Agenda special council meeting 15 march 2016 by Devonport City Council

NOTICE OF MEETING Notice is hereby given that a Special Council meeting of the Devonport City Council will be held in the Council Chambers, on Tuesday 15 March 2016, commencing at 6:00pm. The meeting will be open to the public at 6:00pm. QUALIFIED PERSONS In accordance with Section 65 of the Local Government Act 1993, I confirm that the reports in this agenda contain advice, information and recommendations given by a person who has the qualifications or experience necessary to give such advice, information or recommendation.

Paul West GENERAL MANAGER 10 March 2016

AGENDA FOR A SPECIAL MEETING OF DEVONPORT CITY COUNCIL HELD ON TUESDAY 15 MARCH 2016 AT THE COUNCIL CHAMBERS AT 6:00PM Item

Page No.

1.0

APOLOGIES ............................................................................................... 1

2.0

DECLARATIONS OF INTEREST ........................................................................ 1

3.0

REPORTS .................................................................................................. 2

3.1

LIVING CITY Stage 1 Financial Model (D410007)........................................................................ 2

3.2

LIVING CITY Stage 1 Construction Tender (D406070) ............................................................ 136

4.0

CLOSURE ............................................................................................. 140

PAGE 1 special Council meeting Agenda 15 March 2016

Agenda of a special meeting of the Devonport City Council to be held at the Council Chambers, Fenton Way, Devonport on Tuesday, 15 March 2016 commencing at 6:00pm. PRESENT Present Chair

Ald S L Martin (Mayor) Ald A L Rockliff (Deputy Mayor) Ald C D Emmerton Ald G F Goodwin Ald A J Jarman Ald J T Keay Ald L M Laycock Ald J F Matthews Ald L M Perry

Apology √ √

IN ATTENDANCE All persons in attendance are advised that it is Council policy to record Council Meetings, in accordance with Council’s Audio Recording Policy. The audio recording of this meeting will be made available to the public on Council’s website for a minimum period of six months. Members of the public in attendance at the meeting who do not wish for their words to be recorded and/or published on the website, should contact a relevant Council Officer and advise of their wishes prior to the start of the meeting.

1.0

APOLOGIES Name Ald Goodwin Ald Rockliff

2.0

Reason Apology Leave of Absence

DECLARATIONS OF INTEREST

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3.0

REPORTS

3.1

LIVING CITY STAGE 1 FINANCIAL MODEL File: 32161 D410007

RELEVANCE TO COUNCIL’S PLANS & POLICIES Council’s Strategic Plan 2009-2030: Strategy 2.4.1

Develop and implement a CBD Master Plan aligned to the key LIVING CITY principles based on community engagement outcomes

SUMMARY

This report seeks Council adoption of the funding model for Stage 1 of LIVING CITY, following a 14 day public consultation period. Stage 1 of LIVING CITY is a significant financial decision for Devonport City Council. Stage 1 has an estimated total development cost of $70M, funded by a mix of equity and loan borrowings (45:55). State and Federal Governments are contributing $10.5M and $10M respectively towards the equity component. Interest on borrowings is projected to be primarily serviced from revenue generated from the development. The report recognises that the adoption of a funding model for Stage 1 has significant implications on the Long Term Financial Plan of Council and also on the North West economy in general. This report is intended to be read in conjunction with the LIVING CITY Funding Implications report to Council on 22 February which is provided in Attachment 1.

BACKGROUND Stage 1 of the LIVING CITY Master Plan is the catalyst for Stages 2 and 3 of the Project by releasing land for private development in these later stages. Stage 1 consists of four major elements: 1.

Four level multi-purpose civic building including a new LINC over two floors, Service Tasmania, Council offices and a multi-functioned conference facility able to seat up to 800 people;

Food Pavilion specialising in local products;

Multi-level carpark with approximately 530 spaces; and

Market Square and precinct landscaping.

Design and documentation, statutory approval processes and construction tendering have all been completed over the last 12 months with the finalisation of the funding model being the last remaining step prior to commencement of onsite works. At its meeting on 22 February 2016, Council considered a report on the financial implications of LIVING CITY Stage 1 and determined (Ref. Min. 36/16): “That Council receive the LIVING CITY Stage 1 funding model report and: 1.

endorse the funding model for public exhibition;

note the model includes new Council borrowings of up to $39 million;

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PAGE 3 Report to special Council meeting on 15 March 2016

undertake a 14 day period of community consultation including a public information session, on-line engagement and communication across social and traditional media formats; and

consider any feedback prior to finalising the LIVING CITY Stage 1 funding model at a Special Meeting on Tuesday 15 March 2016.”

The February report examines the financial implications at three distinct levels; firstly, as a stand-alone project to assess the financial viability of the Stage 1 development in its own right; secondly the impact of Stage 1 on Council’s long term financial position; and finally the overall economic impact on the local economy. Stage 1 Funding Model The project funding model demonstrates the viability of the Stage 1 development in its own right. The estimated total cost of Stage 1 is $70M, made up of both equity and debt (45:55). The equity consists of $10M from the Federal Government, $10.5M from the State Government and $11M from Council. The balance of capital funding (up to $39M) is proposed to be sourced from loan borrowings. Negotiations are currently underway to secure the best possible financing arrangements including options to reduce Council’s risk through fixed rates and hedging. The model includes projections for likely revenue from the developments and is based on interest repayments being fully serviced through new project income. Income includes tenancy rentals, car parking fees, and other hire income. Financial Implications for Council Whilst the project funding model assesses Stage 1 viability as a standalone project, to understand the full impact on Council’s financial position it is necessary to review Council’s long term financial plan. Two financial scenarios have been considered, one being the “as planned” scenario and the other a “worst case” scenario. The long term financial plan modelling includes assumptions from the project model but also other potential implications that will impact on Council’s financial position such as:      

Depreciation; Loss of car parking revenue from existing car parks; Additional outgoings such as water, electricity, cleaning, waste removal, etc; Loss of rental from existing tenants; Demolition of Council assets; and Variances to operational costs associated with changes to Council services.

The modelling concludes that if the LIVING CITY Master Plan proceeds “as planned” that Council’s financial position will be strengthened as a result. In the worst case scenario, Council would incur deficit net operating results for a number of years, however this would be managed through under funding depreciation rather than adversely impacting rate revenue. North West Economy Impact Independent Analysis by consultants, HillPDA shows that LIVING CITY will create a significant economic boost to the North West region. The report estimates that LIVING CITY, once complete will generate $112M in additional output annually into the economy and 830 full time on-going operational jobs and significant indirect jobs. All financial documents presented as part of the Stage 1 funding model have undergone an independent peer review by KPMG, who conclude that on balance the assumptions and analysis appear not unreasonable. ITEM 3.1

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Outlined in the discussion section of this report is a summary of the feedback received during the 14 day public consultation period.

STATUTORY REQUIREMENTS The predominant legislation to which Council must comply in undertaking LIVING CITY is the Local Government Act 1993. Section 78(2) of the Local Government Act 1993 states that “A council may not raise a loan in any financial year exceeding any amount the Treasurer determines for that financial year.” Following a request from Council, the Department of Treasury and Finance provided its formal advice to Council on 24 December 2015 that the Treasurer had approved for Council to borrow up to an additional $40M for the purposes of funding Stage 1 of LIVING CITY.

DISCUSSION

The funding model and financial implications report was released on 23 February 2016 for public consultation. Consultation ended on 9 March 2016. During this time the following public engagement tools were utilised: 

Public Information Session on 29 February 2016 (approximately 120 in attendance);



A copy of the report, fact sheets and background documents were available to download through Speak Up Devonport;



Information on Council’s website and social media platforms;



Advertisements in the print media of the consultation opportunities; and



Opportunity for briefings from relevant Council staff and/or Aldermen in person or via phone.

Media coverage was provided by The Advocate and radio stations including 7AD, SeaFM and ABC Northern Tasmania. The Speak Up Devonport website attracted the following level of interest:   

99 documents viewed or downloaded (including the Council report, frequently asked questions); 301 unique visitors looking at the LIVING CITY Stage 1 Plans consultation page; and 46 contributions to the on-line community forum.

In addition to the 46 contributions to Speak up Devonport, Council has received seven feedback forms and eight letters/emails. Copies of all written submissions are attached in Attachment 2. A number of questions (some with underlying commentary) were received at the public meeting. The submissions received are a mix of positive and negative feedback. The feedback received has been summarised below with Officer Comments provided:

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THEME

DETAILS

OFFICER COMMENT

General Supporters were happy to see Consultation throughout the Support for the Devonport progress through this planning phases of LIVING CITY Project. project. has been generally positive. Anecdotally there appeared to be a significant supporting base at the public meeting also. General opposition to the project and the cost of the project.

Submissions expressing general opposition to the project were received. Generally these comments perceived the project to be a waste of money.

There is a role for government to play in initiating quality projects through borrowings to stimulate the local economy. Independent Analysis by HillPDA shows that LIVING CITY will create a significant economic boost to the NW region. Without LIVING CITY, there is a risk that Devonport will stagnate as a City with limited private sector investment forthcoming. In 2009 when creating the current Devonport Strategic Plan, the desire to see Council take a lead role in redeveloping and revitalising the Devonport CBD was strongly supported.

Starting works Opinions have been received without tenants suggesting Council should have is too risky. full tenancy agreements in place prior to proceeding.

Construction of the Food Pavilion will only begin once Council have sufficient certainty in regard to tenants. Also construction contract finalisation will not occur until acceptable lease arrangements are in place with Service Tasmania and LINC for their occupancy in the multipurpose building.

Starting Stage 1 without confirmed tenants for Stages 2 and 3 is too risky.

Council has identified that the only suitable space within the CBD for a large format store such as a discount department store (DDS) is within the Stage 2 boundary. It is imperative that government make this space available for a discount department store in order to realise the retail and waterfront stages of LIVING CITY. Without the creation of a large space, another discount department store will never be realised in the

Opinions have been received suggesting Council should have full tenancy agreements in place for Stages 2 and 3 prior to proceeding with Stage 1. Opinion that there is no point doing Stage 1 if Stages 2 and 3 do not proceed.

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PAGE 6 Report to special Council meeting on 15 March 2016

CBD. Whilst the timing is yet to be confirmed, Council has reached informal interest in the site and is confident that a DDS can be achieved in the future. A ‘worst case’ financial scenario has been prepared that excludes any sales funds from the DDS site that shows that Council will remain viable even in this event. In the unlikely scenario that Stages 2 and 3 do not proceed, Devonport will still benefit from the construction of a state-of-the-art LINC that provides improved educational experiences within the Region. The conference centre and Food Pavilion will bring tourists to the City and NW Region from which a range of other businesses will also benefit. Inadequate Concern that Council has not End User undertaken adequate end user Studies. research to justify the conference facility and Food Pavilion. Concern that the HillPDA assumptions in relation to likely usage and benefits are untested.

The Regional Benefits Report completed by HillPDA provides a high level guide as to what can typically be expected to occur from this type of development. Council’s development consultants, the P+i group are continually testing this data for relevance to Devonport, through various means within the food and tourism markets and subsequent reporting to Council. In relation to the Food Pavilion, Council’s risk is minimised by ensuring that high quality tenants are in place prior to the commencement of construction. In relation to the multi-purpose conference facility, only moderate revenue streams have been forecast in the financial model. The primary objective of the conference facility is to encourage investment in Devonport, particularly in new hotels and

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PAGE 7 Report to special Council meeting on 15 March 2016

tourism focused activities, which are large employers and will develop Devonport in the tourism economy. It is understood that the market for an 800 person conference is small. The space at the top floor of the multi-purpose building is designed to be flexible, and at its most open can seat 800 people, however it is likely to get more use in other formats. More risk Suggestion that a comprehensive analysis should risk analysis should be undertaken be undertaken. prior to implementation of LIVING CITY.

A risk register has been developed for the LIVING CITY project. The register has been and will continue to be used to guide Council though the decision making process. A copy of the risk register is provided as Attachment 3.

Alternative capital projects should be given priority.

LIVING CITY will create a significant economic stimulus to the local and regional economy. It will transform the Devonport CBD consistent with the communities long held vision to open the CBD to the waterfront and encourage new private investment. The economic impacts of this project far exceed any other nominated project.

Suggestions that other capital and maintenance works should be funded in preference to funding LIVING CITY.

Council will continue to undertake its normal capital renewal program. An elector poll should be held prior to committing to Stage 1.

Public period short.

Suggestions to Council that ratepayers should be able to vote directly on whether or not to proceed with Stage 1 of LIVING CITY as proposed.

Council has sought input from the general public on all key milestones during the evolution of LIVING CITY and this input has shaped the final proposal. The current Council was democratically elected following the release of the LIVING CITY Master Plan.

scrutiny Concern that the public is too consultation period is too short for the public to consider the documents.

Council has provided two weeks for the community to make comment. This included hosting a public information

ITEM 3.1

PAGE 8 Report to special Council meeting on 15 March 2016

session which advertised.

was

well

Community engagement has been extensive at every key milestone and public updates are provided quarterly in Councilâ&#x20AC;&#x2122;s agenda. Timing of Concern that Council is rushing LIVING CITY has progressed development. the development. through five years of planning and is thoroughly researched. The timing for implementation is considered opportune with current alignment on numerous key drivers including: 1. A sound plan has been established and adopted unanimously by Council based on core strengths of the region; 2. Federal Government supports the direction and have provided a financial contribution to Stage 1; 3. State Government support the project and agreed to a financial contribution to Stage 1; 4. Interest rates for borrowing are relatively low with potential to be fixed; and 5. Tasmania is on a path of enormous tourism growth and Devonport has an option to increase its existing share. Delaying the project could mean missing the opportunity currently presented to Council. Concern that Concern that the cost to During 2013 and 2104 as the cost to ratepayers has increased from LIVING CITY Master Plan evolved ratepayers has that advised at the Master Plan it was necessary to establish a increased. adoption. broad understanding of the total construction value of the plan and the likely source of funding. In round terms the construction value was estimated to be in the order of $250M with approximately $50M of this being public sector ITEM 3.1

PAGE 9 Report to special Council meeting on 15 March 2016

contribution and the balance private investment or selffunding. Any reference to these estimates was always with the clarification that the final funding model was yet to be determined and will be based on the best possible outcome for Council. Staging of the Master Plan was not decided until early 2015 and since that time the design and funding of Stage 1 has been carefully developed to a point where there is sufficient confidence that the current proposal for Stage 1 and the associated funding model is the best option. In reaching this conclusion a number of scenarios were considered involving both Council ownership and private ownership options. The current proposal provides Council with the strongest possible financial position. With Stage 1 valued at $70M consisting of approximately $31M in direct public sector ($11M DCC) funding, this outcome remains consistent with the initial funding parameters. Stage 1 as the catalyst was always expected to require the largest portion of public sector equity. The debt portion of Stage 1 is projected to be primarily serviced through project generated revenue. Concern that Aldermen donâ&#x20AC;&#x2122;t have appropriate qualifications to make decision.

Concerns have been raised regarding whether Aldermen have appropriate levels of financial and risk knowledge to approve the funding model.

ITEM 3.1

Aldermen are democratically elected to make decisions on behalf of the community. They have been provided advice, information and recommendations by suitably qualified people as required under Section 65 of the Local Government Act 1993.

PAGE 10 Report to special Council meeting on 15 March 2016

Concern with Concern of height of building design elements and traffic elements of the of the project. project. Opposition to the demolition of the existing Council chambers, library and court house. Questions in relation to motorhome and caravan parking. Suggestion that Urban Design could be improved throughout the precinct. Suggestions on Including an Asian shops, features botanical gardens etc to be included in the project.

A separate community consultation was held into the design of Stage 1 previously. Motorhome and caravan parking will be addressed through the implementation of Councilâ&#x20AC;&#x2122;s Parking Strategy.

shop, Design and tenancy types are not directly related to the financial model; however suggestions will be noted for future consideration.

Other issues in A few complaints regarding issues Devonport. outside LIVING CITY were made, including car park gradients at Woolworths and the traffic concerns on Stony Rise Road.

Whilst the comments do not relate directly to LIVING CITY, it is a timely reminder to Council to ensure such issues are not replicated in the new development.

The comments above generally cover the issues raised however a number of submissions had very specific questions. In these instances a letter outlining answers to the specific questions will be provided to the representor. All written submissions received are included with attachment 2.

COMMUNITY ENGAGEMENT Public consultation has been a significant and important part of LIVING CITY since its inception. A two week consultation period on the financial implications of Stage 1 concluded on 9 March 2016. A public forum was held at the Devonport Entertainment and Convention Centre at 6pm on 29 February and was well attended by approximately 120 people. A presentation outlining the funding model was presented and then an opportunity was provided for questions. These questions covered similar topics and opinions to the written responses received. Following the public information session a group of seven people requested a meeting with Council. The meeting was attended by the Mayor, available Aldermen and Council Management. The meeting covered matters consistent to those outlined in the discussion section of this report. In particular the group requested Council conduct an elector poll in regard to LIVING CITY prior to proceeding with Stage 1.

FINANCIAL IMPLICATIONS

Stage 1 of LIVING CITY is a significant financial investment by Council. A full report into the funding model, its financial implications, the economic benefits to the region and the potential risks was presented to Council on 22 February 2016. There are no proposed changes to the model that was presented in February as a result of the consultation period.

ITEM 3.1

PAGE 11 Report to special Council meeting on 15 March 2016

The Stage 1 funding model once adopted will provide the financial boundaries within which Stage 1 is to be implemented. These assumptions will inform Council’s annual and long term budgeting processes. The proposed Stage 1 model includes loan borrowings of up to $39M. Negotiations are currently underway with the State Government’s lending institution, Tascorp along with a number of commercial banks to secure the best possible terms. The model is based on an interest rate of 3.67% and options are being considered to minimise Council’s exposure to any future increases above this amount.

RISK IMPLICATIONS

The LIVING CITY strategy is not without risk. The scale of what Council is embarking upon is unprecedented for a Tasmanian Local Government Authority. The Stage 1 financial model is based on a range of assumptions and projections which may not be realised to the extent projected. In particular, variances to anticipated project income and interest rate assumptions will dictate the impact LIVING CITY has on Council’s long term financial position. The Master Plan requires significant investment upfront by Council, to facilitate Stage 1 as the catalyst for private investment in Stages 2 and 3. Council at this point in time have no contractual commitments for any development or private investment in Stages 2 or 3. Council in proceeding with the strategy is accepting the risk that future plans may not eventuate as predicted. A risk management plan has been developed for the project which identifies the major risks and proposed mitigation strategies. A copy of the risk register is provided in Attachment 3.

CONCLUSION

Implementation of LIVING CITY Stage 1 is the catalyst for future stages which seek to stimulate economic benefits and new jobs within the local and regional economy. The proposed funding model is based on approximately half of the Stage 1 capital being funded through debt with interest cost projected to be primarily serviced from new project revenue. Assumptions within Council’s long term financial plan indicate that Council has the financial capacity to implement Stage 1. Even under a worst case, assuming future Stages do not occur, the Strategy can be implemented without negatively impacting on rate revenue. Council endorsed the proposed LIVING CITY Stage 1 funding model for community consultation. A reasonable level of engagement was achieved with good attendance at a public information session along with feedback through Council’s online forum and via written submissions. While there has been a level of concern raised with Council proceeding with LIVING CITY, the issues identified have generally been previously considered and it is not proposed that any changes are made to the funding model previously endorsed by Council.

ATTACHMENTS 1.

Financial Implications Report to Council 22nd February 2016

Feedback received during community consultation

Risk Register LIVING CITY

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PAGE 12 Report to special Council meeting on 15 March 2016

RECOMMENDATION That Council receive the report regarding the LIVING CITY Stage 1 funding model and: 1.

note the feedback provided during the community consultation period; and

adopt the Funding Model for LIVING CITY Stage 1 as presented including the authority for loan borrowings of up to $39M.

Author: Position:

Matthew Atkins Deputy General Manager

Endorsed By: Position:

ITEM 3.1

Paul West General Manager

PAGE 13 Financial Implications Report to Council 22nd February 2016

8.5

ATTACHMENT [1]

STAGE 1 LIVING CITY FUNDING IMPLICATIONS - PROPOSED PUBLIC RELEASE File: 32161 D397021

RELEVANCE TO COUNCIL’S PLANS & POLICIES Council’s Strategic Plan 2009-2030: Strategy 2.4.1

Develop and implement a CBD Master Plan aligned to the key LIVING CITY principles based on community engagement outcomes

SUMMARY This report outlines the likely financial implications associated with Stage 1 of LIVING CITY. It considers the project funding model, the impact of Council’s long term financial plan (LTFP) and the overall economic benefits to the local and regional economies. Stage 1 is being funded from a mixture of equity and loan borrowings (45:55). Project debt is fully serviced from project revenue. The LTFP demonstrates the impact on Council’s finances over a 10 year period, for both an “as planned” and “worst case” scenario. Both scenarios indicate that Council has the financial capacity to implement Stage 1, without a need to adversely impact on rate revenue. The impact on the economy has been measured by a cost benefit analysis, indicating a cost benefit ratio of 1.67 from the direct benefits increasing to 2.87 with the inclusion of anticipated indirect benefits. The funding model and LTFP impacts have been peer reviewed by consulting firm, KPMG.

BACKGROUND The idea of revitalising Devonport’s CBD to consolidate services and bring life into the City has been a 30-year community dream. Council’s Strategic Plan clearly identifies a strong desire to revitalise Devonport into a thriving regional City. Under the branding “LIVING CITY - changing the heart, reviving the region” the long held vision is nearing reality. Since 2010, LIVING CITY has progressed through a number of phases involving the initial research and scoping of the plan, the establishment and community sign off on key principles and finally the adoption of the LIVING CITY Master Plan in September 2014. Given the scale of LIVING CITY, implementation of the Master Plan will occur in a staged manner with specific projects progressively rolling out over the next decade and beyond. The plan below outlines three high level stages which reflect Council’s current approach. Works in the Southern CBD could possibly run concurrently with any of the stages given its dependence on market demand rather than the completion of preceding stages.

ITEM 3.1

PAGE 14 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

Stage 1 is the catalyst for the strategy, releasing land for later stages and seeking to attract millions of dollars in new private investment. Stage 1 of LIVING CITY consists of four major elements: 1.

Four level multi-purpose civic building including a new LINC over two floors, Service Tasmania, Council offices and an 800 seat conference facility;

Food Pavilion specialising in local products;

Multi-level Carpark with approximately 530 spaces; and

Market Square and precinct landscaping.

Importantly, Stage 1 facilitates Stage 2, releasing land for privately funded retail development. This in turn frees up space for Stage 3 involving a proposed waterfront hotel, apartments and attractive public space. The Multi-Purpose Building and Food Pavilion are significant buildings for Devonport and will be a central hub for community activity. They function as a key node between the future waterfront site and redeveloped retail precinct. These buildings will be of civic importance and have been designed to meet both the aesthetic and functional needs of the City, becoming permanent enhancements to the urban landscape. The multi-level carpark provides critical community infrastructure to cater for the demands of a growing City. Renowned designers, Lyons Architects have led a dedicated design team in developing the Stage 1 design over the last ten months, in a process that involved extensive consultation with key stakeholders. Council released the plans for a period of public comment in July 2015. A development application for the adopted design was submitted in late 2015 and approval granted. A phased process of selecting a construction contractor for Stage 1 was undertaken with a short list of firms invited to submit a guaranteed maximum price, fixed time design and construct tender submission. Tenders have closed and it is anticipated that negotiations to finalise a construction contract with the preferred builder will be complete in time to allow works to start around the end of the first quarter of 2016. This report outlines the proposed funding model and financial implications which will allow Stage 1 of LIVING CITY to commence.

STATUTORY REQUIREMENTS This report contains matters relating to information of a personal and confidential nature or information provided to the Council on the condition it is kept confidential. As such Clause 15(2) (g) of the Local Government (Meeting Procedures) Regulations 2015 applies and the matter should be considered by Council in a closed meeting. The predominant legislation to which Council must comply in undertaking LIVING CITY is the Local Government Act 1993. This report seeks Councilâ&#x20AC;&#x2122;s support for the funding model and LTFP implications to be released for public exhibition. Until Council has formally endorsed its public release it is appropriate for the matter to be

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PAGE 15 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

considered in Closed Session in accordance with the Local Government (Meeting Procedure) Regulations 2015.

DISCUSSION The funding and financial implications of LIVING CITY Stage 1 need to be assessed at three distinct levels. Firstly, as a stand-alone project to assess the financial viability of the Stage 1 development in its own right. Secondly the impact of Stage 1 on Council’s financial position must be fully understood, and finally the overall economic impact on the local economy. 1.

“As Planned” Project Funding Model A complex financial model has been developed for LIVING CITY Stage 1. It includes details for each of the four specific elements that make up the project. This model has been built by Council’s Development Consultant, Projects & Infrastructure (P+i) to fully articulate the financial implications of Stage 1. It assesses the project in its own right to ensure the proposed works are viable and sustainable from a funding perspective, without relying on income from Council’s existing revenue streams. Capital for Stage 1 is generated primarily from the following sources:



$10M has been secured from the Australian Government through Round 1 of the National Stronger Regions Fund. Council has a signed grant deed for the funding which will be released on a progress claim basis as works achieve agreed milestones;



The State Government has confirmed a $13M package to support the implementation of Stage 1. This consists of a $10M contribution to the base building construction, $2M for fit out of the LINC and Service Tasmania tenancies and the peppercorn transfer of the existing LINC site, which currently has a land value of approximately $1M. A grant deed is being finalised with the State on the basis that the base building contribution will be paid in full at the commencement of the project;



$11M contribution from Council’s cash reserves;



The balance of capital funding (up to $39M) is proposed to be sourced from loan borrowings. Negotiations are currently underway to secure the best possible financing arrangements including options to reduce Council’s risk through fixed rates and hedging.

The balance of debt and equity as outlined above indicates the debt portion can be fully serviced by rental revenue and car parking income, generated from the Stage 1 development. A number of ratios have been calculated to provide confidence in the project’s ability to service the required debt. Loan to value ratio is 55.3% indicating the project will have a positive impact on Council’s balance sheet with debt being comfortably serviced with an estimated average interest coverage ratio of 7.83X and an estimated average debt service ratio of 1.74X. Table 1 below outlines the total project budget for each of the elements within Stage 1 and the makeup of capital funding across the specific projects. Table 1: Total Project Budget ($m) Multi-purpose Building Car Park Food Pavilion Market Square and landscaping Total

45.3

Federal Govt. 7.0

14.6 8.6 2.0

70.5

Capital Funding Source ($m) State Govt. Council

Borrowings

10.5*

7.0

20.8

3.0 -

3.0 1.0

11.6 5.6 1.0

10.0

10.5*

11.0

39.0

*note – part of tenancy fit out not within project budget

Predicting future revenue streams that will be generated from Stage 1 is somewhat uncertain. The model assumes year 1 net rental from the food pavilion and multi-purpose building totalling $576,000, along with net car parking revenue of $987,000. Of the three main revenue sources within the model, car parking revenue is considered most predictable, as it is based on a long history of usage and data from adjacent sites. Food Pavilion

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PAGE 16 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

revenue is currently unknown. However, this will become certain and predictable once agreements for lease/leases are finalised. It is accepted that work will not commence on the Food Pavilion until Council has the necessary level of certainty in the form of secured tenant commitments. Conference usage and revenue is the most volatile and unpredictable. It is an unknown market, and its success linked to increasing hotel bed capacity in Devonport. Given this uncertainty, a conservative approach has been adopted with the anticipated revenue being phased in, starting at 25% in year one progressively increasing with normal revenue streams only achieved after year five. The model includes a Council rent allocation of $1M p.a. As Council is the building owner this is a notational amount to acknowledge the likely rental if Council occupied the building as a tenant. While Council remains the building owner it will not pay this amount, however it is included for completeness, to ensure an accurate representation of the financial model from a purely project basis. As owner, Council has other costs such as principal loan repayments and depreciation which are factored into the LTFP. A copy of the funding model dashboard is provided in attachment 1 which outlines an overall summary of the model. 2.

Council’s Financial Implications While the project financial model indicates the project as a stand-alone development is viable it is necessary to assess the long term impact of LIVING CITY on Council’s operational budget. Council has an adopted LTFP which forecasts Council financial position over a 10 year period. The Stage 1 project funding model has been entered into the LTFP, along with variances for other financial impacts as a result of proceeding with Stage 1. These include:

     

Depreciation; Loss of car parking revenue from developed sites; Additional outgoings; Loss of rental from existing tenants; Demolition of Council assets; and Variances to operational costs associated with changes of service delivery.

Assumptions have been made regarding the likely impact of LIVING CITY Stage 2 and 3 implementation based on Council’s anticipated timeframes. These include expenses related to pre-sale activities on the retail and hotel sites, the design and development of waterfront public open space, along with anticipated revenue from land sales and new rate revenue. The LTFP does not include any further borrowings by Council over the plan’s 10 year timeframe. Provided Stage 1 is implemented within the project model parameters, and the estimates for Stages 2 and 3 are achieved within the target timeframe, the LTFP indicates that Council’s financial position will be significantly strengthened as a result of LIVING CITY. Net assets will increase from $498M to $536M over the 10 year period to 2025. Cash will return to June 2015 levels of $18M by June 2025. It must be highlighted that the model does involve Council committing to significant loan borrowings. When added to Council’s existing debt, will result in actual borrowings peaking at $58.6M in 16/17 before reducing to $39.5M by year 2025. Although the debt is fully serviced, it is never without risk and is a binding long term commitment for Council. A full summary of the LTFP based on LIVING CITY proceeding as planned is included in the attachments. Worst Case Modelling Whilst all endeavours will be made to achieve the funding model predictions and implement future stages as planned, assessment of the financial impacts of implementing LIVING CITY Stage 1 on a worst case scenario basis has also been undertaken. In this scenario the following assumptions have been applied:



Development does not proceed on the vacated Council and LINC sites and they remain vacant land for the 10 year period;



No development occurs within the waterfront precinct;



All revenue from the conference centre is excluded from the plan;



23% reduction in carpark revenue;



Increase of 50% in additional operational costs associated with Stage 1 buildings;

ITEM 3.1

PAGE 17 Financial Implications Report to Council 22nd February 2016



ATTACHMENT [1]

No allowance for any rate revenue from development growth as a result of LIVING CITY.

With this modelling Council’s operating result would deteriorate, resulting in a deficit peaking at $1.42M in year 4, reducing to $260k by year 10. Whilst Council’s target benchmark is a better than break-even operating result, the forecast deficits are fundamentally due to an increase in depreciation of $1.2M. This is a non cash item with Council’s cash reserves remaining healthy over the 10 year period averaging a balance of $8M well above its $3M minimum benchmark. Net debt ratio would reduce from 132% at the completion of Stage 1 to 69% by year 10. This modelling demonstrates that even in the unlikely event that all of these worst case assumptions eventuate, Council has the capacity to implement Stage 1 of LIVING CITY whilst remaining financially sound. A full summary of the LTFP based on LIVING CITY Stage 1 proceeding on a worst case basis is included at attachment 3. General It must be noted that all the projections are a representation of a set of assumptions about the future, and although based on the currently available data, they are prone to uncertainty. In determining the most likely scenario it may be reasonable to conclude that reality will land somewhere between the two scenarios. It is important to note that even the full extent of the worst case scenario is based on not increasing rate revenue to fund LIVING CITY. Any deficit in operating result would primarily be from under funding depreciation, which could result in Council reducing its annual capital works program. The LTFP modelling assesses the impact of LIVING CITY on Council’s financial position over the 10 year period. It demonstrates that Council has the financial capacity to implement Stage 1 and commence the process of stimulating the local and regional economy driving major economic growth and social benefit to the North West Region of Tasmania. Importantly from Council’s perspective the LTFP demonstrates that implementation can be achieved without adversely affecting rate revenue, a key objective from the start of the LIVING CITY journey. 3.

Impact on Local Economy In embarking on LIVING CITY, Council has recognised its obligation to invest in building the future of Devonport and the broader region. It has recognised the challenges such as high youth unemployment, declining traditional industries and low educational attainment rates and has developed an ambitious strategy to set a new paradigm for the future. While the project model and the LTFP look at the impact of LIVING CITY on Council’s financial position, this is not the fundamental objective. The real benefit of LIVING CITY must be measured by the extent to which it can positively impact the local and regional economy generating jobs, growth and long term prosperity. An independent regional benefits study undertaken on the LIVING CITY Master Plan concluded that the strategy may result in:



2,943 direct and indirect construction job years;



830 direct full time jobs once operational and significantly more indirect jobs;



$650M in construction phase economic multiplier effects;



$112M annually in additional output to the North West region.

The executive summary from the regional benefits study is included as an attachment to this report. A full copy of the study can be downloaded from www.livingcitydevonport.com. To secure Federal Government funding for LIVING CITY it was necessary to have a cost benefit analysis (CBA) undertaken on the project by a suitably qualified economist. Like a financial analysis a CBA provides an estimate of the benefits relative to the costs, however it differs in that it measures the costs and benefits to the whole of the community not just to the owner, developer or proponent. A full copy of the CBA which was undertaken by Hill PDA on the LIVING CITY Master Plan is included in the attachments. The CBA was prepared in accordance with the Commonwealth Handbook of Cost Benefit Analysis. The CBA identifies the direct costs and benefits of the whole project using a discounted cash flow method. Benefits assessed in the model include industry value add, the terminal value of development, tourism expenditure and the indirect impact on the economy measured by input output multipliers. Direct benefits to the region, using a discount rate of 7% are estimated at:

ITEM 3.1

PAGE 18 Financial Implications Report to Council 22nd February 2016



Net present value of $267M;



IRR (Internal Rate of Return) of 14.5%; and



Benefit Cost Ratio of 1.65.

ATTACHMENT [1]

Once indirect benefits are included the impact is estimated at:



Net present value of $1,360M;



IRR of 29%; and



Benefit cost ratio of 2.87.

As outlined in the full CBA attached the above findings are considered to indicate that LIVING CITY will provide a strong positive economic impact when compared to the “not proceed” scenario, which as the status quo has a net present value of zero.

COMMUNITY ENGAGEMENT Community consultation has been a major component of LIVING CITY throughout the entire project with a strong emphasis on engaging with the community ensuring they have input into each step of the process. From the initial release of the key LIVING CITY principles in 2012, the launch of the Master Plan in 2014 and the public exhibition of the Stage 1 design in mid-2015 the public feedback has generally been positive and supportive of LIVING CITY. Now that the funding model has been prepared and tenders are in the final stage of assessment it is appropriate for this information to be disseminated to the community. To facilitate the opportunity for community members to express their views prior to Council’s formal adoption of the funding model it is proposed that the information be placed on public exhibition for a 14 day period, during which time a public information session is held along with other various methods of community engagement.

FINANCIAL IMPLICATIONS This recommendation has significant financial implications for Council which are outlined in detail in the discussion section of this report.

RISK IMPLICATIONS While there is strong evidence to support the economic benefits of LIVING CITY, the Master Plan requires significant investment upfront by Council, to facilitate Stage 1 as the catalyst for private investment in Stages 2 and 3. Taking a proactive approach should ensure the strategy gains momentum. However it does increase the financial exposure to Council, should the Master Plan not eventuate as anticipated. A risk management plan has been developed for the project which identifies the major risks and proposed mitigation strategies. Prior to finalisation of this Council report, the funding model has been independently peer reviewed by consultants, KPMG. The scope of the review included: 1.

Review documentation and form an independent view as to whether the underlying assumptions are not unreasonable, having regard to KPMG’s experience and commercial judgement;

To draw to attention, any observations identified in respect to the review;

Undertake detailed model review procedures on two important Excel models being the Project Financing Model and the Long Term Financial Strategy Model, which generate calculations that inform the financial sustainability of Stage 1; and

Prepare a letter of advice outlining the observations arising from the review.

A copy of the advice received as part of the peer review is included as an attachment. KPMG conclude that on balance the assumptions and analysis appear not unreasonable. They note all commercial developments are not without risk and that reaching target patronage will need to be actively managed.

CONCLUSION Implementation of LIVING CITY Stage 1 is the catalyst for future stages which seek to stimulate massive economic benefits and new jobs within the local and regional economy. At a project level approximately half of the capital will be funded through debt which is projected to be fully serviced from project revenue.

ITEM 3.1

PAGE 19 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

Council has the financial capacity to implement Stage 1. Even under a worst case, assuming future Stages do not occur, the Strategy can be implemented without negatively impacting on rate revenue.

ATTACHMENTS 1.

Project Funding Model - Dashboard

Long Term Financial Plan Modelling - As Planned

Long Term Financial Plan - Worst Case Modelling

Living City Regional Benefits Study - Hill PDA - Executive Summary

Devonport LIVING CITY- Hill PDA Cost Benefit Analysis

KPMG Peer Review

RECOMMENDATION That Council receive the LIVING CITY Stage 1 funding model report and: 1.

endorse the funding model for public exhibition;

note the model includes new Council borrowings of up to $39 million;

undertake a 14 day period of community consultation including a public information session, on-line engagement and communication across social and traditional media formats; and

consider any feedback prior to finalising the LIVING CITY Stage 1 funding model at a Special Meeting on Tuesday 15 March 2016.

Author: Position:

Matthew Atkins Deputy General Manager

Endorsed By: Position:

ITEM 3.1

Paul West General Manager

PAGE 20 Financial Implications Report to Council 22nd February 2016

ITEM 3.1

ATTACHMENT [1]

PAGE 21 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

Long Term Financial Plan Overview - LIVING CITY Stage 1, 2 & 3

Long Term Financial Plan Modelling â&#x20AC;&#x201C; Proceed as Planned 2013/14 Actual

2014/15 Actual

2015/16 Plan

2016/17 Plan

2017/18 Plan

2018/19 Plan

2019/20 Plan

2020/21 Plan

2021/22 Plan

2022/23 Plan

2023/24 Plan

2024/25 Plan

Rev enue

36.72

40.18

38.28

38.25

40.05

40.79

41.08

41.61

41.75

41.89

42.03

42.18

Expenses

36.71

36.47

37.94

37.85

40.25

40.82

40.74

40.75

40.56

40.63

40.49

40.34

Operating Result

0.01

3.70

0.34

0.40

(0.20)

(0.03)

0.34

0.86

1.19

1.26

1.54

1.83

Net Capital Result

3.55

4.10

(1.08)

16.07

7.02

0.52

(1.48)

6.52

0.52

Net Surplus/(Deficit)

3.56

7.81

(0.74)

16.47

6.82

0.49

(1.14)

7.38

1.71

1.78

2.07

2.36

5.76

3.10

6.51

5.31

6.03

5.57

5.75

6.31

6.32

6.33

6.35

6.36

New

13.03

4.11

29.11

45.09

7.51

4.31

3.96

10.80

1.81

1.82

Total Capex

18.79

7.22

35.61

50.40

13.55

9.88

9.70

17.11

8.13

8.14

8.16

8.17

Cash Balance

10.31

18.66

3.30

6.25

8.37

7.78

9.22

8.22

10.62

12.99

15.47

18.94

Loan Balance

20.02

21.49

30.51

58.62

52.40

51.01

48.02

46.42

44.71

42.88

41.26

39.53

Net Debt Ratio

-26%

-7%

-71%

-137%

-110%

-106%

-94%

-92%

-82%

-71%

-61%

-49%

Capital Expenditure:

Renewal

ITEM 3.1

PAGE 22 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

DCC Long-term Financial Plan - Estimated Statement of Profit or Loss 2013 Actual 2014 Actual 2015 Actual '$000

'$000

$000

2016 Plan

2017 Plan

2018 Plan

2019 Plan

2020 Plan

2021 Plan

2022 Plan

2023 Plan

2024 Plan

2025 Plan

'$000

$000

Recurrent income Rates and service charges

25,019

26,084

26,351

26,384

26,564

26,719

26,875

27,103

27,519

27,642

27,722

27,802

27,882

Fees and charges

5,371

6,044

6,548

6,195

6,364

7,922

8,484

8,560

8,663

Government Grants

2,170

1,262

3,281

2,336

2,186

Contributions

2,325

2,388

2,658

2,256

1,997

2,061

2,080

2,091

2,096

2,114

2,173

2,234

2,305

863

908

1,283

1,104

1,133

1,163

1,159

1,139

35,809

36,719

40,177

38,277

38,246

40,054

40,787

41,082

41,606

41,747

41,886

42,027

42,178

Employee costs

12,190

12,035

11,584

12,014

12,029

12,040

12,048

12,058

12,068

12,077

12,086

12,095

12,104

Materials and services

10,591

11,619

11,697

12,383

12,299

12,422

12,451

12,461

12,701

12,480

12,489

12,498

12,507

8,737

8,910

8,703

8,813

8,867

10,111

10,243

10,318

10,387

10,576

10,608

10,639

10,671

Finance costs

711

1,105

1,211

1,167

1,110

2,126

2,420

2,348

2,051

1,874

1,784

1,695

1,517

Levies & taxes

2,648

2,835

2,659

3,127

Other expenses

1,195

1,166

1,202

1,022

1,008

1,018

1,123

1,023

1,008

1,018

1,123

1,023

1,008

Internal charges

(1,054)

(963)

(583)

(589)

(591)

Total expenses

35,017

36,706

36,474

792

3,703

Investment revenue Other revenue Total recurrent income Expenses

Depreciation

Surplus/(Deficit) before Capital Items

37,936

37,849

(591)

40,254

40,821

40,744

40,751

40,561

40,626

40,486

40,343

855

1,185

1,260

1,541

1,835

341

397

(200)

(33)

338

Capital Items Capital Contributions Government Grants Net Gain/(Loss) on disposal or revaluation of assets Change in Value of Investments Net Surplus/(Deficit)

744

1,815

3,463

300

10,300

1,250

250

750

250

3,956

5,414

2,134

1,994

5,874

4,374

374

6,374

374

(1,338)

(4,075)

(1,904)

(3,480)

(200)

1,300

(200)

(2,700)

(200)

429

393

411

105

100

4,584

3,560

7,808

(741)

16,471

6,824

491

(1,138)

7,379

1,709

1,784

2,065

2,359

ITEM 3.1

PAGE 23 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

DCC Long-term Financial Plan - Estimated Cashflow Statement Cash Flows from Operating Activities Receipts Rates and user charges Government grants Refund of GST tax credits Interest Investment revenue from TasWater Other receipts Total Receipts Payments Employee & supplier costs Borrowing costs Other expenses Total Payments Net Cash from operating activities Cash Flows from Investing Activities Receipts Proceeds from sale of non current assets Capital Grants Dividend revenue Capital Contributions Other Investments Payments Asset renewals New assets Net Cash used in investing activities Cash Flows from Financing Activities Receipts New loans Payments Loan principal repayments Net Cash from (or used in) financing activities Net Increase/(Decrease) in cash held Cash at beginning of reporting period Cash at end of reporting period

2013 Actual 2014 Actual 2015 Actual $000 $000 $000

2016 Plan $000

2017 Plan $000

2018 Plan $000

2019 Plan $000

2020 Plan $000

2021 Plan $000

2022 Plan $000

2023 Plan $000

2024 Plan $000

2025 Plan $000

30,253 2,170 1,651 798 1,405 922 37,199

31,126 1,262 2,267 486 1,731 862 37,734

31,492 3,281 1,163 575 1,638 1,364 39,513

32,152 2,336 1,000 378 1,638 1,106 38,610

32,501 2,186 1,000 119 1,638 1,136 38,580

34,214 2,186 1,000 183 1,638 1,166 40,387

34,932 2,186 1,000 202 1,638 1,162 41,120

35,236 2,186 1,000 213 1,638 1,142 41,415

35,755 2,186 1,000 218 1,638 1,142 41,939

35,878 2,186 1,000 236 1,638 1,142 42,080

35,958 2,186 1,000 295 1,638 1,142 42,219

36,038 2,186 1,000 356 1,638 1,142 42,360

36,118 2,186 1,000 427 1,638 1,142 42,511

24,617 626 1,195 26,438 10,761

27,225 1,028 933 29,186 8,548

26,344 1,132 913 28,389 11,124

27,508 1,167 1,022 29,697 8,913

27,437 1,110 1,008 29,555 9,025

27,571 2,126 1,018 30,715 9,672

27,608 2,420 1,123 31,151 9,969

27,628 2,348 1,023 30,999 10,416

27,878 2,051 1,008 30,937 11,002

27,666 1,874 1,018 30,558 11,522

27,684 1,784 1,123 30,591 11,628

27,702 1,695 1,023 30,420 11,940

27,720 1,517 1,008 30,245 12,266

327 3,956 151

308 5,414 193 (83)

234 2,134 296 74

100 1,994 240 -

100 5,874 240 10,000 -

7,600 4,374 240 -

100 374 240 -

3,100 374 240 -

100 6,374 240 -

100 374 240 -

(23,441) (19,007)

(19,029) (13,197)

(3,699) (3,290) (4,251)

(6,509) (29,106) (33,281)

(5,313) (45,092) (34,191)

(6,033) (7,513) (1,332)

(5,575) (4,308) (9,169)

(5,746) (3,959) (5,991)

(6,307) (10,802) (10,395)

(6,320) (1,806) (7,412)

(6,333) (1,809) (7,428)

(6,345) (1,813) (7,444)

(6,358) (1,817) (7,461)

11,600

2,000

2,400

10,000

29,000

(948) 10,652 2,406 11,720

(1,165) 835 (3,814) 14,126

(928) 1,472 8,345 10,312

(985) 9,015 (15,353) 18,657

(892) 28,108 2,942 3,304

(6,214) (6,214) 2,126 6,246

(1,391) (1,391) (591) 8,372

(2,989) (2,989) 1,436 7,781

(1,601) (1,601) (994) 9,217

(1,711) (1,711) 2,399 8,223

(1,829) (1,829) 2,371 10,622

(2,016) (2,016) 2,480 12,993

(1,336) (1,336) 3,469 15,473

14,126

10,312

18,657

3,304

6,246

8,372

7,781

9,217

8,223

10,622

12,993

15,473

18,942

ITEM 3.1

PAGE 24 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

DCC Long-term Financial Plan - Estimated Statement of Financial Position

Assets Current Assets Cash and cash equivalents Receivables Other Assets Total Current Assets Non-current Assets Capital works in progress Receivables Investment in associates Investment in CMW Property, plant and equipment Total Non-current Assets Total Assets Liabilities Current Liabilities Payables Provisions Financial liabilities Total Current Liabilities Non-current Liabilities Provisions Financial liabilities Total Non-current Liabilities Total Liabilities Net Assets Equity Accumulated Surplus Asset Revaluation Reserves Other Reserves Total Equity

2013 Actual 2014 Actual 2015 Actual $000 $000 $000

2016 Plan $000

2017 Plan $000

2018 Plan $000

2019 Plan $000

2020 Plan $000

2021 Plan $000

2022 Plan $000

2023 Plan $000

2024 Plan $000

2025 Plan $000

14,126 1,279 91 15,496

10,312 967 91 11,370

18,658 1,116 93 19,867

3,305 1,116 93 4,514

6,247 1,116 93 7,456

8,373 1,116 93 9,582

7,782 1,116 93 8,991

9,218 1,116 93 10,427

8,224 1,116 93 9,433

10,623 1,116 93 11,832

12,994 1,116 93 14,203

15,474 1,116 93 16,683

18,943 1,116 93 20,152

13,556 2,637 77,874 363,920 457,987 473,483

3,882 74 3,081 83,560 375,714 466,311 477,681

2,679 3,849 84,231 414,929 505,688 525,555

26,393 3,954 84,231 414,736 529,314 533,828

69,329 4,054 84,231 413,339 570,953 578,409

4,724 4,154 84,231 476,328 569,437 579,019

6,974 4,254 84,231 473,668 569,127 578,118

8,974 4,354 84,231 466,005 563,564 573,991

1,724 4,454 84,231 479,927 570,336 579,769

1,724 4,554 84,231 477,426 567,935 579,767

1,724 4,654 84,231 474,911 565,520 579,723

1,724 4,754 84,231 472,781 563,490 580,173

1,724 4,854 84,231 469,836 560,645 580,797

3,710 2,252 1,165 7,127

2,808 2,112 928 5,848

2,537 2,078 985 5,600

2,535 2,078 892 5,505

2,537 2,078 6,214 10,829

2,536 2,078 1,391 6,005

2,536 2,078 2,989 7,603

2,538 2,077 1,601 6,216

2,535 2,077 1,711 6,323

2,536 2,077 1,829 6,442

2,537 2,077 1,616 6,230

2,538 2,077 1,736 6,351

2,539 2,077 1,504 6,120

434 18,020 18,454 25,581

498 19,092 19,590 25,438

525 20,507 21,032 26,632

525 29,615 30,140 35,645

525 52,401 52,926 63,755

525 51,010 51,535 57,540

525 48,021 48,546 56,149

525 46,420 46,945 53,160

525 44,710 45,235 51,558

525 42,880 43,405 49,847

525 41,265 41,790 48,020

525 39,528 40,053 46,404

525 38,024 38,549 44,669

447,902

452,243

498,923

498,183

514,654

521,479

521,969

520,831

528,211

529,920

531,703

533,769

536,128

182,908 263,518 1,476 447,902

186,468 258,613 7,162 452,243

194,274 296,816 7,833 498,923

193,534 296,816 7,833 498,183

210,005 296,816 7,833 514,654

216,830 296,816 7,833 521,479

217,320 296,816 7,833 521,969

216,182 296,816 7,833 520,831

223,562 296,816 7,833 528,211

225,271 296,816 7,833 529,920

227,054 296,816 7,833 531,703

229,120 296,816 7,833 533,769

231,479 296,816 7,833 536,128

ITEM 3.1

PAGE 25 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

Worse CaseFinancial ModellingPlan â&#x20AC;&#x201C; Long Term Financial Plan Long Term Overview LC Stage 1 Overview 2013/14 Actual

2014/15 Actual

2015/16 Plan

2016/17 Plan

2017/18 Plan

2018/19 Plan

2019/20 Plan

2020/21 Plan

2021/22 Plan

2022/23 Plan

2023/24 Plan

2024/25 Plan

Rev enue

36.72

40.18

38.28

38.08

39.07

39.41

39.48

39.56

39.58

39.66

39.77

39.86

Expenses

36.71

36.47

37.94

37.85

40.26

40.83

40.72

40.69

40.34

40.41

40.27

40.13

Operating Result

0.01

3.70

0.34

0.23

(1.19)

(1.42)

(1.24)

(1.13)

(0.76)

(0.74)

(0.50)

(0.26)

Net Capital Result

3.55

4.10

(1.08)

16.07

5.52

0.52

Net Surplus/(Deficit)

3.56

7.81

(0.74)

16.30

4.33

(0.90)

(0.72)

(0.61)

(0.24)

(0.22)

0.03

0.26

5.76

3.10

6.51

5.31

6.03

5.57

5.75

6.31

6.32

6.33

6.35

6.36

New

13.03

4.11

28.30

43.56

6.85

2.06

1.96

1.80

1.81

1.82

Total Capex

18.79

7.22

34.81

48.88

12.88

7.63

7.70

8.11

8.13

8.14

8.16

8.17

Cash Balance

10.31

18.66

4.11

8.42

7.67

7.89

8.16

8.05

8.22

8.30

10.46

9.14

Loan Balance

20.02

21.49

30.51

58.62

57.40

56.01

49.52

47.92

46.21

44.38

40.77

36.63

Net Debt Ratio

-26%

-7%

-69%

-132%

-127%

-122%

-105%

-101%

-96%

-91%

-76%

-69%

Capital Expenditure:

Renewal

ITEM 3.1

PAGE 26 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

DCC Long-term Financial Plan - Estimated Statement of Profit or Loss 2013 Actual 2014 Actual 2015 Actual '$000

'$000

$000

2016 Plan

2017 Plan

2018 Plan

2019 Plan

2020 Plan

2021 Plan

2022 Plan

2023 Plan

2024 Plan

2025 Plan

'$000

$000

Recurrent income Rates and service charges

25,019

26,084

26,351

26,384

26,464

26,594

26,674

26,754

26,834

26,854

26,934

27,014

27,094

Fees and charges

5,371

6,044

6,548

6,195

6,258

7,046

7,316

7,317

Government Grants

2,170

1,262

3,281

2,336

2,186

2,325

2,388

2,658

2,256

2,035

2,079

2,073

2,079

2,081

2,085

2,112

2,123

863

908

1,283

1,104

1,133

1,163

1,159

1,139

35,809

36,719

40,177

38,277

38,078

39,071

39,411

39,478

39,560

39,580

39,664

39,771

39,862

Employee costs

12,190

12,035

11,584

12,014

12,029

12,040

12,048

12,058

12,068

12,077

12,086

12,095

12,104

Materials and services

10,591

11,619

11,697

12,383

12,299

12,472

12,517

12,527

12,767

12,546

12,555

12,564

12,573

8,737

8,910

8,703

8,813

8,867

10,070

10,190

10,226

10,260

10,292

10,323

10,355

10,387

Finance costs

711

1,105

1,211

1,167

1,110

2,126

2,420

2,348

2,051

1,874

1,784

1,695

1,517

Levies & taxes

2,648

2,835

2,659

3,127

Other expenses

1,195

1,166

1,202

1,022

1,008

1,018

1,123

1,023

1,008

1,018

1,123

1,023

1,008

Contributions Investment revenue Other revenue Total recurrent income Expenses

Depreciation

Internal charges

(1,054)

Total expenses

35,017

36,706

36,474

792

3,703

341

744

1,815

3,463

3,956

5,414

(1,338)

(4,075)

Surplus/(Deficit) before Capital Items

(963)

(583)

(589) 37,936

(591) 37,849

(591)

40,262

40,834

40,718

40,690

40,343

40,407

40,268

40,125

229

(1,192)

(1,423)

(1,240)

(1,130)

(763)

(743)

(497)

(263)

300

10,300

1,250

250

2,134

1,994

5,874

4,374

374

(1,904)

(3,480)

(200)

Capital Items Capital Contributions Government Grants Net Gain/(Loss) on disposal or revaluation of assets Change in Value of Investments Net Surplus/(Deficit)

429

393

411

105

100

4,584

3,560

7,808

(741)

16,303

4,332

(899)

(716)

(606)

(239)

(219)

261

ITEM 3.1

PAGE 27 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

2013 Actual 2014 Actual 2015 Actual $000 $000 $000

2016 Plan $000

2017 Plan $000

2018 Plan $000

2019 Plan $000

2020 Plan $000

2021 Plan $000

2022 Plan $000

2023 Plan $000

2024 Plan $000

2025 Plan $000

30,253 2,170 1,651 798 1,405 922 37,199

31,126 1,262 2,267 486 1,731 862 37,734

31,492 3,281 1,163 575 1,638 1,364 39,513

32,152 2,336 1,000 378 1,638 1,106 38,610

32,295 2,186 1,000 157 1,638 1,136 38,412

33,213 2,186 1,000 201 1,638 1,166 39,404

33,563 2,186 1,000 195 1,638 1,162 39,744

33,644 2,186 1,000 201 1,638 1,142 39,811

33,724 2,186 1,000 203 1,638 1,142 39,893

33,744 2,186 1,000 203 1,638 1,142 39,913

33,824 2,186 1,000 207 1,638 1,142 39,997

33,904 2,186 1,000 234 1,638 1,142 40,104

33,984 2,186 1,000 245 1,638 1,142 40,195

24,617 626 1,195 26,438 10,761

27,225 1,028 933 29,186 8,548

26,344 1,132 913 28,389 11,124

27,508 1,167 1,022 29,697 8,913

27,437 1,110 1,008 29,555 8,857

27,621 2,126 1,018 30,765 8,639

27,674 2,420 1,123 31,217 8,527

27,694 2,348 1,023 31,065 8,746

27,944 2,051 1,008 31,003 8,890

27,732 1,874 1,018 30,624 9,289

27,750 1,784 1,123 30,657 9,340

27,768 1,695 1,023 30,486 9,618

27,786 1,517 1,008 30,311 9,884

327 3,956 151

308 5,414 193 (83)

234 2,134 296 74

100 1,994 240 -

100 5,874 240 10,000 -

100 4,374 240 -

100 374 240 -

5,100 374 240 -

100 374 240 -

4,100 374 240 -

100 374 240 -

(23,441) (19,007)

(19,029) (13,197)

(3,699) (3,290) (4,251)

(6,509) (28,298) (32,473)

(5,313) (43,564) (32,663)

(6,033) (6,849) (8,168)

(5,575) (2,058) (6,919)

(5,746) (1,959) (1,991)

(6,307) (1,802) (7,395)

(6,320) (1,806) (7,412)

(6,333) (1,809) (7,428)

(6,345) (1,813) (3,444)

(6,358) (1,817) (7,461)

11,600

2,000

2,400

10,000

29,000

(948) 10,652 2,406 11,720

(1,165) 835 (3,814) 14,126

(928) 1,472 8,345 10,312

(985) 9,015 (14,545) 18,657

(892) 28,108 4,302 4,112

(1,214) (1,214) (743) 8,414

(1,391) (1,391) 217 7,671

(6,489) (6,489) 266 7,888

(1,601) (1,601) (106) 8,154

(1,711) (1,711) 166 8,048

(1,829) (1,829) 83 8,214

(4,016) (4,016) 2,158 8,297

(3,736) (3,736) (1,313) 10,455

14,126

10,312

18,657

4,112

8,414

7,671

7,888

8,154

8,048

8,214

8,297

10,455

9,142

ITEM 3.1

PAGE 28 Financial Implications Report to Council 22nd February 2016

ATTACHMENT [1]

DCC Long-term Financial Plan - Estimated Statement of Financial Position

2013 Actual 2014 Actual 2015 Actual $000 $000 $000

2016 Plan $000

2017 Plan $000

2018 Plan $000

2019 Plan $000

2020 Plan $000

2021 Plan $000

2022 Plan $000

2023 Plan $000

2024 Plan $000

2025 Plan $000

14,126 1,279 91 15,496

10,312 967 91 11,370

18,658 1,116 93 19,867

4,113 1,116 93 5,322

8,415 1,116 93 9,624

7,672 1,116 93 8,881

7,889 1,116 93 9,098

8,155 1,116 93 9,364

8,049 1,116 93 9,258

8,215 1,116 93 9,424

8,298 1,116 93 9,507

10,456 1,116 93 11,665

9,143 1,116 93 10,352

13,556 2,637 77,874 363,920 457,987 473,483

3,882 74 3,081 83,560 375,714 466,311 477,681

2,679 3,849 84,231 414,929 505,688 525,555

25,585 3,954 84,231 414,736 528,506 533,828

66,993 4,054 84,231 413,339 568,617 578,241

1,724 4,154 84,231 482,369 572,478 581,359

1,724 4,254 84,231 479,761 569,970 579,068

1,724 4,354 84,231 472,190 562,499 571,863

1,724 4,454 84,231 469,989 560,398 569,656

1,724 4,554 84,231 467,773 558,282 567,706

1,724 4,654 84,231 465,541 556,150 565,657

1,724 4,754 84,231 459,697 550,406 562,071

1,724 4,854 84,231 457,035 547,844 558,196

3,710 2,252 1,165 7,127

2,808 2,112 928 5,848

2,537 2,078 985 5,600

2,535 2,078 892 5,505

2,537 2,078 1,214 5,829

2,536 2,078 1,391 6,005

2,535 2,078 6,489 11,102

2,536 2,077 1,601 6,214

2,535 2,077 1,711 6,323

2,535 2,077 1,829 6,441

2,535 2,077 3,616 8,228

2,537 2,077 4,136 8,750

2,539 2,077 1,504 6,120

434 18,020 18,454 25,581

498 19,092 19,590 25,438

525 20,507 21,032 26,632

525 29,615 30,140 35,645

525 57,401 57,926 63,755

525 56,010 56,535 62,540

525 49,521 50,046 61,148

525 47,921 48,446 54,659

525 46,210 46,735 53,058

525 44,381 44,906 51,347

525 40,765 41,290 49,518

525 36,629 37,154 45,904

525 35,124 35,649 41,769

447,902

452,243

498,923

498,183

514,486

518,819

517,920

517,204

516,598

516,359

516,139

516,167

516,427

182,908 263,518 1,476 447,902

186,468 258,613 7,162 452,243

194,274 296,816 7,833 498,923

193,534 296,816 7,833 498,183

209,837 296,816 7,833 514,486

214,170 296,816 7,833 518,819

213,271 296,816 7,833 517,920

212,555 296,816 7,833 517,204

211,949 296,816 7,833 516,598

211,710 296,816 7,833 516,359

211,490 296,816 7,833 516,139

211,518 296,816 7,833 516,167

211,778 296,816 7,833 516,427

ITEM 3.1

PAGE 29 Financial Implications Report to Council 22nd February 2016

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ATTACHMENT [1]

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PAGE 59 Feedback received during community consultation

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PAGE 60 Feedback received during community consultation

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PAGE 61 Feedback received during community consultation

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PAGE 62 Feedback received during community consultation

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PAGE 63 Feedback received during community consultation

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PAGE 64 Feedback received during community consultation

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PAGE 65 Feedback received during community consultation

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PAGE 66 Feedback received during community consultation

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PAGE 67 Feedback received during community consultation

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PAGE 68 Feedback received during community consultation

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PAGE 69 Feedback received during community consultation

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PAGE 70 Feedback received during community consultation

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PAGE 71 Feedback received during community consultation

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PAGE 72 Feedback received during community consultation

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PAGE 73 Feedback received during community consultation

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PAGE 74 Feedback received during community consultation

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PAGE 75 Feedback received during community consultation

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PAGE 76 Feedback received during community consultation

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PAGE 77 Feedback received during community consultation

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PAGE 78 Feedback received during community consultation

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PAGE 79 Feedback received during community consultation

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PAGE 80 Feedback received during community consultation

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PAGE 81 Feedback received during community consultation

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PAGE 82 Feedback received during community consultation

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PAGE 83 Feedback received during community consultation

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PAGE 84 Feedback received during community consultation

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PAGE 85 Feedback received during community consultation

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PAGE 86 Feedback received during community consultation

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PAGE 87 Feedback received during community consultation

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PAGE 88 Feedback received during community consultation

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PAGE 89 Feedback received during community consultation

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PAGE 90 Feedback received during community consultation

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PAGE 91 Feedback received during community consultation

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PAGE 92 Feedback received during community consultation

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PAGE 93 Feedback received during community consultation

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PAGE 94 Feedback received during community consultation

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PAGE 95 Feedback received during community consultation

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PAGE 96 Feedback received during community consultation

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PAGE 97 Feedback received during community consultation

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PAGE 98 Feedback received during community consultation

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PAGE 99 Feedback received during community consultation

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PAGE 100 Feedback received during community consultation

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PAGE 101 Feedback received during community consultation

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PAGE 102 Feedback received during community consultation

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PAGE 103 Feedback received during community consultation

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PAGE 104 Feedback received during community consultation

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PAGE 105 Feedback received during community consultation

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PAGE 106 Feedback received during community consultation

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PAGE 107 Feedback received during community consultation

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PAGE 108 Feedback received during community consultation

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PAGE 109 Feedback received during community consultation

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PAGE 110 Feedback received during community consultation

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PAGE 111 Feedback received during community consultation

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PAGE 112 Feedback received during community consultation

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PAGE 113 Feedback received during community consultation

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PAGE 114 Feedback received during community consultation

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PAGE 115 Risk Register LIVING CITY

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PAGE 116 Risk Register LIVING CITY

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PAGE 117 Risk Register LIVING CITY

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PAGE 118 Risk Register LIVING CITY

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PAGE 119 Risk Register LIVING CITY

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PAGE 120 Risk Register LIVING CITY

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PAGE 121 Risk Register LIVING CITY

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PAGE 122 Risk Register LIVING CITY

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PAGE 123 Risk Register LIVING CITY

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PAGE 124 Risk Register LIVING CITY

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PAGE 125 Risk Register LIVING CITY

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PAGE 126 Risk Register LIVING CITY

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PAGE 127 Risk Register LIVING CITY

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PAGE 128 Risk Register LIVING CITY

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PAGE 129 Risk Register LIVING CITY

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PAGE 130 Risk Register LIVING CITY

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PAGE 131 Risk Register LIVING CITY

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PAGE 132 Risk Register LIVING CITY

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PAGE 133 Risk Register LIVING CITY

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PAGE 134 Risk Register LIVING CITY

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PAGE 135 Risk Register LIVING CITY

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ITEM 3.1

PAGE 136 Report to special Council meeting on 15 March 2016

3.2

LIVING CITY STAGE 1 CONSTRUCTION TENDER File: 32161 D406070

RELEVANCE TO COUNCIL’S PLANS & POLICIES Council’s Strategic Plan 2009-2030: Strategy 2.4.1

Develop and implement a CBD Master Plan aligned to the key LIVING CITY principles based on community engagement outcomes

SUMMARY

This report provides an overview of the three tenders received for the Stage 1 construction of LIVING CITY. It recommends that Fairbrother Pty Ltd be selected as Council’s Preferred Contractor and that negotiations commence to finalise a construction contract.

BACKGROUND Stage 1 is the catalyst for the whole of LIVING CITY and represents the transformation of the LIVING CITY vision into reality. After five years of planning the commencement of the construction tender process in early September 2015 was a major project milestone. Independent analysis indicates that the construction of LIVING CITY will be a significant boost to the local economy with 800 direct and 2,000 indirect jobs estimated to be created during the construction of all stages. Stage 1 of LIVING CITY consists of:    

Four level multi-purpose civic building including a new LINC, Service Tasmania, Council offices and a multi-use conference facility/space that is capable of holding up to 800 people if necessary; Food Pavilion specialising in local products; Multi-level Car Park with approximately 530 spaces; and Market Square and landscaping.

The selection of a Preferred Contractor for Stage 1 has been undertaken in a two-step process with phase one involving an open market expression of interest process to identify potential building contractors. Council considered a confidential report outlining the expression of interests received at its meeting on 26 October 2015 and determined to select three firms to proceed to the second phase of the selection process. Phase two involved the short listed contractors preparing a guaranteed maximum price, design and construct tender submission. Request for tender documentation was issued to the three tenderers on 4 November 2015 and tenders closed on 14 January 2016. This report outlines the response to phase two of the process and recommends the selection of a Preferred Contractor. Also outlined in the report is an update on a number of items that need to be considered prior to the finalisation of a construction contract.

STATUTORY REQUIREMENTS Council is required to comply with Section 333 of the Local Government Act 1993 and its adopted Code for Tenders and Contracts when tendering for goods or services. A probity advisor was engaged by Council to oversee the tender process and ensure compliance with statutory requirements. ITEM 3.2

PAGE 137 Report to special Council meeting on 15 March 2016

DISCUSSION

Council has entered into an agreement with Projects and Infrastructure Holdings P/L (P+i) to act as development managers on LIVING CITY and as a result P+i are providing advice to Council on the tender outcomes. A detailed report from P+i on the evaluation of the submissions received is provided as a confidential attachment. The evaluation process has involved a thorough assessment of the three submissions, which involved seeking further clarification from all three proponents on a number of aspects. Submissions were considered against the following evaluation criteria: 

local content and industry involvement;



completeness and consistency with requirements of tender;



availability and credentials of key team members;



approach to value add;



how tenderers will assist with value managing the design;



Guaranteed Maximum Price (GMP) budget;



not to exceed construction period;



acceptance of proposed risk principles;



benefits or dis-benefits of departure from proposed construction contract; and



bank guarantee provision

In assessing the three proposals against these criteria, Fairbrother ranked the highest and are considered to offer the best option for Council. Probity Given the magnitude of this contract Council engaged legal firm Page Seager as probity advisors to oversee the tender process independent from Council and P+i. This extra layer of oversight provides additional assurance for Council that the selection process was merit based, purely on the information provided in the tender submissions. Page Seager’s role has involved overseeing tender documentation, selection methodology, general due process and legislative compliance. They have provided formal advice to Council on probity considerations which is included as a confidential attachment to this report. Next Steps From this tender process it is recommended that Council select Fairbrother as the Preferred Contractor and enter into a period of negotiation to finalise a construction contract. It is envisaged that this process will take a number of months to finalise. It will involve Fairbrother becoming part of the project team and working through a value management process to determine an acceptable GMP contract that aligns with Council’s funding model. Prior to execution of the final construction contract a number of other key activities must be completed. This includes the finalisation of both the grant funding and long term lease agreement/s with the State Government. Negotiations are underway to secure the optimum terms for financing the debt portion of Stage 1 and these arrangements require finalisation prior to Council signing off on the construction contract. ITEM 3.2

PAGE 138 Report to special Council meeting on 15 March 2016

While the construction contract execution is not necessarily contingent on securing lease agreements in the Food Pavilion, the final document should include provision for Council to delay the commencement of construction on this element until it has sufficient certainty that tenants are secured. Once the terms and conditions on a final construction contract are resolved a further report would be provided to Council seeking approval to proceed. Early Works Package It is proposed that during the contract negotiation period, the Preferred Contractor be provided with an agreed early works package. This is not an uncommon approach with GMP contracts and is one of the benefits of this style of procurement. It allows a project to progress and therefore minimise overall construction period delay whilst still providing the necessary time to resolve all outstanding matters satisfactorily. An early works package would be negotiated with the Preferred Contractor in early value management meetings and would most likely include activities such as site establishment, demolition and bulk excavation. A fixed price would be determined (based on the schedules provided as part of the tender) for the agreed scope of works and relevant documentation provided and signed off between both parties. The value of this work would then be deducted from the final construction contract. Commencement of an early works package would not legally obligate Council to proceed with the Preferred Contractor for the remainder of the works. While it is highly unlikely that mutually agreeable terms for a construction contract will not be met between Council and the Preferred Contractor, Council would retain the right at any point until the contract was signed to withdraw from the negotiations. Should this occur, Council would only be liable for the value of early works completed up until that point. However whilst legally Council has this option, it would be prudent to only give direction to commence the early works package once the value management process had advanced sufficiently to provide comfort that there are no major issues likely to prevent the finalisation of a contract. Sod Turning Ceremony Subject to acceptance of the recommendations in this report a tentative date of Wednesday 23 March 2016, has been set for an official turning of the sod ceremony. In accordance with conditions within the Federal Government Funding Agreement, notification has been provided of this date. Council Office Relocation Council has awarded a contract to Oliver Kelly for the relocation of Councilâ&#x20AC;&#x2122;s offices to 17 Fenton Way, however direction to commence site works has not yet been given. Provided the recommendations within this report are accepted the intention is allow site works in preparation for the move (approx. 5 weeks) to commence with the actual relocation over a weekend to be determined once the likely timeframe for demolition of the existing Council buildings is clarified.

COMMUNITY ENGAGEMENT An advertisement seeking expressions of interest for construction contractors was placed in the Advocate on 5 September 2015 and also online with Tenderlink.

FINANCIAL IMPLICATIONS

The finalisation of the tender process and the execution of a construction contract will involve a significant financial commitment by Council. ITEM 3.2

PAGE 139 Report to special Council meeting on 15 March 2016

The value management process and determination of a final GMP construction sum will be dictated by budget amounts within the funding model and are to be finalised without exceeding these allocations. A separate report specifically on the Stage 1 funding model is included within this meeting agenda.

RISK IMPLICATIONS

Tasmanian based law firm Page Seager were engaged as probity advisors to oversee the tender process and minimise process risk. Legal advice will be obtained to ensure Council’s interests are protected in finalising the terms and conditions of the construction contract. Council has partnered with P+i to ensure the involvement and advice of personnel with experience in major infrastructure procurement.

CONCLUSION

Following an extensive tender process it is recommended that Council appoint Fairbrother Pty Ltd as its Preferred Contractor for LIVING CITY Stage 1. Negotiations should commence immediately to finalise a GMP construction contract which achieves the project objectives. These negotiations should include the determination of a suitable early works package to allow on site works to commence as soon as possible.

ATTACHMENTS 1.

160211 Construction RFT Evaluation

Confidential

Living City - Stage 1 - Probity sign-off letter 8 March 2016

Confidential

RECOMMENDATION That Council receive the report regarding LIVING CITY Stage 1 construction tender and: 1.

note the advice provided by Council’s probity advisors, Page Seager Lawyers;

appoint Fairbrother Pty Ltd as its Preferred Contractor;

authorise negotiations to be entered into with Fairbrother as part of a value management process to establish a suitable construction contract which aligns with Council’s adopted funding model, adopted Stage 1 design and approved statutory approvals;

note that a further report will be provided prior to the execution of a construction contract;

authorise the General Manager to negotiate an early works package to allow on site construction to commence prior to full contract execution; and

note the relocation of the Council offices to 17 Fenton Way is to now commence.

Author: Position:

Matthew Atkins Deputy General Manager

Endorsed By: Position:

ITEM 3.2

Paul West General Manager

PAGE 140 special Council meeting Agenda 15 March 2016

4.0

CLOSURE

There being no further business the Mayor declared the meeting closed at <insert time> pm.