Hawke's Bay lacks leadership, has two councils that may not be viable, and could save up to $25 million a year if its five councils amalgamated, according to a report published yesterday.

Part one of the Future Prosperity study concluded the region of 155,300 people "could do better" and "has significant natural talent, but does not yet use it all effectively". A $25m annual saving would equate to nearly 10 per cent of what all five councils spent in the 2010-11 year.

The 90-page report by McGredy Winder and Co outlined the region's economic, social and governance issues and listed various options to increase prosperity.

It stressed the importance of the Ruataniwha water storage scheme, under which a large dam would be built west of Waipawa to enable intensified farming.

Local government reform, including the possible amalgamation of the Hastings district, Napier city, Wairoa district, Central Hawke's Bay district and Hawke's Bay regional councils, could save between $3m and $25m a year but such a reform should be considered only if it did not compromise the water storage scheme, the report said.

"What it [the region] does not have is a clear sense of vision, or leadership to harness the resources of the region to make a difference. Leadership within the Hawke's Bay is currently fragmented and debate over amalgamation seems to have got in the way of effective collaboration."

It said "the most significant issues relate to the ongoing capacity, capability and viability of the Wairoa and Central Hawke's Bay district councils". It concluded that any reform had to include these two councils.

The rates take of all the region's councils increased from $92.8m to $139.8m between 2003 and 2011, and rates were predicted to grow by an average 3.7 per cent over the next decade.

During the same period, the regional economy grew by 9.5 per cent and unemployment grew from 5.4 to 7.3 per cent.

"It must be questionable if the community can sustain ongoing public sector cost increases faster than both the growth of the domestic economy and nominal wages," the report said. "The region will need to address the underlying cost structures of its local structures."

While amalgamation might be cost-effective, other factors needed to be considered, it said. Stage two of the study, likely to be completed by the end of November, will further examine the options for local government reform.

Napier Mayor Barbara Arnott said she looked forward to stage two. She thought there would not be any savings from amalgamation and said the $25m figure "appeared to have been plucked from nowhere" and was insignificant compared with potential benefits from the water storage scheme. "Everyone knows amalgamation saves no money."

Hastings Mayor Lawrence Yule, an outspoken proponent of amalgamation for some years, said it was "a good, balanced report". "Clearly it says we can do things better and that we need to look at the structure of local government. I'm pleased the next stage will do that."

Central Hawke's Bay Mayor Peter Butler said he was pleased with the findings, particularly concerning the dam, but hoped "it isn't hijacked by the pro-amalgamation people".

Wairoa Mayor Les Probert said much of the report was already known and he looked forward to the next part of the study, which he hoped would set down priorities.

Regional council chairman Fenton Wilson could not be contacted.

- © Fairfax NZ News