Central Coast Council Administrator Rik Hart has set the record straight about what he describes as some “confusion” surrounding the 13 per cent Special Rate Variation (SRV) granted to Council by IPART over a 10-year period.
IPART originally approved a three-year SRV of 13 per cent (on top of the 2 per cent cap) from July 2021, but later granted a seven-year extension of the SRV, keeping it in place until 2031.
In an exclusive interview with CCN, Hart said there had been some confusion in the community (and even within IPART itself), with a mistaken belief that the extra rates money would all go towards paying off Council’s debt.
“There are two separate elements to be looked at here,” he said.
“The first is our trading position- that is if we are earning more than we are spending.
“In the first year prior to the initial Administrator (under Dick Persson), Council recorded a loss of $90M (financial year 2019-2020) and $70M the year after (financial year 2020-2021), which included staffing costs from the restructure.
“We had run out of cash; largely due to lost revenue (due to an IPART ruling on water and sewer rates in 2019) and increased expenditure in staff and capital.
“When we refinanced the business we could only go to the big banks – a State Government requirement.
“Our most recent loan, for $100M (approved in December, 2020) was needed to partially pay back some of the unlawfully used funds, for severance payments for staff and for working capital to cover day to day expenditure.
“That loan came through just before Christmas; if we hadn’t got it through we would have had to close down.
“When we talked to the banks (regarding a loan), only one would deal with us on the condition that we would have to increase our revenue, sell assets and reduce costs.
“The only way to increase revenue was to apply for a 13 per cent SRV, and regain the revenue that IPART removed for water and sewer.
“This allowed us to bring our trading position back into surplus and repay the unlawfully used funds.”
Hart said the second issue was repayment of the loan.
“Over the 10 years of the loan, only the surplus was intended to be used to repay it,” he said.
“The SRV was intended to get our trading position right; it was never all going to loan repayment.”
Hart said as at the end of November, 2022, Council recorded a $28M year to date surplus (for the first five months of the financial year) thanks to up-front rate payments, grant monies received and reduced costs.
“With the $100M loan, we were only to be paying interest for the first three years, after which time we have a balloon payment of capital,” he said.
“We have now established an internally restricted reserve of $50M so that when we renegotiate the loan at the end of this year, we will be able to pay back half the capital of that emergency loan.”
“This means we will be able to pay the loan off sooner, with the principal and interest budgeted for the remaining years (of the original 10-year loan repayment term) available for other uses.”
Hart said he was hoping 2023 would be a “great year” for Council.
“We will be improving some of the things we have underway and our service levels and customer service will improve,” he said.
“Now that the organisation has settled down a little and the IPART process (of applying for the SRV and a water rate rise approved last year) is over, people are feeling more comfortable.”
Source: CCN video interview, Jan 31, 2022
The road to recovery is long, but heading in the right direction.
However, in relation to the (and I quote Rick Hart from the article) “unlawfully used funds”
When are those persons responsible to be made accountable??
There has never been any “confusion” about this. It has always been clear the bulk of the rate hike was not to repay loans.
For example, I asked Rik Hart at the Council meeting that approved the rate hike why he was raising an extra $253M over 10 years when he was on record as only needing $110M from rates to repay the loans. I asked him many times what the bulk of the extra money was really for. The community never got a straight answer.
Now he appears to be saying the bulk of the rate hike is merely to achieve a break-even trading position.
This begs the question: why does any Council need to increase rates well above inflation just to break even? The extra money certainly hasn’t improved services which are worse than ever.
Mr Hart appears no more able to balance the books than were the previous Councillors if limited to the same rates income that was available to them.
The obvious conclusion is that Mr Hart has still not fixed the underlying causes of past deficits which lay not in lack of revenue, but in poor management, bad culture, inefficiency and low productivity. This is what Mr Hart and CEO David Farmer should be focussing on.
Yes, I would also like to know the answer to Andrew Thompson’s question. When will those persons responsible for the unlawful use of funds be called to account? Also, what processes will be used to call them to account and what arrangements will be made for those who broke the law, to repay the unlawfully used funds.