This week the home owners living on the Central Coast of New South Wales got an unpleasant shock when they watched the nightly television news. Their council was in such dire financial constraints that it was unable to meet payroll. This crisis was only averted when the state government granted an emergency injection of funds to see that all their employees got their paycheck.
The bad news is that a whole lot of other councils are skating perilously close to a similar situation. They are simply living beyond their means and accumulating debt that it will be impossible to repay. For years economists have been sounding warnings that council bankruptcies are inevitable.
The state government moved on that issue by forcing council amalgamations. It was thought that economy of scale council operations would deliver the necessary economics, but both the councils and the public resisted strongly and this move was only partially successful. Very little change has occurred where council amalgamations did succeed.
As part of our democratic process the people who run councils are elected by the vote of those living within the council area. These elections are hotly contested on a political basis and usually aspirants promise improvements in council structures to attract votes. Often it is " pie in the sky " projects that take precedence over the less glamorous aspects of maintaining existing council services, resulting in a backlog of work waiting to be done.
Councils are considered a " safe " investment source for banks and the financial sector because the loans are underpinned by the array of householders who share ultimate responsibility for the repayments. That money comes from council rates, which the state government has pegged to match the rate of inflation. It is unlikely that this rate embargo will be lifted as we struggle to emerge from the disruption caused by the virus pandemic.
Councils are a business similar to the firms that compose the business world. They get hauled into court if they fail to pay their debts and there is absolutely no reason why a council can not be treated as a bankrupt - and closed down. What many people do not realise is that they are the owners responsible for those council debts and those debts will become a charge against them and their property.
One of the outcomes of this debt crisis is a better evaluation of the contenders offering for election to council office. We will become more interested in their ability to contain costs and manage existing operations than uncosted development plans which are often used to attract votes.
The big difference is that when we vote someone into office we are handing them the authority to spend our money, and that is something we should not do lightly. When we consider a candidate to represent us on council we are granting them permission to make binding contracts in our name.
The state of those debts will have a bearing on the value of the home we live in and what price it would bring on the open market. The time is fast approaching when we will have more than a passing interest in the financial health of our local council.
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