The Dunedin City Council-owned companies have laid another golden egg, with healthy profits reported on Friday for the last financial year.
Whether one would describe the result as "outstanding", as did Dunedin City Holdings Ltd (DCHL) chairman Paul Hudson, is another matter. Nevertheless, the main companies have done well with a notable boost from strong log prices.
No-one should doubt the enormous contribution the companies have made to subsidising rates - $106.3 million over the past five years. As Cr - or Mr as he prefers to be called in his company role - Hudson said, that is enough to cover the city's contribution to the stadium. But here lies the problem. The city has kept demanding more and more of its golden goose and, to change the metaphor slightly, appears to be bleeding the companies dry. Once the council seeks and receives more than 100% of tax-paid dividends, the council companies have to borrow to pay their shareholders. This makes no sense, especially because of already hefty debt. Often, too, companies should retain a large proportion of profits for reinvestment, particular in an industry like electricity reticulation (Aurora) where heavy and ongoing capital investment is necessary.
Mr Hudson has experienced criticism since it was revealed in late July that an annual $8 million of dividends requested from the companies would not be forthcoming. That was on the basis the companies could not, and should not, be borrowing to pay the council. About the same time, a council review, the so-called Larsen report, said there was a high level of dysfunction and financial problems with the potential to become serious. Mr Hudson was, subsequently, castigated by Mayor Dave Cull for not keeping the council properly informed and not providing sufficient warning about the shrinking dividend stream.
Maybe Mr Hudson and the council finance and corporate support general manager Athol Stevens could have been more explicit and blunter in recent years and maybe DCHL should have been stronger in resisting the council's rapacity.
However, Mr Cull's response is a bit rich because there have been regular reports, Mr Cull has attended DCHL meetings and the balance sheets are plain to see.
Obviously, at least in part, politics is being played in the current furore. What more would anyone expect from politicians?
But Mr Cull is still correct in his view that councillors should not be on the boards of council companies. Mr/Cr Hudson, for his part, should realise, that despite having a strong business background, he probably would not have been on the boards were he not also a councillor. Even if his term continues until next year, it would make sense for him to resign this year. He has, even if some of the reasons are dubious, lost the confidence of the mayor and, it would seem, the support of enough other councillors. He believes the companies have strong enough cash flows to handle debt issues and he could leave on a relatively strong note, despite the present disagreements.
Some good, hopefully, can come out of the differences. The council needs to take the opportunity to rationalise its complex board structures and perhaps the company make-up itself. It needs to ensure councillors are not board members and bring in some out-of-town directors. Boards, also, do not have to be dominated by accountants or lawyers. The council then needs, while receiving regular reports, to not interfere in the affairs or governance of the companies. In this, it would be wise to follow the approach of the Otago Regional Council as owner of Port Otago Ltd. That council keeps a healthy distance from port governance and operations and has received substantial and steady dividends, with news last week that these had passed $100 million during the past 22 years. Port Otago has also had strong, completely independent chairmen in recent time in John Gilks, of Dunedin and then Wanaka, and David Faulkner, of Nelson.
The city's companies, with the exception of the now-sold Citibus and the valuable tourist attraction Taieri Gorge Railway - which was never going to do any more than break even - have proved to be golden geese laying golden eggs for ratepayers. The council now has the responsibility to put in place the best structure to keep the geese alive and healthy and make sure they do not go off the lay.
