COUNCIL officials have maintained that a multi-million indoor arena planned for Cardiff is affordable despite concerns raised at a recent meeting.
Cardiff Council officers and councillors met on Tuesday November 21 to discuss plans to sign an agreement with Live Nation that will allow the construction of a new arena for Cardiff Bay to go ahead.
The cost of building the arena, £138m, will be paid by the council up front and recovered from the arena operator through annual lease payments over the course of a 46-year contract.
At Tuesday’s economy and culture scrutiny committee meeting, councillors raised concerns about a contribution of £27.3m that the council is making towards the project and capital expenditure of £46m for enabling works which will include a multi storey car park.
It is assumed that this car park will be self funded from parking income.
However, Conservative councillor, Cllr Joel Williams, said he was “perplexed” to hear that construction was set be signed off despite a business case for the multi storey car park not set to be presented to cabinet members until January 2024.
A member of the scrutiny committee, Liberal Democrats Cllr Rodney Berman, also questioned whether the financial contribution could be better spent elsewhere after 39 schools in the city set deficit budgets for the year.
Council officers acknowledged at the meeting that there are risks with the development, but added that there are a number of mitigations which can be put in place to manage the risks.
Cllr Joel Williams said: “It is quite odd that if you want a planning application in Cardiff we tell developers ‘no, you can’t have parking spaces, no, we want to move away from the car’ and yet you are telling us as a council you need to have a massive multi storey car park filled to the brim of cars to make this project viable for us as a council to fund the significant borrowing costs associated with this project.
“I believe it is prudent to wait until we have the business case for the multi storey car park so we can test the affordability of the project in the round as a whole.”
The £27.3m contribution that the council is making towards the development of the 15,000-capacity arena will be paid for from earmarked capital funds and borrowing.
The leader of the council, Cllr Huw Thomas, said: “Whatever the public transport improvements that go in, and we are clearly working on those… there will also be people who will need to access the arena by car and also there will… be council workers working at County Hall who will require car parking.”
Corporate director of resources at the council, Chris Lee, said the local authority’s report on the arena “clearly” identifies the multi storey car park as a financial risk.
He added: “There are appropriate mitigations there should there be any issues in terms of income variation on the car park, but I am content that it is a risk that we can manage as part of that income strategy.”
If Cardiff Council’s cabinet members approve the signing of the development and funding agreement (DFA) with Live Nation at a meeting on Thursday November 23, construction will be able to commence in June 2024.
Enabling works are expected to begin in January 2024.
Cllr Rodney Berman said: “A few years ago when we started going through some of the details of this project, we weren’t in a position where we weren’t able to give enough revenue funding to a third of the schools in this city to cover their running costs for the year, whereas this year that is the situation we are in.
“A third of the schools in this city have not been able to be given enough funding by the council to cover the running costs that they require to pay out.
“Can we actually still afford to take the risks involved in this project?”
Other risks to the council’s financial model for the project that have been identified include the fluctuation of interest rates and the assumption that the retail price index (RPI) will be 2.5% flat throughout the 46-year contract.
Cllr Berman also questioned how much the council can rely on predicting future interest rates, referencing past events which had major impacts on the economy, like the mini budget and war in Ukraine.
Chris Lee said: “Nobody can predict in terms of those levels of interest rates. This strategy I think gives us the informed position now which isn’t my assessment in terms of interest rates.
“This is the external assessment.”
Cardiff Council said it will commit to undertaking reviews of the arena funding annually or at appropriate ‘milestone’ dates until the financial risks are sufficiently reduced.
It is hoped that this will help identify whether any further mitigation actions are required.
Mr Lee added: “The annual milestone reviews are critical for us because actually, we won’t lock into a rate until the appropriate time.
“That may take longer than two or three years, but I think within the model it gives us that flexibility to be able to do that.”
If cabinet approves the signing of the DFA and if all goes to plan, the arena could be open to the public in late 2026.