Christchurch property owners face a 20 per cent rate increase next year unless the city council can shrink its nearly $900 million financial black hole.
"I honestly don't think we can stand up and say to the people of Christchurch we want to increase your rates into the double digits," Mayor Lianne Dalziel said yesterday as she announced the council was instead considering releasing up to $400m from its commercial and investment arm, Christchurch City Holdings Ltd (CCHL).
Through CCHL the council owns assets worth about $2.6 billion. They include electricity lines company Orion, Christchurch International Airport Ltd (CIAL), Lyttelton Port (LPC) , Enable Services Ltd and Red Bus.
To release the $400m the council will either need to find someone willing to buy a stake in CCHL or sell, or partially sell, some of the assets.
Dalziel said the council was adamant it wanted to retain control of its key infrastructure assets - the airport, the port, and Orion - but the public would be consulted on all options, starting on September 4, the fourth anniversary of the start of the Canterbury earthquakes. Earthquake Recovery Minister Gerry Brownlee applauded the council's move.
"The council has really bitten the bullet on the truth of their financial situation. It takes a degree of political courage to face up to some of those things, to put some unpalatable prospects on the table," Brownlee said.
"This is a city with a very strong balance sheet and a number of options about what it can do. I'm delighted the council has reached this albeit difficult and challenging decision."
Brownlee said it was too soon to comment on whether the Crown might be willing to take a stake in CCHL but he indicated the Government was committed to working closely with the council to help it overcome its financial challenges.
As part of that work it was possible the timing of construction of some of the central city anchor projects could be pushed out. It was also possible some aspects of the Cost Sharing Agreement could be renegotiated.
"We've never walked away from the prospect there may be some more costs," the Minister said.
Wellington investment bankers, Cameron Partners, which was commissioned to review the council's finances, calculated between $21m and $314m could be raised by partially selling some of the organisation's commercial assets.
The extra money would allow the council to pay off some of its debt and give it the capacity to take on new borrowing of between $21m and $265m.
Its review of the council's funding options, made public yesterday, concluded the financial reasons for owning the assets were, in the majority of cases, weak.
Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said the council was doing "exactly the right thing" in putting all options on the table. It was clear that it would not be able to find enough savings to entirely close the funding gap so releasing capital by selling assets or share in assets was the logical thing to do.
But Green MP Eugenie Sage said selling the city's strategic assets to fill the financial hole did not have the long-term interests of the city at heart.
Labour MP Ruth Dyson said the party would vigorously oppose short-term solutions to plug the funding shortfall - including asset sales - which would leave the city worse off in the long term.
BANKER: DON'T PANIC OVER CITY FUNDING GAP
The nearly $900 million funding shortfall the Christchurch City Council is potentially facing by 2019 is no cause for alarm, says the author of a report into its finances.
Rod Cameron, who is one of New Zealand's most respected investment bankers, told The Press he was confident the council could plug the gap because it had a strong balance sheet, time and flexibility on its side.
"The key thing is taking this time we've got to get organised for the rebuild. It starts by saying what sort of city do we want and how do we fund it?" said Cameron.
"At first you look at the numbers and get alarmed but then you stop and see the other side of it. There is a real opportunity for the city to be modern, world-class - to fix up historic inefficiencies and adopt best practices."
Cameron spent nearly five months reviewing the council's finances and its management of its commercial assets. While his report identified a funding gap of between $783m and $883m, it concluded the council had some options to close that gap, including freeing up capital from its commercial assets.
"Frankly, the reason you've got options is that Christchurch has been well managed," Cameron said. "You've had a very disruptive event and it throws everyone into a very unstable position, but you work out what resources you've got and the position you are in and then you make decisions about how you rebuild."
Council finance committee chairman Raf Manji said people needed to understand the council had a massive balance sheet so it could afford to release capital.
"It sounds like a big number and it is, but we can solve it and there is a range of solutions," Manji said.
"I think the public probably won't want to see rates going up too much so I think, and I hope, they will see this as actually a sensible, pragmatic solution."
- The Press
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