At the April Meeting of MidCoast Council, Councillor Peter Epov attempted to express his concerns about Council’s Delivery Program, Operational Plan and the 2021/22 ‘Draft’ Budget and was the only Councillor to vote against the Budget going on public exhibition. Many in the community we were appalled at the treatment towards Councillor Epov in that meeting, so here he puts his case to the public. 

“Amidst a torrid of interjections, heckling and frequent interruptions by the Mayor; threats of being ejected from the Chamber, and eventually being forced to apologise for my suggestion that Council may be in breach of Section 403 of the Local Government Act (1993); for failing to update and publish a Long Term Financial Plan, a Plan that has been promised each year in 3 successive Budget documents since 2019,  I would like to put my views before our community on the 2021/22 Operational Plan and the Resourcing Strategy which includes the 2021/22 Draft Budget.

Making MidCoast a Better Place.

A Council’s Annual Operational Plan and Annual Budget should be time for celebration and for reflection; it should be a time when Council; being both the elected body and the Administration, reaches out to the residents and ratepayers and clearly explain and clearly explain the founding principles for the Budget and how Council intends to spend ratepayers’ hard earned contributions and the public funds granted to the Council for the benefit of the community.

That explanation should be premised on bringing hope and confidence to people that Council is working for them

and is actually focused on the delivery of services and projects that are important and which may enhance their lives. 

The Operational Plan and Budget should also provide sufficient information to inspire confidence and instil trust that the Council has planned and prepared well and will actually be able to deliver their promised outcomes. This means that the allocated funds within the ‘Draft’ Budget will be spent wisely through a transparent and traceable process with realistic deadlines for the delivery of projects and services.

This all entails a process of clarity, accountability and fiscal responsibility but in my view current documents now on public exhibition do not achieve these objectives. 

Game changing

A Council’s Budget can create game-changing opportunities and achieve a great deal of good, for the lives of the residents, merchants, industries, businesses, farmers, and indeed our entire community. 

A good Council should be planning for the future with very clear, concise and transparent goals and objectives developed through genuine community engagement. It shouldn’t be running away from responsibility nor waiting until after the next election to come clean on its failures and the very real and serious challenges which lie ahead. Some of which will be financial!

No Correlation between the Operational Plan and the Budget.

With the exception of a few items there is no direct correlation between the projects in the Operational Plan and the ‘Draft’ Budget. There have been no precise project costings, either line by line presented to Councillors, or by project to the community. This is particularly perplexing when the Water and Sewer Reports are usually very concise.

It becomes unrealistic to support a ‘Draft’ Budget, let alone to try to explain and indeed justify it to the community when you clearly don’t understand how it has been framed. 

This uncertainty is only further compounded when you can’t point to a system which can with some confidence reliably monitor financial expenditure and the progress of projects.

It essentially becomes a situation tantamount to handing over a blank cheque for $280 million.

We can’t continue to function in this same old way, year after year, decade after decade.

$6 Million Software

Council has spent over $6 Million for this “you bewt”  software program which we were told back in 2017, would deliver all manner of reports and information. After nearly four years it appears it’s is still not fully functional and we may have been paying for modules that we still can’t operate. 

‘SMART’

For over 40 years businesses throughout the world have been using the ‘SMART’ process in corporate planning to write Management’s Goals and Objectives and to enhance the chances of succeeding with projects, as well as building trust and confidence that the project will be completed as planned. Our Council should be following a similar process with its project planning and reporting to both the elected body and the Community.

‘SMART’ is an acronym for:

Specific

Measurable

Attainable

Realistic/ Relevant 

Time Bound

Council’s Financial Reporting

MidCoast Council operates and reports as four separate business units, three of which are referred to as ‘Funds’ and the fourth is MidCoast Assist, so the community receives reporting for  ‘The General Fund’ – which is the main Council account , ‘The Water Fund’, ‘The Sewer Fund’ and MidCoast Assist, and a ‘Consolidated’ report for all the business units.

Council’s reporting contains two key metric indicators, ‘Net Operating Results’ and ‘Net Operating Results from Operations before Capital Grants’

Whilst the Administration focuses on ‘Net Operating Results’ and particularly the ‘Consolidated results’ for all the business units, to illustrate financial stability, in my view the more accurate data for performance and fitness for the future lies in the Net Operating Results from Operations before Capital Grants’ and particularly for the General Fund, which covers Council’s core activities.

I am not of the view that positive results from the other three divisions should veneer the performance of the main account – The General Fund.    

Here are some concerning metrics from Council’s published data:

Net operating result from Council’s General Fund Operations (excluding MidCoast Assist)

2017/18  $15.319 million Surplus

2018/19  $21.669 million Surplus

2019/20  $18.356 million Surplus

2020/21  $32.371million  Deficit    (Projected in the December 2020 Quarterly Budget Review Statement)

These figures show a turnaround of some $50.727 million or 276.35 % between 2019/20 and 2020/21.

The original 2020/21 Budget, provided an Operating Loss ‘estimate’ of $12.399 million and in Council’s December Quarterly Budget Review Statement that ‘estimate’ had blown out to $32.371 million, an increase of $19.972m or 161.08%.

As a point of interest in the last full operating period (2014/15) of the previous Greater Taree City Council and the Great Lakes Council there was a cumulative surplus for the two Councils of $22.577 million. 

A further and perhaps more truer overview of a Council’s performance are the Net Results when capital grants have been taken out.

An article published in the ‘Tumbarumba Times’ last year, entitled ‘Councillors must be honest about financial situation’, by Doug Gee, covered the subject of ‘Net Operating Results from Operations before capital grants’ very well:

“Competent councillors and staff should well know that counting capital grant funds in the context of ongoing day to day operational finances is like saying your household finances are in great shape because the bank just gave you a big home loan.

The problem is, just like a home loan that can only be spent to buy a home and not on groceries or electricity bills, capital grants can only be used to build things, and do nothing for the operational finances or ongoing financial stability of the council. The only difference is capital grants do not need to be repaid, but they do come with ongoing costs.”

Net Operating result from Council’s ‘General Fund’ operations before capital grants

2017/18 $0.784 million Surplus

2018/19 $12.900 million Loss

2019/20 $19.896 million Loss

2020/21 $55.865 million Deficit  (Projected in December  2020 Quarterly Budget Review Statement)

Total $88.660m projected Loss

It should be noted that the former GTCC and GLC only had a combined loss of $3.310 million in 2014/15 in the Net Operating result from Council’s ‘General Fund’ operations before capital grants.

Our December 2020 Quarterly Budget Review Statement was the last available to Councillors from which to contrast the ‘Draft’ 2021/22 Budget.

These are some of the key reasons why I do not support a ‘Deficit Budget’ for the 2021/22 year, and the tables (above) graphically illustrate my concerns that there have been no attempts made for structural reform to the 2021/22 Draft Budget by Councillors.  

Central Coast Council

We are all aware that the Central Coast Council was driven into administration through maladministration, and whilst I won’t be making any comparisons it would be imprudent to ignore the fact that their community (who elected the Councillors) is now bearing the full brunt of the failure by those Councillors to properly oversee the Administration’s activities, and they now face a 15% rate increase (as well as cuts to services and other potentially punitive measures).

Council’s Budget Preparations.

To say that there have been problems with the presentation of Council’s last three years previous ‘Draft’ Budgets may be an understatement, so I am perplexed as to why there has been a rush this year to place Council’s Budget on public exhibition in April.

On 21 April ( one week before the Council meeting where the ‘Draft’ Budget was presented) a workshop was held which included time for Budget discussion, so the Budget Financials (some 80 plus detailed pages) were sent to Councillors the night before. This did not provide reasonable time to consider the Budget Financials nor to attempt to correlate them in some meaningful way to the projects within the 2021/22 Operational Plan.

Following this, the Budget Financials and accompanying documents for the Council Meeting were only released to councillors on the afternoon of Friday, 23 April, a weekend and two business days before the Council meeting. 

Why The Haste?

In my view this is totally unsatisfactory and insufficient time to properly review all the financial data associated with the Delivery and Operational Plan and the Resourcing Strategy (which includes the ‘Draft’ Budget) so draw your own conclusions!

There were no accurate nor up-to-date financial reports or any other metrics available to councillors on which we could consider the ‘Draft’ 2021/22 Budget and the Operational Plan considering the last figures we had were from the December 2020 Quarterly Budget Review Statement.  These figures were not very encouraging, indicating a number of performance issues and since that time we have had the floods which would have had some impact on the Budget and on the timely delivery of projects. 

In the absence of updated key metrics it becomes impossible to confidently point to and justify to the community as to how the ‘Draft’ Budget has been framed and how the money will be spent, particularly when it’s a Deficit Budget

If the Administration was determined to place the DPOP documents (including the ‘Draft’ Budget) on public exhibition in April, then it would have been prudent to bring forward the results of the March Quarter in a Budget Review Statement in April and allow Councillors the opportunity to see the current financial position, how Council was travelling and to help better inform us before we settled on the ‘Draft’ Budget. 

No Long Term Financial
Plan Again

I cannot over emphasis the significance and relevance of an updated Long Term Financial Plan to Councillors and the Community as a tool to measure financial stability and progress.

Yet again there was no current Long Term Financial Plan, accompanying the Resourcing Strategy. There was an LTFP with the 2017/18 Budget, there was a newer version in 2018/19 but since that time there have been no complete and updated versions, to help Councillors (and the Community) to monitor the Administration’s progress.

I have seen documents suggesting we would have an updated Long Term Financial Plan, including advice that a Consultant had been recruited. However, a plan has not surfaced – perhaps after the next Council election???

I suggested in the Council Meeting that yet again Council could be in contravention of Section 403 of the Local Government Act as we did not have an uptodate Long Term Financial Plan, as required!

This brought down the wrath of the Mayor and several Councillors, one of whom threatened to seek my expulsion from the meeting, if I didn’t apologise – it’s all recorded, and available on council’s website. 

(I would suggest anyone wishing to be informed as to how our Council operates should listen and watch a few Council Meetings.) 

Paragraph 2 of Section 403 of the Local Government Act 1993 reads: “The resourcing strategy is to include long-term financial planning, workforce management planning and asset management planning.” 

There is a plethora of documents published by the Office of Local Government stipulating the requirements for, and contents within a Long Term Financial Plan, which is to be set over 10 years and contain multiple / or at least several scenarios.

In the Council Report to the December 2020 Quarterly Budget Review Statement, reference was made to Council facing serious medium term challenges with Depreciation. Perhaps having a Long Term Financial Plan, would have identified the subject earlier and even led to some form of remedial action by the elected Council.

Budget Deficit

I cannot support a deficit Budget which proposes:

An overall deficit of $13 Million.

A General Fund deficit of $29 Million before capital items. 

 The Budget papers show further projected deficits in Net Operating Results from Continuing Operations over the next three years to 2024. So much for being Fit for the Future.

When I tally the Net Operating Results from Continuing Operations for the four years from 2020 to 2024 in the Budget documents, it comes to a deficit of $80 Million!

Any surpluses from the Water and Sewer Fund should be applied to Water and Sewer and not applied to mitigate losses from the General Fund.

Capital Works

I have serious reservations over the deliverability of the proposed Capital Works Program. The Budget figures indicate a $102 million dollar Capital Works Program. Yet over the past 3 years Council has continually failed to complete the capital works program on time and has had to “re-vote” the residual funds into the following year.

I recall a certain Councillor even advocating that it was a good thing, as we had more money for the next year! 

Summary of results

Looking at the Quarterly Budget Review statements for current year (2020/21) to December, out of $80 million capital works listed only $29 million had been spent by 30 December.  We already appear to be behind. This suggests that there will be more re-votes and carry forwards into next year 2021/22. 

This raises the question, how realistic is it to propose a Capital Works program of  $102 Million in 2021/22 when Council has been unable to deliver the designated capital works program in the previous three years? Particularly, as we were already behind this year after the December quarter, and the consequences of the floods are yet to be factored in.

I have little confidence that a $100 million capital works program in 2021/22 will be achievable.

Staff Costs

Year	Amount
2017/18	$73 Million
2018/19	$76 Million
2019/20	$80 Million
2020/21	$92 Million
2021/22	$97 Million

Staff Costs have significantly increased since 2017/18. However, in the 2021/22 year there is a $5 Million increase on 2020/21 but both years have a similar spending envelope. For the current year Council has projected to spend $280 Million and in the 2021/22 year the projection is for a $277 Million operating expenditure. 

Recently I asked a Question with Notice regarding staff numbers. The response from the General Manager was:

Full time  710

Part Time 102

Casual  159

Fixed Term 62 
A grand total 1033 or a full time equivalent of 831 excluding casuals. He also stated that there were 149 unfilled positions and when filled this would swell the ranks to 1192 or 859 EFT.

At amalgamation the EFT staff was well under 800, so what happened to that premise pedalled by the government that by amalgamating the four councils considerable savings would be triggered through lower staff numbers as a great deal of duplication would be removed?

The question has to be asked: “How well has this process been managed”, particularly when we have an explosion in staff numbers?
What is more worrisome is that the staff costs in 2017/18 were $73.447 million and now they are estimated to be $97 million (21/22 )! This is unsustainable yet some of my colleagues appear to be oblivious to this fact or are comfortable with it or don’t care.

In replacing and adding staff there are direct and indirect costs. These costs include exit interviews, job description review, position advertising the interview, the lost productively of the person leaving and the time the replacement staff to settle into the council. 

Industry experts have put an average staff replacement cost at about $20,000 per employee. 

If we take into account the 98 new staff reportedly employed in the last six months of last year plus the 149 unfilled positions this comes to a total 247 staff and based on the above calculations it will cost council some $5.94m in direct and indirect costs for 2020/21. 

The industry average for staff turnover is 8%.

$100 Million Roads Program

I have placed Questions with Notice in relation to the progress of this Program, and am still awaiting responses.

Borrowings for the $100 Million road program will only be $8.625 Million next year. Last year Council deferred the borrowing funds for the program. It’s a four year program based on $50 Million in grants to be matched (by Council) with $50 Million in borrowings. So we should be borrowing on average $12.5 million each year. So if we didn’t borrow  the quota amount in 2020/21 and now only $8.6 million in 2021/22, we must be behind in the $100 Million Roads Program. 

Water

I do not support the proposed  increase annual charge increase of  2% for water availability! 

Nor I do not support the two step increase in water usage of 4.76%, as the implications and consequences  of this have not been qualified nor quantified, and it’s a punitive measure.

Unregulated Charges and Discretionary fees

I cannot support an increase of 2.5%  in the unregulated charges and discretionary fees until our service levels improve and Council can achieve an acceptable quality level.

Fiscal Responsibility

Rather disappointingly there has been no obvious attempts at Budget repair nor to addressing structural reform. Which means these challenges will eventually have to be addressed by the next Council.

Budget Repair 

Ultimately an elected Council will have to address its Financial situation! The longer this takes the less options will remain available and the greater the pain.

Some of these may include:

Application for rate increases (Central Coast Council is applying for a 15% rate increase).

Cutting or reducing services (some may say this is already happening).

Reductions in staff numbers.

Reductions to capital works programs (roads and bridges)

Council could increase borrowings (interest rates are historically low, but that bubble will ultimately burst).

Council could increase the administration costs to their business units.

Sell off further assets, such as the Woolworths site.

Missed Opportunities

Sadly, there are many missed opportunities from the proposed Operational Plan and Draft Budget.

Some of the things I don’t see in this Budget are:

A clear breakdown of Roads Expenditure.

Expenditure on Economic Development.

Expenditure on Climate Change & associated projects.

Reparations to the Bight Cemetery.

Reference to action on Flood Resilience – Measures Council will take and pay for.

Reference to action on Bushfire Resilience – Measures Council will take and pay for.

Mention of a Review of Koala Corridors after the bushfires, as many may have migrated to other areas and expanded the corridors.

Like the Federal and State Budgets, a Council Budget is an opportunity to bring hope, confidence and raise the morale of the resident community.

The aim of all the documents placed on public exhibition including the Delivery / Operational Plans and the Draft Budget should be to make it easy for the community to follow, to cross reference and understand the documentation. Many Councils are now doing this. 

It is the only way to build respect trust and confidence.”

Councillor Peter Epov.