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Councillors yesterday ended three days of debate and deliberations by signing off on a draft budget for the 2014-15 year containing the 3% increase.
The draft would be released for public consultation in March, after which councillors would deliberate on submissions before signing off on the document in June.
The proposed 3% rates increase was itself an increase from last week, when the council unveiled a pre-draft budget containing a 2.5% rates increase - hammered out after months of cost-cutting efforts by staff.
The 2.5% increase had freed up $633,000 of ''headroom'' within the budget, but left councillors to decide whether to bank the savings or spend the money and increase rates up to the council's self-imposed limit of 3%.
Councillors opted to invest $454,000 of the savings in a variety of initiatives, including support for heritage building owners, the investigation of future ''invest to save'' opportunities, and more work on improvements to the city's aquatic facilities.
The remaining $179,000 would be spent on accelerating debt repayments, which Dunedin Mayor Dave Cull said would send an important signal to the community and international credit agency Standard & Poor's.
Debt repayment remained a priority to address ''the major risk we have in front of us'', he said.
''It's incumbent upon us to stick to that commitment and to illustrate the fact that we intend to, no matter what the amount.
''I think it's an important signal, as much as anything else.''
However, the decisions prompted warnings from some councillors, including Cr Lee Vandervis, who predicted the extra debt repayments, while a ''nice gesture'', were ''almost window-dressing''.
That was because the council was awaiting the results of its review of the Forsyth Barr Stadium's operating model, which could change the situation.
''Although it's a nice gesture to say we want to knock $179,000 off the debt, I think it's highly unlikely to occur,'' he said.
Cr Richard Thomson - chairman of the council's finance committee - said he, too, was ''slightly nervous'' about committing the last of the council's headroom to debt repayments.
To do so was ''tempting fate enormously'' when the council would face requests for grants from community groups, he said.
''We could very easily find ourselves in annual plan deliberations, having to reverse that view. I'm not sure that's the right way to go about it,'' he said.
Instead, the council should enter public consultation on its budget with a 2.9% increase, and $179,000 available to spend, and decide about debt repayments later, he believed.
However, other councillors spoke in support of spending decisions, including deputy mayor Chris Staynes, who said it was better to consult on a 3% increase and reduce it later, if warranted.
Cr Jinty MacTavish said the council should be signalling its intent to use any spare savings for debt repayment.