The Council’s proposal The Council’s proposal is that:

a) $100 million should be invested in a Capital Endowment Fund, ring-fenced as far as possible from the Council’s other funds in order to protect the capital and provide an ongoing income stream to be used for economic, business and civic development initiatives for the benefit of the region in perpetuity; and

b) The balance of $75 million should be applied to the debt repayment reserve to reduce future debt levels.

The Council is recommending various safeguards over the Capital Endowment Fund, such as requiring an 80% majority of Councillors before the capital of the fund can be used, and separate reporting on the fund.

The fund would be managed by professionals, and invested in a balanced portfolio of securities.

The allocation of $75 million for debt repayment purposes will significantly reduce the Council’s forecast future debt and interest payments.

Why not return the $175 million to the ratepayers?

By investing long term and repaying debt, the Council has a unique opportunity to secure an ongoing flow of income to benefit current and future generations.

The use of the income for economic, business and civic development initiatives will assist in attracting the investment that creates jobs and wealth, and make Christchurch a more attractive place to live and work.

The world is becoming an increasingly competitive place, and Christchurch cannot sit back and expect investment to fall into its lap.

The commitment to retain the Capital Endowment Fund intact ensures that the capital is not dispersed, and many future generations will continue to enjoy the benefit.

No legal power to pay capital to ratepayers

The Local Government Act restricts what councils can do, and any capital repayments to ratepayers under this Act would be illegal.

Difference between Council-owned electricity companies and electricity trusts

Many readers will have seen recent publicity about electricity consumers in other parts of the country receiving handouts from trusts, and wondered why this is not happening in Christchurch. There are a number of factors to consider here: To explain this, it is necessary to go back into history a little. The Energy Companies Act 1992 established energy companies out of two previous structures:

a) Municipal Electricity Departments (‘MEDs’) evolved from departments of urban councils.

Generally when the MEDs were corporatised under the 1992 Act, the shares were vested in the local authorities that had owned them.

They were recognised community assets held in trust by councils, in a similar manner to other infrastructural assets operated for the community.

b) The other types of structure — power boards — had no obvious owners, as they were established by Act of Parliament in the 1930s to reticulate rural areas. When the 1992 Act required the power boards to be corporatised, typically ownership of the shares was vested in a local trust to represent the local consumers, as there were no other obvious owners.

Any capital repayment by an energy company will be made to its owner in accordance with commercial practice — the local council in the case of the urban electricity companies and the trust in the case of the rural companies.

Often the trust will in turn return the capital to the consumers, since it has no alternative use for the money.

Councils, on the other hand, have many uses for the capital, and it is quite proper that they use the funds for other community purposes, given that the community made the original investments as a group and not as individual ratepayers.

Equity Issues

If, for the sake of argument, it was legally possible for the Council to return capital to the ratepayers and it decided to do so, there would be significant issues regarding the fairness of any allocation of the payments. For example, ratepayers are not the same body of people as Orion’s electricity consumers. In particular, non-ratepaying consumers such as tenants would not benefit from such a repayment, even though they may have been long term Southpower/Orion customers.

Should people who have only just moved to Christchurch benefit equally to long-standing residents? Should the present generation of ratepayers receive a windfall payment at the expense of future generations?

Christchurch residents are currently benefitting from investments made by the City Council 40, 50 and even 80 years ago. This proposal will contribute to future benefits, just as past investments have contributed to where we are today.