On a Tuesday morning in Spring last year, Christchurch mayoral hopefuls Phil Mauger and David Meates crammed into RNZ’s studio for a pre-election debate.
A few months earlier, a majority of councillors, including Mauger, voted in favour of finding an extra $150 million to build an inner-city stadium, Te Kaha, as the total cost ballooned to $683m.
Asked by RNZ’s Corin Dann where the city would find the extra money, Meates, the former DHB boss, said the council should look at leveraging the balance sheets of council-owned companies.
Dann said Meates hadn’t been specific about funding sources whereas Mauger, at least, had suggested the council consider selling land – “Is that right, Phil?”
Mauger prefaced his answer with: “I wouldn’t sell the family silver, which is our Christchurch companies…”
The following week, The Press ran a story headlined: ‘Christchurch mayoral hopefuls promise not to sell ratepayer-owned companies’.
In the story, Mauger said: “You can take it from me that under my watch as mayor, I will not be selling any of these assets.”
Last December, only two months after being elected mayor, Mauger and nine city councillors voted in favour of developing detailed business cases for potentially selling down assets.
That followed a review by consultancy Northington Partners which suggested selling a portion of council companies held on behalf of ratepayers by Christchurch City Holdings.
CCHL’s portfolio includes Lyttelton Port Company, fibre broadband company Enable, construction and maintenance firm Citycare, waste and recycling company EcoCentral (all 100 percent-owned), Christchurch International Airport (75 percent), and lines company Orion (89 percent).
The council is also developing a “value strategy” regarding returns from CCHL.
Mauger is now backtracking on his pre-election promise.
Asked by Newsroom if he’d rule out selling assets outright, he said: “Probably not.”
But he’s only one vote around the council table, he said, and some councillors “will not sell anything come hell or high water … And it could be losing money hand over fist.”
A strategic review of council assets is due to land before Christmas, he said.
Are there some assets in which he’d want the council to at least keep some shareholding?
“It’s up to what the strategic review says,” Mauger said, adding: “I’m only one vote.”
Putting it another way, are there assets he’d like to sell outright, or others the council shouldn’t sell a single share in?
He repeated: “It’ll come down to the strategic review.”
Christchurch’s asset conundrum lands amid a similar debate in Auckland, with super city councillors deciding to sell off a seven percent stake in Auckland Airport to reduce debt. However, as reported earlier this week, foot-dragging may have reduced the sale proceeds by millions of dollars.
Mauger seemed to warm up the public for asset sales, saying: “Just because you’ve had it for ages doesn’t mean you should keep it for ages. But the strategic review will sort that out.”
If the review found a council-owned company wasn’t “as strategic as everyone would think”, Mauger seemed to be amenable to selling.
“There’s cleverer people then me that’ll bring a report to council. If it’s worded in such a way that it convinces us that this will help, and this is how much money you will get because of that…”
In last year’s review, Northington Partners warned councillors it was geographically exposed by having almost everything it owned in Christchurch.
Mauger raised this as a risk, should the city experience another earthquake, and a reason to invest its money further afield.
“We should sell down half of something and recycle that money and put it into other assets that’s somewhere else – say like Tauranga port. Just spread things out a little bit because if the hammer comes down here, we’re in strife.”
Christchurch council has considered asset sales several times over the years – especially after the financial strain of rebuilding following the earthquakes – but the move has always been met with staunch public opposition.
There might be strife of the political kind at upcoming council meetings, in the form of “Save Our Assets” signs.
“The majority of people in Christchurch have repeatedly opposed asset sales at every turn.” – Former mayoral candidate John Minto
To be fair, the council has found alternative funding sources, and cut projected spending.
Since 2018, it has sold 67 parcels of land for $44m.
The starting point for an overall rates rise this year was 14.6 percent but the final figure was 6.41 percent. Taking into account property revaluations, the average household’s increase is 6.6 percent.
This continues Mauger’s bad run of keeping pre-election promises.
He campaigned on keeping rate increases below 4.5 percent.
The mayor and allies Sam MacDonald and James Gough also said they wanted to pare back the council’s capital programme to realistic levels, considering it spent considerably less than the budgeted amount.
Yet, in this year’s plan, the council’s capital programme increased by $70m to $746m, including $94m brought forward from future years to be spent on Te Kaha.
According to the council’s latest annual plan, this year alone the council will borrow an extra $294m, taking gross debt to $2.66b.
Debt repayments are estimated to be $138m – that’s 20 cents of every dollar of rates collected.
Critics would say exacerbating the council’s debt problem, and hiking rates beyond expectations, is a sure-fire way to make assets sales seem more attractive.
Business interests endorse asset recycling
Campaigns in favour of asset sales have been waged for years.
The Canterbury Chamber of Commerce has consistently lobbied for what it calls “asset recycling”, a push it repeated in its latest annual plan submission.
“The council must take the opportunity to review their ownership of assets and whether the rationale for owning each or as sole owners is still valid, particularly given the current importance of facilitating economic growth, and whether better outcomes can be achieved for the city by investigating strategic investors/partners who could add value to the assets and increase the council’s return on investment,” the submission said.
The chamber’s chief executive, Leeann Watson, said the council should consider all options to keep rates rises sustainable, and to ensure it can afford to make significant ongoing investments in infrastructure.
Submitter David Quested said some assets must be sold – that this was the rainy day the city had been saving for.
Another submitter, Kevin Lamb, regularly calls for the council to sell Enable Networks, the fibre broadband company. In 2021, he was asked by councillor Melanie Coker why he was advocating a sale when the company was predicted to provide a large dividend.
“Councils aren’t in the business of providing that service,” he said.
In his submission to the latest annual plan, Lamb said: “This is 100 percent ownership with 100 percent risk to ratepayers.”
Sixteen submitters opposed the sale of assets, including Brian Donovan, who said: “I absolutely oppose any thoughts of selling or partially selling any council (CCHL) effectively ratepayer assets. This cannot be allowed without a proper poll of the people of Christchurch (not just an online survey).”
The man who lost the mayoral race to Mauger, David Meates, who was sitting next to Mauger last year when he promised not to sell the family silver, says it was an election promise not to sell the companies.
“Breaking it is another good reason why the public don’t trust politicians and have eroded confidence in public institutions – they say one thing to get elected and then do the complete opposite.
“While there are potential ways to leverage off the strength of balance sheets and introduce new capital, it is vital that the city retains control of its key strategic assets.”
The council-owned companies have generated significant returns for the people of Christchurch.
The Northington report showed CCHL, which manages assets worth $3.3b, paid more in dividends to the council ($923m) over the past decade than it has received in dividends from subsidiary companies ($750m).
Not only that, at the council’s instruction it borrowed against the value of the companies, to the tune of $440m, in something called a “capital release programme”.
Basically, the council has mortgaged the companies to wring more money out of them.
Net borrowings under the CCHL group soared from $170m in 2013 to $680m last year.
A key reason for a forecast decline in dividends from CCHL to the council over the coming years is so it can repay debt – debt it took on, let’s remember, to help the council’s post-quake recovery.
Meates says the increase in council companies’ value meant Christchurch has had choices other councils in New Zealand haven’t had. “Why on earth would Christchurch city follow failed decisions made elsewhere?”
The council and CCHL’s board are making decisions in the long-term interest of the community, he says.
“Selling assets is the equivalent of a sugar hit – feels good in the short term and then lots of regrets later on. When you lose the ability to shape and control assets critical to the future of a city, a city loses the ability to determine its own future.”
Back to the sitting mayor.
As justification for a partial sale of council companies, Mauger referred to the National Government’s mixed ownership model – floating 49 percent of state power companies Meridian, Mighty River Power (now Mercury), and Genesis.
The then prime minister John Key said the government would make more money owning just 51 percent of the companies – “and that turned out to be correct”, Mauger said.
We asked the office of State Owned Enterprises Minister Duncan Webb for figures, which show the comparison falls short. Though Genesis and Mercury have paid substantially more in dividends, Meridian (which paid two huge special dividends in 2005/06 and 2010/11) has paid less.
In the time period shown in the chart, the trio of companies paid almost $4.4b before the mixed ownership model, but have paid $154m less since.
The Crown received about $4.7b from the partial float – less than expected. The Government Share Offers (GSO) programme cost $120.6m.
A Treasury blog from 2016 delved into the complex picture of dividend payments.
It said increased dividends from the companies “probably would not have happened to the same extent if the companies had remained in 100 percent Government ownership”.
The companies invested significant amounts in new electricity generation while they were government-owned, but there was less of a need for new generation after 2008, when electricity demand levelled off.
“So at around the time of the GSO programme, the companies stopped building new windfarms or geothermal power stations.”
Last year, First Union, the Council of Trade Unions, and climate group 350 published a report saying the trio of power companies have paid more in dividends than they’ve been making in profits.
One of the report’s co-authors, First Union researcher and policy analyst Edward Miller, says the Government is now a passive investor in the companies, without the ability to even appoint directors.
The drive for greater dividends has meant a movement away from investment in renewable electricity generation, Miller says, which means profits are driven more by scarcity of supply.
(Miller says electricity costs have skyrocketed but that contention isn’t backed up by data. Paul Fuge, the manager of Consumer’s Powerswitch project, says residential electricity prices today are 35 percent higher, on average, than in 2000, but they’re actually 6 percent lower than in 2013. Fuge adds: “Prices vary significantly according to retailer and location.”)
Should Christchurch’s council float some of its companies, and becomes a passive investor, it will lose the ability to influence operations, like Lyttelton Port, Miller says.
“Health and safety is a huge one which you’d want to invest heavily into, but purely running things from a financial point of view militates against that effective investment, in the short run.”
How to solve council indebtedness across the country is difficult, Miller says, but he thinks one way is for central government to renegotiate with local government about how to pay for crucial infrastructure.
Mayoral meeting held, leaflets disseminated
The campaign against Christchurch council asset sales has already started.
John Minto, who lost two mayoral campaigns against Lianne Dalziel, says a Keep Our Assets Canterbury delegation met with Mauger last week to impress its strong opposition to sales.
“We had a very useful conversation and told him outright that we would as strongly oppose a partial asset sale as a full sale. Some will claim partial sale as a compromise, but we reject this outright.”
The group has sent a leaflet to all councillors, the opening salvo in what Minto says will be a big campaign.
Even ownership by public sector groups – such as KiwiSaver funds – or investment by iwi Ngāi Tahu, would be opposed, Minto says, because there’s no guarantee the shares wouldn’t be on-sold.
“The majority of people in Christchurch have repeatedly opposed asset sales at every turn. Our aim is to turn that into effective political pressure to ensure they remain in public hands.”
Garry Moore, a trained accountant, was mayor of Christchurch between 1998 and 2007.
He says most councils sold their assets in the neoliberal wave of the late 1980s and early 1990s, but Christchurch was proud to buck the trend.
“Over the years, the ratepayers of Christchurch have not had to find hundreds of millions of dollars, which were actually dividends from the companies,” Moore says.
You can sell an asset only once, he warns.
Yes, the council’s debt is eye-wateringly high, Moore says. But that’s because the city experienced the devastating and damaging earthquakes of 2010 and 2011 – “and the Government short-changed us then, and the city’s had to pick the tab up”.
Moore is urging councillors to retain the council-owned, revenue-earning assets for the public good.
He aims his parting shot at the sitting mayor: “If Phil does agree to sell assets then he’s breaching a fundamental election promise to the people of Christchurch.”
* This story has been corrected to state the council sold 67 parcels of land since 2018, not in the previous financial year.