Council shortfall 'known' says report author

17:00, May 08 2014

The author of a report into the Christchurch City Council's finances is standing behind his figures, saying both the Government and council knew the cost of repairing the city's broken infrastructure had been underestimated.

KordaMentha's report into the council's financial position this week revealed a $534 million budget shortfall, $413m of which is from the council's revised cost of repairing roads and sewers.

The shortfall is expected to increase, as the council is unlikely to receive the $1 billion insurance payout it had banked on.

Earthquake Recovery Minister Gerry Brownlee is awaiting the findings of a Crown review of the report but yesterday reiterated his belief the budget blowout was based on an outdated cost estimate.

Michael Stiassny, a KordaMentha partner and the report's author, told The Press he welcomed the independent review of the figures in the report.

Stiassny said the shortfall was based on information received from the council and involved input from the Stronger Christchurch Infrastructure Rebuild Team (Scirt) - the organisation carrying out the majority of the work, and of which the Government is a partner through the Canterbury Earthquake Recovery Authority.

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Scirt had indicated the numbers it had previously provided were going to increase, he said.

The council and the Government had always disputed how much it would cost to repair the city's roading and pipe networks to pre-earthquake standards, Stiassny said.

"It was a case of how to fit those two numbers together . . . if they knew that number was correct, why did they provide for that number to be reviewed?

"They did so because there was a disconnect around the numbers."

Finance committee chairman Councillor Raf Manji said that during cost-sharing negotiations the council chief executive at the time, Tony Marryatt, approached the Government with an estimated repair cost and it "agreed to fund it to a lower level".

Manji agreed that if the cost had been correct, there would not be a review clause in the agreement.

"The minister has a strong view that we should be able to find those savings . . . and if we believed there was a $400m difference, then we should have budgeted for it," he said.

It would be a question of where cutbacks would be made if savings could not be found, Manji said.

However, the council did not

want to compromise the city's horizontal infrastructure.

"[It] needs to be repaired to the agreed level of service because most ratepayers want that; it's basic stuff."

Brownlee said the cost of repairing the city's infrastructure was initially estimated at $3.4b (Crown and council contribution) but had been "revised down over a period of 14 months . . . to about $3b".

On Wednesday, he issued a media release saying he was disappointed the council had chosen to release the KordaMentha report ahead of a Crown review of the figures and a "joined up response".

When asked whether the council's position would force the Government to increase its rebuild funding, Brownlee said that would happen only "if the requirement is there".

"We will know that in December," he said.

University of Canterbury senior economics lecturer Eric Crampton said the council had suffered from "wishful thinking".

"Unfortunately, a lot of hopes were built up based on expectations of the larger [insurance] payouts, and a lot of projects were mooted around those," he said.

The tradeoff would be deciding between spending money on big anchor projects, such as the stadium, or making sure the city had "overpasses and sewers that are safe and fit for purpose".

"I really hope we put more priority on the more boring core infrastructure," Crampton said.

He believed a combination of spending less, increasing tax revenue or selling off council-owned assets was the best solution.

The Press