DCC calls for review of debt arrangements

THE Dunedin City Council (DCC) has commissioned an independent review to help decide whether it should join the Local Government Funding Agency (LGFA), amid suggestions it could be missing millions of dollars in savings.

Council finance and commercial general manager Dave Tombs confirmed yesterday Bancorp New Zealand had been contracted to review the council’s existing debt arrangements and make recommendations.

The review was commissioned in July, and Bancorp staff were in Dunedin two weeks ago to interview staff from Dunedin City Treasury Ltd, the existing entity managing borrowing for the DCC group, Mr Tombs said.

A draft report containing Bancorp’s recommendations was expected next week, he said.

The review was launched before former Dunedin city councillor Hilary Calvert, in a recent Otago Daily Times column, suggested the council had missed out on about $7 million in interest savings by not joining LGFA before now.

The claim was dismissed at the time by Dunedin City Holdings Ltd chairman Graham Crombie, who said it was based on ‘‘mistaken assumptions, which mean her conclusions are incorrect’’.

But an LGFA report to the DCC, released to the ODT yesterday, estimated the council could save at least $1 million a year if it joined the scheme.

That was based on the council transferring $500 million of debt to the LGFA scheme, although council group debt already stood at $614 million in June, and was forecast to climb to $848 million over the next decade.

The LGFA also ‘‘crudely’’ estimated the council could have saved $6.9 million by now, if it had joined in 2011, when the agency was established by the Government to source largescale loans at lower cost for councils.

The fund now had 58 member councils, including those representing major centres Auckland, Wellington and Christchurch, as well as the Queenstown Lakes and Gore district councils.

Gore District Council chief fin ancial officer Luke Blackbeard said council borrowing costs had dropped from 5.62% to 4.73% since joining the LGFA, equating to an annual interest saving of ‘‘just over $100,000’’.

QLDC chief financial officer Stewart Burns said he could not provide a savings estimate, but ‘‘margins are much lower than bank debt’’ and the council was ‘‘very satisfied’’.

The DCC and Invercargill City Council, as well as Central Otago, Clutha and Waitaki district councils, were not yet LGFA members.

DCC staff had rejected the idea in 2011 amid concerns a clause required members to share liability for each others’ debt.

Mr Crombie, writing last month, was also concerned councilowned companies could not borrow directly from the LGFA, and that councils’ ability to pass on loans to their companies was restricted.

But the LGFA already loaned money to councils — including Auckland and Christchurch — which then passed the loans on to subsidiary companies, its records showed.

Mr Crombie had also said he was ‘‘not in a position to assess the risk’’ of shared responsibility for debt, but other member councils listed the risk as a contingent liability of ‘‘zero’’ in their financial statements.

Mr Tombs said he could not comment on the veracity of the savings or risk estimates, except to say there was a greater likelihood of both.

‘‘It probably will be cheaper to go to LGFA. But there’s also a greater level of risk attached to it, because we’ll be crossguaranteeing other councils.’’

❛ It probably will be cheaper to go to LGFA. But there’s also a greater level of risk attached to it, because we’ll be crossguaranteeing other councils

DCC finance and commercial general manager Dave Tombs