During the discussions at yesterday's Extraordinary Meeting Councillor Phil Constable read aloud questions he had sought of Director of Finance Anthony O'Reilly. He also read aloud the answers that had been provided. For those Beagle Readers who are waiting for the live stream archive to be loaded so that these questions and answers can be replayed and carefully weighed and considered here is our transcript of what Councillor Constable read:
Question 1: I understand you are working on the funding options should Council be successful in achieving a significant Grant for the construction of the proposed centre. I am concerned about the financial risk to Council should this project proceed.
Council must consider the assumptions upon which the base case is premised. These assumptions are based on what is known and what is unknown. What we know is Optium has a lengthy history of assessing and designing these types of projects and it is their expertise we are partially relying upon. The key unknowns are what actual funding will be secured, what will be the final design and then what patronage/utilisation will eventuate.
Question 2: The opportunity to secure a facility funded by NSW Government of this size is rare and council has engaged SGS Economics and Planning P/L (consultants) to undertake economic modelling which will identify the flow on effects of such an undertaking to the regional economy.
Could you please advise as to where the additional funds for the construction, depreciation and on going operational losses shall come from.
In relation to the construction of the facility advocacy for any short fall will be undertaken to the Australian Government in the first instance. This will be coupled with the rationalisation of the community centre and the VIC lands (through lease or sale) will defray some capital requirement (the direct operational benefits have been allowed for in the model, indirect benefits may also accrue). The current concept for the building is in many ways modular – eg: economies of scale can be undertaken to combine meeting rooms into larger rooms, this will likely reduce capital outlay required. For balance, the change in revenue and associated upkeep expenses will also be adjusted –this begins a very hypothetical approach which is best tested once any grant funding has been confirmed. Notwithstanding these comments, should there be a significant shortfall on the ‘whole of building’ concept, the concept would necessarily be dialled back to accommodate only that capital costs which are substantially funded (ie: Councillors would make the decision to say only build part of the facility).
Question 3: Specifically in relation to depreciation, it can only be reliably estimated when the final design and construction has been undertaken, and it is stressed depreciation is a non cash item, allowance has been made in the model for repairs and maintenance. Based upon the financial model of Option 1 Council will be required to contribute additional cash of $335k in the first year of operations and $113k by the tenth year (excluding depreciation and borrowing costs).
The affordability of the project (despite the possibility of achieving significant contribution to the initial construction cost ) and the additional burden on the Council Budget with the possibility of a required additional Special Rate Variation to fund on going operations and maintenance is concerning. I am not fully over the grant process and obligation of acceptance of such should Council be successful ( ie: in Design, timing of > construction).
I note the Mayor has sent an email regarding queries concerning Special Rate Variation query which states such ‘has not been suggested as a funding source for this project’.
In addition could you please advised whether there is any scope for recurrent funding from external sources to provide for ongoing operations and maintenance?
There is no recurrent funding expected to be available from any other level of government. Once the complete costs of the capital outlay are known (dependent upon grants and other advocacy) the project would be modified, as well as consideration of priorities. Should council endorse Option 1, the potential economic benefits of the unencumbered Northern lands through a PPP has not been factored into the model – the proposition for the Mackay precinct has always been a ‘whole of precinct ’ undertaking. Ultimately Council will and can only build what it can afford to maintain.