The Newcastle Now board is “exploring its options” after Newcastle City Council sent the business group a termination letter on Wednesday.
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Council chief executive officer Jeremy Bath wrote to Newcastle Now executive manager Richard Christian ending the group’s deed of arrangement with the council from December 31.
Mr Bath said in a statement on the council’s website the same day that an external investigation had found Newcastle Now “inappropriately used” funds from a levy on commercial ratepayers.
He said the group had used 56 per cent of its funding on administration and salaries in 2017 but noted that this spending had occurred before Mr Christian started in the role in May this year.
Mr Bath’s email to Mr Christian ordered Newcastle Now to repay unspent funds by January 20 and said the council reserved the right to demand repayment of any “misspent” funds.
“The elected Council resolved on 11 December 2018 to call for tenders for all or part of the services provided by Newcastle Now under the Deed,” the email said. “Accordingly, we hereby terminate the Deed … ”
The termination email follows an investigation into whether Newcastle Now has complied with the 2011 deed.
Mr Bath cut off the group’s funding in July, though it has survived since then on a drip feed of money.
The investigation by consultants Centium Group has already led to the sacking of two council employees.
In his email to Newcastle Now, Mr Bath said the investigation had found “substantial breaches” by Newcastle Now, including that it had submitted only one business plan “in business plan format” in seven years.
Newcastle Now and the other “business improvement associations” (BIAs) at Hamilton, Wallsend and Mayfield are funded by a levy on commercial ratepayers. They are independent but rely on the council to collect and disperse the levy in line with their deeds.
Mr Bath’s email said Centium had concluded Newcastle Now had not held funds “on trust” for the council, contrary to the deed, and had “routinely transferred monies from the Investment Account into its working account, with the result that Special Rate Levy funds have become part of the working account of Newcastle Now for and co-mingled with general expenses”.
Newcastle Now had been required to keep accurate records of how it spent levy funds, but the council had found records for “actual project expenditure” for only the first two years of the group’s operation.
The lack of records had made it “not possible to verify” the group had spent funds in accordance with the deed, legal requirements and council authorisations.
Newcastle Now’s board met on Thursday morning to discuss the situation.
Chairman Edward Duc said after the meeting that “in considering our options, we believe that we can work out a way forward for us”.
“We know that there have been some mistakes made – not by us – and we need to point out those mistakes to council,” he said.
The council and Newcastle Now have been at odds since lord mayor Nuatali Nelmes criticised Mr Duc at a public briefing session in March.
Cr Nelmes said at the briefing that Newcastle Now had “dropped the ball” on business advocacy during light rail works and Mr Duc had been “talking the city down”.
Newcastle Now’s former executive manager, Michael Neilson, said in April that the lord mayor’s offer of a 50 per cent rebate on the BIA levy to help struggling traders was “tokenistic”.
Mr Neilson stepped down soon after and Mr Christian took the reins in May.
In July, Mr Christian disputed Mr Bath’s rationale for cutting off the group’s funding, saying Newcastle Now had been fulfilling its reporting obligations under a scheme “changed by council staff in 2015”.
He said on Thursday that the Newcastle Now board had been “very supportive throughout my brief tenure”.
“I appreciate all of the hard work they’ve put in over the years and in particular the last six or so months while I’ve been involved.
“I feel privileged to have served the business community in the city and I hope to continue to make a meaningful contribution to that in some form, whether as a part of the new way that BIAs support businesses or in another related capacity.”
The three other BIAs will have their existing deeds of arrangement terminated on June 30 after a broader review of the BIA model, conducted by consultants AECOM, was tabled at Tuesday’s council meeting.
The BIAs can sign new deeds from July but cannot use levy funds for administration and staff costs.
And they will be forced to compete against each other and other groups for part of the annual $1.345 million BIA pool.
“It’s clear from a review of the BIAs that many millions of dollars have been spent on administration that should have gone into the delivery of on-the-ground events,” Mr Bath said on the council website.
Hamilton Chamber of Commerce president Nathan Errington, who is a volunteer, said his organisation was disappointed at the decision to abolish the BIA framework.
“We understand that it will see a significant loss of funding for Hamilton in favour of a more centralised model controlled by council,” he said.
“According to council, this is about reducing duplication across BIAs, but, in fact, it could mean that council itself will need to create or employ specialist skills to manage the activities that we currently undertake.
“This would still be a cost to ratepayers, as are the salaries of the 900 staff and the CEO of the council, just from a different bucket of money.
“That is not removing duplication; it is rearranging the deck chairs.”
He said the chamber also believed the new model would reduce its independence and ability to “ask the tough questions of council and other levels of government”.
“This is not a more transparent or effective model, or what we understand the 350 people we represent in Hamilton want for our cosmopolitan suburb.”
(Note: Earlier versions of this report omitted mention of Mr Bath’s comments on how Newcastle Now’s use of funds for administration and salaries had occurred before executive manager Richard Christian took over. There is no suggestion of wrongdoing on the part of Mr Christian.)