You might be interested in the following letter sent to Council by Jeff De Jagers of Coila where he poses some interesting questions and makes some more-than interesting observations to add to the mix. Before you read on we are advised that the agenda for next week will be available on Tuesday 22nd on Council's website, that the meeting will be live streamed and that there will be ublic Forum from 10am onwards for submissions from the public. read on... An open letter from Jeff de Jager .... Dear Mayor and Councillors, Thank you for making the Otium “Aquatic and Arts/ Cultural Precinct Business Case (Draft Report)” available to the community for information and I offer the following information and comments for your perusal before any further decisions on your part. If you do not accept any of the figures put forward, may I suggest you ask for the information to be otherwise compiled for you. Concept Plan Firstly, let me say that I find the concept plan of the combined facilities – Option 1 - to be very good with the exception of there not being a 50 metre pool but at least there is space for the plan to be modified to accommodate one. 50 Metre Pool Otium states “A 50m pool is not recommended for the Mackay Park Batemans Bay precinct due to the following: (my comments in red after Otium’s reasons) • It is inconsistent with the recommendations of the Draft Aquatic Strategy. It appears this is Otium’s major reason as it is listed first. I have asked for information about the Draft Aquatic Strategy referred to as no such document appears available on council’s website. It is one thing if it has been adopted by council – i.e. no longer a draft – but another if it remains a draft and without being formally adopted by council. In view of the strong community wishes for a 50 metre pool, it seems unlikely council would have endorsed such a strategy and if it hasn’t been adopted, Otium should not have been given the impression that it was council’s will. • There is a limited market for traditional 50m pools and a 25m x 8 lane pool can adequately service the training needs of swim club members, lap swimmers and short course competitions Any uses of a 25 metre pool can largely and easily be accommodated in a 50 metre pool but not vice versa. Serious swimming training and carnivals at school and club level cannot be effective in a short course environment nor should it be expected that travelling out of the shire should be tolerated. • The additional capital cost of incorporating a 50m pool in the proposed facility mix would be substantial (estimated at $6.5m) The total aquatic pool works with the 25 metre facility is listed as $8.6 million and while the $6.5 million to convert to a 50 metre pool seems disproportionate, it represents roughly only 14% of the project’s total capital costs and should not be an insurmountable amount (Design & construction contingencies alone are listed at $5.7 million) • There is a high likelihood that other much higher use and commercially viable water spaces may be sacrificed to include a 50m pool. Why is this mentioned? It would seem unintelligible to cut off access to the potential users of other parts of the facility if they are warranted in the first place. • A 50m pool would incur higher operating costs and deficits (estimated at between $260,000 and $305,000pa, i.e. an additional $2.6m to $3.05m over the first 10 years of operation) While accepting this may well be the case, it would be remiss to view these increases other than in perspective with other owner/occupancy costs such as depreciation (at least 4 times higher) and borrowing costs (say between double and 5 times higher). Business Case and Considerations The business case as presented is incomplete as is mentioned in relation to depreciation and borrowing costs and I trust you will exercise due diligence in ensuring you are fully informed of the “missing elements” before considering further steps – · Expected and potential limits of grant funding vs borrowings · Best/worst case scenarios · Depreciation costs · Loan servicing costs. In general, a good business case has an equal chance of being optimistic or pessimistic and while the assumptions made in this case seem quite valid, there is no leeway mentioned or “what if” questions posed to allow a best/worst case analysis. It would be interesting to know if Otium’s own track performance in relation to other project estimates shows any consistency of being higher or lower than the actual outcomes achieved but more to the point, it is important for council to assess any effects that variations in estimates of income and expense will have on the whole project.This is especially important when the outcomes are more than likely to be forever “deficits” – the facilities will require ongoing subsidy from council rather than ever be expected to make a profit. The extent of the deficits must have a “threshold of pain” beyond which the whole project would be considered unaffordable. At this stage, the plan does not quantify depreciation or borrowing costs – both of which are likely to be significant expenses – and any further decisions should not be made by council until these costs are known and included. Following are some estimates of the extent of these costs and the total operating deficits calculated from information in the business case and information from council’s website. Operating Deficits Using Otium’s estimates as put forward in the business case, i.e. excluding depreciation and borrowing costs, a deficit from operations in year 1 will be in the order of $970,000 with improvements over time to $748,000 in year 10. The projected contribution from the aquatic area, the gym and the health and fitness programs are heavily dependent on “General Memberships” assessments – you might ask for further explanations and assurances in this area. Depreciation Using council’s guidelines for deprecation of different asset classes, it is expected annual depreciation costs would be between $1.39 million for Option 1 as described in the business case and $1.62 million when $6.5 million is added for the 50 metre pool. Capital costs have been broken down by class from figures in the business case – this breakdown will be made available if requested.
Please let me know if would like any further information. Jeff de Jager Coila