The Premier has told the state's councils to put "pride into the back seat" for the sake of their communities and consider mergers.
Mike Baird's address to the Local Government NSW conference in Coffs Harbour was his first direct pitch to the state's 152 councils since unveiling a $1 billion policy package last month that included $258 million in incentives for councils to amalgamate.
Noticeably missing from Mr Baird's speech was the government's once oft-repeated assurance that it would not force councils to merge if they refused to do so - prompting Labor to call on the Premier to come clean on whether this would be on the agenda ahead of next year's election.
Mr Baird instead told the conference's 745 delegates that the reform package was a "once in a generation opportunity to think bold", urging councils to tell their communities "that 19thcentury boundaries, that's something that needs to be challenged".
"How can we use this process to deliver better services and more infrastructure for our community?" Mr Baird said on Monday.
"It's almost that sense of having to put pride into the back seat and put the community into the front seat."
The government argues amalgamations would make councils more efficient and help address a $280 million net deficit. Two-thirds of the state's councils were operating in the red last year, according to an analysis by Treasury's financial services arm, TCorp.
"We know that the status quo is not sustainable. Losing a million dollars a day is not something we can ask the community to bear," Mr Baird said.
About $158 million in funding will be made available to Sydney councils prepared to merge under the "Fit for the Future" plan.
Under the arrangement, any new Sydney council formed by a merger would be given a grant of $10.5 million - plus further funding up to $12.5 million for every 50,000 residents over a threshold of 250,000.
Councils have until the end of the financial year to apply for mergers - a proposition strongly opposed by many of them.
The issue threatens to set the state's councils on a collision course with the state government, which has left open the possibility of changing its policy of no forced council amalgamations if the measures were not successful.
Local Government NSW president Keith Rhoades said while reform was "on our doorstep" there was a "lack of clarity" about how the appropriate scale and capacity of councils was to be assessed.
"Does the government intend to change its 'no forced amalgamation' policy if councils aren't willing to merge, or if their proposals are rejected?"
"Rest assured while LGNSW will continue to fight forced amalgamations, we urge councils to respond to the 'Fit for the Future' challenge, and get your proposals in earlier rather than later - whether you intend to merge, or feel you have scale and capacity to stand alone."
The conference, where amalgamations are shaping up to be a key issue, is the first since a review of local government found it was "absolutely clear" NSW did not have the financial and human resources to support 152 councils.
The report said Sydney councils should be "significantly reduced" from 41 to between 15 and 18. "Sooner or later, amalgamations will have to be part of the package," it said.
Opposition Local Government spokeswoman Sophie Cotsis said the Premier's failure to reiterate the goverment's policy of no forced council amalgamations was the "revelation" of the conference, calling on the state government to make its position clear.
"So councils now have to go out to their communities and let them know that the government is serious about amalgamating their councils," Ms Cotsis said.
The Local Government Minister, Paul Toole, is due to address the conference on Tuesday.
