Economic Puff Piece – Stadium Costs are Clearly Understated

Mr Perry’s creative accounting and his fanciful conclusions recently published in a double page spread in the Tasmanian Government’s Public Relations Organ, the Mercury, smack of a last-ditch attempt to rescue the stadium debate from the brink of absurdity over which it was teetering in its own response to the TPC’s Integrated Assessment Report. A frantic effort to insert some final ‘quantifiable data’ before surrendering all common sense to “the vibe”.

One of the first questions its release prompted was why did the Coordinator General not make this submission to the TPC? Could the answer be that this analysis is deeply flawed? Did he realise that the TPC would see through this paltry and superficial effort, just as they did with the AEC group’s desk-top analysis commissioned by the HCC, as a similarly transparent attempt to fool the lay person who understands little about the ‘dismal science’ of economic modelling?

The flaws in the Coordinator General’s analysis include that:

1. It is based on the wrong methodology – using input-output modelling, considered by expert economists as inferior to CGE models or full Cost-Benefit analyses, is not recommended by the Australian Bureau of Statistics as it grossly overstates economic impacts.
2. It assumes the main cost is only the annual interest on borrowing $1.13Bn, ignoring other costs and the principal (amount borrowed).
3. It fails to take other cost inputs associated with the team and stadium into account, so overall costs are underestimated, while benefits are overestimated or fabricated. Costs omitted include:
   • Club fees of $12M pa for 12 years in its calculation
   • Maintenance
   • Depreciation
   • Insurance & risk management
   • Services – power, water, communications infrastructure
   • $105M (so far) for the High Performance Centre at Kingborough
   • Ongoing support for regional sports programs
4. It has ignored the substitution effect. It assumes money spent by Tasmanians at stadium events is ‘new’ or extra money – that we’re all suddenly going to be wealthier and have more disposable income to spend on discretionary items rather than simply transferring our spending from current discretionary activities to a night out at the stadium. Or that having eaten out in Hobart after a game, we’ll still be able to afford another night out at our favourite local eatery.
5. It has quoted mostly gross rather than net figures, and double counts some figures – for example the 1,330 extra hotel beds that are forecast to be required in any case, and the extra 254 extra beds required by the stadium and team, are conflated as a benefit to the stadium.
6. It assumes there will be no cost overruns. The average of all the cost overruns in Tasmania’s recent infrastructure projects is 125.7% (see Table 1 below). In other words, on average the cost of 10 projects recently undertaken by the State has more than doubled during their construction period.
7. It allocates the whole Federal grant of $240M to the stadium. On the one hand the Proponent went to great lengths, even hiring ‘independent legal counsel’, to excise all ancillary developments outside the cordon it drew around the walls of the stadium from the purview of the TPC, directing the Commission to specifically ignore them in its considerations. The TPC then sought its own advice in interpreting its orders and when that advice confirmed their original assumptions, continued to include all activities relevant to the operation of the stadium, including the carpark, landscaping, northern access road, and affordable housing, most of which were targetted by Federal funding.
8. It assumes all tax paid by stadium employees goes into state coffers. Income tax is paid to the Commonwealth; the Grants Commission decides how much each state gets back and it’s not necessarily proportional to its contribution.
9. It is based on untested assumptions derived from analogies – Adelaide Oval and OPTUS WA, both of which run operating losses and pay ‘incentives’ to attract events i.e. ongoing costs borne by taxpayers.
10. It lacks methodological transparency – what formulae did he use? How can his results be tested or replicated? Or peer reviewed?
11. It conflates the benefits of having a team with the stadium, assuming that they all accrue from the latter, but fails to include the costs associated with the team (Club fees, HPC and regional sports programs) in the calculations.
12. It fails to consider opportunity costs – the land value that could otherwise be sold for an alternative development on the site, or lost productivity caused by congestion around a significant traffic choke-point in the urban transport network; ‘crowding out’ of other sectors of the economy by such a huge structure as construction workers, heavy vehicles and their drivers, and material supplies are all focussed on the stadium site because the schedule is so tight that the proponent has to pay a surcharge to get the work completed quickly.
13. It prompts further questions: “Where will those 1.13billion ‘$4.97’ go? Into whose pockets? Who will be the main beneficiaries?” Will this be another episode of trickle-down economics whereby the big corporations – the AFL, Broadcast media, Sports betting agencies, airlines, national/international hotel & hospitality chains – will gobble up the lion’s share leaving a few crumbs for local businesses to squabble over?

Basically, it’s a puff piece designed to convince the lay person that a stadium is a magic pudding. That it will generate spending, no-one has denied. Nobody’s ever argued that no income will be generated, just not enough to compensate Tasmanians for our input, and certainly nothing like a 497% return on our investment. Forty-four to fifty-nine cents (the range of results from several CBAs – CI Global, KPMG, Gruen, TPC Panel) is the predicted return on each dollar invested and those cents have to end up in someone’s pockets. The businesses who are championing this report will be the beneficiaries, so their support is pure self-interest. But we’re ALL paying the dollar (up to 2 billion of them and maybe more), so it’s money from the public purse going into mostly private pockets and not just Tasmanian pockets.

What Perry doesn’t do is provide a credible assessment of whether it’s economically justified. That clearly wasn’t his brief.

When Mr Perry says, “a negative decision will have a huge impact on how interstate businesses see and are prepared to invest in Tasmania”, he’s probably right. There are several big corporations currently turning the screws on the Tasmanian government, including Rio Tinto, GFG and foreign owned salmon farming corporations. Perhaps they witnessed just how easy it was for the AFL to bully our hapless Premier into signing a Club Funding Agreement completely biased in the AFL’s favour, so they see the state as a pushover, likely to capitulate to their demands. If the Premier had the courage to call the AFL’s bluff, that might indeed “impact on how interstate businesses see and are prepared to invest in Tasmania.” They might be less likely to see us as fools and hicks, and it might recoup some much-needed respect.

Table 1: Cost Overruns or budget blowouts – 10 recent Tasmanian Infrastructure projects

PAC Testimony and Continued Questions

Since his opinion piece was published, Mr Perry has appeared before the Tasmanian Government’s Public Accounts Committee (PAC) to be questioned by the panel chaired by Ruth Forrest MLC. When the panel pointed to what they perceived as shortcomings in his analysis, he defended his work by brushing off their concerns as ‘not what his model is designed to do’ or irrelevant to his conclusions, including that his exclusion of the principal was deliberate as that’s not what’s done for a “discounted cash flow” in the balance sheet and, really, it need never be paid off. Some of the calculations the panel sought were “too complicated” and he couldn’t present his calculations for peer review but promised to forward them to the Chair at a later date.

Somehow, he has managed to reduce the Government’s input of $1.13Bn (and counting…) to a holding cost of between $45M and $70M – “depending on which assumptions you make”. He did accept that the government would have to ‘find savings’ to pay back the loan. When the Chair asked him if that meant cutting Government spending, he said no, but agreed that savings would have to be found within the state Budget.

Eventually he admitted that he hadn’t tried to make his assessment inclusive of net benefits, that he had deliberately ignored some benefits while excluding other costs, that he had no empirical evidence to support some assertions, and finally concluded that his aim was to present “another way of looking” at the issue. If that was the aim, the question has to be asked whether it might have been less expensive to simply buy a pair of novelty spectacles that turn the viewer’s world upside down.

The CG says he was examining the question of affordability. That was the ‘fundamental point’ that he wanted to make. So, one last question remains, even if we accept everything he says at face value, how much can the ‘holding costs’ increase before this burden of debt becomes too great for the state to bear? Before it becomes unaffordable. Is it $80M per annum? $100M per annum? Or more? Bearing in mind that soon the largest line item in the state’s operational budget will be servicing its debts, how much is too much to add to that?

The Broader Problem: Methodological Failings and Counterfactuals

As with previous analyses that have single-mindedly focussed on a proposed stadium at Mac Point to the exclusion of all other uses, there are logical counterfactuals that Mr Perry’s thesis has ignored. Any activity ‘on the ground’ in Tasmania generates an ‘economic impact’. This fact further exemplifies the pointlessness, in economic terms at least, of applying such a methodology in this way. Any event could provide a counterfactual, as would any other development project on that site.

In 2019, bushfires raged over the peninsula of Dolphin Sands on the east coast of Tasmania. While no homes were lost, residents suffered significant damage to sheds and outbuildings, power infrastructure, roads and vegetation cover. Those fortunate enough to have insurance were compensated for these losses and were able to repair the damage. Over the next 12–18 months significant economic activity was focussed on the peninsula as loss assessors, insurance inspectors, electricians, road makers, builders, landscapers and Landcare groups, plumbers, delivery drivers, building surveyors, and various government instrumentalities including GSB Council, Taswater and Aurora were all involved in reparations. Using Mr Perry’s model, none of this additional economic activity would have happened without the bushfire. Sixty-eight properties each attracting an average of $30,000 in economic activity to return them to their pre-bushfire condition makes the bushfire a $2M+ economic boon! Had the fire been worse, that boon would have been greater. If a few homes had been lost, the economic ‘boon’ would have been in the tens of millions of dollars. Dismal science indeed.

Other counterfactuals include alternative proposals for the Mac Point site. Perhaps we should ask the Coordinator General to cast his eye over these alternative development proposals for Mac point to see how much economic impact he can confect for them. None of the consultant economic analysts has been asked to present a counterfactual using one of these.

Alternative Visions for Macquarie Point

MONA’s Vision

In November 2015, MONA was appointed by the Tasmanian government to shape the public space component of a masterplan to transform a 9.3-hectare former industrial site on Hobart’s waterfront into a dynamic, mixed-use precinct. The team behind the masterplan, which was made public in June 2015, includes John Wardle Architects, 1+2 Architecture, Leigh Woolley Architecture & Urban Design, Inspiring Place, Taylor Cullity Lethlean, Village Well and Navire.

MONA’s proposal, designed by Fender Katsalidis Architects and Rush Wright Associates, centres around a 650-metre-long reconciliation art park, flanked by a dome-shaped building that could be home to a new Tasmanian Aboriginal history centre and living culture centre with a library and education facilities. Other proposed buildings in the development include a contemporary gallery and art space, an Antarctic science and research centre, a produce market, a hotel, residential developments, a conference and exhibition centre, retail facilities, a music bowl and a light rail utilising the existing rail lines.

Reference: MONA’s Vision for Macquarie Point Renewal | Macquarie Point Reset Masterplan 2017–2030

The Macquarie Point Reset Masterplan

In recognising that Mac Point presents a once in a generation opportunity for Hobart and Tasmania, the Tasmanian Government directed the Macquarie Point Development Corporation to reset the vision for the site and prepare a new plan for development based on the Mona vision. It is a planning instrument that marks out land-use zones rather than presenting architectural solutions.

The Masterplan addresses 7 elements of MONA’s vision including recognising the continuous shared history of the Cove that spans more than 40,000 years of continuous occupation; creating a better physical and visual link to the water from the city; celebrating Sullivans Cove as a cultural, artistic and festive focus for the city by establishing a critical mass of art, cultural, science and tourism activity; offering a diverse range of activities for residents and tourists alike, to attract year-round usage; retaining the pedestrian scale that existed during the early settlement of Hobart and providing open and public spaces for connection in what is “one of the world’s finest city landscape settings”. It places the Truth and Reconciliation Art Park at its centre connected by strong pedestrian and cycling links within the site itself and to its surrounds.

Our Place’s Vision

The Macquarie Point Vision is an initiative of Our Place, a group of Tasmanians who wish to see development that benefits Tasmanians, not vested corporate interests. The creative work has been done in partnership with Bence Mulcahy. It includes space for an Indigenous Cultural and Heritage Centre, a Truth & Reconciliation Park, affordable and public housing, headquarters for the Australian Antarctic Division, the State Library, a sustainable urban transport link, and public spaces including a town square and wild swimming basin.

It proposes cost efficient and debt-free staging – a financially intelligent, and economically responsive approach to developing the site that does not saddle future generations of Tasmanians with huge debts.

Its sustainable features include on-site solar power generation, green rooftops, electric charging stations, and a low carbon connection to Greater Hobart in the form of a safe, sustainable, efficient and interesting dedicated pedestrian and cycle way that brings the popular northern suburbs cycle path into the heart of the city.

Reference: Our Place’s Macquarie Point Vision