Derby City Council

Assembly Rooms : Council uses inflated benefit figures in D2N2 funding bid to massage its business case.

Derby News’ article on January 2019 “Assembly Rooms: Is the Council’s ‘Refurbished’ option really Value for Money?” concluded, based on leaked documents, that the Conservative Council’s preferred option of a Refurbished Assembly would be around 25% more expensive over a 20 year period than the New Performance venue. This was largely due to the fact that the Refurbished option runs at an annual loss, whereas the New venue would generate a recurring profit.

A document recently presented to D2N2 ( Local Enterprise Partnership) to support the request for £4.5m funding implicitly supports this earlier conclusion.

The document states with respect to the Refurbished option,

Ongoing deficit created by venue – Once redeveloped and reopened, the Assembly Rooms will operate at a loss.”

The total loss of the project is £27.2m (discounted) – this is exactly the same as the Derby News calculation in Jan 2019  (The New Assembly Rooms loss in comparison would be ~£20m)

Yet the headline cumulative profit, over time was shown to D2N2 as £108m.

Why is there such a massive difference?

The £27.2m is the direct loss to the Council, and impact on the Council taxpayer. This has been embellished by £135m of indirect benefits, These being:

  • 784 additional jobs will be created generating ~ £35m of the saving. However 532 of these jobs are construction and will only be for the life of the project – the on-going benefit is nearer £10m
  • The remaining £100m benefit comes from, a combination of (unquantified):
    • The residual value of the building
    • Land value uplift
    • Business rates increase due to more businesses on site
    • Social benefit of reduced crime and anti-social behaviour.

Of course, all of these benefits, and more, will also accrue to the New Performance Venue option business case, thus making the Refurbished option less attractive.

Comment

The D2N2 document doesn’t examine the New Performance Venue business case. It does recognise that its strength would be “Scope for iconic new design”. Something to attract more visitors to the City? But the weaknesses are “Most costly and timely option Goes against local objective to reopen venue ASAP .Securing capital”. On this basis the option was summarily rejected.

And therein lies the issue….politics.

The Council is proceeding with a Refurbished Assembly Rooms because it was a manifesto commitment despite:

  • It costing £14m more than the original plan of £10m
  • Being late to the original plan by at least 1 year
  • The overall business case being less favourable (as against a New Performance venue) to the City, regardless of the basis of calculation.
  • Senior Council Officers fundamentally disagreeing with the policy and “force fitting” a business case to justify a worse position
  • Business leaders being against it.

But it saves the political embarrassment of changing track.

The real case needs to be flattered by £135m of questionable benefits to make it look compelling.

Only time will tell whether D2N2 feel that they were hood-winked by the hyper-inflated benefit numbers and then realise that they had only been given half the story!

 

 

Categories: Derby City Council

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