COVID-19 puts £10.7m hole in Council coffers

Derry City and Strabane District Council’s Governance and Strategic Planning Committee was told the Council will suffer a significant loss of income from services in 2020/21.

Lead Finance Officer Alfie Dallas, in a report to the committee, advised that £7.985m in mitigations - comprised both of internal savings and supports from central government - meant the Council was sitting on a projected deficit of £2.762m.

“As a result of the significant financial impact of COVID-19, and as explained in further detail below, it is now a significant probability, certainly in the absence of continued significant Government support, that reserves are now likely to be inadequate to fund Council services for the 20/21 financial year,” he stated.

A total loss of £10,747,000 has been estimated with £5,240,000 of this expected to arise from foregone income in fees from services such as sports facilities, off-street parking, museums, tourism, and planning and building control. The loss of income due to the decimation of the rates base has been projected at £4,500,000.

Mr. Dallas, referring to domestic rates in particular, noted: “The pandemic is still likely to have a significant impact on ability to pay with potential for increased bad debt.”

He reported: “This is obviously a very concerning and challenging position and one which, in the absence of significant Government intervention, could have a significant impact on Council services both during 20/21 and into subsequent financial years, with significant challenges for the upcoming 21/22 rates process.”

He warned the committee that without more support from Stormont “reserves would be inadequate to fund Council services for the 20/21 financial year and place Council in an insolvent position”.

However, steps are being taken to try to offset the losses and up to £7.985m in savings have already been identified.

Mr. Dallas explained that the Council can book £3.25million from a range of central government supports aimed at lessening the impact of COVID-19 on local councils’ finances.

Meanwhile, the Council has also identified savings of £4.735m through a variety of measures including a recruitment freeze, a reduction in discretionary spending and internal savings. While these measures reduce the projected deficit to £2.762m Mr. Dallas insisted that more support from central government will be needed otherwise very difficult times lie ahead.

“Despite the proposed measures above, Council’s financial position remains critical and the risk of insolvency remains. At a minimum, the financial challenges could see total depletion of Council’s usable reserves and District Fund - as noted above, this will present very significant rates challenges going forward as these will need to be replenished and also when considered in light of other likely and emerging pressures.”