Chamber of Commerce Submission

Hawke’s Bay Chamber of Commerce
Regional Sport Park LTCCP Amendment submission
May 30 2008

The Chamber thanks Council for the opportunity of making a submission in respect to the LTCCP Amendment relating to the proposed Regional Sports Park(RSP). The Chamber wishes to be heard in relation to its submission.

Broad outline.

The Chamber, from a business point of view, supports the proposed regional sports in principle. We are mindful that council had to replace or upgrade the Nelson Park facilities and generally the Chamber believes that good standard facilities can have an economic generator that has broad business and community benefits.

However we have major issues with elements of what is proposed which from our reading of the proposal have evolved out of a limited planned feasibility assessment – rather council seems to have grasped at a variety of components with little real assessment of need and especially hardnosed economic rationale. In effect the council seems to have back filled the justification for stages 2 & 3 rather than to have built them up on regional priorities. The fact that other local government partners are so far reluctant to commit any funding is an indication of this untidy logic. This is exacerbated by Napier City’s higher priority being for MacLean Park- and we support that project given its national and international standing. We are concerned about the due diligence that should go into any council investment. The Cormilligan Report notes this concern ( p5). Further the Cormilligan Report then does not consider real options including other sites which may be more cost effective such as the intensifying use of existing venues in Hawke’s Bay which may be a better use of limited available funds. This approach would be consistent with The Hawke’s Bay Regional Sports & Active Recreation Strategy 2004-15 objective 2.

The Hawke’s Bay Regional Sports & Active Recreation Strategy 2004-15, we believe was/is the appropriate co-ordinating approach to provide for quality facilities which meet regional and community needs in a coordinated manner. The RSP however appears to cut across this planned process and also does not maximise the potential of resources and funding. It is notable that the 2007-10 Sport HB Strategic Plan argues this regional approach rather than the methodology that has evolved with the RSP.

The bottom line to the Chamber is that its support in principle is conditional in that we remain concerned that:
(a) the RSP should not cost the council any more capital than promised in the current LTCCP; and
(b) the operating losses do not come back to ratepayers- the Council estimate now is that in Year 3 they will be between $550- 800k operational cost. The estimate suggests it will decline from then on- but there is mixed history in NZ of this sort of effect. We consider that this to be a significant ongoing likely impact.

Our view is that the cumulative impact on rates seems about 1.5% loan servicing for (say ) 20 years and probably being realistic- another 1% on operating. These costs are significant given all other funding needs of council let alone inflation.

Thus we would favour only undertaking Stage 1 (track and grandstand) and then pausing until the full funding is in for the other parts before they are commenced- and only if it is operationally self funding. We should however acknowledge that some of the other existing facilities in time will need capital over the next ten years. Significantly the Hawke’s Bay co-ordinating body for sport, Sport HB, take a similar cautious view when they state in their 2007-2010 Strategic Plan that they support the RSP ‘through its development phase’.

We wish now to address some specific issues:
a. Staging elements
b. Economic analysis
c. Costs

a. Staging elements

The proposal specifically asks for views on the stages. As noted above we favour Stage One for pragmatic reasons. We are unconvinced that the site is appropriate for community access reasons, but that argument if relevant, is largely past. Only time will tell if the decision to proceed without planning approval for the grandstand was prudent.

We understand from the Statement of Proposal (p1) that council will only commit to stages 2 & 3 when all funding is in place. However the proposal states that council is effectively committed to Stage 1 to a value of $16.8M. In this case we assume that council has the entire $16.8M in place?

We would ask this to be clarified.

By way of background to this clarification, we understand that Stage 1 ( p 11) includes only $11.35M from (we assume) the Nelson Park sale – thus we assume council will not draw down on any loan approved in the previous LTCCP processes? We are advised that the balance is funding raising. We ask that council confirm that all funding is in place and no other Council funds will be committed except when and if Stages 2 & 3 are fully funded. – per the outline on page 11. Notwithstanding this apparent clear statement on p 11, we note that on p 3 in small print council does suggest it will advance loan funds- this is not in the spirit of the comments elsewhere in the Statement of Proposal and we believe highly in appropriate. It suggests that the funding is not in place- and what if it fails in a faltering economy ?

Our concern of other stages is manifest in our concern that even the early part of fund raising for Stage 1 is yet incomplete- we would welcome advice to the contrary and nonetheless wish council well in this fund raising strategy. We understand from information provided to us that the funding is intended as follows:

Funding from Nelson Park-     $11.35M
Kelt Capital Fund raising         $ 5.33M
$16.68M

We further understand that the funding raising was anticipated to be Kelt Capital Limited $1M; Gaming Trusts $1.30M; Community Trusts $0.3M, Individuals /corporates $0.75M and lottery $2M.

It would be in the interest of all that Stage One is completed at no other costs to council beyond the $11.35M and if council needs assistance, maybe the Chamber members can offer some suggestions.

b. Economic analysis

The Chamber has high regard for the economist contracted to undertake this work. However we are unconvinced of the results primarily as a result of the assumptions made or provided to him.

For example, we question the economic analysis numbers- construction costs can be misleading as it is literally ‘make work’ wherever the capital expenditure occurs. For example any expenditure by council of $50M is likely to have economic activity effects. Thus it is potentially headline misleading to include this in any analysis and claim it is ‘new’ activity and therefore valued. The same must be said about the employment effect. The 500+ jobs are likely to occur in any $50M spend by any organisation in a similar capital expenditure type programme. Thus references to net household income gains are equally challenged as they would occur largely irrespective of the specific capital project. Apart from these obvious comments, the use of multipliers is very subjective and controversial. Using such multipliers, the economic study suggest a value added gain of $24M- this means that council would spend $50M to gain approximately half its expenditure. And this is considered a good thing?

We comment in passing that off the shelf input-output tables plus multipliers to predict the impact on economic activity and employment in various sectors of a development and one off events is notoriously suspect.

Other numbers about national or international teams from a 5 year programme may have some relevancy- but we are less certain. Some events will inevitably be ‘pinch business’ from say football at Island Park where already there are many national teams in training and competition. If the RSP takes these teams from Island Park to the RSP- the net benefit is marginal or perhaps even negative (on NCC). The ‘additional’ economic activity generated from the RSP also takes account of the operating $180,000 already dedicated to existing facilities and the depreciation costs- thus again the economic study inflates the true additional costs. The analysis appears only to take demand side effects and ignores supply side constraints.

In regard to Island Park we understand that this is a well regarded nationally used site. Therefore why duplicate this? The sand based field should perhaps be based there to compliment the large number of existing fields and become the home of regional ( and to some extent national) events- this makes more centrally placed and economic sense than pinching business from Napier City. We are mindful that this approach is consistent with The Hawke’s Bay Regional Sports & Active Recreation Strategy 2004-15.

It is noted that the economic analysis is manifestly honest when it notes (at p1) that it include local expenditure as well as external visitor spending. Thus it also counts or recounts- expenditure that is already occurring at the existing venues that would be closed down and transferred to the new site. This recounting leads perhaps to unwarranted double counting

Curiously also the economic study fails to deduct a major expense of the project through the loss of economic activity from taking horticultural land out of production. We have no way of assessing such competing use for the resources accurately- but if the Northern Arterial Road study is used where some 20 hectares is taken out of production- the loss of gross production is some $600,000. If this was net at (say) $300,000p.a. – then this is a loss of some $1.5M which must be deducted. It also does not take into account depreciation. Maclean Park costs NCC $400,000 p.a. loss on operation and maintenance. And we do not even comment on HDC facilities closer to home. This reinforces our suspicion that the analysis is demand sided only .

The events schedule in the economic study suggests a number of events that would have likely already come to existing facilities in HB including some that may have come to Nelson Park had its been maintained. We also particularly draw attention to the football events that all would have likely been accommodated at Island Park. The frequency of events list provided to the economist would have to be regarded as optimistic- for example number of track championships every 2 years – with a number of North Island venues surely this is most hopeful.

c. Costs

We have already commented on our view that the operating costs are likely to remain higher than any of the estimates. No council in New Zealand appears to manage such facilities at break even. And in many ways this would be expected otherwise the market would provide them. In any event even if only the ramp up costs are considered, this has a substantial negative effect in the various scenarios proposed. These costs are unacceptable in rating terms and local affordability. Relatively small changes to key assumptions can have significant effects and continue to cause operating losses. We believe that some of the assumptions made should be recast in this context and realistically, the project will not be break even.

Part of the capital expenditure relies on the sale of ‘surplus’ assets. In principle we approve of the suggestion however, we are concerned that these are not identified and there is a risk that they will not be publically approved. If this is not undertaken, the proposal suggests that the resulting deficit could be managed by additional fund raising or project modification. If the project could be modified- what not do this now and reduce overall project cost risk? Equally some of the suggestion we have heard for the asset sales makes us wonder if they are likely to be really an option. We will expand on this at the hearing.

Overall comments

We have already commented that we are concerned about the stages and do not support further council funding beyond the current LTCCP. By way of comment we believe council has other and more pressing priorities which will otherwise be pushed backwards by this expenditure. Our concerns include the Northern Arterial Road which would otherwise be completed earlier, the central city projects such as the Exhibition Centre which we would consider has higher immediate economic benefits in tourism let alone community need and priority, and if we consider recreational needs- an indoor multipurpose swimming pool which we understand is the regional priority established by Sport HB through a full feasibility process.

We are also concerned that incorporated in this project is direct expenditure that could only be triggered by this project including some $4m for roading, and other infrastructure around Percival road. This would not be required if this project and site had not been established. This is a direct loss to other needed projects.

Much is made of the RSP being good for national and regional events. On one level we question why Hastings rate payer funds are being sought for facilities greater than the those needed for HDC residents. Whist we can applaud a council that tries to justify large scale expenditure and risk for apparently economic benefit through hosting national events, we seriously question this in priority terms. The HBRC has started a major strategic initiative to establish overall needs for regional facilities and we would recommend this process. Importantly this would allow a regional view of the ‘bucket’ of rate payer funds that are available for these ambitions and have a trade off process for best regional benefit rather than the very untidy situation where neither of the other major councils are in the position to support the RSP. We can only point to the successful partnership that lead to Pettigrew Green facilities as an example of measured and appropriate regional decision making.

As a final comment on this matter, we pose the question – If regional ratepayers had $10M to invest that would really make a difference, would it expend it on a velodrome or the extension of the airport. We suggest that the business and probably overall community benefit would recommend for the airport.
We thank council for its consideration and look forward to expanding on these matters in verbal submissions.

Yours sincerely

Murray Douglas
Chief Executive
Hawke’s Bay Chamber of Commerce

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