08 May 2015

Technically Insolvent Town Councils

For the purposes of enabling the town councils to carry out their functions under the Town Councils Act and any other Act of Parliament, the Ministry of National Development ("MND") from time to time makes grants-in-aid to the town councils. Such grants-in-aid (also referred to as conservancy and service fee operating grants or government grants) enable the town councils to subsidise the service and conservancy fees for residents living in 4-room and smaller flats.

What would happen if MND were to withhold the conservancy and service fee grants to a town council, just like it had done to Aljunied-Hougang-Punggol East Town Council for financial years 2014 and 2015.

Let's see.

Sembawang Town Council has as one of its elected members Minister for National Development Khaw Boon Wan. This is what its statement of income and expenditure and other comprehensive income for the financial year ended 31 March 2014 looks like (in summary form):


$'000
Conservancy and service fees
 41,180
Less: operating income transfer to sinking funds
-14,296
Agency fees, other income less operating expenditure and tax
-31,220
Deficit before government grants
 -4,336
Government grant
 9,342

With a deficit of $4.3 million before government grant, Sembawang Town Council would not have been able to transfer in full the $14.3 million from its conservancy and service fees to its sinking funds.

Jurong Town Council has as one of its elected members Minister of State for National Development Desmond Lee Ti-seng. This is what its statement of income and expenditure and other comprehensive income for the financial year ended 31 March 2014 looks like (in summary form):


$'000
Conservancy and service fees
 41,590
Less: operating income transfer to sinking funds
-14,107
Agency fees, other income less operating expenditure and tax
-31,000
Deficit before government grants
 -3,517
Government grant
 7,266

With a deficit of $3.5 million before government grant it would not have been able to transfer in full the $14.1 million from its conservancy and service fees to its sinking funds.

Here is a summary of (i) the minimum amount required under the Town Councils Act to be transferred by each town council from its conservancy and service fees to its sinking fund and (ii) the operating deficit after tax but before government grants, for the financial year ended 31 March 2014.

Town Council Operating Income Transfer to Sinking Funds
$'000
Surplus/Deficit Before Government Grant
$'000
Ang Mo Kio
17,576
-6,153
Bishan Toa Payoh
11,517
-1,277
Chua Chu Kang
17,468
-1,267
East Coast
 8,547
-1,371
Hollang-Bukit Panjang
 9,574
-2,075
Jurong
14,107
-3,517
Marine Parade
11,114
-5,030
Moulmein-Kallang
 8,707
-3,963
Nee Soon
13,721
-2,952
Pasir Ris-Punggol
20,673
-3,017
Potong Pasir
 1,230
  -577
Sembawang
14,296
-4,336
Tampines
14,980
-2,480
Tanjong Pagar
15,795
-6,334
West Coast
15,014
-5,560

All the town councils had operating deficits before government grants-in-aid.

This is to be expected. Town councils plan their budgets taking into account the receipt of the government grant-in-aid to avoid a deficit. In the light of the rationale for MND to disburse the grant-in-aid (i.e., to enable the town councils to subsidise the service and conservancy fees for residents living in 4-room and smaller flats), town councils do not expect MND to withhold the grant-in-aid for any reason whatsoever.

If a town council achieves a surplus before the government grant-in-aid, it probably means that it is collecting too much conservancy and service fees from the residents of the HDB properties under its management or spending too little on operating expenditure or both.

None of the town councils would have been able to transfer in full the minimum amount required under the Town Councils Act to be transferred from the conservancy and service fees to their sinking funds had MND withheld the government grants-in-aid for the financial year ended 31 March 2014.

Looks like all town councils would have been technically insolvent had MND withheld the grants-in-aid to them.


This article was updated on 10 May 2015 5:15 pm.

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