The Coffs Harbour City Council has stated that the cost of the proposed Civic and Cultural Centre Project will be $76.5 million.
By Peter Higgins
However, it is known that certain costs, essential to the project, have not been included in this figure, for example, the cost of the forecourt works, roadworks associated with the project and fitout of the building, and Council has declined to confirm whether numerous other costs are included in the stated figure of $76.5 million such as interest cost of money borrowed during the construction period and escalation of construction costs over the construction period.
The cost of the project, when all elements are included, is likely to be of the order of $90 million. (I refer to my letter published in the Advocate on Saturday, 14 September 2019.)
The Council proposes to sell currently owned assets – the CHCC administration building, library, art gallery and museum – to partially fund the Project, raising $22 million (I believe this to be an optimistic figure).
Also, Council will redirect an amount of $10.5 million from an asset renewal fund. (More about this in another letter.)
This then leaves an amount of $57.5 million to be borrowed to fund the project. There may be other sources of funding of which I am unaware – so I will assume a borrowing of $50 million though it will likely be more .
Council has stated that any loan will be repaid over the “life of the building”. Goodness, how is that to be worked out? Assume 30 years. Why – because 50 years would be a burden on great grandchildren and 25 seems too short.
In an interview with a senior Council officer in 2016, I was told –
- Council could borrow money at an interest rate of 3.5%.
- Council allows a long-term annual operating and maintenance cost of 3% of the capital cost of its buildings.
In the current economic circumstance, a rate lower than 3.5% may be possible but it is implausible to assume that any financial institution would lend such a large sum at an historically low interest rate over a period of 30 years.
So I will use 3.5 % in the following analysis. Some elements will not require inclusion for maintenance and operating costs, so I will assume an amount of $75 million for the capital cost on which maintenance and operating costs must be allowed.
On the above basis –
Annual interest and redemption on loan of $50 million over a period of 30 years at 3.5% interest with a residual less than $200000 = $2.715 million with a residual of $18400 to be paid at the beginning of year 31.
Annual operating and maintenance cost at 3% of capital cost = $2.25 million
Total annual cost = $4.965 million
Total loan repayment = $81.6 million
Weekly cost for every week for 30 years = $95480
For a loan repayment period of 25 years ;
Annual interest and redemption with a residual of $144180 to be paid at the beginning of year 26 = $3.03 million
Annual operating and maintenance cost = $2.25 million
Total annual cost = $5.28 million
Total loan repayment = $75.9 million
Weekly cost for every week for 25 years = $101,540
There could be some offsets; income could be generated from the lease of the proposed café and gallery bookshop; maintenance and operating costs would not be paid on building assets sold.
However, offsets would be small in comparison costs outlined above.
The above analysis of on-going costs for the proposed civic and cultural project is a simple one; there are factors for which the appropriate data is not available to me and, possibly, not to Council at this time. Notwithstanding this, because such factors would have a relatively small impact, the huge on-going cost burden to ratepayers is inescapable.
Stop this unaffordable project NOW.
“The above is a letter sent to the Advocate for publication in the “Letters to the Editor” section a couple of weeks ago.
Publication was declined on the pretext, as advised to me, that a letter from me on the subject of the Civic and Cultural Space Project had previously been published and that I had therefore “had my say”.
I note that CHCC has not advised ratepayers and citizens of Coffs Harbour of these on-going costs.”
Editors Note: 10/10/19 –
Peter, there is a need to look at the way the $10.5M in the asset renewal fund arose.
It could have come from a revision done on the useful life of assets. There are Australian Standards (and taxation schedules) to assist the determination of an asset’s useful life.
As editor of CCO I am aware another article (based on a potentially flawed “review asset renewal strategies” ) is not far off.
The new CHCC website on the proposed Civic Centre and Council Chambers can be found here; https://www.heartofcoffs.com.au/