City of South Perth staff urge council to drop ‘unviable’ recreation and aquatic facility project

City of South Perth administration staff are calling on the council to abandon the construction of a leisure and water facility because it is “not viable”.

City chief executive Mike Bradford was tasked by the council in November last year to deliver the RAF at Collier Park golf course through three “independent and financially viable” stages, with the start of each stage subject to approval of the council.

Mr Bradford was also told to update the city’s funding strategies to reflect the phased approach, to continue to advocate funding arrangements with the State Government and other potential partners for all three phases, and the financial impact of phase 1 on the city detailing its finances.

His report was requested to come back to the council no later than March this year.

D-Day arrived and a detailed feasibility report for the first phase of the project deemed it would have a catastrophic effect on the city’s coffers.

The report said foreseeable issues include increased pressure on project costs, higher cost of borrowing for the city and the operator, potential impact on rates to support operating costs and any delays during construction, and a capital funding shortfall.

Based on these findings, city staff recommended that the council decide at a special council meeting Thursday to abandon the POF project altogether.

“The combined impact of delayed decision-making on the RAF project, escalation in the WA construction market and sustained interest rate rises over the past 10 months have had a serious impact on the ability of RAF phase one to meet the council’s objectives,” a city report said.

Staff also recommended that Mr. Bradford tells the state and federal governments and other project partners that the RAF project is no longer considered viable without addressing the capital funding shortfall and projected operating costs.

Phase one will include the construction of an indoor aquatics center with an eight-lane 25m indoor heated pool, the establishment of a health club and gymnasium, a virtual golf course with a hospitality venue, café and function facilities.

In November, the city estimated the first phase would cost between $45 million and $60 million, which would be covered by a $20m Federal Government grant and the city’s $20m contribution.

But the cost has now been blown out to an estimated $62.1 million.

The report also warned that any delays beyond the May 2024 construction date would increase the total project cost by $300,000 per month.

It said the budget for phase 1 would need to be between $70 million and $75 million for the city to “responsibly manage risks”.

Camera icon a concept design for the City of South Perth’s recreation and aquatics facility. Credit: City of South Perth

“Assuming the total project budget is increased to approximately $70 to 75 million, a capital funding shortfall exists,” a city report said.

“Currently only $43 million has been secured with $20 million each from the city and federal government combined, with a potential $3 million from Curtin University.

“Potential operators have indicated a willingness to make a capital contribution of up to $15 million, subject to more generous terms such as increased tenure and further due diligence.”

The report also warned that the cost of borrowing has soared from 7 percent in 2020 to an estimated 12 percent or more.

“The cost of borrowing as a result of the Reserve Bank increases in interest rates over the past 10 months has had a significant impact on the viability of the RAF project,” it said.

There is also doubt as to whether the facility will generate financial returns of 7 to 8 percent.

“For the operator to achieve these returns, the city would have to assume and finance a potential operating deficit of approximately $1 to $1.5 million per year – on the current rate base, this represents between 2.5 percent and 3.5 percent of city tax revenue ,” the report reads.

The state government notified the city in January this year that no final decision had been made on its request for $20 million. This request is only linked to indoor playing fields for phase 2.

“It is unlikely that any significant funding for either RAF phase 1 or 2 will be in the coming state government budget cycles,” the city report said.

Camera Icon Concept Design of City of South Perth Recreation and Aquatic Facility Credit: City of South Perth

“The city does have the option to significantly increase the city’s contribution to address the shortfall.

“However, given the cost of borrowing and the opportunity cost of lost interest for using reserve funds, this is considered a particularly risky strategy and is therefore not considered a viable option, leaving very limited alternative financing options for RAF phase one late. .”

Phase two of the RAF is proposed to include the redevelopment of Collier Park Golf Course, including converting the Lakes 9 Course to a short-form golf format. The city hopes this stage will be covered by state government funding.

The final stage of the project proposed the inclusion of a 50m outdoor swimming pool, but the city recommends its removal as the financial and operational viability of RAF stage 1 would be further impaired by its inclusion and increase annual operating losses.

“The inclusion of a 50 million pool will require an additional capital investment of $5 to $8 million, in addition to the total project cost of $70 to 75 million proposed by the city for the first phase of the RAF,” the statement said.

“Additional capital will have to be sought through increased borrowing and or external sources, with the latter highly unlikely.”

The report acknowledged there would be “widespread disappointment” among the community and significant gaps in community, sports and leisure infrastructure across the city if the project was abandoned.

It recommends that the council ask the federal government if it can keep the $5.5 million it has already received for the project and use it to improve facilities for women’s sports.