Cr Dave Cull speech to Town Hall Meeting

TOWN HALL SPEECH 29TH MARCH 2009-03-31
CR DAVE CULL —Copy supplied.

[begins]

A year ago I opposed public funding of the Stadium project on three grounds:
• Affordibility – This city cannot afford a project this expensive, largely paid for with borrowed money, and showing little or no return.
• Risk – of building budget blowout and on-going revenue shortfalls.
• Opportunity costs – what will we not be able to do or afford because all of the City’s spending and debt carrying capacity is committed to the stadium?

However, although it had already ignored a number of its own deadlines, Council decided to proceed with the stadium project subject to a number of conditions.

Some of those conditions were:
• Project cost not to exceed $188m. Remember “not a penny more”?
• Guaranteed Maximum Price (GMP) for construction.
• Contract entered into with Uni and we would have written confirmation of facilities they proposed for land.
• We would sight and approve occupation and revenue agreements between CST and ORFU
• That Council continues to identify ways to reduce ratepayer contribution by $20m.
• Minimum of 60% of Private Sector Funding (PSF) $45.5m be signed up, and Council to be satisfied as to funding the remainder (incl funds to service any bridging finance required). That last condition was added some 6 months later.

In addition:
• Community Trust of Otago was to contribute $10m.
• The stadium promised was a state of the art, multi-purpose venue that would set a new bench-mark for stadia in NZ.

Fast forward almost exactly a year to now, and what do we find with those conditions?

• The total project cost has risen by $10m. That’s a lot of pennies.
• The GMP contract offer contains exclusions that potentially expose DCC to risk of price increases. The Otago Regional Council was specifically warned about that by its chief executive. If those exclusions remain and something unforeseen turns up then there is a very real possibility of cost increases.
• A contact has not been finalised with the university
• An occupation and revenue agreement between CST and ORFU has not been finalised.
• The $20m has not been found or even any part of it.
• The CTO promised only $7m
• The design and specification of the stadium had been changed in order to keep the construction cost within the agreed budget. And those changes have:
They have:
1) reduced the ability and flexibility of the stadium to cater for much more than rugby without spending a lot more money.
2) lowered the specification and standard of finish so that while initial costs are lower, long term maintenance costs will be higher.

• 60% of PSF had not been obtained. But Council decided to accept unsigned agreements for corporate boxes and seating as if they were finalised.

But in any case, and far more worryingly, the whole concept of the PSF had been changed. In fact to call it PSF now is farcical. It was initially reasonably understood as money raised from non-public sources (ie not ratepayers or taxpayers) and contributed to the construction cost of the stadium. So there was an expectation that the money (or most of it) would be available on Day 1 of construction. However by March last year, a shortfall was already predicted and some $10m bridging finance was identified as being needed to make up the difference at the start of construction.

Well the PSF fell even further short of target. The private sector didn’t buy in. So the marketing was changed and now the PSF will be:
• obtained from the sale of seating products (corp boxes/lounge memberships and sponsorships)
• no payment for these will be required until the stadium is built
• after that payments will be made annually

But as I said, the money is needed for construction. And the amount of bridging finance required to tide things over has risen now to $27m loan + $15m underwrite. That’s some $42m + interest on some of that over time, required to achieve the balance of $45.5m now.

The CST obviously can’t raise that debt itself because it can offer no security, so Council will effectively borrow the $27m and the govt will underwrite the $15m. That’s an additional liability on ratepayer and taxpayers and that borrowing will have to be repaid from the revenue from those seating products etc after the stadium is operating. I’ll come back to this.

So a year ago I had concerns about Risk, Affordability and Opportunity Costs. But we now have a further reason to be extremely concerned about this proposed project. And that is the process by which Council has progressed it.

Because all of those failures to meet the Council’s own conditions are CHANGES from what was promised a year ago.
Individually, some of them might not seem so important. Taken together however, they amount to a significant change to the whole project and impose a huge amount more risk and liability on the ratepayer.
In brief:
• The overall cost is higher.
• The stadium isn’t the same as the one the community was promised.
• Ratepayers’ liability for debt is increased markedly because Council is effectively taking responsibility for the PSF.
• the GMP is really a Claytons GMP because if the exclusion clauses remain the price could rise.
• And that doesn’t even start to take into account the deepening world-wide economic recession. If ever there was a time to be careful, to limit your risk, to keep your powder dry and your cash liquid: it’s now.

These are all have pretty ominous implications but before I look a bit closer at the PSF I’ll touch on the GMP:

Other speakers have looked at this so I will simply point that once Council is locked into a construction contract, with clauses allowing the construction price to increase under certain circumstances, there is no way out. If those clauses are activated, we will have to keep going and paying and the ratepayer will have to foot the bill. So much for a GMP.

Now the PSF.
We have been told that just 3% of the so-called PSF will be paid up on the day the stadium opens. After that the revenue stream from the leasing of corporate boxes and lounge memberships and naming rights sponsorships and other revenue will come in each year. So in fact, apart from some naming rights and sponsorship deals, the PSF is actually revenue earned by the stadium for facilities or services offered. In any case, most of the other 97% will have already been borrowed by Council, and that debt is expected to be serviced AND repaid by those on-going revenues.

BUT, and here’s the catch; the reason that extra borrowing is necessary is because the revenue stream, the cashflow, the PSF was so weak. But hang on. Isn’t that the very cashflow that is now expected to be strong enough to cover the borrowing AND pay interest on it as well as the operating costs?! Spot the contradiction.

If that cashflow stream is not forthcoming, or it peters out for whatever reason, like the Highlanders franchise disappearing followed closely by its audience, Council will be left with a debt and few funds to cover it and they will also have a football stadium with no user. Who will have to stump up year after year in that event? The ratepayers. You.
So not only has the PSF been largely taken over by the ratepayer, the means provided to cover it could be shaky.

But how likely is that?
A couple of professional reviews of the CST’s cashflow projections have been done. Those reviews described the predicted cashflows as “not conservative”. In other words they thought the Trust was being overly optimistic about what the place could earn. So the reviewers reduced the cash quantum of some assumptions, and even after that they still reckoned there were “significant risks” that even the reviewers’ reduced predicted revenues would not be achieved. Indeed the reviews concluded that there is very real chance that the stadium will run at a considerable loss. And that’s after Council and its companies (read ratepayers) have paid the bill for interest on the main borrowing and depreciation. After all, almost no stadium anywhere in the world makes a profit.

And it gets worse. The changes made to the design to reduce construction cost, like no synthetic turf reinforcing and no dividing curtain at the east end, also reduce the stadium’s useability. So it’s earning power is also reduced.

Anyway by the time the money promised in those seating contracts and sponsorships has started coming in, the Council will own the stadium, and the PSF obligations will have been passed to Council. It will be Council’s job to find the money, the so-called PSF, and make the place pay, if it can.
How on earth can that be called PSF?

The worst case is the combined effect of the two possibilities: PSF revenue shortfalls and a blow-out in GMP could see double digit rate rises for years just to stay where we are! No possibility of anything else being afforded. You can forget other capital projects.

In that case the cost to ratepayers over the 22 odd years it takes to pay this off are likely to be much, much higher than the $66 per annum for the average residential ratepayer that is so often quoted. That is the very real risk this project carries.

I am deeply concerned about that risk of increased cost: either from increased construction cost and operating deficits or both.

But I am even more concerned by the cavalier way the Council, of which I am a member, has treated this community. I am deeply embarrassed to acknowledge that:
• Assurances have not been honoured.
• Conditions designed to give the public confidence that risks were being contained, have not been met. Indeed risks have been allowed to escalate.
• Promises have not been kept.
• And the community has not been listened to. And I’m sorry to say it looks as if a deaf ear will continue to be turned your way. The projected spending for the stadium is contained in the draft annual plan currently going out for consultation with, and submissions from, the community. “We want to hear what you think.” You are told.

But despite that and despite all the changes to this project in the last year: its funding problems, its increased costs and liabilities and ratcheting risks; despite all of the clamorous protest, letters to the newspapers, submissions to Council, and overwhelmingly negative survey results; it is quite possible that a contract for construction will be signed before a single one of your submissions is heard.

I wonder how this community can have confidence that they are being listened to, that their opinions, their interests and most importantly their futures are cared about, when this project continues to be rammed through regardless of so many ominous indicators, changes for the worse, unachieved targets and greatly heightened risks; all of which ratepayers will ultimately have to pay for.

What can you do? Council needs to know the weight of your opinion. Tell us. Make submissions. And send Council a message that we can’t mistake.

[ends]

****

### ODT Online Tue, 15 Mar 2011
Extras for stadium approved
By David Loughrey
Forsyth Barr Stadium extras with a combined cost of $5.15 million have been approved by the Dunedin City Council. The funding has been described by Mayor Dave Cull as an “underwrite”.
Read more

Related Post and Comments:
11.3.11 Stadium funding

Posted by Elizabeth Kerr

4 Comments

Filed under Architecture, Business, Carisbrook, Construction, DCC, Democracy, Design, Economics, Events, Highlanders, Hot air, Media, Name, New Zealand, NZRU, ORFU, People, Politics, Project management, Property, Site, Sport, Stadiums, STS, Town planning, Urban design

4 responses to “Cr Dave Cull speech to Town Hall Meeting

  1. Calvin Oaten

    Is that the same guy who is now our Mayor? Would the real Dave Cull please stand up?

  2. Phil

    In defence of Mayor Cull and the other councillors, they did receive the proverbial hospital pass on this one. David Davies is copping flak also, but he’s just the guy phoning the ambulance from the bottom of the cliff. He is one of the few people in the formal process who knows what a stadium needs, and can see what is lacking. His role is to try and make this work, and he seems to be working pretty hard at it. Nothing Mr Davies has done to date gives me any cause to think his involvement isn’t a positive step. Given the situation we are in, I believe we need him.

    Back to the Council. It really pisses me off that we’re spending an extra 5 million dollars. I know there’s more than that which is being shovelled under the operational rug also. But the options open to the Council today are extremely limited. Yes, they could halt construction, and leave the shell there. But no one has every promised to do that, and no one is going to do that. There’s also no capital money to be saved. 90% of the construction cost has already been spent. So that’s not an option, and it’s a waste of air to continue to try and wave that idea around to try and score meaningless points. We’re dealing now with the reality of a stadium. It has to be made functional if the losses are to be mitigated. Consider the implications if Council had dug their heels in and told the stadium project team to find the money themselves or there would be no kitchen, toilets, or screen. What would have happened if the project team couldn’t find the money ? The stadium couldn’t operate, and losses would grow. There would be massive financial penalties coming from the RWC organisers.

    I don’t believe for one minute that a new stadium is going to draw more tourists into the city. Not one chance. I don’t know of one person who has travelled to the other side of the world specifically to go and visit an empty football stadium. Not a one. Yes, I’ve been to Old Trafford, Twickenham, and to San Siro stadium. But I went to two of those places because there was a football match I wanted to see, and to the third because it was a global icon and I happened to be in the city with a few hours to kill. But, I do believe that an empty mothballed rotting shell would well create a negative effect on how Dunedin is viewed. So, although it went against everything they (well, some of them) believed in, I don’t believe that the Councillors had a practical choice about approving the request.

    Should there be repercussions for the deliberate deception by CST ? Absolutely. There should be no talk of project bonuses, and no such thing as seats in the “Founders Box”, free parking spaces, etc. The fact that Malcolm isn’t the one fronting up now with the requests for extra money speaks volumes. He was the one shoving everyone out of the way when it came to being the saviour of the city. I read on a blog site the other day that the ODT is continuing to censor online comments, by removing any reference to the contents of the GMP and any quotes made by Malcolm. It’s going to take someone like Ian Wishart to get the truth out to the people.

  3. Anne Elliot

    Thank you, Phil, for painting a likely scenario to the question: “What would have happened if the Council had dug their heels in and told the stadium project team to find the money themselves?” I wonder if there were other possible scenarios than ending up with a stadium with no kitchen, toilets, or screen. Anyone?

  4. peter

    We won’t ever know because the council gives absolutely no resistance to the continual plundering of the ratepayer purse for this stadium. Politics is a hard game. The stadium proponents know this and play it much better. There are a lot of egos on the line for the stadium to be finished. Farry’s in particular. They would find the money if they knew the council had the balls to insist they do so. They haven’t coughed up simply because they already know there is a majority on council who won’t insist they do their part to contribute to the stadium. They have their mates in there to protect them. The wealthiest stadium proponents can afford to sit back and let the ratepayers pay for the lot.

    How about them at least paying for the exclusions? Otherwise, we are rewarding the telling of lies when we know the CST deliberately left them out of the total stadium build cost. The way is now left open for any other influential interest group in town to promote ‘a vision’ to the council, underestimate the cost, get the suckers to agree, and leave therate payers to pay all the additional costs deliberately missed out.

    The stadium is an ongoing curse. Sometimes you have to come clean to the people and cut your losses. The alternative is not just finishing off the stadium, it is also maintaining it and suffering ongoing operational losses that are going to bleed the city for the next generation.

    I’m sure many of you are wondering what happens when any private funding falls through. Given the world economic situation, plus our own, this is entirely likely. The ‘contracts’ signed mean nothing. Remember Delta – which was not even a private company, anyhow. They are already partially withdrawing from their ‘private’ funding. Excuse? An over enthusiastic employee!
    By ploughing more debt money into the stadium – not alone into other wilful spending proposals by the council – there will be no other option in a short time but to either raise rates, sell assets or cut core services – or a combination of them all. That’s the stark choice facing us if we continue down the same road. This will certainly create a negative picture of how Dunedin is viewed. People won’t even notice, or care, about the empty stadium shell if their rates go up horrendously, they lose services and see the firesale of the family silver.

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