Grim warning on finances for incoming councillors

COUNCILLOR – and accountant – Jim Fawcett had sobering advice for incoming councillors (of which he will be one) at the September 26 shire council meeting during deliberation on the Strategic Financial Management Issues Report.

“This is probably the most important report we have coming up at the end of this council,” he said. “You could treat it as a shot across the incoming council bows. I urge all prospective councillors standing for election to acknowledge that there’s a significant financial impost to be managed in the next 12 to 18 months. It will need ingenuity, leadership and perhaps pain in sorting it out.”

Cr Fawcett was referring to Council’s unfunded defined benefits superannuation obligation of $4.6 million. The liability is payable on July 1 next year and will have an ongoing financial impact on the 2012/13 budget and forward budgets. Council had originally budgeted to accommodate a potential call of up to $1.5 million but was advised of the much larger figure only in August this year.

“It is not a matter of our own making, rather it is external, but ultimately the buck stops with us,” said Cr Fawcett.

The Report acknowledges that Council is facing a financial challenge chiefly as a result of the unfunded superannuation call being significantly higher than anticipated but for several other reasons, too. These include the advice from the Commonwealth Government that an overpayment of Victoria Grants Commission funds was made in 2011/12 to all Victorian councils. As a result South Gippsland Shire Council will now receive $325,000 less income than was allocated in the 2012/13 Budget.

Shire officers have prepared a framework of options for Council’s consideration with the aim of returning Council to a sustainable position in accordance with the Long Term Financial Plan strategies. These include:

• Identifying and quantifying immediate net cost pressures not already included n the 2012/13 Budget;
• Reviewing recurrent operating budgets to identify any potential cost savings/reductions;
• Reviewing recurrent service levels to identify options to reduce current service levels and associated ongoing costs;
• Reviewing the capital works program to identify potential cost savings or project deferrals;
• Identifying potential sale of surplus assets;
• Modelling potential borrowing scenarios including financial arrangements for paying back the loans;
• Modelling changes to rates and charges; and
• Reinstating financial integrity to the working capital ratio, the general reserve and rates and charges impact.

Cr David Lewis said he would be voting to accept the Report and have the framework of options prepared in detail in recognition of the need to address the financial state of the shire. However, he recommended looking at the problem in a more aggressive way.

“I take issue with the view that if you reduce costs you must reduce services. That is completely wrong,” he said. “You could just reduce overheads.”

He asserted that there had been a huge increase in administrative costs in the course of the current Council and also a large capital expenditure on land and buildings “said to be strategic”. “You just can’t do this when you’re looking such a financial state in the eye,” he said.

He criticised Council for paying money up front for long-term projects with long-term savings, arguing that Council should only do what it would get a return on in the short term. He concluded by accusing Council of frittering away money with a 50 per cent increase of shire staff in recent years, with associated costs.

Cr Kieran Kennedy said he shared Cr Lewis’s concerns but he, too, would vote for action on strategic financial management. He added that the framework contained nothing about streamlining the organisation and making it more efficient – and this was what was needed.

Council voted unanimously to receive and note the Strategic Financial Management Issues Report and receive a report in December detailing a framework of options and a recommended way forward.

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