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Sunday
Jun262016

Finally - The Zoom Zone Dry-Court Project Document

 An Extraordinary Meeting has been called for tomorrow morning for the Thames Community Board to consider, and adopt the final Project Document on the Dry Court to be built of the High School land.

This tight time frame is designed to be able to get it to Council on Wednesday for incorporation in the Annual Plan I drew attention to the Workshop held last week (see below - "Targeted Rate on the Way ...."). Strat Peters had objections to some of the conclusions that I had arrived at, and provided a well argued, if unsupported counter-argument in Comments.

I did not have the information at the time that has now been produced, and I am even more concerned at what is being proposed. 

Here is the final Budget: 

Total Project Budget: $4,552,941

Funded by: $2,144,239 TCDC TUGPRA

                         $3,200 TCDC ILOS Loan

                     $390,000 Community Fundraising

                     $850,000 Public Grants

                     $440,000 Thames High School

                     $384,934 Thames Local Depreciation Reserve

                     $340,569 OpEx (Retained earnings and rates)

 

Annual Operating Income:               $37,158

Annual Operating Costs:                  $68,970

Operating Contingency (15%):        $10,346

Annual Operating Deficit:                 $42,158 (net operating deficit)

Depreciation                                    $41,222 (5 year average)

 

Rates Impact (incl GST): $17-$18 per ratepayer per annum (varies year to year) (See below)

 

Changes are now proposed to the Business case that will result in material changes: 

  • Governance and operational management
  • Accounting treatment of the asset and project costs
  • Source and Cost of TCDC Capital Expenditure on the Project
  • Rating Impact of Thames Indoor Sports Facility based 

No one wants to be a trustee so is is now proposed that TCDC retains ownership with governance in the hands of a stakeholder committee. in other words, another un-elected committee that will determine expenditure of rate-payer funds on the maintenance of the facility, and contribute to additional TCDC risk arisin from its liability to pick up all deficits.

 

Note also that it is proposed that depreciation be charged only on a component replacement basis - nothing for facility replacement at the end the 34 year lease term. This is a tricky accounting device that our Council should be very careful of adopting - it is simply proposed in order to keep the rating effect at the very minimum.                                                                                                                                                  

Additionally staff are recommending TCDC take an active role in facility bookings management to ensure continuity of community benefit (access) throughout the term of the lease. Staff acknowledge the inclusive and reasonable approach of existing school and Ministry representatives but also the risks associated with personnel changes throughout the 34 year 364 day lease agreed with the Ministry of Education.

 

Finally with TCDC proposed to become the end owner of the facility operational management of the facility is currently being finalised with the school including:

  • Priority access times for community and the school  
  • Operational duties - cleaning, maintenance, bookings, health and safety
  • Dispute resolution
  • Reporting of revenue and expenditure

The net effect on the TUGPRA A/c that is an asset belonging to every Thames rate-payer is that this facility will take virtually 50% of the entire fund over the period of to 2021-22 when the fund will stand at nearly $4m. rather that the $6.2m would otherwise buttress the fund, and provide the basis for the funding of the new swimming pool, but that is now all 'water under the bridge.'

The rating impact is projected at $17.50 per annum, or $53 depending on whether the 'full depreciation' or 'component' ($42,000) depreciation is adopted. I imagine that the Board will take the expedient option in order the avoid the approbation of rate-payers leading up to the Election. 

Some protection clauses have been inserted to protect Council against the failure of Stanley Construction Ltd - just recently alongside another Stanley company in a form of receivership, and not before time. The complete naivety of those who organised the original contract should have resulted in someone being dismissed for incompetence, but of course that never happens these days.  

It is interesting to note that Leach, French, Peters and Hammond were all involved in the re-negotiation - they must have realised that their combined bums were on the line as the result of having accepted the contract tender in the first place! "These changes were accepted as providing sufficient risk mitigation to proceed." I bet! But the next line contains the following disturbing revelation:

“The final Guaranteed Maximum Price received from the contractor on 16 June 2016 was           $3,275,537 representing an increase of $275,537 on the original tendered price. 

The contractor's re-pricing based on detailed design documentation has not reviewed a number of provisional sum items resulting in residual pricing risk over an above the contingency requirement." 

 

This represents an increase of 8.4%, and the project has not even commenced. Worse, the final price remains to be negotiated. Staff at least, are recommending against proceeding until "final resolution" of the pricing. They have promised a "final price" by 24 June that will incorporate an increased 10% contingency. We will see what comes forward tomorrow, but don't hold your breath after all this time.

 

Construction (demolition!) is due to commence during the school holidays on 11 July. Any delay will put the project back by another three months which will of result in an unfortunate failure to obtain election kudos for the project, and we all know how important that is. 

 

The updated Business Case is here  This contains the updated budgets, cash-flows and rationale for the project. There are some pretty 'hairy' assumptions in here, but I guess that is inevitable. What is concerning is the failure to nail down the MOU with the School - the Education Deptartment is prevented from offering better that a 34 year 364 day lease - normal practice, and ownership of the entire facility will need to be re-negotiated at that time. I guess that influences some of the thinking on depreciation, but normal commercial practice would be to make provision for re-siting elsewhere in this situation. At least, that is how I view it. 

 

Plans are also included here that provide an excellent overview of exactly what is proposed. 

 

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Reader Comments (4)

So it is costing rate-payers $4,552,941+ for a facility that will loose $42,158 in the first year and (probably?) each succeeding year. All for an additional $17.50 annually in rates. Buffoons.

June 27, 2016 | Unregistered CommenterRussell

What an ignorant and negative post Russell. Community recreation facilities are not provided with the intent to generate a profit. Recreational infrastructure is essential in providing opportunity for our community's well being through active recreation. Do you apply the same profit and loss philosophy to our precious heritage assets???

June 29, 2016 | Unregistered CommenterRecreationalist

I think that Russel is correct to draw attention to the anomaly - what you fail to understand is the opportunity cost of this project - the majority of the funds being used for this project belong to every ratepayer, and yet it will serve only an extremely small and indeterminate fraction of the community. The Business Case even reports the departure of the basketball people - one of the two principal users listed to justify the size of the building, so that it now only required in all its glory for indoor net-ball - hardly a justification for taking up such a proportion of TUGPRA. All the cant and hypocrisy about making the town more attractive for young people to come to the town is so much balderdash, and does not add up.
And as for heritage claims - The Treasury obtained more than its fair share, again through special purpose pleading, so I hold no candle to that group either. Think what other heritage groups could have done with that money - over $600k

July 4, 2016 | Registered CommenterBill Barclay

The Treasury is a white elephant monument to the Dunwoodies thanking them for their assistance in electing the last 3 Mayors.

Political patronage and ratepayer largesse have never met in such style before in any small town in NZ.

Still, at least it did not come from the TUGPRA account.

July 4, 2016 | Unregistered Commentersnapper

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