8 May 2014

Council 'must renegotiate costs'

1:14 pm on 8 May 2014

The author of a report revealing a half billion dollar hole in Christchurch City Council's finances says the city needs to renegotiate now with the Government over how much it is paying for the rebuild.

A KordaMentha report found a $534 million shortfall in the money it has to repair its broken infrastructure.

The company warned this could balloon even further if the council did not receive all of the $1 billion it is claiming from insurers.

KordaMentha partner Michael Stiassny told Radio New Zealand's Nine to Noon programme it is inevitable the council will have to renegotiate its 40 percent cost-sharing arrangement with the Government.

The shortfall is made up of a projected $413 million increase in the cost of horizontal infrastructure, which is now estimated to be $3.59 billion.

Repair estimates for buildings including the art gallery and the town hall have also shot up from $121 million to $540 million.

Council will act - Dalziel

Mayor Lianne Dalziel said the previous council did not leave enough head room for cost escalation when it drew up its three-year plan in June last year.

Ms Dalziel said the council could no longer continue to operate with such a large shortfall looming and promised action to address it.

The KordaMentha report recommends five options including rates increases, spending cuts, paying less towards anchor projects such as a new stadium, and selling assets.

Council finance committee chairman Raf Manji said says the council is working on ways to deal with the shortfall.

He told Radio New Zealand's Morning Report programme the council is awaiting a second report before deciding what its options are.

Asset sales

Earthquake Recovery Minister Gerry Brownlee said he had yet to be convinced the KordaMentha report was even accurate and had ordered his own report into its findings.

Canterbury University economics lecturer Eric Crampton said the council was already in too much debt to consider borrowing more money.

Mr Crampton said asset sales made the most sense.

He said while arguments could be made that the council should not sell the family silver, it was better to sell the silver than have to sell the whole house.

Canterbury Employers Chamber of Commerce chief executive Peter Townsend said recent moves by the council to become increasingly involved in social housing might have to take a back seat.

Mr Townsend said it had always been understood that the council's assets such as the port and the airport were there in case of a rainy day and that day had now arrived.

As for the prospects of the Government coming to the council's rescue and contributing more towards the rebuild, the chances did not look good.

The council is due to hold a workshop this weekend to discuss the various options for dealing with the shortfall.