Council facing a potential £6.5m financial loss due to pandemic

DERRY City and Strabane District Council (DCSDC) stands to incur a potential financial loss of £6.5 million this year due to the coronavirus pandemic.

Details of the cash crisis facing the local authority were laid bare to councillors at a meeting on Thursday.

During a presentation, council's lead finance officer Alfie Dallas disclosed the sobering financial impact assessment that COVID-19 has had.

He said that as a result of the "very significant" loss of income from the closure of services and facilities (leisure, planning, building control, car parks etc), pressures on waste management costs and emerging emergency expenditure during the pandemic, council is incurring losses of around £700,000 per month.

Describing the financial situation across all 11 councils as "critical" he continued: "It's obviously difficult to know how long that will continue for depending on the restrictions but at this point we need to forecast that that will cost us circa £8m this year as a planning assumption."

A second key loss to council is the estimated ratebase impact. Mr Dallas said this is difficult to quantify but could result in a loss of up to £7m.

"Those two items come to a very significant total of £15m. What we have to set against that at this point in time is all the usable reserves which have been reviewed; our District Fund and rates provision. We have about £6.5m," he continued.

"The Rates Support Grant has not been cut so there is a small saving there (£200,000). The remaining item at our disposal is that we normally have in-year capital savings which we use to progress other capital projects.

"After a number of things that have been ringfenced against that that would provide about £1.8m so potentially that's looking at a financial loss of net of £6.5 million for council in this financial year - a very significant figure. With that loss at that point our District Fund would be totally eliminated going into next year's rates."

Setting out council's actions to mitigate the losses, Mr Dallas said that DCSDC has bid for £2.7m as part of an overall regional proposal submitted by the 11 councils to Stormont.

"That is for the losses incurred in the first quarter of the financial year and it does not include any impact on rate-base which needs to be kept under close review.

"The specific asks of government are cash intervention for the losses we are incurring and a range of other mitigation measures eg cash-flow and capitalisation directions.

"The last request is that some sort of underwrite is provided to councils in relation to any loss of rates income," he said.

Mr Dallas said councils are uniquely funded and that it is "really critical" that government funding is secured.

Briefing

A briefing is due to be provided to the Communities Committee this week to consider the regional bid.

"There has been very clear direction from government that they would expect us to reduce that bid through the furlough scheme so we won't get 2.7m. It will be an element of that with us expected to maximise what we can under the furlough scheme.

"The airport funding announced last Friday - £1.05m - that means that effectively the costs of the airport are being entirely covered for the first quarter of the financial year so that currently is not worsening the £6.5m position," he said.

Mr Dallas said that of council's gross £75m expenditure, 47 per cent is spent on staff costs and that aside from furlough and ceasing external recruitment, savings there would be minimal.

Eleven per-cent is spent on waste contracts which he said have increased and are accounted for in the £6.5m loss, while the 8 per cent spent on premises costs, vehicles and insurance are a fixed cost that council needs to absorb.

In terms of the focus in relation to rectifying the financial position, Mr Dallas said the only two areas council can focus on are capital/loan charges (10 per cent) and other/programme expenditure (24 per cent).

He said that while an element of capital spend has been committed a lot of projects have not yet commenced.

"We are currently reviewing that. All non-essential and discretionary expenditure has currently been ceased and a report will need to be brought to members once that review is completed in relation to what we may not be able to go ahead with in terms of programme expenditure this year," he added.

Council chief executive, John Kelpie, said that the collective bid proposed by the councils stands at £40m and that the department and its minister have been "very supportive".

He said that while the bid has been submitted to the Finance Department, the quantum of overall bids made to the department outweighs the money available.

"It's highly unlikely that the totality of the bid that has been submitted by councils will be met in full albeit there is considerable support...We do face an extremely challenging situation in the weeks and months ahead," Mr Kelpie warned.