Stop the Stadium

Opinion, Otago Daily Times, 25 Oct 2008

We live in alarming financial times, as sharemarkets bump their way to new lows and the New Zealand dollar lurches downwards… Nobody knows what comes next and the good times, at the very least for now, have stopped rolling.

On current trajectories, the impact will be felt far and wide, with unemployment rising and standards of living falling. More businesses are likely to fail or downsize. Many are already considering cost-cutting options. This is what faces not just our Government, but also our civic leadership.

How are our elected councillors and our council bureaucracies going to react? What leadership will they provide as they respond to the growing crisis? Conventional wisdom dictates that governments reject the retrenchment that marked the Depression of the 1930s, and which is widely blamed for the length and depth of that local and international disaster….

Local councils are placed differently because many ratepayers will be under increased financial pressure just to pay the rates. Both rates and council debts have, in most places, galloped ahead of inflation for all sorts of reasons, a trend which cannot keep going. In Otago, the Dunedin City Council’s predicament is particularly stark, with an avalanche of increased debt weighing down on the city’s future and - through mounting debt servicing costs - also on present ratepayers.

The city’s finance head, Athol Stephens, has prudently warned that, in the face of volatility, major city projects may need to be reconsidered. Tellingly, these comments were made before the jolt he must have received when he ran into problems last week with a 90-day debt-repayment agreement.

The city is due to borrow $92.8 million this financial year, for the stadium, the West Taieri and northern water schemes, the Tahuna wastewater scheme, and the Otago Settlers Museum.

…Dunedin’s mayor, councillors and senior executives urgently have to reprioritise capital spending, as well as thoroughly examine costs across all council departments.

It becomes a case of not what is desirable, but what is absolutely necessary. Priority has to be given to the basics, including fundamental infrastructure such as water and sewerage and the essential maintenance of roads so that more costly repairs are not required later….

As Dunedin’s debt grows, it also faces a credit rating downgrade, albeit small, which means the interest rate it has to pay on debts will rise. At the same time, income from the council-owned companies - which are used to subsidise rates - can be expected to decrease because they will not be immune from recession.

Dunedin has no realistic choice other than to cut its cloth to match its current circumstances.

» Read the full article here

Letter to the Editor, Otago Daily Times, 24 Oct 2008

IT WAS reported in the Otago Daily Times 11th Oct that City Treasurer Athol Stephens, as he does every two weeks, waved a promissory note for $26 million in front of four big banks and surprise surprise, none of them were interested. He wanted the money so he could roll over some of the city’s debt. He managed to overcome the problem by agreeing to a higher rate of interest. How much higher we don’t know, suffice to say it is an added cost to the empire.

Now, when we are staring down the barrel at some $660 million of debt between the DCC and DCHL you would have to wonder what chance there is of keeping a lid on this simmering caldron. First, cut back seriously on spending so the debt doesn’t actually reach the full level. Stadiums, harbourside dreams and conference venues should slide down the priority pole so fast that they ignite. Go back and revisit the whole budgeting process, prune all non essentials and review all spending. Too much to hope for? Probably.

Calvin Oaten
Pine Hill

Otago Daily Times, 21 Oct 2008

Dunedin City Council staff met the reality of the international credit crunch last week when trading banks balked at a routine transaction.

Staff were told on Wednesday by members of a bank dealers’ panel - comprising representatives from four big banks - there was no interest from their members in a $26 million promissory note due to be issued by the council.

The regular transaction, which has taken place every two weeks for the last 10-15 years, is a 90-day debt repayment agreement which allows the council to roll over some its debts, freeing up funds for other capital projects.

The transaction was eventually completed later the same day after the council agreed to pay a higher rate of interest and the panel’s banks consulted their members, council finance and corporate support general manager Athol Stephens told the Otago Daily Times yesterday.”This is really the first time we have had to think about whether we could get the money,” he said.

» Read more…

See also:

» The DCC bond issue which will raise the city’s interest bill

From Roger Advice, www.rogeradvice.com, June 2008

Dunedin City Council offer $40m of bonds

The treasury of Dunedin City Council has issued a 3 year bond and is one of a very limited number of non-bank issues in 2008. The bond carries a coupon of 8.7% and was issued at 75 basis points over the swap rate. A very expensive debt cost (compared to historical margins closer to 15-20 basis points) for the good burgers of Dunedin, but a stunning yield return for investors for what is semi-Government credit risk. Dunedin City Council is rated AA- by S&P.

See also:

» Credit crunch hits DCC request for $26m

Radio New Zealand National, Morning Report, 20 October 2008

The Government’s bank guarantee scheme means higher debt costs for Dunedin City Council….

The council says it had to dip into reserves and use bank loans to repay $20 million due last Wednesday.

It says buyers of the AA-rated debt are contemplating deposits in banks guaranteed by the Government instead.

Head of finance Athol Stephens says councils raise up to $1 billion per year this way - but now face having to borrow from banks at much higher interest rates.

» Listen here…

Opinion, Otago Daily Times, 16 Sep 2008

By Calvin Oaten

The so-called “knockers” are not opposed to progress in Dunedin but just want an injection of some commonsense and responsible fiscal management.

Time to polish off the “knockers”, said former Otago Daily Times editor Robin Charteris (ODT, 9.9.08).

Does he mean by knockers, the people who are concerned enough about the future of Dunedin as to voice their opposition to the council over its spending on grand vanity projects? Or does he think that all is well in our fair city of the South? He cites the town hall as an example of the progressive attitudes of former civic leaders.

But would that project have happened if it was to be funded 100% by debt? It is a fact that in the 1920s an industrial exhibition was mounted by some very dedicated citizens.

It was in the days before the universal use of motor cars, with the masses using public transport to travel to the venue.

So successful was the venture that Dunedin’s city tramways made a surplus over the few years.

This the council opted to use for the construction of the town hall and it was built debt free.

The railway station, of course, was constructed by the central government’s department of railways, so no citizens’ cost there.

» Read more…