Dividend cut means a rates rise: Pottinger

If Holdco reduces its dividend to the Invercargill City Council by up to $2 million there will be ramifications for ratepayers, a councillor says.

City councillor Ian Pottinger, who is the council’s risk and assurance committee chairman, expressed his concerns at yesterday’s council meeting.

The council has this year budgeted for a dividend of $5.8m from Holdco, which is 100 per cent owned by the council and itself owns Electricity Invercargill Ltd, Invercargill City Forests Ltd and 97.2 per cent of Invercargill Airport.

Holdco has already paid the council an interim dividend of $3.8m but remains undecided on whether to pay the remaining $2m given it faced a short- to medium-term cashflow crunch.

Pottinger, speaking at yesterday’s council meeting, said a short- to medium-term cashflow crunch equated to anything from three to 10 years.

He stressed that the Holdco dividend was for the council to subsidise rates, and the impact of a reduction would be serious.

‘‘The impact of losing that much money [up to $2m] from a rating base means, if the council wants to carry on with its intended projects, it would have to increase rates.

‘‘If you are taking money out of something you have to replace it with something.’’

A city council staffer said $2m equated to 4 per cent of the rates take.

Pottinger said the implications for the council were real.

‘‘You cannot reduce a dividend [which is to] subsidise rates and not have any consequence.’’

The public would need to know the council’s true financial position when the council asked the public whether it should invest more money into the CBD redevelopment, he said.

‘‘This [final dividend] needs to be sorted before then . . . The public need that information.’’

He had asked questions on the issue in the past and it had been ‘‘put to one side’’.

He wanted a report on the issue to go to the risk and audit committee, but Cr Darren Ludlow said the report should go back to the finance and policy committee.

Pottinger said Ludlow was both a director of Holdco and the chairman of the finance and policy committee, which would be looking at dealing with the item.

‘‘We are quite strong on potential conflicts [of interest] and in the paper today Mr Ludlow was quoted that the council would not notice the impact [of no $2m dividend],’’ Pottinger said.

He wondered if the finance and policy committee was the right place for the report to go.

‘‘How can a Holdco director be in charge of a report that is to do with Holdco giving a dividend?’’

Ludlow said he wouldn’t be bringing the report back, but he was comfortable with an earlier suggestion that the full council take the report.

The councillors decided the full council should receive the report after the final Holdco dividend had been determined.

‘‘The impact of losing that much money [up to $2 million] from a rating base means, if the council wants to carry on with its intended projects, it would have to increase rates.’’ Cr Ian Pottinger, left