A new house of pain for Dunedin

21:14, Mar 03 2012

The city's flash stadium and soaring debt highlights growing unease at local authority borrowing, writes LOIS CAIRNS.

Dunedin city's finances are in the spotlight as the collapse of the Otago rugby union throws fresh doubt on the economic viability of its swanky stadium - which ratepayers will spend the next 40 years paying for.

Dunedin's overall debt has increased 1700 per cent to $586 million since 2000 and frustrated ratepayers say the debt carried by the council is too high for a city of Dunedin's size and that unchecked spending, in particular on the controversial stadium, has saddled them with an unfair financial burden.

The Dunedin City Council has ordered an independent review of the final cost of the Forsyth Barr Stadium in response to a report which raised serious questions over the amount it spent on the venue. Forensic accountants from PricewaterhouseCoopers are now combing through all the contracts and bills for the stadium to determine exactly how much money has been spent above the $198m budget.

Russell Garbutt, the former chairman of Sport Otago, has been an outspoken critic of the council's decision to fund the stadium, and said it was clear from day one the venture would be a financial disaster.

He told the Sunday Star-Times that the success of the stadium was predicated on having a strong, financially secure anchor tenant in the form of the Otago Rugby Football Union but it was in financial difficulty even when the idea of building a roofed stadium was first mooted. Now that the rugby union was facing liquidation, the viability of the stadium was in doubt and ratepayers were facing 40 years of loan repayments for a stadium most never wanted in the first place.


Garbutt said the level of the city's debt was alarming. The debt had been spread over several council-owned companies to reduce its impact on the city's balance sheet but ultimately ratepayers were still footing the bill for the borrowing.

"It is a complete and utter mess," said Garbutt, who has written to the New Zealand Audit Office questioning why it has not raised concerns about the city's debt levels.

Larry Mitchell, a Puhoi-based independent finance and policy analyst who specialises in local government and published an annual league table which tracks councils' financial performance, said he had raised concerns in 2006 about the level of debt Dunedin was taking on. He said it was a small city and could ill-afford such an expensive project as a new covered stadium.

Figures supplied by Mitchell show that in the 10 years to 2009, the city had increased its debt from $32m to $174m - a 436 per cent rise. This compared with an average rise for other New Zealand councils of 182 per cent. In the two years since, Dunedin's debt had ballooned a further 256 per cent, with latest audited figures showing that as of June 2011, the council had debt totalling $586m - or around $11,000 per ratepayer.

Mitchell said there were grounds to believe that since then the debt had gone higher. Dunedin's debt per capita was among the highest in New Zealand but it was not alone in shouldering a hefty financial burden, with around 15 per cent of New Zealand councils facing financial difficulties because of their high debt levels.

Too many councils were doing "expensive fancy stuff" with ratepayers' money rather than spending it on key infrastructural improvements.

"We've only got ourselves to blame," Mitchell said, "because we continue to elect people who are profligate with ratepayers' money instead of those who want to stick to the knitting."

He believes there is a need for tighter monitoring of the financial performance of local councils to ensure they don't get themselves into strife.

"Councils run their own ship and have a great deal of autonomy . . . but there are moves afoot from the authorities to give some force to a range of financial guidelines and benchmarks. Councils who move outside those guidelines - and many already are - will find themselves under the spotlight," Mitchell said.

Local Government Minister Nick Smith was reluctant to comment on individual councils' debt levels but said Dunedin was not one of the most indebted in the country. However it had certainly had the most dramatic increase in debt.

Dunedin mayor Dave Cull, who opposed the stadium plan and who stood for the mayoralty on a platform of prudent financial management, said he was comfortable with the council's financial position but was eager to see debt levels reduced.

The decision by previous councils to embark on several major capital projects simultaneously, all funded by debt, was imprudent. The issue was not the quantum of debt but the council's ability to service it, Cull said. Councillors had been told dividends from council-owned companies would cover the interest payments on the stadium loan but the dividends from those companies had proved insufficient.

The council now had to keep a tight rein on its spending and seek out ways of reducing its costs.

Sunday Star Times