In my March 2021 column I commented on the financial performance of Hilltops Council since the forced merger in 2016.
In doing so I highlighted the historical trend to Operational Deficit before Contributions for Capital Works. The accumulated result of such deficits was an amount in the order of $45.6 million.
It has been reported in a recent media “PodCast” that Council has accumulated debt of a tad over $46 million.
Clearly this report is incorrect, and has taken my comments to mean something that they do not. In Council, an operational deficit occurs when Operating Income does not cover Operating Costs. i.e. You spend more than you make.
The “before Contributions for Capital Works” means that any Grant (Contribution) funds that a Council receives for Capital projects are excluded from normal Operational income. Such grants (contribution) may not be used to cover normal operational costs. In essence these grants must be used for the purposes for which they were provided, and not to pay for other things. A debt occurs when a party borrows money from another party. i.e. You take out a loan and have to pay it back.
Council has not taken up borrowings to fund the deficits, these have been funded from internal reserves.
Council does not have unlimited internal reserves – ongoing deficits must be avoided to reduce the depletion of such internal reserves – once your savings are gone, they are hard to replace.
Council does have borrowings for infrastructure renewals including Roads, Buildings, Sporting Facilities, Water and Sewer Mains and Sewage Treatment Works.
The bulk of Councils borrowings are attributable to Water and Sewer infrastructure renewal projects. Water fund borrowings are serviced from the Water Fund, Sewer Fund borrowings are serviced from the Sewer Fund.
General Fund borrowings are serviced from the General Fund. These borrowings are fully disclosed in Annual Financial Reports which are audited by the NSW Audit Office.
There are legacy Water and Sewer Funds for each of the former local government areas so Harden Water Fund only repays borrowings for Harden Water infrastructure, Young Water Fund pays for Young Water Supply infrastructure and Boorowa Water Fund pays for Boorowa Water Supply Infrastructure. The same applies for the Sewer Funds. The legacy funds are consolidated for the Annual Financial Statements but remain separated for Budgeting purposes. There is only one consolidated General Fund.
I trust that this has clarified the matter and in particular has highlighted to the broader community that Hilltops Council must take decisive action to address the operating deficit. Councils’ performance against its budget must improve significantly in successive years if it is to be sustainable in its current form.
In my opinion, there will be some difficult and potentially unpopular decisions on the agenda for the new Hilltops Council after the September 2021 elections. Special Rate Variations (SRV’s), revised User Fees and Charges, modified service levels, service catalogue contraction and organisational resizing are all potential management measures which must be considered.
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Stay safe and Stay Well.
– Greg Armstrong
