Christchurch Mayor Lianne Dalziel says city 'in good position' to deal with potential $534m budget shortfall

Christchurch Mayor Lianne Dalziel says city 'in good position' to deal with potential $534m budget shortfall

Below is a press release issued by the Christchurch City Council today, plus one issued in response by Canterbury Earthquake Recovery Minister Gerry Brownlee.

City in good financial position to meet budget shortfall identified in KordaMentha report

Christchurch Mayor Lianne Dalziel says the city’s strong balance sheet means we are in a good position to deal with a potential $534 million budget shortfall identified by an independent review of the Council’s financial position.

In December last year the incoming Council commissioned independent financial advisory firm KordaMentha to undertake an assessment of the financial estimates and assumptions underpinning the city’s Three Year Plan adopted in June 2013.

Mayor Dalziel says KordaMentha’s figures have been well signalled in the media and the headline figure is not a surprise to the Council or the Crown.

KordaMentha is also warning the shortfall could be significantly higher depending on the level of the Council’s final insurance settlement and its share of the major facilities rebuild costs.

The Mayor says the full report will provide citizens with a plain language explanation of where the city stands financially three years after the earthquakes.

“As a new Council we promised to open the books so we could be transparent and accountable.

“This report is an important step in fulfilling that promise. Only when we all fully understand the Council’s financial situation could we start working together on putting our finances right.”

The Mayor says given the extraordinary number of variables the previous council faced at the time the plan was adopted – including the lack of certainty about the actual costs of mending the city’s infrastructure and the council’s insurance pay-out – it is not surprising there is potential for a significant budget shortfall.

“What we now know is that the Three Year Plan was based on an overly optimistic view of the future and did not provide enough headroom to allow for cost escalation or indeed for the sort of unexpected expenditure the city now faces as it ramps up land drainage recovery projects.”

“Sensibly, the Cost Share Agreement with the Crown makes explicit provision for a review of costs, and how they are shared. Clearly this requires close collaboration with Treasury and the Crown. We met in Wellington on April 22, days after the final report was given to us, to discuss next steps and to provide them with an advance copy of the report.”

The Mayor says from the outset the previous Council had always believed the infrastructure repair estimates had been understated in the cost share agreement and so it was not surprising that this remained a point of contention with the Crown.

“Irrespective of where the figures finally land, as Mayor I can assure Christchurch residents that this Council is going to ensure that this debt problem is dealt with responsibly.”

Finance Chair Councillor Raf Manji says KordaMentha provides a useful snap-shot of the council’s current position but there are still a lot of variables and the key message to take out of the report is that the Council will need to take decisive action to put itself on a sound financial footing for the future.

“We have a strong balance sheet to help us weather this kind of financial challenge. KordaMentha makes it clear that there is no single simple solution but rather a number of levers that will need to be used.

“Hard choices will need to be made and we will be relying on the residents of the city to engage with the Council as it makes these decisions and charts a prudent and sustainable course forward.”

Councillor Manji said the Council is working closely with its Executive Leadership Team, including its new Chief Financial Officer Peter Gudsell, the Canterbury Development Corporation, Christchurch City Holdings Limited (the Council’s investment arm) Christchurch City Council, and external advisors Cameron Partners to develop a robust financial strategy for the next 30 years.

The Councillors and Executive Leadership team will take the next step in this process at a two-day strategy workshop this weekend following a month of briefings on the financial situation and the infrastructure repair programme.

To read the report visit: www.ccc.govt.nz/financialreview

And here's Brownlee's statement;

Govt awaiting own review of KordaMentha report

Canterbury Earthquake Recovery Minister Gerry Brownlee says the Crown has concerns about some of the assumptions made in the Korda Mentha report on the financial position of Christchurch City Council, released today, and the accuracy of some of the data incorporated in the report.

“For those reasons on April 30 the Canterbury Earthquake Recovery Authority (CERA) asked financial consultants Morrison Low to provide their independent assessment of how the council’s financial position, as presented in the Korda Mentha report, relates to the Crown’s role in the rebuild.

“Korda Mentha then only provided Morrison Low with access to the latest version of their report yesterday, 6 May.

“We expect to receive Morrison Low’s report in about 14 days and will be in a position to respond after that.

“Constructive discussions have taken place between CERA, Treasury and council officials on drafts of the Korda Mentha report in Wellington and Christchurch in recent weeks, and I had hoped the council and the government could have presented a joined up response to the final report.

“Releasing the report today raises many more questions than we are presently able to answer.

“It should not be forgotten that the cost sharing agreement was approved by both Christchurch City Council and Cabinet.

“As the government is not in a position to make a fully informed comment on the Korda Mentha report it is disappointing the council has chosen to release it,” Mr Brownlee says.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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14 Comments

This is a consultant's dream assignment: get paid handsomely to tell someone what they already know.
 
There shouldn't be any news here; at least not for those inside CCC. The Local Government Act 2002 requires that CCC are completely transparent in their financial management. They must publish their budget and their audited final results. By law, Korda Mentha cannot have discovered anything that was not already publically available.
 
If the books needed opening the someone needs to be sacked. If it was just an issue of presentation then maybe someone in the large Communications Team could also be looking for another job.

They must publish their budget and their audited final results.
 
Yes, but CCC were exempted from a financial audit in the previous triennium. See as reported here;
 
http://www.stuff.co.nz/national/10019150/Christchurch-in-financial-strife
 
So, the newly elected Council was working to a previously agreed 3-year plan that took into account their Cost Sharing Agreement (CSA) with central government and made certain assumptions about what their insurance payouts might be. And that little budgeting exercise wasn't subject to a publicly available audit.
 
When Dalziel took over, I suspect the financial PTB within the CCC felt they might have been hoodwinked by central government in that CSA - given their insurance payouts might have been over-estimated. Hence, enter Korda Mentha, asked to complete the financial audit that central government had exempted them (CCC) from.
 
Seems to me that central government wanted to limit their share of costs in terms of the new 'grand plan' CBD rebuild - convinced the CCC to sign up to an agreement using optimistic assumptions about what the LA would be due in terms of insurance payouts - and figuring if there was a shortfall, then the CCC could sell some of its assets in order to make that shortfall up.
 
Basically, Bob rolled over and Lianne is fighting back. It's all a part of the on-going "who pays" argument.

I will stand by my comments. The audit they were exempted from is a little-known one prescribed in LGA2002 which Audit NZ conduct over a draft TYP before it goes out for consultation; basically to ensure that the numbers are based on some kind of reality not plucked out of thin air. It is understandable that at the time CCC started assembling their 2012-15 TYP - starting mid-late 2011 - they could have had no idea what their costs were really going to be over the next four years.
 
Even so there is no chance that CCC does not know - to the cent - what their financial position is at any given time. And, as asset management plans and reconstruction plans are being constantly revised, there is no way that Mayor Dalziell could not have got a full and acurate briefing on the money the day she took office. My point is that there is no such thing as a revelatory, opening the books exercise: this is pure politics.
 
I agree 100% that the sub-text has always been about forcing CCC into selling its investment assets. If it takes an independent report to push some of this into the open air and back towards the government so be it. I still say its the dream consultant assignment: to borrow Dalziell's watch, tell her the time and charge her for the privilege.

Maybe KordaMentha got all their financial facts from the Councils books. So it was easy money. But there value is not in this case their forensic financial skills but their independence. The issue is we have argument between two levels of government on how to rebuild the damaged public services in Christchurch. In these sorts of arguments one party doesn't believe the statements -financial or otherwise of the other party. Hence the need for KordaMentha....

I agree, she indeed did get a full and accurate briefing on the day she took office. And it was virtually from that day forward that she started raising the issue that had been brought to her attention about LA insurance payout assumptions as contained in the CSA.
 
I recall shortly after her election a sit down panel interview with her, Gerry and Roger on the banks of the Avon on one of those either Saturday or Sunday morning current affairs shows.  She had this open-the-books line/strategy in her sights then (but was being very politically careful not to look to be breaking ranks at that stage with her central government "partners" in the re-build). 
 
And yeah, a dream consultancy assignment but that's the name of the political game in the CCC vs CERA/central government series :-).
 

Fully agree Kumbel.....and they should be tracking their budget to actuals and know exactly where they are at all times otherwise the transparency is gone.
 
I think your last two sentences say it all. I don't think anyone gets sacked anymore, doing the job to the best of your ability doesn't necessitate accountability when one's livelihood is off another's purse.
 

Thanks Kate. That makes sense. The story National tells the country is that they are generously rebuilding Christchurch. When in fact they are avoiding doing the job properly and trying to steal from a province that already has lost so much...

I think you're likely on the money there.  Gerry and JK will always revert to their line about 'we're spending xxx billions on CHCH' but if their xxx plus the ratepayers yyy doesn't get all the work done .. I think they're disingenuous to think the CHCH ratepayers should have to make up the shortfall.
 
Particularly when it seems central government have mismanaged their fair share in the aftermath so far.

Yeah JK is such a w...., manipulating behind the scenes. The basic facts is that JK promised no one would be worse off because of the earthquakes. Yet Cantabrians in 2014 are not even gauranteed that the public services they had in 2010 will be repaired ever. That the government xxx plus the CCC yyy will get the job done.
 
JK had the support of parliament to engage all sorts of emergency powers in Canterbury, appointted a Earthquake minister. Replaced local democracy by appointing his commissioners to ECan (actually done before the earthquakes to speed through irrigation/dairy conversions) and installing a parallel city government with CERA etc. Yet despite this massive interference in local matters JK and big Gerry still blame the CCC for all problems. It is so pathetic....

You can correct me if I'm wrong Brendon but I thought that PM Key was referring to the red-zoned people when he made the statement that no-one would be worse off.

Notaneconomist you may be correct on the exact wording. My memory is not perfect. My impression of Key immediately post earthquakes and pre last election was that he stated something to the effect that the whole Nation stood behind Canterbury and the rebuild. The rebuild being of high priority to his government -one of three priorities for this administration I believe.
 
Yet since the last election other areas in the country have been getting new infrastructure upgrades paid for from Wellington. $88million spent on upgrading passenger rail in Wellington in May 2011 and electrication and tunnels in Auckland spring to mind, yet in Christchurch there is not enough finances to rebuild the roads and below ground infrastructure to the standard that was there in 2010.
 
Now I do not begrudge other areas in the country getting infrastructure upgrades. As a country we need it. But it makes little sense to me that we are not repairing and improving our second biggest city to the same standard.

Silly Christchurch people moaning about the stuff that isn't working...

they need to just sit around and wait for the press releases to be printed so they will then realise just How Wonderful the rebuild is going  (after all they're just residents, the press releases are prepared by -experts-! )

A revenue figure for some context:  
 
Rates take for 2014/15 is $346,858,000 - so that deficit is around 154% of rates....
 
See Draft Annual Plan (full version) P23 here....but the site seems to have crashed - oh dear, perhaps the monkeys on typewriters aren't being paid the Minimum Living Wage.
 
And Kumbel is quite right about the 'audit': the exemption is for the TYP, NOT for the year-end out-turn (y/e 30 June, formal audit must be completed by 30 September).

And if it is bad that KordaMentha got a dream assignment. Big Gerry has employed Morrison Low to provide independent assessment of CCC financial position. Morrison low recieved KordaMentha report a day ago and will release there report in two weeks. (The Press -Gerry Brownlee queries KordaMentha audit)
 
So not even independent reports are trusted....