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Auckland Council's Deficit $6.3million Explaine

Auckland City Council

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Operating deficit of $6.3m - but it's "only on the books" September 2, 1999

The complexity of the process which has produced an operating deficit of $6.3m in Auckland City's annual accounts this year warrants some explanation said Finance and Property Committee chairperson Kay McKelvie.

"It's rather a case of 'when is an operating deficit not really a deficit?'. The answer is when it is a book deficit, created because the council had to include depreciation on its infrastructure assets in its 1998-99 accounts for the first time."

An $8m surplus was budgeted for at the beginning of 1998. Forecasts during the year predicted a surplus of about $9m, but by the end of the financial year the actual operating surplus was $17.9m.

Several factors led to the increase in the "actual", end of year surplus, said Cr McKelvie. Lower interest rates reduced debt servicing by around $8m. Rates income growth was around $6m more than anticipated, and there were operational savings as well.

"The council also gained an additional $4.8m through winning its legal case against Telecom, in which the court found that its utilities were in fact rateable."

$9m of the surplus has been placed in a special designated fund reserve, and will be used in the current financial to fund asset management costs, and expenditure related to Millennium celebration activities and Y2K Readiness compliance, APEC and Americas' Cup expenses. These costs will not be met from City rates, said Cr McKelvie.

The shift from an actual surplus of $17.9m to an operating deficit of $6.3m in the 1998-99 year is simply explained, she said. From July 1, 1998 the council had to include depreciation of its infrastructure assets in its annual accounts, for the first time. Valuation of these assets has now been completed, and the amount of depreciation required will show in the accounts for the year ending June 30, 1999.

"This depreciation adjustment affects only the 1998-99 year. It affects the council's balance sheet only, and does not need to be funded."

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