Millions more needed: Museum 'can't be built on budget'
Councillors discussed the museum budget issues at a closed workshop meeting last week and it is understood the majority of councillors supported coming up with the extra $12.9m.
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The Invercargill City Council cannot build its new museum on budget and needs to come up with at least $12.9 million more for the project to go ahead as planned.
However, the additional funds required from the council could be closer to $20m if it cannot also pull together the planned third-party funding needed for the project.
It now leaves councillors with a significant decision to make as to whether they commit further money to the project or scale back plans to reduce the financial burden on the council, and in turn ratepayers.
The required $12.9m may spark yet another consultation process to gather the public’s thoughts.
Councillors discussed the matter at a closed workshop meeting last week and The Tribune understands the majority of councillors indicated some support for the council to come up with the extra $12.9m needed.
The budget dilemma will now be discussed in an opening meeting on Tuesday.
The background…
As part of the 2021-31 Long-term Plan the council had agreed to invest $39.4 million into a $52.5 million project for a museum with $13.1m planned to come from external funding.
In 2022 the council then decided to proceed with a new 3550m2 build at a total cost of $65.5 million, which included $11 million of external funding.
Council staff, at that time, did advise that a smaller new build represented the best investment for ratepayers and would significantly reduce the council’s exposure to the risk of increased capital costs and future operational costs.
When the current council was elected in 2022 a clear direction was provided to staff that the museum was the priority project for the organisation.
Mayor Nobby Clark and councillors asked staff at that time for advice on the acceleration of the new museum (Project 1225) and risks associated with a new building completion date (excluding fit-out) of December 2025.
In August 2023 staff provided councillors with the concept design for the new museum and advised that the best size for the facility was 3,728m2.
An additional “construction” budget of $6m was asked for and the council spent just 90 seconds at a meeting on approving the $6m increase to bump the total budget up to $71.5m.
At the time, to support the additional $6m budget change, it was noted that the project was facing a number of challenges including; cost inflation and the post-Covid 19 impacts that had not resolved as quickly as the industry expected.
Current budget problems…
At a June projects and finance council committee meeting a report indicated there were “areas of concern” around the museum project costs, although it was noted there were also cost-saving opportunities being found.
The report included the fact the project budget had $6.4m in contingency.
“We are confident that any gap will be covered by the programme contingencies held and planned by the council finance,” the report, at that June meeting, stated.
In late May the Project Design Group was advised of the potential costs, before that June meeting, but it stated contract negotiations had not been finalised to a point where this information was able to be provided to the council with sufficient certainty.
On June 21 the Design Control Group noted the final bid to build the museum was expected from Naylor Love July 4.
It was noted at this point the costs for the build and museum experience were approximately 10% over the budget approved in August 2023, a shortfall of close to $13 million.
The Project Steering Group met on July 4 and was advised that the project team cannot deliver an “on budget” option that satisfies the current requirements.
The Project team have confirmed after “stress testing” all aspects of the project since April that there is not an “on budget” option.
External funding shortfall….
The council initially budgeted $11m of external funding for the museum project before that was increased to $17m in the 2024-34 Long-term Plan as a result of the increase in building size and cost in August 2023.
As of June 30 the council had received $9.26m of external funding and work continues to secure more third-party funding.
However, the risk remains that the full amount of $17m won’t be obtained.
The council has not included the $6.6m shortfall in external funding in its Long-term Plan.
It has acknowledged the ability to achieve the $6.6m to support the capital build of the museum will be a challenge.
“The change in economic prosperity since we began the fundraising exercise has seen a number of government-funded opportunities cease and the ability of others to financially support the project has reduced. The risk of not achieving all the third-party funding remains,” a staff report for councillors says.
There is a possibility that the council-owned Invercargill City Holdings Limited may have some free cash flow from possible future sales of investments within the Group that could be directed towards the museum.
ICHL is considering a request from the council for a special dividend for the museum which could help with that $17m external funding target.
If the council is unable to find any further external funding to reduce the $6.6m shortfall the council would need to come up with a total of $19.5m for the museum project.
The rates impact of burrowing $19.5m has been calculated at 1.54%.
If the council can find all of the $6.6m required to cover the external funding shortfall that would leave $12.9m needed to proceed with the current planned build and museum experience.
An additional $12.9m in burrowing would translate to a 1.01% rates impact.
Invercargill Mayor Nobby Clark has publicly stated he wants to sell off some surplus council land to help fund the museum and other potential council projects.
The council has identified 16 parcels of land it could sell, including the farmland at Donovan Park.
At the moment there are sheep grazing on the land and it is also used for the one-day Southland A&P Show each year, as well as equestrian events.
Clark felt there were two plus sides to selling surplus land, one that it will free up land for more housing.
“I’ve had about 15 developers in to see me. They want to build now that Tiwai has a future. They are keen and we need more housing, the right sort of housing,” Clark said.
“The second part of the land sale is the revenue we get from it which allows us to do the next biggest project which is to finalise the museum.”
What now?…
Three potential options will be put to elected members on Tuesday to consider.
It includes the prospect of increasing the budget by $12.9m to bring it up to $76.8m to deliver the project as planned.
Another option for councillors to consider would be reduce the scope of the project but with an additional $7.4m to the budget.
The third option would be to pause the museum project and re-visit the brief of the project to fit within the current budget.
Although it is said there would be “significant abortive works and re-design fees” in the range of $2m to $3.5m.
With the proposed changes to either scope or design and cost, including the increased cost to Invercargill ratepayers, the council would need to consult with the public as per its Significance and Engagement Policy.
The council itself will come up with a recommended option to be included in that public consultation process before getting feedback.
Speaking to The Tribune last week Clark acknowledged there were funding challenges.
But he described the museum as a “once in a lifetime project” and felt it was a “no-brainer” to get it done as planned.
“In today’s market it is fair to say that it is going to be a pretty hard ask to get all the funding we need for the museum, given a lot of people that traditional support us probably don’t have as a much funding available as they normally would, and that includes Central Government.”
“[But] I’m absolutely committed to that, and my colleagues are too, to do whatever it takes to make it happen.”
He was confident the internal experience inside the museum would be the best in the country.
Fund it - we need a great museum; we can't afford to have a mediocre one...
Interesting it comes after the old one is taken down and the design/concept of the new one was recently praised about. Now it’s “well if you still want this I’m going to have to sell that” funny how things seem to pan out isn’t it?
Maybe it’s time to clean off some of that whiteboard in the office and stop juggling too many things.