Did Desmond Lee tell the whole story?

When Minister of State for National Development, Desmond Lee, said that the Workers’ Party Aljunied-Hougang-Punggol East Town Council (AHPETC) had an “operating deficit of S$734,000 in FY12”, was he telling the whole story?
Let’s revisit what he said exactly, as reported by the Straits Times on 7 November:

“Before merger, Aljunied had an operating surplus of $3.3m. Within two years, the merged AHPETC’s financial position has deteriorated rapidly. The operating surplus of $3.3m Aljunied had in FY10 had turned into an operating deficit of $734,000 in FY12.”

A casual reader of that statement or claim might have gone away with the impression that the AHPETC had received this S$3.3 million and has squandered S$3.3 million in the span of two years, and that the town council is now in a deficit of S$734,000.
Indeed, reading online comments following Mr Lee’s remarks shows that some do think this.
So let’s get the facts right.
First, when Mr Lee used the word “Aljunied”, he was referring to the town council previously run by the People’s Action Party (PAP) team in Aljunied GRC which was led by former minister, George Yeo.
Thus, when Mr Lee said that “Aljunied had an operating surplus of S$3.3m”, he meant that the PAP town council under Mr Yeo had the operating surplus.
When WP won in the elections and took over Aljunied GRC, the Town Councils Act (TCA) prescribes that “all its surpluses” – referring to the previous town council – “shall be transferred to the prescribed sinking funds of the Town Council”.
According to the TCA, if the new MPs are from the same political party as those of the previous town council, then 80 per cent of its surpluses shall be transferred to the sinking fund.
If, however, as in the case of Aljunied, the new MPs elected are from a different political party, then “all its surpluses” – ie, 100 per cent of the surpluses – “shall be transferred to the prescribed sinking funds of the Town Council.”
So, the first question about Mr Lee’s remarks is: did the previous PAP Aljunied Town Council leave $3.3m for the WP’s AHPETC? Or did it transfer all $3.3m into the sinking fund as required by the TCA?
Operating deficit?
Mr Lee points the finger at the “operating deficit” of the AHPETC and raises an alarm over it.
But let’s take a closer look.
A check of the annual reports of all the town councils reveals that in fact all town councils run operating deficits, and not just AHPETC.
As pointed out by TR Emeritus in its report titled, “Desmond Lee, all town councils run deficits”, town councils only go into the black after receiving government grants.
Otherwise, they all incur operating deficits.
So, why single out AHPETC?
Here are some examples from various latest annual reports of the town councils:
Ang Mo Kio town council received almost $14 million in government grants, enabling it to overcome an operating deficit of almost $6 million:

Mr Lee’s Jurong GRC received more than S$7 million in government grants, enabling it to overcome an operating deficit of $3 million:

Sembawang GRC received almost $21 million in government grants, enabling it to overcome an operating deficit of almost S$5 million.

[Do note the grants from the previous year as well, as shown on the right side of the pictures.]
Here are some more comparisons from TR Emeritus:

So, it is clear from all the town council’s reports that town councils operate on deficits.
It is only when government grants are given that their operating deficits turn into surpluses for the year.
In its annual report, the chairman of the Marine Parade Town Council, Lim Biow Chuan, confirmed this:

“The Town Council closed its financial year ended March 2013 with an operating deficit of $4.77 million before government grants.
“We are pleased that the government has continued to provide us with grants to defray our operational costs.
“With the government grants of $6.11 million, we managed to report an operating surplus of $1.34 million.”

How much government grants?
So, the next obvious question would then be: how much grants, which would enable the town councils to defray their costs, does each town council receive?
The answer to this question will affect how the town councils are able to turn operating deficits into surpluses for the year.
And these grants can be rather substantial.
For example, in 2010/2011, Mr Lee’s Jurong Town Council received almost $39 million in government grants:

Now let’s look at Aljunied GRC.
Government grants are given based on the number of households in an area.
In a Straits Times report in 2010, it was reported that Aljunied GRC had 50,000 households.
AHPETC, however, now manages “70,000 residential and commercial units” from the three constituencies under its charge.
In Aljunied GRC, under the PAP town council prior to GE 2011, it was reported by the Straits Times that a grant of S$560 for each household was given to the town council.
According to the Straits Times’ report of March 25, 2006, “The gathering storm”:

“Taking into account all the grants from the Government, the Aljunied Town Council, for example, gets $560 per household for the financial year ending March 2005.”
“In contrast, government grants came up to just $113 per household in Potong Pasir.”

In another report on the same day, “Hougang’s Low may be ‘heart’ to beat”, the Straits Times reported:

“Government grants came up to about $111 per household in Hougang in 2004-05. By contrast, neighbouring Aljunied Town Council, which has access to funds such as the government-controlled Community Improvement Projects Committee (CIPC), got $560 per household for the same period.”

The Straits Times also had a graphic representation of this:

Do note the bar charts for Hougang and Potong Pasir – both under opposition parties at the time.
It would thus seem that Aljunied GRC at the time had received some $28 million in government grants.
[$560 x 50,000 households = $28,000,000] How much did the AHPETC receive from the government in 2012/13?
According to its 2012/13 annual report, the total grants received is S$7.2 million.
[This sum excludes Punggol East which was not under WP at the time yet.] From what Mr Lee had said in his statement, it also appears that the total number of households in Aljunied GRC and Hougang SMC is 55,000.
This is similar to the 50,000 households under the charge of the previous PAP Aljunied town council.
So, the grant to each household appears to have been slashed from the S$560 given to the PAP Aljunied town council, to $130 given to AHPETC in 2012/13.
[$7,200,000/55,000 = S$130]
[Note: government grants differ in amount in different years.] Obvious question again: why are the government grants to AHPETC slashed so substantially, if indeed they were cut?
If they were not, would AHPETC have run into a deficit for the year?
It is something worth asking because it seems that PAP town councils receive more government grants which have enabled them to turn operating deficits into surpluses for the year (and perhaps to even write off debts owed, such as S&C charges).
Incidentally, when Mr Lee says that AHPEC has an “operating deficit” of $734,000, he is not quite right.
What he meant and should have said was “deficit/surplus for the year”, as reflected in the annual reports of town councils.
Is AHPETC in the red?
From the attacks by the PAP on the AHPETC, some (or perhaps many) might get the impression that AHPETC is in fact in the red.
But this too is not true.
AHPETC has an accumulated surplus of S$1.8 million at 2012/2013.
The AHPETC explained this in its annual report.

“Escalating operating costs continued to pose a major challenge in managing the town. Our operating expenditures increased by almost $3 million. This resulted in an operating deficit of $733,000 for the year and reduced the accumulated surplus to $1.8 million.
“Lift maintenance had increased from $3.6 million to $4 million. As more lifts are being added to the town from the Lift Upgrading Programme, the lift maintenance cost is expected to increase further.”

It also highlighted labour costs, which have also increased from $5.4 million to $6.7 million.
Being alarmist
In conclusion, it is clear that Mr Lee did not set his remarks in the proper context when he rang the alarm on AHPETC.
Mr Lee did not reveal that all town councils, including his own Jurong Town Council, in fact incur operating deficits.
Mr Lee did not reveal that PAP town councils are able to register surpluses only after receiving government grants.
Mr Lee did not reveal if the amount of grants given to AHPETC has been slashed from what the previous PAP Aljunied town council had received.
Mr Lee did not reveal that “all [the] surpluses” of the PAP Aljunied town council were to be transferred to the sinking fund when WP took over Aljunied GRC.
And lastly, Mr Lee did not make it clear that AHPETC in fact is not in deficit for the year, and that it has a surplus of S$1.8 million.
In short, Mr Lee could have done better and provided the proper context and facts to the matter, and not be alarmist.
And finally, why is a minister commenting on such matters when the Auditor General is still in the midst of his inspection of the AHPETC’s accounts?
Shouldn’t the minister of state let the Auditor do his job first?
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Post-script:
One of the things the Auditor General might be looking at are the unverified and unaccounted for funds from the Citizens Consultative Committee in Aljunied GRC under the PAP town council, and the lack of supporting documents to some funds from the previous managing agent, among other things, as stated here in the AHPETC’s latest annual report: