Council debt to peak at $600m

The Dunedin City Council and its companies are about to reach the top of a $600 million debt mountain and start down the other side.

However, it was likely to be years before there was room on the council's books for any major new projects, potentially leaving the council exposed if "something untoward came along", Mayor Dave Cull said.

Council figures showed consolidated debt - spread across the council and its companies - had risen to $616 million by the end of the 2011-12 financial year on June 30, including core council debt of $216 million.

Overall debt was expected to peak in the next eight months, but would then begin a gradual decline as two decades of major capital projects and upgrades came to an end.

The details are contained in the council's latest annual report, for the year to June 30, to be considered at today's full council meeting.

Core council debt paid for upgrades to the Tahuna wastewater treatment plant, the Toitu Otago Settlers Museum and Dunedin Town Hall, among other projects, the report said.

Overall debt also included $146.6 million of stadium debt transferred to Dunedin Venues Ltd this year, and debt spread across the council-owned Dunedin City Holdings Ltd group of companies.

However, Mr Cull and council chief executive Paul Orders said overall debt would begin a steady decline in the 2013-14 financial year, helped by a "stringent" programme of debt repayment.

"For the first time in recent years, the council will be repaying more debt annually than it is drawing down," they said in the annual report.

It was expected to take a decade to reduce debt to a more acceptable level, but Mr Cull said last night the turnaround was "really significant".

"I think it's about a different attitude to debt." His comments came after unease at local authority debt levels prompted the Government this year to unveil plans to reform the sector and tackle the problem.

Mr Orders' appointment last year had added fuel to cost-cutting efforts under way within the council, and helped slash this year's possible 11.9% rates rise to 4.9% by the time budgets were confirmed. Deferring some major capital spending plans - such as a new Mosgiel pool - had also helped ease debt demands, as had the decision to increase stadium debt repayments by $1 million a year.

That reduced the loan term from 40 to 23 years and would save about $100 million in interest payments. Mr Cull said those kinds of changes helped reduce overall debt faster than expected, and meant consolidated debt would be about $40 million lower than expected by 2014-15.

The council had, this term, realised the need for more "headroom" in its budgets, to respond to any unforeseen demand for spending.

A period of consolidation was likely to last five or six years before there was room for major new projects, if required.

The council would have to rely more on partnerships and other ways of funding projects such as those identified in the city's new economic development strategy.

"The city can't afford to just stand still," Mr Cull said.

Cr Syd Brown, finance, strategy and development committee chairman, believed recent spending meant the city entered consolidation with upgraded facilities that met modern requirements. He would like to see core council debt drop to about $150 million, in line with the council's budget to 2021.

There was no pressing community demand for major spending, or spending required by new government legislation, but predicting the future was "crystal ball-gazing", Cr Brown said.

Audit New Zealand warned this year the council might be forced to take on more debt if a major natural disaster struck, given the city's $1.5 billion network of above- and below-ground assets was uninsured. Mr Cull said yesterday all councils were in the same boat, but Dunedin "could be" exposed if "something untoward came along".

"I would like to get the city into a more comfortable position."

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