Wednesday 7 May 2014

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

Press Release 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

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