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Prophet and Loss

Medium Term Financial Strategycounterbalance  is looking at money again - and conscious of how boring big rows of zeros can be, we've tried to avoid them.    Readers will have to bear with us for looking at finance so often, but it is (or at least should be) the fundamental driver of what can be done, so it is important. 

We know that some over-dominant public service executives say 'finance is merely a tool of policy' - implying that you decide what you want to do, then get the money for it any way you can. 

We have seen, tried, and rejected this disastrous approach here in the recent past. We need a commonsense approach where our cloth is tailored according to our means, and proper priorities are in place for spending what we have.

So is this what we are getting?

Well; probably not, really. 

The Politburo Cabinet has recently considered a report glorying in the delightful title of the "Medium Term Financial Strategy.

We think that expecting the Commissar to understand such a grand term is a bit rich when he can't even be trusted to get the bus ticket money right  but there we are.

This so-called financial strategy is supposed to address the period 2007 to 2012. In reality it can be seen as a quick fix measure to cope with yet another disastrous year of financial mismanagement, and to disguise it in a bigger overall problem so it seems less dramatic.

According to the financial policy prophets at the Town Hall, a time of pestilence looms large. On present expectations, they predict loss of 778,000 on next year's (2007/08) budget, rising to 855,000 the year after, and 905,000 the following year, before dropping back to 810,000 and then 660,000 in 2011/12.

Given that in one and the same year, the Commissar managed to turn a loss of 700,000 into a profit of 339,000 (a discrepancy of 1,039,000 on his gross budget of around 14 million), it's difficult to see why he is wasting his time and our money trying to predict more than a week or two ahead. On the evidence to date, a kindergarten child could do as good a job of managing our finances. 

It's no wonder we have listed buildings on the promenade boarded up and waiting three years to be repaired, public toilets closing left, right, and centre, and public realm assets built up over many years being sold at knock-down prices to fund the Commissar's complete financial incompetence.

So what is it that Cassandra's cashiers have seen that will cause such huge losses over the next five years?

Well first, they expect a problem balancing the current year budget. They are expecting a 700,000 shortfall (yes, again) this year, mostly because of bad estimating and inadequate supervision of the costs for pensioners bus pass spending (you remember, the Commissar and his Politburo snaffled 205,000 out of the extra bus pass money the Government gave them). Now they're a bit short. Even the financial wizards own description of this feat of appalling estimating is  "Woefully inadequate"

Next, as a quick fix a couple of years ago, they 'cheated' by pretending that some of the ordinary staff wages were in fact people employed for a special capital project. Now that capital project is coming to an end and the chickens are home to roost, so the staff wages have to be found from the 'housekeeping' budget again. (assuming of course that the staff don't finish with the project).

They are also expecting a reduction in investment income. Given that the stock market has been rising to five year highs in recent months, and interest rates are on the rise again, it's difficult to see why this should be so, but the Commissar seems to have bought the tale.

They also expect - and this is a choice turn of phrase - the " take on of debt costs, as capital receipts are run down through expenditure on the capital programme."

In English, rather than accountancy speak, this means "we've sold off everything we can think of and have nothing left to sell, so now we're going to have to borrow money for our capital schemes, and that means we will have to find the loan and interest repayments for those borrowings from the Council Tax."

They also complain about an expected reduction in the grant they get from Government for administering the Government's Housing Benefit scheme. They expect to have to subsidise this work by 57,000 next year, and another 12,000 a year in the following years.

The final straw is higher staff costs, including the implementation of a nationally agreed Job Evaluation scheme that is expected to push staff costs up by 3% (that's around 300,000).

They also need to increase their employer-side pensions contributions for existing staff at the Town Hall from 9.8% of salary costs to 15.1%. This pension provision will add another 90,000 per year to the budget for the next few years. This is the figure they have been advised to put on one side by the actuary that estimates life expectancy for present employees, and the sort of income you can get from your investments.

In addition, they expect to be spending quite large sums on new projects such as Coastal Defences, Young People's Facilities, and a Regional Planning Fund, together with a Community Projects Fund and a Rural Economic Prosperity Fund - whatever they are (and they certainly don't look like sweeping the streets to us!)

And in case something has been missed, their economics experts have also included a contingency sum of 50,000 next year, and 100,000 a year thereafter.

Added together, these are what give rise to the estimated budget overspend of 4 million over five years. (Yes, really.)

There are also other problems the report only hints at. The income from Planning Applications is very significantly down this year. In part this arises from bad management of staff leading to high turnover and the use of expensive consultants to fill the gap. (In some cases, these consultants were people who left the Council and set up in business on their own, and were thus able to immediately charge more than they might have had in salary payments). In part it is also because less work was done overall by planners (and consultants), so fewer bills could be sent out. There were also dubious failures to charge for planning applications that are even now being investigated by the Council's Auditors.

So how is this overspend going to be funded?

Put simply (in their words, not ours) they will

1). Produce efficiency savings
2). Raise more income from fees and charges and the Council Tax (But with Council Tax capped again at 5% or so, they hint at much higher (and new) fees and charges)
3). Stop doing things that are not a priority
4). Address "Equitable Taxation"

In all honesty, this is mostly absolute tosh

For a start, there is no way that efficiency savings can find anything like the sort of money that is needed. 

What is actually planned is a raid on the "Earmarked Reserves", setting aside 521,000 of them as a new "Budget Reserve" 

This really means that the Politburo's need not to be seen incapable of managing the finances is more important to them than the projects they'd put the money on one side for. 

This move will turn funds that were earmarked for projects into a slush fund that the Commissar and his Politburo colleagues can dip into when they don't get their sums right. 

It means he won't be shown to be the appalling financial manager that he actually is, because the new "Budget Reserve" will smooth out all those embarrassing little imperfections. (That's excepting for readers of counterbalance of course).

Then, because he has raided the reserves, he expects to start borrowing.

For ten or more years, the Council has been debt-free, so there have been no loan repayments or interest charges to come out of our Council Tax. 

That's all about to change.

Next year they plan to borrow 85,000, followed by 300,000 the year after, another 580,000 the year after that, then 400,000, then 290,000. 

A total borrowing over the five years of 1,655,000. 

This borrowing will probably run on for decades. 

In the first five years, it will cost an estimated 306,450 in loan and interest repayments. That amounts to something like 3.80 extra on the Council Tax per year for every man woman and child in the whole of Fylde to meet the loan and interest repayments.

We could go on for longer, but you've probably got the picture already. Another five years of financial cock-ups are in hand from the financially incompetent eight-man Commissar and his Politburo that claims to lead us. 

They have neither the breadth of experience nor the intellectual capacity to run a toyshop, let alone a multi million pound public service.

Their unwillingness to use common sense, the way they hide their accountability behind expensive consultancies, and the way they fail to prioritise basic public services more highly than their spending on left-wing community management schemes, social engineering, and spin, is a disgrace of the first order.

It should be no surprise next May when Fylde's voters turn their backs on them.

Dated: 7 December 2006


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