Walter Taylor South Action Group Inc. Protecting the Streetscapes

The following is the text of Queensland Treasury's reply to BCC's funding request.
 
Queensland Government Treasury
Our Reference: TRX-13277
 
20-Jul-2010
 
Mr G Evans
Chief Financial Officer
Brisbane City Council
GPO Box 1434
BRISBANE QLD 4001
 
Dear Mr Evans,
 
I refer to your letter dated 22 June 2010 seeking approval to enter into a long term sale and leaseback arrangement associated with the development of the proposed Sherwood Road Bus Depot (the depot).
 
I have granted specific approval, under the Statutory bodies Financial Arrangements Act 1982 (SBFA Act), for the Brisbane City Council (BCC) to enter into a lease arrangement for the sale and leaseback associated with the development of the Sherwood Road Bus Depot and have approved a finance lease limit of up to $64 million with respect to the project.
 
I have exercised the operative Treasurer's powers under the SBFA Act in accordance with a delegation executed by the then Treasurer under section 76 of that Act on 23 March 2006.
 
This approval is provided on the basis of supporting documentation provided by BCC and relates only to the proposed financial arrangement not the policy rationale for the depot.
 
In providing this approval, I would advise that both Treasury and Queensland Treasury Corporation (QTC) are of the view that, had BCC consulted on this matter prior to seeking SBFA Act approval for the proposed transaction, it is likely that a better value for money solution to deliverying the depot could have been achieved.
 
Accordingly, prior to BCC proceeding with the proposed sale and leaseback arrangement, I would strongly urge BCC to consult QTC on alternative approaches to delivering the depot.
 
It is also my clear expectation that QTC will be consulted on any financing arrangements prior to BCC seeking any future SBFA Act approvals.
 
I also note that, while the depot is specifically referenced in the current transport service agreement between BCC and the TransLink Transit Authority (TTA) and discussions concerning the depot are ongoing between BCC and TTA, at this point, there is no funding agreement in place between the BCC and the TTA in relation to the depot.
 
In the absence of a funding agreement between TTA and the BCC in relation to the depot, the BCC bears the lease funding risks associated with proceeding with the construction of the depot.
 
In accordance with the Policy Guidelines, Leasing in the Queensland Public Sector, State Borrowing Program approval is required for a transaction of this nature.  Therefore, I have approved a variation to the 2010-11 State Borrowing Program to include this sale and leaseback arrangement.
 
Yours sincerely,
Gerard Bradley
Under Treasurer

 The Treasury's comments on the Sherwood Bus Depot deal makes one wonder if there is more to the Council's deal than we have been able to unearth.  Keep at it Nicole! Y.Bursle

I'm even more enraged about the Sherwood Bus Depot - after Milton get a $40m park for the conversion of the old Tennis site.  Although it does seem it was done under suspicious grounds....   Seems all Mr. Campbells dealings have something in common - suspicious.
Funny I put the same comment on the bottom of this Brisbane Times  article about the suspicious circumstances of the Milton $40m park - My comments were there for a day and now I see they have been removed. 
http://www.brisbanetimes.com.au/queensland/milton-park-decision-suspicious-20100803-115as.html?comments=24#comments
 
 

Councillor SUTTON:

At the outset, I’d like to note that I am speaking from the updated reports that were provided to us from the Town Clerk, after I queried what information in these reports was in fact commercial in confidence.

And I would like to place on record my thanks to Mr Ian Maynard, the acting CEO of Brisbane City Council, and Mr Peter Rule, the Acting Town Clerk of Brisbane City Council, for their assistance in getting those answers to me, so that we can have this debate in here today on this very important issue.

The Establishment and Coordination Committee approved the purchase of land at Sherwood for a bus depot on 16 June. And since then, there have been many, many issues associated with this location that have been chronicled in this Chamber, issues that have been raised by the Labor councillors in this place, issues that have been raised by the local councillor, Councillor Nicole JOHNSTON, the Councillor for Tennyson Ward, both in her capacity as a former LNP councillor, and now as a Liberal independent councillor.

We’ve previously heard about the poor community consultation, the traffic impacts on the local area and the amenity issues associated with the bus depot in—

LORD MAYOR: Point of order, Madam Chairman.

Chairman: Point of order.

Councillor SUTTON: So I’m not going to delve into this today.

LORD MAYOR: Point of order, Madam Chairman.

Councillor SUTTON: If I can just finish my sentence.

Councillor SUTTON:

I’ve finished the sentence. And I’m pleased, Madam Chair, and thank you for allowing me to finish my sentence before taking the LORD MAYOR’s point of order, because I was in fact doing exactly what he wanted me to do.

Because what I want to focus on today is the poor and reckless financial management of this Council Administration in deciding to enter into a sale and lease-back contract and this particular sale and lease-back contract.

I have put my opposition to these types of money-making schemes on the record in the past, when we debated the sell-off of our iconic CityCats. And this arrangement is no different to that. We believe it is short-term gain for long-term pain and not in the best long-term financial interests of our city.

As part of the contract, Council will receive an upfront cash injection of $63.5 million. But here’s the catch. Every year, for the next 25 years, Brisbane ratepayers will be forking out $4.3 million per year at a 3.5 per cent increase per annum. This means that Brisbane residents will be paying over $107 million for the use of this bus depot. And that’s without adding any annual increases of 3.5 per cent at all.

And when you do add in the 3.5 per cent interest increases, the figures get a whole lot worse. The total cost of this lease for that contract, over 25 years, will be a whopping $168 million. That means that ratepayers will lose over $100 million because of this contract. And if that’s not poor and reckless financial management, I don’t know what is.

But don’t just take my word for it. Let’s see what Mr Gerard Bradley, the Under Treasurer of the Queensland Government’s Treasury, had to say about this issue. And I quote from his letter, which was obtained from the file today.

What Mr Bradley says is, and I quote from his letter, in providing this approval, because the Treasury had to approve the financing arrangements, Mr Bradley was very clear. He said, in providing this approval, “I would advise that both Treasury and Queensland Treasury Corporation are of the view that, had BCC consulted with QTC on this matter prior to seeking statutory bodies financial
arrangements at approval, for the proposed transaction, it is likely that a better value for money solution to delivering this depot could have been achieved.”

I say that again, in the words of Mr Gerard Bradley, the under treasurer, he has said that it is likely a better value for money solution to delivering the depot could have been achieved, had BCC consulted first with Queensland Treasury Corporation.

The LORD MAYOR has made this decision simply to get his hands on some quick cash. But now, it’s going to cost this Council a lot more money in the long-term. So in a few years time, when the LORD MAYOR has tired of his role, he’ll be skipping out, no doubt to some lucrative contract in the private sector, and leaving Brisbane ratepayers with a huge bill to cover for the next 25 years.

The LORD MAYOR’s actions are akin to him asking to borrow a stereo, then nicking out to flog it off at the local pawn shop and leaving residents to foot a hugely inflated bill to get that stereo back. You wouldn't trust a friend who did that to you. And the residents shouldn't trust this LORD MAYOR either.

This is a bad deal for ratepayers and nothing more than an opportunistic grab for cash. The LORD MAYOR’s dodgy deal will cost this city over $100 million more than the upfront cash injection of $65 million that we’re getting today. And that’s a bad deal in anyone’s language.

Labor councillors will not support this poor and reckless financial management. In fact, we condemn the LORD MAYOR and the LNP Administration for it. This is not in the interests of Brisbane ratepayers and it deserves to be treated as such.

Moving onto item E now, Madam Chair...

Chairman: Further debate? Councillor SCHRINNER.

Councillor SCHRINNER:

Madam Chairman, I rise to talk about item D, the Sherwood Bus Depot and entering into the contract for the construction of the depot and the sale and lease-back arrangement.

It is quite obvious that Councillor FLESSER wrote that speech for Councillor SUTTON, because there was a lack of understanding of how this arrangement operates a basic and fundamental lack of understanding of the numbers that we see in front of us.

Essentially, Madam Chairman, we have implemented an arrangement which is a public-private partnership. And we have done that because we believe that it delivers innovation, it harnesses the competitive tension in the market and it also helps to divest Council of risk.

Now this is a very important point and a crucial point. We know that the State Government, and in particular certain departments of the State Government, has an ideological view on public-private partnerships. They do not like public-private partnerships. We have seen that evidenced in the letter that we received from the Queensland Treasury.

Madam Chairman, though, we believe that there is a place for public-private partnerships. Now when there is a competitive market, as there is in the construction of this bus depot, public-private partnerships can deliver significant advantages to council.

Now Councillor SUTTON read out a letter from the Under Treasurer and she quoted specifically from that letter. What she didn’t do is read out a letter that was written in response to the Under Treasurer’s letter from the acting CEO, Ian Maynard.

And I believe it’s important to put that response on the record, because it deals with the issues that were raised in the Under Treasurer’s letter. So the letter, which is dated yesterday’s date, from the CEO, refers to the letter from Mr Bradley.

And it says, and I quote, “with respect to the approval of the sale on lease-back arrangement for the Sherwood bus depot, your letter did not acknowledge that Council’s procurement process achieved a $12 million reduction in construction cost, nor the fact that Council did not want to own the facility.

“Council has had to weigh up a number of options in coming up with its preferred approach. This included the need to urgently build two new bus depots to accommodate the number of buses required to meet the strong growth in bus patronage.

“In addition, the chosen option resulted in a significantly lower project cost resulting from innovative design and construction methods. Further, due to the uncertainty of future TransLink service funding, this option allowed Council to divest ratepayers of asset risk while still retaining control of the depot over 25 years.”

So essentially, Madam Chairman, this deal will save Council at least $12 million. That is the first part of it. But the most important part of it is the savings and the risk minimisation which this deal brings.

Essentially, we have a situation where, if the construction cost of this depot is higher, due to unforeseen circumstances, than what is expected here in this deal, the private sector wears the risk. Now Labor is being very inconsistent in their approach because they said it’s okay to do a PPP with Northern Link.

We heard them come in here and say do a PPP with Northern Link so that someone else wears the risk. Yet when it comes to building a bus depot, they don’t want a PPP. They want Council to wear the risk. That’s exactly what they’re saying. It’s a fundamental flaw in their argument and it shows they do not understand the documents in front of them.

Now the mention of the $63 million that Councillor SUTTON referred to, once again is a misunderstanding of the document. That figure refers to the net present value of the deal. Now the net present value essentially takes—it compares the value of this project in today’s dollars and takes into account the future value of those dollars and also takes into account inflation and returns.

So we’re talking about a real picture of the cost of this bus depot. We’re not talking about the cash payment that Council receives. We’re not talking about the 107 million that Councillor SUTTON referred to. Essentially, by doing that crude calculation that she did, which was 107 million or even another figure of 168 million, those figures are completely wrong and they’re false. The true cost of this bus depot, in a net present value term, is 63 million.

But look, essentially, when you look at this bus depot, there are a couple of things you need to take into account. Number one, we’re building this bus depot because we’re putting more buses on the road. There is a strong need for it and there is an urgent need for it.

Now we could talk to the QTC and TransLink about a suitable funding arrangement until we’re long in the tooth and old and grey. We all remember how long it took to get the 3G (Third Generation) Contract signed. We all know how long those negotiations took.

We need to get moving with this project. We need places to park buses, so that we can put new services on. And we cannot afford to mess around. We’ve got to get going. We’ve got a date that we need to get this bus depot operational by, because we know that we’re putting 500 buses on the road this term and we need places to park them. So time is a factor here. We need to get on with the job.We’ve done it in such a way that involves the private sector taking the risk of construction, which is a very important risk. I mean, we know, from past experiences, that projects, particularly when they’re managed by Labor, can sometimes cost a lot more than they budgeted for.

Now in this case, that is a significant risk. Construction is always a risk that we should be concerned about. And we have implemented a contract which will help to manage that risk. Private sector will wear that risk. Council has certainty going forward. And that is a very important point. So we know we’ve got
certainty in the construction costs and the cost to council. There’s a fixed amount going forward and there are no variations to that amount, unless we specifically ask for a variation.

So Madam Chairman, this is a sound deal. It is a sensible deal. It is one that gives Council security and, Madam Chairman, Labor clearly does not understand the documents they’re looking at. They are talking about numbers which they have just calculated on the back of an envelope, which aren’t accurate numbers. They don’t show the true net present value of this project and the costs indeed that they have claimed are quite false, Madam Chairman.

The important thing that councillors should be aware of is that this contract will see the construction of a bus depot which is $12 million cheaper than an equivalent bus depot out at Willawong. Now we know, with Willawong being the last bus depot we constructed, that the cost of such a facility is quite significant.

And as a result of the competitive tension and private sector involvement, we’ve been able to reduce the cost compared with Willawong by around $12 million. That is a positive outcome for the ratepayers. And it is a sensible thing to do.

Now if Councillor SUTTON wants to talk about grabbing the cash and then having ongoing payments for a long time, she would know, because her Labor colleagues sold the Brisbane Administration Centre for $35 million and now we are paying $15 or $16 million a year in rent in Brisbane Square.

So they’re happy to do it when it suits them. They’re unhappy to do it when it suits me. And then they’re quite happy to criticise someone else for making a much more sensible decision with this bus depot than they ever made when they were in.

And they didn’t build any bus depots because they never bought any buses. They couldn't manage it. And so there was no need for them to build bus depots. We’re taking a proactive approach. We’re getting on with the job. We’ve negotiated a deal which gives certainty to Council. It sees the private sector sharing the risk or taking the risk. And it is a positive outcome for the ratepayers of Brisbane.

Chairman: Councillor DICK.

Councillor DICK:

Thanks, Madam Chair. And I rise to enter the debate to discuss item D. When of course this decision was made in secret, behind closed doors. And of course, we’re only noting this decision today. And we know, with all the confected outrage today, when we hit a raw nerve, with all the nonsense and all the spurious arguments, because the Administration, despite the record spin from Councillor SCHRINNER, what this is going to be is a record cost of a bus depot for the people of Brisbane.

You can’t run away from the fact, Councillor SCHRINNER. The LORD MAYOR wanted to grab the $63 million because he was short of cash. He was short of cash. So he grabbed this deal. And you know what? He won’t be here when ratepayers are paying back the depot cost of $107 million. That’s how much the ratepayers are going to pay for this bus depot. Let’s not have anymore nonsense from Councillor SCHRINNER.

And I note, and I’m going to read out what the Queensland Government said about this. I’m going to read it into the transcript. Because this is the proof. This is the proof. In the letter, dated 20 July, from the Under Treasurer. This is what he said:

“In providing this approval, I would advise that both Treasury and Queensland Treasury Corporation, QTC, are of the view that, had Brisbane City Council consulted QTC on this matter, prior to seeking SBFA Act approval for the proposed transaction, it is likely that a better value for money solution to delivering the depot could have been achieved.

“Accordingly, prior to BCC proceeding with the proposed sale and lease-back arrangement, I would strongly argue BCC consult QTC on alternative approaches to delivering the depot.”

Now why didn’t they do that? Why didn’t they take that advice? Because it wouldn't give them the cash straight up. So Councillor de WIT better get up on her speech and explain why she’s supporting this, because we know that the entire Sherwood Bus Depot is a debacle for this administration. Not only is it not supported by the community, we now see that it’s a huge financial risk for the people of Brisbane.

Well Labor councillors won’t stand for it. We won’t sit by while this
administration squanders the money for the next generations for our city. We won’t sit by and allow this LORD MAYOR to grab the cash for a project that provides huge amounts of risk for the people of Brisbane.

What I want from Councillor de WIT and her contribution to today’s debate is to outline, very publicly, and I challenge her today to table the alternate financial mechanisms which she reviewed in determining this outcome. What were the financial alternatives to financing this bus depot? Provide the information,
Councillor de WIT, of why you are supporting this sort of financing.

But Madam Chairman, I bet you a dollar that they won’t actually table that advice, because that advice would show there are other alternative mechanisms of financing this that wouldn't provide the ratepayers with a $107 million debt. That’s what they’re going to be left with.

This is not acceptable to the ratepayers of Brisbane. Not only is it
overwhelmingly not supported by ratepayers, we now know that they’re going to be left with a hefty bill. The LORD MAYOR will sail off into the sunset and meanwhile, each year, the meter keeps ticking over. Each year, the meter keeps ticking over for the next 25 years, at around four to five million dollars per year;
that will be ripped out of the ratepayers’ pockets of Brisbane, to leave us with a bill of $168 million.

This is a nonsense. I mean, give me a break. Talk about financial irresponsibility. Talk about financial reckless management. The people of Brisbane, when they hear about this, will be disgusted about how this administration is handling this bus depot.

They know there were alternative sites for this bus depot. We know that there was alternative economic modelling done. Today my challenge is to Councillor de WIT to release that economic modelling, to show what could have been done instead of this massive risky proposition that the LORD MAYOR is now shoving down the people of Brisbane.

 LORD MAYOR:

....

Which leads very nicely, Madam Chairman, to the issue of the financial transaction for the Sherwood Road bus depot. Well, they talk a lot this afternoon about somehow that we sell something and then we have to pay all this money in years to come.

Well they then called for alternative financial sort of options to be viewed. Well, they were looked at. And what Mr Bradley was saying is, look, he was saying essentially borrow 60 million bucks from us and pay us - well let’s work it out very quickly. Mental arithmetic time. Even Councillor FLESSER can do this.
Work with me, work with me, councillors.

Seven per cent interest on 60 million bucks, $4.2 million in interest a year. So, Mr Bradley was saying borrow $60 million from us and pay $4.2 million in interest, every year for the next 25 years. You know, those are big numbers, big, scary numbers too, Madam Chairman.

But the point that the Labor Party missed - well there are a few points they missed - was that the TransLink Transit Authority will be prepared to pay some of these lease fees and that is a matter for negotiation as contained in the 3G contract.

So, look, again, spurious Flesser-nomics. I reckon Councillor FLESSER must have written the Leader of the Opposition’s speech. So, we’ve got that aspect. You’ve got to compare apples with apples. If you are going to borrow money and pay for a bus depot, you have to pay interest fees. If you do a sale on lease-
back you have to pay lease or rental fees.

Anything, Madam Chairman, it’s been evaluated. And the point is that our officials don’t agree with Mr Bradley. While I’ve got every respect for him, I note he’s a key advisor for say the sell-off of state assets. I know he’s an advisor, a key principle advisor, to the Treasurer and the Premier to sell off Queensland Rail and to sell off the plantations, to sell off Queensland Motorways, to sell off a whole variety of state assets.

I’m sure he’s doing a good job in advising about the sell-off of state assets. And no doubt, the Deputy Chief of Staff to the Premier would see briefs that come in from Mr Bradley and go yes, yes, that’s great. We’re going to sell these assets.

But, Madam Chairman, we do not agree. The state treasury people have, in this case, missed the point. By the way, people in QTC (Queensland Treasury Corporation) do have a bit of a conflict of interest. They want to lend money to customers like the BCC and other local governments and state GOCs (government owned corporations), state GOCs.

.....

We had Councillor DICK in his puffed up sort of manner, as usual, carrying on about secrecy, thundering about it all. Guess what? Through you, Madam Chairman, guess what for Councillor DICK? You know what? We chose to bring this paper to the Chamber.

We wanted Councillor JOHNSTON to have the opportunity to comment on it today. Unfortunately, through her own actions, she wasn’t here to have that opportunity to discuss it. But guess what, Madam Chairman? Well, if they want to listen, Madam Chairman, they’d worked something out.

Councillor DICK would actually learn something. Well, if he doesn’t want to learn, it’s because he’s on his way to greater places, like the state or federal scene. No doubt there could be some opportunities coming up on the federal scene for the - I don't know, 2013 election or something, ’12, ’13.

But Madam Chairman, the point is that Councillor DICK missed this was within the delegation of Civic Cabinet. It was within their delegation. It didn’t even have to come here. We could have signed off on it, but we brought it here, so Councillor DICK could give his poncy speech. I withdraw that too, Madam Chairman. And we could let Councillor JOHNSTON have the opportunity to have her usual say.

Madam Chairman, this is a great proposal. More importantly, what it’s doing is expanding our bus fleet, expanding the infrastructure, providing a better service to people in Brisbane.

Clause D
Upon being submitted to the Chamber by the Chairman, the motion for Clause D of the Establishment and Coordination Committee information report was declared carried on the voices.

Thereupon, Councillor Milton DICK and Councillor Victoria NEWTON immediately rose and called for a division, which resulted in the motion being declared carried

The voting was as follows:

AYES: 15 -
The Right Honourable the LORD MAYOR, Councillor Campbell NEWMAN, DEPUTY MAYOR, Councillor Graham QUIRK, and Councillors Krista ADAMS, Matthew BOURKE, Amanda COOPER, Margaret de WIT, Fiona KING, Geraldine KNAPP, Peter MATIC, Ian McKENZIE, David McLACHLAN, Angela OWEN-TAYLOR, Adrian SCHRINNER, Andrew WINES, and
Norm WYNDHAM.

NOES: 10 -
The Leader of the Opposition, Councillor Shayne SUTTON, and Councillors Helen ABRAHAMS, John CAMPBELL, Peter CUMMING, Milton DICK, Kim FLESSER, Steve GRIFFITHS, David HINCHLIFFE, Gail MacPHERSON, and Victoria NEWTON.