Saving Local Government: Financial Sustainability in a Challenging World

179 Pages·2023·1.884 MB·English

by  Joseph Drew

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
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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 acknowl-
edge this close dependence on local government – rarely do we give local govern-
ment 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 1
J. Drew, Saving Local Government, https://doi.org/10.1007/978-981-16-4332-3_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 amalgam-
ated 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 com-
mon 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 repre-
sents 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 condi-
tions). 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 fol-
lowing 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 govern-
ment 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 car-
ried 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 strug-
gling rural community of around 10,000 souls reeling from the effects of an unpop-
ular 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 moti-
vated the initial engagement in the first place.
During the course of three months I worked closely with the elected representa-
tives, 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 con-
stantly 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.