Upper Hunter Shire Council will operate with a deficit until 2032 and will consider a special rate variation to manage its $32 million debt.
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The council's debt has ballooned to nearly three times its annual ratepayer base of $11 million.
Local Government Minister Ron Hoenig says he is "aware there have been some concerns raised" but he is reluctant to intervene.
A petition to the NSW Parliament, signed by 1200 people, called for the government to step in and appoint an administrator to rescue ratepayers from the dire financial situation.
In his response to the petition, Mr Hoenig said the Office of Local Government (OLG) had been monitoring the council's financial position and he was "satisfied that council is receiving appropriate attention".
"Council has recently provided OLG with its latest long-term financial plan, which forecasts operating deficits until 2032, though the size of these deficits will reduce in that time," Mr Hoenig said. "OLG will continue to engage with council in relation to its plans in addressing declining performance indicators. I will review the updates as provided and take further action if warranted."
The council first reported an operating deficit four years ago. The deficits have grown over the subsequent financial years.
It is understood multimillion-dollar loans to upgrade Scone airport and the town's livestock sale yards are major contributing factors to the growing $32 million debt. The projects were expected to generate significant revenue, but financial documents reveal neither has turned a profit and both are operating at large annual deficits.
Mr Hoenig said the council had indicated it had plans to improve performance at the airport and livestock exchange.
An Upper Hunter council spokesperson said the council had provided the airport and saleyards as a subsidised service to the community, in the same way it provided libraries, pools, parks and roads.
"Council has already cut spending and has looked at alternative revenue streams," the spokesperson said.
"It has not taken any loans in the past three years, and we have flagged the potential of a special rate variation ... any special rate variation process will require significant community consultation and IPART approval."
Upper Hunter councillor Elizabeth Flaherty has repeatedly raised concerns about the council's financial situation. She said parts of the new budget were already off track and she doubted the council could climb out of deficit by 2032.
"Despite council's claims, there is no testable business plan for the areas haemorrhaging money," Cr Flaherty said. "I've repeatedly asked for those plans, and I'm advised staff are still working on them. It's now been years. The longer this continues, the less salvageable the council is."
Despite council's claims, there is no testable business plan for the areas haemorrhaging money
- Cr Elizabeth Flaherty
The special rate rise would contribute only an extra $750,000, which Cr Flaherty labelled an "audacious" ask given the council could not show its residents a testable plan for how it would stop millions in cost overruns.
The council has also drawn the ire of residents for its bungled upgrade of the road connecting Merriwa to Willow Tree, which remains unfinished after four years with costs blown out from $10 million to $60 million.
The council failed to build Coulson's Creek Road properly, and a report found "significant deviations from the design were constructed". A series of dangerous tension cracks turned into a major landslide, forcing the road to close in 2021.
In December, the council officially handed over management of the road, described as a "critical livestock freight route", to Transport for NSW. The OLG is investigating the botched repair job.
Mr Hoenig has the power to call a public inquiry, which can lead to dismissing a council and appointing an administrator, but he said such an act was a "power of last resort". He could also temporarily suspend a council to correct a problem, but again ruled out such a move. For now, the OLG would continue to monitor the council's financial indicators, such as cash balances and debt levels.
"I'm glad the minister assured residents he's monitoring council closely, but at this stage residents can only rely on the minister's assurances that he will hold the council accountable," Cr Flaherty said.