even a glance at your foot the highly esteemed physician announces with great confidence that he has diagnosed your problem and will quickly implement an efficacious remedy. You sigh in relief and count your lucky stars for having access to such an extraordinary expert to relieve you of your pain and allow you to return to your athletic training. The physician asks you to lie down on his examination table and you do so with alacrity in anticipation of soon being pain free. He gives you a small injection – won’t hurt much he says, just like a mosquito bite – and you start to feel drowsy. The last thing you see is the physician reach for his amputation saw and move towards your troublesome leg…… Most of the so-called experts who dispense remedies with great certainty put me in mind of our hypothetical physician. After only a cursory glance at the patient – a perfunctory desktop analysis, rather than an actual visit to the local government area – they announce with great confidence that they have the solution to all of the local government’s ills. They then proceed with their operation which sometimes alleviates the problem (but mostly doesn’t), and then ride away into the sunset with bags heavily laden with the money paid for their expertise. Sometime later, the community wakes up to find that they are missing a leg, or worse. In order for us to save local government we need to know whether the treatments routinely dispensed to it are helping or hindering recovery. Indeed, it is crucial that both physicians and patients have a good understanding of what policy success looks like. In the scholarly literature policy success is routinely defined as ‘achiev[ing] the goals that proponents set out to achieve and attract no criticism of any significance and/or support is virtually universal’ (McConnell, 2010, p. 351). For reasons that will become apparent as you read through this chapter, I do not consider that the commonly accepted definition of policy success is adequate. However, the definition will suffice for now – at least until we are in a position to do better. The purpose of the public policy success literature is to ‘create a knowledge base that should enable future policy-makers to do better’ (Bovens & ‘t Hart, 2016, p. 662). With respect to this matter of purpose, I am in full agreement with my scholarly peers and believe that the whole objective of evaluating public policy should be to improve how we treat our local government patients – and as you will read in this book there is an awful lot of room for improvement! Moreover, the aim of our ministrations – reflected in the title of this book – should be to save local government. Specifically, we are looking for treatments that will make local government more sustainable; where sustainability is defined as the ability of local government to provide the goods and services that citizens need, now and into the future (Drew, 2020). There are a number of symptoms that one might expect to find in a local government system bereft of a robust framework for evaluating public policy success. Clearly without a notion of what success looks like, it will be quite impossible to accurately judge whether treatments have, or have not, improved matters for our local government patients. Moreover, because treatments are not subjected to

Three Lenses Through Which to View Success

31

routine efficacy evaluations, there will be little hope of improving practice (in medical terms we will just keep on amputating limbs every time a local government presents with pain). Indeed, without an appropriate evaluative framework we may well remain ignorant of important subjective and objective indicators of success. Perhaps more disturbingly, without a framework to guide our treatments towards success, we might find ourselves pursuing putative good objectives through quite immoral means (see Chap. 2). In order to cast light on the importance of policy success frameworks for efficacious local government treatments I next provide a summary of the large body of scholarly literature in this area. Following this summary, I spend some time explaining the importance of having recourse to a robust theory of knowledge: epistemology is important because how we collect and organise facts can make a big difference to our conclusions. Thereafter, I identify a critical lens for viewing public policy success that has hitherto been, somewhat inexplicably, missing from the extant literature. I conclude this chapter with my prescriptions for evaluating the policy success of local government treatments.

Three Lenses Through Which to View Success Great advances have been made in the scholarly literature since Bovens, ‘t Hart, and Peters (2001) first suggested that different lenses ought to be used to assess discrete aspects of success. Initially the idea was to merely compartmentalise subjective judgements from more objective ones – although other scholars have now noted that employing discrete lenses also allows for learning to be tailored to the particular needs of specific public policy students (Howlett, 2012). For instance, politicians and their staffers are most likely to be interested in lessons regarding how to best manage subjective impressions, whilst public policy architects are probably more focussed on objective evaluations. In addition, using discrete lenses for evaluating public policy also allows us to better describe incomplete success or failure. Indeed, public policy outcomes often lie somewhere on a spectrum between these two extremes. Thus, providing different evaluative lenses means that we can better describe, for example, why particular public policies that have the appearance of being stunning failures in objective terms can still be considered partial successes by some. Three different lenses have been described by the scholarly community. The first is a programmatic lens that represents an objective assessment based on ‘facts and social balance sheets’ (Bovens & ‘t Hart, 2016, p. 656). This is essentially the traditional scholarly approach with potential subjective bias explicitly stripped out of the evaluation. It is also the most common approach to evaluating public policy success (Ugyel & O’Flynn, 2017). The second lens is the political perspective that focusses on subject judgements. It deals with the world of impressions, framing contests (how an issue is projected to the media and stakeholders), and blame games (how politicians set up scape goats to avoid potential blame in areas of policy uncertainty) (Howlett, 2012). Indeed, the

32

3  Evaluating Public Policy Interventions

issue of blame games has been a field of inquiry for local government scholars who have generally viewed the engagement of multiple ‘big brand’ commercial consultants as an exercise in the deployment of ‘weapons of mass expertisation’ (Drew & Grant, 2017, p. 3). This political lens has also been critical for explaining how apparent program successes  – for example, quickly executing large numbers of forced amalgamations in Queensland, Australia – have turned into denounced policy failures over time  (after prominent  political casualties and four subsequent de-amalgamations). The third lens for evaluating public policy is a little more contentious, having been effectively rejected by the key gatekeeper of this kind of scholarship – Mark Bovens. The perspective in question is a process lens that measures the success of moving from a mere idea to an implemented policy (Howlett, 2012). Indeed the main proponents of this particular lens define process as ‘refer[ring] to the stages of policy-making in which issues emerge and are framed, options are explored, interests are consulted and decisions made’ (Marsh and McConnell (2010, p.  572)). Bovens (2010) declared this to be a mere focus that applied equally to both political and programmatic lenses, but I and other academics see merit in keeping this as a separate viewpoint because in the real world incompetent implementation can, and does, undo the best sales pitches and program ideas. At least two important elements seem to be missing from the extant policy success frameworks. First, there is a need for an epistemology (theory of knowledge) to support the appropriate use of our three evaluative lenses (this gap has been acknowledged by some scholars, but not yet filled – see Marsh & McConnell, 2010). As I demonstrated through my medical metaphor at the commencement of this chapter it is simply not good enough to make weighty decisions based on ‘gut feeling’ alone. Nor can one adequately understand the effectiveness of a treatment without first knowing the exact circumstances of the patient. At a minimum we need to base our judgements on a careful examination of the patient and their symptoms, including the antecedents to the crisis that caused them to seek treatment in the first place. A failure to do this can easily result in a cure being celebrated as a success when it is, in fact, at odds with the patient’s ultimate final cause (see Chap. 2). Second, I believe that it is a grave error to not also apply a moral lens to public policy. In my medical metaphor earlier the doctor probably did remedy the foot pain, as he was asked to do, but doing so without first advising the patient of the nature of the radical intervention was completely immoral. Indeed, bringing about ‘good’ outcomes through ‘bad’ means is inconsistent with the natural law (see Chap. 2). In the next section I will outline a suitable epistemology for the evaluation of public policy success that can be applied to each of our evaluative lenses.

An Epistemology of Success Without a structured and careful study of the factors relevant to the case before us we are likely to miss critical details and draw erroneous conclusions. For instance, had our hypothetical physician stopped to examine his patient carefully he might

An Epistemology of Success

33

have been expected to notice the ingrown toe nail, and thus have proposed something a little less drastic than an amputation. Moreover, had he bothered to get to know his patient – specifically the patients’ occupation – our physician might have been expected to take a little more care with this limb which seems so critical to the patient’s ends. I suspect that the ludicrous actions of our hypothetical physician has given my readers good reason to chuckle – however the sad truth of the matter is that a lot of the local government reforms I have witnessed have been disturbingly similar. Too often fiscal physicians haven’t paused to take in the really important details and the results have been disastrous. Indeed, often those charged with evaluating public policies fail to take the care and time required to really understand their subjects. This probably explains some of the inconclusive findings regarding various public interventions that one can readily find in the scholarly literature, as well as the wide gulf that often exists between the evaluations found in the grey literature (reports by government as well as commercial consultants) compared to the scholarly ones. There are two particular matters that have been identified as important obstacles to the goal of accurate policy evaluations – the problems engendered by context and time (Ugyel & O’Flynn, 2017). The problem of context manifests as an inability to explain why identical public policy interventions often result in completely different outcomes for particular local governments. The problem of time, on the other hand, arises when different conclusions are drawn about the same public policy because those evaluating the policy do so at different times. A robust epistemology can deal with both of these serious limitations to the extant success evaluation framework. Much of what I am about to relate may well seem completely obvious to my astute readers. However, I do feel it needs to be spelled out in detail, because clearly the ‘blindingly obvious’ is nothing of the sort for some of our regulators as well as the commercial consultants that governments often engage to design and evaluate policy interventions. Those of you who read Chap. 2 carefully will probably not be at all surprised to learn that the source of my preferred epistemology is Aristotle. It is remarkable to think that no-one has managed to eclipse Aristotle in almost 2400 years but sadly this is the case in quite a few areas of endeavour (which probably says a lot about current academics (including me) as well as contemporary academic infrastructure). The matter of epistemology is certainly a case in point. Aristotle (1901, p.  257) both asserted and demonstrated, in the Posterior Analytics, that ‘to know a thing is to know its cause; and the causes…are (i) the substantial or Formal cause; (ii) the necessary conditions of a thing, or Material cause; (iii) that which gave the first impulse to a thing, or Efficient cause; and, (iv) that for the sake of which a thing is done, or Final cause’. Otherwise stated, Aristotle’s claim is that knowledge of anything can be attained through the careful examination of just four ‘causes’. Indeed, Aristotle wrote in Greek and the term he used to describe these four elements was aitia. This term is mostly translated as ‘cause’ but others have contended that ‘because’ might be a better rendering of what he meant (see Aristotle’s four ‘becauses’ in Stein, 2011). Speaking for myself I much prefer a translation that

34

3  Evaluating Public Policy Interventions

applies the archaic English term ‘wherefore’ – which means ‘for what reason’ – as I think it more consistent with both natural law and my own preference for requiring good reasons for acting or forming conclusions (Vines, 1940). Whatever word one wishes to use to describe the aitia doesn’t change the fact that it is both an elegant, as well as the best, solution we have for the problem of knowing a thing. Irrespective of what one wishes to understand, the utility of employing this structure of material and form (often combined as ‘nature’), efficient cause, and final cause is startling both in its simplicity and comprehensiveness. In classical times teachers customarily employed the example of a bronze sculpture as a pedagogical illustration of the utility of the aitia. However, I am not particularly enamoured with statues so I propose to explicate the aitia with reference to my goats: The material of my goats is the hair, skin, muscle and bones that make up the beast. Taking note of the material allows me to know that my goats are animal rather than plant or mineral which leads to the conclusion that they will require specific and daily care, including provision of appropriate feed and clean water. The form of the goat is the way that these materials are organised in the animals – for instance, my Saanan (milking breed) goats are slender, white, with long noses, and large udders whilst my Nubians (utility breed – that is, used for both meat and milk production) are much more stocky, come in a range of colours, have Roman noses (short snub-like), puppy-dog style ears, and relatively small udders. Understanding the form tells a farmer a lot about the purpose of a given breed, or even an individual goat. The efficient cause is more than obvious to anyone who visits my farm in the warmer months – an odorous great hulk of a buck (male) around 140 kg who attracts the ladies by urinating all over himself. Otherwise stated the efficient cause is the reason why I keep a smelly obnoxious (and sometimes rather dangerous) male goat on the farm – to produce the next generation of animals and ensure that I have sufficient milk (most goats need to be ‘freshened each year’ to produce adequate quantities of milk to warrant their cost of production). The final cause is the sake for which I keep goats at all – to ensure that people intolerant to cow milk (such as my son Tom) can still enjoy cheese, ice cream and porridge. Thus, through an application of Aristotle’s aitia you now know more than you probably ever wished to know about the main animal on my farm. Indeed, I predict long after you finish this book that you will remember this lesson on goats and recall my name as that ‘eccentric goat professor’ (which is generally how people refer to me when I go to conferences abroad). If I am correct, then I submit that I have proved my point about the power of the aitia for knowing anything. Of course, the aitia are also an important way of really getting to know a local government policy intervention. The material relates to the people, plant (equipment), buildings, and other infrastructure that make up a local government area. The form, on the other hand, is how the parts of the local government are organised – the governance and management structures, as well as the particular discretionary business units. Together these two aitia account for the context that has so long represented a stumbling block to policy evaluation – however, I caution that there is far more to both of these ‘nature’ aitia than can ever be conveyed through statistical data alone {there just isn’t any substitute for spending time in the community and getting to know the people and operating environment – desktop analysis (whilst

An Epistemology of Success

35

relatively inexpensive) usually doesn’t cut it}. One has to really know the patient before one can understand its problems and the efficacy of implemented ‘solutions’. It is also absolutely imperative that policy evaluators are able to identify the final cause – the specific objective of the intervention. Indeed, any policy architect worth their salt should be able to clearly articulate the aim of their proposal and anyone with an ounce of integrity should feel obliged to share this information with the patients that they treat. This might seem to be a rather obvious prerequisite, but recent reforms in Australia have demonstrated that architects often are not capable of stating their intent clearly, and without contradiction. Finally, evaluators need to be able to identify the efficient cause – the particular means through which the final cause is supposed to come to pass. Identifying this aitia allows us to overcome the problem of time – if we know what is meant to give rise to the desired result, and also the degree of success experienced in this efficient cause, then we can often predict outcomes many years hence. In an ideal world all of these things should be clearly stated by the policy architects and evaluation would thus tend to be a relatively straightforward matter. However, sadly the world is far from ideal, architects rarely articulate the important matters (I suspect they don’t know precisely what these are, which would explain a lot of the devastation wrought on communities), and robust post-implementation investigations are rarely conducted (mainly because the government which implemented the policy is often scared of what skeletons might come out of the closet if they start poking about; see also Drew and Dollery (2015) for a salutary example of how people go to extraordinary lengths to attempt to reinterpret their previously stated aitia). The importance of applying an epistemology of this kind to public policy evaluation can be further highlighted by comparing two recent studies of the 2016 New South Wales forced amalgamation program. The first evaluation was conducted by the Audit Office (2019) and included a qualitative study of just three local governments. No attempt was made to justify the selection of one western suburb urban council, a large regional local government, and a smaller rural council to the south of the state. Moreover, no attempt was made to relate the progress made by these local governments back to the specific material and form that they represent. For instance, little was made of the fact that only two of the local governments operated water businesses (where operated this usually accounts for around a quarter of revenue and expenditure), nor the relatively disadvantaged material of the community (all three were in the lowest 3 deciles of socio-­ economic disadvantage). Nevertheless, the Audit Office (2019) concludes that ‘the three councils have made progress towards an efficient organisational structure’ notwithstanding the fact that ‘at this stage the councils cannot adequately assess the effectiveness of their change management efforts’. Notably in its conclusion the Audit Office (2019) conflates efficient causes and seems to be ignorant of the final cause entirely. Indeed, the report purports to be an objective independent assessment but I think even the most cursory reader would likely conclude that it is rather subjective and heavily influenced by political imperatives. By way of contrast, the scholarly work of McQuestin et al. (2020) did take pains to control for the nature of local government, was clear about the efficient force, and consequently came to very different conclusions. In this paper a six-year

36

3  Evaluating Public Policy Interventions

comprehensive panel of data for all of the local governments was used in conjunction with a sophisticated empirical technique well-rehearsed in the scholarly literature for the purpose of identifying treatment effects. The authors specifically controlled for material (using a vast array of socio-demographic data as well as key economic indicators) and form (control for urbanity which is regularly employed in the literature to recognise the different kinds of business operated by rural and metropolitan local governments respectively). Moreover, this analysis was specifically designed to measure the success of the efficient force – economic efficiency that the Audit Office also purported to be reporting on – and found that the recent amalgamations were associated with a 11.2% increase to unit costs, ceteris paribus (which is economic jargon for controlling for the effects of material and form). Moreover, on the specific matter that formed the focus of the Audit Office report – staff efficiency – McQuestin et al. (2020) found that staff costs had indeed risen by 15.2% ceteris paribus, following amalgamation. Otherwise stated the authors conclude that the amalgamations were an abject failure with respect to the efficient cause and hence unlikely to give rise to the desired final cause of greater financial sustainability.  The two evaluations of this forced amalgamation could hardly be more different, and they graphically illustrate both the importance of compartmentalising out subjective elements from reports purporting to measure objective facts, as well as the need to carefully employ an epistemology. However, the importance of aitia is not limited to merely the programmatic lens, it is also relevant to political and process evaluations as I will describe henceforth. Political lens evaluations must also pay attention to nature – as represented in things such as control of the legislature, the ability of key Ministers, and the capacity of key salespersons  – as these factors are determinative of the ability to pass legislation and win Parliamentary debates (Howlett, 2012). In addition, the efficient cause is crucial to political lens evaluations as the rhetoric and heresthetic1 employed by salespersons throughout the public engagement phase of a reform largely shapes public impressions in both an ex ante (beforehand) and ex post (afterwards) sense (see, Drew et al., 2019 on rhetoric, and Drew, 2018 on heresthetic). Moreover, the final cause  – which can often be something quite different to what is publicly acknowledged  – must be identified because this will likely be seen as the most determinative factor in subjective judgements made by political peers. For an accurate process evaluation we also need to pay due regard to the aitia. For example, the material (skills, experience) and form (reporting lines to key Ministers, and institutional position within the public service structure) are likely to both be key determinants of process success. In addition, the efficient cause is also important to an accurate evaluation of success and would include things such as use of commercial consultants, and the effectiveness of mechanisms for engagement with key stakeholders. The final cause should also be identified in order for evaluators to understand precisely where the focus lay with regard to the

 Rhetoric is the art of persuasion, and heresthetic the art of political manipulation (see Riker, 1986).

1

A Moral Lens for Evaluating Success

37

reform – for example, was it all about getting to the reform day, or was thought also given to the morning after? These are just a few examples of the ways that we can employ the aitia to better understand whether reforms to local government have helped or hindered using extant evaluative lenses. However, to my mind this would still leave a key question unanswered – did the reform contribute to human flourishing?

A Moral Lens for Evaluating Success Readers will recall from our chapter on the principles of local government health (Chap. 2) that the purpose of government is to contribute to eudemonia (human flourishing). Specifically, government has an important role to play in co-ordinating the efforts of people and thus promoting the common good (help accruing to persons as a result of their co-operation). The common good, in turn, allows people to realise their perfections (proper ends). We have also discussed the importance of striking a balance between human dignity (the right of persons to pursue their existential ends without undue interference) and the common good. This idea of balance is captured by the principle of subsidiarity which is crucial to check the natural inclination of power to strive to extend itself (see Chap. 2, as well as Messner, 1952). Furthermore, we have examined a set of ‘rules’ for moral decision making, as articulated in the principle of double effect (also covered in Chap. 2). Essentially these rules boil down to never using people as mere means to an end, taking all measures to mitigate foreseeable bad side-effects, and only contemplating negative contingencies for truly grave matters. In sum, government – including local government – is an instrument for helping people to achieve their perfections and to do so it seems critical that those who run governments never lose sight of the fact that the whole reason for the institution’s existence is the person. If we forget this, even for a moment, then people can sadly become mere pawns in a game played to promote the interests of others. Promoting human flourishing is the teleological end of government and I struggle to see how anyone can be comfortable with acts that not only fail to achieve this noble goal, but in fact negligently work against it. I am particularly concerned that the three lenses currently employed to measure public policy success fail to pay any heed, at all, to the moral mission of government. As it stands, people may well find themselves celebrating a policy intervention as a great success, even when it has destroyed the dignity of associations and people. A salient illustration of this potential perversity might be understood by considering how a ‘successful’ forced amalgamation program would be likely to be evaluated under the extant lenses. Clearly I am asking my readers to use their imagination and pretend that regulators might somehow finally managed to pull off an amalgamation program that improves efficiency and sustainability, results in no political casualties, and is implemented in a competent manner (something I have never

38

3  Evaluating Public Policy Interventions

witnessed, and despair of ever seeing). If this were to somehow occur – according to programmatic, political and process evaluations – the feat would be celebrated as a great triumph. But if it comes at the cost of people’s livelihoods (‘efficiency’ is often really just code for redundancies), political voice (when small local governments are amalgamated with large neighbours they are invariably disenfranchised), community vigour (many small amalgamated local governments become neglected ghost towns pretty quickly2), and amenity (due to loss of control on the important question of development), then it is hard to see how anyone could view this as a moral success. For this reason, I strongly advocate for the inclusion of a moral lens in order to rigorously evaluate policy success. Indeed, I believe that the moral lens should be set above all others as the first, and most important, way for deciding whether a treatment has indeed proved efficacious. The entire reason for having government is to promote human flourishing. Thus, if any policy fails to achieve this minimum threshold then it must be considered an abject failure (rather than a partial success). Otherwise stated, with reference to our metaphor, there is no point in treating our hypothetical athlete’s pain if the treatment means that he ceases to have the two legs so critical to his ends. As I noted earlier in this book, the moral foundation for post-modern economics is utilitarianism (the greatest good for the greatest number). This has important implications for how public policy is currently planned, and indeed how most would assess its’ success. Essentially utilitarianism dictates that when the total value gained by the winners of a policy intervention exceed the total losses of those who lose, then the policy ought to be implemented. In most cases the losers are concentrated and lose almost everything (their job for example), but they are overwhelmingly outnumbered by the winners, who typically gain just a little (perhaps some slight downward pressure on local government taxes). The wisdom of utilitarians, and most economists I am sad to say, is that the few dollars saved by tens of thousands of taxpayers, is far more important than the capacity of a few workers to earn money to provide for their families.3 Natural law proponents could never find this kind of sophistry acceptable because they believe that each person has inviolable rights that must be respected. That’s why natural law theorists will never find themselves sitting down to ‘calculate how much good legitimately can be traded off against evil’ (Adams & Balfour, 1998, p. xxiii). Indeed, my respect for each individual person is why I have found myself at

2  What typically happens is that the staff are relocated to the larger of the two towns. Over time, people tire of driving 100 km or more for work each day, and move house instead. In addition, new recruitment tends to be drawn from the larger town. Loss of employment and incomes from the smaller town has strong knock-on effects and this sadly reverberates through the entire community. 3  This idea is encapsulated in the modern welfare economics decision rule called the Hicks-Kaldor test that asserts that provided the winners from a policy intervention can hypothetically compensate the losers, then we should feel good about going ahead and implementing the policy. In advocating so, ‘economists wish to equate as morally similar actual compensation for those hurt….with a hypothetical not actually paid’ (original emphasis; McCloskey, 1998, p. 177).

Prescription and Conclusion

39

odds with so many of the heartless public policy proposals of recent decades – and I suspect that if you have read this far, that I am far from alone in taking a stand for people over dollars. In sum, it does matter whether our public policies are morally licit, because government is fundamentally a moral endeavour. It simply is not tenable to continue to unnecessarily hurt people through ill-conceived public policy designed and evaluated in a moral vacuum. 

Prescription and Conclusion If we want to save local government, we need to both know what success looks like, and also be prepared to conduct independent rigorous policy evaluations. Quite simply, if we fail to do these things we won’t ever know whether public policy interventions are helping or harming communities. We also won’t be in a position to hold reform proponents to account for policies that fail to achieve stated objectives, or even worse, diminish human flourishing. In this chapter we have built a comprehensive framework for evaluating policy success that pays due recognition to both the need for an epistemology and the purpose of government. Under this (revised) framework policy success could be defined as the implementation of a morally licit intervention that meets the needs of particular identified people. Figure 3.1 summarises our model.

Principal Lens = Moral

Policy Success: Material Programmatic

Form

Political

Efficient Force Final Ends Process

Fig. 3.1  A comprehensive evaluative framework for policy success

40

3  Evaluating Public Policy Interventions

My specific prescriptions for saving local government with respect to public policy success are as follows: 1. All public policy interventions need to be evaluated. This is a basic level of accountability that shouldn’t need to be explicitly called for – people responsible for public policy reform should have the courage to commit to a mandatory independent and rigorous post-implementation review. The only reason for not making a commitment of this kind, that I can see, is if one seriously doubted the efficacy of the measures one was attempting to sell. Notably there has never been a truly independent and robust official review of a major local government reform in Australia (there have been a number of sham reviews though). Until reform proponents are willing to have the outcomes of their efforts subjected to basic transparency and accountability measures it is hard to see why any citizen should take their claims seriously. It is particularly important that commercial consultants be ultimately required to stand by the products that they sell to the governments of hapless citizens. These commercial consulting companies receive huge payments to produce what is supposed to be rigorous evidence to guide policy making. But the truth of the matter is that all of the work I have viewed during the last decade has been characterised by sloppiness, misapprehension of basic economic concepts (known to many high school students), and full of errors. Yet such companies continue to maintain their strong brands, and get repeat business, despite negligently wreaking havoc on the lives of citizens. Perhaps if we started to evaluate the quality of the services that governments pay handsomely for, we might be able to get some redress for products that were clearly not fit for purpose. If we are willing to destroy lives and livelihoods through public policy, the least we can do is to take some basic measures to ensure that, at a minimum, nett good results. As you can probably tell, the carelessness of these so-called experts makes me incredibly angry – it seems plain wrong that our governments continue to pay them so handsomely for shoddy work that has such profound and negative impacts on people’s lives. 2. The first lens through which all public policy should be evaluated is a moral lens. If we are not doing the ‘right’ thing, then it doesn’t matter how well we sell it and implement it, nor how good the financial outcomes are. Clearly my preference is for a lens that is consistent with the teleological nature of government – but even a different ethical paradigm would be better than what we have just now (moral indeterminacy). 3. Should a policy be evaluated as a moral success, then we should also evaluate it according to programmatic, political, and process lenses. Doing so will allow us to understand what worked and what didn’t. If we truly want to facilitate ‘learning’, ‘policy refinement’, and ‘social betterment’ (McConnell, 2010, p. 347) then there is no alternative to independent and thorough evaluations employing a robust epistemology such as Aristotle’s. However, if we simply want to be seen to be making some token efforts at transparency and accountability then I guess we will probably continue to produce cursory reports by entities for which most reasonable persons would apprehend bias.

References

41

Concluding Comments for Part I This Chapter concludes my review of the foundations of good government that must be adopted if we are to indeed save local government. During the course of the last few hours we have reviewed the most important theories of local government, and paused to consider how we will know when our fiscal physicking has proved successful. I imagine that you will agree with me that until we can come to a shared understanding about principles of health, and recovery indicators that we can’t possibly hope to succeed in saving local government. In fact, I believe that it would be irresponsible for anyone to approach a patient without first mastering these basic medical skills. In Part II of Saving Local Government I will review various maladies and outline the efficacious treatments that are best applied to physicking them. I encourage you to study these techniques carefully and implement them according to your particular needs and circumstances. Indeed, I implore you to do so, because failing to effectively treat our local government patients will inevitably lead to their appearance in an emergency room, probably in a great deal of distress. If we reach this point, then radical measures will be required. Unfortunately I have been the ‘Attending’ at local government emergency rooms in the past, so believe me when I say that this is something you and your community really ought to strive to avoid.

References Adams, G., & Balfour, D. (1998). Unmasking administrative evil. Sage. Aristotle. (translated by E Bouchier). (1901). Posterior analytics. The Perfect Library. Audit Office of New South Wales (AONSW). (2019). Workforce reform in three amalgamated councils. Retrieved from: https://www.audit.nsw.gov.au/our-­work/reports/ workforce-­reform-­in-­three-­amalgamated-­councils Bovens, M. (2010). A comment on Marsh and McConnell: Towards a framework for establishing policy success. Public Administration, 88(2), 584–585. Bovens, M. and ‘t Hart, P (2016). Revisiting the study of policy failures. Journal of European Pubic Policy, 23(5), 653–666. Bovens, M., ‘t Hart, P, and Peters, B. (2001). Success and failure in public governance: A comparative analysis. : Edward Elgar. Drew, J. (2018). How losers can turn into winners in disputatious public policy: A heuristic for prospective Herestheticians. Australian Journal of Political Science, 54(1), 167–182. Drew, J. (2020). Reforming local government. Singapore. Drew, J., & Dollery, B. (2015). Rejoinder to Sansom. Public Money & Management, 35(6), 395–396. Drew, J., & Grant, B. (2017). Multiple agents, blame games and public policy-making: The case of local government reform in New South Wales. Australian Journal of Political Science, 52(1), 37–52. Drew, J., Razin, E., & Andrews, R. (2019). Rhetoric in municipal amalgamations: A comparative analysis. Local Government Studies, 45(5), 748–767.

42

3  Evaluating Public Policy Interventions

Howlett, M. (2012). The lessons of failure: Learning and blame avoidance in public policy-­making. International Political Science Review, 33(5), 539–555. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Maimonides, M. [1198]. The Regimen of Health. N.p. Marsh, D., & McConnell, A. (2010). Towards a framework for establishing policy success. Public Administration, 88(2), 564–583. McCloskey, D. (1998). The rhetoric of economics (2nd ed.). The University of Wisconsin Press. McConnell, A. (2010). Policy success, policy failure and grey areas in-between. Journal of Public Policy, 30(3), 345–362. McQuestin, D., Miyazaki, M., & Drew, J. (2020). Do amalgamations make a difference? Wat we can learn from evaluating the policy success of a large scale forced amalgamation of local government. Public Administration Quarterly, forthcoming. Messner, J. (1952). Social ethics: Natural law in the modern world (trans: Doherty, J.). B Herder Book Co. Riker, W. (1986). The art of political manipulation. Yale University Press. Stein, N. (2011). Causation and explanation in Aristotle. Philosophy Compass, 6(10), 699–707. Ugyel, L., & O’Flynn, J. (2017). Measuring public policy success: Evaluating public sector reform in Bhutan. International Journal of Public Administration, 40(2), 115–125. Vines, W. E. (1940). Vine’s expository dictionary. Mac Donald.

Chapter 4

Local Government Amalgamations

‘If he can manage to control the illness with diet alone, he should not employ medicaments, and if he cannot accomplish this without medical healing, he should employ ordinary medical means, such as medical regimen and therapeutic foods’. Maimonides, in The Preservation of Youth, (2014, [1198]).

Abstract  Local government amalgamations represent a particularly contentious strain of public policy interventions. One of the reasons for this controversy stems from the lack of an evidence base to support proponent claims of efficacy. Another major area of concern arises as a result of amalgamations being forced onto the public, often in defiance of strident protests. Moreover, the natural law teaches that the whole point of government is to help people to flourish. When we ignore the person and focus instead on the institution there is a good chance that we will lose our way and achieve sub-optimal outcomes. In this chapter, I review the major elements required to conduct competent and morally licit amalgamation. I also provide robust evidence regarding a recent large-scale amalgamation and contrast the findings to the claims made by proponents before the event. In so doing, I highlight the reasons why amalgamations often fail to live up to proponent expectations.

Introduction Most of us have two bean shaped organs, about four inches long, located just below our rib cage and on either side of the spine. These are our kidneys which perform an essential function with respect to removing waste, controlling body fluids, and balancing salts and other minerals. Sadly some people suffer from chronic kidney disease which is often a consequence of diabetes. Prior to the 1960s there was no long-term dialysis option and

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_4

43

44

4  Local Government Amalgamations

because human transplant material was not available, people suffering from kidney disease usually received a very grim prognosis. Around about 1963, Professor Keith Reemtsma decided that in view of the frightful outlook for suffers of renal failure that it would be worth experimenting on xenotransplantation (transplanting organs from another species). He chose chimpanzees to be (unwilling) donors – because they were both a close primate match and also readily available as ‘retired’ circus performers – and conducted a total of thirteen kidney transplant surgeries (Cooper, 2012). All but one of the transplants ended in death within 4–8 weeks following surgery. The one ‘success’ was a young school mistress who was able to return to work for a period of 9 months prior to suddenly collapsing and dying. Local government amalgamations are also a kind of experimental surgery, conducted to correct early stage symptoms of financial sustainability failure. The idea for this kind of ‘operation’ is to use a close match (in terms of geography) to mitigate revenue insufficiency or attempt to stem excess unit expenditure. Since 1910 hundreds of these experimental procedures have been conducted in Australia and abroad. Indeed the numbers of local governments in Australia have dropped from 1,067 in 1910 to just 537 today (Tiley & Dollery, 2010). Thus far, these experimental procedures have resulted in only a small number of fatalities, which include the recent financial failure of Central Coast Council following its forced amalgamation in May 2016 (Murray & Collins, 2020). However, as I will demonstrate later, many of the other surgical outcomes have been far from successful and several local governments continue to require intensive care right up to this present day. Amalgamation can be done better and in this chapter I will outline precisely what must be done to improve matters. Indeed, there are certainly some cases where amalgamation will prove to be the best prescription for local communities. However, in the large majority of cases there are much more efficacious medicaments that ought to be tried well before even considering this drastic intervention. Certainly if the focus is on the needs and capacity of people – as it should be – then these alternative treatments warrant very careful attention. The remainder of this chapter is set out as follows. In the next section I spend some time examining the key theoretical concepts that must be mastered with respect to the matter of local government amalgamation. Specifically, I outline the importance of nature and efficient cause, clarify precisely what economies of scale are, and also outline the pre-requisites for moral decision-making in an environment of uncertainty. Following this I provide a brief discussion of the major reasons for why local government amalgamations often fail to thrive. Thereafter I explain the alternative treatments that should be considered and trialled before resorting to drastic procedures and medicaments. I conclude with my prescriptions for amalgamation and its alternatives, which places an emphasis on ensuring that the patient does indeed survive (beyond a mere 9 months).

Key Theoretical Concepts Associated with Amalgamation

45

Key Theoretical Concepts Associated with Amalgamation Some people shy away from theory because they are worried that it might prove impractical or too abstract. This is a shame because theory provides us with the reasons for why a thing is as it is, and also a scaffolding to support the imagining of what a thing might be instead. Some theories and philosophies can indeed be impractical or abstract, but natural law is certainly neither of these. Natural law philosophy is grounded in our senses (particularly what we see and hear) and our reason (what we can figure out by using our intellect). It is a down-to-earth and entirely accessible philosophy for anyone who is prepared to pause and think about what they experience. The purpose of government, according to the natural law, is to assist people to flourish through the co-ordination and promotion of the common good (which is defined as the help accruing to persons as a result of their co-operation – see, Chap. 8). Put simply there are lots of things that we can do on our own, but other things that can only be achieved through the co-operation of others (Kenney, 1955). The need for co-operation applies particularly to what economists refer to as public goods – things that are both non-rival and non-excludable.1 Without the instrument of government, many of the things that we rely upon – such as law and order, or local roads – just wouldn’t be available to us and our lives would become rather primitive and harsh. Indeed, next to the family, the local community – instantiated in local government – has generally been accorded primacy amongst all of the plural associations that we require in order to flourish (Aristotle, 1992; Messner, 1952). Local government provides (or should provide) the public goods that most of us use on a daily basis and which are the pre-requisites most integral to our ends. Thus anything that might harm the capacity of local government to promote the common good also ultimately hurts our human dignity.2 It will be recalled from Chap. 2 that the key elements of natural law philosophy can be summarised in terms of teleology (looking to the ultimate purpose of a person or association), universality (the idea that good reasons should also apply equally in similar circumstances), and practical reasoning (the giving of good reasons for acting). The purpose of government is to help people to flourish and it follows that any public policy that neglects the person, also neglects the teleological purpose of government, and hence undermines its own legitimacy. Universality, on the other hand, implies that good reasoning should be equally applicable to different people 1  Non-rival means that my use of a thing does not materially affect your ability to also make use of it. Non-excludable refers to the fact that it is often impractical to try to prevent people from using some goods or infrastructure. One of the principle reasons for government is to provide goods and services of this public nature – in the absence of government these kinds of goods are unlikely to be produced in sufficient quantities. 2  Dignity is the right of each person to pursue existential ends – be all that they can be – without undue interference.

46

4  Local Government Amalgamations

in similar circumstances, and also stand up to the test of time. If we are not prepared to apply a particular solution to all classes of problems and periods of time, then it is more than likely that our reasoning is flawed. {For example, if the benefits of economies of scale are said to always warrant the amalgamation of local governments, then on this reasoning alone, one must naturally conclude that nations would prosper best with just one local government (and no states)! The fact that this reasoning leads to a ludicrous conclusion (which academics term reductio ad absurdum) exposes a universal flaw underlying much of the local government amalgamation experimental surgeries}. Indeed, practical reasoning – the giving of good reasons for acting – should be a feature of democracies, but sometimes sadly isn’t. It is not unreasonable for citizens to expect their leaders to take them into their confidence and explain why they advocate for a particular course of action. I can only assume that when politicians eschew this kind of natural law behaviour that they either don’t have good reasons, or they don’t think their constituents sufficiently competent to understand them. Nowhere is this deficit in democracy more apparent than with respect to the vexed matter of local government amalgamations. To provide good reasons for acting one needs to understand the problem that lies before them. As I explained in Chap. 3, an epistemology (theory of knowledge), is essential to really understanding anything  – including the putative need to amalgamate local governments. The epistemology of Aristotle (1901) revolves around just four key observables – the material (constituent elements of a thing), the form (its shape or configuration), the final cause (the sake for which a thing is done), and the efficient cause (the method for moving from potentiality to actuality). All of these ways of knowing must be mastered if we wish to undertake competent amalgamations. For example the material of neighbouring local governments should be as near to homogenous as possible in order for an amalgamation to survive and thrive (see my discussion of the Decentralisation Theorem in Chap. 2). It is just no good to think that one can amalgamate the equivalent of a human with a chimpanzee and expect to end up with a viable local government – unless the needs and capacities of people that make up the two entities are similar then a decrease in economic welfare is almost certain to occur from this heterogeneity. Similarly the form of the respective ‘donor’ organisations will also likely prove to be of critical importance – the ‘businesses’ need to be sufficiently similar to allow integration and sufficiently complementary to facilitate the exploitation of surplus capacity. For example if the two local governments run different IT systems then the amalgamation is likely to result in significant costs and disruption being incurred. Moreover, unless the ‘businesses’ have complementary comparative advantages3 (for instance, one might be human resource rich, and the other capital rich)  – then the amalgamation is unlikely to result in significant 3  Comparative advantage is an established concept in economics that refers to the fact that people, businesses, and even nations, are often much better in one area, than another. When entities with different comparative advantages ‘trade’ together, everyone should become better off because the exchange will capture more advantages and expertise than any one entity previously enjoyed.

Key Theoretical Concepts Associated with Amalgamation

47

improvements to processes. One might like to think that the need to understand and select amalgamation partners on the basis of compatible material and form would be pretty obvious – but a series of public policy disasters over the last few decades suggests that it is sadly nothing of the kind. The final cause is an articulation of our whole purpose for acting. If we are not clear on this matter then it is hard to see how we might expect to succeed. Yet frequently the final cause is not stated, or is done so in a very obscure way. For example, in both Australia and abroad, amalgamations are often performed with a view to making local governments ‘stronger’. But what does ‘stronger’ mean? Is it more financially sustainable, or better and improved infrastructure? Is ‘stronger’ reflected in lower taxation, or in a better alignment of local government goods and services to the tastes of the community? Invariably, local government amalgamation proponents throw a number of these kinds of (often conflicting) objectives into the public policy debate (Drew et al., 2019a, b). I suspect that they do so because they have forgotten the fundamental purpose of local government – to help people to flourish – which might also explain the poor treatment often dispensed to the employees and representatives of the institutions. The efficient cause is how we propose to move from one state of affairs to another. Given the confusion about the final cause, amongst amalgamation proponents, my readers might be surprised to learn that the efficient cause is usually clearly articulated – economies of scale. Specifically, it is claimed that bigger local governments can exploit economies of scale to produce savings. Indeed, the phrase ‘economies of scale’ has taken on the nature of a religious mantra amongst amalgamation proponents, and it is repeated over and over perhaps in the hope that it might lead them to a state of Nirvana. However, the concept is fundamentally misconceived by such acolytes as I will henceforth demonstrate.

Economies of Scale The idea of economies of scale can be traced back to the father of modern economics – Adam Smith – and his seminal work first published in 1776, The Wealth of Nations. Early in this mammoth treatise Smith describes his observations regarding the miracle of specialisation observed with respect to the industrial production of haberdashery pins. If we are to believe Smith (1776, p. 5), ‘a worker … not acquainted with the use of [specialisation and the] machinery employed in it… could scarce, perhaps with his utmost industry make one pin in a day, and certainly could not make twenty’. However, with specialisation ‘one man draws out the wire; another straightens it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head…..’ ‘ten persons, therefore, could make them upwards of forty-eight thousand pins in a day’ (Smith, 1776, p. 5). Thus economies of scale, realised principally through specialisation and the development of capital equipment specific to the task, was said

48

4  Local Government Amalgamations

to result in at least a 240 increase in production (with concomitant decrease to the value-add component of unit production cost). Certainly savings of this order of magnitude might well tempt even the most ardent local government advocate to look seriously at the benefits of amalgamation. However there are at least four problems with Smith’s ‘miraculous’ anecdote that ought give us reason to pause and think again. First, no serious economist believes that economies of scale will continue on into perpetuity in response to continued expansion of output. In time, what starts as the miracle of specialisation flat-lines as tasks are no longer able to be broken down any further for specialisation, transparency is lost (allowing less-productive staff to avoid detection and redress) and excess capacity of capital equipment is fully consumed. At this point we enter the expected, and rather long domain of constant returns to scale, whereby there is no change to average total unit costs as production is increased. For those undaunted by the doldrums of constant returns – and who continue to push production volumes even higher – a rather nasty surprise awaits. Eventually, staff get in one another’s way and start to impede the work progress of their fellows, the numbers of unproductive staff flying below the radar swells perceptively as people become bored with the monotony of thousands of repetitions of the same thing day after day and month after month, and new capital equipment needs to be bought to cope with the increased volumes. At this point we have reached diseconomies of scale, whereby average unit costs increase as output is expanded. Our miracle has turned into the economic equivalent of Dante’s Inferno. The second problem with applying Smith’s (1776) vision of industrial Nirvana to local government is that local government doesn’t produce haberdashery pins (well mine doesn’t anyhow). Instead local government produces a wide array of disparate goods and services tailored to the particular tastes and needs of people. One can’t help people to flourish by delivering them goods and services produced on a one-­ size-­fits-all industrial scale. Thus the best laid plans of amalgamation proponents (on paper) often fail to come to fruition because said proponents neglect to take note of the ‘humanness’ of the purpose local government serves. Third, not all local government functions are amenable to economies of scale. Indeed, recent comprehensive empirical work by Fahey et al. (2016) demonstrated that just four of the functions, conducted by local governments in New South Wales, were responsive to scale economies. The unit costs of many functions are not responsive to scale effects for a variety of reasons. For instance, some functions can’t be sensibly broken down into smaller steps suitable for specialisation (for example, parking ticket issuance). Other functions do not have significant levels of capital goods associated with them and hence cannot make use of excess capacity (for example, customer inquiry staff). Yet other tasks require high levels of supervision to ensure optimal productivity, and expanding output requires considerably more middle management positions (for example, engineering works). Furthermore, the scale of the potential savings may just not warrant the millions of dollars in expenditure required to execute amalgamations. For instance, consider Fig. 4.1 which plots the association between average total cost and outputs for two

Key Theoretical Concepts Associated with Amalgamation

Average Total Costs ($000)

49

A

B

15,000 Output (number of taxpayers) Fig. 4.1  The importance of the steepness of curves

functions. Function A clearly has the potential to realise strong economies of scale if amalgamations result in a combined entity of around 15,000 taxpayers. This potential is shown by the steepness of the downward pointing part of the curve (the steeper the better in terms of potential savings). However, Function B only has the potential for very small savings in unit cost. If the local government functions amenable to scale economies all looked mostly like Function A, then this may warrant the expense and disruption to execute amalgamations. However, if most of the functions resembled Function B, then amalgamation would be a foolish course to take (requiring many decades before amalgamation costs could be recouped). In addition, the optimal scale for each function (the lowest point on the curve, where all economies have been fully realised) generally differs for each function. This means that efforts taken to fully realise potential economies in one function may, in fact, result in diseconomies being incurred in other functions. For instance, consider Fig. 4.2. Here we have three functions amenable to scale economies (all with different optimal scales; Functions A, B, and D) and one that is more typical of reality (Function C) whereby unit cost does not respond to increased scale. If we were to amalgamate such that we fully realised scale economies in Function D (size 50,000 taxpayers), then we can see from the graph that we would also incur significant diseconomies of scale for Functions A and B. If instead we constructed amalgamations such that we incurred no diseconomies of scale (5000 taxpayers), then we would only realise a small fraction of the potential economies associated with

50

4  Local Government Amalgamations

Average Total Costs ($000)

A

B

C D

5,000

20,000

50,000

Output (number of taxpayers) Fig. 4.2  The different optimal scale of functions problem

Functions A and D. Thus, it can be easily seen, that in the real world the idea of harnessing economies of scale to improve efficiency is much easier said than achieved. The fourth problem with trying to pursue Smith’s (1776) miracle of industrialised production, relates to the fact that most local government goods and services typically require significant levels of inputs from employees. People aren’t machines to be turned off and on as we please, or to be upgraded with new technology, nor scrapped when they are no longer suit our purposes. People have needs and responsibilities, dreams and intellects and we must treat them according to the same moral standards that we would wish to be treated by (recall the natural law principle of universalism). However, for amalgamation proponents people tend to get relegated to mere ‘potential efficiencies’. For example in the recent forced amalgamation program in New South Wales, Australia commercial consultants acting on behalf of the NSW government outlined the following savings, which I quote verbatim (Table 4.1):

Key Theoretical Concepts Associated with Amalgamation

51

Table 4.1  Projected benefits of amalgamation, New South Wales, 2015 Benefit Savings from wages expenditure and redeployment of staff Savings from materials and contracts Savings from Councillor fees (sic)

Metropolitan councils $938.7 m

Rural councils $366.3 m

$160.1 m $37.4 m

$69.0 m $78 m

Source: New South Wales Government (2015)

Table 4.2  The human cost of ‘benefits’ from Amalgamation, New South Wales, 2015 Benefit Savings from wages expenditure and redeployment of staff Savings from materials and contracts

Savings from Councillor fees

Human cost People’s livelihoods destroyed and staff forcibly moved from their current position to one not of their choosing Local business supplying local government – but also providing local jobs – expected to provide services for less. Alternatively, local businesses are displaced by large national or multinational corporations able to provide higher volumes of product Councillors suddenly removed from their position mid political cycle. At future elections citizens provided with less representation and smaller constituent councils likely to be disenfranchised

Notably the above ‘efficiencies’ are really about actions that have a direct effect on people’s lives. Thus each ‘benefit’ has an associated human cost as detailed in Table 4.2 (above). As it turns out the poor quality of so-called economic modelling, combined with the neglect of the human element of local government, meant that most of the projected savings failed to materialise. However, the question still remains as to whether the underlying efficient cause of amalgamation is either morally licit or in accordance with the purpose of local government. To answer this question, we must turn, once again, to the principle of double effect (see also Chap. 2).

 rinciple of Double Effect and Local P Government Amalgamation Readers will recall from Chap. 2 that the principle of double effect only countenances bad side effects from public policy making when the policy responds to a grave reason, the side-effects are merely foreseeable but not certain, and all measures have been taken to mitigate them (see also Drew et al., 2017a, b). Whether or not an amalgamation is ultimately deemed to respond to grave reasons depends on how proponents articulate the final cause. Certainly financially sustainable local government is sufficiently important to warrant potential bad side-­ effects. However, the wish to pay lower taxes, or have higher standards of local

52

4  Local Government Amalgamations

government goods and services probably doesn’t. In these latter cases all we are really doing is swapping one group of wishes (to have continuing employment, high levels of democratic representation etcetera), for another set of wishes (lower taxes or higher services) – and there is no reasonable way to decide why some people should have their wishes traded-in so that the wishes of another group of people might instead be satisfied. Whether or not bad side effects are merely foreseeable, or certain, matters – a lot. When side-effects are certain there is no meaningful distinction between the ends and the means for achieving the ends. Readers will recall that natural law philosophy takes a dim view of using people as merely a means to achieve some end (because doing so denies human dignity). However, for the savings postulated by most amalgamation proponents to actually occur some very bad side-effects would need to be certain – most notably making staff redundant and dismissing validly elected political representatives. In addition, local government amalgamation also often involves the transfer of debts from one group of citizens to another (Drew et al., 2017a, b). For example consider the case of two equal sized local governments scheduled for amalgamation where the first is debt free, and the second carries a nett debt of say $10,000 per taxpayer. In this scenario, $5,000 per taxpayer will essentially be transferred to the residents of the former local government area. Ordinarily it is not considered morally licit, nor lawful, to force one group of people to take on the debts of another (especially if the goods and services funded by the debt have already been fully consumed). All of these side-effects can in fact be mitigated through careful public policy-­ making responsive to the natural law. For instance, it could be stipulated that ‘efficiencies’ may only occur through natural attrition (identified staff are not replaced should they retire or resign). Clearly this would mean that savings from amalgamation would take significantly longer to be realised – but, it also means that we would be treating people as human beings worthy of our moral consideration. In similar vein, there is no need to dismiss Councillors mid-cycle, we can simply wait till the conclusion of the current political term. Even the transfer of debt can be mitigated by higher tiers of government granting funds to ensure that unequal debt burdens are equalised (by paying out the per-taxpayer gap in debt). Doing so would cost money, of course, but many governments have been willing to allocate significant fiscal resources to ‘encouraging’ communities to embrace amalgamations. For instance, in the recent forced amalgamations in NSW the state government offered between $AUD5 million and $AUD22.5 million to cover both the costs of amalgamation and also the purchase new infrastructure for communities. These grants were followed up by at least three rounds of ‘stronger community funds’ totalling $AUD400 million. Thus, the money seems to be available – it just needs to be shifted from providing new ‘toys’ for communities and instead applied to ensuring that the process is morally licit. In sum, it is possible to design competent and morally licit amalgamations  – especially if one understands the dictates of the natural law. However, public policy architects frequently choose to eschew these fundamental principles and instead

Why Amalgamations Often Fail to Live Up to Expectations

53

design amalgamations based on gut feelings as well as hard-headed (and muddle-­ headed) applications of economic theory. The results of these poorly executed amalgamations are devastating for communities – as I will soon demonstrate.

Why Amalgamations Often Fail to Live Up to Expectations There are four main reasons why local government amalgamations routinely fail to deliver on projected savings: shoddy consultant work, sham stakeholder consultations, unplanned or under-estimated costs, and poor post-implementation planning. In this section, I deal with each of the causes for amalgamation failure, before spending a little time on the special case of rural local government amalgamations, which come with their own specific set of challenges.

Shoddy Consultants The single largest reason for why local government amalgamations fail to deliver on their promises is the poor quality of work performed by large consulting houses that are regularly engaged by state governments to conduct financial analyses. These consulting houses generally have no specialist skills in the area of local government and they demonstrate an utter disdain for the academic literature (on the rare occasions that they do make reference to scholarly works, they misrepresent and misinterpret them). Nor are they willing to go to the trouble to collect data and conduct rudimentary empirical analyses such as those that most respected scholars do on a regular basis. Economies of scale, that lie at the heart of most arguments for amalgamation, are something that can be precisely measured through the use of a long panel of data and employment of an appropriate econometric technique4 (the complicated mathematics that economists routinely perform). Doing so would allow consultants to know quite precisely the magnitude of the association between the size of local government and unit cost. From this information it would then be a relatively straight-forward process to select appropriate amalgamation configurations designed to maximise savings and avoid diseconomies. Instead of performing this kind of precise analysis, commercial consulting houses prefer to produce a cost benefit analysis. A series of savings are assumed, and some costs are estimated. Basic arithmetic is then done to yield nett savings (gross savings less gross costs) and to make the work look far more sophisticated

4  Generally multiple regression analysis, although data envelopment analysis can also sometimes be a good option.

54

4  Local Government Amalgamations

than it actually is, an estimate of future inflation rates is then applied to put the nett savings into present value terms. Key to the validity of this consultant work is the accuracy of the assumptions and estimates. If the assumptions are based on evidence from previous amalgamations or sophisticated econometric work, then the results of the analysis might be expected to stand up to a serious examination. However, the assumptions are generally based on nothing more than the consulting firms ‘experience’ (which we have already established is minimal with respect to local government). Thus the business case rests on assumptions such as ‘overall staffing efficiencies estimated at 7.4 per cent’, or ‘efficiency savings [of] up to 3 per cent of a council’s expenditure on materials and contracts’ (KPMG, 2016). The percentages are then multiplied through by the relevant accounting item from the most recent financial statements, and, hey presto, the analysis is complete. If consultants instead took the trouble to garner some evidence – by examining the publicly available financial statements of recently amalgamated local governments – then they would likely discover that their major area of assumed savings (staff expenditure) isn’t supported by the evidence at all (for instance, staff expenditure rose in Queensland following the amalgamations  – see Dollery & Drew, 2017). However, unfortunately it seems that the $400,000 or so paid to big name commercial consulting houses for their ‘analyses’ doesn’t stretch far enough to cover the costs of one junior staff member to spend a week or two to gather actual evidence (Drew & Grant, 2017). The community, staff and political representatives who have their lives turned upside down by these public policy interventions deserve far better. Precisely why governments fail to perceive the poor quality of the work that they commission is beyond me. Indeed, I often wonder why governments don’t instead spend around $USD40 to purchase a copy of the sophisticated extant peer-reviewed empirical work that has often already been produced, by scholars, for some of the best academic journals in the world (see, for example, Drew & Dollery, 2014; Drew et al., 2017a, b; Drew & Dollery, 2015a). I can only assume that little value is placed on robust and reliable evidence in this sphere of public policymaking. To be fair, all of the commercial consulting firms have been guilty of turning out some pretty ordinary work in recent years (see, for example, Drew et  al., 2013; Drew & Grant, 2017). This comes as no great surprise to me, because I know that local government is a specialised field that requires proficiency in a wide range of skills and theoretical knowledge to be able to provide truly expert advice. Indeed, it has taken me over a decade to get to the point that I am at today – and I was blessed to have worked closely with Professor Brian Dollery for the first 5  years of my career (and thus gained from the benefit of his 38 years of experience). We therefore probably shouldn’t expect much from generalists who usually only have tangentially related tertiary qualifications and no body of expertise to draw upon for support. Notwithstanding my sympathy for these people asked to perform at a level clearly well beyond their skills and knowledge, I do feel that they could put in far more effort, engage more faithfully with the academic literature, and thus perhaps

Why Amalgamations Often Fail to Live Up to Expectations

55

reduce some of the damage and pain caused by their usual unsatisfactory standard of work. Indeed, part of the reason why state governments continue to receive work that is far from fit-for-purpose is because they don’t seem to demand better. Most nations have consumer trading laws that entitle purchasers to remedies including refunds for shoddy products. Yet even when the work is conclusively shown to be flawed, state governments do not seek compensation. Indeed, they merely commission more work which, I imagine, commercial consulting houses interpret as an endorsement of their business practice. For example, it is now beyond dispute that the recent forced amalgamations in NSW not only failed to produce the fanciful savings predicted by the consultants,5 but indeed resulted in an increase to costs. For instance McQuestin et  al. (2020) have employed sophisticated econometrics on a 6 year panel of data to demonstrate an 11.2% increase to overall operating unit costs, ceteris paribus (which is economic jargon for controlling for all relevant variables). Moreover, the scholarly work also demonstrates increases to staff expenses, following amalgamation, in the order of 15.2% ceteris paribus. Therefore it is clear that the guess-work from the various participating consultants was not adequate to the task, and it now seems that their apparent negligence has cost local government taxpayers dearly. Matters could, of course, be improved considerably if state governments (which commission this consultant work) instituted some sort of basic quality assurance before and after the amalgamation event. Even a cursory examination of recent consulting work in this space should quickly expose its flaws. Moreover, were state governments to insist that delivery contracts stipulate a robust and independent public review, then I suspect that the quality of the work would improve significantly (in order that the companies involved might avoid the embarrassment of having their amateurish efforts exposed). It thus seems a relatively simple matter to ensure that consulting companies, recommending disruptive and divisive public policy interventions, are held to some sort of minimal standards of accountability.

Sham Stakeholder Consultations A feature of most amalgamation programs is a period of community and stakeholder consultation. Often an offer is made to receive submissions and a report is subsequently produced to summarise stakeholder responses. However, it is usually the case that submissions which fail to accord with the perspectives of the amalgamation proponents are simply ignored, and that parts of other submissions are taken out of context to either make them seem ridiculous or pretend that they are

5  Here I also include Ernst and Young (2015), TCorp (2013), the Independent Local Government Review Panel (2013), and the Independent Pricing and Regulatory Tribunal (2015) which all played important cameo roles in the NSW drama.

56

4  Local Government Amalgamations

somehow supportive of the recommendations.6 I know this is the case because during the last episode of forced amalgamations I was commissioned to write several submissions for local governments. Despite providing considerable detail and evidence, regarding the flaws in the plans, the submissions I wrote were ignored and the flawed program proceeded apace (see, for example, the Independent Local Government Review Panel, n.d.). To the public this kind of sham probably appears to be a legitimate exercise in consulting with stakeholders, but to those of us on the inside it sometimes appears to be little more than a farce. Conducting consultations as a sham process is also a lost opportunity. The people who know local governments best are the people who work in the associations or live in the area. They have a lot of valuable knowledge that should be integrated into desktop analyses to ensure that decisions are epistemologically sound. In addition, community consultation is an opportunity for amalgamation architects to hear first-­ hand regarding the human cost of proposals. Doing so might be expected to introduce a much needed ‘human’ element to policy making and hopefully motivate architects to introduce some of the simple measures I outlined earlier to mitigate otherwise harsh consequences. However, before any of these positive outcomes from stakeholder consultation can occur a sympathetic philosophical position needs to be adopted by amalgamation proponents. The gulf between what I propose, and what often actually happens largely parallels the gulf between the philosophies of Plato, on the one hand, and Aristotle, on the other. Plato believed that the common person wasn’t competent to make important decisions about their own lives; Aristotle believed otherwise (Dahl, 1990). I suspect that many people in power might have a view more consistent with Plato, than his successor – however, I hope you agree with me and feel otherwise.

Unplanned and Under-Stated Expenses More often than not the expense to amalgamate local governments is grossly under-­ estimated. For example, Central Coast Council has tabled a report that indicates the actual cost to amalgamate was ‘$AUD39 million more … on top of the $10 million it got from the NSW Government’s implementation fund’ (Community Coast News, 2020). Indeed, most local governments I have spoken with indicate that the costs were generally at least twice the quantum specified by the consultants. Unfortunately, local governments were not provided with the appropriate scaffolding to ensure that specific amalgamation costs were clearly reported in the financial statements, therefore it is difficult to make comparisons between local governments, or against previous episodes of amalgamation. This is problematic because, as I outlined in Chap. 3,

6  In addition, amalgamation proponents ensure that they have the last word on the matter and naturally take the opportunity to put a helpful spin on things.

Why Amalgamations Often Fail to Live Up to Expectations

57

unless we have access to comprehensive evidence required to adequately assess success in public policy we will never learn from our mistakes. Notwithstanding the lack of important detail in financial statements it is clear that certain costs are routinely under-estimated by consultants. For instance, the costs of harmonising information technology can be considerable depending on the heterogeneity of systems that were operated in constituent local governments prior to amalgamation. In many cases, new software needs to be purchased and consultants brought in to migrate files and train staff. Indeed, I am aware of one local government who has had to pay for this process twice because the system they first adopted proved to be inadequate for their needs. Another regularly under-stated cost is re-branding. It is truly incredible to think about the number of items that need to be re-branded following amalgamation – signs, letterheads, plant and equipment – and the cost is astronomical. For example, in 2016 the recently amalgamated Canterbury-Bankstown set aside $AUD375,000 for brand creation and implementation (Robertson, 2016). Other costs are simply ignored by consultants. Typically service levels and infrastructure will differ between neighbouring local governments as a result of catering to the differing tastes for public goods (see my discussion of the Decentralisation Theorem in Chap. 2). However, once local governments are amalgamated citizens understandably expect to receive the same level of services as their peers. Everything from the size and frequency of rubbish bin collections, capacity of water connections, access to libraries, economic support for clubs and businesses (see Chap. 8), access to heated swimming pools and other recreational assets will ultimately come under the scrutiny of citizens and their representatives and, as a result, substantial costs are likely to be incurred.7 In most cases service levels will be increased to the highest level previously enjoyed by citizens of constituent entities because it would be politically difficult, or sometimes even impractical, to do otherwise (one can hardly stop heating a pool because other citizens in the local government area don’t have their pool heated). In addition, considerable capital expenditure is inevitably incurred in the early years. The two amalgamations I lived through both resulted in new Council chambers and depots being built to house the increased staff numbers and equipment. Moreover, it is often the case that a range of equipment needs to be upgraded to reflect the additional capacity required of it as a consequence of the higher output levels associated with an amalgamated entity. Indeed, there are an additional class of expenses that often escape the notice of both practitioners and academics – accounting costs contingent on the amalgamation. There is often a good deal of variation between the depreciation practice

7  These unexpected costs are blown out even further when the constituent local governments have contracted to private providers – in these cases considerable expense and complexity may be associated with altering extant arrangements.

58

4  Local Government Amalgamations

adopted by different local governments.8 However, following amalgamation it is usual for Chief Finance Officers to harmonise useful lives, recognition thresholds, and re-valuation practices (Drew, 2020). Doing so will have a significant effect on accounting expenditure given that depreciation usually accounts for around a third of operating expenditure. Furthermore, amalgamation often results in surplus assets, or assets with insufficient capacity to meet new output needs, having to be disposed of. Disposal of assets almost always results in either gains or losses on sale which reflect the difference between the book value (cost less accumulated depreciation) and the price realised for the asset. In addition, asset audits often reveal over-valued assets  – most notably artwork  – from constituent entities that need to be written down (Drew, 2020). There are also a number of unplanned human resource expenses that exert considerable impact on the supposed savings arising from local government amalgamations. First, there is the bevy of consultants and additional casual staff brought on during the first 12 months, or so, to help the organisation cope with the extra work created by the amalgamation. Most local governments have little surplus human resources, if any, so it follows that additional staff will be required to do the countless tasks involved in an amalgamation  – such as combining records, generating new asset registers, training staff, harmonising organisational protocols, and communicating changes to citizens. Second, senior and middle management will generally see their supervisory and strategic workloads increased as a result of amalgamation. It is therefore reasonable for them to expect additional remuneration to compensate them for these extra responsibilities. Moreover, unless the constituent local governments had precisely the same organisational structures prior to amalgamation, then it will often prove necessary to harmonise roles as well as the remuneration associated with the roles. The need to remunerate appropriately to reflect both the extra responsibilities and harmonised job descriptions probably accounts for a good deal of the additional staff expenditure which followed on from both the Queensland and New South Wales local government amalgamations. An additional unplanned ‘expense’ is the reduction in intergovernmental grants that almost always follows on from de-amalgamation. In some countries, such as Australia, protections are put into place to ensure that the grants do not get reduced below the combined level that would have been paid had local governments remained apart for a certain period (4 years in the case of Australia). However, these are only temporary protections and it must be realised that the mere fact that they exist speaks to the high likelihood that grants will in fact be reduced as a result of amalgamation. Indeed, any time that a grant system makes use of non-population inputs or minimum payment floors there is a strong possibility that amalgamation will result in a nett decrease to intergovernmental aide. This is especially true for

8  Depreciation expense is the apportioning of costs for assets of a durable nature over time. Because the expected life of long-lived assets is difficult to accurately predict, there is much scope for variation and error (Drew & Dollery, 2015b).

Why Amalgamations Often Fail to Live Up to Expectations

59

rural communities where grants are both a relatively large component of revenue as well as important for reducing high levels of horizontal fiscal inequity. There is one further ‘expense’ that relates directly to the failure of amalgamation architects to properly understand the nature of what they propose. As I have already detailed a good deal of the ‘efficiencies’ from amalgamation relate to proposed reductions in the numbers of staff. However, amalgamation architects ignorant of the natural law, seem to also be insensitive to the fact that it is no simple thing to execute ‘efficiencies’ – especially after they have received a human face. Otherwise stated, it is one thing to glibly declare that redundancies will occur as part of the amalgamation plan, but an altogether different matter to be the person who decides which employees will have their livelihoods terminated and their hopes and dreams dashed. Indeed, often legislation, as well as the practical need to retain staff to cope with the large additional workloads during the first 12 months, means that redundancies can’t take place for some time. By that time new senior management have come to know each of the ‘efficiencies’ as people who have special qualities as well as obligations to their families. It is therefore not surprising to me that most of the proposed redundancies fail to occur.

Poor Post-implementation Planning Indeed for amalgamations to work financially a series of tough decisions need to be made and executed. Staff need to be dismissed, fees need to be harmonised (often increased), taxation needs to be applied equitably throughout the new local government area, and agreements need to be struck with the community regarding appropriate service levels. Each of these tasks requires political courage and is almost certain to infuriate citizens – especially if the amalgamation has taken place without their consent. The person in the best position to make these tough calls is the interim Administrator often employed for 6 months or so proximate to the amalgamations. This person is not elected, and is also often not a permanent resident of the local government area. Administrators are therefore in a position, better than most, to do the things ordained by the amalgamation architects that will inevitably cause hurt and distress. However, in almost all cases Administrators have either shied away from doing the unpalatable things planned by the amalgamation architects, or have been prevented from doing so because of state government politically inspired legislation. Indeed, during the most recent Australian forced amalgamations Administrators seemed to be fully occupied with managing political impressions for their state-­ government masters, rolling out new discretionary community infrastructure in an effort to placate citizens angered by the forced amalgamations, and extracting perquisites for themselves and their associates. On a broader level it seems that all of the recent amalgamation programs in Australia have been characterised by a general failure to think carefully about the

60

4  Local Government Amalgamations

morning after. All the effort seems to have gone into getting to the point of executing the amalgamations, and relatively little thought given to what might happen next. For example, considerable effort was put into raising citizen expectations through advertising campaigns spruiking lower taxation, new discretionary infrastructure and better services. This sort of thing may have indeed assisted the sales campaign, but it has also cast a heavy burden on the new local governments because the savings were never going to be sufficient to achieve all of these things in addition to improving financial sustainability. Even the names for the newly created local government areas seem to have been a rushed after-thought. For example, the amalgamation between Cootamundra and Gundagai was originally called ‘Gundagai Regional Council’, but community opposition later forced this to be altered to ‘Cootamundra-Gundagai Regional Council’. Indeed, naming new local government areas by simply combining old names is a poor choice, because doing so simply serves to remind people of old identities as well as old resentments about the process. It would be much better to use a name that reflects a dominant geographic characteristic of the combined region, such as a river or mountain range. Another mistake is to apply a name to a local government area that is already in use in a neighbouring jurisdiction. For example, ‘Bayside Council’ was an extremely poor choice for the new local government area in New South Wales given that a ‘Bayside’ already existed in the neighbouring state of Victoria. Poor decision making has thus guaranteed much confusion for many decades to come. These problems experienced with merely coming up with a sensible name for the amalgamated local government entities are symptomatic of the broader lack of thought given to the post-implementation period. Local governments require significant support to execute successful amalgamations and in both recent cases in Australia it is fair to say that they did not receive this support in a timely manner. It seems that local government regulators simply reacted to problems as they arose, rather than proactively seeking to mitigate them. My suggestion is that in future it would be wise to put at least as much effort and thought into the after sales care, as what is put into the sales campaign.

The Special Case of Rural Local Government Rural local governments have a number of special qualities that seem to be lost on amalgamation architects working from the comfort of their computers in capital cities. For example, rural communities are often far more dependent on their local governments, than are their city cousins. This is because local government is often the provider of last resort when neglect by higher tiers of government, or market failure (the failure of competitive markets to supply essential services) occurs. Indeed, it is not at all unusual to see local governments acting as agents of higher tiers of government, or providing banking, postal services, childcare, or aged care simply because the population size is considered by other entities to be too small to

The Special Case of Rural Local Government

61

warrant these essential services. Moreover, local government is often both the biggest regional employer as well as the employer of choice in rural areas, where it is sometimes very difficult to find off-farm work that pays above minimum wage. As a result of the special attachment that rural communities have for their local governments, they tend to passionately defend against any proposals that might conceivably diminish the presence of the institution. Another fact, often lost on amalgamation proponents, is that rural communities aren’t all the same. In a lot of metropolitan areas there is not a large difference in immediately adjacent communities (differences instead often occur according to much broader regions associated with the cardinal points  – for example wealthy residents in the east and blue collar workers in the west). However, there is often a high degree of heterogeneity between adjacent rural communities owing to both the large distances involved (and disparate associated natural endowments), as well as strong historical traditions. For instance where I live is cattle country and light industry, the neighbouring local government area to the west (Gunnedah) is notable for cotton growing and coal mining, whilst the local government to the north (Uralla) is wool production. These differences in industry translate into very different capacities and tastes for public goods and services – suggesting that amalgamations will often fail to improve economic efficiency (see my discussion of the Decentralisation Theorem in Chap. 2). However, to our city slicker cousins I fear that we all appear as simply ‘local yokels’ – a misapprehension that can only be addressed by spending some quality time in the area, and conducting genuine stakeholder engagements. Another thing that makes rural local governments special are its staff. Often these staff spend their entire working lives trying to improve conditions for their communities. They go above and beyond what they are paid to do and are passionate about making local lives better. However, they are also conditioned to the relatively less complicated structure of small rural local governments. In addition, staff in rural local governments often represent concentrations of institutional knowledge that simply can’t be replaced. The presumption of amalgamation architects is that these rural staff will make a smooth transition to life in a much larger and more complicated regional local government. Unfortunately this is just not true – my experience suggests that many will struggle to adapt and will feel torn about loyalties that they once held solely for their smaller community. Moreover, some senior management may find themselves no longer needed as a result of the amalgamation, or not prepared to work under another management team. For example, if there are two Directors of Infrastructure prior to amalgamation, then one will either be made redundant, or asked to work under the command of the new Director. These sort of problems, as well as the high levels of stress associated with the amalgamation fallout, inevitably see a number of valuable and highly skilled staff leave the organisation. Their institutional knowledge leaves with them, and this can never be completely replaced. Moreover, it is not at all certain that replacements might be able to be found for key positions – such as engineers and Chief Financial Officers – should both incumbents ultimately leave (which has sadly occurred many times in the past). Small organisations generally don’t have a pool of appropriately qualified staff that might

62

4  Local Government Amalgamations

be promoted to take over, and low population rural communities usually don’t have a surplus of professionally qualified citizens upon which they might potentially recruit from. Even if staff can be lured from elsewhere, they sometimes have trouble ‘fitting’ into the community, and sometimes don’t have the same kind of local and institutional knowledge, nor commitment to the community. Frequent rotations in these positions are therefore quite likely. Councillors in the new local government areas also often fail to make a smooth transition from advocating for their small communities to advocating for a much larger and more complex suite of communities. Local knowledge is incredibly important in the rural world, and more often than not, Councillors have very little knowledge about former neighbouring communities. Even with the best of intentions, most Councillors will struggle to advocate on behalf of the entire amalgamated community. What typically results is that the local government breaks into factions based on where the Councillors reside. This is not deliberate, nor mere politics, but instead a reflection of the practicalities of living in a rural area. Both thinking and voting thus tends to be cast in terms of ‘them’ and ‘us’. Moreover, if one of the former local government areas was smaller than the other, then this may well mean that its citizens effectively become disenfranchised because politics is essentially a game of numbers (Riker, 1982). Often the smaller local government community will slowly decline due to both its disenfranchisement, as well as the relocation of staff that I talked about earlier. In the end the community withers and suffers – something that all of us who live and travel in rural Australia have observed first-hand. I emphasise that this sad series of unfortunate consequences is often not deliberate and rarely due to ill will. Instead it’s cause can be found in the failure of amalgamation architects to understand the nature of the local governments that they try to transplant (often with fatal consequences for local communities).

Alternatives to Radical Surgery There are alternatives to the radical ‘xenotransplants’ regularly conducted in many local government jurisdictions, around the world, mostly with rather disappointing results. The most prominent alternative treatment is shared services (also referred to as collaborative arrangements  – see Drew, 2020; Drew et  al., 2019a, b, or Carr & Hawkins, 2013 for comprehensive treatments of this area of scholarship). The idea here is that one or more local governments might combine to jointly produce one or more public goods and services. Readers will recall that one of the big problems with amalgamation is that economies of scale tend to be specific to certain functions, and also that the optimal scale for different functions often varies quite a lot. By way of contrast, amalgamation results in a single scale of production for all functions.

Alternatives to Radical Surgery

63

The advantage of shared services is that local governments can mix and match collaborative partners such that they reach near-to-optimal scale for each function produced in this way. By carefully selecting shared service partners that produce homogeneous local government goods through similar processes it should be possible to maximise economic efficiency. Indeed, if care is also taken to ensure partners are selected with complementarity of comparative advantage9 in mind maximum benefits will accrue to all members of the collaborative arrangement, as well as the citizens that they serve. However, sadly shared services have usually failed to deliver on their promises, mostly as a result of a neglect to do the requisite empirical work (to ascertain optimal scale), but also because of a lack of guidance surrounding the ideal attributes for partners, such as that which I just outlined (see Drew et al., 2019a, b for details of an increase to costs for shared services in the order of 8%, ceteris paribus). This is nothing that can’t be addressed through receiving appropriate support from true local government experts that understand the theory and have the skills to do the required analysis. There are another two treatments that will also often prove far more efficacious than radical surgery – education and the application of the principle of subsidiarity. For well over a decade I have been passionately advocating for greater education of local government executives, representatives, and (especially) citizens. This is one very important reason for why I wrote this book. When people understand the theories and gain some access to the results from the scholarly literature then it is my experience that they tend to make exceptionally good decisions. However, when people don’t receive this kind of education, then they can easily be profoundly misled by big brand quacks who seem to be more interested in their outcomes (particularly strong revenue flows gained through as little effort as possible), rather than the outcomes for communities. I know, from personal experience, that carefully designed education  delivered through appropriate channels can radically alter outcomes for communities. Moreover, my experience delivering many public seminars over the last decade leads me to believe that most people are willing and able to learn and thus help make better choices. Indeed, some of the education I am talking about can be as simple as providing people with relevant information at the time that they are making decisions, and in Chaps. 6 and 7, I will outline some of the simple ways that this can be done. Education might also be aided by resources such as the YouTube channel – Professor Joseph Drew’s World of Local Government – which I established to help local governments and their communities.

9  All local governments have comparative advantages – some might be human resource rich, others rich in plant and equipment, yet others rich in good processes for production. There is little advantage in  local governments with similar comparative advantage working together  – much better outcomes will arise when complementary comparative advantages are combined. For example, a local government with strong human resources (but poor plant and equipment) would be best served by combining with another local government that has strong plant and equipment (but perhaps struggling to attract suitably qualified and experienced staff).

64

4  Local Government Amalgamations

The final alternative treatment is for local governments to better practice the natural law principle of subsidiarity. The principle of subsidiarity sets out a blueprint for how governments might resist the pressures to take on too many burdens, which ultimately come at the cost of both financial sustainability and dignity10 (see Chap. 2). A better knowledge and practice of the principle is probably the best chance for both sustainable local government as well as vibrant and strong communities. In Chaps. 6, 7, and 8, I spend some time explaining how the principle of subsidiarity can best be applied to the problems facing local government.

Conclusion and Prescriptions If we are going to save local government then it seems that we will have to call an end to our disastrous practice of mass xenotransplantations. There are certainly times when amalgamation may be warranted, but the donors need to be homogenous, not from (metaphorically) different species. My prescriptions relating to the matter of amalgamations are as follows: 1. Those wishing to implement reforms must give good reasons and good evidence for acting. If we respect citizens as competent adults, capable of making good decisions regarding matters that affect their lives, then we will naturally wish to bring them into our confidence regarding the reasons and evidence to support reform proposals. Most of the angst associated with local government amalgamation arises because people believe that proponents haven’t communicated honestly with them. This is a simple matter to rectify. Moreover, it is not unreasonable for people to be provided with evidence to support the ‘assumptions’ made by amalgamation architects – indeed, assumptions without evidence are nothing more than guesses. Given the turmoil and pain often caused to people as a result of amalgamation it only seems fair that proponents should make some efforts to garner basic evidence to support their proposals. 2. Alternate treatments should be practised prior to more radical interventions. Education and practices consistent with subsidiarity are less radical and also likely to prove more successful in the long-run. Indeed, these measures are the equivalent of Maimonides’ prescription for therapeutic foods and health regimens quoted at the start of this chapter. The next level of intervention that might be considered is the strategic and careful use of shared services – supported by good reasons and evidence. These are a kind of medicament, in Maimonides’ terms. Amalgamation is a far more invasive procedure and should therefore be reserved only for conditions that don’t respond to other treatments.

 Dignity in a natural law sense refers to the freedom of people and associations to pursue their existential ends (be all that they want and can be), without undue interference.

10

Conclusion and Prescriptions

65

3. Proposed amalgamations must be designed by bona fide experts, and supported by evidence. Local government is unique for its ability to attract a plethora of self-­professed experts, who are often nothing of the kind. A bona fide expert, by way of contrast, will have a good grasp of theory and a history of applying sophisticated empirical tools to solving the problems confronting local government. Moreover, a bona fide expert, will have independent and robust attestations to their expertise – preferably of a kind consistent with the double blind peer review process employed by the scholarly community (whereby scholarly work must be reviewed and approved by at least two independent and recognised experts before it can be published). Local governments and their communities should be very sceptical of self-­ professed experts who cannot explain economic theory in clear terms or who can’t perform anything but the most rudimentary ‘analyses’. These are often mere quacks who are more intent on achieving their own goals, than the goals of local government communities. 4. Community consultations must be focussed on people, and be conducted in a thorough and genuine manner. The community has critical knowledge that must be incorporated into amalgamation plans. Failure to do so results in a neglect of the human aspect of local government and ends in sub-optimal outcomes. People in local government and the community should expect to be treated with the same respect as amalgamation proponents demand and receive. It is a fundamental principle of natural law that people must never be treated merely as a means to an end, or as an irrelevancy. 5. Amalgamations must be conducted in a morally licit manner. As I detailed in Chap. 3 public policy cannot be considered a success unless it is conducted in a morally defensible manner. This means that the consent of (at least) a majority of citizens must be given before proceeding. It also means that grants should be made to ensure that no nett debt is transferred to taxpayers as a consequence of amalgamation. Finally, all measures must be taken to mitigate foreseeable bad side effects. In sum, the means must be afforded the same moral gravitas as the ends. 6. Adequate post-implementation support and review must be considered essential elements to amalgamation success. Many amalgamations suffer as a result of a lack of thought and support being given to the morning after the decree that establishes the new amalgamated entity. It is not unreasonable for citizens to expect that at least as much effort might be put into ‘after sales care’ as is invested into the sales pitch. Indeed, doing so is likely to minimise the current strong trends towards buyer’s remorse in many amalgamated communities. Moreover, all amalgamations should come with a binding commitment to an independent and robust post-implementation review. Doing so, will both encourage architects to be more prudent in their assumptions, and also ensure that policy learning occurs (see Chap. 4). The only reason for avoiding such a commitment, that I can see, would be if the amalgamation architects didn’t believe in the validity of their own work.

66

4  Local Government Amalgamations

Unfortunately, most amalgamation programmes fail to measure up to my prescriptions. As a result communities are often damaged quite profoundly, in both fiscal and human terms. When this occurs there may – in some special cases – be a case for conducting a de-amalgamation. In the next chapter I will fill a large gap in the literature by outlining the conditions that warrant de-amalgamation as well as some of the important matters that must be addressed to do so in a competent manner.

References Aristotle. (translated by E Bouchier). (1901). Posterior analytics. The Perfect Library. Aristotle [350 BCE, (1992)]. The politics. Penguin Books. Carr, J., & Hawkins, C. (2013). The costs of cooperation: What the research tells us about managing the risks of service collaborations in the US. State and Government Review, 45, 224–239. Community Coast News. (2020). Council amalgamation has cost $49M to date. September 10, 2020. Available at: https://coastcommunitynews.com.au/central-­coast/news/2020/07/ council-­amalgamation-­has-­cost-­49m-­to-­date/ Cooper, D. (2012). A brief history of cross-species organ transplantation. Baylor University Medical Centre Proceedings, 25(1), 49–57. Dahl, R. (1990). After the revolution? Yale University Press. Dollery, B., & Drew, J. (2017). Hired guns: Local government mergers in New South Wales and the KPMG modelling report. Australian Accounting Review, 27(3), 263–272. Drew, J. (2020). Reforming local government. Springer Palgrave. Drew, J., & Dollery, B. (2014). Estimating the impact of the proposed greater Sydney metropolitan amalgamations on municipal financial sustainability. Public Money & Management, 34(4), 281–288. Drew, J., & Dollery, B. (2015a). Less haste more speed: The fit for future reform program in New South Wales local government. Australian Journal of Public Administration, 75(1), 78–88. Drew, J., & Dollery, B. (2015b). Inconsistent depreciation practice and public policymaking: Local government reform in New South Wales. Australian Accounting Review, 25(1), 28–37. Drew, J., & Grant, B. (2017). Multiple agents, blame games and public policy-making: The case of local government reform in New South Wales. Australian Journal of Political Science, 52(1), 37–52. Drew, J., Kortt, M., & Dollery, B. (2013). A cautionary tale: Council amalgamation in Tasmania and the Deloitte access economic report. Australian Journal of Public Administration, 72(1), 55–65. Drew, J., Grant, B., & Fisher, J. (2017a). Re-evaluating local government amalgamations: Utility maximisation meets the principle of double effect. Policy & Politics, 45(3), 379–394. Drew, J., Kortt, M., & Dollery, B. (2017b). No Aladdin’s cave in New South Wales? Local government amalgamation, scale economies and data envelopment specification. Administration & Society, 49(10), 1450–1470. Drew, J., McQuestin, D., & Dollery, B. (2019a). Good to share? The pecuniary implications of moving to shared service production for local government services. Public Administration, 97(1), 132–146. Drew, J., Razin, E., & Andrews, R. (2019b). Rhetoric in municipal amalgamations: A comparative analysis. Local Government Studies, 45(5), 748–767. Ernst & Young. (2015). Fit for the future: Review of business case estimates of merger net benefits for Sydney metropolitan councils. Ernst & Young. Fahey, G., Drew, J., & Dollery, B. (2016). Merger myths: A functional analysis of economies of scale in New South Wales municipalities. Public Finance and Management, 16(4), 362–382.

References

67

Independent Local Government Review Panel. (2013). Revitalising local government. ILGRP. Independent Local Government Review Panel. (n.d.). Stage three consultation: Summary of council submissions. ILGRP. Independent Pricing and Regulatory Tribunal (IPART). (2015). Assessment of council fit for the future proposals. IPART. Kenney, J. (1955). The principle of subsidiarity. American Catholic Sociological Review, 16(1), 31–36. KPMG. (2016). Outline of financial modelling assumptions for local government merger proposals: Technical paper. KPMG. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. McQuestin, D., Miyazaki, M., & Drew, J. (2020). Do amalgamations make a difference? What we can learn from evaluating the policy success of a large scale forced amalgamation of local government. Public Administration Quarterly, forthcoming. Messner, J. (1952). Social ethics: Natural law in the modern world (trans: Doherty, J.). B Herder Book Co. Murray, S., & Collins, T. (2020). Blame game escalates as minister prepares to dismiss council. Central Coast News, October 28, 2020. New South Wales Government. (2015). Local government reform: Merger impacts and analysis. NSW Government. Riker, W. H. (1982). Liberalism Against Populism. Waveland Press, Inc. Robertson, J. (2016). Canterbury-Bankstown council to spend on brands, ‘place-making’ as fiscal challenges loom. Sydney Morning Herald, 18th September, 2016. Smith, A. (2014 [1776]). The wealth of nations. Shine Classics. Tiley, I., & Dollery, B. (2010). Historical evolution of local government amalgamation in Victoria, Tasmania and South Australia. UNE Centre for Local Government, working Paper (pp. 1–44).

Chapter 5

Local Government De-Amalgamation and Boundary Reduction

Even if your habit is in contradiction to medical law, you must not separate from it abruptly, but adjust to the law gradually and for a prolonged time so that the change will not be hard felt. Maimonides, in The Preservation of Youth, (2014, [1198])

Abstract Local Government de-amalgamations and boundary reductions have largely been neglected by the scholarly literature despite their increasing prevalence. Changes to boundaries of this kind are indicated when extant local government areas contain disparate communities who need to be separated in order that each might flourish. However, ‘separation surgery’ is no simple matter and extreme caution must be taken to ensure that both communities ultimately thrive. In this chapter I review the important theories that one must take cognisance of when planning a separation. I then outline the costs and benefits of de-amalgamation, with a particular emphasis on the practical requirements for a morally defensible separation plan. Following this I spend some time on explaining important matters related to post-separation care. I conclude with my prescriptions for efficacious boundary reduction that focuses on the purpose of government – to help people to flourish.

Introduction The recorded history of conjoined twins (also known as Siamese Twins) goes back at least 3,000 years and has long proved an area of fascination for the general public (Kennedy, 2001). By far, the most celebrated case of conjoined twins were the two brothers, Eng and Chang, born 1811 in Bangkok (Kokcu et al., 2007). These brothers, joined at the sternum (chest), were celebrated throughout the western world and are indeed the source of the term ‘Siamese twins’ (Thailand was formerly referred to as Siam). They became rather wealthy men as a result of their participation in P T Barnum’s circus and curiosity show (incidentally Barnum went on to become © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_5

69

70

5  Local Government De-Amalgamation and Boundary Reduction

Mayor of Bridgewater, Connecticut). Moreover, the brothers are reported to have led a very fulfilling life which included marrying sisters and siring 21 children. Medical opinion at the time – including the assessment of, arguably, the nineteenth century’s most famous physician, Rudolf Virchow – agreed that it would be impossible to separate the twins. However following their deaths – from a cerebral blood clot (stroke) at the age of 61 – autopsy revealed that that their physiology was relatively uncomplicated. It is now the consensus that separation surgery would have been both relatively straight-forward and viable (Kokcu et al., 2007). It is interesting to contrast Eng and Changs’ case to the Blazek sisters (Rosa and Josepha) born 1878  in Skrejsov (Czech Republic). They too were famous and wealthy as a result of their regular appearance at circuses and curiosity shows. These twin sisters were joined at the pelvis and shared critical parts of their anatomy. There is no record that they were ever married, but one of the sisters (Rosa) did go on to give birth to a healthy male in 1910. In 1922, at the age of 43, following Rosa’s battle with influenza, Josepha developed suspected appendicitis which ultimately led to her becoming comatose. Given the grim prognosis for Josepha, plans were immediately developed to try to save Rosa, however, both sisters died before the surgery even commenced. Local governments  – certainly the ones where de-amalgamation is an indicated treatment – are often not entirely dissimilar to conjoined twins. Frequently they are comprised of at least two distinct communities who think of themselves as having separate existential missions and thus deserving of dignity1 (see Chap. 2). In some instances these disparate communities can survive, and perhaps even prosper, in a conjoined state – but often people in the community believe they might flourish even more if they were instead separated. By way of contrast, some other communities simply can’t be separated – no matter how many good reasons there might be for doing so – because they share critical anatomy. A final class of conjoined communities are those who must be separated, as a matter of urgency, in order to avoid the death of one or both parties. In this chapter I will fill a large gap in the literature by laying out the theory that supports separation for local governments (in some specific circumstances) as well as outlining both the surgical plan as well as  the important after-care that must follow. Little scholarly attention has been given to the matter of de-amalgamation (see Drew & Dollery, 2014 and Drew & Dollery, 2015, for notable exceptions). This gap in the scholarly literature is a little puzzling given that there have been a number of notable de-amalgamations in recent years. Perhaps the best known of these was the demerger of fifteen local governments that took place in Quebec, Canada, in 2004 (Sancton, 2005). These Canadian demergers followed on from earlier unpopular forced amalgamations that had motivated the (then) political opposition to promise to reverse matters in the event that they won at the next polls. Perhaps less well-­ known is the earlier de-amalgamation of rural Delatite in the state of Victoria, Australia in 2002 (Drew & Dollery, 2015). This de-amalgamation also followed on

1  Dignity, in natural law, is the right of persons and associations to pursue their existential ends (be all that they wish to be) without undue interference.

Introduction

71

from a deeply unpopular forced amalgamation (eight years earlier), but on this occasion was precipitated by a well-resourced and canny de-amalgamation activist group who endorsed the minority government candidate in a state by-election. More recently four de-amalgamations have also occurred in the state of Queensland, Australia, in 2014, after the previous political opposition (who had also campaigned on a promise to allow de-amalgamations in the event that they gained government) came to power. These latter de-amalgamations also came as a consequence of some deeply unpopular forced amalgamations six years earlier (Drew & Dollery, 2014). There are at least three common threads that run through each of these notable examples of de-amalgamation. First, they all followed on from earlier deeply unpopular, unsuccessful, and forced amalgamations. This is one very important reason for why I heavily criticised poorly planned and executed amalgamation programs (often championed by commercial consulting houses) in Chap. 4 – they have a strong potential to lead to financially damaging de-amalgamations. To my mind, it seems almost criminal to profoundly disrupt people’s lives and spend tens of millions of dollars in doing so, only to have to try to reverse the process a few years later. Second, the de-amalgamations all featured sustained grass-roots led campaigns over several years. Third, each of the de-amalgamations were precipitated by political heresthetic.2 The most popular heresthetic is a promise by a political opposition to allow de-amalgamation as a way to garner electoral support as well as also damage their political foes’ legacy. This is a relatively predictable and low cost way for political oppositions to gain votes in specific electorates, and the only mystery to me is that it is not employed more frequently (Drew, 2018). Indeed, the political opposition in New South Wales, Australia, made precisely the same pledge (restated on several occasions), and it is therefore reasonable to expect more de-­amalgamations, arising from the unpopular May 2016 forced amalgamations, when the current political opposition finally secures office (if not before3). The remainder of this chapter is set out as follows. In the next section I spend some time explaining the relevant theory that can be profitably harnessed to guide both decision-making and practice with respect to de-amalgamations and boundary reductions. Following this I provide a detailed account of the surgical separation plan for this kind of boundary change. An emphasis is placed on the need to do so in a morally defensible manner and also ensure that each resultant community thrives. Thereafter I highlight the need for important post-separation care. I conclude the chapter with my prescriptions for boundary reductions which – to be successful – must focus on the needs, capacity, and goals of people.

 Heresthetic is the art of political manipulation – see the seminal work of Riker (1986).  As I write (in late 2020) the New South Wales Boundaries Commission is currently examining two proposals to de-amalgamate precipitated by strong community advocacy. 2 3

72

5  Local Government De-Amalgamation and Boundary Reduction

 ey Theoretical Concepts Associated with De-Amalgamation K and Boundary Reductions No surgeon even thinks about cutting into their patient before they have mastered the relevant theory (including anatomy). Similarly, we can’t reasonably expect to carry out a successful separation (defined as an outcome whereby each community goes on to thrive) unless we first understand the ideas that help to explain the condition that presents itself before us. As I have already noted it is not hard to diagnose a local government where the efficacious remedy is likely to be surgical separation. Typically the ‘patient’ presents as two or more distinct communities – each with their own specific character, needs, capacity and goals  – contained within a single body (local government boundary). The cause of the condition is generally a poorly planned and executed forced amalgamation a few years earlier – although it is not unknown for communities to simply drift apart over time due to matters such as uneven internal migration, or development of new industries. The keys to understanding boundary reduction scenarios are homogeneity (sameness) within and also heterogeneity (disparity) between the identifiable communities. Wallace Oates’ (1999) decentralisation theorem explains why these similarities and differences matter so much (see Chap. 2). Indeed, Oates’ (1972) decentralisation theorem is a complex economic proof (heavily reliant on mathematics) of what most of us know already – that small local government can be at least as efficient (if not more efficient) than larger or more centralised government. Here efficiency is defined in the common economic sense of conversion of inputs (staff, money and capital equipment) into a series of outputs (the goods and services produced by local government). Readers will recall from Chap. 2 that the reasoning behind the decentralisation theorem rests on two key ideas arising from the greater homogeneity expected in smaller local government. First, when communities have more similar tastes it is easier for decision makers to correctly identify required service levels and ensure that goods and services do not exceed what people really want. This stands in sharp contrast to a more heterogeneous situation whereby standardised provision is inefficient because inevitably some taxpayers will receive higher standards of services than they want, whilst others will receive lower than desired. The second way that greater homogeneity works, in favour of efficiency for smaller local government, is that benefit cost calculations are likely to be much more accurate – not only because it is easier to understand the benefit that homogenous taxpayers will derive from a given service, but also because in a smaller local government area the costs are unlikely to fluctuate much in response to changes to things such as, for example, geography, climate, or access to construction materials.4 4  Factors such as these are applicable to a number of local government goods and services, such as road construction.

Key Theoretical Concepts Associated with De-Amalgamation and Boundary Reductions

73

It is thus relatively straight-forward to understand why local government amalgamations that combine heterogeneous communities will generally result in reduced efficiency and economic welfare. Indeed, Drew and Dollery (2015) have reversed the decentralisation theorem so that it can also be employed to predict de-­ amalgamation activism, and hence demergers. Essentially their argument is that when heterogeneous communities are amalgamated one can reasonably expect a decline in efficiency and thus economic welfare. This leads to higher taxation and fees, as well as lower citizen satisfaction  – providing motivation for people who yearn to return to their former configuration to agitate for this end. Moreover, this yearning is exacerbated even further where amalgamations have been executed by combining whole entities (rather than parts of local governments which in most cases would lead to better outcomes – see Drew, 2020). In these kinds of cases pre-­ existing identities will have remained intact and thus provide fertile ground for de-­ amalgamation activism. In addition, if the earlier amalgamations were not conducted in a morally licit manner (see Chap. 5), then this will provide a further impetus to those who wish to revert to their former configuration. Indeed, the matter of morality is at the heart of much amalgamation angst as well as de-amalgamation fervour. As I described in Chap. 2, the natural law principle of double effect provides important guidance for moral decision making in a public policy context characterised by uncertainty (see also Drew et  al., 2017). Readers will recall that the principle insists that policy which might potentially give rise to bad ‘side-effects’ only be contemplated when three conditions are met: (i) the proposed intervention responds to a grave situation, (ii) all measures have been taken to anticipate and mitigate bad side-effects, and (iii) bad means are explicitly rejected even if they are believed to yield good outcomes. Unfortunately many amalgamations do not satisfy these criteria  – communities often remain unconvinced that their financial sustainability is sufficiently grave to warrant such a drastic intervention, little is done to mitigate the bad outcomes such as redundancies and loss of employment opportunities (especially problematic in smaller rural areas), and bad means (such as eschewing a referendum and suspending validly elected political representatives) are often used to bring about the putative good ends (of greater financial sustainability). Indeed, those who lose from amalgamation tend to do so in a profound sense (for example, loss of employment), whilst the winners (if any) tend to win only marginally (perhaps slightly higher service levels or slightly lower pressure on taxation). Moreover, behavioural economists tell us that losses tend to be ‘stickier’ (people remember them longer and are more likely to react to a loss, than a win; see, Boydstun et al., 2017), which explains why strong de-amalgamation activism can take place even after relatively long periods of time have elapsed (recall eight years elapsed before the Delatite de-amalgamation took place). Of course, the guidance of the principle of double effect is also eminently applicable to de-amalgamation. Surgical separation of a local government should only be considered for grave cases – situations where a community is in terminal decline

74

5  Local Government De-Amalgamation and Boundary Reduction

(the equivalent of the surgical context for the Blazek sisters). Everything must be done to ensure that bad side-effects are anticipated and mitigated (for example, if particular jobs must be lost then this should happen through natural attrition). Moreover, the means must also be good – not just the ends (for instance, communities must be genuinely consulted). Quite simply it is illogical to try to right a wrong, by anything other than a morally licit process and therefore de-amalgamation surgeons need to be mindful of the ethical dimension throughout the entire surgical planning process. Separation surgeons also need to be conscious of the dignity of their patients. As I explained in Chap. 2, with reference to the foundational tenets of natural law philosophy, the whole point of having government is to co-ordinate the common good5 essential for people to flourish (see also Chap. 8). The outcome of a de-­amalgamation should be that people can better contribute to the common good and also receive what they need in order to pursue their existential ends. If we forget – even for a moment – the central importance of people, then we risk de-amalgamation being only partially successful (or even a failure). Thus, in the section that follows, I place the needs and capacities of people at the centre of the surgical plan.

Planning an Efficacious Separation – A Detailed Template As I have already noted, separation of incompatible communities through de-­ amalgamation can only be considered a success if both resultant local governments go on to thrive. Moreover, de-amalgamations in the past have usually involved one community which has been very engaged and motivated to secede, and another that is rather ambivalent. Unfortunately, this tends to mean that the needs of the ambivalent community can be overlooked – especially as a consequence of their reticence to engage – and might result in less than optimal outcomes for them (this was more or less what happened to Benalla Shire in Victoria, Australia – see, Drew & Dollery, 2015). Any fiscal physician planning surgical separation should thus be very mindful of this potential problem and go to whatever lengths are necessary to ensure that the needs and aspirations of both communities are heard and responded to through the surgical plan. The following separation plan template is rather lengthy and I imagine may prove surplus to the needs of some readers. I have therefore arranged the account around five sub-sections: (i) assessing the patient, (ii) detailing the costs and savings associated with de-amalgamation, (iii) the moral dimension of de-amalgamation, (iv) the Transition Manager as instantiation of moral consideration, and (v) other

 The common good is the help accruing to people as a result of their co-operation. It is important to note that the common good is greater than the sum of contributions – see Chap. 2. 5

Planning an Efficacious Separation – A Detailed Template

75

(people) matters. Hopefully this organisation will allow readers to quickly navigate to the material most useful for their needs.

Assessing the Patient It is important to run some general financial analyses prior to trying to specify savings and expenditures related to a potential de-amalgamation. The place to start is with a thorough examination of the financial sustainability of both local governments prior to amalgamation.6 If both local governments were not financially sustainable prior to amalgamation then either the surgery will not be able to proceed, or a detailed plan will need to be made which specifies changes that will ensure fiscal viability. For the case of de-amalgamations that follow on from previous unsuccessful amalgamations it will also be necessary to assess the levels of inefficiencies generated by the earlier intervention. For people with the requisite expertise doing so is relatively straight forward and involves data envelopment analysis or regression analysis (the complex mathematics regularly practised by economists). Only when we have a sense of the size of the deleterious fiscal effects of amalgamation can we begin to understand the potential costs or savings involved in a de-amalgamation.

Detailing the Costs and Savings Associated with De-Amalgamation Once these pre-requisite studies have been carefully undertaken a decision can then be made about whether it is prudent to proceed with a plan for separation. At this point we can start thinking about the specific costs and savings associated with de-­ amalgamation. Notably there are two kinds of costs and savings that must be considered separately – (i) one-off costs that will occur proximate to the de-amalgamation, and (ii) ongoing costs and savings that one might expect to occur for many years hence. I have summarised the main categories of costs and savings in Table  5.1 below (although it should be noted that these might change a little depending on the jurisdiction and particular context):

6  A thorough assessment contrasts starkly to the synecdochical and simplistic financial sustainability assessments conducted in most states of Australia. A comprehensive assessment – such as the ones that I have conducted in the past – would employ scores of performance metrics, draw on employee interviews, carefully consider the effects of demographic changes, and also rigorously analyse forward budget estimates. Anyone who considers extant financial ratio analyses – such as that conducted by the NSW Audit Office (and most state regulators) – to be sufficient might be well-advised to meditate on the fact that this kind of oversight has dismally failed to detect financial crises in our local governments (such as the recent financial collapse of Central Coast Council).

76

5  Local Government De-Amalgamation and Boundary Reduction

Table 5.1  Categories of one-off and ongoing costs and savings arising from de-amalgamation One-off costs Costs Branding and communications Information technology & finance Employee Governance and assurance Asset management Legal Other Plant and equipment Transition manager

Ongoing costs and savings Costs Employee Governance

Savings Employee

Assurance Reduction in economies of scale Reduction of diseconomies of scale Grants Travel

One-off costs can be substantial and will also vary quite a lot depending on how long ago the original amalgamation was carried out as well as in response to the management decisions that have occurred in the interim. For instance the one-off costs for the Delatite de-amalgamation were estimated at $AUD 1.5 million and the one-off costs for the Sunshine Coast de-amalgamation at either $AUD 12.56 million or $AUD 2.28 million, depending on who did the estimating7 (all figures inflated to 2020 dollars). Often the largest cost will be in the area of additional plant and equipment – although this need not be the case if the amalgamation occurred relatively recently, or if surplus plant and equipment was not sold off following the amalgamation. Other notable expenses include information technology and finance costs, which mostly revolve around separating taxpayer databases and associated billing information. Similarly asset management registers need to be split. In addition there might be some extra governance and assurance costs related to production of final financial statements for the amalgamated entity (if the de-amalgamation occurs part way through the financial year8). Legal costs relating to contractual arrangements might also be expected and allowance should be made for contingencies (‘other’ costs). The final item for one-off costs (Transition Manager) relates to the independent person engaged to lead the de-amalgamation process – an alternative to the Administrator model often used in the past – which I will describe in greater detail later in this chapter. 7  The Queensland Treasury Corporation, which had a moral hazard given the strong involvement of their Chief Executive in the original ‘work’ justifying the amalgamations, was responsible for the higher of the two cited estimates. The proponent group was responsible for the lower estimate. It might also be noted that the residual local government advocated against the de-amalgamation and had a good deal of say in the final division of staff and assets (see, Drew & Dollery, 2014). Notably, according to the Queensland Audit Office (2015) neither of the estimates were correct – the actual cost was recorded at $3.71 million. 8  My strong preference is for de-amalgamations to be timed for the beginning of the financial year – not only to reduce workloads for finance staff, in particular, but to also ensure appropriate transparency. Indeed, I also firmly hold the same conviction regarding the timing of amalgamation events.

Planning an Efficacious Separation – A Detailed Template

77

De-amalgamation will also inevitably give rise to a series of ongoing costs. For example, there will likely be additional costs to ensure that both emerging local government entities have key staff such as General Managers, Chief Financial Officers, and Engineers. Sometimes it will be possible to promote existing staff (for instance the Deputy Chief Financial Officer may be able to take on the role of CFO in one of the emerging local governments) and other times it will be necessary to undertake new recruitment. In either event there is likely to be some additional costs. De-amalgamation will also usually result in higher governance costs – specifically with respect to Councillor remuneration9 (although I have done work in one situation where governance costs were projected to go down slightly due to the vagaries of the Remuneration Tribunal classification system). In addition there will effectively be an additional set of assurance costs (auditing and Audit Committees where relevant) due to the production of two sets of financial statements in the future. There might also be some additional costs relating to a reduction in economies of scale if these had indeed been captured by the earlier amalgamation (although this could be mitigated by shared services as I describe in the next section). Generally the aforementioned ongoing costs will be more than offset by ongoing savings. For instance, there are likely to be some significant ongoing savings related to employees – for example, the incumbent senior management are likely to have their remuneration reduced in proportion to the reduced responsibilities at a smaller local government. In addition, some of the middle management positons may well no longer need to continue (although as I will relate later these savings may not be able to be ‘banked’ for some time). There will also be some savings related to travel where workers no longer have to regularly commute between offices and depots located some distance apart from one another. These costs are particularly large in rural areas where amalgamated entities may be located 50 km or more apart – indeed, in previous engagements I have conducted surveys that suggest these costs might exceed $AUD150,000 p.a. (excluding the wages for the time taken to drive between centres). A further set of ‘savings’ are the additional gross intergovernmental grants likely to be received after the two entities are once again separated. In most instances grant formulas have minimum payments built into them or non-population inputs that mean that intergovernmental assistance drops significantly after amalgamation10  – thus the corollary to this is an expectation of additional funds following de-amalgamation. In addition, there might well be some significant savings from freeing the new entities from previously unspecified diseconomies of scale (which tend to occur,  The combined number of Councillors may be larger than was in place at the amalgamated entity due to legislated minimums or attempts to return to pre-amalgamation representation ratios. 10  Indeed in Australia under subsection 6(4) of the Local Government (Financial Assistance) Act 1995 (CTH) a national principle has been agreed that the grants following amalgamation cannot be reduced below what would have been received had the local governments remained independent for a period of four years. This was introduced after widespread disillusionment following significant reductions to gross grants in the wake of earlier episodes of forced amalgamation. Indeed, where grant formulas contain non-population inputs it will usually be the case that intergovernmental grant revenue will reduce following amalgamation – yet another ‘cost’ of amalgamation routinely ignored by commercial consultants – see Chap. 4. 9

78

5  Local Government De-Amalgamation and Boundary Reduction

more often than not, due to poor amalgamation design by commercial consultants – see Chap. 4). In many cases one will find that one-off costs can be easily recouped through application of nett on-going savings over the following decade or so. I hasten to add that these costs and savings must be identified quite precisely (for example, specific jobs that will need to have their remuneration adjusted) and there is a lot of work required to do so in a rigorous fashion. One must remember that in most cases communities have already suffered significant harm at the hands of commercial consultants acting for amalgamation proponents who have made generalised and unsubstantiated assumptions (which are thus no more than guesses). It is therefore imperative that fiscal physicians planning separation surgery show much more respect to the community and exercise a far higher degree of professionalism and diligence.

The Moral Dimension of De-Amalgamation The moral dimension must also be considered in separation surgery plans. A question that I have been asked several times in the past is: who should pay? To answer this question I like to raise an analogy which illustrates the use of both practical reasoning and universalism for which the natural law is rightly lauded (see Chap. 2). Imagine I was driving in my car and – for some reason or the other – was relying entirely on the directions of a passenger (also known as a backseat driver in Australia). For some reason – incompetence or negligence – my backseat driver has told me to suddenly swerve to the left and in doing so I have rammed into your much-loved car causing considerable damage to it. What would be your expectation of me? I imagine you would expect me to do the ‘right thing’ – hop out of my car, apologise profusely and commit to paying the full cost for repairs such that you might be restored to the position, as close as possible, to that which you were in prior to my negligence. Notably this would not only be the moral thing to do – but it would also be the requirement under law. Failed amalgamations aren’t very dissimilar to my driving analogy. A state or federal government (depending on the political system of the local government jurisdiction) has driven an amalgamation process. The local community are usually innocent bystanders who had previously treasured their local government (and often vigorously objected to forced amalgamation). The backseat drivers are the commercial consultants often brought in to try to ‘prove’ that the amalgamation might save money and improve financial sustainability. Of course, the commercial consultants have acted foolishly and in many cases negligently, but it is the higher tier of government that has been ‘driving’. My answer is thus that the government responsible for the forced amalgamation should ‘do the right thing’ – apologise profusely and pay to put the community back into a position as close as possible to that which they had been in prior to amalgamation. It would also be reasonable for the ‘backseat driver’s’ negligence to be exposed (and suitable compensation might be pursued from them by the higher tier government). Unfortunately the precedent in Australia, at least, is that the break-away community bears the entire cost of the de-amalgamation (although in the case of Delatite

Planning an Efficacious Separation – A Detailed Template

79

a lot of the cost was indeed born by the amalgamated entity for the simple reason that most costs are incurred prior to de-amalgamation; see Drew & Dollery, 2015). To me this appears to be a grave injustice – not only have people had their lives disrupted and community wealth squandered due to negligent work, but it seems that we add insult to injury by making the community bear this further cost.11 The moral dimension is also relevant to how quickly the employee savings arising from de-amalgamation can be realised. As I noted before it is often the case that some senior executive salaries can be reduced and also that some middle-management positions may no longer be required. However, this can’t be done in the callous way in which amalgamations often take place (whereby senior executives lose their job immediately). As I said before, it is illogical to think that one can right a moral wrong by using morally illicit means (it is also contrary to the natural law principle of double effect – see Chap. 2). Therefore it is my contention that unless people volunteer to be made redundant that changes to remuneration and positions occur via natural attrition. What this means is that executives might continue to receive their current remuneration until their contract expires (generally 5 years or less) – at which time it should be renegotiated at a lower level – and that middle management (if not on contract) continue to occupy their position until they resign or retire. This means that savings may not be banked for some years – but it is the only way to ensure that we don’t unfairly impact on people’s lives.

The Transition Manager as Instantiation of Moral Consideration A major way by which the moral dimension is observed is in the appointment of a Transition Manager. This independent person  – who must hold the trust of both communities – plays a crucial role in a successful de-amalgamation. The role is to lead a Transition Team comprised of key executives and political representatives of both emergent local governments. A Transition Manager is not an Administrator – in many instances the last thing suffering communities need is another period of administration whereby a person is appointed by higher tiers of government to exercise unfettered powers (and often pursue their own interests and those of their associates far more diligently than the community’s). Instead, the community’s representatives need to have a real say in how the surgery proceeds and play an active role in the operation. A Transition Manager is thus first and foremost a leader, appointed by the community’s political representatives, not a powerful higher-tier decision maker. The Transition Manager should use their knowledge of local government finance to propose models, help all parties to come to mutually acceptable decisions about matters

  However, notwithstanding the injustice of making the victim pay (more), my advice to communities is to concede the additional cost and try to pursue compensation down the track. I believe that it is much better to be on a path to a brighter future than stuck in an unsatisfactory situation because of a guilty party’s reticence to do the right thing.

11

80

5  Local Government De-Amalgamation and Boundary Reduction

such as staff and asset allocations, and communicate this clearly to the wider community. Only when the parties cannot resolve differences should the Transition Manager exercise power  – and the frequency with which they resort to doing so should be seen as a kind of failure on their behalf. This Transition Team model ensures that the respective communities are treated with dignity (in a natural law sense). It also means that we don’t repeat the mistake often made during amalgamation administrations – taking control away from the community to hand unfettered powers over to a single unelected and unaccountable person (see also Chap. 9). The objective of the division of staff assets and liabilities should be to get both communities in a position, as close as possible, to where they were just prior to amalgamation. However, it must be acknowledged that it is often impossible to return the communities to their precise pre-amalgamation position because amalgamation costs, administrator decisions, and diseconomies of scale will have generally resulted in a good deal of community wealth having been destroyed. The best way to approach the division of assets and liabilities is to first allocate fixed and movable assets, and then look at the problem of cash and equivalents as well as liabilities, as a separate exercise. Fixed assets are, of course, the simplest class and merely need to be transferred to the local government where the asset is located. Movable assets are a little more problematic – where assets such as plant and equipment have not been sold or bought during the amalgamation period then these need to be allocated according to the local government that originally contributed them. New assets that have been bought to replace former assets should be transferred to the local government that contributed the original (replaced) plant. Equipment related to staff (such as computers and phones), should move with the staff (see below for staff allocation guidance). Other assets will need to be allocated according to need and this is where the Transition Manager’s negotiation skills may well be called upon. Where non-current liabilities are associated with a particular asset or staff member then they should be allocated to the local government to which they have been assigned. The remaining non-current and current liabilities should then be estimated nett of cash and cash equivalents. The idea then will be to assign these nett liabilities (or assets depending on the financial situation of the de-amalgamated entity) in proportion to the original contributions made by local governments at the time of amalgamation. Generally this will mean that one needs to work with reference to the audited financial statements for the last complete financial year prior to amalgamation. The whole process requires strong financial and negotiation skills, hence the critical nature of the Transition Manager role. The process will not always be straight-forward but it is the best that can be done under the circumstances.12

 In the past some de-amalgamations have used the proportion of tax revenue generated by the separate entities prior to amalgamation to allocate assets but this is problematic given that it ignores fee revenue and also the quality of financial stewardship over a longer period of time (see Drew & Dollery, 2015). In other instances apparently arbitrary processes have been used with a prima facie element of bias in favour of the residual local government (Drew & Dollery, 2014). 12

Planning an Efficacious Separation – A Detailed Template

81

Other (People) Matters Two final matters need to be considered with respect to the de-amalgamating plan: (i) staff allocation, and (ii) what is to be done about political representation. In both cases the fiscal physician needs to be very mindful of the moral dimension. Moreover, care must be taken to ensure that all critical positions are either filled, or can be filled quickly, so that the local government has the skills and resources necessary to operate effectively as soon as possible. This can be particularly problematic in rural areas where recruitment often proves difficult. The presumption should be that staff employed by the respective local governments prior to amalgamation will return to their former place of work. However, for (the likely few) staff who have been employed subsequent to amalgamation things are not quite as clear. Given our emphasis on human dignity (according to natural law which also provides the rational foundation for government) it seems appropriate that the views of these particular staff members be given most weight. The needs of each emerging entity for key skills, as well as the preferences of the Transition Team members are important – but for a moral separation human dignity must be our over-riding criteria. Only where a consensus cannot be reached should determinative power be exercised by the Transition Manager. With respect to political representation, decisions need to be made about both the number of representatives as well as continuity of representation prior to the next election or by-election. During the amalgamation period communities will generally have received lower rates of representation (in terms of people per Councillor) than they previously enjoyed. It is therefore not necessarily imperative that the new de-amalgamated entities need to be returned to the same number of representatives as was the case prior to amalgamation (although it might be noted that legislation usually specifies a minimum number of Councillors). Moreover, given the fiscal damage often inflicted by amalgamation the community may feel that it is prudent to reduce the political representatives to a number lower than that which existed prior to amalgamation. This is one way that expense can be saved to help the budget repair effort. Provided that the representation ratio improves (almost certainly the case) then my suggestion would be to seek the assent of the community to create the smallest number of political positions which is deemed to be practical. If the de-amalgamation occurs mid-term there is often no legal impediment to declare existing Councillors as duly elected representatives for the area in which they are domiciled. If doing so still results in prima facie unfilled positions then by-­elections should be held (depending on both the provision of the enabling legislation and the proximity of regular elections). Once again, my suggestions are guided by the dictates of practical reasoning and the natural law principle of double effect.

82

5  Local Government De-Amalgamation and Boundary Reduction

Post-separation Care As any good surgeon knows, the after-surgery care can often prove more important than what happens on the operating table. The situation is no different for fiscal surgery. Therefore, I believe that it is important for the Transition Team structure to remain in place for at least the first few weeks following de-amalgamation. In particular it seems prudent to retain the expertise and independent outlook of the Transition Manager to assist in advising and communicating with the community on a number of important matters such as service level negotiations, new fee and taxation structures, discretionary capital expenditure, and the potential use of shared service arrangements. One of the key ingredients to de-amalgamation success is for the new entities to renegotiate service levels with their communities in order to eliminate the inefficiencies I referred to earlier in my discussion of the decentralisation theorem. Moreover, it may be the case that the community is willing to make temporary sacrifices, in terms of reduced services, that will help the emerging entities set the foundation for a prosperous future. I have personally conducted these kinds of negotiations with communities in the past and have been heartened by the general willingness of people to understand fiscal challenges and help to put downward pressure on costs. The key to successful negotiation is to be completely honest with the community and give them the facts that they need to make good decisions. One then needs to incorporate the community’s feedback into decision making, and communicate service level changes, along with the duration and goals of each action. The Transition manager will often be in the best position to undertake this task given that they are not as exposed to political risks as the Councillor body might be. Similarly an honest and frank discussion needs to be had about fees and taxation. The levers available to bring about fiscal repair (almost certain to be needed) are really limited to just reducing expenditure or increasing revenue  – and in many cases both measures will be necessary and should be dealt with at around the same time. It is important when discussing fee and taxation changes that the rationale and equity implications of proposed changes are clearly articulated. In Chapters 6 and 7 I deal with the moral and fiscal arguments for various measures in greater detail. However, at this point it will be helpful for readers to note a few important points. First, the reasons for increasing fees or taxes should be clearly articulated, as should the duration for doing so, and the measures of success (see Chap. 3). Most people will be reasonable about increases if they understand the necessity for them and also know that the pressure on their personal budgets will be reduced as soon as practical. Second the equity implications of fees and taxes need to be made clear – there is nothing more likely to attract the ire of resident consumers than changes that don’t exert similar burdens on all members of the community. Third, for services of an essential nature, capacity to pay needs to be considered carefully to ensure that people are not forced to go without necessities. Fourth, fees and charges should

Post-separation Care

83

cover the full cost of providing the service, including overheads. Failure to price goods and services correctly leads to fiscal illusion and economic inefficiency (see Chap. 6). Fifth, an increase to a discretionary fee is often to be preferred over increasing non-discretionary fees or taxes because people in hardship have more control over the former. Once again, because the Transition Manager has the requisite expertise and independence, they are likely to be in the best position to communicate what is needed to the community. Moreover, even if it is not possible to increase fees or charges immediately – due to statutory constraints – the conversation should be had shortly after de-amalgamation when the community is likely to be both more receptive to sacrifices as well as more aware of the fiscal challenges that they face. Discretionary capital expenditure should also be a matter discussed by the Transition Team in the early weeks following de-amalgamation. It should probably go without saying that discretionary capital expenditure should be deferred until the costs of de-amalgamation and other budgetary repair has been dealt with. Once again, the Transition Manager is probably in the best position to communicate this clearly to the community and thus constrain citizen expectations which might otherwise become a catalyst for fiscal stress. The final thing that might be usefully dealt with by the Transition Team during the period immediately following de-amalgamation is the potential for collaboration in the production of shared services (see also Chap. 4). Shared services are a good option when local governments with complementary advantages are able to come together to co-produce local goods and where expanded output might reasonably be expected to reap economies of scale. As I explained in Chap. 4 there are relatively few local goods and services that will respond well to expanded outputs, but where these can be identified (with empirical evidence) then it will prove advantageous to establish joint operations. This is particularly apt for the de-­amalgamated entities which have already established close working relationships during the period of amalgamation. Moreover, in cases where one of the emerging entities loses access to important skills (that prior to amalgamation they had outsourced (such as town planning)), it makes sense for them to purchase these from their former colleagues given that these people will probably have a better understanding of their need than other providers (and also because doing so helps both communities to thrive – an essential outcome for de-amalgamation to be considered a success). This discussion of what is required to competently execute a de-amalgamation has been lengthy and complex. It may thus have prompted my readers to wonder whether de-amalgamation can indeed be successfully executed. Given the number of de-amalgamations that have now occurred across the globe I think it entirely reasonable to state that the mechanics of doing so are definitely within the reach of anyone with adequate skills and good intentions. However, to my mind, the really important question is whether de-amalgamation does indeed allow both communities to prosper. Because people are at the heart of the justification for having government in the first place, it follows that their flourishing must be our principal concern throughout the de-amalgamation process.

84

5  Local Government De-Amalgamation and Boundary Reduction

Table 5.2  Overall citizen satisfaction, before and after de-amalgamation Local government Delatite Benalla Mansfield Average of all local governments Average of similar ‘small’ shires

2001 55

65 63

2002 58

65 63

2003

2004

2005

62 66 65 62

64 71 65 64

60 65 65 63

The best evidence we have regarding the outcomes for people following on from de-amalgamation is derived from the Delatite de-amalgamation of 2002. This is because the state of Victoria is the only jurisdiction in Australia where consistent citizen satisfaction surveys have been conducted over a lengthy period of time. However, before presenting the data it is important that readers understand more of the context surrounding this particular de-amalgamation. The original plan called for the Mansfield breakaway proponents to bear most of the de-amalgamation costs, although in practice (as I stated earlier) the amalgamated entity did indeed shoulder most of the burden (which effectively meant that a good proportion of the costs were transferred onto the larger population Benalla Shire). In addition, the allocation of assets and liabilities – through no ill intent – tended to also favour the smaller breakaway Mansfield Shire. Furthermore, it is notable that from the outset, most people perceived that citizens of Benalla were rather ambivalent about the whole notion of separation. Notwithstanding the fact that Benalla Shire probably got the worst part of the separation outcomes, the citizen satisfaction data detailed in Table 5.2 (above) does seem to demonstrate that both communities felt better-off following separation. Prior to de-amalgamation citizen satisfaction was much lower at Delatite than it was at other, comparable, small local governments. Following de-amalgamation things clearly improved for citizens of both Benalla and Mansfield. Not surprisingly, the improvements were greatest for the people at Mansfield (who had actively sought the de-amalgamation), but even three years out from the event (after local political influences would have started to becoming imputed into the satisfaction scores), people at Benalla were still indicating that they were more satisfied with local government than they had been during the amalgamation period. Thus I answer that de-amalgamation – even when executed far from perfectly – can indeed prove to be a resounding success for both communities.

Conclusions and Prescriptions If we are going to save local government then we need to accept that sometimes doing so will require us to de-amalgamate or otherwise reduce local government boundaries. As is sometimes the case for conjoined twins, it may be necessary for

Conclusions and Prescriptions

85

distinct communities, with their own particular identities, to be separated in order to fully flourish. Indeed, in certain cases it is absolutely imperative that we perform emergency separation in order to prevent the needless death of a given community. Often the need for de-amalgamation arises because of an earlier ill-advised and poorly executed amalgamation project. In these cases it is important for decision makers to have the capacity to acknowledge earlier mistakes and focus on what is truly important – the needs of the people who provide the justification for the institution of local government in the first place. My prescriptions for de-amalgamation are as follows: 1. De-amalgamation proposals need to be supported with good reasons and evidence for acting. Indeed, as readers have no doubt already discovered, I believe all public policy should require the giving of good reasons, including the provision of robust evidence to support the case for acting. However, as I also illustrated in Chap. 4, often public policy is designed on little more than a ‘gut feeling’ and it is not uncommon for communities to be kept in the dark about the reasons for a particular intervention. For public policy that involves large costs and disruptions to people’s lives this kind of cavalier approach simply is not good enough – de-­ amalgamation is no exception. 2. De-amalgamation needs to be planned carefully and informed by genuine community consultation. It is all too easy to unwittingly disadvantage a community in the division of assets and liabilities, or other matters. The best way to avoid doing so is to actively engage representatives of the community in the planning phase. Moreover, this is also plain common sense – the people who know best what will, or will not, work are the people who live in the local government area. I stress that what I am proposing here is genuine consultation – where the fiscal physician provides evidence and good reasons for taking a particular position, but then sits back and listens to what people are really trying to articulate with a view to amending the plans wherever possible to mitigate foreseeable poor sideeffects. Genuine consultation means that a fiscal physician must accept that we are all fallible and be prepared to improve on what they have proposed for the benefit of others. Unfortunately it is quite rare for one to meet a fiscal physician who is confident enough in themselves to listen to constructive critique of their ideas and plans. However, for the benefit of the community, I believe that it is absolutely essential to do so. 3. The surgical separation plan needs to be owned by the community and led by a truly independent expert. Genuine consultation, in addition to the Transition Team model, should result in a high level of community ownership over the separation plan. It is, of course, important for both communities to be fully engaged in the process given that de-­ amalgamation is largely orientated towards restoring community dignity. I emphasise here the importance of a truly independent expert. The Transition Manager must be completely free of any apprehension of bias and needs to also

86

5  Local Government De-Amalgamation and Boundary Reduction

have the requisite skills and knowledge to capably carry out their task. In Chap. 9 I spend some time detailing the essential attributes of a fiscal physician and contrast this to the quacks hailing from commercial consulting houses who are often imposed on communities. In sum, to do the job of de-amalgamation justice the person leading the Transition Team must be guided by far more than gut instinct and motivated by far more than mere money. 4. De-amalgamation must be focussed on people and executed in a morally defensible manner. Throughout this book I have regularly reminded my readers of the source of legitimacy for local government (in fact any government) – the bona fide needs of people. Indeed, most public policy failures can be traced back to a neglect to consider the real needs of people. To execute a successful de-amalgamation we must instead hold the needs of people to be paramount – the shape of a local government should be considered important only in as far as it allows for people to better meet their existential ends. Moreover, if we are genuinely concerned about people, then we will also do all that we can to mitigate bad side-effects arising from public policy decision-­ making. In particular, it is essential to minimise disruption to the lives of key local government personnel and political representatives. In most cases this means that potential savings may not be realised immediately. However, to do otherwise would require us to accept the proposition that one can sometimes do a little evil to bring about putative good – the same kind of thinking that has led to some of the harmful and perverse applications of utilitarianism (including amalgamation), rightly condemned by the public and history alike. 5 . Both communities must thrive for de-amalgamation to be able to be considered a success. The separation of one conjoined twin that directly results in significant harm or death of the other would never be considered a success. Similarly, to be deemed a success, both emerging local governments need to thrive. Unfortunately it is often the case that one of the communities in question might be rather ambivalent about matters. If care is not taken to engage with this community then previous scholarship suggests that unintended harm may well be the result (Drew & Dollery, 2015). In fact, the Transition Manager needs to exercise great care to ensure that both emerging entities have the resources and skills required to flourish. The Transition Team model ensures that contributions from key executives and elected representatives are called for and listened to. However, at the end of the day the integrity, expertise and independence of the Transition Manager will undoubtedly prove decisive. Indeed, moral imperatives should continue to be held paramount long after a local government has been de-amalgamated successfully. Legitimate and sustainable local government requires that funds be raised in a morally defensible manner, that debt only be taken on for appropriate reasons, and furthermore that subsidies and grants be provided in a way that protects the dignity of the recipient. In the next chapters I correct some fundamental misapprehensions regarding the nature of

References

87

taxation, debt and expenditure. I also set forth some guidelines for how local governments ought to sustainably provide subsidium. Many readers are likely to be convinced on the basis of the moral arguments alone. However, as it turns out, paying heed to the moral dimension is also likely to result in better fiscal outcomes which are essential for us if we wish to save local government.

References Boydstun, A., Ledgerwood, A., & Sparks, J. (2017). A negativity bias in reframing shapes political preferences even in partisan contexts. Social Psychological and Personality Science, 1–9. https://doi.org/10.1177/1948550617733520 Drew, J. (2018). How losers can turn into winners in disputatious public policy: A heuristic for prospective herestheticians. Australian Journal of Political Science, 54(1), 167–182. Drew, J. (2020). Reforming local government. Springer Palgrave. Drew, J., & Dollery, B. (2014). Separation anxiety: An empirical evaluation of the Australian sunshine coast regional council de-amalgamation. Public Money & Management, 34(3), 213–220. Drew, J., & Dollery, B. (2015). Breaking up is hard to do: The costs of de-amalgamation of the Delatite Shire Council. Public Finance & Management, 13(1), 1–23. Drew, J., Grant, B., & Fisher, J. (2017). Re-evaluating local government amalgamations: Utility maximisation meets the principle of double effect. Policy & Politics, 45(3), 379–394. Kennedy, G. (2001). The 3,000-year history of conjoined twins. Western Journal of Medicine, 175(3), 176–177. Kokcu, A., Cetinkaya, M., Aydin, O., & Tosun, M. (2007). Conjoined twins: Historical perspective and report of a case. Journal of Maternal-Fetal and Neonatal Medicine, 20(4), 349–356. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library: . Oates, W. (1972). Fiscal federalism. Edward Elgar. Oates, W. (1999). An essay on fiscal federalism. Journal of Economic Literature, XXXVII, 1120–1149. Parliament of Australia. (1995). Local government (Financial assistance) act, 1995. Queensland Audit Office. (2015). Results of audit: Local government entities 2013–14. Queensland Audit Office. Riker, W. H. (1986). The art of political manipulation. Yale University Press. Sancton, A. (2005). The governance of metropolitan areas in Canada. Public Administration and Development, 25, 317–327.

Chapter 6

Moral Expenditure and Revenue

Galen said that figs and grapes are the princes of fruits and are less injurious….but the blood that is formed from these fruits is not good. Maimonides, in The Preservation of Youth, (2014, [1198]) The Hebrew nefesh (soul) is a homonymous noun, signifying the vitality which is common to all living sentient beings….it also denotes blood. Maimonides, in The Guide for the Perplexed, (1956, [1190])

Abstract  Fiscal physicians need to ensure that the correct type of revenue is used to replace funds expended on the various kinds of goods and services provided by local government. If local governments fail to perform these ‘funds transfusions’ carefully the results can be devastating to both the moral constitution and fiscal sustainability of an entity. In this chapter I spend some time explaining the importance of natural law to local government finance. Following this I review the major types of local government expenditure and explain why each must be funded by a specific type of revenue. I also provide simple guidelines to ensure that funds of a subsidy nature are provided in a sustainable and dignity preserving way. I conclude with some practical prescriptions for how we might safely conduct funds transfusions to save local government.

Introduction The history of medical transfusions to mitigate blood loss is both far longer and far more intriguing than most people might anticipate. The first recorded transfusion actually occurred around 1667 and involved the transfer of nine ounces (about 266 ml) of blood from the carotid artery of a lamb to the patient. Apparently the patient survived and indeed returned to health which explains the repeat © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_6

89

90

6  Moral Expenditure and Revenue

performances by the physicians (Emmerez and Denys of France) on at least another three occasions. Unfortunately the fourth patient required multiple transfusions (presumably from multiple lambs) which triggered an immune response and led to his death. This prompted the grieving widow to take the physicians to court claiming that her husband had been poisoned. The physicians were acquitted however the case prompted legislation from the French Parliament as well as condemnation by various professional associations and the Catholic Church. The result was a one hundred and fifty year prohibition on the practice (Schwarz & Dorner, 2003). However the need to replace lost blood in response to grievous injuries remained, so physicians resorted to alternative measures. One of the most prominent alternatives was intravenous lacteal injection (a transfusion of milk). Records suggest that this technique was first performed by Bovell and Hodder of Canada in 1854 who reasoned that the fatty particles of milk could be converted by the body into white blood cells. (Oberman, 1969). Their first attempt involved the transfusion of 12 ounces (355 ml) of cow milk which was reported as a success. However, later efforts resulted in a string of deaths. Not to be deterred, other physicians advocated and practised transfusion of goat milk. For example Howe from the United States claimed success for his experimental surgery in 1878, and Meldon of England was a great proponent in the late nineteenth century (Oberman, 1969). Indeed, both physicians claimed that goat milk transfusion was far superior to human blood transfusion (which some other physicians were experimenting with at the time with little success due to the problems of coagulation and incompatible blood types). However, things changed somewhat after 1900 (when Karl Landsteiner completed his Nobel Prize winning work on blood types) and 1907 (when Ottenburg performed the first blood-typed and cross-matched transfusion in New  York). Human blood transfusions were now more reliable than milk (or lambs’ blood) and interest quickly waned for the use of blood substitutes. Indeed, by 1914 long-term anticoagulants were developed and this additional discovery paved the way for large numbers of blood transfusion to take place with relative safety during the course of World War 1 (Schwarz & Dorner, 2003). The need to replace local government funds, expended in the normal course of business, is not entirely dissimilar to some of the procedures employed to mitigate the loss of blood in patients. For the case of local government, the source of funds might be current taxpayers, future generations of taxpayers, or higher tiers of government (I discuss these last two types of funding in Chap. 7). Consonant with the quote at the commencement to this chapter the noun ‘funds’ should be taken to convey more than the mere life sustaining sustenance required to keep a local government solvent – as my readers will come to appreciate through the course of this chapter, the way that funds are extracted and spent also leaves an indelible mark on the soul of a community. Care needs to be taken to ensure both that burdens are shared equitably and that monies are expended in a way that not only promotes the common good, but also protects dignity (see Chap. 2 for a more thorough account of the principle of subsidiarity). Moreover, expenditure needs to be ‘typed’ and then cross-matched with the appropriate kind of revenue, and it should be recognised that failure to do so can lead

Natural Law and Government Finance

91

to very adverse outcomes for local government patients. Furthermore, use of revenue substitutes, such as debt, seems to be akin to lacteal injections or lambs’ blood transfusions – thus, when we replace funds from sources outside of the body of local government taxpayers we need to do so with the utmost of caution because there seems to be a heightened risk of bad outcomes for our local government patient. In sum, there are four major types of local government expenditures  – public goods, merit goods, goods with externalities, and private goods – that need to be matched to two main types of taxpayer ‘donations’ (taxation and fees respectively) and two substitutes (debt and intergovernmental grants). In this chapter I provide local government decision makers with the guidance that they need to ensure successful outcomes and avoid adverse effects, including local government fatalities. The remainder of this chapter is set out as follows. In the next section I spend some time explaining key ideas from natural law so that my readers might better understand the importance of moral finance for local government. Following this I outline the main attributes of each of the four types of expenditures as well as the appropriate ‘funds transfusion’ for each, taking particular care to explain why this must be the case to avoid adverse reactions. I conclude the chapter with my prescriptions for moral expenditure and revenue consistent with our objective to save local government.

Natural Law and Government Finance As I described in Chap. 2, natural law is a philosophy that harks back at least to the time of Aristotle who is credited by many as having the most enduring explanation for the development of the institution called government. Three key ideas in natural law are practical reasoning (giving good reasons for acting), universality (the idea that well-reasoned thought should be applicable to different contexts and times), and teleology (the need to focus on the ultimate ends of people and associations). Moreover, natural law theorists view moral thinking and the acts of institutions as inseparable – indeed most would claim that ‘justice determines efficiency and cannot be separated from it even for analytic purposes’ (Solari, 2007, p. 57). Otherwise stated, expenditure or revenue that is not undertaken in a just manner, weakens the legitimacy of government, and ultimately erodes the soul of a community. Indeed, it doesn’t matter how clever a policy appears to be in an economic sense – if it doesn’t accord with the nature of people, the teleos of government, and the shared values of a community then it will ultimately fail to bring about ‘good’ for people. Natural law theorists prefer a plurality of institutions to meet the needs of people who they note can never really be truly self-sufficient. Preference for plural associations also recognises the danger of concentrating too much power and competence (for example, in the State, which was a notable feature of both fascism and communism), the collaborative good produced when people work together to bring about solutions, as well as the superior efficacy of smaller associations (including local government). To preserve the plurality of associations it is necessary to strike

92

6  Moral Expenditure and Revenue

a balance between the common good, on the one hand, and the dignity of people and associations, on the other (Drew, 2020). The common good is the help accruing to people as a result of their co-operation (Messner, 1952). The common good arises because people do need others to fulfil their existential ends and its importance means that we need to always view policies in terms of the person and all of society, cognisant of human nature (Sandona, 2013). Notably, the common good differs significantly from the concept of the public good – because it obliges all people to contribute, it responds to shared values, and it perceives government as the guardian, and only sometimes, the producer of ‘good’ (Mastromatteo & Solari, 2014). The ultimate recipient of the good is the person who is viewed as being invested with both dignity and reason. Human dignity is often defined as the right of people to pursue their existential ends (be all that they can be) without undue interference (Drew, 2020). Moreover, because associations are valued in natural law thought (especially the family and the local community), these also are considered to be worthy of dignity. The principle of subsidiarity is the means through which natural law theorists seek to strike a balance between the two prima facie competing concepts of common good and dignity. It does so by stipulating both a negative and positive obligation (see Chap. 2). First (negative), larger associations such as the state are prohibited from subsuming the functions rightly invested with people and their smaller associations. Second (positive), larger associations are required to provide help for bona fide need, in a manner that protects dignity (principally through ensuring that help is provided in such a way that it becomes superfluous as quickly as possible; Messner, 1952). This positive obligation means that local government will be both morally deserving of help from greater associations (such as higher tiers of government  – see Chap. 8), but also morally responsible to provide help to people or smaller associations when a bona fide need (not want) exists. It must be stressed however, that help should always be provided in a way that acknowledges reciprocal responsibility and discourages dependency – to do otherwise not only robs people and their associations of dignity, but also fundamentally disrespects the dignity of compulsory donors (in the main, local government taxpayers) (see Drew, 2020). So what does a moral theory focussed on helping people to attain their ends have to do with local government finance? Well, the short answer is ‘everything’. If we confer primacy on the relationship between the person and the rest of society, then this will fundamentally alter the way that we raise revenue and provide goods and services, as well as our attitude to debt. If we believe that all local government policies should be informed by good reasons, orientated towards the flourishing of all people (including the taxpayers), and grounded in shared values then it will fundamentally alter our ideas on transparency, accountability and how we go about providing assistance for genuine need. In this, and the succeeding chapters I will spell out the implications of this thinking in some detail, but before I do so I think it reasonable to first spend a little time discussing how this philosophy contrasts to contemporary economic practice.

Natural Law and Government Finance

93

There was a time when one might have been proud to declare themselves a professor of economics – however I suspect that such a time has long passed by (I find people respond to economists even less well than politicians or undertakers). The reason for this decline in esteem for economics can probably be traced back to the strong push for, and deleterious outcomes of, economic rationalism in the 1980s. Indeed, many people have been hurt by so-called economically efficient policy making (see Chap. 4 for a salutary example of the human cost of amalgamation). Contrary to the impression that a number of people seem to have, economics is indeed a social science built on an ethical foundation  – namely, utilitarianism. Utilitarianism is often summarised as the greatest good for the greatest number of people (Drew, 2020). In economic parlance ‘good’ is reckoned equivalent to wealth1 and since at least the time of Smith (1776) it has been economic doctrine that the greed of individuals (in their own pursuit of wealth) summons up an invisible hand that produces even more good for the community at large.2 A salient example of the ‘moral’ reasoning of modern economists can be found in the Hicks-Kaldor principle commonly employed in the area of welfare economics. This principle asserts that provided the winners from a public policy could theoretically compensate the losers from the same policy, then the said policy should proceed in order to bring about a nett increase to economic welfare. Notably, economists don’t believe that the compensation due to the losers need actually be paid – instead it is reckoned sufficient that the theoretical potential for compensation exists (McCloskey, 1998). This principle is the kind of thinking that contributed to the disastrous amalgamations that I described in Chap. 4, and is broadly symptomatic of the perverse outcomes arising from the ‘moral’ reasoning of economists and thus probably goes some way to explain the low esteem in which many of my professional brethren are currently held. By way of contrast, a natural law view of economics would focus on both the person and their relationship to wider society. A natural law economist would seek out policies that could help people to flourish, but only proceed if the said policy would not bring about avoidable significant harm (even to a single person). Moreover in natural law economics ‘happiness’ would not be perceived in merely monetary terms but instead be focussed on the achievement of the ends to which people and their associations aspire to. Indeed, the ‘natural approach never argues in favour of wealth as the final aim of economic action’ (Sandona, 2013, p. 800). To a natural law economist money would merely be seen as something which is sometimes required as a means to produce significantly more profound ends. Moreover, greed would be seen for what it is  – selfishness of an unedifying kind  – and thus be considered something that ought to be discouraged by carefully reasoned public policy.

1  Dollars are a lot easier to put into equations and graphs than happiness or moral evaluations. Moreover, it is assumed by most economists that greater wealth always brings about greater happiness – an idea that is at odds with most of the miserable rich people that I have known. 2   There can be little doubt that the well-known ‘invisible hand’ of Smith (1776) was indeed a reference to G-d who most economists presumably suppose turns the base instincts of greedy people into good outcomes for all (Riha, 1998).

94

6  Moral Expenditure and Revenue

In sum, a natural law economist would reject much of what their discipline has become and probably would be appalled at most ‘economically efficient’ policy making – as am I. To further illustrate this point, in the next section I outline the implications of natural law economics for the provision of public goods – the production of which has been referred to as the raison d’etre of local government (Oates, 1999).

Public Goods In economics parlance pure public goods are items that are both non-excludable (I can’t easily stop you from using them) and non-rival (your use of the item does not materially affect my ability to also use it) in consumption. Useful examples of public goods include street lighting, recreation areas, and most local roads. In each of these cases it would be difficult or cost-prohibitive to prevent people from using the good, and one persons’ use really doesn’t alter the benefit that others could derive from also using it. Moreover it is not necessarily the case that all public goods must be provided by government. Certainly business will rarely be interested in providing these kinds of goods because without the ability to easily exclude people it would be quite difficult to make any money from the items. However, there is a long history of sporting and cultural groups, as well as religious institutions, building and maintaining public goods and services. Natural law philosophy teaches that these ‘lesser associations’ formed by people of similar dispositions coming together to pursue an end that is important to them are an essential part of the rich tapestry of community life.3 We therefore need to be alert to the opportunities to work with these lesser associations to help our communities to flourish – rather than try to subsume their functions. Local government public goods and services must be funded. Given that by definition these goods and services don’t possess the characteristic of excludability it is not practical to charge fees for their use. We are therefore left with taxation as the only realistic option for funding essential goods and services of a local public nature. Natural law philosophy has long supported the levying of taxes for the legitimate needs of a well ordered society (Messner, 1952; Finnis, 1998). However, when we levy taxes it must be acknowledged that we impinge upon the dignity of people and business associations – the money that people are forced to hand over to support the common good, is money that might have been otherwise spent to pursue important ends (indeed, possibly ends of greater import than the ends to which some taxation is directed). Moreover, since earliest times natural law philosophers have expressed 3  Indeed, Pius XI correctly asserted that subsuming the functions of these lesser associations would lead to financial unsustainability because ‘with the taking over of all the burdens which the wrecked associations once bore, the State has been overwhelmed and crushed by almost infinite tasks and duties’ (Pius XI 1931, paragraph 78). In view of the sovereign debt crisis through much of the world Pius’ statements now seems somewhat prophetic.

Public Goods

95

a strong preference for people to be allowed to keep the fruits of their labour – being able to do so is one of the most important motivations that people have to work hard, improve their skills and learn new talents, as well as innovate (see, Messner, 1952; Aristotle, 1992). Indeed, the philosophers tell us that paying taxes is a duty that falls to all citizens of a community. However, taxes ought to be paid out of the superfluum, which is the money that is left over when a person has fulfilled their responsibilities to keep their household at the standard of living to which they are accustomed (Finnis, 1998). Moreover, Aquinas (2018) argues that it is the duty of all people to dispense the superflua to those who stand in bona fide need, and asserts that coercive taxation is one method suitable to this end. However, support by natural law philosophers for taxation comes with some important caveats. First, the burden of taxation must fall fairly on all tax payers – to do otherwise is an injustice and injustice is anathema to natural law4 and all fair minded people. Second, tax money must be spent prudently – we must always be cognisant that taxes are money held in trust, to be spent for the purposes for which they were raised, namely the common good (see also Chap. 8). If we mistakenly spend money on private goods, or provide unnecessary or excessive subsidies for merit goods or goods with externalities (see the next section) then we are not respecting the trust of our compulsory donors (taxpayers). Third, it must be firmly remembered that taxes are not a fee for service – indeed, services should be funded through fees and this can easily be shown through both moral and economic arguments (see the next section). Furthermore, we don’t expect income taxes, company taxes, or consumption taxes (such as the GST) to be levied at various rates depending on what public services the taxpayer actually receives – nor should we expect a similarly absurd situation for local government. Apart from anything else a tax system which reflected the services one actually received would be almost impossible to administrate, and would also effectively condemn low wealth individuals to increasing levels of inequality (Stiglitz, 2013). No; taxes are a duty that falls to each of us equally according to our superflua and is part of the obligation that comes with membership to a community – a necessity for people who the natural law teaches cannot be self-sufficient. It might seem almost impossible to conceive of a taxation regime that would raise the finance necessary to provide essential local public goods and services, but do so in a manner that respects the dignity of people and their business associations. However, a rather elegant solution to this problem does indeed exist – first clearly articulated by the natural law proponent Henry George in the late nineteenth century (see, for example, George, 2006 [1879]; Laurent, 2005).

4  Aquinas (2018) famously asserted ‘lex inuista non est lex’ – an unjust law is no law at all, but rather a violence committed against the people.

96

6  Moral Expenditure and Revenue

A Suitable Tax Base for Local Government In Progress and Poverty Henry George (2006) propounded his idea for a single tax that would not be derived from income produced by any individual, and would not distort economic decision making. The idea was a tax on unimproved land value and an important part of his reasoning relied on understanding the causes for property values increasing over time. According to George (2006) property appreciates in response to two main drivers: (i) The ‘work’ of the landowner in clearing and cultivating the land, as well as constructing a dwelling, sheds, fencing, and the like. Under natural law reasoning these fruits of labour rightly belong to the landholder, and indeed need to be able to be retained as an incentive for labour and innovation. (ii) Work done by others. For instance, the building of rail lines or roads, new industries, government institutions, or competitive pressure arising from migration or natural population growth. This wealth is attributable to others in society and it is therefore not just for the landowner to keep these fruits of others’ labours. George (2006) proposed that the wealth created by others (determinant (ii) above) be the subject of an (unimproved) land tax, and thus returned to the community who had indeed been the source of the increase in value. Doing so is entirely in keeping with the natural law because it does not seize the fruits of the person’s labours (source (i) above) and indeed is only incident on the superfluum (the increase in land value is not ordinarily relied upon by people to fulfil their responsibilities to the household). An elegant solution indeed. Moreover, the proposal to tax the unrealised capital gain of unimproved land has the additional benefit of dissuading land speculation, as well as encouraging people to put land to more productive use. With respect to speculation, a land tax introduces an additional cost to the enterprise which on the whole it must be said does little for advancing economic development. Indeed, in this respect unimproved land tax is a tax on ‘greed’ quite consistent with a natural law view of economics. With respect to encouraging landowners to do something productive with land, an unimproved land tax confers an ongoing explicit cost to owning land which may entice some to recognise land as an asset that should pay for itself. Indeed, even from a utilitarian economics perspective a land tax has much to recommend it. Land taxes reduce monopolies, encourage productive use of resources, are efficient (they don’t discourage productive economic behaviour), can’t be easily avoided (hard to send one’s land to the Cayman Islands), and are a likely more stable (and growing) tax base than alternatives such as a consumption tax. However, criticisms were levelled at George’s proposal – not surprisingly led by wealthy people who made up the largest part of the scholarly community back in his day. For instance, it was claimed that his single tax would not provide sufficient revenue (Pullen, 2009) – a claim that was probably true, notwithstanding George’s astute reply that the problem might instead be the level of expenditure, not the

Public Goods

97

strength of the revenue flow. It was also claimed that a single tax would ignore other sources of unearned wealth, which my readers will recall appeals to the natural law principle of universalism (that is, if it is good enough to tax one source of unearned wealth, then it should also be considered reasonable to tax all sources of unearned wealth). I heartily agree and have previously asserted that an expanded local government tax on other items of unearned wealth5 – such as art and collectibles, commodity investments, and equities – would not only satisfy moral dictates but also provide considerably more funds for local government to fulfil a significantly expanded remit which should include education, health, law and order, fire and safety (see Drew 2020). However, unfortunately in countries where a capital gains tax is levied, generous discounts and exemptions are often provided which undermine the moral force of the argument and the money also rarely finds its way to local government. In addition, it was also argued that land ownership does not necessarily correlate with capacity to pay – an argument that could be made on most non-income taxes – although it might be noted that legislation exists in many jurisdictions to allow people to defer taxes against the value of the property and acquit same when the property is finally sold or bequeathed.6 Furthermore, it was also noted that an unimproved land tax might lead to unsuitably small land developments (a point much more important back when people kept a horse for transport and a milking cow; see Pullen, 2009). More recently it has been argued by economists, including myself, that unimproved land taxation presents problems with respect to both land valuation (there are few unimproved parcels on the market to which one could make a comparison) and the equitable distribution of the tax burden especially with respect to high density dwellings such as high rise apartments (see, for example, Drew & Dollery, 2015). This has led some to prefer capital improved value (ostensibly the price of land, buildings and other improvements). However a capital improved land tax (based on the precise improvements undertaken by the owner) would lose a lot of the moral force attributable to George’s solution. Moreover, if carefully applied to the actual value of improvements, a tax of this kind would be a disincentive for people to enhance their property, and thus act as a dampener on the wider economy. Proponents of capital improved value also often appeal to its better alignment with capacity to pay. However, I am not entirely certain that this is indeed the case (a lot of elderly people are unable or unwilling to downsize their family home). Moreover, claims of this kind fundamentally misconceive the moral and economic 5  Elsewhere I have argued that to discourage tax competition, as well as ensure horizontal equity, a broad capital gains tax could be levied by the federal government and used as the source of revenue for important vertical and horizontal fiscal equalisation measures (see Chap. 8). 6  Incidentally a tax on inherited estates is also entirely consistent with the natural law as well as efforts aimed at reducing rising levels of inequality. The deceased is not denied the fruits of their labour (death has already brought about the denial), and it is clearly superfluum (beneficiaries are unlikely to be relying on an inheritance sometime in the indefinite future in order to pay household expenses in the present). It is also a reasonable way for people to return some wealth back to the community who often expends considerable funds to support people proximate to end of life (through welfare and medical subsidies). However, in Australia and some other countries abroad, death taxes have nevertheless been demonised and eschewed – I suspect because our legislators tend to be wealthy (or hopeful beneficiaries of wealthy parents)!

98

6  Moral Expenditure and Revenue

objectives of a property tax – if we were interested principally in capacity to pay then we would simply use an income or constrained consumption tax. Notwithstanding my reservations regarding a capital improved tax, it is undoubtedly true that George’s (2006) original elegant solution has been put into a certain level of disarray as a result of the modern penchant for high density living. Therefore, in the appendix to this chapter I outline a compromise proposal that seeks to preserve the moral force of George’s (2006) land tax in a way that recognises the complexity of twenty-first century markets.

Taxation Categories It is imperative – from both a natural law perspective and also to accord with common sentiment  – that taxation burdens not only fall equally on citizens, but also discourage behaviours not conducive to the good order of a community. In this regard, the use of taxation categories appear to be an option that might prove helpful if employed with care. For instance, the generally deleterious practice of land speculation that I mentioned earlier could be targeted through judicious use of land categorisation such that the effective burden on speculators is made to be at least the same as it is for other citizens. The fact of the matter is that land speculators generally get to export some of their local government taxation burden to other tiers of government by declaring it as a deduction against capital gains tax or income tax (depending on the jurisdiction). Principles of social justice would thus seem to make it imperative that vacant land be taxed at a premium to recognise the ultimate deductibility of this burden. Moreover, as I also noted earlier, the practice of land speculation is often not conducive to local economic growth and generally runs counter to the interests of the community. Therefore it might be appropriate to attach an additional premium (a demerit levy if you like) to the tax to discourage this enterprise that detracts from the common good. A similar argument exists for other categories of local government taxpayers who can effectively export part of their local government tax burden to higher tiers of governments. This includes landlords of rental properties, business owners, and farm business owners. In each case these people can generally claim their local government tax as a deduction against personal income tax (for most landlords) or business tax (for businesses and farm businesses). It is therefore reasonable for each kind of these local government taxpayers to attract a premium equivalent to the proportion that they will ultimately receive back on their federal taxes. For example, a small business that can deduct local government tax might attract a premium of 27.5 per cent (the current small business tax rate in Australia). Doing so ensures that we observe the natural law principle of justice with respect to how the burden ultimately falls on people. However, when I survey the local government tax rates actually levied on various categories in different jurisdictions I find that the tax burden is often far from

Public Goods

99

equitably distributed. What one typically finds is that business pays the highest rate of taxation7 (often a factor of around four times the rate levied on residential taxpayers), and that farm business pays a rate of taxation which is a just a small fraction of the tax paid by residential owners. Notably, there is rarely a separate category for vacant land (although I have noticed a few occasions where vacant land attracted a discount), or rental properties. I can only assume that taxation regimes of this kind have eschewed principles of distributive justice or are based on a fundamental misconception of what a land tax actually represents. As I noted earlier – and will describe in more detail in the next section – a tax is not a fee for service (services that are not public goods should attract a fee and not be funded out of the common tax pool at all). It also bears stressing again, that we do not expect any of our other tax rates to respond directly to the services we receive from the relevant tier of government – to do so would be administratively difficult and a recipe for exacerbating already high levels of inequality. Indeed, I don’t think that some local government representatives would be able to coherently defend the different tax rates they employ without resorting to an erroneous argument based on different service levels. Moreover, in most cases, categories and tax rates applicable to categories seem to be the product of historical decision making going back many decades and I think that current Councillors may well find themselves surprised by the degree of disparity that has built up over time. Indeed, it must be recalled that even where services differ, this is almost always capitalised into the value of the land itself anyhow (thus suggesting that providing a ‘discount’ based on the flawed conception that tax should respond to services consumed, would essentially be ‘double dipping’). Otherwise stated, farmland that is only serviced by dirt roads, and has no water or sewer services is priced by the market much lower than similar farmland which is close to town, has sealed roads, and full services. Thus trying to provide a discount to local government taxes to somehow compensate for ease of access to services – apart from being impossible to calculate in a defensible manner  – is entirely redundant (it has already been priced by the market). Apart from taxation categories there are a number of other devices that can distort the economic and moral intention of a local government taxation system. These include taxation limitations (rate capping), base rates, minimum rates, and pensioner discounts. I deal with each of these in the second appendix to this chapter. For now, it is important to recognise that taxation is the main source of revenue to fund essential public goods and services (see also Chap. 7 for a discussion of ‘substitutes’). However, there are at least two other legitimate uses of the common tax pool (the gross taxes generated from the community). In the next section I discuss these two other kinds of local government goods as well as the proportion of funding that they might legitimately receive from taxpayers. 7  One line of reasoning I have heard is that business – particularly large national corporations – are in the best position to absorb local government tax imposts. However, this line of reasoning neglects what actually happens with business expenses – the costs simply get passed onto consumers (Messner, 1952).

100

6  Moral Expenditure and Revenue

Merit Goods, Goods with Externalities, and Subsidium Both merit goods and goods with externalities might warrant subsidisation from the common tax pool, hence I have elected to deal with both of them in a single section. Merit goods are items and services that are deemed to be particularly virtuous for people to consume. Subsidies provided for merit goods are designed to encourage people to consume items that will ultimately benefit themselves. Useful examples of merit goods include swimming pools (and perhaps other sporting facilities), as well as libraries. Goods with externalities, on the other hand, are items and services that have implications for the wider community, beyond those which are internalised by the consumer. Furthermore, externalities may be either positive or negative. A positive externality has benefits for the wider community. Examples of such items include rubbish collection, fire and safety inspections, and food safety inspections. Subsidies provided for goods with positive externalities are designed to encourage people to consume items that will ultimately also benefit others. Negative externalities, by way of contrast, impose a cost on others. Examples of negative externalities include drawing water from rivers for the town water supply or the discharge of sewerage into a river upstream from another local government area. Both of these acts have adverse outcomes for the environment, people who use the river for recreation, as well as farmers with riparian rights. For goods with negative externalities it would be appropriate to charge a fee that was greater than the total marginal cost of production (see the next section), and either pass on the money to people who have been adversely affected by the behaviour, or use it to fund projects designed to mitigate ill-effects. In natural law philosophy the concept of subsidium (sometimes loosely translated as help), provides good guidance on how to offer subsidies that protect the dignity of both the donor and beneficiary (see Chap. 2). The principle of subsidiarity establishes a moral obligation on greater associations (in our case local government) to provide support for lesser associations (people, families and community groups), but insists that this be done with care to avoid adverse outcomes such as dependency or the need to extract unnecessarily burdensome levels of taxation. In particular the principle requires that subsidium: (i) only be provided for cases of bona fide need, (ii) be provided in a manner designed to make it superfluous as quickly as possible, and (iii) come with an expectation of reciprocal responsibility. It is important to only provide subsidium for cases of genuine need (not wants) because to do otherwise tends to remove the incentive for people and lesser associations to creatively respond to the perceived deficiency, puts strain on local government financial sustainability, and exerts an additional burden on the rest of the taxpayers. Moreover, the subsidy must be calculated carefully to ensure that it is precisely sufficient to meet the need, but no more (see below for a discussion of ways to calculate the appropriate levels of support). In addition, the support provided to people and associations with genuine need should be provided in a manner designed to make it superfluous as quickly as possible – if redundancy is not built into subsidies then it ultimately gives rise to dependency (Messner, 1952). A state of dependency is good for neither the beneficiary nor the donor and is also inconsistent with

Merit Goods, Goods with Externalities, and Subsidium

101

dignity. In addition, subsidies should be provided with the expectation that the recipient will also help themselves (referred to as reciprocal responsibility). One common way to achieve this is to ask the person receiving the good or service to also pay a fee towards the cost of its delivery. Another way is to ask the person to donate some time as a volunteer for a community service (such as the information centre or ‘meals on wheels’) so that they can show their appreciation for the support that they have received from the wider body of taxpayers. One of the sad trends of recent times is the fall-off in volunteerism in western cultures. This has increased the burden on governments and community associations tremendously, but more importantly it has also been associated with both lower levels of personal satisfaction and community spirit (see, for example, Putnam, 2000). Thus establishing reciprocal responsibility is likely to result in good outcomes for all parties. Of course, local government can’t force people to volunteer, but it can play a helpful role in connecting associations in need with people who might wish to fulfil their reciprocal responsibility. Another thing to be mindful of when providing subsidies is the need to ensure that an adequate price signal is still sent to the citizen consumer. There is a large economics literature on the importance of price signals for consumer behaviour, and much of this literature applies equally to local government goods (Drew, 2020). The truth of the matter is that most of us value a good or service at its cost. When items are heavily subsidised it is therefore critical to communicate the level of the subsidy to the citizen consumer, so that an accurate value can be appreciated. This can often be as simple as stating clearly on the ticket price or invoice, the subsidy donated by local government taxpayers towards the provision of the item. It is also important to ensure that the subsidy is targeted carefully, and that the rationale and goals justifying it are communicated clearly to both donors and recipients. I often use a simple story of my own consumption of a heavily subsidised local good to illustrate these various points. In the next village to where I live my local government operates a public swimming pool. During the heat of the summer (we often have a few weeks above forty degrees Celsius) I usually bow to my children’s pleas to take them down to the pool. The cost for children under the age of 18 is $3, so not surprisingly in the past I have valued the outing at this cost – notwithstanding the fact that I have been known to quietly grumble at the expense (I am an economist after-all which explains my miserly approach to matters). However, when I recently looked into the finances of my local government I found that the real cost for this pool visit was closer to $12 per child. This means that the taxpayers of my local government area have paid a very large subsidy so that my children can cool off in the worst of the summer heat. Moreover, until last year I didn’t even know the extent of the subsidy, let alone pause to acknowledge the largess of the compulsory benefactors. Indeed, it is probably inappropriate for me to be receiving any subsidy at all given that I have been blessed with a salary over three times the average wage for my area. Furthermore, I have not read of any plans for the local government to transition to an operating model which might require less subsidisation, or indeed to reduce the real value of the subsidy. Thus, this simple example illustrates some of the common economic and moral problems that local governments routinely find themselves in with respect to merit goods and the like.

102

6  Moral Expenditure and Revenue

What should be happening is for the local government in question to articulate a clear policy with respect to this merit good (and all merit goods and goods with positive externalities). The policy should clearly explain the virtue that is being encouraged (ability to swim or fitness?), the target group (those who require swimming skills or improved fitness and who otherwise could not afford to do so), and the measures of success (expressed in terms of some proportion of the population, or the frequency of attendance?). The subsidy should also be set at the minimum level required to achieve the goals set for the target group. To calculate the appropriate level of subsidisation one would need to either conduct carefully planned surveys of willingness to pay from the target group (not necessarily people currently frequenting the pool), or perhaps better still, experiment with some discretionary pricing. The idea of discretionary price experimentation is to alter the subsidy and gauge what economists refer to as the marginal response in consumption. Put simply, does lowering the subsidy result in a significant reduction in consumption by the target group? If so, then the subsidy is either at the right level or an insufficient level. What happens if the subsidy is increased? If the target group responds by consuming more of the good then this might suggest that the subsidy was too low. Moreover, different subsidies can be used to attract different users who it might be considered will benefit most from consumption. For instance, a larger subsidy might be offered to families who have a health benefits card (or some other tangible evidence of welfare support) and the subsidy might increase for each additional child in a family (to provide more support for large families). Moreover, different subsidies might be set for people on various forms of welfare – depending on both their need and capacity to pay. For example the disabled might be subsidised more in response to their need than say a person on unemployment benefits, and someone like me might attract no subsidy at all. Indeed, the subsidies should be reviewed on a regular basis to ensure that they remain consistent with need, shared community values, and changes to peoples’ circumstances. At the very minimum, a thorough review of this kind should be conducted by each newly elected Council during the course of its term. In the conclusion to this chapter I will summarise these ‘rules’ for providing subsidies so that local government decision makers have a ready-reckoner to the things that ought to be done to ensure that services are both economically and morally sustainable. However, before doing so I must first consider one final, and controversial, major type of local government goods and services – private goods.

Private Goods Private goods and services are the exact antithesis of public goods. Indeed they are the goods and services we tend to be most familiar with because we purchase them daily through the market economy. Private goods and services can be characterised as both excludable (you can stop someone from using them) and rival in consumption (if I use it then, you cannot also do so). Useful examples of private goods and services produced by local governments include sales of compost, and new

Private Goods

103

plumbing connections. In these cases, the person purchasing the good or service gets the entire benefit of doing so, and it is not believed that any particular virtue is internalised as a result of consumption. There are a few key questions that need to be answered in relation to private goods: (i) should local government be in the business of providing these items, and (ii) who should pay (what)? It is not entirely clear that local government ought to be in the business of providing private goods and services in many instances. My readers will recall that natural law has a preference for a plurality of associations to avoid dangerous concentrations of power and competence. Moreover, it is believed that smaller associations will generally be more effective at delivering goods for people. Thus, if one or more smaller competent associations (including businesses) already provide the service then it is very questionable whether local government should also continue to do so. Moreover, if a small association could be encouraged to provide the service then this would also be considered a morally (and probably economically) superior outcome. Indeed, when local government gets involved in business it can easily distort local economies. The mere presence of local government in the market saps away the existential space for smaller businesses to innovate and compete. In addition, competition from local government can be considered unfair by some given that local government doesn’t need to make a profit and can cross-subsidise from its tax base (although it certainly shouldn’t do so). Moreover, if a local government prices above the efficient market price (which is quite likely given local government’s higher regulatory and wage burdens) then this can discourage competition and lead to lower levels of economic welfare for consumers. When local government gets in the business of producing private goods it also tends to result in deleterious outcomes for the wider organisation. First, participation in the market introduces risk – this is the reason why businesses make a profit in the first place (to reward them for the risk of commerce). If citizens haven’t been specifically consulted about this risk then it poses a rather thorny moral dilemma. Second, participating in the market distracts the organisation from its core responsibilities – public goods, merit goods and goods with externalities. I think most of my readers will agree with me that there is more than enough to keep Councillors and staff busy on core functions, without introducing additional distractions. In addition, operating in the market can pose a moral dilemma for staff who are exposed to an entirely different paradigm that may not be consistent with their values. We must remember that the purpose of business, as Milton Friedman (1970) famously declared, is to make a profit for its shareholders. However, the purpose of government is to ensure equity, accountability, justice, democratic responsiveness. These disparate foci are completely incompatible and can cause some distress to staff who may have joined to progress the latter, not the former. Notwithstanding all of the problems associated with local government participation in the market, many have done so in recent years in response to some rather ill-conceived advice provided by so-called ‘experts’ who have brought disproportionate focus onto own-source income. These quacks have totally misunderstood the nature of local government finance, and intergovernmental grants, in particular

104

6  Moral Expenditure and Revenue

(see Chap. 7). Poor advice of this nature is sadly quite typical of the misinformation that has wrought significant damage to the sector over the last few decades. Thus my counsel to any local government decision maker is to always check the bona fides of any self-professed (or even government appointed) ‘expert’, before acting on their prescription (please see Chap. 9 for discussion on the attributes of a suitable fiscal physician). There is, however, one situation where it is not only morally permissible for local government to provide private goods, but in fact incumbent upon them to do so. This is for the case of market failure which is particularly relevant to rural and remote local government areas. Sometimes the market will simply fail to provide the goods and services that people need – especially in circumstances where populations and population densities are not sufficient for business to make a profit. In these cases, the principle of subsidiarity clearly supports the taking over of these responsibilities until such time that a smaller association can be found to fulfil the remit. Thus, in rural and remote areas it is quite common for local governments to operate post offices, banking agencies and even small grocery shops – because if they failed to do so then people would be deprived of services which most consider a necessity. Indeed, this is one reason why I advocate change to extant intergovernmental grant schemes – to recognise the additional burdens confronted by non-urban local government. However, local governments forced into running businesses of this kind – often, it must be said, at a loss – need to regularly review the situation and take the first reasonable opportunity to divest to a willing smaller association (including business and not-for-profit groups). Indeed, local government can sometimes play a critical role in economic development by carefully establishing businesses desired by the community with a view to divesting them as soon as practical. By doing so, local government can take on initial risk – that entrepreneurs might balk at – and establish the viability of a commercial operation and thus make it a more realistic proposition for market players. However, the risk to local government must be acknowledged; there must be a reasonable path to viability and divestment; and the community must be asked for its consent to the risk. Indeed, I have known local governments to have conducted economic development of this kind – for example, to attract medical practitioners – with great success (see Chap. 8). The next questions are; who should pay and how much should they pay? To answer these questions I like to employ the rhetorical trope of kal vahomer (see Chap. 1). If I go to purchase a chocolate bar for my private consumption I take it for granted that I will pay the entire cost of the confectionary. It never enters my head that the taxpayers of Australia might all contribute to provide an effective subsidy for the chocolate bar. Nor do I expect that the price will be less than the cost to make the chocolate bar, including the full overheads for the company, provisions for future capital equipment maintenance and renewal, as well as a return on equity (profit) for the risk associated with any type of commerce. I imagine you take a similar perspective when conducting commercial transactions. Kal vahomer asserts that what is important in small matters, is even more important for larger ones. Thus, it is clear that the person consuming the local government private good should pay the full cost of production, including overheads, provisions for capital equipment maintenance and renewal, as well as a return on equity (for

Conclusions and Prescriptions

105

the risk borne by the local government taxpayers). Anything less than this essentially compels taxpayers to subsidise other people’s private consumption – which is both morally dubious and economically unsustainable. Indeed, doing so would ultimately undermine the logic of taxation – because all we would effectively be doing is taking the unearned wealth from some people, and then gifting it (unearned) to other people. Yet, often this is precisely what local governments do indeed do as a result of their neglect to price private goods and services correctly. There are two main approaches to pricing goods and services. The first is a demand side approach (also referred to as price benchmarking) whereby the price is set at the ‘going rate’ in the community. This can be done with reference to other local suppliers (although doing so would beg questions regarding whether local government should be involved in the delivery of the good), or surrounding local governments. The advantage of this approach is that it is less likely to distort the local economy. However, the price charged may well be financially unsustainable (and thus involve undesirable cross-subsidisation) if competitors have lower costs structures or have not priced the good carefully themselves. The much better approach is a supply side method that sets the price at the full cost of producing the good. Economists refer to this as the long-run marginal cost. It is the price to produce one additional item, after taking cognisance of overheads, and long-run capital equipment needs. Unfortunately, estimating this price is notoriously difficult  – albeit necessary and well worth the time. The advantage of this method is that it guarantees financial sustainability for the production of the particular item in question. The disadvantage is that, for local government at least, it is likely to result in an uncompetitive price (given the higher wages and regulatory burdens in the sector). However, as I noted earlier, we should be mindful that it is probably not appropriate for local government to be involved in the supply of private goods if there are already operators in the local government area. In practice most local governments tend to increase prices by the rate cap or Consumer Price Index in most years, and only occasionally carefully review the actual cost of providing goods and service. This is problematic for a number of reasons – not least of which is that both of these commonly employed indexes fail to reflect the true increase to local government costs. Clearly local governments couldn’t hope to carefully review each price each and every year. However, it would be advisable for local governments to schedule a review of different fees and charges on a rotation basis over the four year cycle to ensure that they are well-aligned with robust pricing strategies. In the conclusion that follows I will summarise all the important matters that local governments ought to try to keep on top of with respect to private goods and services.

Conclusions and Prescriptions If we are going to save local government then it seems that we will have to ensure that future funds transfusions are derived from carefully cross-matched sources – not metaphorical equivalents to goats’ milk or lambs’ blood. Moreover,

106

6  Moral Expenditure and Revenue

tax – considered by many to be the prince of revenue fruits – needs to be used with some care because the sustenance formed from this can be injurious to local government fiscal health. Indeed, as I have described, cross-subsidising private goods or providing an inappropriate high subsidy can result in poor outcomes for local government as well as individual people and associations. Thus, the main message that I would like readers to take away from this chapter is that revenue and expenditure have implications far greater than financial sustainability alone – they also leave an indelible imprint on the soul of a community. My prescriptions for saving local government are grouped around the various destinations of revenue that we have discussed in this chapter. In the chapter that follows I will deal with revenue substitutes such as debt and intergovernmental grants. 1. Prescriptions for Public Goods and Local Government Taxation Local government taxation is the appropriate source of revenue to match to the provision of public goods and services. It is important to be mindful that the tax should ideally be extracted from the superfluum, and that the effective burden should be caused to fall fairly on all categories of taxpayers. Moreover, it is critical to dispel any misapprehensions that this tax – or any other – should bear any relationship to services actually received or accessible. Taxes are definitely not a fee for service. Local governments should seek to conduct taxation affairs as follows:

(i) Taxation categories and the taxation rate for each should be reviewed at least once every Council term. (ii) Where legislation permits, separate categories should be established for vacant land, rental properties (both business and residential), owner-­ occupied residential properties, business premises, and farm business properties. (iii) Care should be taken to ensure that any differences to the rate of taxation levied on these various types of properties takes into account both the effective liability (with respect to opportunities to export the cost of the tax), as well as the need for a just and equitable distribution of the tax burden. (iv) All ratepayers should easily be able to see the various rates of taxation paid by the different types of categories (ideally printed on the tax assessment) and these should be defensible. (v) The emphasis needs to shift from trying to dismantle rate capping (taxation limits) and instead pivot towards campaigning for measures that will reduce the damage caused by these regimes (see appendix). (vi) Base rates and minimum rates should be eschewed because they result in people with low gains in wealth suffering a disproportionately high portion of the tax burden (see appendix). 2. Prescriptions for Subsidies It may be appropriate to pay subsidies out of the common tax pool to encourage optimal consumption of some merit goods or goods with positive externalities. It is important to remain mindful of the fact that in most cases subsidies should

Conclusions and Prescriptions

107

only be paid to meet bona fide needs and this should be ideally done at a rate just sufficient to achieve targeted usage goals. In addition, subsidies can’t be a set and forget matter and indeed redundancy should be designed into them from the outset if possible. Moreover, all subsidies should come with the expectation of reciprocal responsibilities being acknowledged. The following questions should be satisfactorily answered prior to establishing a subsidy:

(i) What is the virtue or positive externality? (ii) Who is the target of the subsidy? (iii) What is the goal of the subsidy? (iv) What is the minimum rate of subsidy that might be expected to accomplish the goal? (v) How will the subsidy be communicated clearly (price signal)? (vi) Is discretionary pricing appropriate? (vii) When will the subsidy be reviewed to ensure that it is still consistent with community values and need?

3. Prescriptions for Private Goods and Fees and Charges. Provision of private goods and services is generally not a core function of local government. Indeed, providing goods and services of this nature can distract the organisation from its ultimate mission, and run counter to the values of staff. However, for the case of market failure it will often fall to local government to step in and provide private goods and services so that people can flourish. The following matters should be resolved with respect to providing goods and services of a private nature:

(i) Does another association or person provide the service? If so then would it be more reasonable for the local government to divest the function? (ii) Can another association develop the capacity to provide the private good or service? If so, then what can local government do to help support this development? (iii) What method of pricing is most appropriate (demand or supply side)? (iv) What evidence do we have that pricing fully captures the long-run costs of providing the service? If there is any cross-subsidisation from the tax pool, what can be done to eliminate this as quickly as possible? (v) When should the provision and pricing of the private good and service be reviewed?

By following these prescriptions for funding and supplying public, merit, externality, and private goods respectively local government can ensure that it is both financially and morally sustainable. However, there are two rather controversial supplementary sources of funds that remain unexamined  – debt and intergovernmental grant transfers – and these will be the focus of my next chapter.

108

6  Moral Expenditure and Revenue

Appendices  ppendix 1: Adapting Henry George’s (2006) Ideas to a World A of High Density Living and Little Remnant Unimproved Land Given the advent of high density dwellings as well as the scarcity of unimproved land there is probably no longer a perfect solution to the problem of levying a morally defensible tax from the superfluum of people. Moreover, as I outlined earlier, capital improved value (if strictly observed8) would also result in some significant problems. Thus we must compromise a little and the best solution – not inconsistent with the natural law ‘golden mean’ – seems to be a position in the middle. Clearly unearned wealth accumulates on basic kinds of buildings in addition to unimproved land. Were this not so, then we would not regularly find the value of units and apartments increasing appreciably over time. It is thus important to also capture this kind of unearned wealth. To do so I advocate for a basic dwelling characteristic and land value tax which would value properties for taxation purposes on the basis of just two key (dwelling and land) features. Ideally the property features would be such that they would not unduly distort economic decision making9  – either employing the area covered by the dwelling or the number of bedrooms (the latter is probably the most useful given that most real estate sites employ number of bedrooms and land size as the key search criteria). Doing so would mean that most of the fruits of work done by the owners on the land (for instance, fencing, sheds, or landscaping) or improvements to the dwelling (for example, painting, fittings and even non-structural renovations) would remain theirs alone. However, increases to value attributable to others in the community – such as building of new schools, industries, and community infrastructure – would be returned to the community via a tax on basic characteristics of the property. Indeed, this is a good reason for why the number of bedrooms might be preferred as the basic dwelling characteristic,

8  I am well aware that capital improved value in actuality – contrary to its strict interpretation – is often assessed on just a handful of characteristics - such as number of bedrooms, bathrooms, building materials, and garage spaces, rather than an actual on-site valuation (unless a property owner submits a formal appeal). However, even this process adopted for administrative expediency includes a number of factors likely to alter economic behaviour. The main idea of my proposal is to formalise the use of just two characteristics for valuation, which capture unearned wealth in a way that involves the least administrative cost and results in the least distortion to economic decision making. Moreover, using just two characteristics that are commonly employed on real-estate sites means that people can quickly confirm the accuracy of valuations and this will ensure that the community is confident that the taxation system is just and equitable. 9  People are unlikely to significantly change their preferences for number of bedrooms based on taxation considerations alone – for instance I wouldn’t buy a one bedroom studio apartment for my family of four, no matter how much tax it would save me.

Appendices

109

because it would better respond to community developments which disproportionately benefit particular demographics.10 Ideally, a dwelling characteristic and land value tax should only be levied on the increase in value between valuation periods, not the entire value (as is done in many jurisdictions, including Australia). At the very least, tax assessments should emphasise how the impost compares to the increase in unearned wealth over the same period. We need to be mindful of the purpose of the tax – which is to claw back some of the unearned wealth accrued by the property owner, hence my preference for considering only the increase to value.11 The percentage of the increase captured by the tax would be a matter to work out through the political process. Moreover, when calculating the value of the dwelling, comparisons would only be made against the most economical commonly used construction material, so as not to distort economic behaviour. My proposal for a compromise tax base is not perfect and I do recognise that it is not entirely dissimilar to how capital improved value is often applied in practice. Whilst the compromise deals with key matters such as economic efficiency, targeting the superfluum, coping with high density development, and the problem of valuing, some issues clearly remain. A few of these problems – such as capacity to pay and the potential to encourage unsuitably small (number of bedroom) developments – probably can’t be completely mitigated (although the market, and demographic characteristics will put a floor on the number of bedrooms issue). However, the potential for a dwelling characteristic and land tax to offer effective tax relief for vacant parcels of land is something that can be relatively easily addressed through the judicious use of land categories as I explained earlier.

 ppendix 2: Land Tax Options – Base Rates, Minimum Rates, A Taxation Limitations, and Pensioner Discounts. Base Rates and Minimum Rates In some jurisdictions options exist for the levying of base rates (a combination of fixed rate per property plus a component based on property value) and minimum rates (a minimum tax assessment irrespective of property value). The argument for  For example, the building of a school would disproportionately affect the values of homes with larger numbers of bedrooms, whereas the development of retirement infrastructure, or young industries (such as IT) might be expected to disproportionately affect the values of small residences and studio apartments. Thus a taxation base of this kind would better target the extraction/ repatriation of value from those who gain most from the efforts of others. 11  In many jurisdictions, including Australia, the total value of property is employed for the purposes of dividing up a pre-determined gross tax take for the local government. Doing so removes almost all of the ethical foundation for the land tax, making it merely a kind of wealth tax levied on only a small portion of a modern person’s gross wealth (ignoring things such as equities, superannuation, vehicles and the like). 10

110

6  Moral Expenditure and Revenue

both of these devices is that it ‘flattens’ the relative local government tax burden born by different taxpayers. Moreover, it is also argued that devices such as these reduce volatility arising from (generally biannual) revaluations. Both assertions are true up to a point  – but it must be noted that these advantages come at a cost. Moreover, the cost is born principally by the most disadvantaged in society. Essentially a minimum rate increases the tax burden for those who would otherwise have received a lower tax assessment, due to a relatively lower increase (or perhaps even a decrease) in value to their property with respect to what has been received by their peers. This ‘extra’ taxation paid by those who have the lowest wealth increase in the community effectively provides a subsidy for the rest of the taxpayer body. Otherwise stated, those who have received the least wealth (or even lost wealth12) as a result of the activities of others are asked, in a minimum tax regime, to contribute more so that the legitimate tax liabilities of their peers can be partially offset. This hardly seems equitable. For the case of base rates, the use of this device effectively establishes a fee for membership to the community, which is generally augmented by a tax on property. In some jurisdictions this base rate can be set at a maximum of 50% of the total tax take. There are a few rather big problems with this approach. First, it seeks to raise revenue for public goods through the imposition of a fee rather than a tax, contrary to the large body of economic scholarship that insists public goods must be funded from the common tax pool (see, for example, Dollery et al., 2006). Second, it essentially sets a minimum liability for people who may have otherwise received a lower assessment for the reasons I outlined in the preceding paragraph – this also results in the inequitable subsidisation of the relatively more wealthy by the relatively less wealthy. Third, gain in property value effectively plays a lesser role in the calculation of tax liabilities, thus favouring those with relatively more unearned wealth and negating the moral impetus of a property tax. Taxation Limitations (Rate Capping) It is fair to say that taxation limitations (referred to as rate capping in Australia) are loathed by most local government decision makers as well as many contemporary economists. Indeed, there is much to dislike about taxation caps imposed by higher tiers of government – generally implemented by state parliamentarians as a way of garnering political support at no actual cost (to the higher tier of government at least). Taxation limitations obviously constrain revenue, and this has been shown to have deleterious outcomes on local government sustainability, asset management and debt (Drew & Dollery, 2016). In addition, tax limitations fuel destructive fiscal  Indeed one of the attractions of a property base land tax is that when objectionable development occurs that reduces the wealth of persons, they receive a reduction in their taxation by way of partial compensation. For instance, if an airport is built adjacent to a residential estate, this might well be expected to result in lower valuations and hence lower local government tax liabilities.

12

Appendices

111

illusion. Fiscal illusion is the economic term that describes the situation whereby taxpayers do not understand the fiscal situation of their local government nor the full price of the local government goods that they consume (either because taxation is capped and debt or other devices are used to fund goods and services, or because an effective subsidy is provided by intergovernmental grants  – see Chap. 7 and Drew, 2020). Fiscal illusion is particularly problematic because when people do not pay the full price for a good they tend to demand more than is economically optimal – just consider what happens when a retail product is heavily discounted for evidence of the kind of behaviour that fiscal illusion might be expected to elicit. Taxation limitations also tend to create drift in inter and intra-jurisdictional equity – and this effect increases with the passage of time. Thus, in systems where taxation limitations have operated for many decades we tend to find a wide range of revenue efforts (revenue effort is taxation expressed as a proportion of income accruing to persons and associations within a local government area  – see, for instance, Ladd & Yinger, 1991). For example in the state of New South Wales where tax limitations have existed since at least 1975 revenue efforts for the various local government areas were found to range from just 0.209% of incomes, through to 2.495% (Drew & Dollery, 2016). A similar effect also occurs within particular local government areas between different categories of taxpayers. In both cases, relatively small initial differences in taxation rates have been stretched into rather large gaps as a result of both the compounding effect of applying a single percentage increase over time, as well as changes to valuations and internal migration, the latter of which can alter the demographics of an area over lengthy periods. In addition, a rate cap can result in people being able to keep relatively larger proportions of their unearned wealth (arising from changes to property valuations) than might otherwise have occurred. This is considered an injustice under the natural law perspective. Finally, taxation limitations are an assault on the dignity of the local government – I am sure my readers will recall that because a plurality of associations are considered essential to human flourishing, natural law confers dignity onto each of them. There are thus many reasons to rail against taxation limitations. However, in my opinion campaigning to abolish tax limitations is nevertheless a wasted effort. No political party is likely to voluntarily remove existing tax limitation regimes because there is considerable risk that taxes would be increased soon after, and the party facilitating this would certainly be greeted with the displeasure of voters at the next higher tier election. Moreover, because taxation limitations are a politically popular way of responding to cost of living pressures – at no immediate cost to the instigator – their incidence is only likely to increase in the future. For example, the state of Victoria in Australia introduced taxation limitations in 2016, and South Australia seriously considered doing so in 2018. Indeed, it would not surprise me at all to be told that local government peak bodies in New South Wales have been calling for taxation limitations to be scrapped since their introduction 45 years ago – yet they still remain. It thus seems to me that it would be more productive, at least in the first instance, to instead campaign for changes to the extant tax limitation regime with a focus

112

6  Moral Expenditure and Revenue

made on minimising the harm done to local government. Indeed, a lot of the problems caused by local government taxation limitations are due to poor design and implementation. The biggest problem with most extant systems of rate capping is the sloppy construction of the actual annual percentage cap. In most cases great reliance is placed on the Capital City Consumer Price Index (which is defined as the increase to the price of a basket of household goods). However, this is clearly the wrong basis for calculating the maximum level of taxation increase necessary for local governments to continue to provide their current array of goods and services in a financially sustainable manner. The first problem with this approach is that local governments don’t ordinarily buy the type of items included in the basket of household goods used to calculate the Consumer Price Index; the second problem is that capital city prices have little or no relevance for rural and remote communities. Instead, for a competent system of tax limitations we need to be measuring a true local government cost index based on a basket of goods commonly purchased by the sector (for example, plant and equipment, road base, and staff wages). In addition, different cost indexes need to be generated for the various types of local governments – metropolitan, rural, regional, and remote  – which all face different cost pressures. I suspect the reason why rate caps are often not calculated in a competent manner is because doing so would require a lot of work and some expense. However, I also know that bailing out financially unsustainable local governments requires a lot of work and expense. Therefore, my suggestion is that it might be prudent to do things properly, in the first place, and not incur avoidable harm. The next important thing is for the rate cap to be based on the average taxation burden for each category,13 rather than the total tax take from the previous year Doing so will mean that the construction of new properties in a local government area effectively increases the total revenue take. This in turn means that local government stands a better chance of being able to absorb the extra costs associated with rapidly expanding populations (including the need to invest in new capital plant to maintain adequate capacity). In rate cap regimes where this is not done (such as New South Wales, Australia at the time of writing), high growth local government areas frequently struggle to maintain sustainability. An additional adjustment to taxation limitation regimes, which is sometimes made and well worth pursuing, is the inclusion of a catch-up provision. What this means is that if local governments decide not to pass on the full rate cap in a given year, then they have the automatic right to catch up on this revenue foregone in subsequent years should it prove necessary to do so. This is a sensible provision to make because it helps to keep tax increases down to a minimum (in the absence of a catch-up provision local governments really need to increase taxes by the maximum rate each year because failure to do so will have compounding effects on  It is important that calculations are based on each category (rather than the aggregate of all categories) – otherwise particularly large differences in categories could skew the whole outcome. Moreover, it might be noted that the use of base rates would not be advantageous to local governments under a category average proposal.

13

Appendices

113

future revenues). Extant catch-up provisions often only persist for a few years following the initial decision not to pass on the full rate cap. I suspect this ‘use-by’ date on catch-ups is for the purpose of administrative expediency – however, if we are focussed on producing the best outcomes for citizens then all limitations associated with the catch-up should be removed. This is particularly important for rural local governments which would be in a better position to assist their communities during periods of prolonged drought, if they knew that it wouldn’t result in permanent damage to their financial sustainability. The rules and requirements for community consultation should also be streamlined to reduce cost and complexity for local governments. Certainly some minimum standards are required to ensure that the objective of the rate cap is achieved (that Councils obtain informed consent from ratepayers). However, as it stands there are often multiple rulebooks, as well as ‘suggestions’ for expensive independent surveys and the like. A recent Victorian Parliamentary (2016) inquiry estimated that the total pecuniary costs of applying for exemption from the cap ranged from $20,000 (a certain under-estimate), through to $250,000 (my own experience in special rate variations suggests the average cost is around $140,000). This is a good deal of money that might have been better spent on delivering local government goods and services. Moreover, the timing of some schemes imposes unnecessary costs and pressures on local governments. For instance, in NSW special rate variations are generally due in the first week of February each year. It would be hard to imagine a worse possible deadline given that the auditing process is often not complete until well into November and also that many staff and residents are on leave over the festive season. Thus changing the deadline to, say, the first week of April seems to be a relatively simple change that could improve matters enormously for local governments. Taxation limitation regimes should also come standard with a range of automatic triggers for variations to the rate cap in response to financial sustainability indicators. Most taxation limitation regimes come with an option for local governments to apply for a special variation (increase above the proscribed cap) if necessary. However, a big problem with taxation limitation regimes is that local governments tend not to apply for special variations promptly when the need first arises. This is due mainly to the high political and administrative costs of completing a special rate variation application. The political costs of doing so could be reduced substantially by mandating that a special rate variation must be applied for when certain indicators suggest that a local government is fiscally distressed. Doing so would send the message to the community that a special rate cap variation has been deemed by others to be a prudent course of action and thus take away some of the political risk associated with these applications. In addition, all measures must be taken to reduce the administrative costs associated with applying for a special rate variation. Many processes are complex and require local governments to prepare lengthy documents and develop new community plans outside of the normal planning cycle. In most cases I do not think that doing so adds much to the transparency or accountability of the process. Certainly extensive community consultation is consistent with the goals of a rate cap – but much of the other work associated with some regimes seems more

114

6  Moral Expenditure and Revenue

about regulators ticking boxes, than seeking the informed consent of the community (which should be the central goal of the regime). Pensioner Discounts Before closing this lengthy discussion of local government taxation options it is worthwhile spending a few moments to consider the matter of unfunded mandates for pensioner discounts. In many states of Australia, and abroad, local governments are required to provide discounts to pensioners on their legitimate taxation liability, that are only partly refunded by the higher tier of government which established the mandate. This kind of practice is ill-advised on a number of fronts. First, it denies dignity to the local government association. Second, it effectively forces other taxpayers to contribute additional taxation to fund the discounts, thus bringing about inequity. Third, it is contrary to the moral force of a land-based tax – the idea is to claw back some of the unearned wealth, and discounts clearly allow certain fortunate recipients to keep more of the wealth that they have not earned than might be appropriate. Fourth, as I have described previously it is unnecessary  – hardship provisions already exist for pensioners and other people struggling to pay their taxes. Fifth, it is poorly targeted – it assumes that everyone in receipt of a pension requires help to meet their tax obligations, when this is sometimes not the case at all. Moreover, other genuine cases of hardship  – such as people unexpectedly made unemployed – receive no support, which seems contrary to reason and the natural law preference for universality. Sixth, the tax assignment literature has long recognised that most welfare needs to be a function of the highest tier of government to avoid exacerbation of regional inequality (see, Drew, 2020).

References Aquinas, T. [1273, (2018)]. Summa Theologica. California: Coyote Canyon Press. Aristotle. [350 BCE, (1992)]. The politics. London: Penguin Books. Dollery, B., Crase, L., & Johnson, A. (2006). Australian local government economics. University of New South Wales Press. Drew, J. (2020). Reforming local government. Springer Palgrave. Drew, J., & Dollery, B. (2015). A fair go? A response to the independent local government review panel’s assessment of municipal taxation in New South Wales. Australian Tax Forum, 30(3), 471–489. Drew, J., & Dollery, B. (2016). Careful what you wish for: Rate-capping in Victorian local government. Journal of Australian Taxation, 17(1), 139–167. Finnis, J. (1998). Aquinas. Oxford University Press. Friedman, M. (1970). The social responsibility of business is to increase its profits. The New York Times, September 13, 1970. George, H. [1879(2006)] , Progress and poverty. : Robert Schalkenbach Foundation. Ladd, H., & Yinger, J. (1991). America’s ailing cities. John Hopkins University Press. Laurent, J. (2005). Henry George’s legacy in economic thought. Edward Elgar. McCloskey, D. (1998). The rhetoric of economics. University of Wisconsin Press.

References

115

Maimonides, M. (1956 [1190]). The guide for the perplexed. New York: Dover Publications. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Mastromatteo, G., & Solari, S. (2014). The idea of ‘common good’ and the role of the state in present day social economics. Revista Internazionale di Scienza Sociali, 2014(1), 85–102. Messner, J. (1952). Social ethics: Natural law in the modern world (J. Doherty, Trans.). St Louis: B Herder Book Co. Oates, W. (1999). An essay on fiscal federalism. Journal of Economic Literature, XXXVII, 1120–1149. Oberman, H. (1969). Early history of blood substitutes: Transfusion of milk. Transfusion, 9(2), 74–77. Parliament of Victoria. (2016). Third report into rate capping policy. Parliament of Victoria. Pius, X. I. (1931). Quadragesimo Anno. The Holy See. Pullen, J. (2009). Henry George and the Australian economic association: On land ownership and land taxation. History of Economics Review, Summer, pp. 46–71. Putnam, R. (2000). Bowling Alone. Simon & Schuster. Riha, T. (1998). The idea of natural law and the moral content of economics. International Journal of Social Economics, 25(10), 1520–1551. Sandona, L. (2013). Once upon a time: The neo-Thomistic natural law approach to social economics. International Journal of Social Economics, 40(9), 797–808. Schwarz, P., & Dorner, F. (2003). Karl Landsteiner and his major contributions to haematology. British Journal of Haematology, 121, 556–565. Smith, A. (2014 [1776]). The wealth of nations. : Shine Classics. Stiglitz, J. (2013). The price of inequality. Penguin. Solari, S. (2007). The contribution of neo-thomistic thought to Roman Catholic social economy. American Review of Political Economy, 5(2), 39–58.

Chapter 7

Local Government Debt and Intergovernmental Grants

‘And when goodness is bestowed upon those…people by the favours of the world, their gladness increases and they think…that they have obtained an exceeding benefit and will continue to crave and boast because of the pleasures that they have had’. Maimonides, in The Preservation of Youth, (2014, [1198]). ‘Some of the sick desire and long for foods that are not fit to eat, such as soil and charcoal, and they hate good foods such as bread and meat. It all depends on the extent of the illness’. Maimonides in Laws Concerning Character Traits (1975).

Abstract  Debt and intergovernmental grant revenue are both sources of funds that local governments use to supplement own-source revenues. However, each of these supplements carries with it specific risks to fiscal health – especially the risk of fiscal illusion. In this chapter I first examine both moral and economic arguments for the use of debt and grant money. I then clarify some common misunderstandings regarding precisely what debt is, and how it might be used in an economically and morally responsible manner. Following this I outline the main principles that need to be considered as the foundation of any system of intergovernmental grants before looking specifically at the challenges involved in using tied and untied grants respectively. I conclude with my prescriptions for how we might safely use debt and intergovernmental grants to supplement the revenue required to save local government.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_7

117

118

7  Local Government Debt and Intergovernmental Grants

Introduction Food cravings are defined as ‘a desire so strong that an individual will go out of his or her way to satisfy it, or otherwise be preoccupied with the thought of it, (Osman & Sobal, 2006, p. 290). One prominent idea used to explain food cravings is the nutritional deficiency theory, which basically says that people crave certain foods as an innate response to some kind of vitamin or mineral insufficiency. To me this theory makes a lot of intuitive sense because I know my farm animals will often ‘zero-in’ on a certain kind of food or mineral supplement block in response to a need for a supplement to support a specific stage of growth. However, the statistical data on food cravings in people doesn’t entirely support the nutritional deficiency theory. Indeed, research suggests that cravings differ in response to both gender and culture. For instance, 97% of females report cravings, whilst just 68% of males do so (Osman & Sobal, 2006). Moreover, Americans are most likely to crave chocolate, but in Egypt savoury foods dominate (just 1% of men and 6% of women in Egypt report cravings for chocolate). Indeed, in Japan, the dominant craving is for rice and sushi – and this is especially prominent amongst women (Ho, 2016). Moreover, not all cravings that people experience are associated with things that we would ordinarily refer to as food. Pica is the medical term for cravings of an unusual kind and prominent examples include clay (geophagia), laundry powder (amylophagia), and paint (plumbophagia) (Castiglia, 1993). Incredibly, 25–33% of children are thought to have experienced pica at some stage of their lives (Castiglia, 1993). Moreover, ‘28% of high risk pregnant adolescents had a history of pica for clay, laundry [powder], or refrigerator frost’ (Castiglia, 1993, p. 174). Whilst rice, sushi and even chocolate cravings are unlikely to result in significant medical harm, the same cannot be said for many pica hankerings. Consumption of clay has been associated with increased intestinal parasites and renal (kidney) disease; eating laundry powder can cause transplacental poisoning in pregnant women as well as haemolytic anaemia; and ingesting paint has been linked to lead poisoning and mental retardation. Thus it seems that, for humans at least, our cravings might not always be a good guide to what we should eat to mitigate nutritional deficiencies. The craving for food that many people experience is not entirely dissimilar to the appetite that some local governments have for additional sources of funds. Some ‘cravings’ for additional funds – such as a desire for higher levels of special purpose intergovernmental grants – can be considered good sustenance, analogous to a hankering for rice or sushi. Other cravings are probably not good for local governments (analogous to chocolate), but won’t lead to serious medical issues provided that they are ‘consumed’ in moderation. Examples of this second kind include some untied grants and debt for capital expenditure. However, a final kind of craving – debt to meet operational expenditure needs – clearly is detrimental to the fiscal health of local governments. Hankerings for funds of this kind can be expected to lead to significant medical problems analogous to those suffered by pica patients consuming clay or laundry powder.

Supplements and Their Effects – The Importance of Perspective

119

In this chapter, I examine the various kinds of supplementary ‘foods’ that local governments might consume in order to replace funds expended on local goods and services. In the next section I outline both the economic and moral reasons for why help should be forthcoming for local governments struggling to balance expenditure demands. I also outline the cause and symptoms of fiscal illusion, which is an insidious disorder that can afflict local communities if care is not taken in the use of debt and grant money. Thereafter, I appeal once again to the personal finance metaphor, as well as historical precedent, to investigate the appropriate use of debt. Following this I discuss the need for intergovernmental grants and take a careful look at both special purpose and untied sources of funds. I conclude the chapter with my prescriptions for efficacious use of debt and intergovernmental grants to save local government.

 upplements and Their Effects – The Importance S of Perspective When it comes to deciding what might be considered appropriate food, most people will be on the same page – rice is food, but washing powder is not. However, when we look at the matter of supplementary nutrition (additional funds) for local governments then things are not quite so clear. Indeed, whether or not something is deemed to be suitable supplementary funds seems to depend on the theoretical perspective of who we ask. The dominant way of approaching matters of finance for government in most scholarly and regulatory circles has been through the lens of welfare economics. This approach is the bread and butter of economists  – it purports to analyse and propose public policy in a way that maximises the utility (sometimes defined as either satisfaction, wants or preferences) of citizens in the most efficient manner possible (Hirschfeld, 2018). Efficiency in this sense is all about satisfying the most wants with the least amount of inputs. Moreover, to allow for comparisons to be made regarding the utility of the different kinds of goods that local governments might produce, economists usually employ the pecuniary value of the item as a proxy (substitute) for the satisfaction attained from its consumption. This allows economists to build models whereby various inputs and outputs can be expressed in a common unit (dollars) and the best option can putatively be discerned by comparing nett outcomes. In welfare economics people are assumed to be rational in their decision making where ‘rational’ is given to be the unrestrained pursuit of their personal utility. That is, the core assumption of welfare economics is that all people want to have more, and that there is no point at which their wants might be satiated. This thus suggests that government production will continue to expand within the constraints imposed by efficiency and scarcity (especially of inputs) (Behr, 2019). Indeed, it is a core principle of economics that people respond to incentives and thus it is assumed that to change patterns of consumption public policy architects merely need to introduce

120

7  Local Government Debt and Intergovernmental Grants

different sets of incentives (changes to taxes, fees or the quantity and quality of goods and services). Many people are critical of this conception (often referred to as homo oeconomicus) pointing out, quite correctly, that not all people have insatiable desires and not all people only act in their own self-interests. However, the large body of scholarly work examining the results of actual policy changes suggests that the assumptions of welfare economists do indeed explain how people act in aggregate. Thus, in aggregate at least, homo oeconomicus seems to be a reasonable assumption because it gives rise to highly predictive economic models. The typical welfare economist is thoroughly convinced that their work is value neutral. Indeed, economics has a strand of scholarship ostensibly devoted to normative studies (which investigates what ought to be) precisely for the purpose of separating out ‘messy’ moral questions from the numerical model-making which is the mainstay of most economists. However, on the whole, I think that my welfare economics colleagues might be deluding themselves  – for economics is principally concerned with aggregate utility satisfaction which, as I have outlined in earlier chapters, is indeed the ethical paradigm of utilitarianism. In fact, the putative father of welfare economics – Pigou (1946) – referred to the great utilitarian Sidgwick to morally justify his public policy prescriptions. In sum, we see that a welfare economist has a particular view of citizens shaped by their observation of aggregate behaviour which is believed to be founded on the rational individual pursuit of utility. For a welfare economist the main public policy concerns revolve around how to efficiently deliver unbounded wants in an environment characterised by scarcity (Hirschfeld, 2018). Any source of funds that can feed the presumed insatiable hunger of people for more, without causing inefficiencies, is thus considered to be a good thing. Specifically supplements to the normal revenue diet, such as intergovernmental grants and debt, are generally supported provided that they can be shown to better satisfy citizen consumer demand without causing inefficient behaviours (Oates, 1999). A natural law philosopher, however, would fundamentally disagree with the conclusions of a welfare economist. Indeed, I know from the internal battles arising from my conflicted training in economics and natural law philosophy respectively that it wouldn’t be a good idea to leave archetypal examples of each kind of scholar in a room together without supervision! Where welfare economists have managed to delude themselves into thinking that they are morally neutral, natural law philosophers are proud of their strong moral foundations. Indeed, whilst the latter might acknowledge that a lot of people do in fact myopically pursue their own wants, they probably wouldn’t agree that this is helpful to the ultimate ends of people and certainly would not support government facilitating these kinds of behaviour.1 Moreover, a natural law philosopher would 1  In Chapter 54 of Book III of the Guide for the Perplexed, Maimonides (1956 [1190]) outlines the perfections of people from the least praiseworthy to the most: possessions, a healthy constitution, moral virtue, and the intellect. Notably the argument for the intellect being the highest perfection is that it is the only thing that is not reliant on the external, as well as the only thing that could be metaphysically regarded as eternal.

Supplements and Their Effects – The Importance of Perspective

121

reject the idea of putting a price on satisfaction and would definitely not agree that all goods and services are equally ‘good’. For a natural law philosopher government is not about satisfying unbounded wants, but rather concerned entirely with fostering the common good (which is defined as the help accruing to people as a result of their co-operation which is more than the simple sum of contributions – see Chap. 8). Indeed, most natural law philosophers would claim that this is the only reason for government, in the first place, and emphasise the importance of balancing human dignity (the right to pursue one’s existential ends –be all that one can be – without undue interference) against the demands for the common good. In order to achieve such a balance the focus would have to be on ‘needs’ rather than mere ‘wants’ and these would have to be delivered in a manner that was considerate of both the individual person and their relationship to the wider community. Moreover, for the natural law philosopher the distinction between ‘needs’ and ‘wants’ is by no means the only constraint on government activity. Under a natural law approach it is believed that governments ought only to be directly involved with production when a smaller association cannot be found to competently satisfy needs (see my discussion of the principle of subsidiarity in Chap. 2). The role of government decision-makers would thus not be restricted to a focus on meeting demands in the most efficient manner possible, but rather understanding the shared values of the community and mapping out a path to make these visions of ‘good’ reality (Mastromatteo & Solari, 2014; see also my discussion of local government and the common good in Chap. 8). Indeed, for the natural law philosopher homo oeconomicus (rational-economic person) probably seems more akin to homo avidus (greedy person) and the mission of government might well be viewed in terms of displacing this greed and self-centredness with ‘good’ and virtue. For local government decision-makers motivated by the natural law the view of citizens becomes one of people with real needs striving to reach their perfections, which includes providing help to others. I believe that this conception of people is the dominant view held by the far majority of Councillors and local government employees that I have had the privilege of working with over the last decade or so. {The ranks of our regulators and commercial consultants seem to be dominated by agents who see citizens as homo oeconomicus and this might explain some of the unhelpful public policy prescriptions of recent times}. The typical local government decision-maker seeking to promote good outcomes for people is therefore likely to understand that not all sorts of funds are indeed suitable nutrition for local government, in all circumstances. In the following sections I will outline when supplementary sources of nutrition such as debt or grants might be suitable food for local government, and the circumstances when instead they might present as an unhelpful craving of a pica kind. Before doing so, however, I wish to take a few minutes to highlight the problems that might be expected when all sources of funds are considered to always be suitable ‘food’ for local government. Economists believe that this pica-like behaviour gives rise to an insidious disorder called ‘fiscal illusion’.

122

7  Local Government Debt and Intergovernmental Grants

Fiscal Illusion Fiscal illusion occurs when citizens don’t understand the fiscal condition of their local government, and fail to acknowledge the full costs of goods and services that they consume (Drew, 2020). I refer to it as a ‘disorder’ because it causes people to ‘continue to crave and boast because of the pleasures they have had’ (Maimonides, 2014). Indeed it is the root cause of the apparent insatiable demand perceived by welfare economists which often manifests as political pressure by concentrated special interest groups for spending on special programs and infrastructure. To understand the behaviour elicited by fiscal illusion one need only observe the shopping frenzies that occur in response to heavy retail discounting, such as the Boxing Day sales. The more something is discounted, the more people tend to crave it. When people don’t know the full costs of goods and services that they consume, and are also unaware of the financial sustainability challenges that their local government faces, then it is not surprising that they will exert strong political pressure to satisfy their cravings for more. It may be true that people understand that there is ‘no such thing as a free lunch’, but this doesn’t mean that people won’t consume heavily from highly subsidised lunches. It is thus incredibly important that we take every available opportunity to dispel fiscal illusion. Essentially, fiscal illusion is an artefact of the sheer complexity of local government financial sustainability as well as the neglect to recognise that supplementary sources of funds fundamentally involve the transfer of wealth from some taxpayers to others (Worthington & Dollery, 1999). In the case of debt this is the wealth of future citizens being transferred to current citizens (which might be appropriate in some circumstances). In the case of grants this is the wealth of other citizens of the nation being transferred to citizens of a given local government area (which is completely appropriate for the pursuit of horizontal fiscal equity – see the section on grants – with a needs focus). When we fail to use supplementary sources of funds with care we run the risk of encouraging unhealthy consumption because people might not understand that the ‘discount’ price they pay (through taxes) has been facilitated through transfers of wealth from others. In the next sect. I detail the circumstances whereby debt might be considered an appropriate source of funds as well as the signals that we should send to mitigate the potential for fiscal illusion.

Local Government Debt To understand how debt should be used, one first needs to properly recognise what debt is. Often I find that people fundamentally misconceive debt as a source of revenue, when indeed it is no such thing (Drew, 2020). The reason why debt cannot be considered as revenue is because it must be repaid. When we repay debt in the future we draw on (what will be) current revenue flows from taxes, and fees. Thus, debt essentially becomes merely a means by which we can bring forward future revenues (at a cost) to spend in the present. Moreover, the fact that debt can be used

Local Government Debt

123

to bind future citizens to pay for current expenses means that there is significant scope for debt to be used in a less than moral manner that might foreseeably feed deleterious fiscal illusion. Indeed, our attitudes to debt have changed remarkably in recent years. According to the great James Buchanan (1997, p. 119) ‘politicians prior to World War II would have considered it to be immoral (to be a sin) to spend more money than they were willing to generate in tax revenues, except during periods of extreme and temporary emergency… to spend borrowed funds on ordinary items for public consumption was, quite simply, beyond the pale of acceptable political behaviour’. I am sure politicians in the past were tempted to use debt to facilitate politically popular spending – and hence please voters without having to impose any costs – however they resisted doing so because they recognised both the gifts that they had received from their forebears as well as their responsibility to future generations. However, nowadays many ‘experts’ are pressuring local governments to take on debt in order to promote intergenerational equity.2 It is certainly true that debt can be appropriate when used with care, but the idea that we must use debt to fund long-­ lived assets is both dangerous as well as a tad hypocritical. It is dangerous because it can easily feed deleterious fiscal illusion which ultimately puts financial sustainability at peril; it is hypocritical because our current generation received most of its public assets unencumbered. Those who push debt for intergenerational equity don’t seem to be behaving towards the next generation of taxpayers in a way that they themselves expected to be treated. Indeed, when it comes to our collective government finances we often seem to behave in a manner contrary to what we think would be reasonable in other circumstances. As I discussed in Chap. 1 the rhetorical trope of kal vahomer suggests that what we consider to be a sound course of action with respect to small matters should also be considered appropriate for much more weighty issues. Thus a consideration of the personal finance metaphor can cast important light on the moral use of public debt. When it comes to our personal finances, most of us believe that it is important to live within our means and ensure that everyday living expenses are at least matched by present income.3 Furthermore most us are prepared to borrow for large items of enduring value such as a house or vehicle. However, when we do so we naturally expect to have to make repayments shortly after the loan is drawn down and generally according to a fixed schedule of payment obligations. Making these repayments often entails sacrifice – we either need to secure additional income (through a second job as I did when I bought my first house) or reduce our expenditure (especially discretionary items such as entertainment and dining), or most probably do a bit of

2  The main idea behind intergenerational equity is that people who get some benefit from the asset in the future ought to pay towards the cost of construction in the present. 3  President Roosevelt, who presumably also held to the personal finance metaphor for government, famously remarked ‘any family, can for a year spend a little more than it earns….but you and I know that a continuation of that habit means the poorhouse’ (cited in Borna & Mantriprgada, 1989).

124

7  Local Government Debt and Intergovernmental Grants

both. Moreover, most of us strive to give our children better opportunities than we had ourselves, and endeavour to leave them with nett assets at the end of our lives. However, when it comes to our collective finances matters could hardly be more different. Many governments – of all tiers – fail dismally at living within their means as evidenced by repeat operating deficits. Furthermore, governments often borrow to meet these serial deficits or take out debt for programs which do not have enduring value. In addition, the debt is often not serviced through sacrifice – there are no additional taxes or fees and no reductions to discretionary spending. In the language of economists, decision-makers frequently fail to make an explicit trade-off (McEachern, 1978). Indeed, as a collective, we do not always provide the next generation with better financial options than we ourselves enjoyed (because debt brings forward future revenue it also reduces future options), and often we leave the next generation with a worse financial situation than we in fact inherited. I believe that most of the reason for why we don’t show the same kind of prudence in our collective finances as we do in our personal finances is because we fail to see it as a moral issue. Too often I have heard people expound on the economic imperative for debt and completely ignore the rights and expectations of the people who will ultimately pay for it  – the next generation. Moreover, our collective embrace of debt is also encouraged by the neglect of both scholars and practitioners to make an important distinction between the two types of spending that local government conducts – operational expenditure and capital expenditure respectively. Operational expenditure is money that is spent on goods or services that will be consumed within a relatively short period of time. This includes items such as employee wages, materials, and contracts (for example, telecommunications bills) – often the item has been fully consumed or will be so within a matter of mere months and there is thus no enduring benefit to be had. The other type of spending is referred to as capital expenditure and it includes items of enduring value – such as the purchase of vehicles and plant (machinery), or the costs to construct infrastructure such as roads and buildings. These two kinds of expenditure are accounted for separately in financial statements because they have different financial implications for local governments. The nature of the two kinds of spending results in distinct moral implications. For instance, it can never be considered morally licit to borrow money to fund operational expenditure, because the people who ultimately bear the costs (future taxpayers) can’t possibly get any benefit from doing so (because the item has already been fully consumed). Borrowing to fund operational expenditure would be like me sending you the bill for my travel and accommodation to visit Japan to watch the sumo basho live – an appealing prospect for me but entirely unreasonable for you. Indeed, I imagine you would be outraged if I attempted to force you to pay such a bill and would refuse to do so. Moreover, it would not be lawful for me to try to insist that you contribute towards costs which you neither consented to nor derived

Local Government Debt

125

benefit from.4 Thus, once again, kal vahomer casts a light on how we sometimes fail in our collective financial behaviour to match the moral standards that we demand in our personal sphere. Debt for capital expenditure however, may be morally licit if it is used with care. The remainder of this section focuses on the prerequisites for morally licit debt taken out for capital expenditure purposes. The first prerequisite is to ensure that the proposed debt is not being considered for the wrong reasons – either because we have: (i) a debt bias, (ii) a misapprehension about the legitimate role of local government in providing fiscal stimulus, or (iii) we intend to use fungible monies previously reserved for capital expenditure for operational purposes. Debt bias is the term used by economists to indicate the rational preference for debt by aged persons and persons not intending to remain in the local government area over the long term (Drew, 2020). For these people it may be in their personal interests to use debt to gain immediate utility because they are unlikely to be taxpayers long enough to bear the entire costs of doing so. However, this kind of reasoning is contrary to the common good and I believe that most people aware of the potential for debt bias, if asked to interrogate their personal motivations, would probably choose more wisely. Debt is also sometimes taken out in the mistaken belief that local government can play a significant role in fiscal stimulus at times when economies are faced with a shock (such as the current COVID inspired economic crisis which is unfolding as I write). Economists refer to this as Keynesian Economics – the theory that government ought to spend money at times when there is a shortfall in demand to maintain full employment and smooth out economic cycles. Following the putative success of Keynesian ideas in the wake of the 2007 Great Financial Crisis it seems that everyone is now professing to be a disciple of Keynes (his ideas were largely abandoned on mass in the late 1970’s following periods of crippling stagflation). However, few seem to understand that Keynes was referring specifically to national budgets and that nation states have far more capacity and options5 than do subnational governments, especially local government. The amount of money that a local government can inject into an economy is miniscule when compared to the nation state  – and despite obvious good intentions, rarely amounts to any substantial economic growth. It is also important that decision-­ makers reflect on the fact that funds are fungible. If local governments are taking on debt for capital expenditure, because money that ought to have been set aside for this purpose was instead used to fund operational spending, then we may well be deluding ourselves regarding the morality of the borrowing.

4  If however, you are a person who does believe that it is reasonable to cover operational expenditure with debt then please do get in contact with me via the publisher as I would very much like to watch my favourite rikshi – Takakeisho – perform live again. 5  Crucially most nation states control their currency. By increasing money supply nation states can buy back debt and reduce the real value of the remaining debt through inflation (Fergusson, 2008). In addition, growth in national economies, where income taxes are levied, can be used to effectively pay off the debt.

126

7  Local Government Debt and Intergovernmental Grants

The second prerequisite is to ensure that the proposed capital expenditure is both for an item that has an enduring nature and also for something that future generations will indeed value. These two aspects are not necessarily related. For example, fixed line broadband has an enduring nature – the fibre optic cables will probably function for many decades – but both the trend towards mobile IT as well as better wireless services suggests to me that the infrastructure will cease to be valued by most people long before the debt associated with it has been paid off. Fulfilment of this second pre-requisite is critical if we are going to try to argue that it is morally right to pass on costs to a future generation because it is not reasonable to demand that others pay for something that they do not want or use. The third prerequisite is for appropriate repayments on the debt to commence immediately, be considered a quarantined item in the budget, and also involve some sort of trade-off. By appropriate repayments I mean instalments that at least match the consumption of the long-life asset (otherwise stated the repayments should generally exceed the depreciation for the item for which the debt was incurred). Moreover, the repayments must be considered a quarantined item in the budget – it needs to be recognised that it is not morally licit to reduce repayments to minimum levels at a later time to try to ‘optimise’ cash flows. In addition, there must be an explicit trade-off associated with the drawing down of debt. Just like in our personal budgets, debt must come with some sort of down-side – we should either increase revenues, decrease discretionary expenditures, or do a bit of both. If there is no explicit trade-off then the current generation of taxpayers are not really servicing the debt at all – the can is simply being kicked down the road to a future generation of taxpayers through the accumulation of less visible liabilities such as outstanding asset maintenance or accounting accrual items. Trying to service a debt without actually sacrificing anything is like the accounting equivalent of a perverse magic trick where the metaphorical rabbit only emerges out of the metaphorical hat after the old audience has left and a new one has arrived. The fourth prerequisite for morally licit debt is that we are both able to predict the useful life of the asset with a reasonable degree of accuracy and also secure a debt instrument to match the time period. It is notoriously difficult to accurately predict the useful life of assets (government of all types have struggled to do so) and this has been especially clear since the introduction of accrual accounting (Drew, 2020). Moreover, it might be impossible to find finance where the term matches the predicted life of the asset, especially for long-lived assets such as buildings. In these cases it will generally be necessary to renegotiate the debt at regular intervals which opens the local government up to interest rate risk. This risk seems to be under-­ estimated by many contemporary decision-makers who may not have been born (or don’t remember) the 20% interest rates that we lived with in the early 1990s.6 The fifth and final prerequisite is that the local government must have a plan for combatting fiscal illusion. Essentially debt means that the current community of 6  Given the rapid increase in money supply as a result of central bank interventions throughout the world, I fear that soon we won’t have to cast our minds back too far at all to understand what double digit interest rates (and high inflation) feel like.

Intergovernmental Grants and Minimising Fiscal Illusion

127

taxpayers have received the benefit of future revenues in the present. This is likely to create the illusion that the community is wealthier than what it is and may elicit unhealthy cravings. The best way to mitigate these erroneous and unhelpful perceptions is to signal clearly who is paying the price for the asset (recall my discussion of price signals in Chap. 7). To do so one should communicate the level of debt incurred, the required repayments and the term of the debt on the asset itself (a simple sign on the asset should suffice), as well as clearly disclose these matters on Council documentation that people actually look at – taxation (rates) and annual charges notices (even I am not so excited by local government that I avidly read each annual report, operating plan or financial statement of my local government). Thus, we see that in order for debt to be consumed in a healthy way we need to be very careful about the purposes to which we apply it and also need to take comprehensive measures to prevent harmful cravings. Similar care needs to be taken when using grants as a source of supplementary nutrition and this is the matter to which I now turn my attention.

Intergovernmental Grants and Minimising Fiscal Illusion To understand how grants should be used one really needs to understand what intergovernmental grants are. First and foremost grants that I refer to here are a transfer of important revenues from a higher tier of government down to local government. Transfers of this kind are required to redress what economists refer to as vertical fiscal imbalance which comes as a consequence of the fact that higher tiers of government generally have access to a larger and more diversified tax base that ought to be surplus to their needs. In the absence of intergovernmental grants local governments would struggle to raise sufficient revenue because it is generally restricted to a single tax base (property taxes) in response to the problem of mobility and related potential for destructive tax competition.7 Second, intergovernmental grants are also a transfer of wealth from one group of citizens in a nation, or state, to another. For instance, the grants that the Australian federal government distributes to local government via state local government grants commissions are ultimately funded through a range of taxes levied by the federal government on citizens and businesses. Because some local government areas have larger economies than others this effectively means that wealth gets transferred between local entities. Indeed, in Australia and other nations such as Japan, Canada and Germany, systems of intergovernmental grants are also often designed to achieve horizontal fiscal

7  If local governments were free to set income taxes at levels that they saw fit, then it is likely that some wealthier areas would set low rates of taxation in order to grow their economies at the expense of their neighbours. Moreover, land and property cannot be moved and thus doesn’t encourage inefficient migration of capital and labour.

128

7  Local Government Debt and Intergovernmental Grants

equalisation. For example the Local Government (Financial Assistance) Act 1995, states that horizontal fiscal equalisation is its goal and define this as: ‘Ensur[ing] that each local government in a State is able to function, by reasonable effort, at a standard not lower than the average standard of other local government bodies in the State’ (Section 6(3)(a)).

Adopting horizontal fiscal equalisation as a goal means that poorer local government areas will receive a disproportionately larger share of grant revenues. It is absolutely essential to conduct transfers of this kind if we are to ensure that a person’s potential to flourish is not determined by their postcode (zip code for my American readers). Moreover, horizontal equalisation grants are also important for economic development – they reduce the incentive for inefficient migration of capital and labour, as well as facilitate regional development to unlock underutilised resources. However, the pursuit of these admirable objectives necessarily involves the amplification of the wealth transfer effect that I discussed earlier. Because of this, intergovernmental grants become more than an economic tool  – they also become an instrument of moral obligations and responsibilities. In the past it seems that politicians of higher tiers of government took these moral responsibilities more than a little seriously – we know this because legislation was enacted to facilitate grant transfers even though it clearly puts a strain on federal budgets. However, in more recent times politicians do not appear to have felt this responsibility quite so keenly. For example, recently in Australia the value of grants were frozen (decreased in real terms) to aide budget repair, and changes have also been made to payment dates to try to engineer federal budget surpluses. It thus appears that previous ideas of moral imperatives might have taken a back seat to apparent political imperatives. Indeed there are strong moral foundations for a system of horizontal fiscal equalisation grants and a particularly convincing argument can be found in the natural law principle of subsidiarity (see Chaps. 2 and 6 as well as Drew & Miyazaki, 2020). The principle seeks to strike a balance between the ostensibly competing demands of human dignity, on the one hand, and the common good on the other. Subsidiarity is chiefly concerned with maintaining the plurality of associations necessary for people to flourish and views concentrations of power and competence with some wariness. Notably the neologism of subsidiarity was first articulated by Pius XI in 1931 at a time when the world was about to descend into a hellish era sparked by opposing political philosophies (both of which unreasonably prioritised the common good over human dignity – fascism and communism). To try to chart a middle path through this politically inspired crisis of humanity Pius prescribed both negative and positive obligations on greater associations (most notably nation states). The negative obligation is quite well known – notwithstanding its misrepresentation in the scholarly literature8  – a prohibition on greater 8  It is quite common for scholarly luminaries, such as Oates (1999), to refer to the principle of subsidiarity as the idea that functions should reside with the lowest level of government practical, when the prescription is in fact that functions should reside with the lowest association. To misin-

Intergovernmental Grants and Minimising Fiscal Illusion

129

associations subsuming the roles that rightly sit with lesser associations (the most fundamental of which are the family and the local community; Messner, 1952). The positive obligation is relatively less known, but has important implications for the moral administration and justification of intergovernmental grants. To preserve the plurality of associations and protect the dispersion of power and competence the principle prescribes that greater associations must provide subsidium in the event that lesser associations become temporarily unable to fulfil their usual functions. The word subsidium is sometimes translated as help, but this rendering tends to denude the concept of its full meaning. The neologism is in fact derived from the Latin sub sudeo which was a Roman military stratagem whereby troops were held in reserve to be quickly deployed to strengthen battle lines at times of need – as soon as the crisis had past troops were pulled back again so that they would be available to deal with potential future problems. Thus, we can see that subsidium, understood correctly, involves the provision of help – but only for circumstances of bona fide need, and then in a manner cognisant of the importance of making it superfluous9 as quickly as possible. Notably, in the principle of subsidiarity the provision of subsidium by greater associations is viewed as a moral duty – it is not a request or a suggestion. When greater associations fail to produce the required help for lesser associations, then this means that the said lesser association can no longer bring forth its munera (functions or gifts) thus leaving everyone worse off. Indeed, a failure to provide subsidium is a failure to cultivate the common good. Given that the whole justification of government is found in its role of promoting the common good, a failure to provide subsidium therefore implicitly creates a crisis of existential legitimacy. The positive obligation of the principle of subsidiarity provides a compelling moral justification that has been demonstrated to be superior to extant economic arguments (see Drew & Miyazaki, 2020; Drew, 2020). It sets out the duty of federal and state governments to provide subsidium for bona fide need when local government finds itself unable to produce its full munera. To fully understand how the moral obligation should be imputed into intergovernmental grant practice it is necessary to first distinguish between the two main types of grants – tied special purpose grants and untied operating grants. Tied special purpose grants are generally provided for the construction of a particular asset and often require the local government to make some sort of contribution (this might be a matching contribution of capital spending or an, oft overlooked, implied contribution). This type of grant is probably the best fit with the principle of subsidiarity if the project to which funds are directed represent a bona fide need. Moreover, special purpose grants are the least likely to give rise to fiscal illusion (especially if the project is suitably signed and the community is informed of the source of terpret the principle in this way denudes the family and other lesser associations of their dignity which is completely inconsistent with natural law thinking (Drew and Grant, 2017). 9  If help is not withdrawn when no longer needed then this will foster dependency, which is inconsistent with a state of dignity. However, this does not necessarily suppose that the support will indeed be withdrawn – if the need continues then so should the subsidium.

130

7  Local Government Debt and Intergovernmental Grants

funding). However, tied grants can be manipulated for political purposes (see Cormack (2020) for an example of a recent pork barrelling incident), do result in inefficiency (there are considerable opportunity costs associated with applying for and assessing special purpose grants), and can encourage wasteful lobbying. In addition, many local governments fail to acknowledge the implicit costs associated with these types of grant programs – additional overheads and ongoing maintenance. Untied operating grants, by way of contrast, are distributed for any purpose (which might include capital works). If the grants are not distributed carefully through a robust process then it is easy to see how they might result in dependency and foster fiscal illusion. Moreover, if the grants are not allocated strictly according to need then it is quite likely that the greater association will fail to fulfil its moral duty.10 In Australia, this certainly seems to be the case – minimum grant stipulations and chaotic and indefensible allocation processes by the various local government grant commissions in each state have resulted in mission failure. Anyone that lives in rural or remote Australia knows this for a fact – despite some of the highest revenue efforts in the country the majority of rural and remote local governments struggle financially to even provide third-world standard services (dirt roads, no running water for most residents, little by way of sanitation). Clearly this is a far cry from the legislated horizontal fiscal equalisation goal of ‘standard[s] not lower than the average standard of other local government bodies in the State’ (Local Government (Financial Assistance) Act 1995, Section 6(3)(a)). Similar to the case for debt there is a strong possibility that grants used without sufficient care might give rise to morally illicit outcomes. To avoid results of this kind grantors and grantees should ensure compliance with two important requirements. First, grants must be allocated strictly according to need. A failure to do so disrespects the donors (both the greater association and the taxpayers that it sources its revenue from). It is simply not morally licit to take wealth off one group of people to gift it to another group so that they can pursue mere ‘wants’. For special purpose grants this means that money needs to be allocated strictly according to the merits of the proposal – not according to the perceived importance of securing votes for colleagues in marginal seats. In the case of untied operating grants money must be distributed according to nationally consistent and robust formulas orientated towards facilitating human flourishing, irrespective of a person’s postcode. Otherwise stated, we need to dispense with minimum payments and chaotic processes and instead pursue the explicit horizontal fiscal equalisation intent of the legislation. Failure to do so, is a failure to perform a key moral duty and thus erodes the very legitimacy of the higher tier of government. Second, the items and programs that the funds are ultimately directed to need to be identified clearly, and full costs and sacrifices need to be acknowledged. For  People often seem to think that the problem with the grant system is the quantum of federal grants on offer. However, the biggest problem is, in fact, the distribution and allocation of money. If funds were instead strictly allocated on the basis of need I believe that this would result in significantly better outcomes for people.

10

Conclusions and Prescriptions

131

special purpose grants the identification of programs and items is generally part of the process. Doing so respects the dignity of the donors and also ensures appropriate accountability and transparency. People ought to be able to see that the wealth they have been forced to transfer to others has been spent in an appropriate manner. In addition – and perhaps more importantly – the beneficiaries need to be able to see what they have been given. When we fail to make this clear, then fiscal illusion and harmful cravings are an almost certain outcome. For untied grants matters are far more complex. Usually this money is simply credited to general revenue and it thus acts as an effective subsidy on a range of local government goods and services (Drew, 2020). Treating grants in this way is akin to providing an implicit discount to the price actually paid for items consumed and the inevitable result of doing so is unhealthy levels of consumption as well as cravings. A simple way to mitigate this problem is to allocate the expected untied grants to specific projects and programs during the budget process. If this allocation is then communicated appropriately (through both signage and price signals on taxation notices and receipts – see my explanation in the previous section and in Chap. 7) then citizens will be less likely to labour under misapprehensions regarding the true state of municipal finances. Moreover, in so doing the compulsory donors will be able to verify that their wealth is being put to appropriate purposes and local government stakeholders will be able to better understand the discretionary destination to which taxes and annual charges are applied. Moreover, in both systems of grants it is essential that the full cost of the program or asset is understood – far too often local governments apply for grants (or have politically popular grants foisted on them) without acknowledging the long-run cost of the project. Additional maintenance costs need to be estimated and covered in the budget through either additional revenue, reduced expenditure or a combination of the two. Similarly if the asset or program involves ongoing staff time allocations then there needs to be a clear understanding regarding how this staff time will be paid for. A failure to acknowledge and plan for implicit costs is a first step on the path to financial unsustainability. Thus we see that grants can play an important role in saving local government. However, to achieve the best outcomes, in a morally licit fashion, it seems that we need to take much more care than we do at present. In the conclusion that follows I set out my prescriptions for the appropriate use of supplementary nutrition.

Conclusions and Prescriptions If we are going to save local government then it seems that we will have to be much more careful about what local government consumes. Most of us crave foods from time to time that probably aren’t considered to be part of a healthy diet (I certainly have an ‘issue’ with chocolate and mochi respectively). However, if consumed in moderation the odd capitulation to cravings won’t lead to any serious medical consequences. Similarly, local government might

132

7  Local Government Debt and Intergovernmental Grants

develop cravings for additional revenue from time but, once again, occasional moderate consumption is unlikely to lead to serious fiscal health consequences. However, cravings of a pica kind are certainly dangerous. I can’t speak with complete authority (because I have never eaten clay, paint or washing powder), but I can certainly see how consuming materials not normally considered as food could have significant repercussions for one’s health. Moreover, it seems that some governments do in fact exhibit pica behaviours – especially with respect to the unhealthy consumption of debt for operating purposes. Unless we urgently correct these kinds of behaviours we might expect serious and life-threatening complications akin to the renal failure experienced by those suffering from geophagia. Indeed, unhealthy supplementary funds choices are probably the root cause of the prima facie insatiable appetites for government goods and services presumed by welfare economists. It seems to me that instead of accepting this (aggregate) symptom, and trying to mitigate it through efficiency measures, we might do better to treat the cause of the problem. In this chapter I have focussed on the moral dimension of sourcing supplementary funds. It is my contention that if we focus on obligations and needs, rather than merely economic efficiency and wants, we might promote better consumption choices which will ultimately lead to stronger fiscal constitutions. Otherwise stated, instead of having our citizens ‘crave and boast because of the pleasures they have had’ (Maimonides, 2014, p. 48) we might instead cultivate a gratitude for the ‘benevolence and munificence’ that they have received from others diligently facilitating the common good (Maimonides, n.d., p. 537). To bring about this kind of change requires local government to take extreme care with both debt and grant funds. Below I set out my prescriptions for both: 1. Prescriptions for Healthy and Morally Responsible Debt

(i) Debt should only be taken out for assets of enduring value that are likely to be needed by future generations. (ii) The quantum and terms of the debt should be clearly visible to citizen consumers. (iii) Repayments on the debt should commence immediately and be at least equivalent to the consumption of the asset (measured by depreciation). (iv) Debt repayments should be a quarantined item in budgets and should ideally be met through a combination of a reduction in spending elsewhere or an increase to revenues. 2. Prescriptions for Morally Responsible Grant Consumption

(i) Grant money should be allocated towards specific items or particular programs of the nature of a bona fide need, rather than be used as a general subsidy on the whole basket of local government goods and services. (ii) The full costs associated with a specific purpose grant should be clearly articulated, as should be the sacrifices required to meet the out-of-­ pocket costs. (iii) The source of funding for grant projects should be clearly signed and communicated to resident consumers.

References

133

All of my health directives are orientated towards balancing human dignity against the demands of the common good. Indeed, as I have stated on a number of occasions now, the whole purpose of local government is to foster the common good. But what precisely does this common good look like? How do we define it? How should we pursue it? Who should prosecute it? These are the questions that I will answer in the next chapter  – Local Government and the Common Good (Chap. 8).

References Behr, T. (2019). Social justice & subsidiarity. Catholic University of America Press. Borna, S., & Mantriprgada, K. (1989). Morality of public deficits: A historical perspective. Public Budgeting and Finance, Spring, 1999, 33–46. Buchanan, J. (1997). The balanced budget amendment: Clarifying the arguments. Public Choice, 90, 117–138. Castiglia, P. (1993). Pica. Paediatric Health Care, 7, 174–175. Cormack, L. (2020). ‘Governments are there to prioritise’: Premier Maintains Stance on Pork Barrelling. Sydney Morning Herald, 8th December, 2020. Drew, J. (2020). Reforming local government. Springer Palgrave. Drew, J., & Grant, B. (2017). Subsidiarity: More than a principle of decentralisation – A view from local government. Publius, 47(4), 522–545. Drew, J., & Miyazaki, M. (2020). Subsidiarity and the moral justification of intergovernmental equalisation grants to decentralised governments. Publius: The Journal of Federalism, 50(4), 698–709. Fergusson, N. (2008). The ascent of money – A financial history of the world. Penguin Group. Hirschfeld, M. (2018). Aquinas and the market: Toward a humane economy. Harvard University Press. Ho, V. (2016). Health check: Do we crave the food our bodies need? The Conversation, February 22, 2016. McEachern, W. (1978). Collective decision rules and local debt choice: A test of the median voter hypothesis (pp. 129–136). National Tax Journal. Maimonides, M. (1956 [1190]). The guide for the perplexed. Dover Publications. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Maimonides, M. [1198]. The Regimen of Health. N.p. Maimonides, M. (1975). Laws concerning character traits. In R. Weiss & C. Butterworth (Eds.), Ethical writings of Maimonides. Dover Publications. Mastromatteo, G., & Solari, S. (2014). The idea of ‘common good’ and the role of the state in present day social economics. Revista Internazionale di Scienze Sociali, 2014(1), 85–102. Messner, J. (1952). Social ethics: Natural law in the modern world (J. Doherty, Trans.). B Herder Book Co. Oates, W. (1999, September). An essay on fiscal federalism. Journal of Economic Literature, XXXVII, 1120–1149. Osman, J., & Sobal, J. (2006). Chocolate cravings in American and Spanish individuals: Biological and cultural influences. Appetite, 47, 290–301. Pigou, A. C. (1946). A study in public finance. Read Books. Worthington, A., & Dollery, B. (1999). Fiscal illusion and the Australian local government grants: How sticky is the flypaper effect? Public Choice, 99, 1–13.

Chapter 8

Local Government and the Common Good

‘If a man would conduct himself as he manages the animal he rides, he would be safeguarded from many ailments. That is, you find no one who throws fodder to his animal haphazardly, but rather he measures it out according to her tolerance. Yet he himself eats indiscriminately, without measure’. Maimonides, in The Regimen of Health (1198, p. 51) ‘One should only eat when justified by a feeling of hunger, when the stomach is clear and the mouth possesses sufficient saliva. Then one is really hungry’. Maimonides in The Preservation of Youth (2014, [1198], p. 20)

Abstract  The realisation of the common good is essential for people to be all that they are capable of being. Moreover, to perfect the common good requires us to co-­ operate with people in pursuit of their natural ends. This co-operation often involves some small sacrifices and must be directed by a kind of ‘will’ orientated towards ultimate ‘good’ ends. Indeed, pursuit of the common good is not unlike fasting – we need to follow our true natures, be prepared to make small sacrifices, and exercise will. In this chapter I first explore what the common good is, its natural law roots, and the ‘mind’ that directs it. I then focus on the role of political representatives and the executive in ‘discovering’ the common good. Thereafter I look at the steps required to plan the concretisation of the common good, by which we transform mere collections of people into communities. I conclude with my prescriptions for saving local government through the focussed pursuit of the common good.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_8

135

136

8  Local Government and the Common Good

Introduction Fasting is the self-imposed denial of food, certain foods, or perhaps liquids in pursuit of some greater end. People don’t fast for no reason – they wilfully deny themselves as either a way to emulate natural rhythms, pursue health objectives, or as a sign of a certain metaphysical1 commitment. My goats fast daily – it is the natural thing for them to do. From sunset onwards they are content to rest and restore their vitality. When the sun rises my miking does are treated to some chaff and grain soaked in water – the chaff is required to fire up their rumens (the first stomach of an animal that chews its cud wherein bacteria ferment otherwise indigestible cellulose); the grain is needed to provide them with the nutrients they must have to meet the heavy demands of lactation. If I were to neglect to provide them with chaff first then the bacteria in their rumens would not activate and they would also struggle to maintain core body heat. If I fed them too much grain they would succumb to acidosis,2 which can cause death. I therefore measure out my goat’s rations carefully, and restrict feeding to natural times only, as a safeguard for their health. As Maimonides remarks in the quote at the beginning of this chapter it is somewhat surprising that most people do not put the same kind of care into their own feeding regime as they do for their animals. Indeed, until a few years ago I didn’t do so either. However, serious iatrogenic complications arising from medical treatments subsequent to a catastrophic highway motorcycle accident, well over a decade ago, forced me to re-evaluate my health regime. Indeed, I stumbled onto the ‘new’ medical marvel of intermittent fasting. There are a number of different approaches to this regime but they all involve denying food to oneself for an extended period. I practice the 16–8 method which is 16 h without food and eight where I can basically eat as I please.3 It wasn’t easy to start with, but now it is just a habit and I barely give the matter thought. More importantly my medical results have improved out of sight and left more than one of my medical specialists scratching their head to understand how such dramatic changes in health might be possible. {Notwithstanding the great results that I have personally experienced, I reiterate my warning in Chap. 1 that all medical decisions should be based on relevant scientific evidence and taken only after receiving the sage advice of a medical practitioner – not on the basis of an account made by a natural law economist}. 1  Metaphysics is concerned with the ultimate nature of being – a metaphysical commitment thus lies at the heart of most religions. 2  Also known as grain poisoning – too much carbohydrates cause bacteria in the rumen to produce lactic acid which lowers the PH and kills the bacteria required for normal fermentation. 3  Motivated by my own research for this chapter I have extended the fast to an  20–4 regime. Personally I think it has allowed me to think clearer and write more efficiently  – however, I acknowledge that my readers might well differ in their opinion!

Introduction

137

Nascent medical research in the field of intermittent fasting is beginning to demonstrate that it is an efficacious treatment for obesity, cardiovascular disease, diabetes, cancer, and neurodegenerative brain diseases (de Cabo & Mattson, 2019). Fasting is also said to reduce inflammation and pain, improve mental performance, as well as increase lifespan (in rats at least; Longo & Panda, 2016). It has been hailed a modern medical marvel and is increasingly being incorporated into medical treatment programmes for the chronically ill. However, there is in fact nothing modern about intermittent fasting at all. Both Plato and Aristotle practised fasting as a way to achieve higher intellectual states. In addition, Maimonides (1198 [2014]) prescribed only eating when one was truly hungry as an essential element of a regime for health and Dr. Dewey (1900) famously recommended the non-breakfast fast in 1900. Moreover, many religions require their adherents to fast on a regular basis  – most notably Orthodox Christianity (weekly fasts, as well as Lent and other days of religious significance), Islam (Ramadan – one of the five pillars of Islam), Judaism (Yom Kippur), and Buddhism (certain products such as meat are never consumed) (Persynaki et  al., 2017). In some cases fasting is perceived as a way to instill spiritual discipline, in other cases it is encouraged as a method to gain spiritual enlightenment. Whatever the motivation for fasting might be, it seems to be the case that we can generally discern three common elements to any given regime. First, fasting either replicates or amplifies the natural state of things – before the modern era of convenience and ‘fast’ foods it was normal to go lengthy periods without eating. Moreover, diets would change with the seasons and there would be significant calorific contractions during the hungry gap (late winter to early spring) when food could not be easily grown and caches were depleted. Second, fasting always requires a degree of sacrifice. People who fast clearly have to give up food at certain times, but they also often have to give up social interactions because food plays such a central role in our modern culture. For at least half of the fasting time the person is likely to be asleep. But that still leaves around 8 h, or so, when one can’t do things such as meet to conduct business over a coffee (unless one is willing to drink black coffee and forego all of the temptations that one sees at cafes). Indeed, it is not until one starts fasting that one notices just how many work and social interactions centre on the sharing of food. Third, fasting requires the exercise of will. Any would-be intermittent faster must commence their journey with a discovery of the good to which their denial of food is directed. Until a person discovers natural rhythms, health benefits, or spirituality it is unlikely that they will have sufficient motivation to embark on a fasting journey. Notably, the discovery of the good is for the prospective faster to find – it is not something that can be dictated to a person; rather, people need to ‘own’ the good. In addition, the fast needs to be planned – prospective fasters need to determine things like the best time to fast (encompassing sleep periods makes things easier), how they will break the fast (will there be time to consume a late breakfast or early lunch during workdays?), and how they propose to introduce the regime (‘cold turkey’ or

138

8  Local Government and the Common Good

start with, say, fourteen hours and work up from there?). Moreover, just knowing why one should fast, and having a plan to do so, won’t bring about the benefits that are sought  – indeed, no benefit will have been achieved until the fast is actually performed (that is, the good has been actualised). Governments’ pursuit of the common good is a lot like fasting. To understand why the common good ought to be pursued we need to understand the natural order of things as well as people’s natures. Moreover, to reach the common good we have to make small sacrifices – sacrifices that are more than made up for by our ultimate gains. Finally, for government to fulfil its role as an instrument for helping people to flourish we need to discover the ‘good’ and work out a game plan for reaching it. To show how pursuit of the common good can help save local government I next spend some time explaining precisely what is ‘common’ and what is ‘good’ about our objective. Following this I explore the critical role of political representatives in discovering the common good for their communities. Thereafter, I outline how we should go about producing our game plan for realising the common good. I conclude with my prescriptions for how we might discover, implement and experience true social co-operation which is the common good.

The Common Good The common good is a key concept derived from the natural law tradition as articulated by Aristotle ([350 BCE], 1992). Thus, the place to begin to develop an understanding of the common good is with the observation of nature, especially human nature. It is the nature of things that animals must co-operate with others in order to achieve their ends. No animal leads an entirely solitary life – at the very least, animals find it necessary to co-operate for the survival of their species. Moreover, it seems that some animals need the social co-operation of their fellows more so than others – for instance, I know that my goats become utterly miserable when separated from the herd. Not only do they seem to feel vulnerable without the herd, but they also appear to genuinely miss the social interaction. In similar vein, most people would be both unfulfilled and desolate without the interaction of others: few of us could live as hermits and I suspect even less of us would survive if we attempted to do so. Indeed, from the moment of birth, humans seem to be particularly dependent on others. Unlike baby goats who can stand and move to their mother within minutes of being born – and are able to run within a day or two – humans are utterly dependent on others. It is half a year or more before babies can crawl, often a year before they can walk. Without the co-operation of others people simply would not survive infancy. Humans are thus intrinsically social: perhaps the most social of any animal.

The Common Good

139

People also differ to other animals in another important way – their ability to reason. Reasoning includes the capacity to think about the future, plan a series of steps to realise a goal, or dream about being something better. This ability to reason, when combined with our unparalleled capacity to communicate, means that our social co-operation can yield greater benefits than seen elsewhere in the animal kingdom. As a result, people ought to be more inclined by nature to work for common ends. Natural law philosophers believe that for people to truly flourish that their common efforts need to be directed towards things which are agreed to be good (Behr, 2019). What I mean here, is that our co-operative efforts should not be orientated towards merely producing things (that we call goods), but rather things that can be judged to be morally good. Since at least the time of Aristotle (1992), people have recognised a yearning to live a good life, and have realised that to do so they must live in a good society. Simply producing and consuming lots of things doesn’t necessarily lead to good – I think that most of us would readily agree that good also includes intangibles such as camaraderie, feelings of contentment, and the satisfaction that comes with achievement of goals. As I have discussed elsewhere in this book (see Chaps. 2 and 7) natural law philosophers have compiled various lists of what might be considered good. Common to these lists is an appreciation that we need certain things to survive, some basic shared understandings regarding moral virtues to facilitate the good order of society, and an intellect capable of discerning truth.4 The common good is instantiated in the ‘good’ ends that people realise as a result of their co-operation (which is more than the sum of parts). We all want good things in our lives, but most of these things can only be achieved through the co-operation of others. Thus the common good is achieved when we co-ordinate the efforts and interests of people orientated towards reasonable objectives in such a way that their personal satisfaction also benefits others (Mastromatteo & Solari, 2014). Therefore, to understand the common good we need to understand the person as well as their relationship to the rest of society (Sandona, 2013). As we shall see in the next section, government is often instrumental to the common good. Indeed, good government occurs when ‘the efforts of the members of society to pursue their own interests are able to develop with as little hindrance as possible, and at the same time those efforts come to serve the general interest’ (Messner, 1965, p. 133). The common good is intrinsically bound up with the right of people to pursue their existential ends – be all that they can be – without undue interference (Drew,

4  In Chapter 54 of Book III of the Guide for the Perplexed, Maimonides (1956 [1190]) outlines the perfections of people from the least praiseworthy to the most: possessions, a healthy constitution, moral virtue, and the intellect. Aquinas (2018 [1273]), who also relied heavily on Aristotle and had the additional benefit of consuming Maimonides’ scholarship prescribed the following goods: knowledge of G-d, preserve oneself preserve one’s species, live in society, use one’s mind and will to pursue truth.

140

8  Local Government and the Common Good

2020). When we are successful in cultivating the common good, then people can maximise their human dignity. Of critical importance here is the fact that the common good must ultimately allow for the actualisation of good in individual persons. We can’t do human dignity to someone, just the same as I can’t do intermittent fasting to you. For human dignity to be realised the individual person must themselves actualise the good, be part of the striving to create the good, and then consume the fruits of the common good. It is a bit like a toddler learning to walk: I can tell them what it means to walk, I can model the behaviour of walking, but it is not until they decide that it is a goal worth pursuing – that they take my hand and make the first tentative step, that they fully understand the good of walking and feel the sense of accomplishment that comes with doing so. Moreover, the common good is not a static thing. As each person in a society fulfils various ends, they find themselves in a position to fulfil yet other higher ends. Similarly, as people in society develop new competencies and interests, society itself becomes capable of progress. Thus the common good is a dynamic concept, a higher good is always waiting to be discovered and becomes possible as a result of people striving for their own goods. There is a tension between the common good, on the one hand, and human dignity, on the other. It seems that sometimes we need to sacrifice a little in order to fully develop a society which will ultimately allow us to achieve far more than we could by ourselves. Just as one might sacrifice both food and social interactions in order to practice fasting aimed at higher ends (such as long-term health or spiritual development), so too must we sometimes give up some of our ‘wants’ in order to satisfy the needs of us and our fellow citizens. Being a member of a community comes with the implicit moral obligation to sacrifice a little so that we might all flourish (Mastromatteo & Solari, 2014). Notably, this is not merely a matter of altruism – because the common good is reciprocal in nature it is to our ultimate mutual advantage to contribute to the flourishing of others (Messner, 1965). Some of the sacrifices we make merely require us to adjust our pursuits so that they do not interfere with the pursuits of others. For example, all tiers of government create laws for the good conduct of society – rules that are consistent with the common good and shared moral values. For instance, it is unlawful for me to start up my tractor in the middle of the night and disturb my neighbours – doing so might help me to achieve some end but it would probably leave people in adjoining properties sleep deprived and unable to perform their own work the next day. When laws are consistent with the common good in this way then the said laws generally acquire a moral authority far greater than the fine that a local government ranger might impose on me. Moreover, resisting the urge to plough my land in the middle of the night seems a small price to pay for the help I receive from my community (which includes the right for me not to be unduly disturbed in turn). Other sacrifices can sometimes seem to come at a much higher cost. For instance, annual taxation notices can appear to be an unreasonable burden at first glance. However, the truth of the matter is that a property tax is really incident on the unearned wealth that I have gained from the actions of others in my community (see

The Common Good

141

Chap. 6). If my tax is based on the unimproved value of my land – the annual notice I receive merely captures a small fraction of the increase in wealth that I have accrued through the appreciation of my land. Land values increase in response to things such as new employment opportunities created by others, or because the demand for land has intensified in proportion to the increase to population. The actions that have created my increase in wealth therefore are principally the actions of others and it seems reasonable to me that I return some of this wealth to the community so that it can continue to progress (which will in turn produce even more wealth for me). Thus, even the most onerous of sacrifices do not require me to be an altruist – I simply need to recognise that in contributing to the common good I also ultimately contribute to my own good. Indeed, unless I am contributing to the ends of others I am deluding myself into thinking that I live in a community at all. Just because people live in geographic proximity doesn’t mean that they are a community any more than people sharing a house need not be a family (they could be merely flatmates). It is in both giving and receiving, as well as committing to doing so into the future, that we form communities (and families). The pursuit of the common good is thus also a pursuit of true community – something that seems to have been sadly lost in recent decades (see Putnam, 2000). To co-ordinate the synchronisation of the pursuit of individuals with the good of the community requires that there be a ‘will’ in the community. A decision needs to be made (and re-made) to pursue morally good ends rather than merely goods (things), to diligently search out the common good, and to direct and co-ordinate the efforts of people according to their interests and capacity. The common good requires that an active will is exercised to explore complementarities between the interests of individual persons and the interests of the polis. Discovery of this will is the responsibility of the political representatives of a local government – the matter to which I will shortly turn my attention. However, before I do so I need to highlight some important consequences of a fulsome conception of the common good underpinned by the instrumentality of government. First, as we have seen, human dignity is something that must be actualised in the person and the common good can only be truly considered common if we all contribute to it. This realisation means that we are confronted with a major flaw in the provider state mentality that has come to dominate the developed world. We simply can’t expect people to reach their human dignity if we do everything for them – just the same as you couldn’t reasonably expect to derive any health benefit from me fasting for you. There are, in fact, very few cases where people and their associations are wholly incapable of contributing, in at least some small way, to the achievement of their ends. When we deny people this opportunity to contribute we deny them their dignity. Usually this denial of dignity is done with the best of intentions. However, ‘just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign

142

8  Local Government and the Common Good

to a greater and higher association what lesser and subordinate organisations can do’ (Pius XI (1931, paragraph 80). Thus, the need to actualise the good in the person sets a firm limit on the actions of a provider state. Second, when we work together for a common end we almost always receive something in addition to what we strove to achieve (which is one important reason why the common good is far more than the sum of contributions). For instance, when I helped my boys to learn to walk the ultimate outcome was much more than a walking toddler. Doing so also established familial bonds and memories that I still treasure almost 14 years later. Had I paid someone to teach my children to walk, or had I been absent from home pursuing a goal of my own during this phase of their development, then I wouldn’t have the additional collaborative goods that I now value so highly. Thus, the collaborative good of co-operation sets a limit to the efficiency and outsourcing mentality that dominates the thinking of many governments throughout the world (Hittinger, 2003). Now that we are clear on these moral limits on government derived from the common good, we can proceed with an exploration of how we should discover the help accruing to people as a result of their co-operation.

Discovering the Common Good As we have seen, government (including local government) is the servant of the common good. The full justification for government is found in the need to co-­ ordinate co-operation so that people can reach their existential ends. Local government must therefore be regulated by the common good as this is the essential source of both its authority and legitimacy (Messner, 1965). The purpose of the common good is to help people reach their perfections. Thus, everything that government does must be orientated towards the needs and goals of people as they stand in relation to the rest of society. The role of government is to direct, stimulate and promote the common good (Messner, 1965) – and the common good is comprehended through knowing the people that government serves. The role of the elected representatives of a local government is thus to know the people, and hence the common good. As we have already established, the common good is a dynamic construct, therefore political representatives must constantly be occupied with the discovery and rediscovery of people and their needs. One way to comprehend the specifics of the common good at a particular moment in time is for representatives to understand their own needs in a natural law sense. Councillors are drawn from the community through a democratic process which means that they will generally be representative of the community from which they came. Moreover, the only thing that we can truly know with any certainty are our own thoughts. Therefore the journey to discover the common good might fruitfully be commenced on the surest of foundations – introspection.

Discovering the Common Good

143

Councillors should thus commence with an interrogation of their own ends and their own need for co-operation in pursuit of these ends. What bona fide needs do you, as a Councillor and representative person, strive for that couldn’t be achieved without co-operation? What is the minimum co-operation that you require to fulfil this need? What is it that you can contribute to pursue this common good? And how do you propose to consume the good? Notably, I have been careful to talk about bona fide need, not wants. Drawing on the community to provide wants is beyond the legitimate remit of local government. If we were to do so, all we would effectively be achieving is the substitution of one set of wants (from the obligatory taxpayer donor) for another (Drew, 2020). It would be hard to mount a convincing argument for why the wants of some members in the community ought to be considered more important than the wants of others (obligatory donors). However, if we instead focus on needs, then we can indeed mount a convincing ethical argument – people’s needs ought to be considered more important than others’ wants. I have also suggested that Councillors consider only the minimum co-operation necessary to achieve particular ends. Doing so means that we minimise the disruption to the human dignity of those called upon to sacrifice (such as compulsory donor taxpayers). Indeed, it better respects their sacrifice. Moreover, by minimising the contributions of others we implicitly maximise the contribution of our self. Maximising our own contribution is consistent with the natural law dictate to strive in co-operation towards the actualisation of good – it is the metaphorical equivalent of joining the fast rather than merely observing it. The last thing that I suggest Councillors contemplate is how much they proposed to consume from the fruits of the common good. If we are able to understand what it is that justifies our consumption facilitated by the common good, then we will be better able to specify how people might be regulated in their consumption. I have commenced my explication of the discovery of the common good with a discussion of introspection of the self for a very good reason. One of the enduring problems faced by all governments revolves around understanding what citizens truly need and also how much they are willing to sacrifice in order to secure the need (Tiebout, 1956). Because all of us are merely human many citizens will succumb to the temptation to overstate need, and understate willingness to pay. This is the classical ‘free-rider’ problem of economics – if people can consume things for free, on the backs of the efforts of others, then unfortunately many will indeed do so. As a result it is difficult to truly know other people’s preferences. By way of contrast, when it comes to the self we can be certain in our knowledge – if we are honest with ourselves and prepared to confront our base instincts. However, because people are at different stages in the realisation of their ends it is imperative that we also move beyond introspection. This is the second way to know the common good  – directly engage with citizens to understand what co-­ operation they require and how much they might be able to contribute. When we do so, we must take care to ensure that we seek out the views of all people, not just the people in the community that we are in the habit of interacting with, or the people

144

8  Local Government and the Common Good

who approach us. If we were to base our understanding of the common good on the opinions of our associates only, then we would likely end up with a very biased sample of conceptions of the common good (because most of us tend to associate with people of similar dispositions). If alternatively we relied on the views of people who seek us out, then we would also receive a biased picture of the common good (this time skewed towards the type of person who is most comfortable with seeking out the assistance of others rather than perhaps first trying to meet their own needs). It thus seems that we must therefore go out and deliberately seek the views of the ‘silent majority’. In most jurisdictions local government are required to consult with the community regarding its aspirations as well as various aspects of financial management. The idea behind this prescription by regulators is presumably to force local government representatives to move beyond introspection and engage with a wider sample of the citizenry. Generally, mandated engagements take the form of an open invitation community meeting. Unfortunately events of this kind are exactly the wrong approach if we are interested in a balanced perception of the common good. The participants at these engagements are likely to be an extremely biased sample of the population: in the main attendees will be the squeaky wheels and perhaps the interminably bored. Moreover, without careful scaffolding, there is a high likelihood that the meetings will be perceived as an invitation for citizens to list what they want local government to do for them, rather than what they need with reference to their own commitments to contribute. The alternative to unhealthy community engagement of this sort is a carefully crafted survey aimed at discovering what people require co-operation to achieve, and also how they propose to contribute to realising their goals (the two issues cannot be reasonably separated). Ideally this would be a written survey followed up by some in-depth interviews of the entire citizenry. The problem with this approach is that it is very expensive – both in a pecuniary and time sense. If a local government doesn’t have the resources to do a survey of this kind in a comprehensive manner, then a randomised sub-sample of the population should be used instead. Provided that the Council uses a truly random process to survey sufficient numbers of citizens5 then established techniques of statistical reasoning will provide a strong foundation for informed decision-making. Notably it would be important to have a high survey return rate to ensure that the voices of the silent majority are in fact being heard – to achieve appropriate rates of return local governments might need to make follow-up calls to unresponsive survey recipients or offer incentives. The aforementioned approaches could hardly contrast more. Under the current community meeting model we hear mostly from a small non-random sample of 5  To select respondents randomly some method needs to be devised to number all of the relevant citizens in a community. A random number generator (available on most calculators and spreadsheet packages) is then used to select respondents. If a sufficiently large sample size is used and a high rate of survey response received then existing statistical methods will allow for the calculation of preferences with sampling error information. To encourage high return rates surveys should be kept as brief as possible.

Planning the Common Good

145

people who attend in the expectation of receiving things. In the proposed random sampling model we hear from a truly representative sample which is likely to include people content with the status quo. Moreover, if we include appropriate questions and scaffolding we have the potential to learn both about the co-operation they desire and their commitments to contributing towards the goal. It thus seems that careful use of appropriate consultation devices might safeguard local governments from many ailments.6 In the appendix to this chapter I list some other duties of Councillors that might be deduced through employment of practical reason (good reasons for acting). Providing good reasons for acting is a fundamental tenet of natural law philosophy. To do so, we must know what it is that we wish to achieve, the resources we have, as well as the steps that we must take. In the next section I therefore explain how we can employ Aristotle’s epistemology (theory of knowledge) to better plan for the common good that we seek.

Planning the Common Good In Chap. 3 I outlined Aristotle’s epistemology in some detail and also showed how it could be applied to the problem of understanding whether a given policy had indeed been successful. In this section I now seek to demonstrate another application of Aristotle’s work – this time explaining how it might be used as a tool for more comprehensive planning consistent with the natural law. Aristotle’s (1901) core claim is that knowledge of anything can be gained through a consideration of just four causes (often referred to as Aristotle’s ‘becauses’): (i) the material of the thing, (ii) its form (the way material is arranged), (iii) the efficient cause (the source of the change), and (iv) the final end (the sake for which a thing was done) (Stein, 2011). My claim is that by using Aristotle’s causes we can better plan projects aimed at realising the common good. However, to do so we must take the causes out of their usual order a little and commence with a consideration of the final cause. The final cause is the reason for why we even contemplate the project in the first instance and it dominates the other stages of planning. We should be able to provide good reasons for acting (an example of practical reasoning) and explain how the project under consideration meets an existing need that can only be satisfied through social co-operation. Thus, at this stage of the planning, we are really verifying and articulating why local government ought to be involved in the matter at all (see the previous section). In addition, we are also setting out what the completed project 6  An alternative approach is to establish a citizen jury. In this model 12 people are selected at random and provided with appropriate information on the financial position of the local government as well as the basics of identifying the common good. The group provides a report at the end of the intensive session which is then made publicly available. I have personally used this method of engagement with great success in the past.

146

8  Local Government and the Common Good

will look like – articulating a firm and detailed goal so that we can focus on our objective and also ultimately measure our success. Once we have a satisfactory knowledge of the bona fides and final outcomes expected from the project we are then in a position to take stock of the resources that will be required to bring the project to fruition. With reference to our final objective, we should list the materials that will be required – the building blocks that will be integral to the project or program that we desire. Materials will include things such as people and assets (land, buildings, equipment). The next thing to plan is how the materials need to be arranged in order to have desirable properties and functions (the formal cause). In terms of the project we are now examining questions such as whether it should be private or public; permanent or temporary; fixed or mobile; free access or restricted access. The decisions we make at this stage of the planning process will have a large impact on the efficient cause. The efficient cause is the source of the change that we desire. It will be recalled from our earlier discussion of natural law principles that it is important to have the people who stand in need contribute towards achieving their goals. Moreover, we also noted earlier the critical role that governments ought to play in co-ordinating the efforts of people and their lesser associations such that the common good is advanced. Otherwise stated, it is not always essential that local government does everything – sometimes it is enough for governments to direct, stimulate, and promote a good. For example, it may well be the case that the private market, higher tiers of government, or NGOs (non-government organisations) might be better positioned (in terms of experience, competence and resources) to provide the good, rather than government. Alternatively the good might be best delivered by groups of private citizens who share common interests and have complementary skills. In short we need to stop thinking about government as the provider of good and instead open our eyes to the potential for government to sometimes merely facilitate the good. Figure 8.1 summarises how we might apply the epistemology of Aristotle to the operationalisation of the common good:

Final Cause (a specification of the good outcome envisaged that requires co-operation)

Material (building blocks required)

Form (how the building blocks need to be arranged with respect to functions)

Fig. 8.1  The four elements of planning for the common good

Efficient Cause (the people and associations required to bring about change)

Planning the Common Good

147

Two Examples of Planning for the Common Good To better illustrate how the matters that we have discussed in this chapter can be concretised I will now provide two illustrations of local projects that are often rolled out in the pursuit of the common good. My first example relates to the help that people sometimes require to ensure that they have access to adequate medical services. This is a problem of particular concern to people living in rural and remote areas where access to medical practitioners often involves travelling vast distances (for instance my medical practitioners are located around 90 km away from where I live). Essentially small population densities and a lack of local facilities are sometimes insufficient to attract trained medical personnel. As a result people are not only inconvenienced by burdensome travel, but their lives may also be placed in jeopardy during emergency situations. It thus seems that there will often be good reasons for acting where a rural population does not have access to appropriate medical practitioners. Moreover, a need of this kind can only be reasonably satisfied through social co-operation – any single person is unlikely to have the resources to direct, stimulate or promote this good. Furthermore, the ultimate goal of a project such as this would be to secure ongoing and reliable access to medical practitioners when the need arises. The materials required to satisfy the need include appropriately trained personnel, a surgery, and medical equipment. These building blocks need to be arranged so that they are available on a permanent basis, and accessible to all during times of need. Notably the physical assets need not be fixed – provided the assets are fit for purpose mobility might confer some advantages to the people, as I will soon discuss. The efficient cause might best be realised through the co-ordination of a number of parties. First, the people who stand in need have an important role to play – for example, they can commit to transferring to the new provider (which will establish a market for the prospective practitioner), pledge to pay a ‘gap’7 to the provider derived from their savings in travelling costs (which will make the practice a more appealing business proposition), and acknowledge the need to welcome the practitioner and their family into the community. The second source of change might be higher tiers of government. In most countries the central government plays an important role in the related areas of training, and immigration. Local governments might have a role to play in securing the co-operation of higher tiers towards offering incentives for people to consider rural placements following their training (scholarships or discounts on student fees if the person commits to practising in an area of need after accreditation) or for potential immigrants (a smoothed pathway to immigration and citizenship for people willing to work in rural and remote areas). Yet a third potential source of change is the market – it might be possible to attract medical practitioners by increasing potential rewards or minimising business risk. For instance, local governments might provide a subsidy to attract skilled staff or 7  In Australia medical consultations are covered by a national insurance scheme. However, some practitioners charge a premium above the insurance cover referred to as the ‘gap’.

148

8  Local Government and the Common Good

construct or equip a surgery for them to work in. Indeed, in some circumstance it might be possible to establish the surgery as a mobile facility that could be shared by a number of adjoining local governments thus expanding the market and sharing the costs. Notably, to minimise business risk does not necessarily require a local government to directly bear all of the costs into perpetuity – I have known a number of communities where a surgery has been established and then leased at attractive rates (or ultimately sold as a going concern) to suitably qualified people. Indeed, this kind of approach is a very good model for local governments to consider because it allows resources to be ultimately returned to community for future deployment to address other needs (recall the definition of subsidium that I discussed in Chap. 6). In sum, we see that a sober consideration of the four causes of Aristotle ensures both that provision is achieved in a way consistent with the natural law and also that new possibilities become visible. Notably these principles, given some adjustments, could also be applied to other similar ventures such as the establishment of aged care and disabled care facilities. My second illustration relates to the establishment of community gardens which are becoming an increasingly popular project in metropolitan local government areas. Many people now live in high density residential accommodations where they have limited opportunities to interact with nature or access culturally important foods. Moreover, there is compelling emerging evidence that gardening provides significant psychological, health and social benefits (Soga et  al., 2017). It thus seems that provision of community gardens, whilst not quite as critical as access to medical practitioners, might qualify as a reasonable objective for local communities. Moreover, for those living in high density accommodation it seems that the capacity to garden is certainly something that requires social cooperation. The goal of a community garden would be to allow people to create productive, aesthetically pleasing, and well-patronised places for social interaction. I am well aware that many community gardens sometimes sadly degenerate into weed-­ infested, and deserted eyesores, however I believe that this need not be the case if the project is planned carefully. The building blocks required to establish a community garden are land, water and fencing (a clubhouse, potting area, and glasshouse are probably all ‘optional extras’ that can be established by gardening groups at a later time). The form of a community garden is that it ought to be a publicly accessible space during daylight hours, however it need not be a permanent space (see Curtis Stone’s (2016) work on ‘urban’ farming on leased land). Similar to our previous example, multiple efficient causes also apply to community gardens. People are the most fundamental element to a successful community garden that is both productive and well-patronised. Asking people to pledge their support for the project, and then having people validate their pledge through their own sacrifices to establish the garden can make all the difference. People seeking the opportunity to garden are likely to also be looking for social opportunities and be capable of manual labour. Therefore, wherever possible they ought to be involved in the actual tasks required to give rise to the facility. Otherwise stated, just like I can’t fast for another, I can’t garden for another – people need to actualise their chosen goods.

Conclusions and Prescriptions

149

When it comes to putting together the materials required for a community garden there is a strong case for local government to play an important role. The major stumbling block in city areas will be the sourcing of land. Local government may well be in possession of community land that could be re-purposed for the project. Alternatively, they are best placed to know of vacant land that might be leased at heavily discounted rates to gardening groups (because of their tax base and regulatory powers local governments have comprehensive registers of land and good knowledge of development plans). Local government ought to therefore be in a good position to link prospective gardeners to owners of vacant land, including land subject to development some time down the track. It will also generally be the case that local government will be in the possession of tools and advice that can be employed to further the goals of a community garden project. It is important to emphasise again that local government should only help the people pursuing a community garden, not do things for them. For example, local government might make people aware of grant opportunities to secure funds and give them some advice on how to prepare a submission (but it must not ‘do’ the application for the gardeners). To achieve the goal of a well patronised facility that is a focus for social interaction there is also  a clear role for lesser associations such as community groups (Lions, Apex and the like), religious groups (which tend to concentrate like-minded and civic-minded people), and education providers (including childcare) to be involved in the project. These lesser associations can ensure that the garden adds value to the community  – through education, outreach, and increased social opportunities. Thus, we can see that the establishment of a community garden can be a successful project that brings people together in a way that minimises pecuniary costs. The key seems to be to direct, stimulate and promote a collaborative effort rather than simply provide a finished product to people. I know from a number of examples that I have seen in Australia and abroad that when people participate in the realisation of a project like this, that they develop a sense of ownership, which is crucial to its long term success. Indeed, these ideas – consistent with the natural law – are essential to the task of turning mere collections of geographically proximate people into cohesive communities. In the next section I summarise my prescriptions for realising the common good through facilitating co-operation.

Conclusions and Prescriptions If we are going to save local government then it seems that we will need to focus much more closely on discovering and promoting the common good. However, this pursuit of the common good needs to be conducted with some care, if we are to safeguard the community from many ailments. Specifically, we can’t just throw money at our community haphazardly and expect good outcomes to occur. Instead, we need to respond to true feelings of hunger for the good in a way that acknowledges both the need for co-operation as well as sacrifice.

150

8  Local Government and the Common Good

Below I detail my prescriptions for saving local government through pursuit of the common good: 1. Discover the needs of people that require co-operation and thus identify the good. The best place to start this process is with some introspection. However, because communities are made up of people at various stages of their journeys to reaching their ends it will also be necessary to engage with others. In this regard I strongly recommend the use of random samples of the population so that we get a comprehensive and representative picture of the needs of all people in the community. Moreover, it is important to ensure that surveys provide appropriate scaffolding regarding the purpose of local government and the need for people to sacrifice as well as actively participate in the pursuit of their own ends. 2. Create a picture of the final cause. Once we understand the need in our communities we can then start the process of planning how we might get people and lesser associations to co-operate in pursuit of appropriate final ends. To do so we must make a plan and the first step in this task is to articulate what the final good will look like. This allows us to create a shared understanding of what we are pursuing and also establish a criteria by which we can ultimately judge our success. 3. Take an inventory of the materials and form required. The next two stages of planning for the common good require us to take stock of the materials that will be required to realise the project and also consider the form that the project should take. A specific consideration of form is something that often gets neglected, however, when we do indeed pause to consider things such as permanency, mobility, and publicness, we can sometimes have our eyes opened to new possibilities that might be expected to influence the efficient cause that we subsequently employ. 4. Direct, stimulate and promote collaboration  – including people with common interests, the market, higher tiers of government, and NGOs. The last stage of planning to realise the common good involves the specification of the efficient force. It is important for leaders to remain cognisant of the fact that local government need not do everything – rather the focus should be on directing, stimulating, and promoting others. In particular, the examples I provided earlier demonstrate that beneficiaries, higher tiers of government, NGOs, and the market may all play crucial roles in the delivery of good. Indeed, often it will be the case that parties other than local government will have the experience and competencies best suited to maximising the good. 5. Repeat The common good is a dynamic construct. As each good is realised people are empowered to pursue even higher ends. Indeed, this is the basis for social progress. As a result, leaders must constantly seek to discover new aspects of the common good. In pursuing the prescriptions that I have outlined above it is important that the patient resists both the urge to be a provider government as well as the tendency to myopically pursue efficiency. When governments merely provide, rather than direct and facilitate, people are denied the opportunity to contribute to their own good and

Appendix: The Duties of the King

151

hence realise their dignity. Moreover, a mistaken focus on efficiently providing mere goods – rather than pursuing the common good – results in sub-optimal outcomes for people as well as worrisomely unhealthy local government.

Concluding Comments for Part II This Chapter concludes my review of the various maladies that often afflict local government as well as the regimens for health that can be practised to stave off the illnesses. As I noted at the conclusion of Part I, these regimens need to be studied carefully and adjusted for implementation by a suitably qualified fiscal physician who is sensitive to the needs and circumstances of the community that they physick. Unfortunately, many local governments fail to follow sound health advice and are misled into receiving treatments from mere quacks. Sadly, the results of neglect or quackery are catastrophic for local government fiscal sustainability. In the final part of this book I consider the radical treatments that may be required when local governments fail to get appropriate and early intervention. I also examine the qualities necessary for one to be an effective fiscal physician in addition to considering an efficacious model for treatment. I hope that my readers will never need to consult the pages that follow – for the impact to the community is truly horrendous – but I set them out so that an account of sound medical intervention is on record should it be needed.

Appendix: The Duties of the King There are a number of other duties that fall to Councillors that we can deduce with reference to Aquinas’ De Regimine Principum (see Behr, 2019). The first duty of governing authorities is to establish peace so that people are indeed able to pursue their ends safe from the undue interference of others. As I related in the previous section, this involves the making of by-laws that concord with the natural law – things such as regulations concerning behaviours that might disturb others. By-laws of this kind ought to be able to be defended through use of good reasons and most people will probably also consider them to be indicated by widely-held standards of moral behaviour. I think here of rules regarding noise, appropriate maintenance of vegetation, appropriate control of animals and the like. The second duty of governing authorities is to ensure the appropriate supply of needs. This includes things such as the construction and maintenance of transport assets, adequate sanitation, supply of potable water, and the satisfactory provision of emergency services (where these fall within the remit of local government). These kinds of things are the basic needs that everyone shares and are thus essential to a well-ordered society. Therefore it is a moral obligation to meet these basic needs before even considering discretionary matters. Moreover, because needs of

152

8  Local Government and the Common Good

this kind require continual maintenance it also implies a moral obligation on decision-­makers to ensure that the financial affairs of the local government are conducted in a financially sustainable fashion (see Chaps. 6 and 7). Third, and perhaps most importantly, the duties of governing bodies include the modelling of moral virtue. Most Councillors already do so. However, we must always be mindful that the public is watching how we comport ourselves in both our official Council business and also in our personal spheres. In particular, political representatives should take pains to display the traits they wish to cultivate in their communities: prudent satisfaction of needs before mere wants, demonstration of reciprocal responsibility (contributing to our own needs), ensuring that others aren’t unduly interfered with, displaying a willingness to orientate actions so that they contribute to the common good of all, and a preparedness to provide good reasons for acting (practical reason).

References Aquinas, T. [1273, (2018)]. Summa theologica. Coyote Canyon Press. Aristotle [350 BCE, (1992)]. The politics. Penguin Books. Aristotle. (1901). Posterior analytics (E. Bouchier, Trans.). The Perfect Library. Behr, T. (2019). Social justice and subsidiarity. Catholic University of America Press. de Cabo, R., & Mattson, M. (2019). Effects of intermittent fasting on health, ageing, and disease. New England Journal of Medicine, 382(18), 1773–1774. Dewey, E. (1900). The no breakfast plan and the fasting-cure. Gutenberg Press. Drew, J. (2020). Reforming local government. Singapore. Hittinger, R. (2003). The first grace: Rediscovering the natural law in a post-Christian world. ISI Books. Longo, V., & Panda, S. (2016). Fasting, circadian rhythms, and time-restricted feeding in healthy lifespan. Cell Metabolism, 23(6), 1048–1059. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Maimonides, M. [1198]. The regimen of health. N.p. Maimonides, M. (1956 [1190]). The guide for the perplexed. Dover Publications. Mastromatteo, G., & Solari, S. (2014). The idea of ‘common good’ and the role of the state in present day social economics. Revista Internazionale di Scienze Sociali, 2014(1), 85–102. Messner, J. (1965). Social ethics: Natural law in the modern world. Transl. J. Persynaki, A., Karras, S., & Pichard, C. (2017). Unravelling the metabolic health benefits of fasting related to religious beliefs: A narrative review. Nutrition, 35, 14–20. Pius, X. I. (1931). Quadragesimo Anno. The Holy See. Putnam, R. (2000). Bowling alone. Simon & Schuster. Sandona, L. (2013). Once upon a time: The neo-Thomist natural law approach to social economics. International Journal of Social Economics, 40(9), 797–808. Soga, M., Cox, D., Yamaura, Y., Gaston, K., Kurisu, K., & Hanaki, K. (2017). Health benefits of urban allotment gardening: Improved physical and psychological well-being and social integration. International Journal of Environmental Research and Public Health, 14(71), 1–13. Stein, N. (2011). Causation and explanation in Aristotle. Philosophy Compass, 6(10), 699–707. Stone, C. (2016). The urban farmer. New Society Publishers. Tiebout, C. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416–424.

Chapter 9

Local Government Fiscal Emergency Response

‘It is proper for a man to know that even if he has with him one or many prominent physicians, he should not permit himself to employ drastic medication, unless it is upon the advice of a very, very adequate and experienced physician whose wisdom has been put to the test’. Maimonides in The Preservation of Youth (2014, [1198], p. 31) ‘The more deficient one is in science, the easier it will be for him to understand every difficulty, making the improbable probable and increasing the false claims which he represents as certain knowledge, and is eager to explain things that he does not understand himself’. Maimonides, in The Preservation of Youth, (2014, [1198], p. 60)

Abstract  The result of neglecting local government health over an extended period of time will be fiscal crisis. Often these crises come on quickly and people frequently claim that they had little warning regarding the precarious nature of the local government’s health. Moreover, if a serious fiscal condition does arise then it is critical that the local government is treated by a wise and competent fiscal physician. In this chapter I detail some of the key warning signs that something may be seriously amiss. Following this I provide details of the major tools at the disposal of the fiscal physician to try to physick the patient through the crisis. Thereafter I propose a model for treatment that I have used with great success to date. I then consider the qualities required for a fiscal physician to be ajudged adequate to the task. I conclude with my prescriptions for saving local governments that are experiencing health emergencies.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_9

153

154

9  Local Government Fiscal Emergency Response

Introduction Sadly not everyone who professes to be able to cure a malady is indeed able to do so. In fact, sometimes the supposed remedies of mere quacks lead to catastrophic outcomes, including death. Take for example the case of ‘Dr’ Linda Hazzard, a person without formal medical training who nevertheless managed to receive a license to practise in Washington as a ‘fasting specialist’ (Lovejoy, 2014). She was also the author of a rather popular medical book – Fasting for the Cure of Disease – published in 1908. In this book Dr. Hazzard (1908, p. 59) asserts ‘that the general conception and treatment of disease are wrong, and that health lies within reach of all diseased bodies that are not organically imperfect…[through] fasting’. Her ideas gained traction with the wealthy and elite of the time and Dr. Hazzard duly opened a sanatorium which tended to attract people who believed that they were chronic sufferers of relatively minor ailments such as rheumatism, headaches, lethargy, indigestion, and mild melancholy (depression). Treatment involved fasting for periods of upwards of 50 days, the administration of frequent enemas, and rigorous massage. Dr. Hazzard and her husband often convinced patients to sign over their property, or confer power of attorney onto them. However, loss of wealth was probably the least of the problems suffered by patients: ‘in all at least a dozen people are said to have starved to death under Hazzard’s care’ (Lovejoy, 2014, p. 2). These outcomes seem to contrast starkly with Dr. Hazzard’s (1908, p. 120) ‘certain knowledge’ that ‘death from starvation is impossible in a fast properly applied’. Eventually the authorities were pressured to investigate deaths at Dr. Hazzard’s sanatorium and she was tried and sentenced for manslaughter in 1911. Ironically, Hazzard served her ‘two years fasting in jail to prove the value of her regimen’ (Lovejoy, 2014, p. 3). Yet another example  – the case of Dr. Patel  – demonstrates that catastrophic outcomes don’t only occur at the hands of untrained physicians. Dr. Patel trained at both Saurashtra University and the University of Rochester and held licenses to practise at New York, Oregon, and Queensland Australia (Burton, 2008). In 2003 he was appointed as the Director of Surgery at Bundaberg Base Hospital, Queensland. During this time he conducted over 1000 surgeries and was linked to the deaths of 87 patients (Sydney Morning Herald, 2005). Moreover, complaints soon emerged that Dr. Patel had committed grave medical errors such as closing surgery despite being aware that the patient was still bleeding internally, and mistakenly removing a healthy gland from a patient instead of the cancerous one (Burton, 2008). Formal complaints by nurses at the hospital eventually gave rise to an investigation and various charges of manslaughter (causing grievous injuries) as well as fraud (regarding his surgical experience and practice) ultimately resulted in a prison sentence for Dr. Patel of 7 years in 2010 (Oberhardt, 2010). However, this sentence was overturned on appeal to the High Court in 2012 (Taylor, 2015). Notably there

Introduction

155

was no suggestion that Dr. Patel benefited financially from his medical ministrations, beyond his Queensland Health salary. Sometimes it seems to me that many of the people physicking local governments share a lot of traits in common with our aforementioned medical practitioners. Indeed, more than any other sector, local government seems to be plagued by quacks who often do more harm than good. I personally know of a number of fiscal physicians that bear strong semblance to Dr. Hazard – no relevant qualifications, ideas that are strongly at odds with scholarly opinion, and incapable of deviating from their preferred medical treatments despite the fact that previous patients have suffered deaths at their hands. It is surprising to me that these people continue to be paid handsomely by state government regulators to recommend wondrous cures (which are always the same ‘cures’) for local government ills despite the pile of corpses that they have left in their wake. I also am personally aware of a number of fiscal physician firms that bear striking similarities to Dr. Patel. They are qualified in finance matters, and have had some notable successes in other fields – however, the people that provide work on their behalf often have no relevant qualifications and no experience with local government (indeed, they are generalists, akin to a general medical practitioner (GP), rather than the specialist surgeon that is required). Thus it should probably come as no surprise to find that these fiscal physicking firms have caused a series of grievous injuries to their local government patients over many years and have also been responsible for metaphorical manslaughter. Yet despite these failures our Patel-like firms have future local government patients queuing up to pay well over the odds for ministrations by their employees whose identities are often not even disclosed. What disturbs me is that both types of quack physicians have thus far escaped any public exposure or sanction for their obvious and proven misconduct (see Drew & Dollery, 2015; Dollery & Drew, 2016; Drew & Dollery 2014; Drew et al., 2013 for just a few examples of the type of thing that I am referring to here). They make the improbable probable, and represent false claims as certain knowledge (with devastating consequences for their clients) – but unlike Dr. Hazzard and Dr. Patel, suffer no loss of income and continue to freely practise their dubious skills. In this chapter I discuss how local governments presenting at emergency departments ought to be treated. Generally these emergency presentations occur just before a local government becomes effectively insolvent, and often the illness is complicated by an underlying pathology of financial unsustainability (caused by neglect or earlier quack treatments). In the next section I outline the nature of the symptoms that ought to be considered early warning signs of impending fiscal crises. Following this, I detail the major medical procedures that might be used by a skilful fiscal physician to save the local government patient. Thereafter I outline my mentor model of physicking as well as the characteristics that local government should seek out in a physician. I conclude with my prescriptions for saving local government when it presents at the Emergency Department.

156

9  Local Government Fiscal Emergency Response

Warning Signs of Impending Crisis In this section I draw on my knowledge as both an academic who has studied local government financial failure and also as a fiscal physician who has successfully conducted early interventions to mitigate looming failures. I also rely on my previous experience in internal audit roles at the corporate level. Contrary to what one might think from reading the literature, predicting impending local government financial crises is not a simple matter of calculating and monitoring a few financial ratios (for some examples of this kind of naïve approach see, Brown, 1993; Kloha et al., 2005). We can know this for a fact because many local government financial collapses aren’t indeed predicted, despite the existence of multiple layers of monitoring by different agencies (see, for example the recent collapse of Central Coast Council; Murray & Collins, 2020). It would be nice if financial sustainability could be reduced down to a process of calculating and comparing a small number of financial ratios – but because local governments are run by people, rather than machines, this kind of simplistic approach just won’t suffice. As soon as we introduce people into the equation of local government financial sustainability, human nature and behaviour become important. Indeed, the behaviour of others can often be used as an early warning sign that something might be amiss. Perhaps the first warning sign of impending fiscal problems is the failure of key decision-makers to understand the precarious nature of local government financial sustainability. Anytime that I talk with people in local government who aren’t worried about financial sustainability, I start to worry! This is because there are very few local governments in this country, or any other, where financial sustainability need not be a pressing and overarching consideration in every decision-making event. Thus, an inability to clearly articulate a fiscal regimen aimed at mitigating financial sustainability concerns ought to provide the first, and very early warning, that problems might be brewing. The next sign that the state of finances might be in serious decline occurs when people try to glibly explain away material deviations from budgets, or large deficits. One often hears these things dismissed out of hand as being caused by an extraordinary, one-off or ‘unlucky’ event. Perhaps they are. However, if thorough investigation of the event is not being carried out, and new protocols are not being implemented to ensure that it will not be repeated, then there is good reason to be concerned. Behaviours often collectively referred to as ‘learned helplessness’ should also raise concerns (Drew, 2020). If key decision makers are blaming others for their plight, instead of accepting responsibility and instituting arrangements to mitigate matters, then a crisis is probably on its way. I sometimes hear local governments cite insufficient intergovernmental grants or taxation limitation regimes (rate capping) for the problems that they face balancing budgets (see Drew and Campbell (2016) for an account of how this learned helplessness ends). This may indeed be true – however, merely wishing for things to be different won’t change outcomes. Moreover if the budget isn’t being balanced then the ultimate outcome must be

Warning Signs of Impending Crisis

157

fiscal crisis – no amount of hoping that other tiers of government might become more responsible will change the fact that local government will ultimately have to face the consequences. Another set of human behaviours that provide advanced warning of a problem is when the flight instinct of people starts to kick in. When I was in the banking sector, some of the primary indicators that we looked for with respect to imminent financial problems were unusual and lengthy absences, as well as the resignation of key staff. Thus, if one observes finance and senior management taking time off outside of normal leave patterns then it may be the case that a local government is in trouble. Likewise when key staff are working shorter and unusual hours or seem disengaged there may be good reasons to begin to suspect problems. Both of these kinds of behaviours are attempts to cope in the face of imposing problems. Resignation of key finance and senior management are also not a good sign. In these instances it must be remembered that the finance officers and chief executives are in the best position to detect impending problems early. Moreover, they are also the people who stand to lose the most if disaster strikes – being at the helm at such a time is a career defining moment. It is thus not surprising that these senior staff may be tempted to flee. I believe that these human behaviour signs are some of the earliest and best indicators of approaching disaster. Audited financial data is also important, however unfortunately we tend to only see patterns emerge well after the actual events have transpired (which explains the frequent failures to predict financial collapses). For instance, financial statements refer to transactions that occurred up to a year before the end of the accounting cycle. Moreover, they are often not publicly available till 5 months or more after the expiration of the financial year.1 Therefore, considerable time might have elapsed between the financial transactions that ultimately cause a fiscal crises and our ability to see the relevant data. Notwithstanding these limitations, it is still important to interrogate financial statement data carefully and look closely for emerging trends of concern. The clearest signals will be found in the operating statement – either deficit operating results, or results that would have been deficits had capital grants2 been excluded from the revenues. Successive deficits are a problem because they essentially mean that debt is being accrued – either explicitly (loans) or implicitly (delayed asset renewals and maintenance, or future losses on sale of assets – see my discussion of depreciation below). Troubling signs are also echoed in the cash flow statements – negative or declining operating cash flows should raise concerns, and large cash flows from financing activities certainly warrant further investigation. 1  Councillors might be provided with quarterly budget updates however the level of detail and ‘publicness’ of the data may not be sufficient for early detection of fiscal crises. 2  Capital grants are tied grants provided for the purpose of producing a particular asset. I sometimes explain capital grants as being akin to me providing you with some cash to pick an item up for me from the shops. For a short moment in time you will have more money to your name, however if you do the right thing and bring the item back to me then ultimately your financial position won’t have changed at all. It might thus not always be appropriate to count capital grants as revenue.

158

9  Local Government Fiscal Emergency Response

A particular area of concern relates to depreciation accruals. Most people don’t correctly understand the nature of depreciation, nor does the concept have a strong foundation when it comes to government accounting. Depreciation is supposed to represent the consumption of long-lived assets – instead of recording an expense at the time of purchase or construction, we allocate the expense over the expected life of the asset. However, problems with depreciation accrual estimates occur because of two main difficulties. First, there is no active market for the sale of many public assets such as roads, footpaths and bridges. As a result there is no reliable way to confirm that the book value3 of the asset is indeed plausible. Second, public assets often have incredibly long, but very unreliable, lives. For instance, bridges may have a useful life of 100 years or more which increases the potential margin for error substantially (as well as determining who bears the consequences of the error). If depreciation accrual data is not reliable then it could result in end-users being seriously misled regarding the financial state of a local government, especially in view of the large balances of depreciable assets that most local governments carry. It is therefore important to be alert for possible signs of trouble. However, to detect problems often requires a strong knowledge of accounting4 and a good repertoire of empirical skills (see Drew, 2017). It is also important to keep a close eye on the balance of cash reserves, which one will find in the notes to the financial statements associated with the ‘cash and equivalents’ item listed on the Balance Sheet. Generally, reserves will be separated into three categories. The first category are externally restricted reserves which include specific purpose capital grants, developer contributions (that can only be spent on the purpose for which they are lawfully collected), and reserves relating to particular businesses of a local government that regulators dictate must be accounted for separately (such as the water supply business). In most cases these restricted reserves can’t be accessed to meet operating obligations.5 The second kind of reserves are the internally restricted funds – these are funds put away for specific expenses that are known will occur in the future (for example airport upgrades), or when grants have been prepaid (a relatively common event nowadays that can leave Councils with serious problems if the money is not used with care). Internal reserves can be used to meet current obligations but ought not to be – doing so essentially creates burdens for future generations of local government taxpayers.

3  The book value is the cost of the asset (plus monies spent on extending the life of the asset or improving its’ functionality) less the total depreciation expenses recorded over time against the asset. Ideally, book value ought to be comparable to fair value – the value for which an item could be exchanged in a commercial transaction between knowledgeable and wiling parties. 4  One simple sign of potential problems is the frequent recording of losses on sale of assets (which appear on the Income Statement). Another sign is when the depreciation recorded differs materially from the expected depreciation where the latter is defined as the ratio of depreciation to depreciable assets in the previous year multiplied by the value of depreciable assets in the current year. 5  In some jurisdictions it is possible to get approval from the Minister to advance an internal loan from restricted reserves.

Warning Signs of Impending Crisis

159

The last category of reserves is ‘unrestricted’. This money can be used to mitigate budget shortfalls and unexpected events. If a decision maker finds that these reserves are reducing appreciably over time then they should be concerned. Moreover, if the reserves fall below a comfortable level then alarm bells ought to ring immediately. An additional set of warning signals relate to formal lending entered into by local governments. If a local government is forced to take out a loan to meet operating expenses, rather than capital expenditure, then clearly this is a very serious situation which should cause most people to be alarmed (see Chap. 7). However, sometimes loans are taken out ostensibly for capital purposes, but the need really relates to an earlier draining of internal capital reserves (used for operating purposes). This is referred to as the ‘fungibility’ problem and should cause key stakeholders to be similarly concerned. Another problem that ought to be interpreted as an early warning sign is when local governments are denied lending facilities from the state treasury corporation. In many jurisdictions it is possible to gain access to better priced finance through treasury corporations which raise money on relatively favourable terms from the bond market. Generally these corporations apply strict criteria to lending and any refusal or hesitancy6 by these bodies should be interpreted as a sign that they believe the local government might be in acute fiscal distress. Equally serious is when a local government approaches a bank7 or similar financier for money when treasury facilities are available – this suggests that the local government has either been formally refused by the treasury corporation or given a clear indication that refusal would be likely if the application proceeded. In sum, despite the claims that local government fiscal crises are frequently said to come about rather suddenly there are indeed a large number of signs that ought to raise suspicions that circumstances warrant further investigation. In the terms of our motivating example we shouldn’t need to start seeing corpses piling up at the sanatorium before we investigate matters – the mere suggestion that someone thinks that it is reasonable to metaphorically starve for 50 days or more should be sufficient to warn us that all is far from well.

6  I have known of instances where the treasury corporation has not outright refused to advance money, but has instead asked the local government to re-work the loan application or reconsider the terms of their request. This kind of hesitancy should also be viewed as a serious matter. 7  Unfortunately retail banks tend not to be as strict as one might hope in their lending criteria for local governments because they know that even in the case of financial failure there will be some form of bailout by higher tiers and thus their money will be safe.

160

9  Local Government Fiscal Emergency Response

Emergency Protocol If local governments experience acute fiscal stress then it is imperative that ‘a very, very adequate and experienced physician whose wisdom has been put to the test’ (Maimonides, 2014, p. 31) is engaged immediately. Unfortunately there is no miracle treatment that can be administered to quickly breathe new life into a local government, and all involved should be prepared for a long and difficult road to recovery. The journey to recovery starts with a full and frank disclosure to all stakeholders regarding the condition of the local government patient. It is probably human nature to avoid acknowledging our failures – however, until we do so we will be unable to marshal the resources and goodwill that we will need to deal with the immediate emergency and also treat underlying pathologies. Open and frank dialogue is the only remedy to the fear and misinformation that will fester if we allow others to tell the story for us. Moreover, as we have seen from recent local government financial failures in Australia, it is much better to provide stakeholders with some forewarning of serious problems rather than risking unhelpful reactions arising from the shock of being suddenly confronted with a patient in a near-terminal condition. Indeed, how constituents, staff, regulatory authorities, and creditors react will be crucial to any chance of recovery. If we can encourage these parties to co-operate and work towards the common good then the prognosis will be significantly better. However, for stakeholders to do so they need to trust decision-makers, and this is unlikely to occur if they believe that something has been held back. Moreover, it has been my experience that people are entirely reasonable  – more reasonable than many would suppose. Indeed, when I have explained rather diabolical situations honestly and presented reasonable solutions to crises I have always been heartened by the choices people make. Once full disclosure has been made, then a plan for treating the fiscal emergency can be developed. There are some measures which can be taken at the local level and others that will require the co-operation of higher tiers of government to implement. Consistent with ideas regarding institutional dignity (see Chap. 2) I will set my hand first to recording interventions that can be made at the local level. Notably some of the (rather obvious) interventions can be made almost immediately, and these should indeed occur promptly, whilst other measures associated with treating the underlying cause of the problem might take far longer to implement. In the work that follows I set out measures roughly in the order of priority although fiscal physicians will need to be mindful of the precise circumstances that they face.

Local Government Emergency Interventions Dealing with a fiscal emergency requires the co-operation of all stakeholders, hence my view that prompt, full and frank disclosure must be made at the outset. A key stakeholder group that will be affected by a fiscal emergency are the staff and their

Emergency Protocol

161

co-operation is imperative given that the measures which need to be taken will impact on workloads, and potentially take home pay. Clearly an immediate reaction to a fiscal crisis should be to promptly suspend recruitment. Key positions such as Chief Financial Officer and General Manager must be filled, if vacant, but otherwise the entity will simply need to work around vacancies as an interim measure. A freeze on overtime should also be implemented, although discretion might quietly continue to exist for the General Manager to authorise overtime when absolutely necessary. Existing use of casual, and contract staff should be halted. In addition, discretionary limits for senior and middle management should be reduced significantly – in the hope that more senior oversight will result in improved control over spending. Moreover, efforts ought to be made to engage all staff in the business of finding efficiencies – with particular emphasis being placed on conversations with front line staff who are often best placed to know where savings can be made. One particular area where all staff can contribute to savings is in the prompt use of outstanding furlough8 which might be especially important given the other expenditure constraints which I will describe henceforth. Wherever possible both capital expenditure and non-essential maintenance should be suspended. The work should then be re-prioritised with an eye to its importance and associated materials cost respectively – a balance needs to be struck between having staff potentially idle (not a good look when one is asking for the co-operation of the community  – hence my earlier emphasis on furlough) and spending scarce money on materials. Any work that can proceed with existing materials and labour should proceed. It is important to take a similar approach with respect to service frequency. Where it is possible to reduce the consumption of materials or additional labour by reducing service frequency then this should be done. Moreover, an audit of marginal programs should also be made. In his famous essay, Why Government is the Problem, Nobel laureate Milton Friedman (1993) notes that programs once commenced are rarely terminated even if they are not effective or become obsolete. It is my experience that many local governments have a surprising number of legacy programs of this kind – programs associated with substantial outlays (often to third parties) where no-one quite knows why the program was first implemented and what it was supposed to achieve. As an emergency measure a fiscal physician may prescribe the drastic medication of debt for operating purposes (something that comes with significant moral hazard – see Chap. 7). Debt of this kind should only ever be viewed as a short term measure designed to assure solvency while underlying fiscal unsustainability is addressed (and be administered with extreme caution). Another way to ensure sufficient cash holdings is to better exploit standard terms of trade (if this is not 8  The value of untaken furlough increases every year in accordance with wage increases. Many local governments tend not to pay sufficient attention to this expense despite the usual provisions in workplace agreements to force leave to be taken once it has reached a given threshold. This is not an immediate saving, nor a huge one, but it is likely to be part of the cure for underlying financial unsustainability that is generally a latent cause of fiscal crisis.

162

9  Local Government Fiscal Emergency Response

already practiced). What I refer to here is the paying of invoices precisely on the due date rather than when the invoice is received – something that is aggressively practiced in the corporate world where there is better recognition that cash has an associated opportunity cost.9 Indeed, clever use of terms of trade can also help to bring forward revenues. Where there is no constraint in legislation, local governments ought to reduce the due dates on its invoices. In addition, the early payment of taxes – paying the whole year rather than mere quarterly instalments – should be encouraged. This could be achieved by asking the community for its co-operation (and explaining that by doing so it reduces the pressure on local government to increase taxes and fees – see the discussion of the common good in Chap. 8), or by offering a financial incentive. Indeed, if a discount is offered for early payment of taxes or fees, that is less than the cost of debt that a local government has outstanding, then through co-operation both parties can be better off.10 It is also important to ensure that all statutory and discretionary fees are indeed being charged, in all instances, and at the correct rate. On more than one occasion I have worked with local governments that weren’t charging statutory fees (such as trade waste and stormwater), or were not doing so consistently across the local government area. Foregoing revenue in this way ultimately means that some residents do not contribute appropriately towards costs that the local government incurs on their behalf, and thus visits inequity on the remaining residents (see Chap. 6). It is also sometimes the case that charges are not strictly applied to all users (for example, at the waste depot) and staff should be reminded about the fiscal and moral implications of not doing so. Indeed, a similar sentiment is sometimes applied to the recovery of overdue taxes and fees: staff are sometimes reticent to aggressively pursue these monies in the belief that doing so is somehow not ‘fair’ to the debtor. However, when we neglect to ensure that all citizens contribute appropriately to the cost of local government then this ultimately means that other citizens are forced to bear the legitimate burdens of their peers. In all likelihood it will be necessary to increase revenues as part of the treatment plan. Unfortunately increasing fees and charges can generally only be done just prior to the commencement of the financial year (through the operational plan). This means that this particular part of the cure may take many months to implement. Similarly taxation changes generally require significant lead in time – especially if a rate cap regime operates in the jurisdiction. Indeed, where this is the case local government will require the co-operation of higher tier governments – the matter to which I now turn my attention.

9  In economics parlance opportunity cost refers to the next best option foregone. If cash has been used to pay a bill ahead of its due date, the same cash is not available to be invested into more profitable pursuits. 10  In fact, if early payment incentives are skilfully applied this need not reduce total revenue take.

Emergency Protocol

163

 mergency Interventions that Require Co-operation of Higher E Tier Governments Consistent with natural law thinking, it is entirely appropriate for higher tiers of government to provide help when local government stands in bona fide need  – indeed it is a moral obligation (see Chap. 7). When different tiers of government co-operate the common good is preserved and the ultimate beneficiaries are the citizens that they have shared responsibility for. One way in which higher tier governments can co-operate towards the preservation of the common good is by approving temporary borrowings from restricted cash reserves. Often, legislation confers powers, such as this, to the Local Government Minister. If a case can be made that measures are being implemented to treat underlying causes of the fiscal distress, then the Minister ought to approve temporary borrowings from reserves. This is a simple way that higher tiers of government can help ensure that the local government survives a fiscal emergency. Similarly, higher tiers of government should seriously consider the prepayment of untied grants that can then be used to address immediate solvency concerns. Once again, it would be reasonable for the relevant Minister to insist that a robust plan be developed to ensure that the local government does indeed become financially sustainable over a reasonable period of time, before committing to prepayments of grants. Another, more innovative, way to help would be for higher tiers of government to contemplate the purchase of overdue rates and annual charges. The sale of debt is a relatively common practice in the corporate world and it may be reasonable to copy this practice to alleviate acute fiscal distress for some  local governments. Indeed, this strategy might be particularly appropriate when the fiscal crisis faced by a local government has been precipitated in part by disrupted cash flows owing to a local or national economic shock (such as COVID, which is wreaking financial damage as I write). In all three instances there is the potential for higher tiers of government to fulfil their moral obligation to provide help to local government for bona fide need, at little or no cost. However, there is a risk associated with doing so and it is not unreasonable that the relevant Minister might seek some assurance that reasonable efforts will be made to implement the recovery plan, and also that these efforts might be led by an adequate and experienced fiscal physician. Unfortunately, Ministers tend to seek this assurance by dismissing the elected Councillors and installing an Administrator in their stead. As I have stated a number of times in the media of late, this is precisely the wrong thing to do, as I will explain forthwith.

164

9  Local Government Fiscal Emergency Response

A Mentor Model for Providing Help The traditional Administrator model for dealing with local governments experiencing fiscal emergencies is flawed on a number of counts – not least of which is the fact that it is demonstrably inefficacious. For example, after its fiscal collapse in December 2013, the remote local government area of Central Darling Shire was put into administration (Drew & Campbell, 2016). It is still in administration over 7 years later and citizens have been told that it will remain so until at least September 2024. This lack of progress comes despite an increase to intergovernmental grants of just over 22% ($800,000) within the first 2 years, and 66% by 2020–21 ($2.4 million higher than the levels in 2012–13) in a scheme that is linked to the consumer price index (which generally runs within the target range of 2–3%) (Drew & Campbell, 2016; Local Government Grants Commission, 2020). Moreover, there is no simple explanation for this lack of progress given the situation in 2013 (deficit of $968,000 and total borrowings of $1.252 million; Central Darling Shire, 2014). Not only have the Administrators had access to the standard instruments of treatment that I described earlier, but they have also clearly benefited from significant fiscal help from higher tiers of government. The real reason for why the Administrator model has failed probably relates to both human nature and incentives. The Administrator has no incentive to expedite the financial recovery of a local government – indeed, if a cure is completed then the person in question loses their job. Moreover it is a particularly attractive job which involves the assumption of the powers of an entire Council, often a fly-in fly-out situation (so one does not have to bear the consequences of one’s decisions), and hefty remuneration (in the order of $320,000 p.a.11). Moreover, even if an Administrator was motivated to cure the patient – and thus relieve himself of a particularly agreeable job – his lack of knowledge and participation in the local good is likely to inhibit progress. If a person is not a member of a community then they are less likely to understand the particular local good, nor the way by which residents might be able to contribute to the good (see Chap. 8). Indeed, the need to understand and represent the community’s interest is the precise reason why we adopt democratic systems of government in the first place (rather than government by bureaucrat or autocrat). Nor am I thoroughly convinced that the longstanding ‘club’ of local government administrators routinely used by state governments are appropriately qualified for the task in any case. As I will describe in more detail in the next section the job calls for very adequate, wise and experienced fiscal physicians  – and it is clear to all fair-­minded people that the Administrators used in some recent cases12 may not have entirely met the criteria (see, for example, Kembrey & Saulwick, 2016).  This was the remuneration for the Interim Administrator at Central Coast (Collins, 2020).  Four Councils have been in Administration in NSW during the last 12 months (two for financial crisis treatment). Moreover, in 2016 nineteen Administrators were employed to run the affairs of Councils for the first few months following the May 2016 forced amalgamations.

11 12

A Mentor Model for Providing Help

165

There is also a question to be asked regarding the fiscal effects of the reduced transparency and accountability that occurs when the powers of an entire Council are invested into a single person. I have heard many stories of unusual transactions and jobs for the associates of Administrators that raise serious questions of probity, and I have indeed confirmed some of these stories through direct access to internal local government finance data. It is probable that most Administrators act appropriately  – however, under the current system there is no publicly available way for anyone to confirm that this is indeed the case and we therefore seem to have no option other than to simply trust in the moral virtue of people appointed to these powerful positions. Furthermore, I have several difficulties with the idea of suspending democratically elected Councillors – especially for the case of financial failure. First, I am not sure that suspending Councillors for financial failure represents natural justice (see Aristotle, 1998). Under most local government legislation Councillors are specifically restrained from getting involved in operational matters. How then can it be fair to punish them for not knowing the full details of fiscal operations? Moreover, most Councillors I have met do not have the accounting or economic background required to interrogate their CFOs or GMs on matters of finance. Instead they generally place reasonable reliance on the information that they are provided with by the relevant bureaucrats. Second, there could be a reasonable apprehension of bias regarding a political Minister’s motivations for implementing a period of Administration (Kembrey & Saulwick, 2016; ABC, 2020; Murray & Collins, 2020). I am well aware that eventually a public inquiry is generally held – but my interrogation of public inquiries in the past suggests that people ought not assume that these matters will be handled independently or in accordance with commonly accepted principles of natural justice (see, Drew & Campbell, 2016). Third, the threat of collective punishment hardly encourages Councillors to make the full and frank disclosures that I discussed earlier which are necessary pre-requisites for timely recovery (and indeed perhaps preventative intervention). Fourth, and perhaps most important, is the fact that removing democratically elected representatives from their responsibilities also removes them from the opportunity to learn – something that is important if the political class is going to develop the tools necessary to better manage local government finances in the future. For all these reasons I believe that the treatment of ‘administration’ is akin to Dr. Hazzard’s treatment of starvation. Essentially administration results in communities being starved of a democratic voice, transparency and accountability. Moreover, representatives are starved of the opportunity to learn and be part of the solution. It is thus no surprise to me that previous extended forced fasts have proven inefficacious. A much better approach to minimising risk and ensuring that sustainable change is implemented is for the Minister to instead appoint a suitable mentor. By appointing a mentor the Minister can have greater assurance that the recovery plan is being skilfully implemented and forewarning if matters start to go awry. Moreover, because the existing Councillors are retained this means that full transparency and accountability is maintained. Furthermore, Councillors have a vested interest in

166

9  Local Government Fiscal Emergency Response

ensuring an expeditious return to health and this should mitigate implicit incentives for the physician to draw out any treatment. The mentor model also maintains democratic institutions, encourages disclosure, provides help consistent with the natural law concept of subsidium (see Chap. 2), and creates the conditions necessary for learning: but most importantly, as my experience attests, it works. However, the success of this strategy rests on the presumption that we engage an adequate, experienced and wise fiscal physician  – not a quack.

The Fiscal Physician As Maimonides (2014, p.  31) notes, powerful medicaments can only be safely administered by a physician ‘who excels in theory’ as well as practice. Until the fiscal physician understands his science thoroughly he will ‘increase the false claims which he represents as certain knowledge’ (Maimonides, 2014, p. 60). One would hope that few people would be sufficiently arrogant (and negligent) to commence treatment without medical training, as did Dr. Hazzard, but it seems that many of our current cohort of self-professed local government experts have done precisely this thing. Training need not necessarily be formal in character – one could instead simply read the seminal books and journal papers in the corpus of scholarly literature – but it must exist if we are to avoid ‘error[s] in treatment [that] the patient thinks is of little consequence, yet it proves to be the cause of his death’ (Maimonides, 2014, p. 59). We have had far too many unnecessary fatalities in local government, and it seems to me that the only way to prevent future ones is to discontinue the practice of hiring quacks and instead engage physicians who can prove the mastery of their science. ‘When the physician perfectly masters his art, then one will readily deliver his body and soul into his hands, and let him guide them according to his views’ (Maimonides cited in Kottek, 2011, p.  5). This then is the second benefit of an attested and thorough understanding of theory  – it inspires the confidence in the patient necessary for them to faithfully adhere to the treatment and hence fully recover their health. A fiscal physician that has a thorough knowledge of theory is also in a much better position to teach others. Indeed, the key to sustainable financial recovery is education. It is thus necessary for the fiscal physician to have both a strong theoretical foundation as well as highly-developed teaching skills. Moreover, the capacity to learn from the physicking experience and disseminate this knowledge to others is key to a sustainable sector (see Chap. 10). According to Maimonides, the perfect physician must also exhibit perfect moral virtue: ‘by the bedside of the patient let no alien thought deflect it’ (Maimonides cited in Dunn, 1998, F227). It is impossible for the fiscal physician to both faithfully physick the sick and also pursue their own financial interests. Moreover, it would seem difficult to cultivate the trust that is required to lead people through

Conclusions and Prescriptions

167

temporarily painful treatments without having a character worthy of trust. I know from my hard won experience that the virtues of honesty, independence, and integrity will be called upon frequently in the pursuit of a fiscal recovery. Indeed, to ensure all are treated fairly and with dignity it is necessary to ‘call to mind his moral qualities, ponder his actions, and control his soul all day long’ (Maimonides cited in Kottek, 2011, p.3). As I have sought to stress repeatedly throughout this book, local government is a moral endeavour, and one is bound to fail if the focus is merely on the economic (see particularly Chaps. 6 and 7). Thus ‘a very adequate and experienced physician whose wisdom has been put to the test’ (Maimonides, 2014, p. 31) is synonymous with a person who has mastered their science (and hence has a track record of recoveries rather than fatalities), who inspires confidence, has the ability to impart knowledge to others, and is motivated by moral virtues, not merely money. This is the anti-thesis of the Dr. Hazzard-like self-professed experts and Dr. Patel-like generalist consultancy firms that dominate the physicking of Australian local governments. Indeed, a true fiscal physician is probably more akin to a scholarly person who pursues knowledge, rather than a for-­ profit commercial consultant who merely pursues money.

Conclusions and Prescriptions If we are going to save local government then it seems that we will need to engage adequate, experienced, and wise fiscal physicians to apply medications. This means that we will have to desist from some of our usual practices such as appointing mere quacks and also using inefficacious methods of treatments. Otherwise stated, we need to reject our Dr. Hazard’s and Dr. Patel’s, and instead adopt the consensus of true experts who condemn archaic starvation-like approaches to physicking. In particular, the following prescriptions should be observed with care: 1. Recognise the early warning signs and intervene quickly. A focus should be made on observing people and their behaviours which are often the first signs of impending problems. Often trends in financial data don’t emerge until after the fiscal crisis has been precipitated and recent experience confirms that we can’t rely on regulatory agencies to provide forewarning through extant synecdochical13 systems of financial ratios (see Ryan & Drew, 2018). As recent history shows, anyone relying solely on early warning from agencies which assess a mere handful of ratios is putting their local government’s life in jeopardy.

 Synecdoche is taking a part to stand for a whole. In some jurisdictions just a handful of financial ratios are used to assess financial sustainability. An extremely synecdochical approach such as this couldn’t possibly be expected to reliably predict distress (when I assess financial sustainability, I generally employ upwards of 40 ratios, interview staff, and interrogate forward budget projections – at a minimum).

13

168

9  Local Government Fiscal Emergency Response

2. Make full and frank disclosures. As soon as the problem is detected full disclosure should be made to relevant stakeholders. The cure for fiscal emergencies includes both drastic medication and some pain. It is therefore imperative that stakeholders are engaged so that sufficient trust and resources can be marshalled to provide critical emergency interventions. 3. Seek help as required. Local government provides core services that are critical to the flourishing of people (Ryan et al., 2016). It is therefore the moral obligation of higher tiers of government to provide help for bona fide need. Local government ought to be able to approach higher tiers of government for this help without fear of draconian and unhelpful punishments. 4. Treat the underlying pathologies, not just the symptoms. Often the symptoms of a fiscal crisis brings the local government to the Emergency Department, but it is the underlying pathology that really requires treatment. A wise and experienced fiscal physician will focus on people, education, and the moral dimension – not merely on dollars. Indeed, we need to ensure that we learn from the near death experiences of local governments so that we can better appreciate the importance of both knowledge and the pursuit of good ends. In my final chapter, which follows, I discuss how the knowledge that we have explored in this book might be employed to improve the prognosis for saving local government.

References Aristotle. (1998). The Nicomachean ethics. Oxford World Classics. Australian Broadcasting Corporation (ABC) (2020). Central coast council threatened with suspension over $89 million financial hole. ABC Online, available at: https://www.abc.net.au/ news/2020-­10-­21/central-­coast-­council-­threatened-­with-­suspension-­over-­finances/12798006. Brown, K. (1993). The 10-point test of financial condition: Towards an easy-to-use assessment tool for smaller governments. Government Finance Review, 9(1), 21–25. Burton, B. (2008). FBI arrests doctor wanted in Australia. British Medical Journal, 336, 631–635. Central Darling Shire. (2014). Central Darling Shire Council Audited Financial Statements 30 June, 2014. Collins, T. (2020). Administrator appointed. Central Coast News, November 4, 2020. Dollery, B., & Drew, J. (2016). Hired guns: Local government mergers in New South Wales and the KPMG modelling report. Australian Accounting Review. https://doi.org/10.1111/auar.12163 Drew, J. (2017). Playing for keeps: Local government distortion of depreciation accruals in response to high stakes public policy-making. Public Money & Management, 38(1), 57–64. Drew, J. (2020). Reforming local government. Singapore. Drew, J., & Campbell, N. (2016). Autopsy of municipal failure: The case of central darling shire. Australasian Journal of Regional Science, 22(1), 81–104. Drew, J., & Dollery, B. (2014). Estimating the impact of the proposed greater Sydney metropolitan amalgamations on municipal financial sustainability. Public Money & Management, 34(4), 281–288.

References

169

Drew, J., & Dollery, B. (2015). Rejoinder to Sansom. Public Money & Management, 35(6), 395–396. Drew, J., Kortt, M., & Dollery, B. (2013). A cautionary tale: Council amalgamation in Tasmania and the Deloitte access economic report. Australian Journal of Public Administration, 72(1), 55–65. Dunn, P. (1998). Maimonides and his philosophy of medicine. Archives of Disease in Childhood. Fetal and Neonatal Edition, 79, F227–F228. Friedman, M. (1993). Why government is the problem. Standford. Hazzard, L. (1908). Fasting for the cure of disease. Physical Culture Publishing. Kembrey, M., & Saulwick, J. (2016). Council amalgamations: Elected officials out and administrators in after Mike Baird sacks 42 councils. The Sydney Morning Herald, 12 May, 2016. Kloha, P., Weissert, C., & Kleine, R. (2005). Developing and testing a composite model to predict local fiscal distress. Public Administration Review, 65(3), 313–323. Kottek, S. (2011). Toward becoming an accomplished physician: Maimonides versus Galen. Rambam Maimonides Medical Journal, 2(4), 1–6. Local Government Grants Commission. (2020). 2020–21 Payment schedule. Available at: https:// www.olg.nsw.gov.au/commissions-­a nd-­t ribunals/local-­g overnment-­g rants-­c ommission-­ information-­and-­key-­resources/. Consulted 25th March, 2021. Lovejoy, B. (2014). The doctor who starved her patients. Smithsonian Magazine, October 28, 2014. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Murray, S., & Collins, T. (2020). Blame game escalates as minister prepares to dismiss council. Central Coast News, October 28, 2020. Oberhardt, M. (2010). Dr Jayant Patel sentenced to seven years in jail. The Courier Mail, 1st July, 2010. Ryan, R., Hastings, C., Grant, B., Lawrie, A., She, E., & Wortley, L. (2016). The Australian experience of municipal amalgamations: Asking the citizenry and exploring the implications. Australian Journal of Public Administration, 75(3), 373–390. Ryan, R., & Drew, J. (2018). Performance monitoring in New South Wales Australia. In M. de Vries et al. (Eds.), Governance and public management. Springer. Sydney Morning Herald. (2005). Dr Death’s qualifications never checked: Employer. 28th May, 2005. Taylor, J. (2015). Bundaberg surgeon Jayant Patel barred from ever practising medicine again in Australia. ABC News Online, 15th May, 2015.

Chapter 10

The Prognosis for Local Government

‘A physician who excels in theory and practice…if they have a beneficial influence in their place will [cause the patient to] recuperate immediately or a short while afterwards or will, at least, be saved from death’. Maimonides, in The Preservation of Youth, (2014, [1198], p. 32) ‘When he considers death from which he cannot escape, every evil is less than the evil of death, undoubtedly’. Maimonides, in The Preservation of Youth, (2014, [1198], p. 49)

Abstract  A number of local governments have now sadly gone through fiscal crises of a life threatening nature. Local government crises of this kind are a little like human near death experiences which emerging scholarly literature tells us can be used as a powerful and positive motivation for change. A key outcome of near death experiences is a fundamental change to philosophy and in this chapter I explore how recent local government near death events might be expected to exert a similarly positive impact on local government. Following this I explore other positive changes that could arise from a sober consideration of local government near death experiences – specifically a recognition of the importance of knowledge accumulation and dissemination. I conclude with my thoughts regarding the prognosis for local government and also discuss how we might use the lessons from life after life experiences to save local government.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_10

171

172

10  The Prognosis for Local Government

Introduction The term ‘near death experience’ was only coined in 1974 even though accounts of such cases go back at least 2,349 years earlier1. For instance, in The Republic, Plato (Aristotle’s teacher, 1987, p.  361) recounts the story of a soldier named Er who arose from the funeral pyre twelve days after his death to give an account of the ‘other world’ which bears repeating at some length: He said that when his soul left his body it travelled in company with many others till they came to a wonderfully strange place, where there were, close to each other two gaping chasms in the earth, and opposite and above them two gaping chasms in the sky. Between the chasms sat judges, who having delivered judgement ordered the just to take the right-­ hand road that led up through the sky, and fastened the evidence for the judgement in front of them, while they ordered the unjust, who also carried the evidence of all they had done behind them, to take the left-hand road that led downwards. When Er came before them, they said that he was to be a messenger to men about the other world, and ordered him to listen to and watch all that went on in that place.

Subsequently Er relates how the souls gathered at a meadow ‘and encamped there as for a festival…exchang[ing] greetings’ and making inquiries into the experiences of others with respect to punishments and rewards (Plato, 1987, p. 362). Elements of Er’s story seem eerily similar to accounts of near death experiences gathered and analysed by the philosopher and physician Raymond Moody (1975) in his bestselling work Life After Life. In this seminal work Moody (1975) casts light on a surprisingly high number of near death experiences. Indeed, Moody (2013a, p. 370) believes that ‘the incidence of [near] death experiences …are common and under-reported’2. The reasons for under-reporting of near death appearances appear to be twofold. In the first place, people are reticent to talk about these events for fear of attracting a label – ‘eccentric’ or possibly ‘insane’. Secondly, the experiences are so different to earthly events that they tend to go beyond our linguistic capacities – that is, the experiences border on the ineffable (unable to be expressed in words) . Using language which is based on the things that we can touch, feel and see, appears to be inadequate to describe experiences that are normally hidden from most people’s perception. Despite these difficulties Moody managed to construct a phenomenology (structure of experience) of near death experiences. These include ‘ineffability…hearing the news [of one’s death]…feelings of peace…the noise…a dark tunnel…out of body…meeting others…a Being of light…the review…[approaching a] border or limit…coming back…telling others…effects on lives…new views on death’ 1  There is also a notable account of the dead being summoned in 1 Samuel 28 – although Samuel casts little light on his experience after life except to complain about being disturbed from his rest – written around 550 BCE. Some time later (70 to 90 CE), the author of Acts 9 briefly relates a vision of the afterlife experienced by Stephen proximate to his death. 2  At this point I should disclose that accounts of my highway motorcycle accident provide good reason to believe that I was initially dead which probably explains some of my interest in this topic.

Change of Philosophy

173

(Moody, 2013a, p. 369). What is particularly interesting to me is the strong concordance of experiences in a wide range of people of differing education, religion, and ethnicity – especially with respect to the effect of the event on their subsequent lives. Indeed, Moody (1975, p.  86) suggests that the ‘remarkable agreement’ in the outcomes from these experiences means that people must truly believe that they have occurred. Specifically, near death experiences tend to make people ‘more reflective and more concerned with ultimate philosophical issues’ (Moody, 1975, p. 82). ‘In addition, many others have emphasized the importance of seeking knowledge’ (Moody, 1975, p. 87). Local governments which have survived a fiscal crisis have some interesting parallels to people who have returned from a near death experience. For instance, most are reticent to talk about their experiences – in this case, probably in response to a fear of being labelled a ‘failure’. In addition, Councillors and executives emerging from severe financial crises have appeared to me to be more willing to embrace new philosophies for governing and become significantly more aware of the value to be had in accruing and seeking out bona fide knowledge (see Chap. 9). Unfortunately, no scholar has yet collected case studies of local government near death experiences nor developed an associated phenomenology (perhaps this may be a future project for me if local government decision-makers are prompted to contact me with their experiences). However, notwithstanding this gap in the literature, I do believe that we can profitably explore the changes in philosophy and attitudes to knowledge that might be expected should a study of local government near death experience occur in the future. In the next section I discuss the changes to philosophy that a reasonable person might expect to be embraced by people emerging from a local government fiscal crisis. Following this I outline the new attitudes to knowledge that might arise following near death experiences and how we ought to respond to this interest. I conclude this chapter, and the book, with my prognosis vis-à-vis saving local government.

Change of Philosophy In his recent book, Paranormal: My Life in Pursuit of the Afterlife, Moody (2013b, p. 103) reflects on the profound change that near death experiences tend to create in people’s lives, specifically that ‘their vision left them with new goals, new moral principles, and a renewed determination to live in accordance with them’. It seems that with a greater certainty of the kind of existence that persists after life, comes a greater desire to use one’s remaining time in ways more conducive to one’s ultimate ends. Local government does indeed continue to persist after its solvent life has come to an end. However, this local government ‘life after life’ tends to be far less bright than it might be for humans. For instance, we now know that local government ‘life after solvency’ involves extensive periods of administration, whereby citizens are

174

10  The Prognosis for Local Government

totally disenfranchised, and both staff and citizens feel the brunt of savage cuts to local government budgets (Drew & Campbell, 2016; see also Chap. 9). Otherwise stated, when local governments fail financially then people get hurt. Moreover, the shadowy existence of life after solvency is likely to persist for many years (seven years, and counting thus far for Central Darling Shire which failed financially in 2013; Drew & Campbell, 2016). It is therefore more than a little surprising to me that even our current state of incomplete knowledge of what life after life for local government looks like hasn’t given rise to new goals and moral principles amongst the wider body of local government decision-makers. As we discussed in Chaps. 2 and 8, the goal for local government ought to be human flourishing – indeed, this is the sole source of moral legitimacy for any government (Finnis, 2011). Thus, government must principally be a moral concern – it ought to be all about helping people and their lesser associations to fulfil their existential ends (be all that they can and want to be given their current situation). Notably government is about helping not doing, because ultimately good must be actualised in the person (see Chap. 8). Indeed, when we realise the truth  – that there is no growth or sense of achievement without participation – then we must conclude that ‘provider’ local governments are vastly inferior to ‘facilitator’ local governments. Moreover, when we rediscover the purpose of local government – to help people (including ‘compulsory donor’ taxpayers) to flourish – then we will naturally wish to follow a regimen for health that is consistent with this existential mission. A regimen of this kind is likely to value the teleological ends of government, always provide good reasons for acting (practical reasoning  – see Chap. 2), and employ formulas such as the principle of double effect for ethical decision-making. Indeed, when we recognise the reality of life after life for local government then we will be likely to set new goals regarding the competent evaluation of public policy (Chap. 3). Evaluation of public policy is critical if we are to know whether given interventions have proved therapeutic or harmful. In addition – and perhaps more importantly – evaluation of public policy is the foundation for learning about what works and what doesn’t, and thus allows us to do better in the future. Understanding the nature of the shadowy existence of a local government which has fallen victim to a solvency crisis also ought to encourage us to strive for new goals with respect to the morality of finance (see Chaps. 6 and 7). When we match appropriate expenditure to the correct source of revenue then there is far less chance of local communities contracting the insidious disease of fiscal illusion which is the underlying cause of both excessive revenue loss and inadvisable use of supplements such as debt. In sum, the recognition of the nature of life after solvency ought to provide decision-­ makers with renewed determination to live by new moral principles whereby the focus shifts from the institution of local government in favour of its morally legitimate end – the flourishing of people.

Knowledge

175

Knowledge One remarkable realisation of people who have experienced life after life is that ‘the process of knowledge does not stop when we die… instead the process of learning and development goes on for eternity’ (Moody, 2013b, p.  265). As Maimonides (1956) brilliantly deduces in the Guide for the Perplexed, only one of the goods commonly desired by people can hope to persist throughout all life and into the next realm – the intellect. Lower goods such as possessions, and a healthy constitution are transitory, even in this life – the former can be lost due to economic misfortune and the latter declines with age – whilst moral virtue is dependent upon external factors (interactions with others and the opportunity to do good). The intellect alone is the only thing that can never be taken from us – no economic shock can rob us of it, it need not decline with age, nor is its persistance dependent on others. Knowledge acquisition is a key task for developing the intellect. To this end some universities run specific and dedicated courses in local government studies. Indeed, for some years I have been lecturing in both local government theory and local government finance. On the whole I have found the experience rewarding, as have the students. However, I am frequently told by students that they wished that their Chief Executive Officer or Councillors could do the course. They can. Indeed, to be perfectly honest I don’t understand why we don’t have more students enrolled in these courses, especially given that the subjects are delivered online. Currently I have just nine students out of the 528 local governments in the country. These students tell me that the course has radically changed both their understanding of local government, as well as their practice. But they also tell me that they are concerned that their qualifications might not be appropriately recognised by the sector, and also that they feel it could be difficult to overcome inertia in local government. If you have read this far into this book, then you know that I am a person who speaks the truth and doesn’t even try to sugar coat things. The truth of the matter is that most people I encounter in higher tiers of government feel that local government is not as professional as it ought to be. This is reflected in the lack of trust exhibited towards local government and the heavy-handed and intrusive interventions by regulators. It seems to me that the only way to change this perception is for senior staff and Councillors to gain the knowledge necessary to demonstrate that they approach the business of local government in a thoughtful and strategic way. Until we have more people in local government with appropriate qualifications – and able to provide a robust defense for their actions – then attitudes to local government probably won’t change. As I have written elsewhere, local government ought to be delivering the services that people feel most strongly about – health, education, policing and the like – but until the sector gains the respect of its peers then this obvious and necessary metamorphosis simply won’t happen (Drew, 2020). This is a shame, because people, and the nation, would be immeasurably better off if more

176

10  The Prognosis for Local Government

service delivery was decentralised to the unit of government who know the people best. I often dream of a time when middle managers might be sufficiently financially incentivised to gain the qualifications which will help them to better lead local government in the future. Perhaps my dream will someday come true – and a federal or state government will realise that it is more efficient to incentivise education, than to threaten local governments with a stick when they err from desired behaviour. However, in the interim local governments could make a start on things. For example, local government might call for higher and more relevant qualifications in job descriptions, as well as develop packages to support suitable staff to pursue qualifications (and thus signal to both the community and regulators that local government has a plan to achieve its existential ends in the near future). Not all knowledge must be gained formally through tertiary institutions (although this is, of course, the best way of signalling professionalism to higher tiers of government). For instance, this book was developed specifically with communities, Councillors and executives in mind and with the explicit aim of providing an introduction to local government theory and finance. I have also recently launched a YouTube channel (search ‘Professor Joseph Drew’s World of Local Government’) to reach out to local government directly so that people become aware of the research I and my colleagues do. Indeed, I am always willing to advise local governments – especially those which recognise their need for a competent fiscal physician (please email [email protected]). The other way that the intellect is developed is through interactions between academics, representatives, executives, as well as higher tiers of government. On the whole, I think that much of the suspicion that persists between different levels of government would quickly dissipate if we could pull the relevant parties together into a single room (something I hope to do in the near future). Moreover, a greater respect and understanding for the sterling work that local government does would develop if there was a freer flow of staff between the various tiers. As I wrote in Reforming Local Government (Drew, 2020), the practice of moving staff between tiers occurs in Japan and it is one reason why there is such a productive and close working relationship there. To achieve the same outcomes in Australia we would need to sync public service classification systems (and thus remuneration) and ensure that all entitlements were continuous and portable between the three tiers of government. Doing so would be a large undertaking, but it would also pay strong dividends for many decades to come – not only for the operation and co-ordination of governments, but more importantly, for the people that rely on them.

Conclusions and Prescriptions I would like to end the book on a bright note, but sadly the truth relating to the prognosis for local government is rather grim. In both Australia and abroad a number of local governments have failed financially, and many more are on the precipice of

References

177

doing so (see, for example, Drew & Dollery, 2020). In addition, regulatory authorities are increasingly active in forcing policy interventions and, on the whole, this appears to have further harmed the health of our local government patients (see Chap. 9 as well as McQuestin et al., 2021). Of course, not all local governments are in immediate danger of suffering a severe health crisis: indeed, most of my concern is directed to rural and remote local governments as well as fringe (high growth) areas. However, as a long-term analyst of local government data I have little doubt that there will be a string of serious financial crises over the next five years unless things change dramatically. To mitigate these impending crises we need to start engaging fiscal ‘physician[s] who excel in theory and practice…who will [cause the patients to] recuperate immediately or a short while afterwards or will, at least, be saved from death’. (Maimonides, 2014, [1198], p. 32). Otherwise stated we need to adopt efficacious and innovative policies informed by rigorous research  – such as those presented throughout the course of this book – while we still have time. We also need local government decision-makers to recognise their plight and ‘adopt, new moral principles, and a renewed determination to live in accordance with them’ (Moody, 2013b, p. 103). My call to action is not merely a preference for moral change but rather a genuine plea to save local government. To change will be hard, and doing so successfully will require both extraordinary vision and political courage. However, I am confident that the wonderful people who serve our local governments so well are up to the challenge. Indeed, they have little choice other than to meet the difficult challenge of change for ‘when [w]e consider the death from which [w]e [otherwise] cannot escape, every evil is less than the evil of death, undoubtedly’ (Maimonides, 2014, [1198], p. 49).

References Drew, J. (2020). Reforming local government. Singapore. Drew, J., & Campbell, N. (2016). Autopsy of municipal failure: The case of central darling shire. Australasian Journal of Regional Science, 22(1), 81–104. Drew, J., & Dollery, B. (2020). The economics and politics of financial unsustainability in local government. Public Administration Quarterly, 44(2), 160–171. Finnis, J. (2011). Human rights & common good. Oxford University Press. McQuestin, D., Miyazaki, M., & Drew, J. (2021). Do amalgamations make a difference? What we can learn from evaluating the policy success of a large scale forced amalgamation. Public Administration Quarterly, forthcoming. Maimonides, M. (2014 [1198]). The preservation of youth. Philosophical Library. Moody, R. A. (1975). Life after life. Harper. Moody, R.  A. (2013a). Getting comfortable with death & near-death experiences: Near-death experiences an essay in medicine & philosophy. Missouri Medicine Journal, 110(5), 368–371. Moody, R. A. (2013b). Paranormal: My life in pursuit of the afterlife. Rider. Plato. (1987 [375 BCE]). The Republic. Penguin Classics