Scilly’s Council Could Borrow ‘Up To £4m’ To Plug Black Hole In Budget

Scilly’s Council could borrow up to £4m and raid cash kept aside for other services in order to fill a looming hole in its budget.

Councillors again discussed the growing crisis at the Finance, Audit and Scrutiny Committee on Tuesday, where Head of Development Diana Mompoloki told them the authority is likely to be overspent by up to £450,000 by the end of the financial year in March.

It’s the first time this important committee has met in six months, even though the Council is facing a severe financial crisis.

Committee Chairman Cllr Steve Sims described this as, “a bit of a cock-up really,” and blamed a lack of available finance officers for the delay.

It’s a worrying time for councillors because they found out in December, following an external audit by the accountancy firm Grant Thornton, that their cash reserves stand at just £500,000 – half what they thought at the start of the year.

Any overspend this year will need to come from reserves, which cannot legally go into the red.

In response to a question from Cllr Gordon Bilsborough, Ms Mompoloki said she couldn’t give a final figure for the level of the Council’s cash reserves by March as the accounts from last year hadn’t been signed off yet.

But she said they, “will not be healthy” and “below the threshold that members have set.”

One possible solution is for the Council to borrow its way out of the shortfall.

Ms Mompoloki told councillors that they had often taken a decision in the past to borrow for projects such as resurfacing the roads, but then taken the money from reserves rather than borrowing.

“It’s about catching up with the decisions that members made previously,” said Diana.

Cllr Sims agreed. “The reason why reserves are in the situation they are at the moment is because we did spend £1.5m on the roads. If we hadn’t done that they’d be very healthy,” he told councillors.

But St Martin’s councillor Colin Daly questioned the legality of borrowing money to “top-up” the authority’s reserves.

Ms Mompoloki said it wasn’t “topping-up reserves,” but instead was, “borrowing where we already said we were going to borrow.”

“It’s completely legal and that’s what every other authority does,” said Ms Mompoloki.

She explained to Colin that the Council would be borrowing against their assets.

“You wouldn’t want to just randomly borrow lots of money and then pay it all back. That would be like some dodgy debt consolidation scheme,” she told him.

“It all sounds like that to me,” he responded.

Cllr Daly also asked how much the Council would need to borrow and was told it could be up to £4m over five years.

Officers are also planning to review their so-called earmarked reserves, which are set aside for specific functions such as housing, water, sewerage and the airport.

Ms Mompoloki said they would be looking at whether some of that money could be brought back into the general reserves.

The final accounts for the year ending March 2015 are set to be signed off at the end of this month, by which time councillors will have a better idea of how serious their financial situation is.

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