THE Newcastle Independents’ claim that they could put a cap on rates without any cuts to services has been dealt a blow, with the council saying such a move would see its financial position “deteriorate significantly” and leave it with “insufficient revenue” to cover the city’s expenses.
The pro-business independent ticket, headed by communications consultant Kath Elliott, has promised to scrap the remaining years of the current council’s 46.9 per cent Special Rate Variation increase without any cuts to services if elected at next month’s local government election.
Backed by the council’s former interim general manager, Frank Cordingley, who is running in a below-the-line spot on the Independent ticket, Ms Elliott has argued that the council has recouped more money than it can spend from ratepayers since the rate increase was approved in 2015.
The Independents say they could maintain the council’s spending – including all of its infrastructure projects – by increasing rates at CPI and drawing on existing cash reserves.
Mr Cordingley told the Newcastle Herald that the budget had been “built up enough” by the roughly $53 million in extra revenue the council is already receiving from the rate increase that it could sustain its current budget without any further increases.
He pointed to net funding surpluses across the past three financial years of more than $20 million, as well as cash reserves at above $300 million, as proof that the council had “more money than it can spend” and that the 2015 rate increase “was not necessary”.
“What concerns me is that all this money is being pulled off the ratepayers and it’s not going anywhere,” he said.
“We don’t need any more ratepayers’ money because we’ve already collected enough to do what we need and we need to start using it, not putting it in the bank where it’s not doing anyone any good.”
But that argument has been dismissed by council staff. The council is in caretaker mode in the lead up to September’s election, but responded to questions from the Newcastle Herald about the impact of the rate cap on its finances.
In a statement, a spokesman for the council said the variation has been “key” in the council’s return to financial sustainability and a “modest operating surplus” since former general manager Phil Pearce warned it faced “possible insolvency” in 2013.
But the council’s spokesman said its “sustainable operating position” is “still in deficit” and would only reach surplus by 2020 “as a result of the remaining increases associated with the SRV”.
“Financial projections based on rates increasing by either 3 per cent, which is above CPI, or at 1.5 per cent, which is the current cap on rate increases without approval for a special rates variation, indicate council's cash and investments position would deteriorate significantly,” the spokesman said.
The spokesman said that without the remaining funding increases from the rate variation – IPART said in 2015 that it expected the full increase to increase the city’s revenue by $96.9 million – the council’s cash position would “continue to trend downwards” meaning it would have “insufficient funds to cover future commitments”.
He also pointed out that the council “restricts funds to cover future commitments” and that expenses like the infrastructure backlog would not be addressed by 2020 without the rate variation.
But Mr Cordingley questioned the council’s negative projections, and while he acknowledged that the council is predicting a net funding deficit of $10.9 million this financial year, he pointed out that its projection of a $6.1 million deficit in 2016/17 had turned into a $5.5 million surplus.
Mr Cordingley was on the council when it pushed ahead with the 46.9 per cent increase in 2014, but said the senior management had fought against the proposal at the time.
He has since retired, and a number of other senior staff members have also left the organisation while a new interim general manager, Jeremy Bath, was appointed with the support of Lord Mayor Nuatali Nelmes in April after a drawn-out and bitterly contested hiring process.
Labor councillor Declan Clausen has accused the Newcastle Independents of “lying” about the council figures because Mr Cordingley has pointed to its “bottom line” result rather than the smaller operational surpluses.
He said the rate cap would have “significant flow-on effects” to the council’s budget and would “put the city back down a path to insolvency”.