Do the maths on stadium costs

Where is the Dunedin City Council with its budget and how much the stadium is costing the council and ratepayers? The deputy chairman of the finance committee, Cr Richard Thomson, explains the official council view while council critic Calvin Oaten adds up all the costs as he sees them.

Calvin Oaten and I can agree on one thing anyway. Neither of us thought Forsyth Barr Stadium was a good idea and both of us thought it would cost ratepayers far more than the mythical $66 a year. Blimey, that's two things. Unfortunately, from there it gets a bit more discordant. I mightn't have thought the financial analysis that justified the stadium proceeding stood very close analysis, but I'm afraid neither does the accounting in Calvin's opinion piece.

Let's just get a few disclaimers out first.

To all those people who said it would cost ratepayers far more than its proponents promised. You are correct.

To all those people who said it could not make a profit without further subsidies. You are correct.

There we are. No need to argue with me. I surrender up front.

But there is another self evident truth. It's there now.

I recently attempted to explain in theĀ ODT's online columns why ratepayers were better off paying more to keep the stadium open than they would be if they closed it (as numerous people keep telling me should occur). This resulted in responses that could wound a more sensitive soul. Indeed, Calvin Oaten said (of me): ''I am not sure where he learned his maths, but it sure as hell shows what intellect is around that council table.''

I may be wrong of course, but I don't think he was being complimentary about the intellect thing. So let me have another go.

It is proposed that Dunedin ratepayers will contribute roughly $9.125 million a year in real costs to them in 2013-14, made up of. -

Dividend forgone from DCHL: $5.25 million.

Additional debt repayment: $2.725 million (compared to what was originally promised).

DVL service level agreement: $0.75 million (either a payment to enable more community usage or a further ratepayer subsidy depending on point of view).

Events Attraction Fund: $0.40 million (not a direct stadium cost but only proposed because of it).

Calvin argues that it is much more than this: ''The decision by council to purchase shares in DVML for an amount of $3.381 million ... is a cost to the ratepayer''.

I'm sorry Calvin, but it isn't. The council paid this money several years ago. Converting it to shares has no cash flow impact (which is what ratepayers fund). ''The stadium's rated value is $1.8 million and only $134,000 is being charged. A subsidy of $1.66 million.''

Well, he is correct that the stadium, if rated as a normal commercial activity, would have generated a rate of $1.8 million. But he is incorrect to imply that somehow ratepayers are worse off by $1.66 million. Council decided to rate the stadium based on the rates it received from the properties that previously occupied the site.

The net impact to ratepayers is therefore zero. If you dislike the stadium, you will evidence that as a further indication that it cannot pay its way as a commercial entity. Fair enough. I agree with you. Your argument, Calvin, is presumably that if it was paying a commercial rate then ratepayers would be receiving more revenue and that would offset rates.

Again, fair enough. But you can't have it both ways. That $1.66 million would not have been there if it hadn't been built either. Calvin goes on to argue that the losses in DVL (the entity owning the stadium) are large and likely to be ongoing. Again, he is correct, but his implication that this is a further cost to the ratepayer is not so. DVL's losses are contributed to substantially by depreciation.

For non accountants, this is an allowance that companies make for the reduction in value of their plant over time. There is no actual cash paid out. DVL's role is to own the stadium, collect the rent, and use it (plus the monies provided from the figures given in the first leg, at left) to pay the mortgage on the stadium.

What the ratepayer needs to be concerned about is that the cash coming in is sufficient to pay the interest and loans going out. If it was also to fund the depreciation then that would simply mean DVL was building up large sums of money in the bank (not something that I think ratepayers want) or it was paying loans off faster (but at an additional cost to ratepayers).

The ORFU debt write-off had nothing to do with the stadium. You might be able to mount an argument that the Carisbrook holding costs are stadium related, but you would also have to then factor back in the Carisbrook costs now avoided since its closure. These are complete red herrings.

So, what would happen if we closed it? DVML collects revenue (around $9 million) and pays its fixed costs including the rent ($4 million) out of this. It is this rent which allows DVL to pay off the loans (with the other ratepayer assistance outlined above). If you close it down, you do not remove any of the costs in DVL.

They still have the stadium loans and interest to pay but they do not have $4 million rent from DVML. We would be able to remove council funding of DVML ($750,000 for the community usage/subsidy) and the events fund ($400,000). On the other hand, council would have to put Carisbrook back into operation. Let's use Calvin's figure of $450,000 per annum holding costs as an ongoing expense. Adding the pluses and minuses we are now about $3.3 million worse off per annum before any net operating costs of putting Carisbrook back into operation.

That's roughly a 3% additional rates increase through closing it. But, what if DVML can't pay the rent? Fair question. Even if revenue dropped by $3 million (an extraordinary amount), we would only be at the cost neutral point and still have the benefits the stadium brings. So, hate it if you like. By all means continue to argue that it was an unwise decision. Make the valid point that the real costs to ratepayers are much greater than they were promised.

But at least do the maths.

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