Wednesday, August 10, 2005
It's a shock to discover that Torbay Council owes around £60 million. Add in another £40 million for their pension shortfall and you can see why some of us talk of financial 'black holes' in our councils accounts.
Even if you don't take into consideration the Private Finance Initiative Westlands School (where the council have basically 'leased' a school back from the developer until 2027) the council are up to their ears in debt.
Put that in perspective. Even if you allow for the fact that Torbay Council owns land and buildings worth about £180m their asset to debt ratio is about the same as a bankrupt third-world country.
Torbay Council has been running financial deficits in recent years - spending slightly more than it raises by grants and taxes, - drawing on cash reserves - so it's 'net income' is nil; and it's debt burden is growing.
How are they ever going to repay their debts? - Unlike an indebted business you can't just sell off loads of assets or downsize operations to pay down your debt - aside from the fact that there are legal restraints - remember at least half the councils operations relate to local education- the fact is most of their 'assets' are virtually unsaleable.
In previous times councils, like Governments, relied on inflation to pay their debts for them. But in the new low inflation world we now occupy this trick doesn't work anymore and debts will need to be paid back.
So you can see how tempting it is to look for excuses to 'release' some of your assets periodically and use the cash to try and cut the debt mountain.
Which leads me to the proposed closure of Upton St James school.
The main school buildings belong to the church and this fact was used as 'proof' from the council that this closure was not about selling the buildings but down to a genuine fall in demand.
But it transpires that this is not the whole truth. Half the school is on council property and if the school closes the council will have some very valuable 'spare' land in a prime residential location.
One wonders if the council officers weren't just a tiny bit influenced by that fact.....