NEWCASTLE City Council’s annual expenses have blown out by $26.4million, and for the first time the council will spend more money paying employee wages and expenses than it makes from rates.
The council’s operational plan for next year shows the city plans to spend $18.5million more than it will earn.
The 2012-13 budget bottom line is an $8.4million deficit, propped up by an annual $10million loan.
Soaring employee costs, which are expected to reach $88.5million next year, have prompted the council to seriously consider potential cuts to staff and services.
General manager Phil Pearce told the Newcastle Herald yesterday he had begun a review of staffing levels and had asked the Hunter Valley Research Foundation to compare the council’s staff numbers with neighbouring councils.
He said no decisions had been made but warned that ‘‘cutting staff means cutting services’’.
‘‘I’m not saying for a moment that we’re overstaffed or understaffed at this stage,’’ Mr Pearce said.
Councillor Aaron Buman said the budget blackhole was the direct result of an ‘‘out-of-control bureaucracy’’.
‘‘Council is a business at the end of the day and if a business has way too many staff for its income, it will go broke,’’ Cr Buman said.
He said significant changes to staffing levels could be made without forced redundancies because of an increasingly ageing workforce
‘‘We expect to lose about one third of our workforce in the next five years,’’ he said.
In long-term financial plans produced last year, the council predicted its deficit would be about $3million.
Mr Pearce and city assets director Steve Edmonds said yesterday the $5million blowout was due to soaring costs beyond the council’s control including utility bills, fuel, waste levies, government charges and scheduled employee award increases.
The council has worked aggressively to rein in the potential deficit. Early projections had the figure about $11.3million before cuts were made.
‘‘I can’t say [those cuts] have had no effect on services, but they’ve certainly had minimal effect,’’ Mr Pearce said.
Mr Pearce emphasised the council was not ‘‘going broke’’ and had about $190million in cash reserves.
The budget process has been time-consuming for council staff and competitive between council departments this year as the council looked to cut its costs wherever possible.
Total operating expenses were expected to rise from $208,700,000 in 2011-12 to $235,090,00 next year.
Mr Edmonds said the council had used a modified form of ‘‘zero-based budgeting’’ to hold some costs at the same level as the previous year.
To combat external costs, each council department has been denied automatic increases to other aspects of its operating budget.
‘‘Everything ... that’s within our control we’ve applied a zero to it and gone from there,’’ Mr Edmonds said.
If the council’s application for an 8.6per cent rate increase is approved, the organisation would notionally balance its books next year by transferring about $1.1million from reserves.
That scenario is unintentionally deceptive as the council will receive cash flow from the extra rates income but will not have begun the rollout of many of the required projects.
If the increase is granted by the Independent Pricing and Regulatory Tribunal, the council will be bound to spend the additional income on nine specific city projects.
A decision on the increase is expected on June 6.