ACTUALLY IT’S A HELL OF A LOT MORE THAN $8 MILLION… MORE NEWS TO COME, FOLKS
### stuff.co.nz Last updated 18:39 29/07/2011
Financial crisis for Dunedin City Council
By Mike Houlahan and Wilma McCorkindale – Southland Times and DScene
Dunedin City Council is facing a financial crisis, with two internal reviews warning it faces a $8 million revenue shortfall. Dunedin Mayor Mayor Dave Cull was an angry man when breaking the news, saying “hard choices” would probably need to be made to rescue the city’s financial position.
“Despite earlier suspicions, council has only just ascertained the full extent of this, and has not yet had time to decide on measures to address them. Council needs to pursue that with the utmost urgency.”
At the heart of the city’s fiscal problem lies projected revenues from Dunedin City Holdings Limited – the council’s holding company, which oversees firms such as City Forests Ltd, Delta Utility Services and Aurora Energy Ltd. DCHL has already had to borrow to deliver projected revenues to council. Cull warned that DCHL could become insolvent within a few years if it continued to pay council what was budgeted.
Dunedin City Council – Media Release
Statement re DCHL and DVML Funding
This item was published on 29 Jul 2011.
Over the past year or so, concerns have been raised about the ability of Council and Council companies to service debt. This raised further questions about communication and governance. As a result two significant reviews have been undertaken by Council.
The first was conducted by the Council’s CCO Liaison Group specifically to address concerns about current information flows between DCHL and the Council.
The second review is of the governance of the Council-owned trading entities: the DCHL companies, DVL and DVML and DCC Property. The aim was to ascertain if and how governance and efficiency could be improved and, if so, what a better governance model might look like. The independent reviewer, Mr Warren [Larsen], was also invited to make any other observations and suggestions he thought pertinent.
To an extent these two reviews overlapped both in terms of area of interest and conclusions. In addition, analysis was done regarding the projections included in the DVML Statement of Intent.
The conclusions include:
• The Council owned companies cannot sustain into the future the level of dividends projected to be paid to Council and which Council has budgeted for. From the next financial year, 2012/2013, there will be a $5 million dollar per annum shortfall from this source.
• The $3 million revenue from DCHL provided for in Dunedin Venues Management Ltd’s Statement of Intent is not sustainable either.
• In total there is an $8 million per annum shortfall in revenue across the “family” of Council Controlled Organisations.
This has largely been caused by the need for increased capital expenditure within the DCHL companies. With fewer funds available, the companies have had to borrow to pay dividends. That is not sustainable. Were DCHL to continue to pay dividends at the rate projected in Council budgets, it could become insolvent within a few years.
• The composition of, and skill-sets on, the DCHL boards needs to better reflect the companies’ core activities.
• Reporting mechanisms from the Council-owned companies to Council need to be greatly improved and made more transparent.
These conclusions have a number of major implications:
• First there is clearly an urgent need for Council to address the funding shortfall. This is an extremely serious priority. The possible options for doing that include reducing Council operating expenditure, reducing or deferring Council capital expenditure, increasing DCHL revenue, and reducing DCHL costs. Whatever option, or more likely combination of options, is chosen, some hard choices will probably need to be made.
• It is clear that this information will also impact significantly on projections previously approved for the repayment of stadium debt. Models are currently being reworked and the impact on stadium debt servicing and repayment will be reported back to the next F S & D committee.
• Secondly, the fact that the information regarding the funding shortfall from DCHL to Council was not communicated to Council in a timely manner indicates seriously inadequate communication mechanisms. This vindicates the need for the CCO Liaison Group enquiry, but also underscores the fact that such a confidential reporting group is neither adequate nor appropriate on an on-going basis.
All Council has done so far is to clearly identify the problems. Despite earlier suspicions Council has only just ascertained the full extent of this and has not yet had time to decide on measures to address them. Council needs to pursue that with the utmost urgency.
Contact Dave Cull on Mayor of Dunedin.
Posted by Elizabeth Kerr