In November last year, in response to a request for information from Councillors, the management of Coffs Harbour City Council presented figures they argued represented the cost of interest on proposed loans for the new Cultural and Civic Space (CCS).
By The Editor and Rob Sturmann
Council projected that the total interest cost, over a 30-year period at an assumed fixed rate of 2.3% would be $17.9 million with $46.02 million forecast to be borrowed by Council.
More than a few residents and ratepayers questioned the assumptions behind these figures. Mainly that a rate of 2.3% over 30 years could be guaranteed given historical interest rate trends over the preceding 10 years but also that the figures presented did not seem to take account of the fact that the proposed sale of Rigby House and the Council Chambers in Castle street had not been successful and that an extra $18m might need to be loaned as a result.
What are commercial rates and practices?
We found it somewhat concerning that the estimate given to councilors did not give a range of figures based on the previous 30 year average for commercial rates nor apparently take into account what current commercial lending practices are.
The figures given to Councilors at their 12 November meeting last year therefore struck us as being both very optimistic and unrealistic, especially the ongoing 2.3% interest rate used given the proposed 30 year time frame.
So we thought we would ask senior commercial lending managers with links to Westpac and BCU what their commercial lending rates currently are.
This is what we found out.
Firstly they would not lend for longer than five years at a fixed rate of 5.8% without more detail. This is 3.5% higher than the 2.3% figure quoted by Council – bigger by a factor of approximately 2.5.
Although with extra detail, something that might be relevant to an organisation such as a local government authority (LGA) such as the CHCC, it might be possible to have a fixed rate for a maximum of 25 years.
We were also told the current non-fixed commercial rate is 3.19% over three years with the variable rate increasing should the lessee want to sign off on a five year agreement. This is 0.89% higher than the 2.3% figure quoted by Council.
These figures do raise doubts about how realistic the interest cost figures presented to Councilors actually are and the distinct impression we got from our discussions with the lenders was that very long term fixed rate loan periods such as those cited by council are not at all likely.
Council does argue that they will be able to get a 2% $20m TCorp (NSW Treasury) loan. Although there does appear to be some issue as to whether TCorp loans apply to new structures such as administration buildings.
CCO understands that as of yet Council may not have yet formally applied for the proposed TCorp loan.
What interest rates might really cost ratepayers
So what might the interest rate ‘bill’ be given the above?
Which ever way you look at it the interest rate bill given the above is highly likely to be quite a bit more than $17.9m.
Possibly even as much as double that depending on the rate and the loan period settled on.
More Councilors respond to open letter
Last week we published a story detailing a response for Cr Sally Townley to an open letter asking for Councilor’s positions on three issues relating to the CCS. That story can be found here; https://coffscoastoutlook.com.au/cr-townley-responds-to-open-letter-on-ccs/
Since then two more councilors have also responded. The first below, sent via email, from Cr Keith Rhoades is reproduced below;
And reproduced below is an email response from Cr Paul Amos;
CCO understands a number of residents and ratepayers may have been holding discussions among themselves and with solicitors canvassing options on what to do should Council vote to award a construction contract for the CCS prior to the next LGA elections on 4 September.
We understand a number of options are being looked at including the viability of legal action such as an injunction.
A last thought
In our article last week on some hidden issues relating to the airport lease we argued that; “where Council Executive wants something to happen then one off optimistic scenarios often form the basis of an ‘analysis’ for Councilors. Medium-case and worst-case scenarios rarely get a look in.
And when council’s executive doesn’t want something to occur a worst-case scenario is wheeled out. In this instance best-case and medium-case scenario analysis often rarely get a look in either.
It appears as if though SWOT analysis often appears to be something completely unknown as an analysis tool by Council management when reports to Councilors are scrutinised.”
The interest rate projections given to Councilors on 12 November last year would be Exhibit A in support of our argument.
Rodger Pryce made this point under a News of the Area (NOTA) report on the 12 November meeting when he wrote;
“To project a funding interest cost, it is common practice to average the rate for the preceding years, for the length of term suggested. A 2.36% suggested rate for 30 years can only be taken seriously if there has been a funding source secured.“
The NOTA story with his comment below it can be found here; https://www.newsofthearea.com.au/council-to-pay-17-9-million-in-interest-for-cultural-and-civic-space-project-61907