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Another council company, City Forests, is planning to use its income, including an unexpected windfall from carbon credits, to repay debt rather than put it towards the dividends.
Those are two major reasons, identified in a confidential council report released yesterday, behind Dunedin City Holdings Ltd's (DCHL) $5 million shortfall in dividends.
The issue of the shortfall, along with a $3 million deficit that meant the council was $8 million behind annually, burst on to the political scene two weeks ago.
Mayor Dave Cull yesterday released a report from a non-public finance, strategy and development agenda from July 25.
The four-page report was the result of the council-controlled organisations liaison group's work.
The report identified a shortfall of $5 million for four years from the 2012-13 financial year, which Mr Cull said yesterday would probably continue after those four years.
The $3 million deficit would be dealt with in a report to the committee on September 10.
The report said two changes from DCHL's previous financial forecasts stood out.
One was the $40 million increase in Aurora's capital expenditure, which "materially reduces the cash available" to DCHL and the council.
That increase was a result of a need to spend increasing sums on the ageing Dunedin network, and on growth in the Central Otago network.
A peer review had satisfied directors the increase was "not overstated".
The second change related to City Forests.
The report said cash flows from operations were "strongly positive", supplemented by previously unforeseen carbon credits receipts, but the cash had been used to repay debt, including old government forestry encouragement loans.
Mr Cull said the liaison group had accepted the companies' need for more capital expenditure, and to pay debt.
He said it came back to the problem of debt being used to pay dividends in the first place.
"You can't keep borrowing to pay dividends."
Under the heading "remedies and recoveries", the report said any increase in cash flow would provide an opportunity to make up the shortfall, and even modest reductions in the Aurora capital programme would be valuable.
"The only way CFL [City Forests] has been able to meet the DCC's regular cash needs is by borrowing on the bottom part of the cycle and repaying debt at the top."
Once debt payment was sustainable, increases in dividends might be possible.
The report recommended the council's long-term plan should include consideration of how the $5 million shortfall could be made up from "inside DCC and DCHL", that DCHL's statement of intent next year specify "a minimum sum of cash to be paid" to the council, and that the DCHL board "consider strongly additional distributions should the surpluses and/or cash flows exceed budget".
Mr Cull said last night those recommendations were accepted.