DCC in dividend drop dilemma

Dave Cull.
Dave Cull.
The Dunedin City Council will consider increasing rates or cutting services as it grapples with earning $4.5 million less from its companies, Mayor Dave Cull says.

The annual shortfall was expected to begin in 2015-16 and, although well-signalled, would still leave the council scrambling for room in already-tight budgets, he said.

And, if it could not, cuts to service levels, a rates rise - taking the council beyond its self-imposed 3% limit - or a combination would need to be considered, Mr Cull said yesterday.

''This is a major challenge.''

His comments came after financial forecasts from the council's companies, presented to the council this week, showed dividend payments from Dunedin City Holdings Ltd would cease from 2015-16.

That would deprive the council of $4.548 million a year and reduce overall cash payments from DCHL - also including interest and subvention payments - from $15.7 million to $11.152 million.

Graham Crombie.
Graham Crombie.
One of the main reasons was council-owned Aurora Energy Ltd's need to increase reinvestment in its ageing lines network, DCHL chairman Graham Crombie said.

The company's capital spending would increase from about $22 million a year to $32.9 million in 2014-15, and to $34.6 million in 2015-16, before declining again.

Mr Crombie said some of the required funds would be borrowed, pushing the company's overall debt up by $20.2 million to $178.8 million by 2017.

To offset that, the company would cut its annual dividend to DCHL by $2 million a year, from $9.5 million to $7.5 million, beginning in 2015-16.

DCHL planned to pass on the decrease to the council, along with a $1 million drop in dividends expected from City Forests during the same period, he said.

However, the rest of the $4.5 million shortfall in dividends to the council would come from within DCHL itself, Mr Crombie said.

That was because the holding company had in recent years been relying on a ''cash buffer'' of surplus funds to top up dividend payments to the council, he confirmed.

The surplus cash had been used since the practice of borrowing to help pay for dividends to the council ceased, he said.

Tthe cash buffer would be exhausted by 2015-16, meaning without further borrowing, dividends would have to drop, he said.

Mr Cull said the early warning meant the council had time to prepare and consult the public on any tough budget choices.

chris.morris@odt.co.nz

24 hours in Dunedin

The day before the DCC was patting itself on the back for keeping rates to 3% and still managing to keep up spending on different projects. The next day DCHL comes out with this bad news concerning the multi million drop in its revenue and how this will soon impact on the DCC with its future dividend payments.

Isn't this process all back to front? Are we to believe the Mayor and council only knew about this in the morning's ODT? I don't think so. What an unholy mess we are in.

Chickens come home to roost

This council has cut some spending, shed jobs in council companies, and may have to reduce services and sell assets. All to pay a debt for rugby most never wanted or had any real say in. 

There's apparently no accountiblity to ratepayers, just a huge resulting debt and rates increases well beyond inflation.

The upcoming report into options for reducing continuing year-on-year staduim operational losses is awaited. Outsourcing all operating cost to users or closing the venue seem to be very real options. 

The cost of borrowed money will remain for council, and adding to these costs due to operational loss can't continue. Mr Cull is totally mad to think they can. Rates revolt en masse, as suggested by others here, may indeed become an option if this continues.  Council be warned.

 

 

 

 

 

Vote 'em all out

In the case of our National pollies, drop the wages and everything else and hand the money to the rich that built the stadium in the first place. Had enough of crony capitalism. Vote 'em all out.

The long sorry tale of DCHL and accountability

The latest news is not surprising at all.  What was surprising was that the Delta fiasco into property speculation was not mentioned.  That could not have helped, but the reality is that these companies do need to invest in their own infrastructure to ensure that they can run at a profit.  What this article also failed to mention was the total stupidity that went on under Paul Hudson when he was Chair of DCHL and also a "senior" councillor. DCHL borrowed millions to pay to the DCC.  It is amazing that these actions were not held to account, but it does seem that all councillors, no matter what they decide, are immune from such accountability.  It is a sad but obvious fact that the majority of our councillors are too busy stuffing round installing cycle-ways in every possible street that they can to deal with the obvious causes of ratepayer discontent.  But if they don't understand, they can't lead, and it is clear from recent statements that there is no understanding at all.

Where's the plan?

Mine: raising taxes occasionally (and then dropping them again) is an appropriate reaction to the slings and arrows of running a city (or country).

Raising them to meet costs due to inflation isn't required for central government because the tax take from income and GST increase with increases in inflation (though by rights tax steps should rise with inflation). For cities however rates are struck as a value on 100% of the total city valuation - 100% is always 100% so it's perfectly OK for the city to raise rates by inflation.

What's not OK is to increase rates year after year, each compounding on the previous years, year after year after year for over a decade. Imagine if central government increased GST and income tax by 1% every year for a decade!

Our council needs a plan. They simply can't increase rates at a rate above inflation forever - no one will be able to afford to live here. It will hit the elderly on fixed incomes first. So when do the DCC expect to start having neutral rates increases? What's the long term plan? It's easy to raise rates and have someone else pay for your mistakes, but it takes real smarts and guts to take the hard way out and actually plan ahead more than one year and nip the annual above inflation increases in the bud.

Losses and taxation

What the heck is it with our elected bretheren?  Their answer to everything is "raise taxes"? What do they think we ratepayers are - an open and free bank?

To pay their ever-increasing demands we go without food, electricity etc etc.

I think there needs to be a rule that if you want to serve government or local government as an elected person then you must live off the basic wage for the full term plus five years while you do, just as a great majority of people do.

The current elected occupants have absolutey no empathy or idea of what it is to not have enough money to feed your family correctly or even half decently, but they are quite happy run the city/country into debt and then say "raise taxes that'll fix it!" 

There needs to be a total mindset change in this country. We are electing the wrong people into governorship.

 

Rate moratorium

I think if they dont bite the bullet and do somethinmg about the stadium debt, we need to withold our rates and it needs to be done en masse. The mayor says that putting it in mothbals wont help the debt but it will. The money that is currently being thrown at trying to make it work could be used to pay it off more without continually hitting us.

Sell freehold land

DCC is sitting on huge swathes of freehold land.  They should look to start selling this off, which will reduce the continually increasing dept burden and stimulate building/development that is much required in the city.  Jobs are being lost and attracting investment will continue to get more difficult (Air NZ barely want to fly there) but this council continues to keep its head in the sand - this must be one of the most regressive councils in NZ.  Dunedinites need to consider their vote seriously in the next council and Mayoral elections, otherwise they are voting for more of the same.

Subvention payments to DVL

The latest revelations by the Chairman of Dunedin City Holdings about dividend reductions are more bad news for the financial viability of the Stadium. Why? Because subvention payments (a tax mechanism where one profit making company in a group i.e. Aurora Energy, subsidises the losses of another loss making company i.e. DVL) are now under threat. While as a power consumer and ratepayer I can understand the need for Aurora Energy to re-invest in our power network it does show up once again the real financial mess this poor city finds itself in. Instead of a knee-jerk reaction to our plight with a call to increase rates or cut services - or both - it is high time for Mayor Cull to put his Mayoral position behind those who are calling for meaningful consultation over the Stadium Review and at long last include the people of Dunedin in future decision making before we all topple over in the Christchurch equivalent of a financial earthquake.

Withhold rates

And those at the wheel have just awarded themselves a pay rise. I challenge the community to start withholding their rates payments en masse!

Short notice

Why is Graham Crombie only now, with very short notice, announcing a very substantial drop in Aurora Energy payments in the very near future? It would appear Aurora has no long-term plan for infrastucture replacement, otherwise this payment reduction would have been advised years ago. Or maybe Graham Crombie  was advised but failed to advise the council. Dave Cull - this is not an "early warning". It is shocking news at this late stage. Stop trying to soften the blow and talk straight. Its about time the directors of DCHL started to earn their fees. [Abridged]

There's only one solution

So as I'm sure we all remember, the reason why the DCC companies were borrowing money to pay their dividend to the council was because they had been directed to turn over a large portion of their profits to DVL to pay the mortgages on the rugby stadium.

Now it turns out that when Mr Cull directed them to stop doing that they were just started emptying their bank accounts to keep up with his demands, and now those accounts are empty. Even worse, they weren't investing in their future and now things are starting to fall apart, I guess we shouldn't be surprised - we've known from the beginning this game of cups and balls would eventually run out of cups. Our council doesn't really have a sustainable way to pay for the rugby stadium debt, one that will actually work over it's 20 life time.

The council needs to keep cutting down its costs. Perhaps Mr Cull and the councilors could start by giving up their latest pay increase. The ratepayers are already getting shafted with yet another rates rise above inflation, just as they have every year for the past decade.

Of course there's only one solution, a major part of any solution is going to have to be finally going after local rugby and getting them to finally come up with the $55m in private fundraising they promised to raise for their rugby stadium - the city has had to borrow to pay for this shortfall, and it's paying the interest on these stadium loans that are the cause for the mayor's directive to strip the council companies of their cash flow.

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