The front-page ODT news of July 31 was a revelation of
momentous proportions. "$8m annual DCC shortfall" announces
Mayor Dave Cull.
He proceeds to accuse Cr Paul Hudson, who is also chairman of
Dunedin City Holdings Ltd (DCHL) of being less than
forthcoming about the council companies' financial situation,
and is clearly pushing for him to end his time on the board
Not so, protests Cr Hudson, in turn, accusing the mayor of
not keeping up with company finances. Since then, one could
become quite confused by the heady fumes of "injured
Is this the big day of reckoning or just a political storm in
a teacup? Personally, I would opt for the former.
It had to come, and the only question is why it took so long.
More importantly, what can, or should be done?So what is the
In a nutshell, the Dunedin City Council has, in the past
decade, spent up all its available treasure, mortgaged the
citizens' future and come within an ace of bankrupting DCHL,
its group of trading companies. Hence the mayor's urgency.
So how did the city get into this position? It didn't happen
overnight. In fact, I believe it has taken 10 years to
It started with the advent of our former chief executive, who
upon assuming office proceeded to inculcate among staff a
culture of entitlement, encouraging "visionary" attitudes of
grandeur, with nothing being considered for the city as
The senior management was restructured and five new heads of
departments were appointed. The engineering department was
sold and faith was placed in paid consultants to provide all
the expertise. Never mind that these people were first and
foremost working for fees, thus not as cost-conscious as one
Worse, with no in-house engineering expertise, there was no
checks-and-balances assessment of the projects undertaken.
Then there was the enthusiastic embracing of these
philosophies by successive mayors and some councillors. One
in particular, on assuming the chair of the economic
development committee, set out to lavish the city's treasure
upon all manner of businesses and property developments by
way of financial grants, rate reliefs and financial incentive
This was in the thought that it would consolidate and grow
the business/industrial base of Dunedin. The most graphic
example of this would be the massive rate reliefs and
financial offers to Fisher and Paykel Ltd, last known address
It was forecasted in January 2005 that Dunedin's population
would rise to 127,000 to 130,000 by 2021, up from 119,000 at
the last census. Between 10,000 and 12,500 additional
full-time equivalent jobs would be created, spread across all
Then there are the grand projects, which have been well
documented: the Stadium, Town Hall/conference centre, Chinese
Garden, Otago Settlers Museum, the harbourside dream, Tahuna
sewage treatment upgrade (necessary), Logan Park cricket
complex, Wall Street Mall, etc.
All are mega-cost projects, and all were financed by debt.
Never did the council pause to ask, "Can we afford this? Is
it necessary; do we really need it?"
The effect of all this? In the 2001-02 draft annual plan, the
DCC's net debt was shown to peak in 2004-05 about $86
million, then reducing to $32 million in 2010-11.
In the latest annual plan, the debt in 2010-11 is $327.487
million, lowering to $269.756 million (because of about $147
million being transferred to DVL) in 2013-14. It is still at
$159.397 million in 2020-21.
Meanwhile, DCHL's long-term borrowings have increased from
$212.485 million for the year ending June 30, 2005 to
$445.355 million at December 31, 2009. In 2005, the DCC
demanded a special "one-off" dividend of $10 million, on top
of $9 million already allocated.
This was to reduce what was to have been a 12.5% rate
increase down to 5.7%. This was made possible by DCHL's
revaluing its assets and borrowing against that increase.
That has been a common practice since. All this, of course,
had to be approved by the DCHL directorate, of which Paul
Hudson is chairman. So to put on the air of injured innocence
is spurious, to say the least.
This brings us to the duties of directors. I believe their
function is to oversee the governance of the trading group in
the best interests of the viability of that group and, by
extension, the interests of the shareholders.
In turn, they have a fiduciary obligation to see that the
company is protected from the ravages of the shareholders.
There ought not be any conflict of interests among directors.
It seems wrong in principle to have any elected councillors
as directors, as that poses an immediate conflict of
Then there are the other conflicts, whereby monies have been
voted to the DCC for the financing of the stadium, while
among the directors was the chairman of the Otago Highlanders
rugby franchise, a vitally interested party in those funds.
Then there are the appointments to ex officio bodies such as
the Carisbrook Stadium Trust, where the appointed chairman
had a serious conflict of interest, being an ex-chairman of
the Highlanders, again with a vested interest in seeing the
The DCHL board should all resign, followed by an independent
inquiry into the structure.
What to do? First off, there should be an inventory of all
strategic and non-strategic property held in the DCC property
department portfolio. All non-strategic should be placed on
the market, the proceeds to pay down the relevant debts and
all surplus to pay down the remaining debt.
There are the several parking buildings in Dunedin, Wall
Street Mall, some Christchurch commercial buildings and the
Bunnings Warehouse in Wellington, as well.
Then there are numerous parcels of property around Dunedin,
not least of which is Carisbrook. The city can no longer
afford the luxury of these baubles; we are in deep trouble
and difficult decisions need to be made.
The worry is, do we have the necessary nous around the
council table to do the right things? We will see.