Council debt to peak at $600m

The Dunedin City Council and its companies are about to reach the top of a $600 million debt mountain and start down the other side.

However, it was likely to be years before there was room on the council's books for any major new projects, potentially leaving the council exposed if "something untoward came along", Mayor Dave Cull said.

Council figures showed consolidated debt - spread across the council and its companies - had risen to $616 million by the end of the 2011-12 financial year on June 30, including core council debt of $216 million.

Overall debt was expected to peak in the next eight months, but would then begin a gradual decline as two decades of major capital projects and upgrades came to an end.

The details are contained in the council's latest annual report, for the year to June 30, to be considered at today's full council meeting.

Core council debt paid for upgrades to the Tahuna wastewater treatment plant, the Toitu Otago Settlers Museum and Dunedin Town Hall, among other projects, the report said.

Overall debt also included $146.6 million of stadium debt transferred to Dunedin Venues Ltd this year, and debt spread across the council-owned Dunedin City Holdings Ltd group of companies.

However, Mr Cull and council chief executive Paul Orders said overall debt would begin a steady decline in the 2013-14 financial year, helped by a "stringent" programme of debt repayment.

"For the first time in recent years, the council will be repaying more debt annually than it is drawing down," they said in the annual report.

It was expected to take a decade to reduce debt to a more acceptable level, but Mr Cull said last night the turnaround was "really significant".

"I think it's about a different attitude to debt." His comments came after unease at local authority debt levels prompted the Government this year to unveil plans to reform the sector and tackle the problem.

Mr Orders' appointment last year had added fuel to cost-cutting efforts under way within the council, and helped slash this year's possible 11.9% rates rise to 4.9% by the time budgets were confirmed. Deferring some major capital spending plans - such as a new Mosgiel pool - had also helped ease debt demands, as had the decision to increase stadium debt repayments by $1 million a year.

That reduced the loan term from 40 to 23 years and would save about $100 million in interest payments. Mr Cull said those kinds of changes helped reduce overall debt faster than expected, and meant consolidated debt would be about $40 million lower than expected by 2014-15.

The council had, this term, realised the need for more "headroom" in its budgets, to respond to any unforeseen demand for spending.

A period of consolidation was likely to last five or six years before there was room for major new projects, if required.

The council would have to rely more on partnerships and other ways of funding projects such as those identified in the city's new economic development strategy.

"The city can't afford to just stand still," Mr Cull said.

Cr Syd Brown, finance, strategy and development committee chairman, believed recent spending meant the city entered consolidation with upgraded facilities that met modern requirements. He would like to see core council debt drop to about $150 million, in line with the council's budget to 2021.

There was no pressing community demand for major spending, or spending required by new government legislation, but predicting the future was "crystal ball-gazing", Cr Brown said.

Audit New Zealand warned this year the council might be forced to take on more debt if a major natural disaster struck, given the city's $1.5 billion network of above- and below-ground assets was uninsured. Mr Cull said yesterday all councils were in the same boat, but Dunedin "could be" exposed if "something untoward came along".

"I would like to get the city into a more comfortable position."

-chris.morris@odt.co.nz

Council debt

Cr Neil Collins said he had "skimmed through" the reports, but was reluctant to comment.

"There's nothing that can be done, really. I guess wiser minds than mine know what they are doing."

Some hope!

He was elected on behalf of the community to be that wiser mind - maybe this explains the mess.

 

Council spending

The new CEO is on the right track, all we need do now is replace the remaining councillors that made the mess in the first place. 

Problem solved

Mike,

I'm dedicated to having your concerns eased.

With that in mind I couldn't see why you were saying I was planning on saving rugby rather than the City until I re-read my post. Which of course was somewhat garbled. I am planning on saving first the City and secondly rugby.

What I meant to say was that my strategic plan which I offered the City free of charge, would set Otago/Southland rugby up in a self sustaining way for the forseeable future; AND would provide immediate funds to the City in the amount of approximately $150 million, thereby enabling it to significantly reduce its debt. Thereafter it would provide on an annual basis permanent positive cash flow in the form of dividends to be received.

Now that the Stadium issue has been shown to be capable of resolution we need to find another financial challenge in Dunedin to resolve. I'm sure that others will exist.

Who pays? we do

Colvin: I agree the cash flow is the important thing, that's why I included an estimate of the 20 year real cost - $24,000 per ratepayer, the $12,000 number is just a step along that path.

Since the stadium loses us money every time it opens it's not an asset that helps with our cash flow, it doesn't contribute one red cent to paying off its own debt, instead we have to subsidise its every opening - the incoming cash flow we're using to pay for the stadium is not from ticket sales, nor is it from the council companies (they're borrowing it, digging a deeper hole), at the moment it is solely from our rates.

I'm glad you have a plan to save rugby - but frankly that's not what we need here, what we need is a plan to stop corporate rugby from taking more from stadium ticket sales than it costs to put on game - at the very minimum operating the stadium should break even.

I hope the Highlanders will go too, the fewer rugby games in the stadium the less money we will lose and lower will be my rates.

City debt

Mike,

While it's an interesting statistic that each ratepayer is on the hook for $12,000, in reality it only has relevance if it is likely to be called in anything like the short-term, which it isn't.

Of more relevance is the cash flow. Is enough revenue coming in to meet the debt repayments and interest as it falls due? It seems from the above article there is.

Debt isn't necessarily such a bad thing. It can ensure you have facilities and assets that you would not otherwise have, therefore, hopefully, enhancing lifestyle. But you need to be able to pay it off from incoming cash flow.

In any event your biggest beef is with the Stadium. Since I've provided the city with the formula to refinance the whole structure of rugby in the bottom half of the South Island to its benefit it seems you will be able to put your concerns to rest.

Go Highlanders.

Buddy, can you spare $24,000?

Of course council debt doesn't go away by itself. With the council companies borrowing more money in order to pay their dividends to the council, $23m this past year alone, it will fall on the long suffering ratepayers to pay off all of this debt - $600m spread across 50,000 ratepayers means that on average we're each on the hook for $12,000 - plus probably another $12,000 in interest on the debt - heaven help us if something important happens, like an earthquake, or a breach of the St Kilda dunes.

By the way,  it's very disingenuous to claim you saved $100m in interest by reducing the stadium debt payment term from 40 years to 23 years if, just a couple of months before, you had increased it from 20 years to 40 - in reality what you did was increase it from 20 years to 23 and actually increased the total amount of interest you would pay - want to really reduce the stadium interest payments? pay it off in 10 years instead, that way you aren't soaking the next generation with your follies.

This is what we owe

Based upon the $616m debt figure, which is not necessarily the correct level of debt, each ratepayer owes $10,807.  Compare this to Kaipara where a debt level of $4,395 per ratepayer was considered to be unsustainable and a commissioner was appointed by Government.  This Council is out of control and does not yet recognise that the decision to build the stadium based on the PWC proven falsehoods was wrong, and by the continued pouring of money into keeping it open makes no sense whatsoever.

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