The award-winning, $65 million Bay Pavilions is a great community asset, with pools, a theatre and cultural centre. The only trouble is, since opening in June 2022 the running cost has proved crippling for the council. Current projections are for a $5 million loss this year.
To be fair, the burden has fallen on the shoulders of a new general manager who had nothing to do with the flawed decision making that led to the overreach of a medium sized country council lured by grant money into building the state-of-the-art centre. The problems were spelt out in detail in a KPMG report to council in late June. They detailed poor business case planning and overly optimistic projections of usage. After looking at the first nine months of operation they told council that on average, and after all revenues were accounted, every time a user walked in the door it cost council $6.10.
A Money Pit
Running the Pav has turned out to be a money pit for council. Council’s September report says the cash spent by on the Pav by council in the last quarter was $804,282 or $61,867 a week. Left unchecked, ratepayers will pump over $3 million in cash into the Pav for the full year. Depreciation is extra – add that and it pushes the annual loss above $5 million.
What else could $3 million in cash buy? Well, it could cover the total urban roads resealing program for the year and still leave $1 million in change.
Turning It Around
The new GM and council are fully aware of the problem in front of them. They know it’s not sustainable and have already cut items from the budget that were going to be delivered to the community to cover the costs of the Pav. The consultants, KPMG and InConsult, who have looked at the performance have been clear in their advice – you can’t afford to continue like this. They made specific recommendations to move towards sustainability, so the Moruya Mail followed up with council this week to see how things are progressing.
Renegotiating the Contract
Aligned Leisure, a business of the Richmond Football Club, have a $250,000 contract to operate the centre in 2023-24. The consultants were critical of the contract terms, saying Aligned Leisure have no ‘skin in the game’, no penalties for poor performance and no rewards for improving performance.
Aligned Leisure manage a range of contracts and services on behalf of Council like the cleaning contract and staff. Council has other contracts for electricity and plant maintenance.
“All contracts and costs are under review, including service scope for key deliverables, with the aim of reducing overall operating costs,” said a council spokesperson.
“We are not only reviewing the main Aligned Leisure management contract. We are pursuing reductions and improvements across a range of cost areas and contracts, assessing cost reductions against performance indicators, risk and quality service provision.”
Better Marketing May Help
The consultants also targeted the Marketing and Business Plan drafted by Aligned Leisure and suggested it be adapted to establish realistic marketing and financial targets.
“Aligned Leisure has recently provided an updated Marketing Plan,” said council.
“They have been proactive in responding to Council’s request for additional information regarding the operating budget and the provision of marketing and business promotions.
“However, Council is still awaiting an updated business plan. We anticipate receipt of this early in the new year.”
Finding More Business Partners
Finding other businesses to locate at the Pav to increase revenues was suggested by the consultants. We asked if any action been taken.
Council said their immediate focus is on reducing operating costs, so nothing has been done yet on this more difficult task.
What’s an Acceptable Loss?
The risk assessment from InConsult considered at the October council meeting said “In the absence of Bay Pavilions being able to achieve a positive cashflow and net surplus, Council must set a loss tolerance level and manage the asset accordingly.”
This level is important because the remaining “unacceptable loss” is the target for savings and new revenues.
Most community facilities make a loss, that’s why we pay rates. The old Bay Swimming Pool made a loss, as do community facilities like libraries and sports grounds.
Council did not provide an acceptable loss figure to the Moruya Mail, only saying they will consider the total cost for the Bay Pavilions in relation to the wider budget, reducing costs where possible.
Ratepayers should be told the acceptable loss for the Pav and how the unacceptable loss will be reduced.
So, Can We Afford the Pav?
Council wrestles with this question each time they review the budget. While they are working to cut operating losses, the savings are more likely to be in the hundreds of thousands a year, not the millions we need to cover the losses.
We’ve shown we can afford the Pav as long as other items that have already been identified as community needs are chopped from the council budget. Already this year the council has cut items worth $2.6 million from the budget.
The question really is, now we know the situation, let’s settle in and have the conversation with council about how much the broader community is willing to pay to have the Bay Pavilions.
And if we cannot, or don’t want to, give up everything that’s required to pay for it, how will that problem be solved?