Freo's View


Posted in city of fremantle, development, kings square, local government by freoview on April 8, 2015

It is hard to read between the lines of PR and spin and avoiding answers, but I am trying hard to remain objective about the City of Fremantle’s Kings Square project. I published the City’s letter they sent to Martin Lee on December 11, 2014 but I wonder if the City would also release Mr Lee’s reply to it where he again asks the very basic question of how did COF get a positive NPV (A$4 million) and how did they get a positive rate of return (6.15%)

In the letter I published here yesterday COF writes that one of those matters is “its expected financial effect on the local government”, but of equal importance in the section are other matters such as “its expected effect on the provision of facilities and services by the local government”.

COF criticise Martin Lee for focussing only on the financial matter, but if one reads their business plan it is hard to find any proper discussion about the need for new facilities or the impact of this project on the provision of services, because there is nothing. There is also nothing about the alternatives they had considered either. It is quite unrealistic and unfair to expect Martin Lee to comment on something that is absent from the Business Plan, other than to state that it is absent. But COF criticise Lee for not considering something that is absent in the business plan. That is curious indeed.

The City of Fremantle Business Plan has a purely financial focus. They quantify the financial analysis, which Martin Lee questioned. They also refer to the “catalyst for economic development” but fail to quantify it in any way at all. They then criticise Mr Lee again for not considering it.

From my layman’s point of view it appears the City of Fremantle is trying the easy way out and is engaging in avoiding answering the questions Martin Lee has asked. I hope COF will see the light and now realise it is time to give the community straight forward answers to straight forward financial questions without spin or beating about the bush. The business plan should not read like a real estate sales brochure and neither should the COF’s reply to Martin Lee have been.

I have said it before and do it again that I believe the Kings Square project would be a great project to revitalise the CBD if it gets off the ground. I am not confident it will happen as Sirona Capital is quite clearly struggling to sign up a major office tenant for the former Meyer building. Grasping at straws and hoping the Department of Housing will move there appears rather unrealistic no matter how often the Mayor of Fremantle tells us he is confident about it and no matter how often Sirona tells us there is no delay in the development.

So Freo’s View asks the City of Fremantle CEO and Mayor on behalf of the Fremantle community to please answer the above questions by Martin Lee without engaging in avoiding the straight answers; How did the City of Fremantle come to a positive NPV of $ 4 million and how did they come to a positive rate of return of 6.15%?

Roel Loopers

23 Responses

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  1. Jayne said, on April 11, 2015 at 1:00 pm

    Thanks for your reply Brad. As a suggestion for an improved blog, I propose you address some of the questions that residents have on Council matters with the information that your position has access to. When reasonable questions go unanswered time and time again, residents cannot be blamed for feeling frustrated and suspicious. These would make interesting blog posts if written without the ‘good news’ spin, vague generalisations and government speak. Just clear, direct responses based on fact, providing evidence and including specific details…. You’re welcome.

  2. Diana Ryan said, on April 9, 2015 at 10:57 pm

    More to the point, Mark, Brad and Co. will be long gone at the 20 year scenario mark. If the situation is publicly audited then any concerns can be investigated and addressed now.

  3. alastair said, on April 9, 2015 at 7:59 pm

    The real question that needs to be asked ( and answered ), is whether one would trust the abilities of the Mayor and Council, when dealing with such large sums of ratepayers money. Any question of the CoF acquiring debt to fund this project has to be subject to further independent scrutiny.

  4. Mark said, on April 9, 2015 at 6:45 pm

    I think the analogy here Diana is that he washes his hands of the issues, and leaves it in the hands of the council.
    Quite an fitting scenario for a government official around easter

  5. Craig said, on April 9, 2015 at 4:55 pm

    Brad, not sure what would be confidential in the forecast cash flow spreadsheet and everything should have been negotiated on normal commercial terms.

    CoF sells property of $30m, borrows funds and spends $45m. Rates are foregone, interest on borrowed funds is paid, council admin running costs are tweaked, some lease income is gained, throw in the discount rate and some other assumptions… and a positive $4m NPV achieved …or is it? This is the question that I understand remains unanswered for 7 months and now sits for enquiry at the WA state level.

    Surely enough is enough.

  6. Diana Ryan said, on April 9, 2015 at 11:24 am

    I was thinking about what Brad said at the beginning of this blog:

    “The Minister for Local Government is now looking at this as well and assuming that after his review he also is comfortable with the business plan then that should give the Fremantle community further confidence that the Fremantle Council has got this right.”

    This is the same as saying the Minister will in some way endorse the way the City of Fremantle has gone about things, but most likely the Minister will respond to Tinley’s questions with “we are satisfied Fremantle has followed the correct procedures as laid down under the Act”.

    It should be noted this not an indemnity for the City of Fremantle’s actual business decisions, and I can’t see how it functions as an assurance to its residents and ratepayers that they will be protected in the event of unintended consequences or failure to realise the financial returns forecast.

    You’d be amazed how much the Local Govt Act/s doesn’t cover. For instance, did you know that there is nothing under the Act that allows the Dept of Local Govt or the Minister’s office by extension to monitor what a Commissioner actually gets up to if appointed to a council put “under administration” status?

    That would apply to either an outside Commissioner being appointed, or a Mayor being transferred in to the role of a Commissioner, if the Barnett Govt revisits local govt reform.

    How ridiculous is that? Have the City publicly audited; only way to be sure.

  7. freoview said, on April 9, 2015 at 8:13 am

    Nothing might be going on, Claudio, but the community needs to be better informed about huge decisions and the community stuffed up by not asking most of the questions during the community consultation process.


  8. Brad Pettitt said, on April 9, 2015 at 8:08 am

    The director dealing with this is back Monday so it’ll most likely be a week or two if we need further legal advice.
    As Roel also said we just can’t put commercial in confidence material out with out getting solid legal advice first.
    Cheers. Brad.

  9. freoishome said, on April 9, 2015 at 7:53 am

    Cost and benefit analysis has always been a thorny issue, not just for public bodies but commercial as well. Costs are far and away the easiest to do as it is just arithmetic, eg, discounted cash flow, NPV, break even point, etc. But interpreting these different numerical approach also have their issues. As an example, a company I worked for involved in litho printing, held a stocks of paper in store. Lifetime costing meant that the paper had an initial purchase cost, but also incurred storage costs. So when costing a new contract, all the numerical methods indicated that with, at that time, low interest rates, it was cheaper to but new paper, with borrowed money, than use existing stock, obviously senseless but numerically accurate!
    Trying to put numerical value on benefits is extraordinarily difficult if the benefits aren’t tangible, and that certainly applies to many aspects of Government, ie, organisations that aren’t set up purely for profit.
    We also need to be careful about some terminology. The word ‘Economics’ is bandied about as if it means the same as Finance, but it does not, far from it. Economics is about what finance can do, ie, the application of finance to bring community benefit. Federal pollies are the worst at misusing this word; for some strange reason, they seem to think it is bad to talk about money, so they avoid using words like accounting, money, finance, and mis-use Economics. The latter only makes sense when it covers both the money and benefit it brings. Buying 12 submarines and 60 attack aircraft are apparently sound economic decisions, oh yes! When did Subs and attack aircraft last fire anything in defence of Australia? The opportunity cost, an economic concept, of not then using that money for some other benefit is forfeited, education and training for new industries, the jobs of the future.
    The Mayor is correct to be talking about both the finance, which nothing less than the NPV spreadsheet will now satisfy readers here, but as he says can not, should not be separated from the benefits, and the latter also need equal qualification and justification. Having accessible shared services in City makes sense, but locating Council admin staff in the most expensive part of the city has very different costs and benefits. Should the benefits of, eg, bringing business to CBD retail from the CoF staff, be a weighted consideration, are they tangible($) or intangible?

  10. claudiagreen42 said, on April 9, 2015 at 7:34 am

    Martin’s questions are straight forward and need to be answered directly. There is no absolutely need for all this verbiage and obfuscation.
    The fact that so much time and space has been taken up with distracting rhetoric and spin by Council has to now also be questioned. This is public money,and there is no defence or argument at all for not providing answers to these non provocative questions.
    For elected public officers who have a fiduciary duty and accountability to their rate payers, to continue to prevaricate and avoid answering a simple response to questions as to how a financial conclusion in a public Business Plan has been reached, has to be questioned by those who provide the money, and clearly, now the actual avoidance by those elected to responsibly handle those public monies, to substantiate how the Business Plan has been formulated, must now be in the spotlight and scrutinised by the State Government, who is responsible for the functioning of Local Government.
    The Mayor, as the manager, must provide the answers and be transparent. It is not his decision not to.
    This has be an ongoing concern for 6 months.
    The Minister must step in now and ask Council why it will not answer to its rate payers and be transparent, accountable and responsible. What is going on?

    Enough!!!! Just do it!!

  11. freoview said, on April 9, 2015 at 6:59 am

    It is of course prudent for any Council staff of any Council to take legal advise on such important documents. One cannot simply assume they have something to hide because they use legal advise as a reason not to make public certain parts that might contain commercially confidential sensitive clauses. It is not only a Council’s duty to be transparent but also to protect their partners in commercial collaborations. That is where the problem is here and I don’t know how that can be solved without parts of the community coming up with conspiracy theories.
    The disappointing fact for me is that this has been handled badly by COF and now they are on the back foot and perceived to be hiding something, when everything might well be proper and fair. Reactive and defensive PR is not wanted or needed just straight forward communication with the community.


  12. Mark. said, on April 8, 2015 at 11:05 pm

    Craig it might be interesting to know in what environment the letter posted on the citys web site too Mr
    Lee was drafted? Was it a letter formed by the staff or was it through legal advice on what could and couldn’t be said. It will be a good indication of what sort of future information their releases will contain.
    From a time frame we have seen the city fail to answer the questions Mr Lee asked for about 7 months already.
    If the city had nothing to hide, wouldn’t Mr Lee have his answers sometime in November last year?

  13. Kel said, on April 8, 2015 at 9:07 pm


    Just spin up till now then all of a sudden you propose “maybe” a trickle can be revieled/released, except some aspects?

    I think Dianas` proposal is sound.

    “We” as residents and ratepayers are paying for external lawyers to “view them ” just to decide if they “should be released to us” or held in secret. Really?

    We (FCC)should invite/pay the Auditor General to “view them” also and let him decide not only if they should be released to us, but expose the whole deal for what it is “in detail” to us.

    Just the thought of that may be enough for the City to produce some form of “Spreadsheet”.

  14. Craig said, on April 8, 2015 at 6:39 pm

    Brad, sounds like you’ve started to hide behind lawyers and caveats already. Your earlier ‘nothing to hide’ statement means pretty much nothing. What timeframe are you intending to ‘see what we can release’?

  15. Brad Pettitt said, on April 8, 2015 at 2:38 pm

    I’ll follow up and see if it’s appropriate to have this released. I know the CEO got legal advice on the city’s ability to release detailed financials that advised against some aspects of this but happy to see what we can release and get as much as possible into the public realm.
    Cheers. Brad.

  16. Diana Ryan said, on April 8, 2015 at 2:22 pm


    being fairly familiar with the Minister for Local Govt’s office and also Dept of Local Govt and Communities I doubt they have the resources to properly assess your business plan. They just come out with generic responses like “under the Act the City is required to”.

    One of the outcomes of the Inquiry in to Canning was Panel Member Kendall asking “how long must something confidential remain so?”. Public confidence is eroded when information is kept confidential for commercial reasons, why clearly this involves public monies : the whole other half of the deal.

    Cleary the deal with Sirona has stretched on for a long time, and maybe it is time to review the whole thing.

    One of the ways you could deal with this issue once and for all is to invite the Auditor General in to conduct a full public audit of the City of Fremantle (something councils don’t seem to support for some reason), and offer to pay the cost. Its the only way to be sure, and if Colin Murphy does find any problems he will report them to parliament. Protects everyone.

  17. freoview said, on April 8, 2015 at 1:59 pm

    I think Craig’s request is a valid one, Brad and CEO, and it would stop this going on forever. I’d rather write positive stories about Fremantle than negative ones.


  18. Craig said, on April 8, 2015 at 1:40 pm

    Brad, if you really have ‘nothing to hide’ as you state, please make public to ratepayers the detailed spreadsheet that shows the 20 year forecast cash flows which the NPV and IRR are calculated. If you did the speculation about both the financial valuation methodology and assumptions utilised would cease.

  19. Brad Pettitt said, on April 8, 2015 at 1:27 pm

    I’ll be the first to admit we don’t always get it right but I don’t think we engage in spin over substance either. In fact I actively encourage us playing a straight bat on issues. There are no secret agendas just the difficult process of major change in a city that’s often resisted it.
    My experience is most people understand it and want it to happen

  20. Brad Pettitt said, on April 8, 2015 at 1:18 pm

    I agree there is scope for improvement and website is case in point and we are working on that now.
    If you’ve got an example of a better mayoral blog I’d be interested to see it.

  21. freoview said, on April 8, 2015 at 1:05 pm

    I agree that the scrutiny is a bit delayed, Brad, but I also agree it is good and still relevant. I get worried about large projects like this when a highly-paid and prominent professional auditor and Freo property owner asks questions in comments about the business plans and financial issues. If he is not comfortable then the City of Fremantle needs to do better at communicating what goes on, so we can avoid conspiracy, accusations, spin and one-sided arguments.

    One of the problems I see with the direction this Council is taking is not the attempt at progress, revitalisation and modernisation, but the way it communicates it by often trying to be too clever instead of just pumping out the facts of the good news stories. PR does not have to be spin and in my opinion spin should be avoided because it makes the community skeptical and cynical about real achievements.


  22. Jayne said, on April 8, 2015 at 12:08 pm

    It is said the key to a good relationship is communication. Seems to me many of the problems between residents, ratepayers and the Council could be improved if the Council would make communication a key priority. Unfortunately, the council website is clumsy, the receptionists are too often dismissive, the Mayor’s blog is lightweight and “reports” and other documents produced by or for Council are more sales brochures, lacking in information and detail but full of promises. So how can people find out what’s going on?

    The letter Council sent to Mr Lee seems more like an attempt to justify processes and shut the man up, than attempting to assist him. Since then, on this blog, other people have made reasonable enquiries, eg Dick Baynam’s three questions, but still no one on Council has responded with what should be very straightforward answers.

    “Communication: Two-way process of reaching mutual understanding, in which participants not only exchange (encode-decode) information, news, ideas and feelings but also create and share meaning. In general, communication is a means of connecting people or places. In business, it is a key function of management–an organization cannot operate without communication between levels, departments and employees.”

  23. Roel
    As I understand it the contested area is the assumptions that were used to reach the outcome we did including a general rates uplift, 20 year timeframe, discounted rate of 5.5% and the value of enhanced Fremantle Council owned assets. If you assume the above then it is clear to see how we reached the stated rate of return and NPV. All of these assumptions were published in the business plan and could have been contested during the advertising period. Council, on the advice of City of Fremantle staff and independent experts was comfortable these assumptions were well justified.
    Glen is on leave this week and he may want to provide a more technical response on his return.
    The Minister for Local Government is now looking at this as well and assuming that after his review he also is comfortable with the business plan then that should give the Fremantle community further confidence that the Fremantle Council has got this right.
    I think the scrutiny of this project is a good thing (despite it being rather delayed) given the size of the investment the Fremantle Council is looking to undertake but it probably doesn’t need to be done in a way that doesn’t start with the untrue assumption that the Fremantle Council isn’t been straight and trying to hide something. We have nothing to hide and our proud of the potential of this project for Freo. In my view the biggest challenge for Kings Sq is when will it get to start!
    Cheers, Brad

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