Debt view not as gloomy as that

Outlook for Dunedin is brighter than some say, the mayor says. PHOTO: STEPHEN JAQUIERY
Outlook for Dunedin is brighter than some say, the mayor says. PHOTO: STEPHEN JAQUIERY
Dunedin Mayor Jules Radich replies to an opinion piece by Robert Hamlin earlier this week on the city’s financial state.

Robert Hamlin’s recent opinion piece (ODT 9.4.24) paints a precarious picture of spiralling Dunedin City Council debt.

Pointing to a recent change in outlook by credit rating agency S&P, Dr Hamlin warns homeowners will be ‘‘on the hook’’ as the sole guarantor of DCC debt, foisted with ‘‘instant’’ bills of $30,000, and those unable to pay will lose their homes.

This headline-grabbing commentary is simply not correct. Nobody is going to lose their home because of DCC debt. On the contrary, we are developing an investment plan to put the city’s finances on a sustainable footing.

The reality is the council’s credit rating remains strong — higher than that of New Zealand’s major banks — and that has not changed.

All that has changed is S&P’s credit outlook, which went from stable to negative in February 2024 for 15 councils across New Zealand, including the city council.

S&P wrote: ‘‘The negative outlook primarily reflects downward pressure on the institutional settings for New Zealand’s local government sector.’’

This includes the need to invest in the renewal of Three Waters networks. There is no indication of pending ‘‘economic calamity’’ or ‘‘DCC debt default’’ (again, Dr Hamlin’s words) in S&P’s commentary.

A range of protections are in place to ensure steady financial management, and councils including the DCC are regularly audited and scrutinised by a range of parties to ensure our accounts are in order.

If there was ever a likelihood of a general default, the DCC’s credit rating would probably be quickly downgraded by S&P to a ‘‘D’’ rating. That hasn’t happened.

Council debt, including that of our companies, is managed by Dunedin City Treasury Ltd. It is secured against company assets and supported by council’s legal ability to collect rates, which is the key to the ongoing strength of our credit rating. It is not secured against residents’ houses.

The one thing we can all agree on is that the funding tools available to the local government sector are inadequate for the challenges we face.

The DCC — like other major councils — is a big organisation. We have operating costs forecast to be more than $400 million in 2024-25 and a capital investment programme — largely to replace pipes, improve roads and other core infrastructure — expected to reach $208m.

Rates and debt are core parts of the financial model underpinning this, but councils across New Zealand face significant increases in the cost of inflation, insurance and depreciation, to name a few.

Those increases make up a big part of our proposed average 17.5% rates increase for 2024-25.

We’re also rolling out a new and improved kerbside collection service, which accounts for 4.4% of the increase, and we have a water services regulator which requires councils to improve Three Waters infrastructure. That’s adding another 5.4% to rates.

The rest of our budget includes just 1% for an increase in general costs. Staff have been working hard to trim budgets where they can, including deferring projects and reviewing service levels, and budgeted staff numbers have also reduced by more than 50 positions.

That doesn’t make it any easier to present a proposed average 17.5% increase to the public, because we know people are struggling, but the DCC is not an outlier.

Our proposed rates rise is in the middle of the 45 or so councils which have made their proposals public so far, and our rates remain good value for money, delivering a wide range of services and facilities for our community. Our rates sit below the average level for New Zealand, according to the 2023 Ratepayers’ Report.

Even so, DCC debt is forecast to keep rising and we do need to find ways to change our trajectory and put us on a more financially sustainable path, which is why we’re working on an investment plan designed to do just that.

The proposal to sell Aurora Energy, which council is currently consulting on, could form a big part of that plan.

A sale would allow us to repay Aurora Energy’s debt (forecast to be $576m by mid-2025) and use the rest of the sale proceeds to establish a diversified investment fund worth many hundreds of millions of dollars.

The income from this investment fund could then be used in a number of ways, for example, to repay more debt or to offset rates. We’re now taking submissions on the proposal.

And, in case you’re interested, here’s what S&P actually said about council credit ratings: ‘‘New Zealand’s local councils remain highly rated. We have not lowered the ratings on any local council today. We have flagged a potential weakness in ratings and revised several outlooks to negative. Even if we revised downward the institutional framework and lowered the ratings, New Zealand councils remain highly rated in a global context at between ‘AA’ and ‘A’ categories.’’

Dunedin is rated AA.

 Jules Radich is Mayor of Dunedin.