You be the judge: was critical info withheld from councillors: would it have made a difference
The Short Version: The Council's General Manager has advised today she did not provide councillors with correspondence from the Office of Local Government that indicated their concerns around the perceived demand for the Mackay Park centre and its financial capacity to service the running costs into the future. The OLG letter, received on July 1st 2020, was NOT made available to councillors prior to their July 28th, 2020 vote and only came to light weeks after following a GIPA request that also revealed that Council staff reluctantly provided the Office of Local Government with an out of date business plan, only doing so under the insistence of the OLG in order to comply with regulations. Eurobodalla Council's report to councillors only quoted a single line from the OLG letter saying "OLG's Assessment concluded that Council's review meets the relevant criteria of the Guidelines" that, to a councillor or member of the public, would be construed as approval. Councillors were NOT advised of either of the following additional paragraphs from that same letter:
The question to be asked are: "Should the Councillors have been fully informed of the OLG letter before voting? "Did General Manager and her staff knowingly withhold the contents of the OLG letter from Councillors prior to their voting or was the omission of providing the full correspondence from the OLG to the councillors a simple oversight?" "Would the councillors have voted differently if they were made aware of the letter and also of the fact that council had attempted to withhold from the OLG its readily identified, flawed and outdated business case for the Mackay Park project?" You be the judge. Councillors, on July 28th 2020, given only the information they had at hand, voted 6-3 to go ahead with the project. **************************** The LONG VERSION On July the 28th 2020 the councillors voted 6-3 to endorse the preferred tenderer for the $70 million Mackay Park project and, in doing so, endorse committing $19 million of ratepayers money to prop up the $51 million they had in State and Federal Grants. The motion was very clear: Do you endorse the preferred tenderer and do you commit $70 million (including $19 million of ratepayers money)? YES or NO Innes, Brown, Thomson, Nathan, Tait and Pollock all said YES. McGinlay, Mayne and Constable said NO. In order to vote it is essential that Councillors are fully informed. One area where they needed to be certain was that the Office of Local Government was satisfied with the proposed project. As councils are responsible for the prudent management of community resources, it is important that as part of a council’s normal planning process, councils undertake a Capital Expenditure Review before committing to any major capital project. The OLG say that their Capital Expenditure Review Guidelines "aim to ensure that a council’s evaluation of the proposed capital expenditure is consistent and rigorous, the merits of projects can be compared and resource allocation can be made on an informed basis." They also say "It is important that the evaluation of the project is carried out in a clear, transparent and systematic way. The process of evaluation and reporting methods outlined in these Guidelines will enhance the transparency and rigour of capital expenditure project evaluation." Importantly these guidelines have been issued by the Chief Executive of the Department of Premier & Cabinet, Division of Local Government (under delegated authority) in accordance with section 23A of the Local Government Act 1993 (the Act). As such councils are required to take them into consideration before exercising any of their functions. To establish the project costs, all elements of the project must be taken into account. The OLG says "Before a council undertakes a capital expenditure project a preliminary business case must be prepared to determine whether the proposal is necessary, consistent with council’s community strategic plan, delivery program and operational plans, offers value for money and that the council has the capacity to deliver and maintain their current and future community services in the long term. The council must demonstrate that its decision to carry out the capital expenditure is based on sound strategic and financial planning, supported by valid data and research; and that it reflects the views, priorities and objectives of the broader community." As you can see the OLG Capital Expenditure Review is in two parts. Part 1 covers the cost of the building and Part 2 looks at the capacity to maintain and deliver the service in the long term.
So what did Council do? Initially Council wrote to the OLG on Monday, 23 March 2020 saying: Please find attached and referenced below the suite of documents to assist in the Capital Expenditure Review of the Batemans Bay Regional Aquatic, Arts and Leisure Centre project being undertaken by the Eurobodalla Shire Council. Council has some documents, that if released to the public through a GIPA request, have the potential to severely impact our tender process. Given there is some uncertainty on what could be redacted should a GIPA request be sought through OLG, we have decided to not supply those documents that are directly related to our upcoming tenders.
The documents that have the potential to unduly impact our tenders are:
Quantity Surveyor estimates
Updated business case Should the staff reviewing the project need to access these documents to complete the review we can discuss an arrangement that can hopefully satisfy both parties. ****************** So here you have evidence of Council's disregard of the unquestionable guideline requirements issued by the Chief Executive of the Department of Premier & Cabinet, Division of Local Government (under delegated authority) in accordance with section 23A of the Local Government Act 1993 (the Act).
This letter, withholding the required business case meant that Council was attempting to only provide the information to cover the Part 1 requirements in regards to the cost of the building itself. So what does an OLG COMPREHENSIVE Business case require?
Financial projections: This is an area that Eurobodalla Council has not wanted revealed to the public as their original (and current business plan) are based on flawed incomes and underestimated expenditures. The 2017 Otium Business Case that Council continues to refer to clearly states:
Councillors have had access to this business case for three years. They have been advised in writing and via many articles in The Beagle that the projected incomes simply don't add up. Additionally the projected expenditures for the initial $46 million building are no longer relevant to the latest design. For three councillors, McGinlay, Mayne and Constable, evidence was beginning to mount that there was in deed justification for concern of how the residents and ratepayers would fund the estimated $2 million annual projected overheads once the project was complete.
On July the 28th the Councillors were required to vote to "move forward" with the $70 million project. They were fully aware of the funding requirements and sources of funding
prior to endorsement of this project. $51 million from Grants, $4 million from loans and the rest to be raised from the : Infrastructure renewal fund • Real estate disposal fund • Development Contribution (s94A) • Crown Reserves and • Asset sales (Southern Phone and Racecourse). But what they DID NOT know was background emails, back and forth between Council staff and the OLG over the required OLG Capital Expenditure Review that included the requirement of provision of a comprehensive business plan. Following the initial staff letter to the OLG saying they would NOT supply Quantity Surveyor estimates and an Updated business case the Office of Local Government wrote back to them on May 1st 2020 providing the two documents the OLG insisted on having. Following the assessment the OLG than wrote to the General Manager stating:
Based on this correspondence and an extract from the OLG letter the Council staff assembled their Council meeting agenda report to the councillors (and public), and in that report they provided the following comment (in the red box below):
Whilst that statement is true the fact is that the OLG said more than that as follows:
It is also of interest that the OLG stated, in signing off:
The above from the OLG might raise a warning flag for a Councillor around voting for a project that is about to commit the community to a long term debt of $19 million based on a staff member's assurity of the accuracy of information being provided by commenting to the OLG in a May 1st, 2020 correspondence:
"I still believe that the modelling is valid" Mackay Park Project Coordinator to the OLG. The public have not been allowed to see that modelling with Council insisting it is "commercial in confidence" with council staff stating "we do not want to have our tender
process for the management of the new centre compromised in anyway." Of considerable concern are the questions: Did the councillors (and the Audit Risk Committee) know, before voting, of the letters (A and B) sent to the OLG by the Mackay Park Project Coordinator in regards to the provision of information (and reluctance to provide) for the OLG Capital Expenditure Review? The General Manager, under a GIPA request has responded.
From the above response it is clear that the councillors (the Audit Risk Committee nor the general public) were NOT made aware of the second part of the OLG letter stating:
And once again we learn that the councillors are not provided with information deemed to be of "an operational nature".
Surely, for a councillor who was about to vote on spending $19 million of ratepayer money to build a facility that has out of date income and expenditure figures projected to be in excess of an annual $2 million loss from the day the facility is open, and with Council staff dictating to the OLG on what information they might provide, it is enough to raise concerns across the board if they were made aware. Of interest is the OLG observing that "Council must be satisfied of the community demand of the facility, as proposed". The estimated community demand is hidden in the business plan that Council initially did not want to provide and when pressed advised it was from earlier modeling (2017) that says: Readers should be aware that the preparation of this report may have necessitated projections of the future that are inherently uncertain and that our opinion is based on the underlying representations, assumptions and projections detailed in this ‘point in time’ report. (source) That same modeling suggested of the theatre that there be 12 productions over 12 months. The modelling projected 38,720 attending the theatre in the first year going out to 44,495 in Year 10. This would mean that the 12 performances would have to run 6 nights to a sold out capacity of 500. In the pool the 2017 modelling suggested 127,276 visitors bringing an income of $1,090,349 - that equates to an average of 348 through the turnstyles each and every day paying $8.50 every time. It is of little wonder that the following disclaimer was applied to the MACKAY PARK, BATEMANS BAY REGIONAL AQUATIC & ARTS/ CULTURAL PRECINCT - BUSINESS CASE FINAL DRAFT REPORT AUGUST 2017
Otium were very clear in saying: "It should be noted that the financial model does not incorporate sensitivity analysis or depreciation at this stage. This will be done after the base case assumptions and preferred design option have been approved by Council. Further, once the preferred design option and financial modelling has been approved and finalised, an assessment of the economic impact of the facility should be undertaken by Council to support any applications for external funding." It is more than evident that the OLG have accepted the Council's outdated modelling without due investigation of the finer detail that you can drive a truck through. This is not surprising, given that the Business Case for the Mackay Park project has NEVER been rigorously assessed by any agency along its journey. Not once has the $70m Mackay Park project business case come under scrutiny - NSW Sport were provided a business case that stated "an assessment of the economic impact of the facility should be undertaken by Council to support any applications for external funding." whilst bearing a disclaimer that raises red flags. - The $8m cultural fund allocation in Round 2 was awarded six months before the round was opened and no business case was considered. - The $26 million Constance/Berejiklian Regional Growth grant was awarded without a business case - The Federal $25 million Regional Growth also did not scrutinise a FULL business case as required and was granted 10 days before the announcement of a Federal Election. What can be done? Nothing. It is now a waiting game to see what waits around the corner in potential cost blow-outs and anticipated zero demand for the theatre and predicted low revenues for the pools.