A plan to use the Dunedin City Council's multi-million Waipori Fund to deal with the city's debt will be the subject of more reports, despite arguments from staff and council-owned company directors the plan would not save any money.
Two reports on the fund went before the council's finance, strategy and development committee last week.
The first was sparked by a report last year, which noted the fund had decreased in value, despite recording its best return in five years.
Council finance and resources general manager Athol Stephens said at the time the council would have to decide whether to take less money from the declining fund, or change the rules that stated the capital of the fund must be protected.
The fund was established in 1999 using proceeds from the sale of the Waipori electricity generation scheme, and has been a valuable contributor to the council's finances.
Its principal, which was $56.7 million when the fund was set up, stood at $69.8 million on June 30 last year.
It dropped to $66.9 million as the recession took its toll in the middle of 2009, before rallying to $72.9 million by the end of March last year.
But Mr Stephens said if the fund had increased at the rate of inflation, it would stand at $77 million. The report included an updated statement of investment policies and objectives that modified the "strict language" surrounding the requirement capital be protected.
It also included proposed changes to the timing of the estimates fund managers gave for cash flow, which were included in the council's annual plan, so an update could be given closer to the time the plan was due to be signed off.
When that report came to last week's meeting, the committee voted to let it lie on the table, while other aspects of uses of the fund were considered.
Those were contained in the second report, which followed discussion last year about the possibility of the council borrowing from the fund, instead of using commercial lending institutions.
The idea would be to produce a situation where the council would, in effect, be paying interest on its loans to itself.
Staff were asked in January to write a report on the issue, after it was raised as a possibility by Cr Richard Thomson.
The report, from Mr Stephens, advised the benefits were, over the long run, "about the same as the costs".
Dunedin City Treasury director Bevan Dodds explained the Waipori Fund was, in effect, part of the city. If the city borrowed $10 million, for instance, from the fund, it would be worth $10 million less.
"It creates a situation where the left hand pays interest to the right hand."
Cr Thomson moved that staff prepare an implementation plan and report on how to enable the Waipori fund to lend to the council in its own right, "such that the advance remains on the books of the Waipori Fund entity, and the liability on the books of the council".
If that was not technically possible, staff were to report on the mechanism required to use the fund to discharge council debt, and advise how and when that might be achieved to minimise implementation costs, "including the timely exiting of current investment and hedging arrangements".
Cr Thomson argued the return from the fund, over time, at 6.4%, was less than the cost of the council's debt at 6.8%.
Borrowing from the fund would create "a natural hedge".
Cr John Bezett suggested the motion was what Cr Thomson had asked for the last time he called for a report.
If there were savings to be had, he would be "surprised and disappointed" if Dunedin City Treasury Ltd had not already considered it.
That motion was carried by a majority.
