Interest on the $92.8 million the Dunedin City Council plans
to borrow this year is set to cost the city $9.5 million a
year for the next 20 years, and more is expected to be
borrowed next year.
The loans - approved in this year's council annual plan - are
required for the stadium, the Otago Settlers Museum
redevelopment, the Dunedin Centre upgrade, and water, waste
water and roading work.
A full meeting of the council today will vote on whether to
approve using the capital value of Dunedin city as security
for the loans, effectively meaning banks could place a claim
on rates income if the city was unable to meet its
repayments.
But council finance and corporate support general manager
Athol Stephens said the local authority would have done that
itself "way before the banks do" if the situation ever arose.
Mr Stephens has the job of finding the money, and said in a
report to today's council meeting the risks of drawing down
the loans could be "managed satisfactorily".
The lender would be Dunedin City Treasury Ltd.
Mr Stephens has recommended the council borrow the money in
two lots: $45.8 million to be repaid over 20 years at 7.5%,
and, for the stadium, $46.9 million at 9%, raised on an
interest-only basis, and repaid when ownership of the stadium
is transferred to a council-owned company.
He said the vote today was a "technical requirement" to
authorise the security for the loan.
The stadium loan was at a higher rate than the rest because
"that was the price we had to pay" when raising the money to
pay for the stadium land in June, at a time there was already
volatility in the market.
The $45.8 million had not yet been raised, but Mr Stephens
said it could be borrowed at the lower rate of 7.5%, though
in the report he said the interest for the two loans "may
well have changed by drawdown date".
The transactions would come within the council-set liability
management policy, which stated gross interest expense should
not exceed 20% of total rates revenues, and should not be
greater than 8% of total operating revenues. Those
percentages were 14.4% and 6.4% respectively at present.
