Christchurch's $534m quake cost blowout

Christchurch City Council has underestimated its share of rebuilding the earthquake-shattered city by at least $534 million, according to a new report out today.

And the report says the cost black-hole will "most likely be much higher'' given the amount the council will be paid out by its insurers is "very likely'' to be less than the $1 billion it estimated in its three-year plan.

The report by Australian financial consultants KordaMentha was commissioned by new Mayor Lianne Dalziel last year.

It warns that the council needs to plan for the funding shortfall to be much higher than $534m.

"[The council] needs to urgently develop a new financial strategy,'' it says.

Based on the council's own three-year plan, the report writers do not believe the council can borrow any more money.

So, it is left with five options: reducing rebuild costs; negotiating with the Crown for more money; increasing council rates; cutting spending; improving the performance of investments or assets, or selling them off.

"A mix of all these options will be required, in conjunction with a reassessment of the availability of the original contingency amount,'' the report says.

"No one solution will solve the funding programme.''

However, the Government has ordered its own review of the council's finances after Earthquake Recovery Minister Gerry Brownlee raised concerns about some of the assumptions made in the KordaMentha report.

And Mr Brownlee criticised the timing of today's press conference.

"Releasing the report today raises many more questions than we are presently able to answer,'' he said.

On April 30, the Canterbury Earthquake Recovery Authority (CERA) asked financial consultants Morrison Low to provide their independent assessment of how the council's financial position, as presented in the KordaMentha report, and how it relates to the Crown's role in the rebuild.

KordaMentha gave Morrison Low access to the latest version of its report yesterday.

The Government expects to receive Morrison Low's report in about 14 days, when Mr Brownlee says they will be in a position to respond after that.

"Constructive discussions have taken place between CERA, Treasury and council officials on drafts of the KordaMentha report in Wellington and Christchurch in recent weeks, and I had hoped the council and the government could have presented a joined up response to the final report,'' he said.

"It should not be forgotten that the cost sharing agreement was approved by both Christchurch City Council and Cabinet.

"As the government is not in a position to make a fully informed comment on the KordaMentha report it is disappointing the council has chosen to release it.''

Mayor Lianne Dalziel moved to reassure residents that the city has a strong balance sheet, which means it is in a good position to deal with the potential shortfall.

The report should give people a "plain language explanation" of where the city stands financially three years after the earthquakes.

But she refused to point the finger at the previous council bosses, given the "extraordinary number of variables" it faced at the time, including a lack of certainty about the actual costs of mending the city's broken infrastructure and its insurance payout.

"What we know is that the three-year plan was based on an overly optimistic view of the future and did not provide enough headroom to allow for cost escalation or indeed for the sort of unexpected expenditure the city now faces as it ramps up land drainage recovery projects," Ms Dalziel said.

The cost sharing agreement for the rebuild between the Crown and council last year "sensibly" included a review of costs and how they are shared, the mayor said.

They met on April 22 after the final report was given to council to discuss next steps and to give government a copy of the report.

"Irrespective of where the figures finally land, as Mayor I can assure Christchurch residents that this council is going to ensure that this debt problem is dealt with responsibly."

Chair of the council's finance committee, councillor Raf Manji says the KordaMentha report provides a useful snap-shot of the council's current financial position.

They key message coming out of it, he said, was that council needs to take decisive action to put itself on sound financial ground.

"We have a strong balance sheet to help us weather this kind of financial challenge," he said.

"Hard choices will need to be made and we will be relying on the residents of the city to engage with the council as it makes these decisions and charts a prudent and sustainable course forward."

 

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