|Playing the numbers game
Wednesday November 22, 2006
Economic Development Minister Trevor Mallard should prepare himself for some tough bargaining on his return to New Zealand tomorrow if he wants his pet waterfront stadium project built.
Figures suggest that the Government should contemplate a more creative funding package for either of the two stadiums on offer.
Particularly when price escalators ranging from 30-50 per cent are applied to the estimated costs of the two projects: Stadium New Zealand ($497 million); and Eden Park ($320-$385 million) - as local officials are doing after consultations with the Ministry for Economic Development.
Add the $120 million cost of appeasing Ports of Auckland (POA) for the loss of its assets and disruption to its business, and, the overall projections swell from $617 million (best case scenario) to $770 million (30 per cent escalator) to $870 million (50 per cent escalator).
Apply those escalators and the debt faced by the Auckland Regional Council/Auckland City Council shareholders (we have yet to know what the precise shareholding make-up will be) could jump from a combined $234 million to the $309-$360 million range (depending on the extent of the stadium overruns) and significantly affect the length of time the proposed $10 hotel bed tax and/or $10 departure fee increase has to run to repay the debt as quickly as possible.
Assuming the taxes are levied from the next financial year - as government officials have proposed - and the viability of the various debt-servicing options gets tricky.
For instance, if a $10 hotel bed tax is applied (and this will only be for Auckland City - not other hotels in the region) it will take 35 years to pay off the $234 million best case option at $16 million a year, once interest and principal payments are taken into account.
The bed tax is just not viable as a debt-servicing mechanism if the project blows out to $309 million/$360 million. The proposed $10 departure tax - assuming it is over and above the current $25 fee - brings in almost twice the hotel tax forecasts. On the upper case scenario it will take 20 years before the council's debt burden can be written off using the $10 targeted departure fee.
These projections are giving members of the Auckland City Council and Auckland Regional Council major headaches as they assess the rival stadiums. Right now ACC expects to pay $50 million towards the waterfront option. Revenue from sponsorship and corporate boxes will also be rolled in and deducted from the $497 million initial forecast.
The Government says it will pay half the remainder and pass laws so the councils can levy bed and airport taxes to fund their half of the remaining debt.
But there has been no offer yet of a Government underwrite for the combined liabilities of the "national" stadium if costs escalate.
Given the limited time available to assess the various options - and strike a commercial deal with Government - it would seem the Labour Cabinet would have little option but to go "tail end" Charlie on the proposal if it opts for the waterfront option - given the huge price sensitivities and cost variables involved.
The Government has made no firm commitment to stump up significant funds for Eden Park. It has only said it will "probably" provide Auckland councils with a new funding mechanism to underwrite the expansion - not an outright commitment. That very loose commitment is making it difficult for the respective councils to adequately assess the Eden Park option - which is obviously in line with the barely disguised massaging of all players away from the traditional grounds of NZ rugby.
At issue is why Auckland City hotels should be the only NZ hotels to stump up the proposed $10/night bed tax for a "national stadium" that is meant to service the whole country. The $10 Auckland departure tax, which is expected to raise $31 million a year, will see New Zealand travellers - who comprise 43 per cent of departures from Auckland International Airport - take a considerable hit.
Major companies affected by the waterfront proposal - POA, which owns the space on which the stadium would be built, and Auckland International Airport, which believes the decision to increase departure taxes to help fund the cost could affect its revenues - are lobbying behind the scenes.
Emails and letters are flying as each company works out how best to protect its financial position - or extract suitable compensation for any damage to business.
The financial implications are just as complex and potentially more controversial for the local body leaders who must decide within the next 48 hours which project gets their vote. The Government costs the waterfront stadium at $497 million: $120 million for piling structures and $377 million for the stadium itself. The rival Eden Park project is costed at up to $385 million. The ports company is stacked with some of NZ's most influential directors. After a meeting this week, the board said it would release land for the stadium if it was at no cost to the company, that it was compensated for all damage to its business, and that any relocation of affected operations could be completed in time so that there was no interruption of services to customers.
POA made its position clear in letters to Mallard and the chief executives of the ARC and ACC last week.
The company - 100 per cent owned by Auckland Regional Holdings, a statutory investment entity accountable to the Auckland Regional Council - provides strong income streams. Figures seen by the Herald suggest a $100 million figure has been discussed in relation to POA with a $20 million "mitigation" sum. But POA warned after its board meeting yesterday that it has received no feasible proposition yet nor any commercial proposal.
Auckland International Airport - which has so far kept its head down publicly - also has plenty at stake.
The AIAL board - chaired by John Maasland - includes Mike Smith, Joan Withers, Tony Frankham and Keith Turner.
AIAL has yet to say much beyond the collective position taken by the tourism sector, "that an airport levy and or a hotel bed tax will have a detrimental affect on NZ's tourism industry".
Unlike POA - which was transferred back into local government ownership and thus subject to politicking - the airport company is publicly listed (Auckland City Council retains a 12.7 per cent stake, Manukau City Council 9.5 per cent). The issue is expected to be centre-stage at the airport company's board meeting next week.
At present, Auckland airport receives $22.22 of the $25 departure fee for upgrading its facilities and baggage screening.
The remaining $2.78 goes to the Government in the form of GST.
The tourism sector believes the Government should introduce an element of user-pays by applying a direct stadium tax - and is concerned there is no sunset clause which will limit the time the proposed bed/departure taxes are in force.
Government officials argue the departure tax is relatively simple to apply.
But local authority analysts say there is a poor nexus between those paying the tax now and those receiving the benefit when the stadium is built and there is a potential that the fee will be strongly opposed by AIAL who will see it as eroding its revenue base.
Other risk factors which the councils have not really had time to assess are: What revenue streams are realistic; how much will come from anchor tenants; how much revenue will come from naming rights and selling corporate boxes; and whether operational expenses can be offset by ticket revenues.
All that can realistically be agreed this week is an "agreement in principle" - on whatever option gets the go - with a taxpayer underwrite until the final details can be hammered through.