CECC's submission to the City Council’s annual Draft plan and Major Facilities Rebuild.

Below please find a copy of our submission to the City Council’s annual  Draft  plan and Major Facilities Rebuild.

You will note that we are  determined to be constructive and involved on the go forward, but we have raised some issues that we think  need to be addressed. Enjoy the read!

Introduction

The Canterbury Employers' Chamber of Commerce is a membership driven, not for profit organisation representing the interests of approximately 3000 businesses in Christchurch and wider Canterbury.  Its vision is to be the most valued point of contact for business support in Canterbury.  This has never been more important as a consequence of the impact of the earthquakes in 2010 and 2011 which have resulted in significant resources being applied to business support both directly and through the joint venture with the Canterbury Development Corporation, Recovery Canterbury.

The earthquakes have significantly changed the focus of the Employers’ Chamber of Commerce and we expect that earthquake related activity will dominate our activities and affairs into the foreseeable future.  In this context we are working closely with central government, local government and various interest groups in the community to ensure that we play our part in the rebuild and recovery of our city and our region.  It is in this context that we are pleased to submit on the Council’s Draft Annual Plan and Major Facilities Rebuild.

We wish to work constructively with Government, CERA, the recently formed Christchurch Central Development Unit (CCDU), the Christchurch City Council (CCC) and other relevant groups to ensure that we influence and have active input into, the future of our city.

The Employers’ Chamber of Commerce recognises the challenges that the CCC has faced in these unprecedented times.  We have been privy to two briefings by the CCC senior executive and we are most grateful for the open way in which information has been imparted to us.  Our submission is intended to be constructive, not critical, looking forward not backward and provide support and input into some of the critical issues facing the Council, as it goes forward.

Financial Issues

We acknowledge the proposed rates increase of 7.5% and accept that the components of this increase are necessary in the context of the rebuild.  We understand that a rates increase is part of the price we pay in working our way through this disaster.  The increase proposed is tolerable but at the high end of business expectations.

Council Finances

With respect to Council finances, we make the following comment;

• We note that there has, to the best of our knowledge, been no comprehensive risk analysis looking at variations in interest costs, rate take, dividend flows and cost increases.  We think it would be prudent for the Council to do a comprehensive sensitivity and risk analysis on its financial forecast.
• We believe the Council should be looking at alternative funding mechanisms, not just rates and debt to finance recovery.  Associated with this should be a thorough investigation of the potential to sell down assets to fund the rebuild (we note that the CCC is the second largest property owner in New Zealand next to the New Zealand Government).  The Council should also be exploring the possibility of selling down shareholdings in Council Controlled Companies while maintaining effective control to provide cash for repair work, or using the equity in Council controlled companies to act as a lever to attract significant external funding into repair work.
• We note that in the alteration of projected funding requirements, in the context of the LTCCP, there appears to be no allowance for the wants and needs that will inevitably occur over the next 20 years.  Things always change and there needs to be an allowance for that.
• We would like more detail on what has been taken out of the LTCCP to raise the projected $700m of initial funding for the earthquake costs for the next twelve years.  We are not convinced that this is a straight off-set against planned work that would have been on facilities and infrastructures that are now being repaired or rebuilt as a result of the earthquake.

Insurance

We note comments in the Draft Annual Plan with respect to infrastructure and building insurance.  We are concerned that with respect to infrastructure the total LAPP cover of $109M has proven to be woefully inadequate.  We were particularly concerned to read in the LAPP report on Expected Natural Hazard losses April 2010, prepared by Risk Management Partners “The Canterbury region has the largest concentration of asset values for the LAPP fund, due mainly to the assets of Christchurch City Council.  However the earthquake risk is relatively low and is attributed mainly to movement of the Porters-Grey Fault.  If an earthquake occurs on either fault, using estimates from the modelling by the Institute of Geological and Nuclear Sciences (GNS) and the latest assets values as at December 2009, there is a 50% probability that losses will exceed NZ$25m, a 25% probability that losses will exceed NZ$32m and a 10% probability that they will exceed NZ$44m.  However the likelihood of a large event is extremely low, less than 1 in 1600 years.  The LAPP Fund would be expected to cover 40% of this amount of NZ$10m to NZ$17.6m.”  Regardless of the benefit of hindsight, given what we knew about the earthquake profile of Christchurch prior to September 2010, this basis for providing cover for infrastructure appears to be very suspect.  With damage to infrastructure projected at $1.9b questions do need to be asked!

With respect to insurance cover on buildings we understand the total sum insured of all Council owned buildings was $1.85b.  We further understand that this was a valuation based on full replacement insurance building by building.  Our analysis, which is confirmed by the Council’s own reporting, would indicate that these replacement insurance figures are grossly inadequate.  The Council gives the example of the Convention Centre having an insurance valuation of around $30m and like for like (full replacement) cost of $60m.  In examining the schedule of Council owned buildings, we believe that such undervaluation is common.  We believe that this is a lesson not only for the CCC but for all local government.  It appears that valuations are grossly understated.  This obviously has major ramifications for the Council’s ability to replace and repair building assets.  Further investigation is required in this area.  In future we would suggest that Quantity Surveyors be involved in assessing the valuation of buildings for insurance, to give a more accurate full replacement sum insured figure.

Not Business as Usual

It is our impression that a lot of Council activity is continuing as “business as usual”.  We believe it is urgent and timely that the Council have a critical look at how it is doing its business, including a full review of Council processes, functions and staffing.  We want the Council to have a close look at its property portfolio, as the second largest property owner in New Zealand, how it services the community and how it can better use technology rather than physical assets to interface with city residents.  We would like to think, that as we recreate Christchurch, it can be the smartest city in the world with the intelligent use of technology in communication, transport, construction, amenities and Council systems.

Major Community Facilities

We note that the Christchurch Central Development Unit (CCDU) is going to have significant input into the prioritisation and placement of major community facilities.  We know that the CCDU intends to work with the CCC to determine the best way forward and the Employers’ Chamber of Commerce looks forward to staying close to that process. 

In addition to identifying priorities, locations and functions of major community facilities, we believe that it is beholden upon Council and the CCDU to investigate which projects are essential versus “nice to have”.  We also believe that there is more work required in terms of innovative funding mechanisms for major projects.  We believe that it would be useful, rather than to restrain the projects by current funding mechanisms and projections, to look at what the city wants then how best it can meet the funding requirements to achieve its objectives.  More lateral thinking is required here.

We look forward to being part of this on-going consideration and we recognise that certainty is required with respect to major community facilities, sooner rather than later, to encourage capital to land in our city.

Conclusion

The Employers' Chamber is fully aware of the price that we have had to pay to endure the largest natural disaster in New Zealand.  We are however also cognizant of the opportunities that will arise through a well constructed, well organised, holistic recovery/rebuild programme.

Christchurch City and the greater Christchurch area have the opportunity to develop into the most forward facing iconic small city in Australasia.  This will be achieved through central government, local government and the community, including the business community, working closer together towards common agreed objectives as aggressively as is possible.

This will require some big and hard calls and there will be winners and losers in the process.  However we understand that that is a price worth paying as we work through the recovery process, in the interests of the greater Christchurch community.  We also recognise that done right, we will lock growth into this city for the next 20 years.  That is important for us all.

We thank you for giving us the opportunity to submit and we advise that we would like to speak to our submission.

On behalf of the Board of the Canterbury Employers' Chamber of Commerce

Peter R Townsend