Council’s deficit has grown under administration

Administrator Rik Hart

Central Coast Council’s financial year 2020-2021 saw an operating deficit before capital grants and contributions of -$91.6M.

The operating deficit including capital grants and contributions for the 2020- 2021 financial year was a deficit of -$7.9M.

This compared to last year’s actual deficit of -$88.5M.

The operating result was higher than first shown in August in the draft figures.

CFO, Natalia Cowley, said the figures were adversely impacted by two matters.

The first was a revaluation decrement in sewerage assets of $29.0M.

The second was the expensing of $1.5M software as service costs that were previously capitalised and recognised as intangible assets.

The change came as a result of an International Financial Reporting Standards Interpretations Committee decision made in April 2021, which until now was not reflected in the most recent Accounting Code.

During the 2020-2021 financial year Council undertook a revaluation of water supply and sewerage assets.

An external valuer was engaged.

The impact of the revaluation was a decrease to the value of Council’s water supply assets of $9.7M and a decrease to the value of Council’s sewerage assets of $111.7M.

The decrease in water supply assets of $9.7M was reflected in the asset revaluation reserve in the Statement of Financial Position.

But council did not have enough in its asset revaluation reserve ($82.7M) for the full sewerage decrease so $29M was reflected as a negative in the income statement.

At the date of amalgamation of former Gosford council and former Wyong council’s in May 2016, the values of all assets and liabilities were transferred and recognised as a gain via the Income Statement while asset revaluation reserves were not transferred and recognised.

This was in accordance with Australian Accounting Standards and resulted in $29M of the 2021 revaluation being recognised in the 2020-2021 operating result as a loss.

The report showed the Council’s performance against the Local Government benchmarks.

“We have breached three of those ratios including operating performance ratio as we have a deficit,” Cowley explained at the council meeting on October 12 when the figures were tabled.

The second breach was for outstanding rates but Cowley said she was pleased with the benchmark as it was a significant improvement on last year even though there was still a way to go.

The third breach related to the Debt Service Cover Ratio which measures the availability of operating cash to service debt including interest, principal and lease payments.

Council has breached this ratio as the operating result before capital excluding interest and depreciation does not adequately cover loan principal repayments and borrowing costs.

Council met the Unrestricted Current Ratio.

It measures the adequacy of working capital and Council’s ability to satisfy obligations in the short term for the unrestricted activities of Council.

Council corrected the prior year breach of this benchmark through a $150M external loan to substantially cover the reported overspend of unrestricted funds.

Administrator Rik Hart said this was the first annual report since the financial crisis (that saw the Councillors suspended and an Administrator put in) and the $89M loss of last year.

He said the extra $31M added to the deficit since the draft reports was not the fault of staff.

He said the sewer valuation going down was “a relic from the past”.

He said the $29M added to the expenditure list was not a cash issue.

“It’s like owning a building and the value goes down, but you haven’t sold the building so you haven’t lost it, but you have to show it has gone down,” he said.

He said the cash position had improved dramatically compared to last year.

The financial report was tabled at the October 12 Council meeting and will now go Council’s external auditor, The Audit Office of NSW, to provide the formal audit opinion to Council.

Merilyn Vale

1 Comment on "Council’s deficit has grown under administration"

  1. Many thanks to CFO – Natalia Cowley, Administrator – Rik Hart, and CEO – David Farmer for the honest reporting of the Councils financial position for the financial year ended 30 June 2021.
    These guys walked into a mine-field and I am sure it has taken a lot of hard work by the CFO and her team to unravel the accounts of the amalgamated councils and put them into a sensible report for the combined council, on top of a change in international accounting standards and having to meet the audit requirements at the same time.

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