The council is booking a further shortfall of almost £2.5 million from the Brighton i360, councillors were told at a meeting this week.
The sum “raised alarm bells”, Labour councillor Andrei Czolak said.
The figure was included in Brighton and Hove City Council’s draft statement of accounts and the extra sum took the “expected credit loss” from £9.2 million to £11.7 million.
Councillor Czolak asked if it would affect the £2.2 million a year set aside by the council for the next 20 years to cover repayments to the Public Works Loan Board (PWLB).
The council’s chief finance officer Nigel Manvell said that the “lifetime credit loss” reflected the difference between how much total interest the council had originally expected to receive on the i360 loan and how much it now expected to receive.
Mr Manvell said: “That (loan) agreement included a very considerable mark up on the interest rate charged to the i360 compared to the interest rate that the council itself is paying back to the PWLB.
“It is the fact the i360 performance is not enabling it to pay that mark up that is being recognised as a credit loss.
“It is not an actual loss to the council because the council is only having to pay PWLB a much lower rate.”
The i360 had also not been able to pay other “mark ups” to the council such as on ticketing which would have gone into a reserve fund.
Mr Manvell added: “In setting the budget for this year, a further assessment of the i360 situation was undertaken – and the income they are going to generate is going to be around £1.2 million short of even the minimum repayments so that has been budgeted for.
“That is the real cash impact on the council – the amount being charged to our revenue account.
“They (the expected credit losses) are accounting entries. The real loss is the fact the i360 is not generating the cash to make the repayments to the council that were planned.”
In February, councillors were told that the i360 owed the council almost £48 million, including interest, and had been told to make payments totalling at least £1 million this year.
At that time, the i360 had repaid £5.8 million. But under its original repayment schedule, it had been due to stump up almost £18 million, having borrowed £36 million through the council from the Public Works Loan Board.
Millions of pounds of repayments by the i360 have been missed because of bad weather, the coronavirus pandemic restrictions and visitor numbers falling short of forecasts.
Councillors agreed to a revised loan agreement last summer but the i360 did not sign the deal although it did hand over £700,000.
Last December, the i360 was due to pay at least £900,000 but failed to make any payment.
The owners were warned in February that if Labour won the local elections in May, as they did, they could look for a new operator if repayments kept being missed.
But this would almost certainly mean that the council would have to write off much or all of the i360’s debt while still owing millions of pounds to the government.
The situation came up at the council’s Audit and Standards Committee meeting at Hove Town Hall on Tuesday (26 September).
Independent councillor Peter Atkinson asked whether the Public Works Loan Board could call in the loan early.
Grant Thornton director Darren Wells said that he was unaware of the PWLB calling in a loan early but the council would be required to pay the loan when it matured.