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Council to set an historic budget

Outgoing SIC finance chief James Gray.

SHETLAND Islands Council is poised to set a balanced budget for the first time in almost 20 years. 

But a new report warns that the local authority faces a £200 million shortfall between now and 2050 on maintaining its buildings, roads and infrastructure.

Many observers have been surprised with the speed at which the council has been able to make cutbacks: councillors elected in 2012 inherited a regime that had raided its oil reserves to the tune of some £36 million to support spending.

When elected members meet in Lerwick Town Hall on Wednesday morning they will be asked to sanction a draw of £6.95 million – an “affordable amount” which will protect the value of its reserves.

Yet, while the achievements of departing finance chief James Gray are being widely hailed, he is issuing a stern warning about what the future holds.

Government funding for councils is likely to keep falling until 2020, while a report on the SIC’s long term financial planning until 2050 damns the way oil and gas income was lavishly poured into buildings and infrastructure.

Gray writes: “An asset base has been built up over the past 35 years using oil revenues at a level from which the council no longer benefits.

“There appears to have been no longer term thinking about how this asset base could be sustained into the future in light of falling oil revenues.”

The scale of that fall is highlighted by figures showing that oil and gas income between 1980 and 1990 was £1.1 billion (in 2012 prices) – but in the past two decades only £300 million has come into the coffers.

Gray identifies a funding shortfall of more than £200 million in the next 35 years in the level of capital spending needed to maintain the SIC’s existing assets.

It has £400 million-worth of property, plant and equipment and a network of roads valued at £1.16 billion – all of which will require “significant maintenance and replacement expenditure in order to sustain it into the future”.

‘Noughties Council’

The spendthrift nature of past councils is once again laid bare. Those in charge from 2000 onwards are held up as a bad example to be avoided in future, dubbed the ‘Noughties Council’ and taken to represent a scenario where “no consideration is given to restraining expenditure to keep it in line with income”.

SIC deputy leader Billy Fox.

If the oil reserves’ inflation-adjusted £500 million value in the year 2000 had been retained the council would be able to sustainably draw £25 million a year on services, rather than the £10 million it can now.

“To put this into context, an additional £15 million to spend each year is almost equivalent to the council’s entire secondary school education budget,” Gray notes.

SIC deputy leader Billy Fox said the sustainable draw on reserves forecast for the 2015/16 budget was unlikely to be achieved the following year “due to national austerity measures and other pressures”.

“There are many external factors outwith the council’s control which could affect us over the next few years,” Fox said, “and there are still legacy issues to be dealt with.

“It is not going to be easy but at least we have a plan and this council is in a more stable position and displaying a good deal of common sense and resolve to get us there.”

That is not a view shared by Lerwick South councillor Jonathan Wills who – along with South Mainland member Allison Duncan – took his concern’s about the local authority’s future financial plight to the Accounts Commission’s Edinburgh offices last week.

‘Dire consequences’

Wills remains furious with the way a majority of councillors steered clear of shutting small primary schools last month – leaving Hayfield’s blueprint for education plans virtually in tatters.

Lerwick South councillor Jonathan Wills.

He says it is simply unaffordable for the council to maintain 33 schools without doing serious damage to the budget for educational resources throughout Shetland, and warned of “dire consequences” for future administrations.

Wills feels the education committee has failed to deliver the “very solemn commitments” promised during a sobering Accounts Commission hearing into the crisis-ridden council in 2010.

The veteran, who will stand down at the next election, is also convinced that a “cabal” of members is meeting prior to votes in the council chamber to determine decisions.

He said those involved ought to formally declare themselves as a group but were instead “doing it by stealth, and I think that’s contrary to the spirit and letter of assurances that the council gave” to the Accounts Commission.

Both Fox – who strongly denies that any “cabal” exists – and council leader Gary Robinson say they are unconcerned by the two backbenchers’ self-funded visit to Edinburgh.

Fox said he had “no intention of entering into a debate with a pair of elected councillors who have no idea of collective and corporate responsibility and whose unwarranted actions illustrates their ignorance of the council’s true financial position”.