Council Size and Per Capita Expenditure by lindahy

VIEWS: 5 PAGES: 10

Council Size and Per Capita Expenditure

More Info
									                 Council Size and Per Capita Expenditure

Issues

   •     Is there a relationship between the size of a NSW local council and its cost of
         operations per resident served?
   •     In other words are there economies of scale in NSW local government?

Background

The following charts make use of data sourced from appendix A of the Background and
Issues Paper produced by the Independent Inquiry into the Financial Sustainability of
NSW Local Government.

The charts seek to measure the relationship between council size, measured in population,
and per capita expenditure for the 2003/04 financial year.

Due to the recent wave of amalgamations, a number of newly formed councils did not
report expenditure data for the 2003/04 financial year and as a result have been excluded
from the data set.

They were:

Albury (City of)                                   Liverpool Plains
Bathurst Regional                                  Mid Western Regional
Clarence Valley                                    Oberon
Cooma-Monaro                                       Palerang
Corowa                                             Queanbeyan City
Glenn Innes Severn                                 Tamworth Regional
Goulburn Mulwaree                                  Tumut
Greater Hume                                       Upper Hunter
Gwydir                                             Upper Lachlan
Lithgow City                                       Yass Valley

In an effort to partially recognize the spatial differences between councils in urban and
rural settings we have broken the data set into two separate databases reflecting the
classification of councils.

We have called the first grouping of councils “urban” and have included all councils that
fall into the urban group as outlined in appendix B of the Background and Issues Paper.
The second group is “rural” and includes all councils that fall in the rural group. Of
course those councils outlined above do not appear in either group.
 For each chart we report averages for expenditure and population and the number of
councils in the sample. We also included on each chart a linear trend-line. A good
measure of the “goodness of fit” of such a line is the correlation coefficient squared (the
r2 score). A score of 1 indicates a perfect fit, while 0 indicates a very poor fit. The sign of
the score has no relevant meaning for our purposes.
                                  Urban Councils
                         Per Capita Expenditure vs Population
  $                                       2003/04
 2000


 1800
                                                    Sydney
                                                                    r2 = 0.2179
 1600


 1400


 1200


 1000


  800
                                                                     Blacktown
  600


  400


  200


    0
        0        50000         100000      150000        200000   250000     300000



Descriptive statistics
Number of councils = 73
Average per capita expenditure: $866.06
Average population: 80,945
                      Urban Councils excluding outliers
                                  (Blacktown and Sydney)
      $                      Per Capita Expenditure vs Population
                                                   2003/04
     1800


     1600
                                                                           r2 = 0.3017
     1400


     1200


     1000


      800


      600


      400


      200


          0
              0          50000            100000             150000   200000        250000

Descriptive statistics:
Number of councils = 71
Average per capita expenditure: $858.43
Average population: 77,242
                          Urban Councils: Pop. > 50000
                                    (excluding outliers)
                             Per Capita Expenditure vs Population
      $                                            2003/04
     1400



     1200

                                                                           r2 = 0.1358
     1000



      800



      600



      400



      200



          0
              0          50000            100000             150000   200000        250000

Descriptive statistics:
Number of councils = 43
Average per capita expenditure: $730.30
Average population: 106,742
                           Urban Councils: Pop. <50000
                            Per Capita Expenditure v Population
                                            2003/04
       $
     1800
                                                              r2 = 0.0719
     1600

     1400

     1200

     1000

      800

      600

      400

      200

           0
               0      10000         20000    30000    40000       50000     60000



Descriptive statistics:
Number of councils = 28
Average per capita expenditure: $1,055.18
Average population: 31,938
                                         Rural Councils
                             Per Capita Expenditure vs Population
                                                 2003/04
     4500


     4000


     3500


     3000

                                                                            r2 = 0.3851
     2500


     2000


     1500


     1000


      500


        0
            0    2000    4000     6000    8000    10000    12000   14000   16000   18000   20000



Descriptive statistics:
Number of councils = 59
Average per capita expenditure: $2,025
Average population: 6,996
                         Rural Councils: Population >8000
                             Per Capita Expenditure vs Population
      $
                                                   2003/04
     2500


                                                                               r2 = 0.0259
     2000




     1500




     1000




      500




          0
              0   2000    4000    6000      8000    10000    12000   14000   16000   18000   20000

Descriptive statistics:
Number of councils = 19
Average per capita expenditure: $1,472.62
Average population: 12,263
                       Rural Councils: Population <8000
                             Per Capita Expenditure vs Population
      $                                        2003/04
     4500


     4000
                                                                       r2 = 0.3058
     3500


     3000


     2500


     2000


     1500


     1000


      500


          0
              0    1000       2000      3000     4000    5000   6000    7000     8000

Descriptive statistics:
Number of councils = 40
Average per capita expenditure: $2,287.60
Average population: 4,494
Comments
One needs to interpret the results of these charts with caution.

First, although there is a downward trend in each chart, the r-squared scores indicate the
goodness of fit of each line is not high, and certainly not enough to base policy decisions
on. A good way of intuitively testing whether a goodness of fit line is "good" is by taking
a point on the x-axis, such as 50,000 on the urban group chart, and observing the degree
of vertical variation. As can be seen, a population of 50,000 yields a wide variety in per
capita expenditure. That tends to indicate that something apart from population is driving
per capita expenditure.

Second, simply plotting per capita expenditure against population ignores a whole range
of variables that may be explaining why smaller councils tend to have higher per capita
expenditure. For example, a smaller council may have higher expenditure because it is in
particularly hilly country, thereby necessitating many pumps to supply reticulated water
and sewerage. Simply combining that council with another to form a council with a larger
population isn't going to change the fact that it cost relatively more to pump water.
Similar arguments can be made about lengths of road, proportion of local versus state
roads within council boundaries and the like.

Third, a testing of the relationship between size and cost for same category councils
below and above certain size thresholds (50,000 for metropolitan and urban councils and
8,000 for rural councils) showed that the degree of correlation (r-squared) scores is still
very low in each case. Aside from the reservations expressed above regarding economies
of scale, this would suggest that there are few if any economies of scale to exploit for
either smaller or larger councils within each council type. The best correlation between
size and cost was for rural councils below 8,000 residents, but even in this case the r-
squared score was low (only 0.3).


Joel Byrnes B.Ec (Hons)
University of New England
Armidale
25 January 2006

								
To top