A Rotorua council-controlled organisation will receive a $750,000 cash injection funded by ratepayers.
InfraCore Limited is a Rotorua Lakes Council-owned organisation in charge of the council's infrastructure, maintenance and construction works.
On Wednesday last week the Rotorua Lakes Council voted unanimously to approve a $750,000 capital injection in exchange for further equity in the organisation.
InfraCore has received $982,684.80 from the wage subsidy, for 141 employees.
At the meeting, council chief financial officer Thomas Colle said part of the council's annual plan had allowed for additional funding to InfraCore to replace "critical equipment", and the decision before the council was a "process of getting those funds to [Infracore]".
That equipment included a street sweeper, mowers, a tractor and diggers but was not exhaustive according to the meeting agenda.
"For efficiency purposes of funding, we've elected that the most efficient mechanism is to acquire an increasing shareholding rather than providing additional funding, and that is because any funding that we do provide Infracore is taxable on the other end."
He said InfraCore had gone through a "major rebuilding phase" and had new management and new systems and as a result "hasn't been able to invest into some of these key items".
Outside the meeting the Rotorua Daily Post asked the council for further clarity on the reason why new management and new systems meant the organisation needed additional funding.
After a deadline extension request was granted, responses received did not clearly address the questions posed and follow-up clarity was sought.
The council requested two separate deadline extensions for that information, one of which was granted.
In the meeting councillor Sandra Kai Fong asked Colle if InfraCore could have borrowed the money instead, or if the council could have loaned it to Infracore.
Colle said that had been an option but officers felt the most efficient method was for the council to hold the debt as it could borrow at a much cheaper rate.
Councillor Reynold Macpherson said purchasing additional equity in the CCO "appear[ed] to be implausible".
Colle said he had "no understanding of what [Macpherson meant] by 'it's 'implausible'".
Macpherson said the council was already 100 per cent the owner.
"How come we can now purchase an even greater stake? Would that not be frowned upon by Audit and [Risk] and so on as being somewhat implausible?
"Was this necessary expenditure … not forecasted, not budgeted for? Alongside that, what's to prevent this from happening again?"
Colle said it was "actually very common" for companies and organisations to raise capital to purchase items by issuing more shares and InfraCore was "well on track" to break even for the year".
"It's not advisable to fund capital equipment … via a stream that is taxable. It's very common for parent entities like ourselves to fund capital acquisitions and subsidiaries versus capital injections.
"[InfraCore] draft results actually show them making a surplus even in light of Covid. They're on a positive trajectory and this investment is to help them with that and set them up for the future.
"We would like to see InfraCore move to a position where they are able to ongoing fund the majority of their renewal programme through their own funding mechanisms."
Questions have been edited for clarity and length.
Quotes come from earlier statements from the council.
• How, and to what extent (in dollar figures) have "streamlin[ing] the collective agreement into a tiered structure", implementing "a new financial system which encompasses the field management add-on NextService", "roll[ing] out three new values for the organisation" impacted the financial situation of Infracore?
• Does it mean wages have cost more as a result of a renegotiated collective agreement?
• What does "streamlined" mean in this context - does that mean a renegotiation? Please use plain language.
• What does "realignment" mean in this context? Do you mean restructured?
• If Infracore is indicating a (draft) net surplus result, why does it require $750,000?
• How does it benefit the council and ratepayers to own more shares in Infracore?
• Can you please provide a yes or no answer to this question (Is the council "bailing out" InfraCore?) and explain why?
• Could InfraCore current financial situation have been foreseen, mitigated or avoided?