The Dunedin City Council has missed out on a multimillion-dollar windfall from one of its companies, as efforts continue to pay back a $40 million bill for borrowed dividend payouts.
A better-than-expected result by City Forests, a council-owned company, had generated a larger dividend payment to City Forests' parent company, Dunedin City Holdings Ltd.
City Forests had been expected to make a $5 million dividend payment to DCHL for the year to June 2018, but had instead passed on $8 million.
However, the money has not made its way back to the council, instead being used to accelerate the repayment of debt raised by DCHL to fund previously inflated dividend payments to the council.
The situation was disclosed in DCHL's annual financial report, presented to Tuesday's DCC finance and council-controlled organisations committee meeting.
Cr Aaron Hawkins queried the figures and asked why the council did not get to decide how the money was used, but council financial controller Gavin Logie said the debt repayment reflected existing council policy.
Council chief executive Dr Sue Bidrose told the meeting DCHL had accrued $40 million in debt - without associated assets being accrued - while borrowing money to meet an earlier council request for inflated dividends.
The practice had ceased as a result of an overhaul of DCHL and its finances, beginning in 2011, and resulted in a dramatic decline in annual dividend, interest and subvention payments from DCHL to the council.
The payments - which were used to offset council rates - had been reduced from $23.2 million in 2012 to $5.9 million in 2017-18, including a complete halt on dividends to the council for at least the next three years.
Since then, DCHL had been working to pay back the accumulated dividend debt, which had now dropped to $23 million.
That was in line with the council's wishes for the companies to get back on a more sustainable footing, but came at a cost when a windfall like City Forests' came in.
''That is money we are not able to spend. It's belt-tightening we have had to do ... but at the moment we have said it's their priority to pay off that unproductive debt,'' Dr Bidrose said.
• Also on Tuesday, Mr Logie told councillors the council's Waipori Fund was performing well, despite a turbulent period on international markets, gaining 3.3% to $89.8 million in the quarter to September.
The fund was expected to have taken a hit in October, before stabilising in November, and was still performing better than benchmarks, ''albeit the benchmark was negative'', he said.
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Comments
This well and truly illustrates the problems with council-owned 'assets' — because they're accumulated and operated according to empire-building principles, it always ends in tears.
I agree with you. I also have great concerns over conflict of interests. For example the councils push to burn wood for energy, would they be so keen if they owned a solar panel or coal mine company for example? Then there is the regional council who are the guardians of our environment yet they own potentially one of the worst polluters in Port Otago. Local councils should serve the people not there business interests. Do we really want to pay rates so that these people can play Monopoly with our money?
It's time local councils were reformed, the way they operate is outdated and inefficient.
is this right? I don't follow this 100% because it does not make sense to me to borrow money in one hand and to give it away in the other to please some investors. So they borrowed coin so they could pay a higher dividend to its investors and or share holders. Now they are paying back this loan and the said councilor and CEO is crying that they don't have more money to waste, Didn't this same rocket scientist purchase Sammies at a bargain basement price? Wake up Dunedin they are playing all Dunedin rate payers as a Monopoly board.