Interim findings from financial review released

19 December 2013

Interim findings from financial review released

Christchurch City Council is determined to find solutions to the considerable financial challenges it faces, Christchurch Mayor Lianne Dalziel says.

The challenges are identified in an interim report into Christchurch City Council finances from independent financial consultants KordaMentha. The new Mayor and Councillors engaged KordaMentha to “open the books” and provide a plain language account of the Council’s finances.

“I gave the community an undertaking to provide them with information about the true state of the city’s finances before Christmas. The review is not complete but the interim report that we are releasing today raises four key areas which need to be addressed before an overall view of city finances can be provided,” Lianne Dalziel says.

“The initial findings confirm some of the worst fears we had as an incoming council. These include an expected rise in the total cost of the rebuild, along with uncertainty around the costs to repair our horizontal infrastructure and the amount we will receive from insurance for our damaged facilities.

“We want the final report to propose solutions to these serious challenges which we as a Council will consider early in the New Year.”

KordaMentha’s interim report gives a general overview of the Council’s financial strategy for earthquake response and recovery costs, including risks, and outlines some of the key structures and agreements put in place to address the rebuild.

KordaMentha was specifically tasked with working out what stage the rebuild was at and identifying whether the costs in the Council’s Three Year Plan are correct. The interim report raises four key areas which need to be addressed before the work is finalised. They are:

• Accuracy of estimated costs – the costs to repair earthquake damage to Council facilities and infrastructure were estimated for budgeting purposes. The report says that the estimates need to be updated to give a better understanding of the actual cost of the rebuild. At the same time, this will give the Council the information it needs to make final decisions about the extent of work that needs to be done in some areas.
• Insurance – the KordaMentha review identifies insurance as a big risk for the city. It points out that the Council’s insurance position is complicated and there are a number of matters which the Council and insurers do not agree on. The Council needs to push on with repairs and rebuilds and in many cases has to do this without agreement on final insurance payments.
• Cost sharing agreement with Central Government – the review outlines the nature of the agreement which locks in the cost of shared projects between the Crown and Council. It highlights the fact that there is still some uncertainty around the final cost of horizontal infrastructure repairs and notes that the agreement does not cover the ongoing operating costs associated with completed Anchor Projects, which is not budgeted but the Council will have to fund.
• Funding available – the review suggests that when costs estimated are updated, it is likely that the total cost of the rebuild will rise. It points to the work the Council is doing now to identify savings, including: raising more money from sources other than borrowing; maximising returns on investments through Christchurch City Holdings; and reprioritising spending to free-up money, which could result in the Council reconsidering the extent of some earthquake repairs it has planned.

The KordaMentha review will be completed in the new year, once the Council has progressed some of the interim issues raised.

ENDS

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