Last week, Lismore City Council held an extraordinary meeting for the audited financial report and the audited report to be presented to council in accordance with the Local Government Act 1993.

The report was presented by Kevin Franey, a partner with local firm Thomas Noble & Russell (TNR).

Mr Franey highlighted the Net Operating Result decreased from $18.7 million to $5.1 million, however, he said the key number that we should all be looking at is the Net Operating Result before Capital Grants and Contributions. "That tells us how we're going in a profit and loss sense without those capital grants and contributions from other sectors of government," Mr Franey explained.

The key takeout was a $7.2 million loss in the General Fund of Lismore City Council (LCC) (without $10 million of asset disposal due to the impact of the flood). The water fund returned a surplus of $1.2 million (which would have been $3 million without assett losses), there was an $11.2 million loss in the wastewater fund (which again would have been a profit of $6.3 million if the asset write-off was added back).

"I think we need to continue to focus on getting that General Fund result back to break even or slight profit to make sure we've got enough money to replace our assets," Mr Franey said.

The Lismore App spoke to LCC General Manager John Walker to ask about this result.

Evaluating LCC assets has varied from one valuer to another when it comes to estimating the cost of replacing that asset. So, if the cost is lower the General Fund will be in better shape and the opposite if the replacement cost is higher when calculated over a given period of time. A little bit like renovating your kitchen and bathroom in your own home. How much will it cost and when do you want to do the renovations?

For LCC, the February 28 natural disaster saw a number of its assets completely destroyed such as the wastewater plant in East Lismore. The positive news in the disaster is that the wastewater facility will be replaced through funding from a government grant so LCC will not need to be building a cash reserve for the future until after it is rebuilt. This is the same for all council assets that were destroyed.

"Obviously, our road network, our sewage plants, our buildings, all of that will be in better shape as a result in the long term, "Mr Walker explained, "That will save Council money in the long term. It'll fix up a lot of the ratios around financial performance. So yeah, that's a good thing. It's a hard way to get there but it's a good thing. A lot of these things would never have got done."

"The downside is in a financial perspective, where I would say new assets are bad because when that occurs you get a higher depreciation rate. Asset maintenance and asset renewal is good, so we will get a lot of that."

"Obviously, it's a bad thing from a business point of view, small business big business, from the mental health position, from the community but put in straight asset terms, it won't hurt and as well as the $20 million we've got from the government for our capacity and capability. To put that amount of money in over three years to help the organization get its act together is a wonderful fillip so Lismore can be in really good shape going forward."

What about the General Fund and getting it back into the black?

"Well, if we accounted for our performance as the state and federal government does, which is cash, then we are in surplus right now."

"We budget for cash surplus, we try to increase the cash surplus as part of our strategy because free cash is important to let you do things but we have to put depreciation into our accounts, and therefore we're not seen to be in good shape. The state government don't put depreciation in their accounts. You hear the Federal Treasurer on budget night saying we've got a cash surplus or a cash loss, you don't hear him say we've also got $500 billion worth of depreciation. So we look at our accounts and you need to get to the point, the way it's done, where we were in surplus after depreciation, that's a big challenge. And that will get harder as we invest all this money in renewing the assets."

"It is a book figure and that's all it is. We are required as professional staff to determine depreciation based on independent valuations and the whole of life term of the asset. So, if you have an external valuation and it's high and you're very prudent in the length of the asset you get higher depreciation. One of the things we've done this year is, looking at the roads for example, is that the evaluation done two years ago, clearly to me, was too high. Our cost per kilometre of rebuilding our inputs was way out of whack compared to everyone else in the region."

"So, we've independently had a look at that and you will see that coming into the accounts probably this year, I think we'll be $5 million or so better off."

"You've got to get it right because there are accounting standards, you can't cheat but you can make sure you're prudent and that helps narrow the gap. You still have to make cash surpluses and you still have to have money that your putting aside for rainy days. That's our reserve funding."

Mr Walker said council has $120-130 million of cash but that is sitting in restricted reserves which has a specific purpose like funding the sewage plant rebuild. At the end of the day, LCC has to make cash surpluses to get the ship heading in the right direction and, as we know, LCC has not been achieving that goal.

"We did make a cash surplus this year and we will make cash surpluses in the future. It's how we handle the investment around the rebuild and how we handle the depreciation."

"You make a cash surplus by spending less than you earn. It's really quite simple. "If you're a household and you've got an income, you spend less than you earn, otherwise, you're borrowing on the credit card. Counil's are the same.

"This council has always had a view that says we've never had any money, we've never had the money to do anything. Well, that's true if you want to do everything, but if you say I've only got X amount of dollars and I'm going to spend less than that, then your going to get a cash surplus."

"It's not hard, but it's hard to make the decisions. So, it's decision making and the choices you make around how you spend your money that is important. That's where the Councillors come in."

"So, do we want to run a refuse service, for example, that loses $2-3 million a year? You don't? Because the money has to come from somewhere. Do you want to run your facilities at losses? Not necessarily. Some you do because it's a community service but ostensibly Council budgets a simple thing. You've got $180 million of income, you spend less than that and you've got a cash surplus which you can put into asset maintenance or unrestricted reserves so you can use it for rainy days."

Mr Walker also blamed the deficits on short term thinking by councillors because, much like their State and Federal members, they would like to get re-elected in four years.

"If you got elected because you want to achieve something and that personal achievement overrules good financial prudence, then you are always in trouble. So you need councillors that look at the big picture. That's why you need your long-term financial planning, that's why you need discipline, that's why we try to do what we do."

"We can make a cash surplus every year, as long as the council is prepared to spend less than we earn. We can advise where it goes, you know, we can recommend actions. All this talk on the quarries and the businesses and the refuse and all that sort of stuff, you can make decisions that are good for your balance sheet, or you can make them on philosophical grounds."

The expression, "You can't eat your cake and have it too" springs to mind. Sometimes, our Councillors have to say 'no' we haven't got the money right now or we end up in the same financial result Lismore has experienced for at least a decade.