The Org Chart is the easy bit...

TL;DR: The Government’s Head Start process assumes that larger, simpler council structures can reduce duplication, improve decision-making and deliver better value. That may prove true, but it is not an automatic consequence of amalgamation. Different council services operate at different efficient scales, while larger organisations also create new coordination costs and risk becoming more distant from the communities they serve. The detailed proposals need more than a new structure and a forecast of savings. They need an explicit theory of how structural change will produce better outcomes, a credible baseline, and a way of tracking benefits, costs and unintended consequences over time.

The Government has received 18 outline proposals through its Head Start pathway for local government reform.

The proposition behind the reform is straightforward. New unitary authorities should simplify governance, reduce duplication, improve regional planning and deliver services more efficiently. The Government has said proposals will be assessed partly on whether they provide better value, save money over time and support better infrastructure and services.

These are reasonable ambitions. But there is an important gap between changing the structure of local government and improving its performance.

An amalgamation changes institutional boundaries. It does not, by itself, improve a consent process, renew a road, strengthen asset management or make a better decision. Those benefits arise only if the new structure changes the underlying conditions in which those activities are performed.

That is why the org chart is the easy bit.

The harder task is explaining... and then demonstrating... how the new organisation will create better public value.

Bigger is not a theory of improvement

The economic case for amalgamation usually rests on scale.

Larger councils may be able to spread fixed costs across a wider population, consolidate corporate functions, develop deeper specialist capability and exercise greater purchasing power. A unitary authority may also remove some of the friction between regional and territorial planning.

These are credible sources of benefit. But they do not apply uniformly across everything a council does.

A council is not a single production line. It is a collection of very different services: roading, planning, consenting, libraries, parks, waste, emergency management, community development, environmental regulation and democratic decision-making. Each has a different cost structure and a different relationship with place.

A recent OECD review of scale in local public services concluded that there is no single optimal size for local government. Scale effects vary by sector, technology, population density and the nature of the service. Some services benefit from being organised at greater scale. Others face increasing congestion, coordination costs or loss of local responsiveness as organisations become larger.

This is the central weakness in a generic claim that bigger councils will be more efficient: the efficient scale for regional spatial planning is unlikely to be the same as the efficient scale for maintaining a local park or understanding the needs of a small community.

The useful question is therefore not, “Is a larger council more efficient?”

It is, “Which functions benefit from greater scale, which depend on local proximity, and how should the new organisation accommodate both?”

That is a design question, not a boundary question.

Amalgamation changes the costs; it does not simply remove them

Much of the public case for consolidation focuses on duplication. Several councils may each have their own executive team, finance function, policy capability, technology platforms and administrative processes.

Some of this duplication can undoubtedly be removed.

But consolidation also introduces costs that are easy to understate at the proposal stage: harmonising employment conditions, integrating technology, migrating data, standardising policies, reconciling asset information, redesigning processes and maintaining services throughout the transition.

There are also longer-term costs. A larger organisation requires more internal coordination. Decisions travel across more organisational layers. Standardisation can make it harder to respond to genuinely different local conditions. Communities that previously had direct access to decision-makers may find themselves further from the centre.

The international evidence should make us cautious about treating savings as inevitable. A long-running Dutch study of municipal amalgamations found reduced administrative spending, but no significant reduction in total spending and no corresponding improvement in public services. Te Waihanga has similarly observed that New Zealand has relatively little hard evidence about how local government structure affects performance.

This does not establish that amalgamation will fail. It establishes that the benefits must be demonstrated rather than presumed.

The missing link is a theory of change

Every detailed proposal should contain an explicit chain of reasoning linking the structural change to the promised public benefit.

For example:

Combining planning functions will remove duplicated analysis, create a single regional evidence base and reduce conflicting decisions. This should shorten planning timeframes, improve the sequencing of infrastructure and provide greater certainty for communities and investors.

That is a testable proposition. Each link in the chain can be examined.

Will the functions genuinely be combined, or merely colocated inside the same organisation? Will the data, policies and decision rights also be integrated? What will prevent a single regional process from becoming slower and more remote? Which measure will tell us whether infrastructure is actually better sequenced?

Without this reasoning, “reduced duplication” and “better decision-making” remain slogans. They describe a preferred destination but not the mechanism for reaching it.

The same discipline should be applied to each major claimed benefit:

• What specific structural change creates the benefit?

• Through what mechanism?

• What assumptions must hold?

• What could prevent it from working?

• Who is accountable for realising it?

• What evidence would demonstrate that the benefit has occurred?

This matters because structural reform can be completed successfully while the intended improvement fails to appear. The councils can merge. The staff can transfer. The systems can eventually be integrated. The new entity can begin operating.

All of that can happen without services becoming better or more affordable.

Measurement must begin before the merger

If councils want to establish whether reform has worked, they will need to understand performance before the structure changes.

That sounds obvious, but it is technically difficult.

Participating councils may use different definitions, cost-allocation methods, service standards and reporting periods. One council may measure consent processing from receipt, another from acceptance of a complete application. One may include corporate overheads within an activity cost while another reports them separately.

Putting those results into one dashboard would create the appearance of comparability without the substance.

The detailed design phase therefore needs to establish a defensible baseline. That means agreeing common definitions, reconstructing comparable historical data where possible, and being explicit where comparison is unreliable.

It also requires more than selecting a few headline measures. A serious benefits framework should distinguish between:

• implementation measures: whether the transition is occurring as planned;

• efficiency measures: whether resources and costs have changed;

• service measures: whether timeliness, reliability or quality have improved;

• outcome measures: whether communities are experiencing better results;

• distributional measures: whether benefits and costs are being shared fairly across different places; and

• downsides: what has become slower, weaker or more distant because of the new arrangement.

That last category is important. Reform programmes are naturally inclined to report the benefits they were established to produce. They are less likely to search actively for costs they did not intend to create.

A credible framework must do both.

Beware of declaring victory through standardisation

Amalgamation creates pressure to establish common service levels across the new authority. This is necessary, but it also presents a subtle performance risk.

If three councils begin with different levels of service, standardisation can occur upwards, downwards or somewhere in between. Costs may fall because a higher-performing council’s service has been reduced. Average performance may improve while a particular community receives less. A new measure may show better results simply because the definition has changed.

These are not arguments against standardisation. They are reasons to be precise about what improvement means.

Efficiency cannot be assessed independently of service quality. Lower expenditure is not a saving if it is produced by deferring maintenance, transferring costs to residents or accepting poorer outcomes. Equally, higher expenditure is not necessarily failure if it addresses inherited under-investment or raises an inadequate service to an agreed standard.

The performance story will need to explain both the aggregate result and its distribution across the new authority.

Otherwise, regional averages may conceal significant local losses.

Performance architecture is part of the institutional design

Performance management is often treated as something that follows strategy and structure: first design the organisation, then decide how to report on it.

That sequencing would be a mistake.

A performance framework determines what the new organisation pays attention to. It translates broad promises into operational commitments, allocates responsibility and gives governors a basis for intervening when progress slips. In that sense, it is part of the governance architecture of the new council, not an administrative reporting layer added afterwards.

The detailed proposals should therefore establish, before implementation:

• the principal benefits the reform is intended to produce;

• the causal logic behind each benefit;

• the baseline against which change will be judged;

• the transition costs and expected time before benefits emerge;

• the measures that will expose both benefits and disbenefits;

• the people accountable for benefit realisation; and

• how results will be reported publicly over several years.

This should remain visible well beyond the formal transition. Some benefits may take years to materialise. Others may be overtaken by population growth, policy change or inherited infrastructure pressures. Reporting will need to distinguish the effect of amalgamation from these surrounding influences rather than attributing every subsequent movement to the reform.

Perfect attribution will not be possible. Disciplined evaluation still is.

The real test of Head Start

The Head Start process is explicitly focused on structural reform. The Government’s own guidance says that what success looks like is for councils and their communities to determine.

That creates both freedom and responsibility.

The detailed proposals can do more than describe how a new unitary authority will be assembled. They can specify the public value it is expected to create and establish the evidence by which that claim should later be judged.

Three questions should sit at the centre of every proposal:

1. What will become measurably better as a result of this structure?

2. Why do we believe the structural change will produce that improvement?

3. What evidence would cause us to conclude that it has not?

The third question is the most demanding. It turns performance measurement from an exercise in confirming the case for reform into a genuine test of it.

New boundaries, governance arrangements and reporting lines will be highly visible. They will absorb political attention and considerable organisational energy.

But structure is only the intervention.

Better local government is the outcome... and the two should not be confused.

 

If your organisation is working through structural reform, now is the time to establish how success will be defined and measured... Not once the new structure is already in place. OPAL3 can help make that performance architecture clear, connected and visible.  Contact us today to have an informal chat