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HONG KONG URBAN COUNCIL

interest arising from placement of Urban Council reserves in fixed deposit with banks together with a net increase of $9.6 million in fees, charges and rentals arising from revised fee levels effected in 1984/85.

The revised estimate of recurrent expenditure is expected to be higher than the original estimate by $23.1 million, reflecting the general salary revision of 10% mentioned in the preceding paragraph above offset by a reduction of $22.2 million in operational expenditure as a result of tight financial control by various Select Committees. The revised estimate of special expenditure is expected to be higher than the original estimate by $24 million which is due to revote items carried forward, in line with standard practice, from the previous year. The revised capital expenditure is expected to be lower than the original estimate by $88.6 million. This is mainly as a result of lower than expected expenditure on capital works projects.

With the transfer of the expected deficit of $32.2 million in the current year the Council reserves as at 31 March 1985 will be $257 million.

Against this background I now present the draft estimates of Revenue and Expenditure for 1985/86.

Estimates 1985/86

The proposed estimates of revenue and expenditure for 1985/86 have been agreed by the relevant select committees during September and October 1984.

The proposed expenditure of $1.83 billion for 1985/86 is within the agreed Provisional Acceptable Level (PAL) of Expenditure of $1.85 billion. The concept of PAL has been accepted and introduced into the Council's budgetary process for the first time this year.

Compared with the revised estimates of expenditure for 1984/85 of $1.71 billion, the proposed expenditure shows an increase of $121.6 million (7.1%) in monetary terms.

Personal emoluments and related expenses of $1,075.5 million account for 58.7% of the overall expenditure. Compared with the revised estimate for 1984/85 of $1,041 million which accounts for 60.8% of expenditure, this is an increase of $34.5 million (3.3%). In this regard it should be noted the 1985/86 estimate includes $13.95 million in respect of staff to be transferred with effect from 1 April 1985 from the Recreation and Sports Service of the Recreation and Culture Department to the Urban Council and a further sum of $22 million in respect of the Municipal Services Secretariat which has been included on the proviso that the actual re-organization will be subject to further consideration by Council. Furthermore, in line with standard practice, no provision has been made for any general salary revision which may be awarded for the civil service in 1985/86.

Operational expenditure at $375.7 million shows an increase of $30.9 million (8.96%) over the revised 1984/85 estimate.

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Special expenditure at $51.4 million shows a reduction of $28.7 million over the revised estimate for 1984/85 although it should be noted the provision for 1985/86 does not include unspent balances of special expenditure subheads that will need to be revoted.

Capital expenditure of $330 million accounts for 18%, compared with 14.3% in the revised estimate for 1984/85, of overall expenditure. The proposed expenditure for 1985/86 is in accordance with the Urban Council Works Programme 1984/85 to 1988/89.

Revenue Estimates

The revenue estimates anticipate total collections of $1.65 billion, an increase of $95.8 million (6.1%) over the approved 1984/85 estimates. This increase is primarily due to anticipated additional revenue from rates of $46 million, bank interest $10 million, increases in fees and charges implemented in 1984/85 $20 million and anticipated increases in fees and charges to be implemented in 1985/86 of $20 million.

The rate yield at $1.22 billion accounts for 73.9% of total Council revenue. Arising from the new rateable values for properties introduced in April, 1984 the Urban Council Rate percentage was reduced from 8% to 2%, a reduction of about 3.2 times (previously incorrectly stated as 21%). The actual yield for Council for 1983/84 on the old basis was $993 million, allowing for natural growth the yield for 1984/85 would have been $1.06 billion. Based on the new Rate percentage the estimate yield for 1984/85 will be $1.175 billion, an increase of $115 million.

The total income of $431 million from secondary sources accounts for 26.1% of the Council's revenue.

Urban Council Reserves

The total Urban Council reserves at April 1984 amounted to $289 million mainly comprising $280 million in the Capital Projects Reserve Fund. At the end of the current year the reserves are expected to reduce to $258 million and to $77 million at 31 March, 1986 which is below the minimum of one month's reserve of cash. I consider necessary.

It will be necessary towards the latter half of the current year to transfer approximately $30 million from the Capital Projects Reserve Fund to the General Revenue Balance so as to meet the 1984/85 deficit. It will be necessary to make further transfers at a later stage to meet the deficit which will arise in 1985/86.

Future Outlook

The estimated reserves at 1 April 1986 are clearly insufficient to meet the deficit expected to arise in 1986/87 unless the Council obtains a substantial increase in income or alternatively curtails expenditure.

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