Joondalup performing arts centre figures debated

An artist’s impression of inside the proposed Joondalup performing arts centre.
An artist’s impression of inside the proposed Joondalup performing arts centre.

THE Connolly Residents Association has locked horns with the City of Joondalup over projected figures for the proposed $100 million Joondalup performing arts centre.

The association and Joondalup Resort hosted an information session last week attended by about 200 residents from across the City.

Association chairman Charles Ebden facilitated discussion with a panel of speakers consisting of Joondalup Resort chief executive Wayne Carroll, Joondalup councillor Russell Poliwka, performer Renee Wingfield and chartered accountant and former Deloitte senior partner Bryan Thorn.

Mr Ebden said the meeting was to show “how our rates might get impacted in the years going forward”.

“Our concern is the ongoing push on rates that must inevitably come when you embark on a project of between $100 million and $230 million over its life and possibly a lot more,” he said.

He said the numbers they were presenting were “based mainly from the circulars and information the City of Joondalup has put out, together with information published on the website and the report done by Deloitte – the accountants tasked to give an opinion on this project in November 2016”.

Mr Thorn presented several tables that showed the City’s projected costs and what he believed the costs could be if looking at the “worst case scenario”.

This included an operating loss over 40 years of $96.5 million compared to the City’s $57.7 million because Mr Thorn believed the City’s operating cost figure of $863,000, not including borrowing costs and depreciation, would get worse by an extra 2.5 per cent each year and Deloitte believed $863,000 was “understated” and $1.4 million was more likely.

There was also a difference in the interest to be paid on borrowings with the City projecting $22.6 million but Mr Thorn projecting $26.9 million because the City was not likely to get a $10 million grant it was hoping for and would need to borrow more.

The biggest difference was in the asset replacement costs with the City projecting $79.4 million and Mr Thorn projecting $287.7 million.

He said short-term assets would need to be replaced once every 10 years or less, which “has not been correctly accounted for”.

Therefore, the cost over the life of the project is estimated at between the City’s total of $265 million and the worst case scenario of $516.4 million.

When looking at how it would be funded, Mr Thorn believed the City would need to borrow $67.8 million rather than $57.8 million to compensate for not getting a $10 million grant and would only get $39.7 million from the sale of Tamala Park rather than the City’s projected $46.7 million.

This means future rates of $371.4 million would be needed to fund the project, compared to the City’s projected $113 million.

This was broken down to $148 per ratepayer per year for 40 years, compared to the City’s estimated $55, which is a 7.39 per cent rate increase each year compared to the City’s 3.31 per cent, taking in to account the number of ratepayers in the City increasing from the current 62,000 to 70,000.

“There’s a huge amount of uncertainty about what the actual outcome will be,” Mr Thorn said.

“Maybe we need to do some more work on what the true picture is going to be.”

Mr Ebden quoted from the Deloitte report that the performing arts centre had “the potential to place significant financial risks on the City”.

He said while he agreed the City needed a performing arts centre, there were already many similar facilities in the area including at the Joondalup Resort and schools, with performing arts centres to be built at Belridge Secondary College and Ocean Reef Senior High School.

Joondalup chief executive Garry Hunt said the City acknowledged that comments in the Deloitte report “clearly emphasise there are a number of risks with the financial estimates, both in terms of the initial establishment and the ongoing operation,” but the issues had been “considered and where necessary, addressed in the business case”. He said the centre would be of “international standard” and other facilities in the area were “not similar in size or scope of services”.

Mr Thorn said the City’s plan was to hold 186 “events and hires” a year in the 850-seat theatre and 163 in the 200-seat black box theatre and the projections of income had been based on this.

However, Ms Wingfield said at His Majesty’s Theatre, it “often took two and a half weeks to four weeks to rehearse and bump in a high level production with an 850-person venue and two days often to bump in a five-man cabaret in a small black box theatre”.

She said the cost of running shows was high.

“It costs me about $10,000 a night to put on a show at His Majesty’s Theatre in the upstairs room,” she said.

“Just to hire the building of the downstairs, it costs $1500 for just the room for 132 people.

“If this project is to go ahead, we need the financial numbers to know what we’re getting ourselves in to as art organisations.”

Mr Hunt said the potential usage was calculated using a market analysis and feasibility study, results from an Australian Performing Arts Centres Association survey and information from the Mandurah Performing Arts Centre.

“This indicated that facilities of this size and nature have the potential to offer the community a wide variety of events that appeal to all demographics in the community,” he said.Cr Poliwka raised concerns of the location of the proposed facility at Kendrew Crescent, which he said is in the education precinct and not in the Joondalup CBD.

However, Mr Hunt said it was the “ideal location in the Joondalup city centre… with excellent access by foot, public transport and roads”.

“It is also important to note there is no other parcel of land within the Joondalup city centre where the performing arts centre could be built,” he said.

Cr Poliwka said having a performing arts centre would be “a very nice thing to have but certainly not a priority”.

“What effect will it have on what we should be doing as core business, which is the roads, parks, rubbish and things we expect our local government to do,” he said.

Mr Hunt said this was “an outdated and simplistic view of the role of local government”.

“The provision of cultural and community facilities is an important role for the City of Joondalup to the extent that it is a component of its contribution towards economic development,” he said.

“While the City is focused on major projects such as the performing arts centre, it has not come at the expense of ensuring excellence in delivering services and facilities to residents.

“The annual Customer Satisfaction Monitor continues to reflect a high level of satisfaction with the City and services which are delivered to our local community.

“Major infrastructure projects such as the performing arts centre contribute to a strong and economically vibrant Joondalup city centre, which has positive flow-on effects for all of the City’s 174,000 residents.”

Former Joondalup councillor and lead petitioner against developing the performing arts centre Teresa Ritchie said the project had “significantly escalated” from $33-$35 million five years ago to $100 million now.

She asked why only the City of Joondalup was financing the project, with no contribution from any of the other local governments that would use the facility.

Mr Hunt said the business case assumed there would be a “contribution from an external source of $10 million” but “regional facilities in other local government areas were generally not funded by adjoining local governments”. Joondalup MLA Emily Hamilton said there had not been a State funding commitment.

“Any request for funding for this facility from the State Government will be considered in the context of budget priorities with the impact on investment in to the future, local jobs and community effects,” she said.

 

JOONDALUP PERFORMING ARTS CENTRE

THE Weekender put the Connolly Residents Association’s figures to the City of Joondalup and chief executive Garry Hunt responded.

 

Operating loss over 40 years

City – $57.7 million, Connolly Residents Association (CRA) worst-case scenario – $96.5 million

Garry Hunt: The operating loss figure of $57.7 million is one of three scenarios (worst-case, idealistic and realistic) prepared by the City. Other scenarios range from $24.8 million to $85.1 million.

The City does not contend the $57.7 million will be the exact operating loss over a 40-year period but is merely a possible outcome.

The City does not recognise the figure of $96.5 million as it does not appear in the business case or supporting expert advice.

 

Annual operating cost

City – $863,000, CRA worst-case – $1.4 million

GH: The potential operating subsidy estimated by the City is in the range of $529,000 to $1.15 million.

The figure of $1.4 million relates to the “downside scenario” prepared by Deloitte and is therefore not classed as “worst-case” by the City.

 

Interest on borrowings

City – $22.6 million, CRA worst-case scenario – $26.9 million

GH: The $22.6 million figure is the estimated cost of interest by the City. The $26.9 million figure could arise if the City is unable to secure a $10 million grant and has to borrow a further $10 million.

 

Asset replacement

City – $79.4 million, CRA worst-case – $287.7 million

GH: $79.4 million has been included as the estimate by the City in all three scenarios.

Alternative estimates of capital replacement were obtained from external consultants, with the highest estimate being $276 million.

Upon receiving the higher estimates for capital replacement, the City sought further external advice and deemed the assumptions underpinning the $276 million were unrealistic.

Whilst $79.4 million was used in all three scenarios, the City promotes complete transparency and fully disclosed the other estimates that were provided. This is an area that will be subject to further review.

The $287.7 million worst-case is not recognised by the City as it does not appear in the business case or supporting expert advice.

 

Overall cost over life of project

City – $265 million, CRA worst-case – $516.4 million

GH: The incremental cash flows of the project estimated by the City range from $232 million to $260 million.

The figure of $516.4 million is not recognised by the City.

The net impacts to the City, after the impacts of reserves, borrowings and proceeds from Tamala Park are taken account of, are in the range of $171 million to $198 million.

 

Borrowings

City – $57.8 million, CRA worst-case – $67.8 million

GH: The figure of $57.8 million relates to the current estimate. $67.8 million is the worst-case if the $10 million grant is not secured.

 

Tamala Park sale revenue

City – $46.7 million, CRA worst-case – $39.7 million

GH: The future Tamala Park proceeds are $46.7 million, which are based on the most recent forecast from Tamala Park Regional Council (TPRC).

TPRC will update its forecasts annually, taking account of recent sales, market projections and any other factors deemed relevant.

The $39.7 million worst case is not recognised by the City.

 

Future rates needed

City – $113 million, CRA worst-case – $371.4 million

GH: None of these figures are recognised by the City, nor was there any mention of projected rates income within the business case or supporting expert advice.

 

Cost per ratepayer per year for 40 years

City – $55, CRA worst-case – $148

GH: The $55 figure is the average annual cost per rateable property over a 40-year period based on the realistic scenario developed by the City.

The $148 figure is not recognised by the City.

The City prepared cost per ratepayer data based on the realistic scenario only and did not calculate the costs per ratepayer for the worst-case or ideal scenario.

 

Rate increase each year

City – 3.31 per cent, CRA worst-case – 7.39 per cent

GH: The City updates and adopts a 20-Year Strategic Financial Plan on an annual basis using a set of guiding principles, one of which is to ensure the future financial health of the City can be managed without excessive rate increases.

There is a specific guiding principle that requires the plan to be prepared with an assumption that rates should not increase by more than 5 per cent.

The plan also includes the impact of major projects, including the entire whole of life costs of the performing arts centre (capital costs, operating costs, borrowings, etc).

The City is required to evaluate the health of the plan against key thresholds, including a Debt Service Coverage Ratio, which tests the City’s capacity to borrow to meet requirements of projects.

The plan was last adopted in June 2016 and achieved the threshold for the ratio, despite the high borrowings for the performing arts centre.

The borrowings for the performing arts centre may be perceived to be high compared to previous years but the overall financial projections show the City has the capacity to borrow the required amount.

The plan is prepared on the basis of having rates increasing by no more than 5 per cent each year and this will continue to be the case.

 

MAYOR ‘DISAPPOINTED’ BY ASSOCIATION’S COMMENTS

THE Connolly Residents Association was not invited to the Joondalup mayor’s annual pre-budget breakfast last month.

Association chairman Charles Ebden was asked at last week’s information session on the proposed Joondalup performing arts centre if the group had not been invited “based on them organising” the Joondalup Resort forum.

“I asked our secretary to write to the mayor and ask him ‘could we please have our invitation’ and we got a letter back saying the function was a private function of the mayor and it was at his discretion as to who he could invite,” Mr Ebden said.

Joondalup Mayor Troy Pickard confirmed to the Weekender that he had not invited the association to the City-funded event at the Joondalup Civic Centre.

“I have been disappointed by recent inaccurate public comments from the newly-elected president of the association in relation to the Joondalup performing arts centre and in particular, a factually incorrect statement that the City was borrowing $100 million to construct it,” Mr Pickard said.

“I have written to the CRA President to seek clarification of these comments and he has refused to provide me with a response. Unfortunately the CRA has instead chosen to continue their public campaign of misinformation regarding the JPACF project.

“As the mayor of Joondalup, I have always made myself available to ratepayer groups and individuals who wish to engage in an appropriate manner regardless of whether they share my or the City’s view on a particular issue.

“Groups and individuals who respect these wishes will always be welcome at City events and functions.

“Over the past decade I have enjoyed collaborative and effective engagement with the Connolly Residents Association and in the future, I look forward to working directly with the local Connolly community to represent their interests and aspirations.”