Kempsey Shire Council admits changes needed after $8.1m budget shortfall

Kempsey Shire Council has recorded a deficit of $8.1 million in the last financial year, nearly double the previous year's $4 million gap.

The CEO, Andrew Meddle, acknowledged the budget is "not healthy" and warned a "step change" is needed to ensure financial sustainability.

What happened: During the November 18 council meeting, Gearoid Fitzgerald of the NSW Audit Office and Richard Watkinson of the Council's external auditor, HLB, joined online to present the 2024-2025 annual financial statements.

The findings: The council’s rates and annual charges revenue increased by 6.3 percent from 2024. The iPart rate peg and a special rate variation accounted for the majority of that increase. However (and crucially) grant income was lower than 2024.  

• Capital grant income was down more than a million dollars (around 3 percent), along with an 18 percent decrease in grant income for operating purposes. 

• “So revenue was certainly down in 2025 from a grant perspective compared to prior year,” Watkinson said. “That has contributed to a slight decrease in [council’s] operating results for the year.”

Kempsey Shire Council reported a surplus in operating results for 2025 of $29.2 million but that is a decrease of around $5 million on the prior period.

• This was mainly attributed to a decrease in grant income, but also some increasing operating costs within Council.

Watkinson said the combination of increasing depreciation, increasing operating

costs, and some decreasing grant revenue, has contributed to a decrease in the result for the year.

• “Year on year, your capital grants have remained relatively consistent: $36, $38 and $37 million respectively, over the last three years,” Watkinson said.

“But certainly you can see a downward trend in your operating grant income, and that is what's contributed, in part, to that downward trend in the operating result over the last three years.”

An $8million deficit

Watkinson said the bottom line was an $8.1 million deficit.

The report looked at council’s $29.2 million surplus, and then took into account the grant income for capital purposes which sat at $37.3 million.

• “You take out capital grants, and it shows a deficit for the year of $8 million,” Watkinson said.

Watkinson also noted that the council’s grant income has decreased year on year for the past three years, while operating costs of running Council has increased year on year.

The auditors did not comment on whether or not the operating income was sufficient to cover the operating expenses of the council. 

Fitzgerald instead advised the council to look at whether it can generate additional income from its assets.

Watkinson noted the council's depreciation figure was "substantial" and needs to be monitored. 

• Council has experienced a 12 percent annual increase in assets over the past two years, which increases the number of depreciation.

Cash and investments: Kempsey Shire Council, at the 30th of June, 2025, had $191 million of cash, cash equivalents and investments. 

• According to Watkinson, this was a “substantial increase” on cash holdings at 30 June 2024, “in part, down to some significant grant funding that came into Council in the latter half of the year.”

Natural disasters: Kempsey Shire Council received significant grant funding, particularly after this year’s severe weather events. The natural disaster funding has been received and will be expended in future periods. 

Roughly 20 percent can be attributed to developer contributions, water and sewer funds, and around 8 percent of other restrictions.

Cash to spend, but with limited time: Council can’t use externally restricted cash for day-to-day operations, but what about unrestricted cash?

According to the report, the council has around four months of available cash to cover its general operations. 

In 2024, the average available cash to cover expenses for regional councils was seven months. 

So while Kempsey’s council is below that average, it has experienced a positive upwards trend from 3.5 months in 2024 and 3.6 months in 2023.

Infrastructure:

The audit confirmed Kempsey Shire Council is responsible for some significant infrastructure, and a substantial amount of money was spent on assets in 2025.

• During the year, council spent roughly $49 million on asset renewals and an additional $19 million constructing new assets.

• Major projects included the regional sale yards infrastructure upgrades, and the water treatment plant program.

• Nearly $10 million was spent on transport, e.g. roads, bridges, footpaths.

What did people say: Council’s CEO, Andrew Meddle, said in general terms “the budget is not healthy.”

• “It is not a position that any of us want to be in. There needs to be a step change in what we are doing now to get us to where we need to be with financial sustainability,” Meddle said.

He assured councillors the internal team is committed to “shift the dial” on the deficit.

“This is not where this community needs its council to be in terms of its financial position. It needs to be making a small surplus year on year,” Meddle said.

Daniel Thoroughgood, Director Corporate & Commercial, put it bluntly: “We had an $8.1 million deficit in the last year, so we took in $8 million dollars less than we spent for the year effectively.”

Thoroughgood noted the challenging environment of the last financial year including numerous natural disasters, and in particular major flooding impacts on roads.