Today, Thursday 11 November 2021, Snowy Monaro Regional Council will report a deficit of $24 million in the draft financial statements for the financial year ending 30 June 2021.
In the interest of transparency we want to explain to the public why this number is so large, what Council’s financial position is, and how local government accounting practices work.
WHY $24 MILLION? WHERE DOES THIS NUMBER COME FROM?
Landfill Remediation
Back in 2019 we announced to the public that Council was facing a large cost over the coming decade to bring old landfill sites up to the standard mandated by the NSW Environmental Protection Agency. There are ten sites that need significant work to meet EPA standards, accounting for $11 million of the deficit.
The most important point to note is that this is not money we have spent, or are spending right now – but a mandatory accounting of the future cost to Council over the coming decade that this work will require. We anticipate that a significant proportion of this will be covered by grant funding.
Depreciation, amortisation and impairment
The value of Council’s infrastructure (roads, bridges, etc.) and assets (everything from vehicles to laptops and furniture) decreases over time. It is important and necessary for this decrease in value to be reflected in Council’s budget and financial reporting.
In accounting, depreciation, amortisation and impairment are concepts and practices used to account for the decreasing value of infrastructure and assets. $22 million of the reported deficit comes from depreciation, amortisation and impairment.
This is not money Council has spent, will spend or has to spend. It is only an update to our financial reporting that reflects the normal decrease in value of our infrastructure and assets over time.
WHAT DOES THIS MEAN FOR COUNCIL’S FINANCES, SERVICES AND THE COMMUNITY?
The quarterly budget review statement, also included in the business paper for next week’s Council meeting, shows that the current year’s operational budget is on-track, with little movement in the forecast deficit.
This shows that the $24 million in the reported deficit is a one-off adjustment to reflect costs and depreciation that already existed, and that the work done by Council in preparing the current budget is working.
After grant income is accounted for, Council’s operating income and expenditure did not contribute to the reported deficit.
Council’s own-source income has not increased in real terms for years and it is becoming increasingly difficult to maintain the level of service the community demands in the face of inflation and rising costs.
Future changes to our revenue policy will be required to help address this problem. To that end, a major review of the delivery and operational plan under the new Council in 2022 will be a major step towards further stabilisation of our financial positon.
Expenditure peaked in financial year 2020/2021, but is now falling. Management have made significant budget cuts two years in a row, and management of cash and investments is prioritised to ensure operating and investing activities are not disrupted.
