The Dunedin City Council is relying on guaranteed access
to a $200 million loan in the event a natural disaster strikes,
it has been confirmed.
That was despite concerns from some councillors worried the
council was not doing enough to insure itself, and instead
relying on a guaranteed loan that could represent a financial
risk to the council.
The issue emerged as Cr Richard Thomson questioned insurance
arrangements during a debate on the council's 2014-15 draft
budget on Monday.
The council was left without insurance cover for $2.4 billion
of infrastructure assets in 2011, after international
reinsurers refused to cover underground assets and the
council refused to pay inflated premiums for above-ground
The council instead opted to rely in part on self-insurance,
using $250,000 in premiums it would have paid to create a new
fund to help pay for its share of any repair bills.
The council had to cover 40% of any repair bill that
eventuated to obtain 60% support from the Government.
Cr Thomson told the meeting it appeared the fund had remained
untouched since 2011, apart from interest accruing on the
initial sum, which left him with ''a discomfort''.
He had expected the fund to be added to each year, otherwise
the initial contribution of $250,000 was pointless.
Council financial controller Maree Clarke confirmed when
contacted yesterday it was correct the fund's total remained
untouched, except for interest, which had pushed the total up
She told Monday's meeting the intention had been to add to
it, using any surpluses and money that would have been spent
on premiums, but that had not happened, ''so it's just sat at
Yesterday, she told the ODT adding to the fund was
''probably in the back of our minds'', but the arrangement
was a ''holding pattern'' until more work on the risk and
options the council faced was completed.
Due to a lack of resources, that work had not been carried
out, but a review of all insurance arrangements was expected
to get under way later this year, she said.
In the meantime, the council's self-insurance arrangements
included access to a line of ''pre-arranged debt'', worth
$200 million, which was guaranteed in the event of a major
event, council chief executive Dr Sue Bidrose told Monday's
Cr Lee Vandervis worried the arrangement could itself
represent a financial risk to the council, if the debt - and
borrowing costs for ratepayers - meant the Government was
less likely to step in to help.
''Surely having this $200 million extra on-call actually
represents a risk to Dunedin, in case of an extraordinary
event, that the Government would not then have to step in.''
Dr Bidrose said the money would be available even in a major
event - such as a international financial crisis or a major
natural disaster - when the Government might not have the
funding to step in everywhere.
International credit agency Standard and Poor's and Dunedin
City Treasury both considered the arrangements ''prudent'',
However, the arrangement came with no holding costs in the
meantime, and would require council approval before being
accessed, she stressed.
It was not money to ''play with'', and would not be used on a
$200 million capital project - ''I give you my word'', she