Tasmanians would bear cost of UTAS folly – $4 billion plus at stake

[NB: I published a second version of this post on 19 August 2023 to include indexation for UTAS’ cost estimate for Sandy Bay redevelopment for the period December 2021 to March 2023 and to provide full consistency with my cost estimate for UTAS’ CBD building program.]

Photo from UTAS’ 2021 application for a Planning Scheme Amendment (see below). Why move?

UTAS relocation would cost $4 billion plus

On 30 June 2023, the Tasmanian Ombudsman decided a second Right to Information (RTI) case in my favour against UTAS – see Robert Hogan and the University of Tasmania.

As a result, on 11 July 2023, UTAS provided access to the entirety of the Southern Future Business Case (SFBC) and its 10 appendices – the basis for the UTAS Council’s decision of 5 April 2019 to relocate the southern campus of UTAS from Sandy Bay to the Hobart CBD.

• For links to the appendices, go to page 68 of the SFBC.

Also on 11 July 2023, under its new so-called Transparency Project, UTAS released a large amount of other material including the 1,935 pages of the Planning Scheme Amendment (PSA) for rezoning of UTAS’ Sandy Bay campus site, which it submitted to the Hobart City Council on 6 December 2021 (the document is provided in six parts under the heading “2019 onwards” and the sub-heading “University of Tasmania Sandy Bay Masterplan”).

I will have a lot more to say about the various documents that have been released in coming weeks, but here I just want to focus on the scale of what UTAS is envisaging with its proposed relocation to the Hobart CBD, and redevelopment of the Sandy Bay campus site, and the big questions that arise from this.

Having examined the SFBC and its appendices very closely, and having undertaken an initial examination of the PSA, I make the following comments:

• I have come across nothing in the new material that changes the views I expressed in my blog post UTAS’ proposed CBD relocation would lead to financial disaster – if anything my views have been fortified in some key areas, as I will outline in future blog posts.
  • In particular, I maintain my view that refurbishment of the Sandy Bay campus is a viable, low cost, no risk option to secure the future of UTAS’ southern campus.
  • While I recognise that UTAS’ plans for relocation are likely to be constantly evolving, in terms of cost this is likely to be at the margins. In contrast, necessary changes as a result, for example, of public consultation over rezoning, would likely involve significant cost to UTAS’ relocation plans.

• In UTAS’ proposed CBD relocation would lead to financial disaster, I provided a (cash) cost estimate of $1.245 billion for UTAS’ proposed building works in the CBD based on UTAS’ own SFBC cost estimate, with an allowance for construction cost increases from 2019 to the March quarter of 2023 and a 50% contingency (the minimum contingency that should apply in my view).
  • I believe the $1.245 billion figure would almost certainly underestimate the final cost (a figure over $1.5 billion seems more likely).

• In its covering report for the PSA application, UTAS’ lead consultant, All Urban Planning, provided a cost estimate of $1.65 billion for redevelopment of the Sandy Bay campus site. Allowing a 50% contingency, this would represent a (cash) cost of $2.475 billion (See Part 1 of the PSA, page 66 of 215 of the pdf document; page 62 of All Urban Planning’s report).
  • All Urban Planning’s figure of $1.65 billion appears to derive from a figure of $1.5 billion in the Economic Impact Assessment, by consultant Deep End Services, which is provided as Appendix 12 to the PSA, with a 10% contingency applied.
  • Deep End Services itself states “Detailed estimates of construction costs associated with delivery of the Masterplan are not available for the purposes of this assessment. However, based on the range and scale of uses contemplated, it is likely that the total construction cost will be more than $1.5bn” (See Part 6 of the PSA, page 276 of 662 of the pdf document; page 66 of Deep End Services’ report.
  • A figure of $2.475 billion would likely significantly underestimate the cash cost, particularly given that Deep End Services did not have detailed construction cost estimates available, and that the PSA constantly makes clear that the timeframe for Sandy Bay construction works is 20-30 years (see, for example, Part 6 of the PSA, pages 212, 330 and 334 of the pdf document), with construction costs certain to increase significantly over this period.

This provides a total (cash) cost estimate for UTAS’ proposed CBD relocation and Sandy Bay redevelopment of $3.72 billion. Realistically the final cost would be over $4 billion if the project were to proceed, and likely much higher.

Where is this money coming from?

This is the point where one abruptly hits the limits of UTAS’ transparency under the so-called Transparency Project.

Based on my reading, there is absolutely nothing in the newly released documents to indicate how UTAS will fund its vast building program.

In response to an RTI application, UTAS has separately identified three documents that are critical in this regard, namely:

• Deloitte Financial Feasibility Assessment – Working Draft – March 2022 

• Deloitte Financial Modelling Outputs – Preliminary Assessment – 30 November 2021

• Internal scenario and sensitivity modelling to the concept Sandy Bay masterplan (unhelpfully undated)

Given their importance, these documents should be in the public domain, with redactions only where necessary and justifiable. Instead, as detailed in my blog post UTAS refuses to provide financial justification for CBD move, I am having to pursue these three documents through the Ombudsman, as UTAS refused to provide even a word (or number!) from them in its initial and internal review decisions on my RTI application, on what are – I believe -spurious grounds.

• There may be other critical documents still to be identified that should be in the public domain as well. For instance, what exactly is Deep End Services referring to when it states “Detailed estimates of construction costs associated with delivery of the Masterplan are not available for the purposes of this assessment“? Do they exist? If so, to whom are they available? What relationship do they have to the three documents UTAS has refused to release to me?

As I set out in UTAS’ proposed CBD relocation would lead to financial disaster, it is clear that UTAS envisaged that the massive building program it has planned for the CBD and Sandy Bay would be funded through its $350 million Green Bond borrowings and its own investment reserves until the time it started receiving revenue from the ‘fruits’ of its building program – such as rent for retail space in the CBD, sale and leaseback of buildings (a dumb idea) and new apartments for rent in Sandy Bay. There are many problems with this plan, but just to cite the major ones:

• At a cost of $4 billion, UTAS could never hope to get close to recouping its expenditure on relocation – that is, over the (standard) 30-year evaluation period for cost – benefit analysis and likely well beyond, the revenues UTAS receives from relocation would fall well beneath the costs of relocation (mainly, but not only, building costs).

• UTAS cannot currently afford to build anything to earn revenue from and is therefore likely to shortly seek a cash bailout from government. However, as UTAS could never hope to get in front on the revenue/expenditure equation, this would just delay an inevitable financial disaster if relocation proceeds (there are other options such as forms of sale and leaseback, but they would come at a cost and, given UTAS can never hope to recoup its overall expenditure, be seriously unwise).

• It is almost certain that, sometime soon, UTAS’ Green Bond creditors (or worse, secondary bond holders) are going to start knocking on doors asking for their money back. At that stage, UTAS, the Tasmanian Government, Parliament and people can expect a world of pain, with potential for: court action over the Green Bond, which lacks a valid Government approval; a credit downgrade for Tasmania; State funds being diverted from other priorities to prop UTAS up and/or cuts in UTAS’ operations (north, northwest, south?); and repercussions with the Commonwealth, which is likely to be a bit upset that Moody’s and the Tasmanian Treasurer have stated that the Commonwealth would bail out UTAS if required, without bothering to consult it in the matter.
  • For further detail see, for example, my blog posts: UTAS CBD move and Green Bond mess threaten Tasmania’s finances and Treasurer says Commonwealth would bail out UTAS – Ferguson flounders in LegCo.

What are Tasmania’s politicians doing?

I have previously shown that the Tasmanian Government has unquestioningly accepted and followed everything UTAS says in areas that really should be the domain of Government. I have also shown that, while the Government likes to give an appearance of neutrality on UTAS’ proposed relocation to the Hobart CBD, in fact it has often provided active support to the relocation. As for the Labor Opposition, Vice-Chancellor Black himself has told us how supportive and ‘enabling’ they were of relocation behind the scenes.

• For further detail see my blog posts: VC Black exposes Labor stance on UTAS – and his grip on politics; Statement to the LegCo Inquiry – 2 March 2023; and DPAC Secretary confirms UTAS totally runs the show.

It really is time for Tasmania’s politicians to wake up and to start asking serious questions about UTAS’ proposed relocation to the CBD.

Tasmania’s politicians should be demanding that UTAS provides evidence to show that relocation makes financial sense (and poses no risks to the State) and that UTAS does so publicly, so that its evidence is open to scrutiny and testing.

$4 billion is a lot of money and the proposed UTAS CBD relocation and Sandy Bay redevelopment is clearly in the ‘big league’. Just to put the ‘project’ in perspective:

• Total budgeted revenue for Tasmania for 2023-24 is $8.4 billion.

• The Victorian Government cancelled the 2024 Commonwealth Games when the cost estimate increased from $2.6 billion to $6 billion in the space of a year.

• With a substantial blowout on the cost estimate of $3.1 – $3.8 billion likely, the Marinus Link project has been put on hold.

• While not wanting to belittle concerns over the Macquarie Point (AFL stadium) development, and while I am sure that the final cost will be considerably higher, the cost estimate for the project of $715 million is less than one fifth of the minimum likely cost of UTAS’ CBD relocation project.

On a final point, Tasmanian politicians should not put any faith in the idea that the Commonwealth Department of Education (DOE) has been carefully analysing UTAS’ plans/business case for relocation and that all will, accordingly, be well. Documents that I recently obtained from DOE have shown that, just like the Tasmanian Government, it has undertaken no analysis of UTAS’ relocation plans or business case.

However, I really do not want to unfairly implicate DOE in this shabby affair.

It really was the job, and duty, of the Tasmanian Government to have analysed UTAS’ plans and business case for CBD relocation, and redevelopment of the Sandy Bay campus site, under the state legislated accountability regime embodied in the University of Tasmania Act 1992. If it was disinclined to do so, the Parliament should have required it to do so.

That the Government has not performed its role will inevitably cost the State millions of dollars in needless and wasted expenditure on the Rathjen/Black frolic. A simple message for all Tasmanians – “Make sure it does not cost more.”