DCC to examine its debt limit options

Photo: ODT files
Photo: ODT files
Capital spending projections by the Dunedin City Council will have to be rethought if councillors stick to a debt limit of $350 million.

As an alternative to simply raising the limit or pruning expenditure, councillors will consider tomorrow whether a new approach is needed.

The option recommended by council staff is that the debt limit is calculated as a percentage of revenue each year. That could provide the council with more wiggle room.

Sticking with a set cap, but with incremental increases over the next 10 years, is another possible approach.

Councillors have to consider what approach to take concerning debt before developing the 2021-31 10-year plan.

They will do so amid lingering uncertainty about the effect of Covid-19 and pressures associated with a growing city and ageing infrastructure.

Preliminary budgets developed for the draft 10-year plan show between $1.3 billion and $1.5 billion of total capital expenditure could be needed.

The preliminary capital programme took into consideration the need for more spending on renewing infrastructure, as well as the effects of Covid-19 on the economy.

If the council leaves the limit at $350 million, it will not be able to get through the planned capital programme.

The four options presented to councillors are that they keep the limit at $350 million, that they set a new fixed cap, that they use a fixed cap but with incremental increases, or that the debt limit be calculated as a percentage of revenue.

Limiting debt to a percentage of revenue is the approach taken by other metropolitan councils.

In a report for tomorrow’s council meeting, acting finance general manager Gavin Logie said this would result in an increase in council debt, and the cost of borrowing, depending on percentages chosen.

However, it would provide the council with flexibility through the 10 years and enable it to deliver its capital programme.

Setting a fixed limit could provide sufficient funds to get through the capital programme, depending on the level chosen, he said.

Increasing the limit incrementally could provide sufficient funds, but the method would not directly respond to changes in activity levels and would therefore lack flexibility, he said.

The level of actual debt at June 30 this year was $243 million.

It was forecast in the 2018-28 10-year plan to reach $346 million by 2027-28. However, that was prepared before the coronavirus pandemic.

Initial judgements about the effect of Covid-19 are evident in the council’s 2020-21 annual plan, which allowed for debt to shoot up to $309 million for that financial year, well above the $264 million forecast earlier.

Assuming the council goes ahead with total capital spending of between $1.3 billion and $1.5 billion in the next 10 years, about $900 million would be for what is known as renewal or replacement and the rest would be for new capital.

Another factor that may weigh on councillors’ minds to some extent is projected levels of debt of the Dunedin City Council’s companies.

That is not due to be considered yet, but the combined group debt was $793 million at the end of June this year and is expected to pass $1 billion in 2023.

One of the council’s companies, Aurora Energy, was described in July as ‘‘a capital-hungry business’’ by Dunedin City Holdings chairman Keith Cooper.

However, he indicated the funding was necessary to cover growth in the region.

Comments

I think the time has come and it is long over due for the one and only councillor to stand up and show these cards publicly and any other thing he has repeatedly been to advise and question by has been constantly shut down. Put all these cards on the table out and in the open for all to see. Lets see all the conniving, carpet sweeping lying Sandal Councillors be held accountable and I mean Accountable. It looks like they have failed in their jobs to keep Dunedin's people advised accordingly. Bring Back Cull and Birdose to face any court of enquiry. Where all yes all findings are made public. Let's see who runs for cover then. Enough is enough. I'd go as far as freeze assets if it was known that this has been happening and the public were not advised. Stand up Dunedin - you are being taken for a ride.

I suppose we could try people on false accusations of venality. This is a Presbyterian town, after all.

Scrap the vanity projects, sack the useless mayor and get DCC to provide what the people who pay them want, not what the idealists employed by them want i.e. lots more parking and lots less cycle kow-towing.

Be ready for a rates and power price increase. The council assets have been allowed to deteriorate for the same reason as their lines company Aurora. Cancelled planned maintenance and replacement over the last 30 years has enabled subsidised rates and funding of pet projects. Be braced for a decrease in discretionary household income for the next generation.

Einstein said the most powerful force in the universe is compound interest.

Up until about 1600 a man worked 16 weeks a year to provide food for his family, and had 36 weeks a year to do other things, like build cathedrals. Nowdays the first 2.5 days of everyone's work week is to pay off debt, whether you have a mortgage or not. There is another way.

 

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