DCC seeking $1b of debt facility
The Dunedin City Council wants to increase the amount of money it and its companies can borrow – if needed – to almost $1 billion.But it also insists the extra budget headroom created by the move will not result in the council, or ratepayers, taking on extra debt beyond what it has already committed to.
The proposal is outlined in a staff report to be considered by councillors at today’s full council meeting.
The report, by DCC finance and commercial general manager David Tombs, recommended the change to allow the council and its companies to borrow money needed for their capital spending plans.
That included Aurora’s major network upgrade, work on which was continuing.
Mr Tombs, in his report, said existing arrangements allowed DCC group debt – spread across the council and its companies – of up to $850 million.
Already, group debt was forecast to exceed $850 million by late next year, as it increased from $691 million in June this year to $927 million by 2022.
The increasing debt levels were being driven largely by the capital spending plans of the council and Aurora.
That meant the council either needed to find ways to reduce debt or ways of increasing the amount that could be borrowed, to deliver on spending plans already developed.
Mr Tombs recommended an increase in uncalled share capital in the companies’ parent body, Dunedin City Holdings Ltd, as the best way for increasing the group’s borrowing capacity.
The uncalled shares provided security for DCC group debt, and had previously been increased from $600 million to $850 million in 2010-11.
Mr Tombs said another change in uncalled share capital would not incur any “significant” cost, but would “simply enable the future debt to be available” and provide some “liquidity headroom”.
That headroom could be useful if needed, for example if a natural disaster struck the city, he said.
The council could consider joining the New Zealand Local Government Funding Agency, and borrowing from it, selling some of its $93.5 million investment property asset portfolio or cashing in part of its $92.7 million Waipori Fund.
However, Mr Tombs ruled out those suggestions, saying selling all the council’s investment properties could keep group debt below $850 million but would leave little headroom.
It was also unlikely all the properties could become “sale ready” within required timeframes, he said.
The Waipori Fund also generated $8.6 million in investment returns in 2018-19, a return of more than 9%, and using the fund to offset borrowing would have “adverse commercial ramifications” given the return it was generating, he said.
He recommended the change to DCHL uncalled share capital, while noting group debt could still not increase beyond $927 million without “explicit” approval from the council.
I GAVE CHRIS MORRIS THIS BILLION$ DEBT GRAPH MANY MONTHS AGO but the ODT refused to print it despite the proof that it was made from DCC accounting figures.
I have warned repeatedly all year in public meetings of the inevitable Billion$ DCC Group Debt coming mostly from out-of-control DCC Companies, but was contradicted by ex-Mayor Cull’s misrepresentations that DCC debt was actually going down claiming “Core council debt – including stadium debt – was lower now than when he became mayor.” ! ODT 28/9/2019. He seemed to forget that most Stadium debt had been transferred to DCC Council Companies, and that the Companies, especially Aurora had committed to $100 million extra debt every year for the next 3 years, and that massive deferred maintenance by Aurora and by the DCC was an even worse kind of debt.
Yesterday, in Council I reminded the DCC Chief Financial Officer that his claim that the proposed new higher BILLION$ debt level headroom “could be useful if needed, for example if a natural disaster struck the city” [ODT 10/12/19] was misleading Council.
In fact the new BILLION$ DEBT level is already committed to fund increased DCC spending and especially DCC lines Company Aurora massive committed spend to deal with years of deferred maintenance.
There is not going to be any debt headroom for any natural disaster, because the un-natural disaster of out-of-control DCC Company Aurora is already budgeted to suck it all up. We are going to continue to throw good 100s of millions after bad because nobody has wanted to admit that Aurora is a hopeless financial and reputational liability that should have been sold long ago, as I have regularly suggested since 2010. The longer we continue to fail to act with Aurora, the deeper in unsustainable debt we get.
Mayor Hawkins has no business experience and no understanding of what changes are needed, so just keeps pushing up the debt and going with the status quo.
DELTA, the DCC maintenance company recently separated from Aurora, is not much better because of similar dysfunctional management, [DELTA CEO Grady Cameron left with a $900,000 pay-out last year] but it is smaller and therefore less damaging.
This smaller DELTA liability also needs urgent review of its operations, its liabilities, and a report to Council on whether it is worth keeping.
I again reminded Council yesterday that the previous massive increase in Debt Headroom up to $850 million was also justified as ‘liquidity headroom’ needed in case of natural disaster, but that it had simply been spent without any natural disaster.
None of these extensive year-long ‘BILLION$ elephant in the room’ and ‘I told you so’ speeches had been reported in the ODT before the election, but yesterday’s comments have come out today.
https://www.odt.co.nz/news/dunedin/dcc/vote-increase-borrowing-almost-unanimous
Vote to increase borrowing almost unanimous
The Dunedin City Council is ‘‘locked in’’ to lifting its group debt to almost $1billion, councillors have heard.
The comment came from Cr Lee Vandervis after council staff confirmed planned spending by Aurora — a key driver of the council’s group debt position — could not be reversed.
Council finance and commercial general manager David Tombs, in a report to yesterday’s meeting, recommended lifting the amount of money the council’s ability to borrow money to $975million.
The mechanism for doing so involved increasing the uncalled share capital for Dunedin City Holdings Ltd, which provided security for debt across the council and its companies.
Increased debt was already forecast to fund council projects already committed to, including the major upgrade of Aurora’s network and council capital projects.
However, at present the council group debt was limited to $850million, and spending was forecast to push debt beyond that by late next year, as it increased from $691million in June this year to $927million by 2022.
Increasing the limit would allow the council to deliver on planned spending, but also provide some ‘‘liquidity headroom’’, for example if a natural disaster struck, he said.
Cr Vandervis told the meeting he had heard similar assurances before, including when the council lifted its ability to borrow from $600million to $850million in 2010-11.
At the time, it was also said to provide headroom to cope with any natural disasters, but had since been ‘‘gobbled up’’ by another form of disaster — Aurora, he said.
‘‘I’m having a deja vu experience,’’ he said yesterday.
He pressed Mr Tombs, asking him whether Aurora was committed to spending on its network, and therefore increased debt, contributing to an almost $300million overall increase in group debt by 2022.
When Mr Tombs said Aurora could not perform a ‘‘U-turn’’ on its spending plans, Cr Vandervis said critics — including himself — had been proven right.
‘‘We are absolutely locked in. We do have to spend this money. Richard Healey’s predictions of $1 billion, and mine earlier this year, have come true.
‘‘We told you so.’’
Delta employee-turned-whistleblower Richard Healey had predicted Aurora’s neglected network would end up delivering a $1billion bill.
The mounting council group debt had funded a wider variety of projects, including everything from the Peninsula Connection upgrade to Forsyth Barr Stadium, as well as Aurora’s network upgrade.
Mr Tombs said lifting the ability to borrow was simply about delivering on previous spending decisions, and the council’s debt-to-equity ratio would still be at the lower end of the scale compared with other councils.
Cr Mike Lord said the debt picture had been clear for more than a year, ever since the council decided not to sell properties to offset debt, and he had no issue with it.
Cr Carmen Houlahan also ‘‘fully’’ supported the report, saying investment in infrastructure was key, while deputy mayor Christine Garey said the council and its companies were investing in the city at a fiscally advantageous time, when interest rates were low.
Cr Jim O’Malley also reminded councillors the level of risk was ‘‘negligible’’ when much of the debt was secured against company assets, like City Forests, which could be sold.
Cr Vandervis maintained the council would have been ‘‘hundreds of millions’’ of dollars better off it it had sold
Aurora years ago, but Cr Jules Radich said that would have led to the kind of price hikes seen in the private sector elsewhere.
Councillors voted 13-1 to increase the council’s ability to borrow, to $975 million, although any increase beyond $927million would require a specific council resolution.
Lee Vandervis 