Audit NZ warns of risks from debt, stadium

Rates hikes, increased debt levels or cuts to services remain a risk for the Dunedin City Council as it grapples with uncertainty over the Forsyth Barr Stadium, Audit New Zealand warns.

The assessment came in two Audit NZ reports presented to the council's finance, strategy and development committee yesterday.

One report studied the council's draft long-term plan for the next decade, to 2022, while the other scrutinised the council's performance in the year to June 30, 2011.

Audit director Ian Lothian, in his long-term report, said council assumptions the stadium would cover its own costs and ensure rates were not affected remained a "high financial risk" to the council's plans.

Stadium revenue projections were "as yet unproven", dependent on income from rentals and sponsorships, and "still ... a big assumption", he warned.

The near-liquidation of the Otago Rugby Football Union highlighted the risks inherent in the stadium investment, he said.

Mr Lothian's report also noted the review of the stadium and Dunedin Venues Management Ltd, launched last month, but also uncertainty over what impact potential solutions might have on the council's plans.

The warning was one of four key risks highlighted by the Audit NZ report, which also included debt levels and the need for further savings to meet self-imposed caps on rates increases of 4% in 2013-14 and 3% thereafter.

The council's decision to self-insure $1.5 billion of above and below-ground assets - including reticulation networks, roads and bridges, but not buildings - presented another risk, should the city be struck by a major natural disaster.

"I'm not saying you can do much about it. I'm just saying it's important to realise the kind of position you're in," he said.

Should any of the risks turn into reality, "the council would need to reduce levels of service, increase debt, and/or increase rates", he warned.

The council's list of capital spending, coupled with tight budgets and uncertainties, meant the council was already operating at - or in one case slightly beyond - self-imposed limits, one of which restricted interest costs to less than 8% of total revenue, he said.

The limit was conservative, and the breach a small one, but it highlighted the council was operating "pretty much at the edge of your limits", he told councillors.

"[There's] not much leeway if something went wrong."

Committee chairman Cr Syd Brown, questioning Mr Lothian, asked if the council was responsibly managing its assets by opting for self-insurance.

"Reckless is not a word I would apply to any of your operations," Mr Lothian replied.

Instead, the council was "steadily working through a number of major challenges", he believed.

The self-imposed 8% limit was also "relatively conservative" compared with other councils, he added in response to a question from Cr John Bezett.

Cr Vandervis said the "very big assumption" the stadium could cover costs was actually a "fond hope", given its performance to date.

"What possible chance is there this very big assumption can actually fly at all?" he asked.

Mr Lothian said he did not want to simplify the issue, but noted failure would mean "something's got to give somewhere".

"[The council] would have to look somewhere else to make up the shortfall," he said.

The Audit NZ reports were a requirement under the Local Government Act for council annual and long-term plans, and would be followed by an audit of the council's finalised long-term plan, once adopted.

Mr Lothian also recognised the council's "considerable" efforts to set aspirational, but realistic, targets in a "challenging" environment.

- chris.morris@odt.co.nz

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