Financial crisis for Dunedin City Council

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.

Council had expected to receive healthy dividends from DCHL to service the debts accumulated for major projects such as an upgrade of the Tahuna Sewerage Plant and the construction of the soon to be opened Forsyth Barr Stadium.

"It is clear that this information will also impact significantly on projections previously approved for the repayment of stadium debt," Cull said.

"Models are currently being reworked and the impact on stadium debt servicing and repayment will be reported back to the next Finance, Strategy and Development Committee meeting."

The two reviews found the DCHL-controlled companies would not be able to sustain $5 million worth of dividends the council had anticipated. Nor would DCHL be able to pay Dunedin Venues Management Ltd  the firm set up to manage the Forsyth Barr Stadium  an expected $3 million in revenue.

''The information regarding the funding shortfall from DCHL to council was not communicated to council in a timely manner (which) indicates seriously inadequate communication mechanisms,'' Cull said.

He further described DCHL's reporting to council as ''neither adequate nor appropriate on an on-going basis''.

Dunedin ratepayers are already facing a 7.7 per cent rates hike for the 2011-12 financial year, and a forecasted rise of 8.2 per cent in 2012-13.

Cull said a number of options were possible for addressing the funding shortfall, including reducing council expenditure, reducing or deferring capital expenditure, increasing DCHL revenue and reducing DCHL costs.

One firm that was part of the DCHL family - Citibus - was sold in April to Dunedin Passenger Transport.

The state of the council's books was a major issue during last year's elections, and some commentators have long argued Dunedin City Council was living beyond its means.

DCHL chairman Paul Hudson - a city councillor - said Cull's release of the review findings came as a shock.

Directors were to respond to the review next week, Hudson said, but were unaware Cull had made a public release.

"The directors haven't seen any of this or been contacted by the mayor, or had a copy of the press release."

Hudson said he "totally refuted" the findings, and it was likely the directors would make a statement once they had seen the release.

-The Southland Times and D Scene