Council debt never higher than $440M says Inquiry witness

Central Coast Council’s Gosford Chambers

Central Coast Council still does not report the number of employees in every budget, so the community still doesn’t know where the big spending cuts are being made, according to a witness at the Public Inquiry into the Council’s financial issues.

Brian Halstead is a Northern Beaches resident and Save Our Councils campaigner who opposed the 2016 council mergers and sat on the Mosman Council Audit and Risk Committee.

Halstead said he hoped the big reductions were coming from overheads rather than from front line services.

Halstead also put another angle on the $39M hit to Council’s budget in 2019 when IPART reduced the amount Council could charge residents for water, sewerage and drainage.

Commissioner, Roslyn McCulloch, asked him if he thought Council, including the former Chief Executive Officer and Chief Financial Officer, reacted sufficiently to the news that they got a $39M reduction from IPART in May 2019.

“Look, they had put forward a proposal to reduce the income by about $20M,” Halstead said.

“I was surprised, they were halfway through the budgetary process and clearly they had budgeted for the $20M they had proposed to IPART.

“When the other $20M came through that they had to find more money for, they didn’t,” he said.

He said there appeared to be no commentary on the fact that suddenly it got hit with a further reduction in income of $20M.

“It is $20M which is going to the ratepayers; it is lost to the Council, but it shouldn’t be forgotten that the ratepayers all got the benefit of that additional $20M,” Halstead said.

In telling the Commissioner his background, Halstead said he went through the accounts of the 20 amalgamated councils in NSW a couple of years ago and reported on their performance against the amalgamation proposals.

It was not a pretty picture, Halstead said, as they had failed to produce the projected results, so the Central Coast was not alone in its problems.

He had three other main points to make about the Coast’s situation: the handover to the Councillors; the restricted cash; and the actual level of debt.

He said Councillors were told by the first Administrator that the accounts were sound and strong but they were given no budgets and no staff numbers.

He said small increases in depreciation were inconsistent with a huge capital expenditure.

“An example of that is that, in the year 2022, the Administrator had said the depreciation would be $130 million and the last budget that came out in the July results said the depreciation would be $177 million.

“Now, that’s a huge difference.

“There was no major change in capital expenditure levels until they started to cut last year, so it’s really hard to understand that.

“Now, in my view, the conclusion is that the incoming Councillors were not inheriting finances that were sound and strong and there was no transparent budgeting by area for employee numbers, for savings being generated, and transparent links between the depreciation and the large capital expenditure.”

On restricted cash, he said it remained at $100m between 2017 and 2021.

“It appears, on my review of the accounts, that only in August ‘20 the externally restricted funds were used, and the maximum I calculated was about $30 million,” Halstead said.

“The debate between the auditors and the solicitors about unrestricted cash in the sewerage fund, which was $80 million at the end of ‘20 and has now risen to $112 million, to me is not relevant.

“The Council could have an inter-fund loan from sewer to the general fund for that amount.

“It’s also interesting to note that the current Administrator is saying in the July investment report ‘Unrestricted funds deficit is being funded through the general fund internally restricted reserves’.

“So he’s knowingly using the restricted funds, internally restricted funds, to run the business day-to-day, which is similar to what the previous Council had been accused of and criticised for doing,” he said.

Halstead also questioned the debt and said he had asked Council for details.

“It was often quoted that the Council had $565M worth of debt,” Halstead said.

“I asked the Council on a number of occasions how this was calculated and I did not get a satisfactory answer, and I think the size of this figure had an impact on the community’s confidence in the Council.

“The figures I have put in my submission showed that at the end of September ‘20, the maximum debt, including restricted borrowings, was calculated at $440 million, well below the $565 million that was often quoted, and then it fell after that.

“The interesting thing is that the issue was not as big as it was often reported.”

Halstead said that when he looked through the accounts the conclusion he came to was that the crisis could have been avoided by the management providing transparent reporting of cash holdings, financial performance by budget area, employee numbers by budget area, and this would have enabled the community and the Councillors to understand the issues, plan and follow up on the actions being delivered.

He said councils needed to be in surplus if they wanted to generate cash for new assets, there was no other way – unless they got grants.

His last point was to record that the amalgamation proposal had the Council with a surplus of more than $30 million in the current year, so a $7 million surplus, as projected in the July 2021 monthly reports, would leave Council still with a lot to do.

Merilyn Vale