New Zealand: Dunedin's debt problem

Dunedin, with a declining economy was encouraged by central government to ditch a popular old rugby venue and go heavily into debt to build a new stadium for the Rugby World Cup. Now they can't fill it and it is a drain on the city's economy

NZ: Dunedin 'AA' credit rating under threat

Dunedin City Council, whose investment unit posted a $5.1 million loss in the 2012 financial year, has been put on notice of a credit rating downgrade.

Yahoo,

26 April, 2012

Standard & Poor's has affirmed Dunedin's AA credit rating and put it on a negative outlook, giving it a one-in-three chance of a downgrade over the next two years.

The council forecasts small surpluses over the next three years as it slows down the pace of annual rate hikes, while at the same time facing more capital expenditure and rising interest costs.

"This is based on our view that Dunedin may not achieve its financial targets outlined in its long-term plan, with its after-capital account deficits not improving as quickly as forecast," credit analyst Anthony Walker said.

Dunedin City has faced a handful of setbacks in recent years, having to stump up funds to rescue a cash-strapped Otago Rugby Union from the brink of liquidation while at the same time facing a bigger deficit than expected for its new Forsyth Barr Stadium.

Subsidiary Delta Utility Services is also under investigation by the Auditor-General over decisions to invest in residential property in Queenstown and Wanaka, which have fed into weaker earnings from the investment unit, Dunedin City Holdings.

Mr Walker said the outcome of that investigation could stress the council's rating further if it raises questions about the management of council-controlled trading organisations.

The rating could also come under pressure if a hard rates cap was introduced or if capital expenditure was increased without an offsetting lift in revenue.

New Zealand's local bodies face a major overhaul with looming central government legislation aimed at focusing councils' role to providing "good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business".