Tuesday, 2 April 2019
Waterfront idea simply fails to stack up
When it comes to Dunedin’s proposed waterfront vision, Robert Hamlin urges everyone to think carefully.
In a recent opinion article Angus Mackay (25.3.19) suggested that the ratepayer contribution to the new waterfront development would be: "linking the cycleways together, inclusion of green spaces, shrubbery, parking, lighting, seating and stormwater flow, but this will likely be a relatively minor cost''.
Indeed? When Forsyth Barr Stadium was proposed, business was to pay all its costs and that consequently no ratepayer funding would be required. Eventually, nearly all of the stadium's costs were funded by ratepayers or taxpayers. Business was just not interested.
The reasons for this are easy to calculate. Assuming a cost of $200million and repayments span of 20 years, the required debt repayment comes to $16.9million a year at 5.9%. Actually, the bill would have been a lot higher because the banks would charge a higher interest rate for risky business proposals. A more realistic commercial interest figure would be 12% - which gives a repayment figure of $26.5million a year.
Then there are the running costs of the stadium, which the DCC is careful to disguise within the workings of DCHL, but which appear (optimistically) to be in the order of $8million a year. This gives us an annual "business'' cost for the stadium of $34.5million a year. Thus a business simply to break even with its "private'' stadium would have required an act to come to Dunedin and pay it a $665,000 fee every week, without fail, for 20 years.
Predictably, businesses did the sums, found this scenario to be wholly incredible and sensibly kept their wallets well out of harm's way. Regrettably, the Dunedin City Council at the time did not do so, as this process came to life.
The current annual cost of the stadium to the ratepayers (assuming the lower interest rate) appears to be around $25million a year. This is a straight loss, as it appears that this is not in any way offset by revenue as it seems DVML pays its occasional acts to use the stadium rather than the other way around.
One has to rely on indirect analysis, as the nature and direction of any stadium-related fees paid are "confidential'', to put it mildly. Most of this loss goes straight out of the city as debt repayments, which are not included in any economic impact assessments of the stadium.
All this being said, the stadium is a "sunk cost'' that is powerfully backed by its proponents. However, we should heed the lessons of it, in order to avoid a repetition. This community, now approaching a billion dollars in debt and with a catastrophically and strategically neglected infrastructure, simply cannot take another ``hit'' of this magnitude.
This is why we need to carefully examine this latest "whizz-bang'' proposal that will apparently cost us a few cents. One look at these designs would suggest that no private onshore developer would construct this design given the extravagant nature of the structures and the terrain on which they are to be built. The hydraulically deposited mud in this location is hundreds of feet deep, and new land will have to be created in this hostile environment before these ferro-concrete extravaganzas can be placed upon it.
The business case is also weak to non-existent. Mr MacKay describes what will be there as: "... five-star hotel, a cultural (convention) centre, a science (climate-change) innovation centre, apartments and cafes''.
We need to know exactly how much this development will cost to construct, and how the direct revenue streams for each of the activities listed by Mr MacKay will use the facilities of it and combine to create a direct revenue stream that will exceed that amount.
If we start to hear the predictable rubbish about "economic impact'' then you may be sure that this direct revenue will not be forthcoming, and that you, the ratepayer, will end up footing the bill. That bill may eventually include your water supply, your power supply and the port - so think carefully.
Finally, much has been made about the need for a "managed retreat'' from South Dunedin. If so, then why on earth would anybody make a massive investment at the same height above sea level in the same place? Recent events in Wellington indicate the global insurance industry is getting selective about what it will insure in this country. A massive mud-based development a few inches above sea level is unlikely to impress it. An uninsurable asset (building and contents) is a worthless one, and this complex would be a stroke of a reinsurer's pen from being exactly that. Given this, Mr Mackay's inclusion of a "science (climate-change) innovation centre'' has a certain droll humour to it!
- Dr Robert Hamlin is a senior lecturer in the marketing department at the University of Otago
