Central Coast Council’s financial crisis: Administrator hands down report into cause of crisis

The question of ‘how did this happen?” has been asked over and over since news of Central Coast Council’s financial crisis struck. Finally we have the answers.

Central Coast interim administrator Dick Persson AM and Acting CEO Rik Hart take the reigns.

The extent of Central Coast Council’s financial crisis has been revealed, with it staring down the barrel of an operating loss of over $115m this financial year.

Interim Administrator Dick Persson delivered his 30 Day Interim Report into the council’s crisis at an extraordinary meeting in Gosford chambers on Wednesday.

Mr Persson has indicated that former chief financial officer Craig Norman and former CEO Gary Murphy knew about the use of restricted funds and let it continue.

“We have emails and notes that show they continued to spend funds unlawfully,” he said at the meeting.

Dick Persson AM

Mr Persson told the meeting the $115m loss follows an $89m loss last financial year.

“Central Coast residents have been badly let down by their council and widespread anger over the council’s performance is totally acceptable,” he said.

At the end of this financial year, accumulated losses for the past four years will be over $200m, while the accumulated debt including $200m to be repaid to restricted reserves will be $565m. At the time of amalgamation, the council was in surplus to the tune of $65.4m, however a majority of that was grant money.

Mr Persson outlined a range of issues that contributed to the major losses including use of restricted funds, extra IT costs associated with the amalgamation to the tune of $40m and an Industrial Relations dispute over a 38/35 hour week which saw the former Gosford Council back pay staff over six years.

Mr Persson said it was a sad day not only for the community but for the hard workers at council. Picture: Mark Scott

He also pointed to the Independent Pricing and Regulatory Tribunal (IPART) pricing decision and council’s expanded service and capital works programs that they could not afford.

He said council embarked on a $242m capital works program 2019/20 and heavily relied on restricted funds.

“There were a whole lot of factors that tipped us down a path of living beyond our means,” he said in a press conference after the meeting.

“The key misunderstanding was that at merger they failed to recognise they only had $6m in the bank. At some point people convinced themselves that these large amounts of money in (restricted) accounts were available and they weren’t.”

If tough measures were taken last April when losses were recorded, the council could be $50 to $100m better off.

Former Central Coast Council CEO Gary Murphy’s contract was terminated last week. Picture: Sue Graham

“There will have to be a substantial reduction in the cost of running the business,” Mr Persson said.

“I think most people will be shocked when they realise since the merger there were 242 extra full time people working here. Most organisations that merge find an opportunity to reduce staff.”

He said staff costs had risen 43 per cent since merger, while revenue had only risen by six per cent.

Mr Persson said the road to recovery was looking down a five year path, confirming a 10 per cent rate rise, significant asset sales, staff reductions in both senior management and general staff, further borrowings and increases in charges.

When it came to councillors, he stated they should not have been expected to identify the use of restricted funds, particularly considering it wasn’t picked up by the Auditor General for three years. However he said the councillors had power to access information.

Central Coast Council’s Gosford building will be one of the asset sales. Picture: Sue Graham

He said party politics among councillors worked against collaboration.

“Any attempts to get information was seen as point scoring,” he said.

Mr Persson will ask for an extension of three months for his role, however said the councillors could return by the end of April if Local Government Minister Shelley Hancock gives them the go ahead.

Ms Hancock also has the option to appoint a financial controller instead of reinstating councillors.

Mr Persson started with council on November 2 and promised to have a report delivered to the community within 30 days with not only the extent of the crisis but the main causes.

It comes after Monday’s announcement that former chief executive officer Gary Murphy’s contract has been terminated.

The revelation of council’s dire financial situation – initially reported as $89m – shocked the community on October 6 and has been a rollercoaster ever since with the suspension of the mayor and councillors and appointment of Mr Persson and acting CEO Rik Hart.

Mr Persson said he was “not aware of an example of a greater financial failure of local government in NSW or Australia’s history”.