CCBR Business Review

14 C E N T R A L CO A S T CO U N C I L N E W S CENTRAL COAST COUNCIL Administrator, Mr Dick Persson AM has delivered his 30-Day Interim Report at an Extraordinary Meeting of Council on 2nd December. Mr Persson said this report provides the community with a picture into the history of how poor financial decisions and cata- strophic budget mismanagement has led Australia’s 6th largest council to the situa- tion they find themselves in today. “The financial crisis confronting the Central Coast Council is very serious. Council’s operating loss for the current financial year is on track to be in the order of $115m, this follows last year’s loss of $89m,” Mr Persson said. Since amalgamation: • • Accumulated losses have reached $232m • Debt has risen from $317m to an esti- mated $565m • Staff numbers have increased by 242 • Restricted reserves of around $200m have been used unlawfully to fund Council opportunities and capital works. “It will take urgent and strong action to turn things around. Tough decisions need to be made immediately”, said Mr Persson. Mr Persson outlined a series of measures to achieve the necessary turnaround: • Significant asset sales of a least $40m over each of the next two years; • Further borrowings; • A substantial rate increase; • An increase in some Council charges; • A major reduction in Council’s senior and middle management numbers; • A reduction in staff numbers to return to the level at the time of amalgamation. “The Council’s rapid financial decline is due to several matters, with most of them not directly related to the amalgamation. “Managing the Council’s financial posi- tion is the number one job of the CEO and CFO. It is clear the CEO was either unaware of the looming crisis, or simply failed to adequately respond. Either way the perfor- mance of the CEO was unsatisfactory. “Council, in their role as the Governing Body, also shares that financial responsibil- ity. They also failed in this regard.     “Central Coast residents have been badly let down by their Council and widespread anger over the Council’s performance is totally understandable. Among the many issues highlighted In the Executive Summary of the Report the Administrator says, “The newly amalgamat- ed Council clearly did not understand how much money they had at the outset. They set about a program of expanded capital works and expanded services that they could not afford. Apart from budget mismanagement, Council funded much of this new expendi- ture from Restricted Reserves, which was either unlawful, or done without the approval of the elected body. The previous CFO, Mr Craig Norman and CEO, Mr Gary Murphy were aware of this unlawful use of funds.” “There is no evidence of theft or corrup- tion,” he said. “The Council’s rapid financial decline is in part due to several matters, with only the IT costs directly related to the amalgamation: 1. The substantial costs in upgrading IT systems and infrastructure (net of $10m Government grant) is $50m, with $8m ongoing. 2. The substantial costs of an industrial dispute concerning 38/35 hour week, uni- fied salary scale and other harmonisation costs [$25.3m, with $3.2m on-going]. 3. The $39m loss of revenue (compared to 2018/19) from the 2019 IPART pricing determination for water, sewerage, storm- water drainage and trade waste services. 4. The increased costs and revenue losses brought about by the bushfires, floods and COVID-19 are estimated at $10.5m. This very substantial sum of new costs seems to have been overlooked by the new Council as it embarked on major spending programmes in both capital works and gen- eral operations. “A catastrophic error of the amalgamated Council was their failure to understand that the organisation had less than $5m in unre- stricted cash (excluding Water and Sewer Fund) at the beginning of amalgamation. In the first year of operation, there was an operating surplus of $65m, which was pre- dominantly driven by a one-off operating grant of approximately $40m. “In respect of staffing there are now 250 more people (FTE) employed now than at the time of the amalgamation. Additionally Council embarked on a number of expansive initiatives, some with highly paid staff that resulted in employee costs outstripping projected growth. Actions are in-train to deal with this situ- ation, however the willingness of lenders to provide necessary further loans [either private or public] is totally dependent upon the Council embarking on an urgent turna- round strategy to ensure next year’s budget is at least ‘break even’. These measures will need to include: • Significant asset sales of at least $40m; • Further borrowings; • A substantial rate increase; • An increase in some Council charges; • A major reduction in Council’s senior and middle management numbers; • A reduction in staff numbers to return to the level at the time of amalgamation. What the Interim Administrator could think about to fix the problem is to sell off (or lease off ) the region’s Water Supply. Some have estimated that it could be worth well over a billion dollars. Water rates are controlled by iPart so there would be no increased rates. There are plenty of investors looking for this type of invest- ment Administrator terminates the employment of the CEO  Central Coast Council Administrator, Mr Dick Persson AM terminated the employ- ment of Mr Gary Murphy, Chief Executive Officer of Central Coast Council, on 30 November in accordance with the provisions of Mr Murphy’s Contract of Employment, effective immediately.  Mr Persson said that recruitment of a new Chief Executive Officer will com- mence shortly. In the meantime, the Acting CEO Mr Rik Hart and Chief Operating Officer Mr Malcolm Ryan will continue to head the organisation through the challenging times ahead. A future Airport Central Coast Aero Club chief Andrew Smith is delighted that new Council Administrator Dick Persson is a man who understands the opportunity available for our Airport. Mr Perrson has visited the Airport and said he was impressed with the commu- nity facility and its potential. He told a small media group that he understood the airport had support from the community with many keen to see it developed. He indicated that the Aviation Hub may be back on the radar. Mr Smith said Mr Persson was a refresh- ing change after years of Council negativ- ity about the airport. The infamous sacked council did eve- rything it could to run the airport down and it terminated the Aviation Hub. It was some kind of strange vendetta against the previous Wyong Shire. Accumulated debt in the order of $565 million CENTRAL COAST BUSINESS REVIEW DECEMBER 2020