Council asset sales backed to pay bill

LOIS CAIRNS
Last updated 07:40 04/07/2012

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Christchurch Earthquake 2011

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The Christchurch City Council should consider selling some of its assets because of the unexpected multimillion-dollar bill for Port Hills land, the business community says.

It is concerned that the council is relying too heavily on borrowing when it has other funding options available.

"This is not business as usual ... and the council needs to consider all possible funding options," Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said yesterday.

His comments come as the council faces a battle with the Government over who will bear the lion's share of the estimated $205 million cost of buying out red-zoned Port Hills property owners.

Canterbury Earthquake Recovery Minister Gerry Brownlee said last Friday that the costs would be shared evenly by the Government and the council. He has since backed away from that, saying no firm agreement had been reached.

He has phoned Mayor Bob Parker to apologise for the mistake.

Parker has said a 60-40 split is more likely. That would equate to a bill of between $70m and $80m for the council, of which it already had about half set aside.

The remaining money, Parker suggested, would be sourced as debt.

"There would not be any need to do asset sales for that sort of bill," he said this week.

Even if the council did end up having to pay a half share of the compensation costs – $102.5m – that was a relatively small amount compared with the council's overall budget and could be funded through borrowings, so there would be no impact on next year's rates, he said.

That stance worries Townsend, who was concerned the council would be adding to the long-term financial burden faced by ratepayers.

As the second-biggest property owner in the country and with multimillion-dollar investments in council-controlled companies, the council had the ability to raise funds through other means, Townsend said.

"I'm not necessarily pushing asset sales, but they do need to go through the exercise of assessing all the options," he said.

Prime Minister John Key said selling council assets was not a central government decision; it was a matter for local councils.

The chairwoman of the council's new corporate and financial committee, Cr Helen Broughton, said she was opposed in principle to asset sales, but if costs kept spiralling, the council might need to rethink its funding options.

"I think we are going to have to look at the wider picture when we do our long-term plan next February," she said.

'Strong case' for selling assets - economist

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There is a strong case for selling some Christchurch City Council assets, a Canterbury University economist says.

Dr Eric Crampton, a senior lecturer in finance and economics, said that if the council was not prepared to cut its expenditure on large capital projects such as the planned sports stadium and convention centre, it should look at selling assets that were more valuable when owned by the private sector.

''Lyttelton Port and Red Bus very plausibly fall into that kind of category,'' he  said.

''We oughtn't forget that only a few years ago the council thought that a private management company would be best placed to run Lyttelton Port.

''Bus routes in Christchurch are allocated between council-owned Red Bus and other operators, like Leopard, by competitive tender. It's pretty unclear that we really need to have the council owning one of the companies.''

For other assets where the council might not want to give up control, like Orion, partial private ownership could help bring in external expertise while bringing in revenue.

''For other assets where efficiency gains from privatisation are limited, there's no strong case to be made between debt and asset sales. Both reduce the city's net asset base and constrain future ability to raise debt in case of seriously damaging future aftershocks,'' Crampton said.

Ultimately, whether the council or the private sector should control an asset depended on which was best placed to operate it, he said.

- The Press

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