THE trust running Sheffield's museums has run up a £1.7 million debt to the city council - which may never be paid back.
Sheffield Council's culture department is facing a £1.1 million overspend - as it prepares to write off the debts racked up by Museums Sheffield.
A report to Sheffield Council's cabinet meeting tomorrow outlines the extent of the trust's liabilities.
Eugene Walker, of the council's finance department, said the culture department's overspend was directly due to the money owed to them by Museums Sheffield.
He said: "The forecast overspend assumes the following - that current loans to Museums Sheffield of £787,000 are not recovered, a £650,000 outstanding loan is written off, and that debts in relation to insurance recharges and a change of agent, of £278,000, are written off."
He added that the total debt of £1.715 million was being off-set with £240,000 left over from funding to pay for the failed City of Culture bid, bringing it down to £1.475 million.
Mr Walker said the impact of the debt could also be offset with a £170,000 underspend on the major sporting events budget and a £205,000 underspend in libraries.
The £787,000 loan total includes a £190,000 bailout given to Museums Sheffield by the council in August.
Mr Walker said the trust was not expected to exceed its budget further during this financial year.
Coun Simon Clement-Jones, cabinet member for finance, accepted writing off such a large sum of money was "difficult" as the council makes £219 million of cuts.
But he said: "The Museums Sheffield money simply isn't there and the idea is that the trust can go forward without this millstone around its neck.
"The debt goes back to the cost of revamping Weston Park Museum and we have been trying to get the trust on an even keel ever since, which is necessary to allow it to move forward."
Nick Dodd, chief executive of Museums Sheffield, said: "An independent financial review commissioned by Sheffield Council last year concluded Museums Sheffield is operating efficiently but is critically under-funded for the service it provides.
"The review recognised Museums Sheffield needed a significant cash injection to re-capitalise the charity and solve the cashflow problems which were limiting its business capabilities. Museums Sheffield is also carrying a historic debt related to the development of Weston Park Museum.
"We are working with the council to agree a settlement which reconciles both the funding shortfall and the historic debt with the subsequent loan made by the council.
The details outlined in the cabinet agenda are the subject of negotiation and have yet to be finalised."
Museums Sheffield was set up in 1998.
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