Shetland Islands Council would find itself an “enormous” £16.3 million over budget next year and entirely deplete the council’s oil reserves by 2020 if all the spending pressures and aspirations of services managers were to be met.
It is a situation which the local authority’s finance chief Graham Johnston has described as “very worrying” in a strong warning to councillors ahead of next week’s Full Council meeting.
Spending needs from right across the local authority’s various service providers are creating a major headache for the finance department as it starts out on the budget-setting process for 2010/11.
Coming hot on the heels of a funding settlement for next year from the Scottish government, which is £1.1 million less than anticipated, the report outlines a shortfall of £5.2 million in the community care budget, along with the £4 million burden of implementing the single status pay deal with staff.
Furthermore, there is a £2 million hole within the schools service, another £2 million shortfall caused by reduced income for the ports and harbours operation at Sullom Voe and £1.8 million in the economic development budget.
While the latest consultation on possible school closures will begin in earnest this January, even if schools were to close that cannot happen before spring 2011. In addition there is a heavy degree of scepticism about the council’s chances of making up the £4 million target of revenue from the harbour at Sullom Voe. Talks with the oil industry are ongoing but last year the council only made £2.1 million and Schiehallion, from which much of the revenue comes, has been out of action for much of this year.
There are also shortfalls of roughly £1 million for each of the children’s services, environment, transport and housing departments. Councillors will discuss Mr Johnston’s latest update at Lerwick Town Hall next Wednesday. In his report, the head of finance states that if the proposals were to be approved it would “destroy the existing financial policy framework and would totally deplete the council’s reserves in a decade or less”.
Mr Johnston says it means a “huge” amount of work needs to be done to bring the budget within the council’s agreed financial strategy, which is to maintain the oil reserves at or above £250 million.
“In the longer term it is evident that either spending pressures and aspirations will need to be more effectively restrained by the council and/or the council will need to vigorously pursue new or improved income streams for this community,” his report states, referring to oil, gas and renewable energy opportunities.
Mr Johnston does point out that over-budgeting, or underspending, has occurred in the past – allowing the council to draw £7.3 million less from its reserves in 2008/9 than planned, a trend which appears to be continuing in the current financial year. In some departments underspending has partly been a result of being unable to recruit workers to vacant positions. Some councillors have suggested the problem is a result of budgets being set far too high in the first place.
But chief executive David Clark said this week that he was not overly alarmed at this stage as there are several weeks before the budget has to be finalised. “The report is outlining where we are at the start of the exercise,” he said, adding he would be a great deal more worried if these numbers appeared before members next February. “We’ve got a process in place we’re going through to bring the budgets to a manageable level and I’m confident we’ll be able to achieve that.”