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Councillors yesterday backed the plan to spend more than $1.7 million extra each year reducing stadium-related debt, subject to public consultation in the coming months.
That would drive rates up to the self-imposed 4% limit, but would also slash at least $25 million from interest payments over the life of the loans.
It would also help Dunedin Venues Management Ltd, which runs the stadium, to turn a profit for the first time, rather than continuing losses created by the requirement to service stadium loans from its revenue.
The company would also be backed by a new events attraction fund worth $400,000 a year, which would be used to offer incentives to lure more major international acts to the stadium, councillors indicated.
The fund would be paid for initially from within council budgets allocated to economic development and Tourism Dunedin, which were together worth about $2 million a year.
Councillors also wanted to consider a new targeted rate, perhaps focused on the city's tourism and hospitality sectors, to pay for the fund in future years.
The decisions are not final, but came as councillors yesterday completed initial debate on the council's 2013-14 pre-draft annual plan ahead of schedule.
A draft budget would be approved for public consultation at the next council meeting on February 25, after which ratepayers would have the chance to deliver their verdict on the proposals.
Council chief executive Paul Orders and his staff had earlier delivered a pre-draft budget that proposed a rates increase of just 2.8%, well below the targeted increase for 2013-14 of no more than 4%.
That left councillors to decide how best - if at all - to spend the $1.4 million of ''headroom'' available, which Mayor Dave Cull wanted invested in initiatives delivering greater savings for the city.
By yesterday afternoon, more budget tweaks - including changes to fees and charges and an adjustment of the Waipori Fund investment strategy - meant the available sum had grown by about $400,000, to $1.866 million.
That set the scene for the long-awaited report into DVML's finances - following a detailed review by Dunedin City Holdings Ltd - presented to councillors yesterday by DVML chief executive Darren Burden.
The report spelt out the options, including a do-nothing approach which Mr Burden warned would see DVML continuing to post annual losses of up to $350,000, exhausting the company's resources and eventually leading to a call for more council funding, anyway.
Mr Cull, responding to the report, recommended allocating most of the money to stadium debt repayments, spread across DVML and Dunedin Venues Ltd, which owns the stadium.
DVML would get $725,000 a year for the next four years to repay debt associated with some of the stadium's removable seating, new stadium vision technology and pitch machinery.
The money would be on top of the extra $750,000 a year given to the company last year, as part of a new service level agreement, and came after the company posted a $3.2 million loss for the 2011-12 year.
However, the extra cash would allow DVML to clear its debts within four years, meet its obligations and post small profits in the years to come.
DVL would get another $1 million a year on top of that, accelerating the repayment of more substantial stadium construction debts and saving $25 million over the life of the loans.
The exact sum available for DVL debts would depend on returns from the Waipori Fund and would be reviewed annually, councillors decided.
Of the rest of the $140,000 available, $50,000 would be used to support a new breakwater at Te Rauone Beach, on Otago Peninsula, and $90,000 would be used to continue support for projects in the heritage warehouse precinct.
The council also planned to convert $3.381 million in earlier cash advances by the council to DVML - which had covered DVML set-up costs - into paid up share capital, in a non-cash transaction, councillors decided.
The $400,000 events fund would also allow the stadium to target more headline events, boosting revenue for the company and bringing wider economic benefits to the city, councillors accepted.
The debate that followed was limited in part because Cr Lee Vandervis was prevented from speaking, on a technicality, after failing to indicate his intention to speak until it was too late.
Cr Teresa Stevenson questioned why stadium debt was being targeted, rather than debt from another project, such as the Tahuna wastewater treatment upgrade.
Mr Orders said that was because core council debt was being addressed as part of the council's long-term plan, which set a target of debt to $200 million by 2021-22.
However, the size of stadium debt held by DVML and DVL still represented a ''significant source of risk'' for the council group over the next five to 10 years, he said.
''You reduce the risk to council in general more by paying off DVL debt than by paying off Tahuna debt,'' Mr Cull added.
Councillors voted to include the spending in the draft budget, meaning the 2.8% rates rise would increase to about 4%, if left unchanged.
Cr Vandervis voted against the extra spending.
Extra spending plans
$1.865 million to be spent on:
• Dunedin Venues Management debt ($725,000 a year, next four years)
• Dunedin Venues Ltd stadium debt ($1 million a year*)
• $50,000 for Te Rauone Beach breakwater, 2013-14 only
• $90,000 for Warehouse Heritage Reuse Fund, 2013-14 only
• Total: $1.865 million(* Subject to Waipori Fund return and annual review)
• $400,000 stadium events attraction fund
• Funded from existing council budgets in 2013-14
• Council to consider target rate to pay for fund in future years