Entertainment precinct on the rocks, politically and financially

Council weighs up the costs of Cairns Entertainment Precinct

Daniel Strudwick

Saturday, November 12, 2011

© The Cairns Post

Operating losses at the proposed Entertainment Precinct will cost each ratepayer $95 a year and put pressure on Cairns Regional Council to keep its costs down for at least a decade, a new report shows.

A financial health check by the Queensland Treasury Corporation yesterday revealed the council would have to increase rates by 6 per cent a year to build and operate the $155 million precinct. But the council’s business case – also released yesterday – raises other factors for councillors to consider, such as the benefits to the region’s arts community, employment and lifestyle.

The development was halted last month when a majority of councillors refused to progress with planning until the business case and QTC’s financial sustainability review were completed. The Treasury Corporation has given the region’s economy a sound rating, but says the council could find it difficult to increase rates and charges if locals continue to do it tough.

The review also casts doubt over state and federal money, which the council is relying on to help fund the entertainment precinct. The council needs the State Government to contribute $57.3 million directly towards the project, but the Treasury Corporation says the state might include a land donation as part of its contribution, reducing the cash input to $17.3 million. According to the financial sustainability review, the precinct would only be affordable if all cash contributions were forthcoming.  And even then, the council would be under pressure to keep its belt tight for the next 10 years.

It recommends the council consider alternative strategies to stimulate the economy, especially options that would be less "capital intensive" than the entertainment precinct. But Mayor Val Schier said the precinct’s ongoing social and lifestyle benefits should not be underestimated. "It’s going to cost us $8 million a year, but for that we get a $200 million asset and then we get tens of millions of dollars of economic benefit," Cr Schier said. "I’m not pretending that it won’t be difficult financially, but we can’t afford not to do this."

The council’s business case argues in favour of the proposed precinct, insisting it satisfies the State Government’s goals for important cultural projects – meeting the community’s needs and supporting regional growth. But it also identifies risks that could have a "catastrophic" impact on the project, such as funding being withdrawn or State Government approvals taking too long to be granted. Councillors will vote on whether to revive the project at a meeting on Wednesday.

THE BUSINESS CASE

• The cash flow results must be read in line with other benefits that cannot be put into numbers or money
• If an economic argument is to be made for this project, the greatest weight should be given to non-market impacts such as social cohesion; arts and cultural heritage appreciation; and education and training
• The precinct will enhance the urban amenity of the Cairns CBD
• It will contribute to the sustainable development of the city and enhancement of the natural landscape
• The biggest risk to the project is funding being withheld
• The precinct will help support the local construction, arts and hospitality industries
• It will also indirectly support employment in industries such as tourism and retail

FINANCIAL SUSTAINABILITY REVIEW

•  Cairns Regional Council is forecasting an average of $8.5 million a year in operating losses, which would cost each ratepayer an average $95 a year
• The council might find it hard to increase rates at near-historic levels if the regional economy remains weak
• Alternative strategies should be considered to stimulate the local economy, especially cheaper options
• The entertainment precinct would only be affordable if all funding is forthcoming: $57.3 million from the State Government, $40 million from the Federal Government and the land donation worth $40 million
• There is uncertainty about the council’s own contribution which is partly based on the sale of two property assets worth a total of $16 million
• The council will be under pressure to achieve budgeted surpluses, meaning rates would have to go up an average 6 per cent

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My Comments

Strictly based on the above financial reports the Cultural Precinct - Entertainment Centre is as good as politically and financially dead in the water. It would be a brave Council indeed to proceed further with the project so close to an election without committing political suicide. The annual operating cost to the ratepayer must be be significantly reduced. The only way of reducing the major financial component of the operating costs is for the Council to inject further equity other than the $16 million proposed. The cost to the ratepayer of $95 per year is politically unsustainable in any year let alone in an election year.

I believe the Cairns Regional Council ( based on the available financial reports ) will have no choice but to put the project on hold unless it can inject further equity beyond the proposed $16 million contribution. The only other option available to Council other than a much larger contribution from the Federal and State Government is for the Council to set up a Cultural Precinct Fund. This fund would be the vehicle where developers contributions from future developments could be levied and earmarked for the Cultural Precinct project. 

Mayor Val Schier and her Council Officers will have to do some quick thinking before Council scuttles this much needed and worthwhile project. It may be prudent for the current Council administration to go back into history and view how the Mulgrave Shire Council funded public assets construction including libraries, swimming pools, sporting and recreational projects without costing the ratepayers a cent.

If the above financial strategy was adopted it still would be possible for the Cultural Precinct to go ahead. However, if nothing is done to reduce the operating costs then the Cultural Precinct is on the rocks and politically dead in the water.

Ross Parisi
12th November 2011  

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Addendum as reported in the Cairns Post 12.11.2011

Mayoral aspirant Margaret Cochrane wants the proposed Cairns Entertainment Precinct to be shelved for at least two years because the community cannot afford it.

In a clear indication that a vote for her is a vote against the precinct in its existing format, Cr Cochrane said the community deserved to have its say on the plan either through next year’s local government election or via a referendum.  It comes after Queensland Treasury Corporation figures, revealed in The Weekend Post on Saturday, showed Cairns Regional Council would need to increase rates by 6 per cent a year to build and operate the $155 million precinct.

The review also noted the precinct would only be affordable if all cash contributions were forthcoming, but member for Cairns Desley Boyle has warned division within the council over the plan is making it difficult for the State Government to sign on the dotted line.

A spokesman for State Treasurer Andrew Fraser said yesterday the matter remained "under active deliberation by the Government" when asked if there were plans to commit more funding in light of the report. But if Cr Cochrane is elected mayor next year, the project in its current state may never get off the ground after she vowed to make her stance against the precinct a key election platform. "I firmly believe that now with the financial review and the business case as it is, the community should have a say on this because it presents a situation that does not look affordable," she said. "I believe the community cannot afford this project at this time; it should be shelved for a couple of years."

Cr Cochrane plans to put forward a vision for a scaled-back facility to be built adjacent to the Cairns Convention Centre, with the infrastructure funded by state and federal money and the council to handle operation costs. Cr Paul Gregory said he, too, had "serious reservations" about the affordability of the project, and he was waiting on an internal business case to become available before making his final decision.

Ms Boyle and Mayor Val Schier have been lobbying Premier Anna Bligh for $57.3 million in funding, on top of the $40 million piece of state-owned land slated for the project.  However, Ms Boyle said she would be in a stronger position to secure the funding if councillors could agree on the project, which she had hoped would get started in the New Year.

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