Lithgow City Council is in a tight spot.
Council has endorsed the proposal to defer $769,500 of projects to the 2021/22 year to converse cash after a financial report revealed Lithgow City Council have a $525,000 deficit for the 2020/21 Operational Plan.
To stem monetary outflows, Council has endorsed the deferral of 2020/21 capital works projects. In addition, expenditure savings have been identified and recruitment deferred.
At the Quarter Three budget review, it was proposed to defer the following projects:
- Wolgan Road Slope Stabilisation - $284K budget remaining
- Macauley St / Sandford Ave Slope Stability - $360.5K remaining budget
- Installation of Solar Panels - Aquatic Centre - $125K budget remaining
Councillor Maree Statham said she had visited the Wolgan Valley and believes the slope stabilisation is a priority that shouldn't be deferred.
"It is a significant urgency...I find it dangerous going down there, we should find funding to get that to happen. Another storm, another fire and those slopes would collapse and trap the people in the valley," she said.
"This is not a luxury but a necessity."
Lithgow City Council's director of infrastructure services Jonathon Edgecombe said Council must submit a grant application to complete the slope stability but are awaiting on an outcome for later this month.
"We have had comprehensive, objective surveys undertaken with regard to stability above and below Wolgan Road," he said.
"It shows an immediate to medium acceptable level of risk with the slope and rock face itself. Our work seeks to help long term risk of collapse or failure."
Lithgow City Council's chief financial and information officer Ross Gurney said majority of NSW Councils reported deficit operating results in the 2019/20 year following natural disasters and the COVID-19 pandemic.
"Councils are also impacted by cost shifting from other levels of Government, as reported by Local Government NSW (LG NSW), which forces Councils to assume responsibility for more infrastructure and services, without sufficient corresponding revenue which was stated in the LG NSW Impact of Cost Shifting on Local Government report 2018," he said.
Mr Gurney said Lithgow Council was taking responsible actions to address the challenges.
- Additional controls to match cash going out with cash coming in;
- Ensuring that there is no further depletion of funds held in reserves for future projects; and
- Implementing improvement strategies to contain costs.
"Our focus is on delivering quality services to the community in difficult times while staying within our financial means. These actions will result in a surplus budget being presented to Council for adoption at the June meeting," he said.
"There is always more work to be done to ensure that Council lives within its means for the long-term and we welcome the community`s input to these important decisions."
To ensure there is no further decline in internally restricted reserves, purchasing controls over discretionary expenditure have been tightened, with such purchases only proceeding after the Financial Services Manager has advised of cash availability.
In the extended future, budget improvement strategies will be implemented to contain expenditure within available income and cash receipts.
Cashflow and reserve balances are being continuously monitored with further interventions implemented as required.
The key change to the Capital Works Program are:
- $1.92M reduction in the 2020/21 Resource Recovery Centre construction budget due to the partial re-phasing of the project to 2021/22
- $1.2M purchase of land, funded from the land bank fund
- Addition of the $125K Water Pumping Station renewal project
- $811K increase in roads projects as a result of additional capital grants for transport safety, the Fixing Local Roads program and flood renewal on Marsden Swamp Rd, Hampton
The CFIO has stated in the Quarterly Performance Report that Council's projected financial position at June 30 will be unsatisfactory, having regard to the original budget position.
The report shows Council's projected position has changed from the original budget of a $958,000 surplus operating result (before capital) to a projected deficit of $525,000 operating result (before capital).
According to Council, the main reasons for the change are:
- $525K reduction in rates income following a successful appeal against mining valuation increases. The lost income can be added to Council's rating yield for the 2021/22 year.
- $1.07M increase in materials and contract costs due to an adjustment to the Water Fund budget for State Water purchases, an increase in grant funded projects and the addition of natural disaster repair costs.
- $272K increase in operating employment costs mainly due to capital labour costs being lower due to deferral of projects to conserve cashflow and use of contractors for projects.
In addition, Council continues to be impacted by cash outflows with payments to suppliers and payroll exceeding their cash inflows for much of the year to date.
Total internally restricted reserves have fallen by $4.3 million since 30 June 2020 from $7.4 to $3.1 million.
Council has drawn on internally restricted funds during the times when cash outflows have exceeded cash inflows.
Mr Gurney said that it was important for Council to advocate for a better deal from other levels of government for local councils.
"That includes not only the funding system for local government and what council's rely on for revenue, but also the availability of grants," he said.
"This council advocates for better funding for local government and in particular dealing with financials sustainability and advocates to use grants as much as possible, to take burden from our rate payers."
Mr Gurney said that staff won't be affected by the cash flow shortage.
"All councils want to work towards the target of sustainability, so Lithgow Council needs to look at how we operate and bring services to the community," he said.
"Council agreed to defer capital works projects to manage cash flow so staff won't be impacted, they will move to work on maintenance, but our operating results may be impacted."
What Does an "Unsatisfactory Projected Financial Position" Mean?
It is an opinion as to whether Council's projected financial position will be better or worse than originally planned based on changes made to the budget at each quarter. It does not assess solvency or long-term financial sustainability.
As part of each Quarterly Budget Review, councils must compare their projected financial position at June 30 with their original budget and determine whether the projected position is satisfactory or unsatisfactory.
The projected position includes carryovers adverse impact of additional expenditure from incomplete prior year works, and positive/negative budget variations for each quarter.
In Lithgow Council's case, the adverse impact of carryovers and expense budget variations ($2.75M) is greater than additional revenue budget variations ($1.27M excluding capital grants) over the course of 2020/21.
This means that Council has to report its projected financial position at June 30 to be unsatisfactory when compared with the original budget.
The report stated that Council is still able to pay its debts on time to suppliers and payroll.
Councillor Deanna Goodsell said Lithgow City Council was not alone in facing financial hardships.
"We obviously have to tighten our belt straps and plan for financial security," she said.
Councillor Wayne McAndrew said the report was "sobering".
"We are not the only council struggling at moment, many rural councils are in same predicament, we are deferring projects and putting in remedial action in relation to cash flow," he said.
"Most importantly and sometimes forgotten by us and ratepayers is not just the issue of grant funding but cost shifting from state and federal levels, in my 17 years on council and it has gotten worse and worse every year."
It is not anticipated there will be any further decline in internally restricted reserves balance to 30 June 2021.
To read the full report head to Council's Website.
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