City of Newcastle has wiped $101 million off its asset renewal backlog with the stroke of a pen, at odds with Office of Local Government accounting standards.
The council published its annual financial statements this week, including a backlog of $37 million, down from $126 million the year before, to bring basic infrastructure such as roads, footpaths and pools up to a new definition of "satisfactory" condition.
In one instance, the change in definition cut its road replacement backlog from $45 million to $1.8 million overnight.
Outstanding buildings renewal plunged from $23.5 million to $3.7 million, and footpath renewal dropped from $4.8 million to $105,000.
The huge drop in the backlog is due mainly to the change in what it regards as "satisfactory".
The council said in a media statement this week that it was changing its reporting "in line with best practice to ensure ratepayers' money is spent where it is needed most" and that the new method had taken $101 million out of the backlog.
The condition of the city's roads, drains, footpaths and other assets is measured against an OLG five-point scale of very poor, poor, satisfactory, good and excellent.
"Following a change to the Local Government Code of Accounting Practice, City of Newcastle now considers assets rated 3 out of 5 on the OLG key to be satisfactory and therefore these assets are no longer included as infrastructure in need of renewal, also known as a 'backlog'," the council said.
This position is contrary to the OLG's Code of Accounting Practice and Financial Reporting for the year ending June 30, 2020.
"Unless the council has undertaken consultation with its community and has agreed to a condition level for council's assets, the BTS [bring to a satisfactory standard] should be measured against the condition 2 rating of 'Good' as stated in the Integrated Planning and Reporting Manual for local government in NSW.," the OLG code reads.
The Integrated Planning and Reporting Manual says: "Councils should ensure that when they are considering the amount to bring assets to a satisfactory standard that it is the amount of money required to bring those assets up to a standard whereby they would have a condition rating of good (level 2)."
An OLG spokesperson said on Friday that the office "has not changed its guidelines relating to infrastructure backlog".
"Council is responsible for the calculation of this taking into consideration its asset management plans and community consultation in determining what constitutesa satisfactory condition," the spokesperson said.
"Councils' 2019-20 financial statements are to be submitted to OLG by 30 November 2020."
City of Newcastle said on Friday that it was "up to individual councils to determine how best to apply the Local Government Code of Accounting Practice" and insisted its backlog calculation was consistent with the code.
"CN has spent $153 million on asset renewal over the past five years. This is 36 per cent of the total works spend over this time period," a spokesperson said.
The council's infrastructure backlog has been the subject of political friction in the chamber. Independent councillors have accused the Labor majority of spending too much on "sexy" new projects and not enough on maintaining existing assets.
The backlog ratio, a measure of how much the council needs to spend to keep basic infrastructure at a satisfactory level, was 11.59 per cent last year, well above the 2 per cent upper limit prescribed by the Independent Pricing and Regulatory Tribunal.
The new method of reporting the backlog has cut the ratio to 3.48 per cent. Using the old definition, the total backlog would be $137.9 million and the ratio more than 13 per cent.
The council committed to addressing the backlog when it applied successfully to IPART in 2015 for a five-year, 46.9 per cent rate rise.
City of Newcastle chief financial officer Scott Moore said in the council media statement this week that City of Sydney factored in only assets rated in "poor and very poor condition" when calculating its backlog.
"Infrastructure rated as satisfactory is fit for purpose and therefore does not need replacing," he said.
"By using this best practice model, we are freeing up funds to be used where they deliver the best value for our community, including key renewal projects such as the Newcastle Ocean Baths.
"Our infrastructure in need of renewal is calculated at only $37 million using this best practice OLG method, which is much more accurate than the $126 million recorded last year as it also including [sic] $101 million related to assets rated as satisfactory."
City staff warned councillors two years ago that they needed to direct more money to addressing asset maintenance or the backlog would grow even higher.
"The key risk remains the backlog in council's infrastructure assets," staff warned in the 2018-19 budget while describing the backlog ratio as an "extremely important sustainability metric for council".
"It is forecast that council's reserves are insufficient to meet the current and future commitments including this infrastructure backlog."
Chief executive officer Jeremy Bath repeated that warning last year when the council was debating its 2019-20 budget allocations.
"Yes, next year we're proposing to spend less on our infrastructure backlog," Mr Bath told a council meeting in June 2019.
"Frankly, our hands are tied because this council has unanimously agreed to support a number, or award a number, of contracts for new infrastructure, which means ... something has to be deferred."
Reporting on infrastructure backlogs is not covered by the NSW Audit Office's review of councils' annual financial statements.
Lake Macquarie City Council includes all three bottom categories of asset condition in its backlog ratio, which is 2.2 per cent.