Programme Business Case. Tauranga Civic Space Options. Attachment A DC165

Transcription

1 Attachment A DC165 Programme Business Case Tauranga Civic Space Options Prepared by: Prepared for: Adele Hadfield, Civic Space Options project manager, Tauranga City Council Carole Canler, Consultant, Canler Consulting Edward Guy, Director, Rationale Ltd Commercial and management cases: Fred Terblanche, Mike Groves and Matt Wheeler, Beca Tauranga City Council Date: 31 May 2016 Version: v.7 Status: Final (with corrections to financial information)

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3 Better Business Cases Programme Business Case Document Control Document Information Position Document ID Document Owner Issue Date 25 May 2016 Last Saved Date 31 May 2016 File Name Civic Space Options Programme Business Case Document Document History Version Issue Date Changes V1 13 May 2016 First draft V2 16 May 2016 Feedback from Adele Hadfield V3 17 May 2016 Edits from Rachel Schicker V4 22 May 2016 Edits from Adele Hadfield V5 26 May 2016 Edits from Carole Canler + Financial case V6 27 May 2016 Final version V7 31 May 2016 Financial review up-date Document Review Role Name Review Status Project Manager Adele Hadfield FINAL Document Sign-off Role Name Sign-off Date Project Manager Project Sponsor Adele Hadfield Jaine Lovell-Gadd Tauranga Civic Space Options Programme Business Case 1

4 Contents Better Business Cases Programme Business Case 1 Document Control 1 Contents 2 Executive Summary 4 Introduction 4 Strategic Case 5 The Economic Case Exploring the Preferred Way Forward 9 Financial Case 26 Commercial Case 26 Management Case 28 Next steps 30 TAURANGA CIVIC SPACE OPTIONS PROGRAMME BUSINESS CASE 32 Introduction 32 Strategic Case 34 The strategic context 34 The case for change 35 Investment Objectives 36 Existing Arrangements and Business Needs 38 Potential Scope of Work 43 The Economic Case Exploring the Preferred Way Forward 45 The Economic Case journey 45 Critical success factors 46 Filter 1: Analysis of Office Accommodation Options 47 Civic administration building considerations 52 Development of Potential Programme Options 55 Community Engagement 56 Short-listed Three Masterplan Options 57 Civic Space Options - Multi Criteria Analysis 59 The mix of projects 65 Indicative costs and benefits 72 Financial Case 74 Financial Strategy 74 Impacts on rates 74 Impacts on debt 75 Financial Case Conclusions 77 Commercial Case 78 Market capability 78 Own versus lease 78 Private sector partnering 79 Scale, risk and complexity of development 80 Management Case 83 Tauranga Civic Space Options Programme Business Case 2

5 Project Management Strategy and Framework 83 Outline Project Plan 86 Project and Business Assurance Arrangements 89 Next Steps 90 Attachments 92 Schedule of Tables & Diagrams Table 1: Summary of the existing arrangements and business needs... 7 Diagram 1. Economic Case Filter Process Table 2. Critical success factors Table 3. Cost of renovating the existing Council office buildings Table 4. Cost of ABW versus traditional way of working Table 5. Short-listed masterplan options Table 6. Criteria used in the Multi-Criteria Analysis Table 7. Cost of the elements in the preferred way forward Table 8. Benefits from the elements in the preferred way forward Table 9. Potential roles and responsibilities Table 10. Summary of the Long Term Plan Amendment (inflated cost) Table 11. Specialist expertise, providers and outputs Table 12. Indicators of Prosperity Table 13. Indicators of Economic Activity Table 14. Summary of the existing arrangements and business needs Diagram 2. Investment Logic Objectives Table 15. ILM Revised Key Performance Indiicators Diagram 3. Economic Case Filter Process Table 16. Critical success factors Table 17. Building costs for ABW versus traditional way of working Table 18. Overview of the three short-listed masterplan options Table 19. Civic Space Masterplan Options Multi-Criteria Analysis Table 20. Capital Costs for Civic Administration Building & Civic Space Table 21. Capital Costs for Masonic Park Table 22. Capital Costs for Library Business Case Table 23. Capital Costs for Museum Business Case Table 24. Capital Costs for Performance Venue Business Case Graph 1. Changes in rates for preferred way forward Graph 2. Changes in debt requirements for preferred way forward Table 25. Changes to the rate and debt requirements Table 26. Long Term Plan Amendment Capital Projects Diagram 4. Potential Governance and Organisational Chart Table. 27. Roles & Responsibilities Diagram 5. Potential Programme Delivery Table 28. Proposed Long term Plan Amendment Tauranga Civic Space Options Programme Business Case 3

6 Executive Summary Introduction This programme business case seeks formal approval to pursue a suite of projects to transform the two-hectare Council-owned site at 91 Willow Street into the Civic Heart for Tauranga City. It follows New Zealand s Treasury Better Business Cases methodology and is organised around the five case models: Strategic Case, Economic Case, Financial Case, Commercial Case and Management Case. A master planning approach was adopted to enable a technical approach to the spatial decision making required within the Programme Business Case. The masterplan provides guidance to a complex series of inter-related decisions on a long term programme of works which involves more than one project in a spatial setting. This programme business case commenced in August 2015 and involved a comprehensive programme of engagement and reporting with Tauranga City Council Elected Members and senior management, as well as a series of informal community engagement. It was supported by a fit-for-purpose multi-disciplinary team which included: Architects Warren and Mahoney Landscape Architects LandLAB Economic Analysis Firms New Zealand Institute of Economic Research (NZIER) and Urban Economics External Funding Strategist firm Giblin Group Quantity Surveyors Ryder Levitt Bucknall Property Analysis firm Colliers International. Together, substantive volume of analysis and engagement provides the strong bed of evidence necessary to support Elected Members decision making. The programme business case presents a preferred way forward and informs the subsequent Long Term Plan Amendment. Programme options were sieved to result in a final set of three masterplan options and the following recommended preferred way forward: The Programme Business Case recommends the following preferred way forward: A new civic administrative building enabling Tauranga City Council to address its immediate office accommodation issues and provide an efficient and effective workplace for the staff and governance of the organisation Associated open space The development of detailed business cases for a library, museum and performance venue. The Programme Business Case established that, in order to maximise the benefits of these potential investments, the projects proposed should be activated on the Council owned site at 91 Willow St. Tauranga Civic Space Options Programme Business Case 4

7 The civic administrative building and associated open space were selected as the case for investment is supported and they are investment ready. The Programme Business Case process did not result in the exclusion of any of the major scope elements from further examination. Evidence shows that they all contribute towards achieving the project objectives: 1. More active, safe and vibrant central city (45%) 2. Improved value for money for the community (30%) 3. Improved local and regional economic development (25%). The estimated establishment costs for the preferred way forward over the period to 2025 are $66,936,000 un-inflated (or $71,622,000 inflated) 1. This programme business case seeks formal approval to advance the preferred way forward to a proposed Long Term Plan Amendment. Strategic Case The Strategic Case outlines the strategic context for investment in the re-development of the Willow Street civic campus and makes a robust case for change. The strategic context Tauranga City Council is the local government authority representing the 114,789 residents 2 of the city of Tauranga in the Bay of Plenty region. Tauranga City Council has obligations as a Territorial Local Authority of New Zealand under the Local Government Act Its decisions are also guided by its strategies and plans. Three strategies, namely Smart Growth, SmartEconomy and the City Centre Strategy, as well as the City Plan are particularly relevant to this programme business case. These documents provide a clear and consistent policy direction on the city centre with a consistent message that the city centre retains its role as the commercial, civic and cultural centre of the sub-region. The case for change The case for change is driven by a series of milestone events: In November 2014 toxic mould (stachybotrys) was discovered in the city centre Council accommodation buildings. Council staff were removed from the buildings and housed in temporary leased accommodation. Tauranga City Council provided a $1m investigation fund in the Long Term Plan to find a solution to its accommodation issues. 1 Note all financials in the Programme Business Case are not inflated unless stated 2 at 2013 NZ Population Census Tauranga Civic Space Options Programme Business Case 5

8 Fifty submissions were received with the majority supporting the proposal. The majority of those in support encouraged Tauranga City Council to broaden its thinking and consider the wider opportunities the situation presents. More generally, submitters supported Council investment in Tauranga s city centre and waterfront. On 2 June 2015 Tauranga City Council resolved to include funding of $2m in the 2015/16 financial year (of which $1m was for investigation) to assess strategic issues and opportunities associated with the future of the civic campus, utilising a robust business case methodology. Investment Objectives The investment objectives define the desired outcome sought by Tauranga City Council. They were developed during facilitated workshops held on 15 and 22 September with Elected Members and stakeholders and were formally adopted by Council on 25 November The Elected Member / stakeholder 3 panel identified and agreed three main issues associated with the city centre: 1. The lack of cohesion and poor amenity in the central city is reducing the city s ability to attract locals, workers, visitors and businesses to engage and invest. 2. Failure to accelerate cultural, commercial and inner-city residential development is compromising the city s ability to exploit major growth opportunities for the city and region. 3. Retaining siloed, ineffective workplaces will continue to waste staff resources and increase operational cost for Council and its customers. They also identified and agreed three potential benefits of addressing these issues through investment, and associated weighting (in brackets): 1. More active, safe and vibrant central city (45%) 2. Improved value for money for the community (30%) 3. Improved local and regional economic development (25%) 3 Stakeholders represented commercial, landowner, public sector and engineering sectors Tauranga Civic Space Options Programme Business Case 6

9 Existing Arrangements and Business Needs The table below sets out Tauranga City Council s investment objectives and how they will be measured (Key Performance Measures or KPIs). The gaps between the investment objectives and existing arrangement reflect the business need. Table 1: Summary of the existing arrangements and business needs Investment Objective One Existing Arrangements Business Needs Potential Scope Potential Benefits More active, safe and vibrant central city (45%) The ILM problem statements identify that the city centre lacks cohesion and has poor amenity, which is reducing the city s ability to attract locals, workers, visitors and business. Failing to accelerate cultural, commercial and inner city living is also compromising the city s ability to exploit major growth opportunities. The Civic Space Options project provides an opportunity to create a more active, safe and vibrant city centre. Through the City Centre Strategy 2012, Council has identified its intention to guide major change to land use, built form, public spaces and access over the following years. Local authorities can provide leadership, infrastructure, regulatory and planning functions, and work with the private sector and community partners. KPI 1 Utilisation of city KPI 2 increased employment and business activity KPI 3: Increased residential accommodation Investment Objective Two Existing Arrangements Business Needs Potential Scope Potential Benefits Improved value for money for the community (30%) Council s workplace accommodation faces weathertightness, seismic and building services issues. Many staff are in leased accommodation and Council owns unoccupied space. This has reinforced some siloed and inefficient workplaces practices that are not maximising staff resources and are increasing operational costs. Some of the leased accommodation has less-than-desirable earthquake resistance. Finding a fit-for-purpose workplace accommodation solution is a necessary component of this investment. Council staff numbers will grow into the future. Workplace efficiency and effectiveness (doing the right things well) is assumed to improve if an appropriate workplace methodology is applied. Workplace accommodation scope focuses on identifying optimal ways of working and the physical, virtual and change management environments to support this. The issue is the catalyst for the project and given the current state must be resolved. The opportunity to investigate how responding to this benefit can facilitate other opportunities in terms of the scope elements is a key aspect of the project. KPI 1 Increased community satisfaction KPI 2 Reduction in consumer costs KPI 3 Increased workplace efficiency Tauranga Civic Space Options Programme Business Case 7

10 Investment Objective Three Existing Arrangements Business Needs Potential Scope Potential Benefits Improved local and regional economic development (25%) While Tauranga was identified as performing better on some indicators than other cities like all New Zealand provincial cities, it is under-performing economically. Delivering a more vibrant city centre will require deliberate focus and increased Council and private sector investment. Tauranga is competing for business with other centres. Understand what interventions and investments will improve the performance of the city centre. Future development and investment plans suggest the foundations for future economic vibrancy are being developed. The multi-criteria analysis (filter 2 in Economic Case) investigates how the mix of potential scope elements identified can contribute to this economic vibrancy. KPI 1 Increased business activity KPI 2 Increased business activity in high-value service industries KPI 3 Increased productivity in the city centre KPI 4 Increased tourism / visitation KPI 5 Increased commercial accommodation Potential Scope of Work The scope of work was defined during workshops with Elected Members held in October The following elements were to be considered in the Masterplan options for the civic campus: Council office accommodation Workplace co-location Emergency operations centre + business continuity + group emergency control centre i-site, Citizen Advice Bureau and ancillary, commercial and community uses Car parking (including the Harington Street car parking building) Open space, city square (defined during the project as Masonic Park) and strategic activation Library Museum + culture/heritage centre Performing arts centre Conference centre Hotel Public transport, walking and cycling. It is expected that Tauranga City Council could play different roles in the delivery of these elements, from investor to facilitator. For example Council may lead on providing the library, facilitate a hotel development and own or tenant a civic administrative building. Tauranga Civic Space Options Programme Business Case 8

11 Detailed information for each element was developed in the form of element sheets which included: goal, contribution to Civic Space Options benefits, existing arrangements, market demand, potential scale/size, cost, cost benefit analysis, service delivery options, potential funding sources, risks, constraints and dependencies. These element sheets are working documents only and were developed by the project team from a variety of technical sources. With the exception of the elements that are investment ready (i.e. civic accommodation building and associated open space), these element sheets are exploratory only and the costs provided are a guide only. On advice from technical experts, Elected Members supported the selection of the scale of each element from which the cost was derived. The next stage of the programme delivery will seek to confirm or deepen the body of relevant evidence and analysis to further refine each element and firm up element scope and costs. The Economic Case Exploring the Preferred Way Forward The Economic Case optimises value for money and explores the preferred way forward. The Economic Case journey The scope of work considered in the Economic Case was established in the Strategic Case. A master planning approach was adopted to enable a technical approach to the spatial decision making required within the Programme Business Case. A masterplan provides overall guidance to a complex series of inter-related decisions on a long term programme of works that involves more than one project in a spatial setting. The Economic Case was developed using a filtering process (or a sieve) that drove analysis from the scope elements and seven possible masterplan options to a recommended preferred way forward. This filtering process is described in the diagram below. Two filters or tests were applied, the first one to Tauranga City Council office accommodation options, the second to the masterplan options. Tauranga Civic Space Options Programme Business Case 9

12 Diagram 1. Economic Case Filter Process The Economic Case is structured as follows: The critical success factors tailored to the programme The analysis on Tauranga City Council office accommodation and the key findings The short-list of masterplan options The multi-criteria matrix to analyse the masterplan options and their findings The recommended preferred way forward. This structure represents the process of elimination that took place between December 2015 and May 2016 through a series of workshops with Elected Members. Tauranga Civic Space Options Programme Business Case 10

13 Critical success factors Treasury s Better Business Case identifies five critical success factors. These have been adapted to fit the investment at hand. Critical success factors are attributes essential to the successful delivery of the proposal. These factors have been applied through the multicriteria analysis tools and the master planning process. Table 2. Critical success factors Strategic fit and business needs Do the options meet the agreed investment objectives / benefits? 1. More active, safe and vibrant central city (45%) 2. Improved value for money for the community (30%) 3. Improved local and regional economic development (25%) Do the options meet service requirements? For the office accommodation: Accommodate Council workforce and governance in a single building. Ability to adopt a new way of working workplace strategy. Ease of access for customers. Enable efficient Council service delivery. Future-proof the building space to accommodate Council workforce and governance in the medium term. For civic square: Provide a suitably-sized multi-purpose civic space for the current and future needs of the city. For car parking: Integrate parking policy (identified in the Tauranga Transport Strategy and in the Long Term Plan ) with other transport policies to support a city-wide transport system and economy. Provide replacement spaces for short-term car parking loss in the city centre. Provide an acceptable level of new parking to service growth in the city centre. Potential value for money For all Council-led service delivery (e.g. existing library and performance venue, public transport / access): Enable efficient Council service delivery. No loss of level of service. What is the right mix of costs, benefits and risks? Value for money is ascertained by applying a Benefit Cost Analysis framework and the wider Multi-Criteria Matrix. Note that risks vary in accordance to the degree of evidence associated with the costs and benefits for each element. The performance venue is the highest risk element as there is limited market information of potential future demand. The civic administrative building on the other hand is the most certain of elements and carries the least information risk. Tauranga Civic Space Options Programme Business Case 11

14 Supplier capacity and capability Potential affordability Are potential suppliers available and capable of delivering the recommended preferred way forward? This is ascertained in the Commercial Case Can the organisation afford the recommended preferred way forward? What are the impacts of the investment on debt, rates and credit rating? This is ascertained in the Financial Case. Affordability should be read in the context of the current Tauranga City Council financial policy, and gives regards to potential external funding sources. Potential achievability Is the organisation able to respond to the changes required and match the level of available skills required for successful delivery of the recommended preferred way forward? This is ascertained in the Management Case Filter 1: Analysis of Office Accommodation Options Developing a fit-for-purpose workplace accommodation solution that will improve value for money for the community is one of the key drivers of this programme business case. It is also an element that requires urgent attention as Council staff and Elected Members currently operate in multiple owned and leased office buildings. The analysis was done in three steps: Step One assesses whether the existing Council office buildings on Willow Street were a viable option for future Council office requirements. The four Council buildings at 91 Willow St used, wholly or partially for Council office accommodation needs are: The Administration building (also referred as Building Admin) The Council Chambers building (also referred as Building A) The Library building (also referred as Building B) The Customer Service Centre building (also referred as Building C) The conclusion from Step One was that the Chambers, Customer Service and Administration buildings were not part of a fit-for-purpose workplace accommodation solution that would improve value for money for the community. They were also identified as unable to provide for any other fit-for-purpose reuse. On that basis, no further investigation will occur on the existing buildings with the exception of the Library building (Building B). Step Two determines whether an off-site or on-site (within the Council civic campus at 91 Willow St) option created more benefits or were equal. The conclusion from Step Two is that the Council office building solution should be located on-site. Tauranga Civic Space Options Programme Business Case 12

15 Step Three determines a shortlist of viable options for Council office accommodation based on the findings of Step One and Step Two. The shortlist of viable options for Council office accommodation is: a new building on site that could be built and owned by Council or a new building on site that could be leased by Council. Both these viable options include the removal of the Administration building, the Council Chambers building and the Customer Service Centre building. The future of the Library building is less clear cut. More work is required to understand the cost, risks and benefits of retaining or removing this building. Evidence The evidence behind each of the three steps is presented below. Step One Issues Cost of remediation and fit out Risk of resolving outstanding building issues Suitability of accommodation for Council staff in achieving improved value for money for the community through efficiency and effectiveness gains Ability of buildings to provide a medium- to long-term accommodation solution Step One Findings The cost of refurbishment of the Administration building, the Council Chambers building, and the Customer Service Centre building to a basic level of office accommodation would exceed the post refurbishment value of the buildings, as illustrated in the table below Council could expect to receive a weather-tightness warranty of up to 10 years on the refurbishment of an existing building. However refurbishment would carry a number of risks such as a contractor risk premium. The existing buildings were found to limit our ability to adopt Activity- Based Working that is that is an improved environment that enables workplace efficiency and effectiveness. The key limitations are the buildings limited connectivity between buildings and between floors in the building, as well as their configuration limiting the access of natural light to the core of the buildings. Based on a 2026 workforce, the existing buildings do not have the capacity (size) to accommodate Council in a traditional office space configuration and do not have the functional ability to support this way of working (described above). Ability for buildings to be used for any other fit-for-purpose reuse Based on the cost and return on investment for a basic office upgrade, any other specialist use of the buildings would result in a similar negative investment situation. It is recommended that further investigation of repurposing does not take place for those buildings. Tauranga Civic Space Options Programme Business Case 13

16 Table 3. Cost of renovating the existing Council office buildings Details Admin BLD BLD A BLD B BLD C TOTAL Renovation Cost* $10,867,816 $6,119,246 $4,839,945 $6,898,728 $28,725,735 Gross Floor Area (GFA) 2,922 1,542 3,715 1,260 9,439 (m 2 ) Renovation Cost/M2 ($/m 2 ) $3,719 $3,968 $1,303 $5,475 $3,043 Add Land Cost (Footprint $2,863,000 $1,511,000 $3,640,000 $1,234,000 $9,248,000 at $1,350/m 2 ) TOTAL INVESTMENT $13,730,816 $7,630,246 $8,479,945 $8,132,728 $37,973,735 Less Cost of Fit out and $1,499,815 $491,720 $1,220,246 $820,265 $4,032,046 FFE NET INVESTMENT $12,231,001 $7,138,526 $7,259,699 $7,312,463 $33,941,688 Compared to Market Value Market Value After $6,531,529 $3,446,824 $8,304,118 $2,816,471 $21,098,941 Renovation (including Land) Difference -$5,699,471 -$3,691,702 $1,044,418 -$4,495,992 -$12,842,747 Assumptions: based on a basic renovation, no Activity-Based Working, safe environment, renew life expired assets only, no workplace enhancement Step Two Issue Benefits and cost of off-site or on-site options Step Two Finding An evaluation of the on-site versus off-site office location options by Urban Economics, a specialist urban economist and property market research company, found that a range of benefits are available from the on-site options but are not also available from the off-site option. Conversely, there are no benefits from the off-site option that are not also available from the on-site option. Step Three Issue Analysis of a short list of viable options for Council office accommodation using a multi-criteria analysis tool Step Three Finding Ten options (five on-site and five off-site) were evaluated taking into consideration: i. Contribution towards benefits sought (investment benefits) ii. Practical considerations iii. Locational economic benefits iv. Potential organisational benefits v. Spatial and architectural outcomes vi. Financial considerations vii. Net present value viii. ix. Commercial viability Risks. The output of this analysis is the preferred way forward. Tauranga Civic Space Options Programme Business Case 14

17 Preferred way forward Tauranga City Council formally considered the status of the existing buildings on 27 April 2016 and resolved to: agree to use the three Civic Space Masterplan short-listed options to complete the Programme Business Case. A new building on site that is built and owned by Council offers better value for money and is therefore the recommended preferred way forward. This option is used for analysis of the three short-listed masterplan options described later in the Economic Case. However a build and own option may not be affordable (see the Financial Case). The Commercial Case retains both options as well as a combination of those options as viable commercial options which would need to be more fully analysed during the consideration of a procurement approach. Civic administration building considerations Tauranga City Council Executive Leadership Team considered the type of work-based strategy that the organisation could adopt. They favoured Activity Based Working (ABW). ABW is a work-based strategy that provides staff with the flexibility to undertake workplace activities in a variety of settings to suit the needs of different workstyles. One of the principles of the ABW approach is that all work points are shared and therefore there is no allocated seating, noting there can be exceptions to meet certain business needs. ABW is most likely to maximise Benefit 2 in the Investment Logic Map Improved value for money for the community. It also provides significant reduction in the required gross floor area and associated significant building cost savings when compared to than in traditional modernised workspaces, as shown in the table below. Table 4. Cost of ABW versus traditional way of working ABW Traditional Required gross floor area (GFA) 8,170sq.m 12,696sq.m Estimated building costs $60m $95m An ABW work-based strategy is associated with potential benefits such as significant productivity improvements, as experienced in other organisations: Productivity gains 6 to 16% annual productivity gain Reduction in sick days 30 to 40% reduction of work-related sick days (which accounts for 15% of total sick days) Increased staff retention and associated cost savings 10 to 50% reduction in staff turnover (Tauranga City Council s staff turnover was 12.3% in 2015) 4. In addition to ways of working, five elements will also need to be considered as part of a decision to invest in a new civic administration building: Car parking - Open space - 4 Source: NZIER report Tauranga Civic Space Options Programme Business Case 15

18 Workplace co-location Emergency operations centre + business continuity + group emergency control centre and Ancillary, commercial, and community use. Development of Potential Programme Options Architectural firm Warren and Mahoney and landscape architectural firm LandLAB were engaged to develop a series of masterplan options for the civic campus site based on the elements described in the Strategic Case. In line with the Better Business Case methodology, the masterplan options are described from least ambitious to most ambitious programme options. The masterplan development was guided by the following urban design and development principles discussed with Elected Members at an informal briefing on 8 December 2015: Concentrate tightly concentrate development to create greater intensity, a stronger sense of place and a legible centre for Tauranga. Leverage leverage Tauranga City s unique position of being both the owner of the largest amalgamated sites in the centre of Tauranga, whilst at the same time being the largest generator of demand for accommodation. Innovate, integrate and maximise impact integrate and bundle services and functions of Council and all other elements to enable efficiency as well as bold and striking innovation in the built form that houses them. Partner to catalyse create a Development and Masterplan Framework that enables partnering with private sector and central government entities, resulting in further catalytic development in and around the campus. Magnetic identity capture and express the essence of Tauranga s identity in a bold and ambitious way. The development of the masterplan options was iterative, starting at seven, and moving to three following consideration of the evidence of the non-viability of remediating existing civic office buildings, public consultation and in discussion with Elected Members. The focus on three masterplan options, from least to most ambitious, was formally confirmed by Council on 27 April Community Engagement Over the period from December 2015 to May 2016, Tauranga City Council ran a process of informal engagement that provided further input into the masterplanning development. The Civic Heart community engagement exercise confirmed community support for the proposed elements to continue being investigated. In a first phase of engagement, the Heart and Mind, conversations were focuses on what a Civic Heart means for Tauranga. Feedback was received from more than 2,000 people. General - Many people have no reason to go to the city centre - We need more people living in the city centre - We need more happening on the waterfront and in the city centre - There is massive potential Element specific - We need more car parking - Council offices should be in the city centre - A library in the city centre is a must - Tauranga needs a museum Tauranga Civic Space Options Programme Business Case 16

19 - Tauranga needs a performance venue in the city centre - A city square is needed as part of a Civic Heart - Support for a hotel and conference centre The engagement resulted in a raised awareness of the project (and related media stories) and a confirmation from the community that all original scope elements could have a role to play in a future Civic Heart. Short-listed Three Masterplan Options The following table provides a high-level overview of the proposed projects within each of the three short-listed masterplan (or programme) options, from the least to the most ambitious. Table 5. Short-listed masterplan options Option One Option Two Option Three Least ambitious Mid ambitious Most ambitious Common to all three options is the building of a new 8,170sq.m GFA Council accommodation office Open Space, Masonic Park, Civic Place and strategic activation on Willow Street frontage Additional open space and strategic activation on Willow Street frontage Additional open space New library building New museum building New library building New museum building Remediate Library building for library use 5 Remediate and repurpose Library building for alternative use New performance venue with car parking below (approx. 35 car parks) in place of Library building Related to all options New Harington Street parking building (approx. 560 car parks) 6 with an active edge along Hamilton Street frontage Facilitation of Durham Street hotel development (to be developed by the private sector) Ancillary Activities (e.g. retail, Citizens Advice Bureau, I-Site) Transport Capacity Programme - Public transport and wider network access considered as part of the Public Transport Blueprint and CBD transport and waters infrastructure assessment 5 Note that testing to confirm the viability of the Library building continues 6 Currently funded in the Long Term Plan Tauranga Civic Space Options Programme Business Case 17

20 In addition to the three short-listed options, a baseline or status quo option is retained as a counter factual for analysis. This option is the delivery of Council accommodation needs through a variety of off-site leased office arrangements. This is not considered a long-term solution for a number of reasons, most notably the productivity cost of locating staff in different offices and the availability of suitable office space. However, it is the option that is the most similar to the current situation and is used in the cost benefit analysis as the baseline. Analysis of the Civic Space Masterplan Options - Multi Criteria Analysis A multi-criteria matrix was used to assess the relative impacts of the three short-listed masterplan options, notably against the following critical success factors: strategic fit and business needs and value for money. Table 6. List of criteria used to analyse the short-listed masterplan options Investment benefits sought (as defined in the Investment Logic Map) Benefit 1: Active, safe and vibrant central city (45%) Benefit 2: Efficient and effective Council service delivery (30%) Benefit 3: Local and regional economic development opportunities (25%) Spatial and architectural outcomes (i.e. architectural and landscape architectural) City identity: Achieved will express Tauranga s identity through the concentration and clustering of civic and cultural functions, and the integrated design of the open space and architecture. The experience will be distinctive and unique to Tauranga. City making: Supports the wider Spatial Framework, through creating connections, open spaces, and a legible civic precinct. The outcome also anticipates future public transport solutions. Place-making and activation: Supports innovation in the delivery of events, services, and amenity. Catalytic effects and positive impacts on the wider city centre: Stimulates follow-on new-build development, regenerative development, and wider investor confidence in the city centre. Natural and cultural heritage: Incorporates sustainable design thinking and innovation in the expression of Tauranga s natural history and cultural heritage and community. Indicative economic and social outcomes over 30 years Incremental Present Value Market and Non-Market Benefits Incremental Present Value costs Incremental Net Present Value (Benefits minus costs) Incremental Benefit Cost Ratio Options cost Capital investment Estimated yearly impact on operational expenditure (to include lease cost) Estimated annual revenue Potential funding sources Funding from external sources (based on medium-risk scenario) Affordability Key risks associated with the options Market response risk (patronage / facility usage) Delivery risk (long-term Council commitment to masterplan) Balance sheet capacity risk Commercial risk (development market not responding) Community engagement feedback Tauranga Civic Space Options Programme Business Case 18

21 This evidence has three primary sources: the financial and other analysis undertaken by the project team, the community engagement carried out between December 2015 and April 2016, and the following professional consultancy reports: Benefit Cost Analysis of the Civic Spaces Options, NZ Institute of Economic Research, May 2016 for Tauranga City Council Tauranga Civic Spaces Funding Assessment, Giblin Group, May 2016 for Tauranga City Council Tauranga Civic Heart Concept Report, Warren and Mahoney, May 2016 for Tauranga City Council. The findings of the multi-criteria analysis are presented below. Note that contribution to ILM Objective 2 Efficient and effective Council service delivery is identical across all options, as all three short-listed options consider investment in a new ABW-style civic administration building. Option 1 Elements Recommendation Evidence Least ambitious option Civic administrative building, open space, and remediated and refurbished library Lowest scoring option based on: Low to medium strategic fit: Scored the lowest against objectives Business needs: are met Value for money: a favourable benefit-cost ratio Highest level of confidence and investment ready (apart library) Performs averagely against ILM investment objectives - makes a limited contribution to Objectives 1 ( Active, safe and vibrant central city ) and 3 of the ILM, ( Local and regional economic development opportunities ) Scores relatively low against the spatial and architectural outcomes, at 10 out of a maximum of 25 Is the most investment-ready option Presents the lowest degree of risks Meet the services requirements described in the Critical Success Factors Has a favourable benefit-cost ratio - primarily driven by the benefits attributable to the new civic administrative building if Tauranga City Council achieves the low end of the productivity improvements observed elsewhere when moving to a new office space enabling new ways of working. Investment in open space and city plaza have potential to provide both non-market benefits to the local residents and spill-over benefits for additional spending in nearby businesses, but these benefits have not been monetarised as part of the analysis Option 1 is estimated to require a capital investment in order of $89.4m over the next five years, and can only attract minimum external funding due to the nature of the elements Financing can be accommodated within Council Financial Strategy (Financial Case) Tauranga Civic Space Options Programme Business Case 19

22 Option 2 Elements Mid ambitious option Civic administrative building, open space, PLUS a new museum, a new library, refurbished Library building for other use, and additional open space Recommendation Highest scoring option based on: Medium to high strategic fit: Scored relatively well against objectives Business needs: are met Value for money: similar cost-benefit ratio to Option 1 but significant benefits associated with new library and museum Affordability needs testing / willingness to pay question Evidence Shows a noticeable gain in benefits when compared with Option 1, Option 2 performs higher in: ILM benefits, Option 2 makes an above average contribution to Objectives 1 ( Active, safe and vibrant central city ) and 3 ( Local and regional economic development opportunities ) of the ILM spatial and architectural outcomes monetary benefits non-monetary benefits. Has a similar cost-benefit ratio to Option 1. Investment in a new museum and a new library has the potential to bring substantial benefits to Tauranga: Investment in a new central library would bring significant increase in utilisation, and enhance foot traffic in the civic campus and wider city centre. Investment in a museum would bring non-monetary benefit to Tauranga residents (i.e. existence benefits) as well as monetary benefits based on the ability of a museum to attract domestic and international visitors at a time when tourism (including cultural tourism) is booming. Capital investment estimated at $132m over the 10 years, of which $18m may be funded by external sources. The museum in particular is identified as able to attract considerable external funding if the right revenue generation strategy is applied. Option 2 carries a medium level of risks. A large amount of historical work exists and supports the understanding of the museum (i.e. previous business cases) and the library (i.e. strategic review document). The balance sheet capacity risk is assessed at medium to high. A key driver of this is the potential breech of the Tauranga City Council s Financial Strategy. Tauranga Civic Space Options Programme Business Case 20

23 Option 3 Elements Recommendation Most ambitious option Option 3 contains all the elements in scope: Civic administrative building, open space, a new museum, a new library, refurbished Library building for other use, PLUS additional open space and multi-use performance venue (and associated car parking) which would necessitate the demolition of the current Library building High scoring option based on: High strategic fit: Scored well against objectives Business needs: are met But highest risk / uncertainty based on: Value for money: overall benefit cost ratio favourable but uncertainty re. value for money of a performance venue due to lack of market information Affordability needs testing / willingness to pay question The potential market for a performance venue warrants further investigation, notably to determine whether the land on which a performance venue may be built should be preserved for a future opportunity or alternative use to be considered. Evidence Performs the highest against ILM objectives rated four out of five in ILM Benefit 1 Active, safe and vibrant central city Performs the highest against the spatial and architectural outcomes at 25 out of a maximum of 25 Supports the views of the community as garnered to date with Civic Heart community consultation Benefit cost ratio slightly lower than Option 2, driven by a cost-benefit ratio for a performance venue of 1.1 (compared to a 2.6 cost benefit ratio for a new museum and a 1.0 cost-benefit ratio for a new library) Together with the museum, the performance venue (which caters for both arts and conferencing activities) has the greatest potential of attracting more visitors to the city and to deliver vibrancy and opportunities for increased business activity. The potential market demand for a performance venue is relatively unknown and warrants further investigation Capital investment estimated at $195m over the next 15 years, with potential to attract $29m external funding based on a medium-risk scenario Carries the highest degree of risk - due to the quantum of investment involved, the highly conceptual nature of this option, and lack of understanding of the potential market for a new performance venue Tauranga Civic Space Options Programme Business Case 21

24 The preferred way forward On the basis of the above, the recommended preferred way forward is to consider investment in: A new civic administrative building enabling Tauranga City Council to adopt a new way of working work-based strategy, associated car parking and open space over the next five years. These have been selected as the case for investment is supported and they are the closest to be investment ready. Detailed business cases for the other elements (library, museum and performance venue) noting that none of the elements have been excluded from being further examined as they all contribute towards achieving the ILM benefits and the community engagement feedback to date has supported further work on those areas. The estimated establishment costs for the preferred way forward over the period to 2025 are $66,936,000 uninflated (or $71,622,000 inflated). The mix of projects The mix of projects are those that best achieve the investment objectives and service requirements, yet lie within the boundaries of the scope parameters and critical success factors identified for the programme are a mix of delivery projects and investigative work. The projects that make up the recommended preferred way forward are explained in more detail below. Delivering a new civic administrative building with associated open space (a civic place) at 91 Willow Street The civic administrative building is closer to delivery than other elements. There is a pressing need to meet the service requirements for Council accommodation given the current arrangements, and the partial evacuation from existing Council-owned office buildings on site. This element provides a high degree of confidence in the achievement of investment objectives. Civic administrative building A new 8,170m2 civic administrative building will house all city centre-based Council staff and Council specific functions and will support Council s implementation of a workplace strategy based on the Activity-Based Working model. Accommodating other elements such as ancillary uses, a group emergency control centre and additional office space will be investigated as an implementation business case and concept plan is developed for the civic administrative building. This will be an additional investment decision. Open space A civic place / open space area around the building will be developed. The space will provide access to and from the building across the site. It will begin to connect the site to Masonic Park and also provide for informal and formal events. Tauranga Civic Space Options Programme Business Case 22

25 Proposed implementation timeline is for completion by Tauranga City Council has yet to determine the procurement approach for this investment. Delivering a Civic Square on Masonic Park A civic square will provide a community meeting point to celebrate and connect and become the centre of the city. This project will transform Masonic Park into a high-quality civic square for community use. It will increase the range of recreational and urban experiences and activities in the city centre and will better link the waterfront with the civic campus. This project relates to the Access to Water project s tidal stairs, pier and pontoon that will deliver high-quality water s edge destination. Proposed implementation timeline is for completion by Investigating a library The recommended preferred way forward is to develop a detailed business case over the next two years. The business case would address the future of the current Library building as well as determine the best solution for providing a fit-for-purpose, future-proofed library services. It would investigate the level of investment, timing and scope of the project. Given existing weather-tightness and building services issues and the need for the central library to provide an environment scaled and suitable to support a community hub model (based on Council s a new strategic direction for Tauranga libraries), doing nothing has not been identified as the recommended preferred way forward. Initial work has produced the following options to house the future central library to be investigated further as part of a detailed business case: 1. Develop a new community hub library Build a new, expanded and future-proofed city library on the Willow Street site that implements a community hub model and meets the needs of a growing city. 2. Remediate and future proof Remediate and future proof the existing library building to provide a more modern library service, with potential to increase its footprint, and enable delivery of community learning and education activities. 3. Remediate only Remediate the existing building to resolve building issues. This would provide the same level of services and activities that the Tauranga Library currently offers and provides limited opportunity to expand into the areas recently evacuated by Council office staff. An associated consideration for the completion of the detailed business case is the need to confirm the future of the current Library building, which could be used for libraries services or an alternative use. A decision of whether or not to retain the Library building impacts on the ability to provide the proposed performance venue at 91 Willow St (as per Masterplan option 3). Proposed implementation timeline is for completion by Tauranga Civic Space Options Programme Business Case 23

26 Investigating a museum The recommended preferred way forward on the museum is to develop a detailed business case over the next two years. The business case would investigate: The international and domestic visitation market potential The value residents place on the existence of a museum The strategic and operational model options Associated costs Estimated benefits Potential funding for a museum project. The concept of a museum in Tauranga has been explored many times over the years. Yet Tauranga remains the only New Zealand city of its size to not have a museum. There is an opportunity for Tauranga to develop a museum in the city centre to celebrate and share Tauranga s unique history and culture, and promote the city s identity. Community seems supportive based on recent engagement. NZIER pointed to the following range of potential benefits from developing a museum: Would allow Tauranga to showcase its heritage collection and host touring exhibitions. Would contribute to increased foot traffic in the civic campus and assist in increasing the economic vibrancy of the centre. Could attract international and domestic visitors to visit the civic precinct and surrounding areas and increase their spending. Could provide a focus point for showcasing the significant Maori and maritime history in the area and provide a point of difference from other locations. Has the potential to be a starting point for interpretative tours of significant historic and archaeological sites in the area such as Gate Pa, the Monmouth Redoubt and Mauao Historic Reserve. A museum was associated with high levels of benefits for Tauranga, with a benefit-cost ratio at programme business case level of 2.6. The main monetarised benefits are twofold: Social benefits: there is an existence value derived from the museum for local residents that can be estimated based on a willingness to pay basis. Economic benefits: a museum would attract additional domestic and international visitors to the city centre. Proposed implementation timeline is for completion by Investigating a Performance Venue The recommended preferred way forward is to develop an investigative business case over the next two years. It would investigate whether the opportunity to develop a 1,000 1,200- seat performance venue on site should be preserved for the future. Unlike the detailed business cases for the library and museum, it is not anticipated that this work would result in a recommendation to invest in a new facility. The performance venue is considered as a medium- to long-term project (i.e. 10 to 15 years), partly due to affordability issues. The option to upgrade the existing Baycourt building was discarded after architectural firm Warren and Mahoney advised that there is not sufficient space to expand it to a Tauranga Civic Space Options Programme Business Case 24

27 seat space. The masterplan options focus on developing a new seat performance venue as part of Option 3. A new performance venue would provide the city with a performance venue of a size that supports the Tauranga population. Tauranga currently has fewer theatre seats per capita than cities like Dunedin and Napier. The investigative business case would examine the likely market demand and opportunities for arts performance and conferences / conventions and whether Tauranga could support a new performance venue of this size in the future. It would look at the viability of options to increase performance capacity. It would closely link to the proposed detailed business case for a new library as the ability to develop a performance venue on site is intertwined with the future of the current Library building. Proposed implementation timeline is for completion by Indicative costs and benefits The costs of the projects selected as the recommended preferred way forward can be disaggregated as follows. Table 7. Cost of the elements in the preferred way forward Building Elements Un-inflated Civic Administration Building $60,165,000 Civic Place $3,964,000 Civic Square on Masonic Park $2,308,000 Business Case Elements Un-inflated Museum $100,000 Library $200,000 Performance Venue $200,000 Total Capital Expenditure $66,936,000 Based on NZIER Benefit Cost Analysis, the monetary benefit estimates of the building elements are as follows 7 : Table 8. Benefits from the elements in the preferred way forward Building Elements Civic Administration Building $143,000,000 Civic Place Not quantified Civic Square on Masonic Park Not quantified Total Benefit Estimates $143,000,000 7 No monetary benefits are derived from business cases Business cases are necessary analytical tools to support future decision-making. Tauranga Civic Space Options Programme Business Case 25

28 Financial Case The Financial Case provides assurance that the preferred way forward is affordable to the organisation. The Financial Case assesses the programme of expenditure as proposed in the Long Term Plan Amendment (i.e. the recommended way forward in the report plus Harington St car lark) in relation to Tauranga City Council Financial Strategy and the effects of investment on rates and debts. Adopting principles of prudent financial management, Tauranga City Council adopted a Financial Strategy that underpins our Long Term Plan This strategy takes into account Tauranga s growth over the next decade. Growth requires investment in services and infrastructure to ensure that our city is fit for purpose. The aim is to manage rates levels by ensuring Council provides services efficiently and manage its debt levels. The recommended preferred way forward is deemed to be affordable in that it is largely consistent with agreed rates levels. Analysis demonstrates that Financial Strategy limits on rates and rates increases are forecast to be exceeded by small amounts in some years from The Council has the opportunity in the Long Term Plan to re-assess rates limits, and ensure that rates requirements are maintained within the existing financial strategy levels by reviewing and reprioritising the capital programme and operational expenditure. The financial information presented in the tales for preferred way forward are based on Council building and owning the Civic Administration Building. A different procurement method (e.g. leasing) would lead to slightly different financial impacts as described above. The Commercial Case demonstrates Council has flexibility in procurement. The final procurement method is yet to be determined and could be build and sell, outright leasing or a joint venture to name a few options. Analysis of the financial impacts was completed in relation to the elements in the preferred way forward only. The Financial Case does not consider the financial impacts of the three short-listed masterplan options in any details. Investment in any elements not included in the recommended preferred way forward (for example library, museum, and performance venue) requires further consideration as part of the business case process. Further Council consideration of investment in any other elements such as library, museum or performance venue would include consideration of funding options. This level of analysis would be undertaken as part of a detailed business case process. Commercial Case The Commercial Case outlines initial thinking on the potential approaches to deliver the projects in the recommended preferred way forward. Market capability The characteristics of the proposed programme will be attractive to the market and generate interest from a variety of supplier types. The size and scale of the programme is not unusual in the Waikato / Bay of Plenty, or in New Zealand. Different ownership models will generate interest from a variety of supplier types. Regional suppliers have the skills, capacity and Tauranga Civic Space Options Programme Business Case 26

29 access to capital for this type of development. In the event that scale, complexity and risk profile of the development expands, suppliers with proven and complementary track records for large scale developments will likely need to be sourced nationally. Procurement of Workplace Accommodation: Own versus Lease The basic options for the procurement of the Civic Administrative building are: I. Council to build and own II. Council to develop a building to sell and lease back III. Outsource the development of the building to the private sector, which would retain ownership and lease back to Council IV. Develop a joint venture with a private sector organisation, with the latter taking the lead in development. This would involve the retention of an equity stake in the building. A derivative of this would be for Council to subsequently purchase back the whole of the development once complete or at a later date. The latter three options would require detailed risk allocation analysis in order to secure an appropriate commercial deal that benefits both parties and creates a viable and attractive deal to the commercial market, and demonstrates value for money to ratepayers. This is a commonly adopted framework in New Zealand. Council s decision to own or lease is subject to further analysis (of whole of life cost comparison, the capacity for risk management and satisfying the local political environment, and core Council business) at the detailed business case stage to determine which approach best meets the Strategic Case objectives and drivers. Private sector partnering The benefits of the Council engaging with the private sector include the ability of the private sector to provide fresh ideas and fresh perspectives to the challenge. Property currently represents an excellent investment in the market. This adds to the likely attractiveness of the proposed development to the private sector. A Council partnership with the private sector is likely to generate significant interest, given the quality and tenure that Council will offer as a tenant. However comparatively lower local market rents for high quality office accommodation, and associated capex costs, may impact the commercial viability compared to similar developments in larger markets. These two opposing factors will require further analysis and market testing to ensure a robust view. Bundling the development with other building developments (e.g. hotel, car parking) will affect the viability of the development. It is suggested that Council structures its programme of works around bringing forward items that will bring certainty to the private sector, for example a consenting strategy / constraints as well as continuing with its workplace strategy. Scale, risk and complexity of development The private sector may be enticed by a risk allocation model that includes elements such as Council underwriting and/or capex contributions or leveraging the cheaper cost of borrowing capital that may be available to the Council. As Council carries out further business case assessments of the elements of the more ambitious options, including the museum, library and performance venue, attracting investors with longer term investment strategies and return objectives investment horizon will be necessary. Tauranga Civic Space Options Programme Business Case 27

30 The risk profile, time requirement and subsequent attractiveness of the proposal to suppliers, will change with scalability i.e. from the least ambitious to the most ambitious option. Detailed analysis of all the risk factors will be undertaken in the detailed business case stage and the outcome of this analysis will inform the preferred procurement approach and delivery structure for each project. The advantages of leasing include greater responsiveness to changing organisational needs. Political risk Perception of Value for Money Market credibility risk Risk transfer costs The fast track process for establishment of the Programme Business Case will introduce conservatism into the capital cost estimates as suppliers will factor in larger contingency margins to mitigate their exposure to risk. The process of engaging with the private sector is protracted and this results in the need to manage expectations with key stakeholders including staff, Council and ratepayers. Risk goes hand in hand with the level of control over time, cost, quality and development outcomes. Council is not yet in a position to make a firm decision on its preferred procurement approach until such time as some key decisions have been made. The most significant of these relate to the various matters covered in this commercial case. Given the level of uncertainty in some key areas it is recommended that Council proceeds with more detailed assessments before actively engaging with the development market. Reduced uncertainty is expected to result in better engagement and therefore increased value for money. Management Case The Management Case assesses at a high level the capacity, capability and proposed delivery structure that could be appropriate to deliver the next stages of the Business Case and through to the implementation stage. As the project transitions from Programme Business Case through to Detailed Business Case and Implementation of the preferred option(s), the delivery structure will evolve to suit. It is recommended that a Programme of Works approach to delivery and implementation is taken as it will best realise the project objectives in an efficient and cost effective manner. This approach differs from a typical project approach in that the various separate elements (projects) are delivered under a formalised and coordinated structure. Of the existing workstreams, Funding & Finance and Economics will continue predominantly in relation to the exploration business case work around the library, museum and performance venue. As other elements of the programme have more certainty around them, additional project specific governance and structures will be wrapped around what was previously addressed via the Masterplanning and Elements workstreams. Council currently has a core project team comprising largely of Council staff supplemented with a small number of key consultants. This team will need to change and/or be added to in some areas as appropriate with each tranche of delivery. The team is relatively small at the Tauranga Civic Space Options Programme Business Case 28

31 moment and as the project progresses the team size will grow. Team members can be procured or engaged through the market or seconded from within the organisation. A number of appointments will be required by Council for the next stage of the Business Case and/or delivery of the preferred option(s) of the project. As noted above, further analysis is required as to timing to align with the various final tranches of work requirements. Some of the core project roles are as follows: Table 9. Potential roles and responsibilities Role Responsible for Programme Manager Change Manager Single point of responsibility to Council s Programme Steering Group to oversee and co-ordinate the outcomes of the preferred option against the Strategic Case objectives. This includes interfacing between the individual project sponsors for co-ordinated portfolio reporting and decision-making Responsible for delivery of the organisational change workstream Risk Manager Technical advisors User Representatives Responsible for establishment and management of the Programme Risk Framework Business case, property, development advisory, project management and design consultants. Providing specialist expertise as required to assist Council in achieving its objectives. Responsible for design briefing and inputting, business establishment including systems, human resources and operational structures and management of the respective facilities post-handover These roles may be internal or externally sourced and the nature and level of experience dependent on the preferred option(s). Exact roles and responsibilities will depend on the agreed Project Management framework adopted and the associated organisational structure required. Tauranga Civic Space Options Programme Business Case 29

32 Next steps Proposed Long Term Plan Amendment The Civic Space Options Programme Business Case recommends a preferred way forward which includes a combination of build projects and business cases. Any subsequent investment decisions will constitute a substantial variation from what is agreed in Tauranga City Council Long Term Plan Amendments are shown in the table below. Table 10. Summary of the Long Term Plan Amendment (inflated cost) Capital Project Adopted LTP Proposed Amendment Change Inflated $,000 $,000 $,000 Civic Administrative Building $1,630 $64,321 $62,691 Civic Place $0 $4,287 $4,287 Masonic Square Civic Space $0 $2,514 $2,514 Library business case $0 $200 $200 Museum business case $0 $100 $100 Performance venue business $0 $200 $200 case Harington St car park building $24,811 $20,186 ($4,625) Total Capital Projects $26,441 $91,808 $65,367 Once adopted, the Long Term Plan Amendment will be publicly consulted on from 10 June to 11 July It is envisaged that Council would adopt a final Long Term Plan Amendment in August Transport Capacity Programme of Work The work comprising the Transport Capacity Programme will continue and will inform in the short to medium-term the transportation requirements for the Civic Campus project and wider city centre, including further requirements for car parking provision. Tauranga Civic Space Options Programme Business Case 30

33 Tauranga Civic Space Options Programme Business Case 31

34 TAURANGA CIVIC SPACE OPTIONS PROGRAMME BUSINESS CASE Introduction Tauranga Civic Spaces Options Programme Business Case is programme business case seeks formal approval to pursue a suite of projects to transform the two-hectare Councilowned site at 91 Willow Street into the Civic Heart for Tauranga City with the view to increase the vibrancy of the city centre. It follows the Treasury Better Business Cases guidance and is organised around the five case models. A master planning approach was adopted to enable a technical approach to the spatial decision making required within the Programme Business Case. A Masterplan provides overall guidance to a complex series of inter-related decisions on a long term programme of works that involves more than one project in a spatial setting. The Programme Business Case delivers the following key outputs: (a) Confirm the need to invest and provide the case for change (b) Define the scope of the project (c) Develop a series of masterplan options (and a group of inter-related projects) (d) Provide an evidence-based assessment of the masterplan options by applying a series of tests (e) Recommend a preferred programme of work, which should proceed for further development of the investment proposal. This programme business case commenced in August 2015 and involved a comprehensive programme of engagement and reporting to Council through formal Council meetings and informal Council briefings, the Project Steering Group (a project governance group comprising three elected members, three Executive Leadership Team members including the Chief Executive and hapu representation) and the Executive Leadership Team acting in a Project Control Group role. A fit-for-purpose multi-disciplinary team was appointed to the project. Reference is made throughout this programme business case to these experts and their outputs. For ease of reference an overview of the body of evidence and the expert provider is detailed in the table below. Tauranga Civic Space Options Programme Business Case 32

35 Table 11. Specialist expertise, providers and outputs Expertise Provider Output Architectural master planning Warren and Mahoney Attachment 8 - Tauranga Civic Heart Masterplan Report Landscape Architectural master planning LandLAB Attachment 9 - Tauranga Civic Space Design Concept Economic Analysis New Zealand Institute of Economic Research (NZIER) and Urban Economics Attachment 6 Analysis of on-site and off-site office accommodation options Attachment 11 - Benefit cost analysis of the civic space options External Funding Opportunities Giblin Group Attachment 12 - Tauranga Civic Spaces Funding Assessment Costing Estimations Ryder Levitt Bucknall Inputs to Element Sheets Financial Analysis Tauranga City Council Attachment 14 Property Analysis Colliers International Inputs to Multi-Criteria Analysis Tools The large volume of analysis and engagement reported in this business case provides the strong bed of evidence necessary to support Elected Members decision making on the programme business case preferred way forward and the subsequent Long Term Plan Amendment process. Through this programme of engagement and anchored by sound analysis, programme options were sieved to result in a final set of three masterplan options and a recommended preferred way forward. The Economic Case describes the journey taken to date following Council s decision to adopt Treasury s Business Case methodology. It presents the body of evidence to support decision making. Further tests were applied; they are contained in the financial, commercial and management cases. This programme business case seeks formal approval to advance the preferred way forward to a proposed Long Term Plan Amendment. Tauranga Civic Space Options Programme Business Case 33

36 Strategic Case The Strategic Case outlines the strategic context for investment in the re-development of the Willow Street civic campus and makes a robust case for change. The strategic context Tauranga City Council is the local government authority representing the 114,789 residents 8 of the city of Tauranga in the Bay of Plenty region. Tauranga City Council has obligations as a Territorial Local Authority of New Zealand under the Local Government Act The Act defines both its purpose and core services and demonstrates that Council has an obligation to provide services to the community. Tauranga City Council needs to have particular regard for delivering these services efficiently and effectively, and to determine the contribution the core services may provide back to the community. Council decisions are also guided by its strategies and plans. Three strategies and the City Plan are particularly relevant to this business case as they reinforce the significant role the city centre plays within the wider city and beyond. The role of the city centre has been considered through previous investigations to inform Smart Growth, SmartEconomy 9, the City Centre Strategy and the City Plan. These documents have established the city centre as the primary centre of the western Bay of Plenty sub-region. This strategic position has been through public consultation in each case. In 2008, Smart Growth commissioned Property Economics to develop a retail and commercial strategy, which considered the commercial and retail performance of urban centres in the sub-region in the context of urban form and planning policy. The recommendations from that report, which critiqued the trend towards the decentralisation of commercial and retail activity, informed the Smart Growth and City Plan positions on the commercial and cultural primacy of the city centre. This position is retained in Smart Growth 2013 (policy 10C, p77) The Tauranga Central Business District remains the commercial, civic and cultural heart of the sub region with an emphasis on speciality shopping, entertainment, cultural facilities, residential living, tertiary education and employment. Action: Identify and support the implementation of key anchor projects within the City Centre Strategy (including waterfront upgrade, international hotel, tertiary facility, conference centre, museum and marine precinct) and central city housing, and recognise that these projects are some of the key anchor projects that require forward investment to stimulate other investment and growth and vitality of the sub-region. Smart Economy aims to make the western Bay of Plenty the business location of choice based on sun, sea, soil and skills, resulting in a highly productive, competitive and exportbased economy. 8 at 2013 NZ Population Census 9 Tauranga Civic Space Options Programme Business Case 34

37 The commercial and cultural primacy of the city centre was then re-confirmed through the development of and consultation on the City Centre Strategy. The City Centre Strategy focuses on achieving the following: A City Centre that looks, feels and functions as the primary commercial centre of the western Bay of Plenty A city where more people are visiting more often and staying longer A commercial and cultural heart of Tauranga and the western Bay of Plenty (the civic precinct is identified as the cultural and community focus of the City Centre) Within the Strategy, the Civic Precinct is defined spatially and the following policy position is established: In the long term the precinct is redeveloped to include new Council administration buildings, a new library, flat floor space, an upgraded Baycourt and the Art Gallery. A new City Square is created. It is the cultural heart of the region. This position has been reinforced at a regulatory level through the Tauranga City Plan. Chapter 17, section 17A.6.1 of the plan states the following objectives - Development of the City Centre supports its role and function as the principal commercial, civic, entertainment and community centre for the City and the Western Bay of Plenty sub-region. The Policies (section 17A 6.1.1) that relate to this objective include the following: Enabling a wide range of commercial, recreational, cultural, civic, educational and living activities to establish and interact throughout a defined City Centre; Encouraging a level of land use intensity and scale of built form, greater than that likely to be found in suburban commercial centres, so that economic investment opportunities are supported and business, social and community interaction enhanced; Maintaining and enhancing community and civic facilities and activities that serve the population of the City and sub-region These documents provide a clear and consistent policy direction on the city centre with a consistent message that the city centre retains its role as the commercial, civic and cultural centre of the sub-region. The case for change The case for change is driven by a series of milestone events: In November 2014 toxic mould (stachybotrys) was discovered in the city centre Council accommodation buildings. Council staff were removed from the buildings and housed in temporary leased accommodation. Tauranga City Council provided a $1m investigation fund in the Long Term Plan to find a solution to its accommodation issues. Tauranga Civic Space Options Programme Business Case 35

38 Fifty submissions were received with the majority supporting the proposal. The majority of those in support encouraged Tauranga City Council to broaden its thinking and consider the wider opportunities the situation presents. Submitters notably expressed their aspiration for Tauranga City Council to: demonstrate leadership and commit to investing in the city centre; keep Council workers safe and healthy; and create New Zealand s best council working space and set the tone and standards for all other city centre developments to follow. More generally, submitters supported Council investment in Tauranga s city centre and waterfront, with key themes being: a desperate need to upgrade the city centre using the waterfront as a focus; attracting business to the Tauranga city centre, making it the commercial hub for the Bay of Plenty; and strongly advocating that a vibrant central business district will support the future vision for Tauranga and will balance the strong residential growth predicted with strong economic and social growth. On 2 June 2015 Tauranga City Council resolved to include funding of $2m in the 2015/16 financial year (of which $1m was for investigation) to assess strategic issues and opportunities associated with the future of the civic campus, utilising a robust business case methodology. Investment Objectives The investment objectives define the desired outcome sought by Tauranga City Council. The existing arrangements set out what is currently happening. The business need is the gap between the investment objectives and the existing arrangements. The investment objectives were developed during facilitated workshops held on 15 and 22 September with Elected Members and stakeholders and formally adopted by Council on 25 November An Investment Logic Map (ILM) and Benefits Map were developed to gain a better understanding of the investment drivers and the need to invest in change. Investment Logic Map Workshops - Issues The Elected Member / stakeholder 10 panel identified and agreed three main issues associated with the city centre: 4. The lack of cohesion and poor amenity in the central city is reducing the city s ability to attract locals, workers, visitors and businesses to engage and invest. 5. Failure to accelerate cultural, commercial and inner-city residential development is compromising the city s ability to exploit major growth opportunities for the city and region. 6. Retaining siloed, ineffective workplaces will continue to waste staff resources and increase operational cost for Council and its customers. Some of the issues related to the economic vibrancy of the city centre were identified in a recent report by Martin Jenkins 11 for Tauranga city Council. This report sets out a number of 10 Stakeholders represented commercial, landowner, public sector and engineering sectors Tauranga Civic Space Options Programme Business Case 36

39 indicators that provide an insight into Tauranga and the City Centres performance. The following indicators relate to the economic vibrancy. Table 12. Indicators of Prosperity Indicator As Reported Comparator Cities / NZ Tauranga City territorial authority area - $37,042 GDP per Capita Often used as a proxy for standard of living (2013) Estimated Productivity (GDP/FTE) (2014) Median Household Incomes. Often used as an indicator of economic prosperity (2013) Median Earnings (2013) Quality of Life Big Cities Quality of Life Survey (2010) Tauranga City - $64,515 City Centre - $67,805 Tauranga City - $55,800 City Centre (CAU) - $51,900 Tauranga City $48,370 Tauranga 89% of respondents considered their life to be good or extremely good. New Zealand GDP per Capita - $47,443 Hamilton GDP/Capita is higher than national levels (unlikely to be a CBD differential) Lower Hutt second highest GDP/capita of comparator cities. Unclear status of CBD however report notes the growth in high productivity ICT sector in centre. New Zealand Average - $80,640 New Zealand Average - $63,800 Hutt City - $69,500 Hamilton - $64,000 Hutt City - $52,120 Hamilton - $52,840 New Plymouth - $54,270 Average across 8 cities: 92% of respondents considered their life to be good or extremely good. Table 13. Indicators of Economic Activity Indicator As Reported Further Details Growth in Business Numbers Tauranga - 0.9% growth ( ) City Centre - 2.8% growth Employment Growth ( ) Growth in labour force participation Proportion of working age (15 years or older) participating in the labour force (2013 Census) Growth in Population City Centre - 1.5% contraction (Decrease in Retail, increase in commercial services) Tauranga - 63% City Centre % Tauranga 1.4% p.a. ( ) 114,789 (2013 Census) City Centre 0.3% p.a. ( ) Hutt City and Hamilton -5% to - 10% Contraction Bay of Plenty % New Zealand % SmartGrowth projections The city s population anticipated to grow to 195,852 by An additional 628 people in the central area. 11 Tauranga City Centre Economic Vibrancy Analysis and Assessment for Tauranga City Council: 7 November 2014 Tauranga Civic Space Options Programme Business Case 37

40 Investment Logic Map Workshops Investment objectives The Elected Member / stakeholder panel also identified and agreed three potential benefits of addressing these issues through investment, and associated weighting (in brackets): 1. More active, safe and vibrant central city (45%) 2. Improved value for money for the community (30%) 3. Improved local and regional economic development (25%) The Investment Logic Map, Benefits Map and Key Performance Indicators (as initially developed) are provided in Attachment 2. Note that KPIs were subsequently revised. The Benefits Map identifies Key Performance Indicators (KPIs) and measures that reflect what success looks like. Demonstrating that investment in Civic Spaces is directly attributable to these KPIs is inherently difficult and varies across measures as public investment has various degrees of influence over those indicators. Work has continued on reviewing and revising the indicators into a meaningful set of KPIs and accompanying measures. Existing Arrangements and Business Needs The table below sets out Tauranga City Council s investment objectives and how they will be measured. The gaps between the investment objectives and existing arrangement reflect the business need. Table 14. Summary of the existing arrangements and business needs Investment Objective One More active, safe and vibrant central city (45%) KPI 1 Utilisation of city KPI 2 increased employment and business activity KPI 3: Increased residential accommodation Existing Arrangements Business Needs Potential Scope Potential Benefits The ILM problem statements identified that the city centre lacks cohesion and has poor amenity, which is reducing the city s ability to attract locals, workers, visitors and business. This was clearly articulated by the ILM participants. Failing to accelerate cultural, commercial and inner city living is also compromising the city s ability to exploit major growth opportunities. The Civic Space Options project provides an opportunity to create a more active, safe and vibrant city centre. The Programme Business Case needs to identify the preferred option that optimises value for money. Through the City Centre Strategy 2012, Council has identified its intention to guide major change to land use, built form, public spaces and access over the following years. Local authorities can provide leadership, infrastructure, regulatory and planning functions, and work with the private sector and community partners. As per the KPIs. Improved utilisation of the city, increased employment and business activity, increased tourism and increased residential accommodation. Tauranga Civic Space Options Programme Business Case 38

41 Investment Objective Two Improved value for money for the community (30%) KPI 1 Increased community satisfaction KPI 2 Reduction in consumer costs KPI 3 Increased workplace efficiency Existing Arrangements Business Needs Potential Scope Potential Benefits The key issue impacting value for money is the way Council is working. Council s workplace accommodation faces weathertightness, seismic and building services issues. Many staff are in leased accommodation and Council owns unoccupied space. This has reinforced some siloed and inefficient workplaces practices that are not maximising staff resources and are increasing operational costs. Some of the leased accommodation has less-than-desirable earthquake resistance. Finding a fit-for-purpose workplace accommodation solution is a compulsory component of this investment. Council staff numbers will grow into the future. Workplace efficiency and effectiveness (doing the right things well) is assumed to improve if an appropriate workplace methodology is applied. This will rely on the space available, the cost of the space and how the space is able to adapt to the changing needs and the style of working. Scope focuses on identifying optimal ways of working and the physical, virtual and change management environments to support this. Many of the scope elements do not directly contribute to this investment objective as assessed by the Elected Members. The workplace accommodation issue is the catalyst for the project and given the current state must be resolved. The opportunity to investigate how responding to this benefit can facilitate other opportunities in terms of the scope elements is a key aspect of the project. As per the KPIs Investment Objective Three Improved local and regional economic development (25%) KPI 1 Increased business activity KPI 2 Increased business activity in high-value service industries KPI 3 Increased productivity of central city KPI 4 Increased tourism / visitation KPI 5 Increased commercial accommodation Existing Arrangements The Martin Jenkins report Tauranga City Centre Economic Vibrancy (November 2014) reinforces that while Tauranga was identified as performing better on some indicators than other cities, Tauranga, like all New Zealand provincial cities, is under-performing economically. Key points in the report are: a. Tauranga is struggling but generally performing well relative to comparable cities b. Productivity (GDP / FTE) was higher in the city centre than the wider city for the first time in (Centre - $67,805 v City $64,515) Productivity in Tauranga is considerably lower than the national average at $80,640. c. The absence of larger firms suggests the centre will not realise the full benefits of high-density concentrations of high productivity sectors. Tauranga Civic Space Options Programme Business Case 39

42 New Zealand cities with greater density have higher productivity. d. Commercial vacancies in older buildings are likely to be the result of medium-sized businesses seeking quality modern office space that are not available in the market. e. Tauranga s city centre has experienced lower employment growth than the rest of the city. f. Tauranga City Centre is growing but not as strong as the wider city. g. A lack of demand for residential development in the city centre has been attributed to insufficient amenity investment. Interviews with investors and developers highlighted that delivering a more vibrant city centre will require deliberate focus and increased Council and private sector investment. Tauranga is competing for business with other centres. Hamilton has developed a Central City Transformation Plan focussed on transforming Hamilton s central city into a prosperous commercial centre with a vibrant metropolitan lifestyle. During the ILM process the following problem statement was developed: Failure to accelerate cultural, commercial and innercity residential development is compromising the city s ability to exploit major growth opportunities for the city and region. In addition much of the building stock is of poor quality and some is not attractive to the market due to earthquake-prone issues. Business Needs Potential Scope Potential Benefits Understand what interventions and investments will improve the performance of the city centre. The Martin Jenkins report also stated that future development and investment plans suggest the foundations for future economic vibrancy are being developed. The multi-criteria analysis (filter 2 in Economic Case) investigates how the mix of potential scope elements identified can contribute to this economic vibrancy. Increased business activity, productivity of the city centre, increasing employment in priority fields, increased tourism, and increased quantity and quality of commercial accommodation. The diagram below presents the Investment Logic Map. The three investment objectives are presented in shaded boxes and associated KPIs are directly below. Note that the degree of influence the investment has on the KPIs varies across KPIs. Dotted lines depict where the relationship is secondary, in other words, where the KPIs are positive externalities rather than a direct statistical consequence from the investment. Tauranga Civic Space Options Programme Business Case 40

43 Diagram 2. Investment Logic Objectives The KPIs as well as the measures that are proposed to monitor progress against the KPIs were initially included in the Strategic Case adopted by Council in November They were revised subsequently on advice from NZIER in order to better align to the objectives and reflect what is measurable. These revised KPIs and measures are presented below. Table 15. ILM Revised Key Performance Indiicators KPI Measure Method / source ILM 1 - More active, safe and vibrant city KPI 1 Utilisation of city No. of people using central city Residents Survey How often have you visited Tauranga City Centre in the past year? KPI 2 Increased employment & business Residents perception of safety in the city centre No of patrons that attend shows / events at Baycourt Business count in City Centre Employee count in City Centre Residents Survey Baycourt / Ticketek Infometrics Infometrics Tauranga Civic Space Options Programme Business Case 41

44 activity % employment in CDB as part of Tauranga total Infometrics KPI 4 Increased residential accommodation Quarterly spending in the city centre Residential count in CBD No. of residential dwellings ILM 2 - Improved value for money for the community KPI 1 Increased community satisfaction Resident satisfaction with council services $ cost of services / overall cost per capita MarketView Quarterly report for TCC Census data Rating database Residents Survey Services selection to be determined after ABW deep down exercise KPI 2 Reduction in consumer costs KPI 3 Increased workplace efficiency Square meter per FTE / or accommodation cost per FTE Average energy use per m2 Average volume of printing and photocopying per FTE Staff retention rate Staff satisfaction with work environment TCC TCC Corporate Sustainability TCC Corporate Sustainability TCC TCC Staff survey ILM 3 - Improved local and regional economic development KPI 1 Increased business activity KPI 2 Increase business activity in high value service industries [1] KPI 3 Increased productivity of central city KPI 4 Increased tourism / visitation No. of businesses GDP No of businesses in high value service industries No of employees in high value service industries No. of employees / square metre (i.e. employment density of city centre) Median salary of workers in CBD Gross Domestic Product/Full Time Employee (i.e. industry productivity of the city centre) Proportion of jobs in high value service industries located in city centre (concentration) Tourism spent by domestic and international visitors Infometrics business units Infometrics Infometrics Infometrics Infometrics Census Infometrics Quarterly bank transactions report by MarketView for TCC [1] i.e. finance and insurance, scientific and engineering services, information technology and communications Tauranga Civic Space Options Programme Business Case 42

45 No. of visitors Length of stay by domestic and international visitors Tourism BoP Tourism BoP KPI 5 Increased commercial accommodation Level of investment in commercial accommodation in the city centre Square metres of commercial accommodation in the city centre Consent database / rating database Consent database / rating database Potential Scope of Work The scope of work was defined during workshops with Elected Members held in October It includes the following elements that could be accommodated on the civic campus: Council office accommodation Workplace co-location Emergency operations centre + business continuity + group emergency control centre i-site, Citizen Advice Bureau and ancillary, commercial and community uses Car parking (including the Harington Street car parking building) Open space, city square (defined during the project as Masonic Park) and strategic activation Library Museum + culture/heritage centre Performing arts centre Conference centre Hotel Public transport, walking and cycling. It is expected that Tauranga City Council could play different roles in the delivery of these elements, from investor to facilitator. For example Council may lead on providing the library, facilitate a hotel development and own or tenant a civic administrative building. Attachment 4 Element Sheets lay out detailed information on each element, such as goal, contribution to Civic Space Options benefits, existing arrangements, market demand, potential scale/size, cost, cost benefit analysis, service delivery options, potential funding sources, risks, constraints and dependencies. Caution should be exercised when reading the element sheets. These element sheets are working documents developed by the project team during the course of the programme business case development. They have been developed from a variety of sources, including: - Discussions with element owners (e.g. Manager: Libraries, Tauranga Moana Museum Trust) recorded in the 2015 current state reports on each element - Expert inputs from architectural firm Warren and Mahoney and landscape architectural firm LandLab - Benchmarked costing information from quantity surveying firm Rider Levett Bucknall - Funding information provided by the Giblin Group - Economic assessment provided by NZIER. Tauranga Civic Space Options Programme Business Case 43

46 With the exception of the elements that are investment ready (i.e. the civic accommodation, associated open space and associated car parking), these element sheets are exploratory only. At this programme business case stage, their primary purpose was to inform the development of the masterplan options. Cost estimates were only provided to enable financial and economic analysis. Given the level of uncertainty around some of the elements, it is more appropriate to use a range of sizes and costs. However, a price point for each element was selected to enable the analysis. On advice from technical experts, Elected Members supported the selection of the scale of each element from which the cost was derived. The next stage of the programme delivery will seek to confirm or deepen the body of relevant evidence and analysis to further refine each element and firm up element scope and costs. As noted before, more work has been put into understanding the requirements for the office, open space and car parking elements. This is driven by a level of urgency to respond to the accommodation issue faced by Council at present. Not all elements can be considered in isolation. There is a strong relationship between some elements, which are addressed at a masterplan level (for example a decision on the future of the current library building i.e. Building B - directly impacts on the ability to locate a new performance venue on site now or in the future), or at detailed business case level (for example the location of the Citizens Advisory Bureau is linked with the discussion on the future of the central library). Tauranga Civic Space Options Programme Business Case 44

47 The Economic Case Exploring the Preferred Way Forward The Economic Case journey The scope of the Economic Case was established in the Strategic Case. The Economic Case was developed using a filtering process (or a sieve) that drove analysis from the scope elements and seven possible masterplan options to a recommended preferred way forward. This filtering process is described in the diagram below. Two filters or tests were applied, the first one to Tauranga City Council office accommodation options, the second to the masterplan options. The detail in the filtering process diagram below relates to the tasks in the Economic Case stage of the Civic Space Options Programme Business Case decision pathway (Attachment 1). Diagram 3. Economic Case Filter Process Tauranga Civic Space Options Programme Business Case 45

48 The Economic Case is structured as follows: The critical success factors tailored to the programme. The analysis on Tauranga City Council office accommodation and the key findings. The short-list of masterplan options. The multi-criteria matrix to analyse the masterplan options and their findings. The recommended preferred way forward. This structure represents the process of elimination that took place between December 2015 and May 2016 through a series of workshops with Elected Members. Critical success factors Treasury s Better Business Case identifies five critical success factors. These have been adapted to fit the investment at hand. Critical success factors are attributes essential to the successful delivery of the proposal. These factors have been applied through the multicriteria analysis tools and the master planning process. Table 16. Critical success factors Strategic fit and business needs Do the options meet the agreed investment objectives / benefits? More active, safe and vibrant central city (45%) Improved value for money for the community (30%) Improved local and regional economic development (25%) Do the options meet service requirements? For the office accommodation: Accommodate Council workforce and governance in a single building. Ability to adopt a new way of working workplace strategy. Ease of access for customers. Enable efficient Council service delivery. Future-proof the building space to accommodate Council workforce and governance in the medium term. For civic square: Provide a suitably-sized multi-purpose civic space for the current and future needs of the city. For car parking: Integrate parking policy (identified in the Tauranga Transport Strategy and in the Long Term Plan ) with other transport policies to support a city-wide transport system and economy. Provide replacement spaces for short-term car parking loss in the city centre. Provide an acceptable level of new parking to service growth in the city centre. For all Council-led service delivery (e.g. existing library and performance venue, public transport / access): Enable efficient Council service delivery. Tauranga Civic Space Options Programme Business Case 46

49 Potential value for money Supplier capacity and capability Potential affordability No loss of level of service. What is the right mix of costs, benefits and risks? We ascertain value for money by applying a Benefit Cost Analysis framework and the wider Multi-Criteria Matrix. Note that risks vary in accordance to the degree of evidence associated with the costs and benefits for each element. The performance venue is the highest risk element as there is limited market information of potential future demand. The civic administrative building on the other hand is the most certain of elements and carries the least information risk. Are potential suppliers available and capable of delivering the recommended preferred way forward? This is ascertained in the Commercial Case Can the organisation afford the recommended preferred way forward? What are the impacts of the investment on debt, rates and credit rating? This is ascertained in the Financial Case. Affordability should be read in the context of the current Tauranga City Council financial policy, and gives regards to potential external funding sources. Potential achievability Is the organisation able to respond to the changes required and match the level of available skills required for successful delivery of the recommended preferred way forward? This is ascertained in the Management Case Filter 1: Analysis of Office Accommodation Options Developing a fit-for-purpose workplace accommodation solution that will improve value for money for the community is one of the key drivers of this programme business case. It is also an element that requires urgent attention as Council staff and Elected Members currently operate in multiple owned and leased office buildings. Since discovering the issues with the Council buildings at 91 Willow St, these buildings have been partly evacuated. Staff that have been moved now occupy leased office buildings in the city centre. This has negative impacts on Council such as reduced connectivity between departments, physical dis-connection between organisation and governance, and lost time moving between Council offices. Accordingly, this element has received the highest level of scrutiny as demonstrated by the level of analysis reported below. The level of detail presented here goes well beyond what is expected at a programme business case level and is motivated by the need to amend Council s Long Term Plan to support investment into a suitable accommodation solution. Ten options were considered to resolve the Council office accommodation issue. In order to structure the consideration of options the following process was used: Step One: Determine if the existing Council office buildings on Willow Street were a viable option for future Council office requirements. Tauranga Civic Space Options Programme Business Case 47

50 Step Two: Determine if an off-site or on-site (within the Council civic campus at 91 Willow St) option created more benefits or were equal. Step Three: Determine a shortlist of viable options for Council office accommodation based on the findings of Step One and Step Two. Council formally considered the status of the existing buildings on 27 April 2016 and resolved to: agree to use the three Civic Space Masterplan short-listed options to complete the Programme Business Case. None of these three options included the remediation or re-use of the Council Chambers, Customer Service Centre and Administration buildings. Further investigation of the status of the Library building is suggested. The following section provides an overview of the analytical journey that supported this decision. Step One Findings Viability of existing buildings There are four Council buildings at 91 Willow St (see Attachment 5: Map of Civic Campus Site) that are used, wholly or partially for Council office accommodation needs. They are: The Administration building (also referred as Building Admin) The Council Chambers building (also referred as Building A) The Library building (also referred as Building B) The Customer Service Centre building (also referred as Building C) In determining the potential viability of these buildings the following issues were considered: 1. cost of remediation and fit out; 2. risk of resolving outstanding building issues; 3. suitability of accommodation for Council staff in achieving improved value for money for the community through efficiency and effectiveness gains; and 4. ability of buildings to provide a medium- to long-term accommodation solution. The findings from each of the above considerations are presented in the shadow boxes below. The conclusion from Step One was that the existing Council buildings were not part of a fit-for-purpose workplace accommodation solution that would improve value for money for the community. On that basis, no further investigation will occur on the existing buildings with the exception of the Library building (Building B). 1. Cost of remediation and fit out A thorough investigation of the extent of the building issues for each of the buildings was conducted as part of Project Clean (the project that responded to the discovery of the mould and dealt with the immediate office accommodation needs of Tauranga City Council). This work was used as the basis for determining the extent of repair required for each of the buildings. Based on this a cost estimate was developed for the refurbishment of the buildings. This found that the cost of refurbishment of the Administration building, the Council Tauranga Civic Space Options Programme Business Case 48

51 Chambers building, and the Customer Service Centre building to a basic level of office accommodation would exceed the post refurbishment value of the buildings. Cost of renovating the existing Council office buildings based on a basic renovation, no Activity-Based Working, safe environment, renew life expired assets only, no workplace enhancement Details Admin BLD BLD A BLD B BLD C TOTAL Renovation Cost* $10,867,816 $6,119,246 $4,839,945 $6,898,728 $28,725,735 Gross Floor Area (GFA) 2,922 1,542 3,715 1,260 9,439 (m 2 ) Renovation Cost/M2 ($/m 2 ) $3,719 $3,968 $1,303 $5,475 $3,043 Add Land Cost $2,863,000 $1,511,000 $3,640,000 $1,234,000 $9,248,000 (Footprint at $1,350/m 2 ) TOTAL INVESTMENT $13,730,816 $7,630,246 $8,479,945 $8,132,728 $37,973,735 Less Cost of Fit out and $1,499,815 $491,720 $1,220,246 $820,265 $4,032,046 FFE NET INVESTMENT $12,231,001 $7,138,526 $7,259,699 $7,312,463 $33,941,688 Compared to Market Value Market Value After $6,531,529 $3,446,824 $8,304,118 $2,816,471 $21,098,941 Renovation (including Land) Difference -$5,699,471 -$3,691,702 $1,044,418 -$4,495,992 -$12,842,747 The future of the Library building (Building B) is still being investigated. The extent of the building issues within the Library building requires the least expenditure. This provides a positive post-remediation value. The Library is still subject to the same risk profile that is outlined in the next section and will also be assessed to determine if it provides a fit-forpurpose long-term solution that will justify the expenditure to remediate the building. The remediation of the Administration, Chambers and Customer Service buildings is not a financially prudent option. It would mean that Council would be spending more on the building assets than they would be worth following the expenditure. 2. Risk of resolving outstanding building issues The likelihood and cost of any refurbishment being able to completely resolve all building issues was investigated. It is noted that Council could expect to receive a weather-tightness warranty of up to 10 years on the refurbishment of an existing building. However any warranty would be conditional on the following factors: Any warranty would be limited to the section of building worked on if a complete building envelope refurbishment was not carried out. Works completed to the exterior by other contractors after the fact i.e. penetration of exterior for installation of building services, could void a warranty. A maintenance regime in accordance with the individual product warrantees was followed and recorded. A contractor risk premium would impact on cost for Council. Tauranga Civic Space Options Programme Business Case 49

52 In addition, the cost of remediation is based on a series of known issues. Once remediation commences it is not uncommon for further issues to be identified, which would increase the cost of remediation. These cannot be defined prior to physical works commencing. 3. Suitability of accommodation for Council staff in achieving improved value for money for the community through efficiency and effectiveness gains As stated above the cost of remediation of the buildings provided in this report are for a basic remediation to a pre-november 2014 working environment. In addition, the buildings were assessed for their suitability to provide a modern working environment that is an improved environment that enables workplace efficiency and effectiveness. The modern way of working that Council is investigating is called a workplace strategy called Activity Based Working. Through a focus on change management, the virtual or digital environment and the physical environment, this workplace strategy has the ability to increase efficiency and effectiveness of an organisation while requiring less office space. The existing buildings were found to limit our ability to adopt Activity-Based Working, the key limitations including: The fact that the buildings are physically separated with limited connectivity between buildings and in the case of the Chambers building between floors in the building. The configuration or the floorplates of the buildings, particularly the Library building and the Council Chambers building limit the access of natural light to the core of the buildings. 4. Ability of buildings to provide a medium to long-term accommodation solution The final area of investigation looked at the ability of buildings to provide a medium- to longterm accommodation solution. This focussed on the ability to future-proof the building for the estimated Council workforce. This was based on two scenarios: A traditional office space configuration based on a 2026 workforce A modern working environment configuration based on a 2026 workforce. The findings of this were that: (a) The existing buildings did not have the capacity (size) to accommodate Council in a traditional office space configuration. (b) While the buildings have potential capacity to physically fit Council staff in a modern working environment (spatial requirement), the buildings did not have the functional ability to support this way of working (described above). The Chambers, Customer Service and Administration buildings were also identified as unable to provide for any other fit-for-purpose reuse. This was based on the cost and return on investment for a basic office upgrade and also considered that any other specialist use of the building would result in a similar negative investment situation. Therefore, it was Tauranga Civic Space Options Programme Business Case 50

53 recommended that further investigation of repurposing does not take place for those buildings. Step Two findings Benefits from on- and off-site options Step Two focussed on determining whether an off-site option or on-site (defined as 91 Willow St) option created more benefits or were equal. An evaluation of the on-site versus off-site office location options was undertaken by Urban Economics, a specialist urban economist and property market research company (see Attachment 6). This evaluation found that a range of benefits are available from the on-site options but are not also available from the off-site option. Conversely, there are no benefits from the off-site option that are not also available from the on-site option. The conclusion from Step Two is that the Council office building solution should be located on-site. Step Three findings Viable options for Council office accommodation Step Three determined a shortlist of viable options for Council office accommodation based on the finding of Step One and Step Two. Ten options (five on-site and five off-site) were evaluated using a multi-criteria analysis tool that summarised the technical investigation areas. These areas include: i. Contribution towards benefits sought (investment benefits) ii. Practical considerations iii. Locational economic benefits iv. Potential organisational benefits v. Spatial and architectural outcomes vi. Financial considerations vii. Net present value viii. Commercial viability ix. Risks. The Office Accommodation Multi-Criteria Matrix is presented in Attachment 3. Based on the conclusions that firstly, the existing Council buildings at 91 Willow St did not form part of viable future options and secondly, that an on-site option provided more benefits than an off-site option, the shortlist of viable options for Council office accommodation included: a new building on site that could be built and owned by Council or a new building on site that could be leased by Council. Both viable options include the removal of the Administration building, the Council Chambers building and the Customer Service Centre building. The future of the Library building is less clear cut. More work is required to understand the cost, risks and benefits of retaining or removing this building. Attachment 7 presents the Council accommodation decision-making flowchart. Tauranga Civic Space Options Programme Business Case 51

54 A new building on site that is built and owned by Council offers better value for money and is therefore the recommended preferred way forward. This option is used for analysis of the three short-listed masterplan options described later in the Economic Case. However a build and own option may not be affordable (see the Financial Case). The Commercial Case retains both options as well as a combination of those options as viable commercial options. A procurement approach for an office building will be developed in the next phase and will consider the financial, funding and commercial implications of each option. Civic administration building considerations Establishing a baseline for the future way of working While options for office accommodation were developed, the Tauranga City Council Executive Leadership Team worked with workplace strategy experts Veldhoen and Company to identify the type of work-based strategy that the organisation could adopt to maximise Benefit 2 in the Investment Logic Map Improved value for money for the community. Three options were considered: - A traditional modernised workspace (traditional office layout one desk per employee) with some enhanced tools - A hybrid model (increased hot desks and some informal collaboration spaces) - Activity based working (focus on providing work environments that support an organisations unique requirements) The Executive Leadership Team identified that Activity Based Working was the model they supported. This was based on two key factors: - This style of working was most likely to position Tauranga City Council to maximise Benefit 2. - The spatial requirements of Activity Based Working are considerably lower than traditional modernised workspaces (resulting in significant cost savings from Activity Based working) Activity-Based Working (ABW) is a work-based strategy that originated in the Netherlands 25 years ago and has gained traction amongst private and public sector organisations worldwide. It has recently been (or is being) adopted by Australian-based Cardinia Shire Council, Tauranga-based Zespri and Trustpower, Auckland-based Fonterra, ASB and parts of Auckland Council. ABW provides staff with the flexibility to undertake workplace activities in a variety of settings to suit the needs of different workstyles. For example, spaces are provided to support intense quiet focus or less focused process work, formal and informal meetings, impromptu meetings and collaboration. One of the principles of the ABW approach is that all work points are shared and therefore there is no allocated seating, noting there can be exceptions to meet certain business needs. Tauranga Civic Space Options Programme Business Case 52

55 Applying Activity-Based Working to the Civic administration building element Spatial Considerations Tauranga City Council carried out analysis of office space requirements for both a traditional work-based strategy (A grade building (A grade building refers to the office quality the proposed new civic administration building would be an A grade building) / 100 % workplace factor) and ABW (A grade building / reduced workplace factor). To determine a spatial requirement (the size of the building required) workstyle analysis and utilisation studies were used to understand current work practices and to define the future way of working, ensuring a fit-for-purpose end result. A scientific approach was applied to the workplace strategy and associated spatial needs to determine a workplace factor. The workplace factor defines the ratio of ergonomic work points to people. In the case of Tauranga City Council, Veldhoen + Company advised that on the first day of occupation of a new civic administration building Council should apply a workplace factor of 70% (70 ergonomic work points for every 100 staff), reducing over time to a 55% - 65% work place factor by (2034 was selected as the future proofing timeline for the civic administration building. This reduction provides a quantum of future proofing within the same scaled building. In contrast, a traditional modernised working environment has a one-person to one-desk ratio and supports personalisation of office tools and equipment, personal desk drawers, stationery, computing, telephony, and paper document storage, replicated for all staff. Due to this, a traditional working environment requires more floor space than an ABW environment. Tauranga City Council currently has a traditional working environment; an utilisation study 12 identifies that only 56% average of its work points are occupied or show signs of life (for 1, 2, 3 to 4+ consecutive hours). This underutilisation is an inefficient use of space. Adopting an ABW work-based strategy has a significant impact on required gross floor area and associated cost of building. Based on staff headcount projections of 2034 in a traditional modernised working environment with a 100% workplace factor, and a typical office density calculated at approximately 14 square metres per person Council requires 12,696sq.m of gross floor area to accommodate its workforce and governance functions. This compares to 8,170sq.m for an ABW approach with a 50 to 55% workplace factor in The following table provides a high level comparison of the cost savings on the building only components of ABW and traditional workplaces Table 17. Building costs for ABW versus traditional way of working ABW Traditional Required gross floor area 8,170sq.m 12,696sq.m Estimated building costs $60m $95m 12 Tauranga City Council Utilisation Study report, Veldhoen + Company, September 2015 Tauranga Civic Space Options Programme Business Case 53

56 Benefit Maximisation By moving away from a one-to-one desk ratio, providing a flexible working environment, utilising technology to allow mobility and paper independence and supporting the organisations behavioural change to a new way of working, an ABW work-based strategy can enable significant productivity improvements. NZIER points to the potential benefits from an ABW approach as experienced in other organisations: Productivity gains 6 to 16% annual productivity gain Reduction in sick days 30 to 40% reduction of work-related sick days (which accounts for 15% of total sick days) Increased staff retention and associated cost savings 10 to 50% reduction from the 2015 base of 12.3% staff turnover. Overseas examples have also indicated significant cost savings associated with no longer needing to churn offices. Having a flexible ABW work environment removes the need to churn office (i.e. activities associated with the physical relocation of people, furniture and fittings) as staffing numbers flex and organisational structures evolve. The Programme Business Case master plan options and project cost for the civic administration building is based on applying the ABW model to a 8,170sq.m civic administration building. The costing includes cost of change management, technology costs as well as the physical build. This is based on the significant reduction of floor space requirements and associated cost savings in terms of building cost, as well as the potential benefits of adopting a new way of working work-based strategy (ABW). Civic administration building associated elements Five elements are directly associated (for example; through integration of delivery or physically) with a decision to invest in a new civic administration building: Car parking car parking spaces associated with the civic administration building activity (for visitors as well as potentially Tauranga City Council fleet vehicles). Open space open space and strategic activation in and around the new building and in place of demolished council buildings. Workplace co-location the ability to provide additional workplace accommodation to enable co-location of government and iwi organisations, and the development of a government cluster on the civic campus which may vary with the procurement method for the office building. Emergency operations centre + business continuity + group emergency control centre the space required to house these functions and the associated required seismic strengthening. Ancillary, commercial, and community uses for example Citizens Advisory Bureau, a customer café, etc. The last three elements will be considered as part of the office detailed business case and detailed design. Tauranga Civic Space Options Programme Business Case 54

57 Due to physical necessity the associated car parking and open space elements were considered as inherent components of the civic administration building. The key reasons for this were: - Basement car parking was initially proposed. However the current parking revenue does not make this option affordable. - The open space redevelopment becomes necessary as existing buildings are removed and the civic campus site is redeveloped. The open space will provide access to the office building and car parking as well as serving civic functions around the office building. Development of Potential Programme Options In the Better Business Case methodology, the approach is to provide decision makers with a number of viable programme options that are described as least ambitious to most ambitious. Architectural firm Warren and Mahoney and landscape architectural firm LandLAB were engaged to develop a series of masterplan options for the civic campus site based on the elements described in the Strategic Case. The purpose of the masterplan is to provide overall guidance to a complex series of interrelated decisions on a long-term programme of works that involves more than one project for the development of the site. The masterplan options constitute the programme options and range from least ambitious to most ambitious. The masterplans were developed with the understanding that Tauranga currently lacks a heart and that Tauranga City Council has a rare opportunity to redevelop its civic precinct and make a difference to the city centre. Its city centre lack of vibrancy has previously been clearly articulated 13. The masterplan development was guided by the following urban design and development principles discussed with Elected Members at an informal briefing on 8 December 2015: Concentrate tightly concentrate development to create greater intensity, a stronger sense of place and a legible centre for Tauranga. Leverage leverage Tauranga City s unique position of being both the owner of the largest amalgamated sites in the centre of Tauranga, whilst at the same time being the largest generator of demand for accommodation. Innovate, integrate and maximise impact integrate and bundle services and functions of Council and all other elements to enable efficiency as well as bold and striking innovation in the built form that houses them. Partner to catalyse create a Development and Masterplan Framework (this provides a level of certainty to the market that may enable other methods of project delivery refer to Commercial Case) that enables partnering with private sector and central government entities, resulting in further catalytic development in and around the campus. Magnetic identity capture and express the essence of Tauranga s identity in a bold and ambitious way. As a starting point, the Programme Business Case considered seven masterplan options (see Attachment 8: Tauranga Civic Heart Masterplan report, Warren and Mahoney 3 May 2016 pp12 to 22) that contains some or all of the elements listed in the Strategic Case. 13 Tauranga City Centre Economic Vibrancy, Martin Jenkins November 2014 Tauranga Civic Space Options Programme Business Case 55

58 These seven masterplans were presented to Elected Members. Elected Members agreed that the work should focus on three masterplan options: a least ambitious option, a most ambitious option and a middle-ground option to represent elements. Masterplan options were further revised in February and again in April 2016 as information on individual elements came to the fore, notably when evidence pointed to the non-viability of remediating existing civic office buildings. Following a briefing with Elected Members on 9 and 10 March 2016, direction was provided to remove the remediation of existing office buildings and moving off site as viable options. This was formally confirmed by Council on 27 April Community Engagement During this period of development, Tauranga City Council ran a process of informal engagement that provided further input into the masterplanning development. The Civic Heart community engagement exercise confirmed community support for the proposed elements to continue being investigated. Community engagement on the Civic Space Options project has been a priority for Elected Members and the project team throughout the Programme Business Case process. A community engagement plan was developed collaboratively between Elected Members and the project team to guide the engagement process. The community engagement plan was based on a principle of dialogue, defined as: focused conversation, engaged in intentionally with the goal of increasing understanding, addressing problems, and questioning thoughts and actions. In order to deliver on this principle, a comprehensive engagement schedule was developed and delivered. Step One of the schedule was based around asking for people s feedback on what Civic Heart is and the place of any or all of the elements in a future Civic Heart or the requirement for a Civic Heart at all. As the project advanced, the nature of the presentations changed to provide more detailed facts and figures. This included the results of the investigation on the existing buildings, the presentation of the proposed master plans and high-level discussion of the funding and economic analysis findings. Over the period from December 2015 to May 2016 engagement included: 20 stakeholder presentations (targeted presentations to groups as diverse as the Real Estate Institute, creative arts community, Lions and Rotary Clubs and the disability sector); 11 community events (open day formats at local shopping destinations across the city from Papamoa to Bethlehem, Greerton and the city centre); a project web page that has attracted 901 views; the have your say that has attracted 45 s; a have your say postcard, 27 of which have been received and Facebook postings that have reached 4,154 with 94 likes and 264 Facebook post clicks. Feedback The earliest feedback on the issue of the Council buildings was received through the Long Term Plan process. This has been documented in the Strategic Case. Further feedbacks were received as part of the Heart and Mind process. Its purpose was to talk to Tauranga Civic Space Options Programme Business Case 56

59 people about what a Civic Heart means. This process was run to increase awareness in the project and to guide and reinforce the scope of the project. Feedback was received from more than 2,000 people. A high-level summary is provided below: General - Many people have no reason to go to the city centre - We need more people living in the city centre - We need more happening on the waterfront and in the city centre - There is massive potential Element specific - We need more car parking - Council offices should be in the city centre - A library in the city centre is a must - Tauranga needs a museum - Tauranga needs a performance venue in the city centre - A city square is needed as part of a Civic Heart - Support for a hotel and conference centre The engagement outcome was a raised awareness of the project (and related media stories) and a confirmation from the community that all original scope elements could have a role to play in a future Civic Heart. Community feedback through the Heart and Mind discussions has been captured and a summary is provided at Attachment 10. Short-listed Three Masterplan Options At Council on 27 April 2016, Tauranga City Council resolved to focus analysis on three shortlisted masterplan options. The potential combinations of the scope elements are considered to have the most impact on the achievement of the strategic benefits sought in the project. The timeframe for delivery of the three options would be dependent on key factors such as community support, affordability and value for money. The timeframe for delivery of the more ambitious options is likely to be more than 10 years. Delivery scale and timing will be considered and confirmed through successive Long Term Plan processes. The following table provides a high-level overview of the proposed projects within each of the proposed options. Tauranga Civic Space Options Programme Business Case 57

60 Table 18. Overview of the three short-listed masterplan options Option One Option Two Option Three Least ambitious Mid ambitious Most ambitious Common to all three options is the building of a new 8,170sq.m GFA Council accommodation office Open Space, Masonic Park, Civic Place and strategic activation on Willow Street frontage Additional open space and strategic activation on Willow Street frontage Additional open space New library building New museum building New library building New museum building Remediate Library building for library use 14 Remediate and repurpose Library building for alternative use New performance venue with car parking below (approx. 35 car parks) Related to all options New Harington Street parking building (approx. 560 car parks) 15 with an active edge along Hamilton Street frontage Facilitation of Durham Street hotel development (to be developed by the private sector) Ancillary Activities (e.g. retail, Citizens Advice Bureau, I-Site) Transport Capacity Programme - Public transport and wider network access considered as part of the Public Transport Blueprint and CBD transport and waters infrastructure assessment Bulk and Location images of these three masterplan options are provided in Attachment 8. In addition to the three short-listed options, a baseline or status quo option is retained as a counter factual for analysis. This option is the delivery of Council accommodation needs through a variety of off-site leased office arrangements. This is not considered a long-term solution for a number of reasons, most notably the productivity cost of locating staff in different offices and the availability of suitable office space. However, it is the option that is the most similar to the current situation and is used in the cost benefit analysis as the baseline. 14 Note that testing to confirm the viability of the Library building continues 15 Currently funded in the Long Term Plan Tauranga Civic Space Options Programme Business Case 58

61 The Transport Capacity Programme is being delivered outside the scope of works of this programme business case. The Transport Capacity Programme will influence the delivery of the investment project by providing certainty on a range of issues including: - The future of the public transport route and interchange - The impact (if any) on the local network capacity of the Civic Space Options preferred way forward and proposed mitigation measures (note the Cameron Road signalisation project is already in the Long Term Plan to provide for access from and onto Cameron Rd between Elizabeth St and Harington St). Civic Space Options - Multi Criteria Analysis Due to the nature of the investment no single factor or piece of evidence can be used to support decision making. The evidence base required to move to the recommended preferred way forward is far reaching as presented in the box below. These criteria help determining the value for money question in the Critical Success factors. Criteria used in the Multi-Criteria Analysis Investment benefits sought (as defined in the Investment Logic Map) Benefit 1: Active, safe and vibrant central city (45%) Benefit 2: Efficient and effective Council service delivery (30%) Benefit 3: Local and regional economic development opportunities (25%) Spatial and architectural outcomes (footnote these outcomes consider both architectural (provided by Warren and Mahoney) and landscape architectural (provided by LandLAB outcomes) City identity: The outcome achieved will express Tauranga s identity through the concentration and clustering of civic and cultural functions, and the integrated design of the open space and architecture. The experience will be distinctive and unique to Tauranga. City making: The outcome supports the wider Spatial Framework, through creating connections, open spaces, and a legible civic precinct. The outcome also anticipates future public transport solutions. Place-making and activation: An outcome supportive of innovation in the delivery of events, services, and amenity. Catalytic effects and positive impacts on the wider city centre: The outcome stimulates follow-on new-build development, regenerative development, and wider investor confidence in the city centre. Natural and cultural heritage: The outcome incorporates sustainable design thinking and innovation in the expression of Tauranga s natural history and cultural heritage and community. Indicative economic and social outcomes over 30 years Incremental Present Value Non-Market Benefits Incremental Present Value Market Benefits Incremental Present Value costs Incremental Net Present Value (Benefits minus costs) Incremental Benefit Cost Ratio Options cost Capital investment Estimated yearly impact on operational expenditure (to include lease cost) Estimated annual revenue Potential funding sources Tauranga Civic Space Options Programme Business Case 59

62 Funding from external sources (based on medium-risk scenario) Affordability Key risks associated with the options Market response risk (patronage / facility usage) Delivery risk (long-term Council commitment to masterplan) Balance sheet capacity risk Commercial risk (development market not responding) Community engagement feedback This evidence has three primary sources: the financial and other analysis undertaken by the project team (see Attachment 14 Financial information for programme options), the community engagement carried out between December 2015 and April 2016, and the following professional consultancy reports: Benefit Cost Analysis of the Civic Spaces Options, NZ Institute of Economic Research, May 2016 for Tauranga City Council (Attachment 11) Tauranga Civic Spaces Funding Assessment, Giblin Group, May 2016 for Tauranga City Council (Attachment 12) Tauranga Civic Heart Concept Report, Warren and Mahoney, May 2016 for Tauranga City Council (Attachment 8). This evidence is captured in a multi-criteria matrix presented below. The purpose of the multi-criteria matrix is to provide a framework to assess the relative impacts of the three short-listed masterplan options, notably against the following critical success factors: strategic fit and business needs and value for money. It is in effect a ranking tool to support decision making. Note that per definition the status quo option (option 0 deemed a nonviable option) has no impact (i.e. no change) and is only provided as a point of comparison. Note that element costs presented in the multi-criteria matrix are for the purpose of analysis only. In particular, the library, museum and performance venue require considerable future detailed work before their scope and associated costs are resolved with any degree of confidence. Any investment in these elements would be considered in subsequent Long Term Plans (Long Term Plan Amendments) or Annual Plan processes. Also note both the new Harington Street parking building and the potential private-sector led Durham Street hotel development are excluded from this analysis. The parking building was approved and funded through the Long Term Plan process but its location and size have only been confirmed during the programme business case masterplan development. It predominantly replaces public car parking spaces that are scheduled to be removed due to alternative development in the city centre. The hotel development, while included in all three masterplan options as a highly desirable element that complements the civic campus development, is not a Tauranga City Council deliverable. Council has adopted a facilitative role only for the hotel through the Civic Space Options project (Council: 25 November 2015). The findings of the multi-criteria analysis are presented below. Tauranga Civic Space Options Programme Business Case 60

63 Table 19. Civic Space Masterplan Options Multi-Criteria Analysis BASELINE OPTION VIABLE PROGRAMME OPTIONS Option 0 Option 1 Option 2 Option 3 Strategic Interventions & Scope Elements Council Workplace Accommodation Business continuity reinforced structure and Emergency Operations Centre Group Emergency Control Centre Additional office space (in support of public and iwi sector colocation) Open space and shared space Civic square (Masonic square) Car parking (in addition to Harington St carpark) Access, Public Transport, Walking and Cycling Library Museum + Interpretation Centre Performing venue (multi-use: performing art and conference centre) Ancillary activities such as retail and hospitality, i-site, CAB, etc. (will deliver soft edges / site activation) Lease office accommodation off- site Least ambitious Mid ambitious Most ambitious Multiple off-site leases New building on-site (ABW) New building on-site (ABW) New building on-site (ABW) Optional Optional Optional Optional Optional Optional Optional Optional Optional Yes Yes Yes Yes Yes Yes Performance venue basement carparks Yes Yes Yes Remediated and refurbished library in current building New library building and current library building remediated for alternative use Yes New library building Yes Yes Yes Yes Yes Contribution towards benefits sought (1 to 5) Weighted results Benefit 1 Benefit 2 Benefit 3 Contribute to an active, safe & vibrant central city Efficient and Effective Council Service Delivery Local & regional economic development opportunities 45% % % Spatial and architectural outcomes (1-5) City Identity: The outcome achieved will express Tauranga s identity through the concentration and clustering of civic and cultural functions, and the integrated design of the open space and architecture. The experience will be distinctive and unique to Tauranga City Making: The outcome supports the wider Spatial Framework, through creating connections, open spaces, and a legible Civic Precinct. The outcome also anticipates future public transport solutions Place-making and Activation: An outcome supportive of innovation in the delivery of events, services, and amenity Catalytic Effects and Positive Impacts on the wider city centre: The outcome stimulates follow-on new-build development, regenerative development, and wider investor confidence in the City Centre Natural and Cultural Heritage: The outcome incorporates sustainable design thinking and innovation in the expression of Tauranga s natural history and cultural heritage and community Total Conservative economic and social outcomes over 30yrs Present Value Non-Market Benefits 0 Not quantified $103.4m $103.4m Present Value Market Benefits 0 $147.9m $158.8m $214.3m Present Value Monetary Costs 0 $90.2m $168.9m $231.3m Net Present Value (Benefits minus costs) 0 $57.7m $93.3m $86.3m Benefit Cost Ratio Programme Establishment Cost (uninflated) Capital Investment TBD $89.4m $132.2m $186.6m Funding from external sources (based on medium-risk 0 $0.6m $18m $29.4m scenario) Capital Funding from council (based on medium-risk scenario) Programme Operational Cost (uninflated) TBD $88.8m $114.2m $157.2m Net additional operational expenditure TBD $0.5m $2.3m $4.1m Debt servicing 0 $3.7m $4.8m $6.9m Depreciation and maintenance TBD Estimated annual revenue 0 Total TBD Delivery timeline 2.3m $3.0m $3.9m $0.2m $1.8m $2.9m $6.3m $8.3m $12.0m (Range) 1 to 3 years 1 to 5 years 1 to 10 years 1 to 15 years Community engagement feedback Pulse of the community N/A Support elements Support elements Support elements Risks (H/M/L) Market response risk (patronage / facility usage) L L M H Delivery risk (Long-term council commitment to masterplan) H M H H Balance sheet capacity risk L H M H Commercial risk (development market not responding) L L L L STAFF RECOMMENDATION NOT A VIABLE OPTION Perform averagely against ILM objectives and other qualitative criteria. High level of benefits associated with office investment. Most investment ready option Perform well against ILM objectives and other qualitative criteria. Benefit Cost Ratio is supportive. Investigate further museum and library Contributes the highest towards objectives but carries highest level of risks / highly uncertain. Warrants further investigation, notably market research for performances and conferences Tauranga Civic Space Options Programme Business Case 61

64 Option 1 (least ambitious option) The elements considered in Option 1 are the office, open space, car parking and remediated and refurbished library. Analysis shows that with the exception of the library, investment in the elements in Option 1, notably an office building, brings high level of benefits and that these elements are investment ready. This option: Performs averagely against ILM investment objectives o o Makes a limited contribution to Objectives 1 - Active, safe and vibrant central city and 3 of the ILM - Local and regional economic development opportunities. Note that contribution to Objective 2 Efficient and effective Council service delivery is identical across all options, as all three short-listed options consider investment in a new ABW-style civic administration building. Meets the services requirements described in the Critical Success Factors Scores relatively low against the spatial and architectural outcomes, at 10 out of a maximum of 25. It is the lowest of the options, and is not considered as a city making masterplan Has a favourable benefit-cost ratio o o This is primarily driven by the benefits attributable to the new civic administrative building if Tauranga City Council achieves the low end of the productivity improvements observed elsewhere when moving to a new office space enabling new ways of working Investment in open space and city plaza have potential to provide both nonmarket benefits to the local residents and spill-over benefits for additional spending in nearby businesses, but these benefits have not been monetarised as part of the analysis Presents the lowest degree of risks o o o Carries the highest degree of confidence in the individual elements The future of the library remains uncertain and requires further investigation. Option 1 includes refurbishing and remediating the central library for current use. Options 2 and 3 propose the development of a new library on the civic campus. At this programme business case level, differences in costs, benefits and impacts on levels of service are not well understood Is the most investment-ready option: work to-date on the office, open space and car parking provides a strong platform for investment Requires a capital investment in order of $89.4m over the next five years, and can only attract minimum external funding due to the nature of the elements Tauranga Civic Space Options Programme Business Case 62

65 Is affordable for Council: impacts on rates and debts can be mitigated through a reprioritisation of capital and operation expenditure as well as through selection of a procurement approach during next phase. Option 2 (mid ambitious option) The elements considered in Option 2 not considered in Option 1 are a new museum, a new library, refurbished Library building for other use, and additional open space. Analysis shows that investment in a new museum and a new library has the potential to bring substantial benefits to Tauranga but necessitates a detailed business case to ascertain what an investment proposal may look like. This option: Meets the services requirements described in the Critical Success Factors Shows a noticeable gain in ILM, spatial and architectural, monetary and non-monetary benefits when compared with Option 1 Performs relatively well against ILM objectives o makes an above average contribution to Objectives 1 - Active, safe and vibrant central city and 3 - Local and regional economic development opportunities of the ILM. Performs well against the spatial and architectural criteria. o scores 20 out of a maximum of 25 against the spatial and architectural outcomes Has a similarly favourable benefit cost ratio to Option 1 o Investment in a new central library would bring significant increase in utilisation, and enhance foot traffic in the civic campus and wider city centre o The benefits attributable to a new library are non-market benefits and depend on how users may express value in terms of the time and money they are prepared to give up to use the library o The museum is estimated to provide a high benefit-cost ratio at 2.6. This is based on the existence value that Tauranga residents may place on the existence of a local museum, even if they do not frequently visit, noting that local residents expressed a preference for a museum in a recent survey. In addition, the ability of a museum to attract domestic and international visitors (at a time when cultural tourism is booming) would bring monetary benefits to Tauranga Requires a capital investment of $132m Error! Bookmark not defined. over the 10 years, of which $18m may be funded by external sources (i.e. grants, charitable donations, etc. based on a medium-risk scenario). The museum in particular is identified by the Giblin Group as able to attract considerable external funding if the right revenue generation strategy is applied Carries a medium level of risks Tauranga Civic Space Options Programme Business Case 63

66 o o A large amount of historical work exists and supports the understanding of the museum (i.e. previous business cases) and the library (i.e. strategic review document). This work provided a strong starting point for this analysis, reducing the risk around market demand for example. The balance sheet capacity risk is assessed at medium to high. Option 3 (most ambitious option) Option 3 contains all the elements in scope. It supports the views of the community as garnered to date with Civic Heart community consultation. The element considered in Option 3 that was not considered in Option 2 is a multi-use performance venue to cater for the arts as well as conferences and conventions. Its construction on the 91 Willow St site would necessitate the demolition of the current Library building. Analysis shows that the potential market for a performance venue warrants further investigation, notably to determine whether the land on which a performance venue may be built should be preserved for a future opportunity or an alternative use for that land should be considered. This option: Meets the services requirements described in the Critical Success Factors Performs the highest against ILM objectives o Investment in Option 3 makes the highest contribution towards the benefits sought by Tauranga City Council. Option 3 is rated four out of five in ILM Benefit 1 Active, safe and vibrant central city Performs the highest against the spatial and architectural outcomes o Option 3 scores the highest against the spatial and architectural outcomes, at 25 out of a maximum of 25. While Masterplan Option 2 scores double (from 10 20) compared to Masterplan option 1, the difference between Options 2 and 3 is not so marked (from 20 25) Retains a favourable benefit cost ratio, which is slightly lower than Option 2 o o o Together with the museum, the performance venue (which caters for both arts and conferencing activities) has the greatest potential of attracting more visitors to the city and holding them there to create a visible boost to deliver vibrancy and opportunities for increased business activity Given the little information on potential market demand for arts performances and conferences, it is difficult to estimate a cost-benefit ratio for a performance venue For the benefits of the performance venue to equal the costs (i.e. a cost-benefit ratio of 1), the performance venue would need to attract overnight visitors for the equivalent to 14 sold-out performances and 8000 additional overnight conference delegates annually. Note that the realisation of those benefits is highly dependent on the development of a hotel in close proximity. Tauranga Civic Space Options Programme Business Case 64

67 Requires a capital investment in excess of $186m over the next 15 years, and could attract in the vicinity of $29m external funding based on a medium-risk scenario. Carries the highest degree of risk due to the quantum of investment involved, the highly conceptual nature of this option, and the relatively low level of understanding of the potential market for a new performance venue. The preferred way forward On the basis of the above, the recommended preferred way forward is to consider investment in: A new civic administrative building enabling Tauranga City Council to adopt a new way of working work-based strategy, associated car parking and open space over the next five years. These have been selected as the case for investment is supported and they are the closest to be investment ready. Detailed business cases for the other elements (library, museum and performance venue) noting that none of the elements have been excluded from being further examined as they all contribute towards achieving the ILM benefits and the community engagement feedback to date has supported further work on those areas. The estimated establishment costs for the preferred way forward over the period to 2025 are $66,936,000 uninflated or $71,622,000 inflated. The mix of projects The mix of projects are those that best achieve the investment objectives and service requirements, yet lie within the boundaries of the scope parameters and critical success factors identified for the programme are a mix of delivery projects and investigative work. The projects that make up the recommended preferred way forward are explained in more detail below. Delivering a new civic administrative building with associated car parking and open space (a civic place) at 91 Willow Street The civic administrative building is closer to delivery than other elements. There is a pressing need to meet the service requirements for Council accommodation given the current arrangements, and the partial evacuation from existing Council-owned office buildings on site. This element provides a high degree of confidence in the achievement of investment objectives. Civic administrative building A new 8,170m2 civic administrative building will house all city centre-based Council staff. The building has been scaled to provide a level of future proofing to 2034 based on a detailed briefing and scoping exercise carried out by Veldhoen + Company. The building has also been scaled to support Council specific for example; Council chambers and a councillors lounge. Tauranga Civic Space Options Programme Business Case 65

68 Accommodating other elements such as ancillary uses, a group emergency control centre and additional office space will be investigated as an implementation business case and concept plan is developed for the civic administrative building. This will be an additional investment decision. The building will provide an environment that will support Council s implementation of a workplace strategy based on the Activity-Based Working model. This model provides flexibility in the workplace to support a variety of work styles and business needs and future proofs for changes in the way of working, the number of staff and the impact of digitisation on Tauranga City Council. The civic administrative building will be positioned on the North Eastern corner of the Willow St site in a way that its visibility and profile are appropriately managed. Car parking Integrated car parking was investigated as part of the development of the civic administrative building. Financial analysis of a 100 spaces underground car park has shown that current car parking revenue cannot support this investment. Car parking is therefore not recommended in the preferred way forward. However it could be further investigated at the detailed business stage 16 pending further work on car parking revenue forecasting. Open space A civic place / open space area around the building will be developed. The space will provide access to and from the building across the site. It will begin to connect the site to Masonic Park and also provide for informal and formal events. The estimated cost for these projects is as follows: Table 20. Capital Costs for Civic Administration Building & Civic Space Capital Project Total Cost 2016/ / / /20 Un-inflated $,000 $,000 $,000 $,000 $,000 Civic Administration $60,165 $5,415 $18,815 $28,215 $7,719 Building Civic Place $3,964 $0 $500 $3,000 $464 Total Capital Projects $64,129 $5,415 $19,315 $31,215 $8,183 Proposed implementation timeline is for completion by Tauranga City Council has yet to determine the procurement approach for this investment. Delivering a Civic Square on Masonic Park A civic square will provide a community meeting point to celebrate and connect. Civic squares often become the centres of cities. This project will transform Masonic Park into a high-quality civic square for community use. It will increase the range of recreational and 16 Tauranga City Council resolved on 27 April 2016 to approve the use of $75,000 from the 2015/ 2016 car parking budget to develop a concept plan for the civic car park and council office building element Tauranga Civic Space Options Programme Business Case 66

69 urban experiences and activities in the city centre and will better link the waterfront with the civic campus. This project relates to the Access to Water project s tidal stairs, pier and pontoon that will deliver high-quality water s edge destination. The development of the civic square on Masonic Park will also contribute to the wider streetscape and open space amenity project that is funded in the Long Term Plan Further work will determine the final look and feel of the space. The community engagement response to the potential open space elements of this project has been highly supportive. The estimated cost for this project is as follows: Table 21. Capital Costs for Masonic Park Capital Project Total Cost 2016/ / / /20 Un-inflated $,000 $,000 $,000 $,000 $,000 Masonic Park Civic Square $2,308 $0 $0 $1,708 $600 Proposed implementation timeline is for completion by Investigating a library The recommended preferred way forward is to develop a detailed business case over the next two years. The business case would address the future of the current Library building as well as determine the best solution for providing a fit-for-purpose, future-proofed library services. It would investigate the level of investment, timing and scope of the project. The current Library building has a history of weather-tightness and building services issues. The state of the building is currently being investigated further. In July 2015 Council resolved to adopt a new strategic direction for Tauranga libraries. The direction supported was the Community Impact through Renewed Engagement Model (or community hub) 17. A detailed business case on the Library will explore ways that this model can be delivered. Quantity surveyors RLB have estimated the cost of a basic building renovation in order of $4.7m. Such a renovation would carry risks associated with future building performance and associated high schedule of maintenance. Initial financial analysis showed that the value of the building post-renovation would be slightly higher than its current value (incl. land) plus renovation cost. Such a renovation would leave the library as is, with no change in level of services or floor space. Further work is required to ascertain the appropriateness, including the financial prudence of renovating the current Library building for library use or other use. The role of libraries is evolving. As well as being the repository of books and information, libraries of the 21st century are increasingly becoming a people place that support learning, innovation, inspiration and connection. They are becoming a civic space for learning, where community learning and participation (e.g. media classes, technology classes, children programmes, events, etc.) are important as a public good, particularly for the disadvantaged 17 For details see Strategic Review of Tauranga City Libraries, Sue Sutherland Consulting July 2015 Tauranga Civic Space Options Programme Business Case 67

70 and socially isolated. Modern libraries are associated with a range of social benefits. These benefits stem from the expectation that access to information supports learning opportunities that improve the human capital of people and the productivity of businesses and the community more widely. Long term, this can show up as higher educational achievements of students, and improved performance for small and medium enterprises. Other social benefits attributed to libraries include social connectedness and sense of place. Social benefits are also evident in the expressions of support given to libraries in social surveys of communities, and in councils willingness to pay to fund them. Tauranga currently provides the lowest level of library space 18 per 1,000 residents amongst New Zealand s comparable cities, nearly half of that of Dunedin. The current central library is housed in Building B of the civic campus and occupies 3,000sq.m over three floors. Issues identified with the current central library include: A lack of space for basic community activities An old and dated environment Declining visitation 19. An early estimate of the space required for the central library to function as a community hub is 4500sq.m. Given existing building issues and the issues with the library operational environment, doing nothing has not been identified as the recommended preferred way forward. Initial work has produced several options to house the future central library. These and others should be investigated as part of a detailed business case. These options include: 4. Develop a new community hub library Build a new, expanded and future-proofed city library on the Willow Street site that implements a community hub model and meets the needs of a growing city. This would be a platform for learning, innovation and connection, and a valued strategic asset. It could provide an opportunity for colocation of ancillary users, such as Citizens Advice Bureau and a café. 5. Remediate and future proof Remediate and future proof the existing library building to provide a more modern library service, with potential to increase its footprint, and enable delivery of community learning and education activities. 6. Remediate only Remediate the existing building to resolve building issues. This would provide the same level of services and activities that the Tauranga Library currently offers and provides limited opportunity to expand into the areas recently evacuated by Council office staff. An associated consideration for the completion of the detailed business case is the need to confirm the future of the current Library building, which could be used for libraries services or an alternative use. A decision of whether or not to retain the Library building impacts on the 18 Includes Greerton library 19 Visitation to Tauranga libraries went up 14 per cent in the period. However, visitations to the central library dropped by 12 per cent over the same period Tauranga Civic Space Options Programme Business Case 68

71 ability to provide the proposed performance venue at 91 Willow St described in Masterplan option 3. The estimated cost for this project is as follows: Table 22. Capital Costs for Library Business Case Capital Project Total Cost 2016/ / / /20 Un-inflated $,000 $,000 $,000 $,000 $,000 Library Business Case $200 $100 $100 $0 $0 Proposed implementation timeline is for completion by Investigating a museum The recommended preferred way forward on the museum is to develop a detailed business case over the next two years. The business case would investigate: The international and domestic visitation market potential The value residents place on the existence of a museum The strategic and operational model options Associated costs Estimated benefits Potential funding for a museum project. The concept of a museum in Tauranga has been explored many times over the years. There is considerable background to this project, including Council s proposal to develop the museum on the waterfront pre-2008 and since 2010 the Tauranga Moana Museum Trust s proposal to develop a museum on Cliff Road. None of these proposals have succeeded, partly due to prioritisation. Tauranga remains the only New Zealand city of its size to not have a museum. Tauranga s current Heritage Collection is held in storage, with items being lent to schools on occasions. Tauranga has important Maori and maritime history as well as landmarks of national significance such as Gate Pa, the Monmouth Redoubt and Mauao Historic Reserve. At the moment, this heritage is little celebrated and not presented as a drawcard for visitors as there is no coherent trail linking these historic landmarks or a gateway point. Local residents have expressed support for a museum through the Civic Heart engagement as well as in a non-representative survey 20. Further conversation with the community would be necessary to confirm this desire, as well as their willingness to pay. 20 Tauranga MP Simon Bridges survey Tauranga Civic Space Options Programme Business Case 69

72 There is an opportunity for Tauranga to develop a museum in the city centre to celebrate and share Tauranga s unique history and culture, and promote the city s identity. The business case would need to define the strategy a museum would adopt for example permanent display, exhibition, learning, digital access, etc. Tauranga could be the first city to position its museum in the context of the new National Historic Landmarks legislation and develop its museum as a modern interpretation centre (with some of the collection on display). It could serve as the launch point for a tour of the historic landmark sites in Tauranga. As such it is not envisaged the museum would need to have a large foot print. For modelling purposes the museum was scaled at 2,500 m2, allowing for some space for permanent exhibition, some educational and discovery exhibition space and a mini theatre. The business case would need to review this and investigate the option to co-locate some commercial activities (e.g. small museum shop and café) as well as the city centre i-site. There is also some scope to have shared space with the library for educational and learning purposes. The NZIER analysis provided the following range of potential benefits from developing a museum: Would allow Tauranga to showcase its heritage collection and host touring exhibitions. Would contribute to increased foot traffic in the civic campus and assist in increasing the economic vibrancy of the centre. Could attract international and domestic visitors to visit the civic precinct and surrounding areas and increase their spending. Could provide a focus point for showcasing the significant Maori and maritime history in the area and provide a point of difference from other locations. Has the potential to be a starting point for interpretative tours of significant historic and archaeological sites in the area such as Gate Pa, the Monmouth Redoubt and Mauao Historic Reserve. A museum was associated with high levels of benefits for Tauranga, with a benefit-cost ratio at programme business case level of 2.6. The main monetarised benefits are twofold: Social benefits: there is an existence value derived from the museum for local residents that can be estimated based on a willingness to pay basis. Economic benefits: a museum would attract additional domestic and international visitors to the city centre. The estimated cost for this project is as follows: Table 23. Capital Costs for Museum Business Case Capital Project Total Cost 2016/ / / /20 Un-inflated $,000 $,000 $,000 $,000 $,000 Museum Business Case $100 $100 $0 $0 $0 Proposed implementation timeline is for completion by Tauranga Civic Space Options Programme Business Case 70

73 Investigating a Performance Venue The recommended preferred way forward is to develop an investigative business case over the next two years. It would investigate whether the opportunity to develop a 1,000 1,200- seat performance venue on site should be preserved for the future. Unlike the detailed business cases for the library and museum, it is not anticipated that this work would result in a recommendation to invest in a new facility. The performance venue is considered as a medium- to long-term project (i.e. 10 to 15 years), partly due to affordability issues. The 577-seat lyric theatre Baycourt Community and Arts Centre is small in size for the Tauranga population and projected growth. The existing space lacks capacity and flexibility. As a consequence, residents are missing out on national and international events and shows. At this early stage, industry experts have indicated that seats might be the optimum size to attract the larger touring shows that Tauranga is currently not attracting due to lack of suitable venue. The option to upgrade the existing Baycourt building was discarded after architectural firm Warren and Mahoney advised that there is not sufficient space to expand it to a seat space. The masterplan options focus on developing a new seat performance venue as part of Option 3. A new performance venue would provide the city with a performance venue of a size that supports the Tauranga population. Tauranga currently has fewer theatre seats per capita than cities like Dunedin and Napier. A new performance venue would also attract visitors and support economic development in the city. The availability of suitable hotel accommodation in close proximity is a prerequisite to attracting overnight visitors. It is intended that a performance venue would be a flexible theatre and flat floor flexible space that could be used not only be for events but conferences and convention space also. The masterplan approach taken as part of the programme business case ensures the right concentration and mix of activities occurs and suggests a logical area for the performance venue in the south- east corner of the site. This area at 91 Willow St site would ensure that any future back of house activity can be shared with Baycourt. This project could only be located here if the current library building was removed. Analysis by NZIER suggested that: There is potential for more and larger arts performance events in Tauranga than currently hosted to be confirmed by further research There is a shortage of venues with the size and flexibility to stage larger conferences and conventions with ability to draw delegates from outside the city. Yet demand for such large (often multi-day) events is limited (noting that Tauranga s market is primarily the domestic market). NZIER benefit cost analysis on the performance venue is highly exploratory due to the lack of previous market research. NZIER estimated that for the benefits of the performance venue to equal the costs (i.e. a benefit-cost ratio of 1), the performance venue would need to attract overnight visitors for the equivalent to 10 sold-out performances and 8000 additional overnight conference delegates annually. Tauranga Civic Space Options Programme Business Case 71

74 The investigative business case would examine the likely market demand and opportunities for arts performance and conferences / conventions and whether Tauranga could support a new performance venue of this size in the future. It would look at the viability of options to increase performance capacity. It would closely link to the proposed detailed business case for a new library as the ability to develop a performance venue on site is intertwined with the future of the current Library building. The estimated cost for these projects is as follows: Table 24. Capital Costs for Performance Venue Business Case Capital Project Total Cost 2016/ / / /20 Performance Venue Business Case Un-inflated $,000 $,000 $,000 $,000 $,000 Proposed implementation timeline is for completion by Indicative costs and benefits $200 $0 $100 $100 $0 The un-inflated costs of the projects selected as the recommended preferred way forward can be disaggregated as follows: Building Elements $0,000 Civic Office Building $60,165 Civic Plaza $3,964 Civic Square on Masonic Park $2,308 New Library 0 Update current Library 0 Repurpose Building B (office) 0 Museum 0 Street Scape 0 Performance Venue 0 Performance Venue Parking 0 Business Case Elements Museum $100,000 Library $200,000 Performance Venue $200,000 Total Capital Expenditure $66,936,524 Tauranga Civic Space Options Programme Business Case 72

75 Based on NZIER Benefit Cost Analysis, the monetary benefit estimates of the building elements are as follows 21 : Building Elements Civic Office Building $143,000,000 Civic Plaza Civic Square on Masonic Park Not quantified Not quantified Total Benefit Estimates $143,000, No monetary benefits are derived from business cases Business cases are necessary analytical tools to support future decision-making. Tauranga Civic Space Options Programme Business Case 73

76 Financial Case The Financial Case provides assurance that the preferred way forward is affordable to the organisation. The preferred way forward sets out the elements that need to proceed urgently and have demonstrated value for money. The Financial Case assesses the programme of expenditure as proposed in the Long Term Plan Amendment (i.e. the recommended way forward in the report plus Harington St car lark) in relation to Tauranga City Council Financial Strategy and the effects of investment on rates and debts. Analysis of the financial impacts was completed in relation to the elements in the preferred way forward only. The Financial Case does not consider the financial impacts of the three short-listed masterplan options in any details. Investment in any elements not included in the recommended preferred way forward (for example library, museum, and performance venue) requires further consideration as part of the business case process. Further Council consideration of investment in any other elements such as library, museum or performance venue would include consideration of funding options. This level of analysis would be undertaken as part of a detailed business case process. Financial Strategy Adopting principles of prudent financial management, Tauranga City Council adopted a Financial Strategy that underpins our Long Term Plan This strategy takes into account Tauranga s growth over the next decade. Growth requires investment in services and infrastructure to ensure that our city is fit for purpose. The aim is to manage rates levels by ensuring Council provides services efficiently and manage its debt levels. The main quantified limits on rates and debt contained in the Financial Strategy are: Rates Quantified Limit on Rates Increase: Limit rates increases to Consumer Price Index (CPI) plus 2% after growth in the rating base, and Quantified Limit on Rates: The total rates requirement for each year of the Long Term Plan is guided by the quantified limit on rates increase %. Therefore, it is calculated as the previous year s rates requirement multiplied by the quantified limit on rates applicable to that year. Debt Maintain a debt to revenue ratio below 225% Impacts on rates Under a procurement model where the Civic Administration Building is owned by Council, and without any adjustments (see below) changes to the rates requirement would result in 2020 and 2021, the rates would be 4.6% (increase 0.5%) in 2020 and 4.2% (increase 0.6%) in The rate increase percentage then falls below the rate limit in the adopted Long Term Plan from Alternatively, if the building is leased, the rates requirement in the 2020 year (i.e. the first year of the lease) would be 5.1% which is 1.0% above the limit. This is due to operating costs of a lease being higher than the operating costs associated with council debt and Tauranga Civic Space Options Programme Business Case 74

77 depreciation. The quantified limit on total rates requirement measure is exceeded in the same years the limit on rates increases is exceeded. The graph below show the changes to Council s rates requirements which would result from the Long Term Plan Amendment (if these were not managed through reprogramming and reprioritising expenditure as noted below): Graph 1. Changes in rates for preferred way forward Impacts on debt On the same assumption under the Civic Administration Building owned option the debt limit would be exceeded from 2019 to Alternatively, if the lease option is chosen the liability recorded is a lease liability, which is currently not in the debt to revenue ratio in the Financial Strategy. Council does not propose to amend the Financial Strategy as part of the proposed Long Term Plan Amendment. Ultimately, the effect on rates and debt limits will depend on the procurement method for the Civic Administration Building which has yet to be selected. Furthermore, it is proposed that Council would re-programme capital expenditure and reprioritise operational expenditure to remain within the limits in the Financial Strategy for those years where the limits would otherwise be exceeded as shown in the following table. The graph below show the changes to Council s debt requirements which would result from the Long Term Plan Amendment (if these were not managed through reporgramming and reprioritising expenditure, as noted above): Tauranga Civic Space Options Programme Business Case 75

78 Graph 2. Changes in debt requirements for preferred way forward Changes to the rates needed to collect and Council s debt level The table below provides details of the changes to Council s rates and debt requirements which would result from the Long Term Plan Amendment. The incidences where the rates and debt limits expressed in the Financial Strategy limits would be exceeded, without any other adjustment (see above), are highlighted in yellow on the table below: Table 25. Changes to the rate and debt requirements Financial Year ended 30 June Rates requirement - adopted LTP $m 120 $125 $131 $137 $145 $153 $159 $166 $172 $178 Rates requirement LTP amendment $m 120 $125 $131 $137 $146 $155 $161 $168 $174 $180 Change to LTP $m 0 $0 $0 $0 $1 $2 $2 $2 $2 $2 Rates increase (exc growth) - adopted LTP 3.40% 2.50% 3.40% 2.90% 4.10% 3.60% 2.10% 2.80% 1.70% 1.70% Rates increase (exc growth) LTP amendment 3.40% 2.50% 3.40% 2.90% 4.60% 4.20% 2.10% 2.80% 1.70% 1.70% Change to LTP 0.00% 0.00% 0.00% 0.00% 0.50% 0.60% 0.00% 0.00% 0.00% 0.00% Rates Limit (CPI+2%) - adopted LTP 3.70% 3.90% 4.00% 4.10% 4.10% 4.20% 4.30% 4.40% 4.40% 4.50% Debt $m - adopted LTP 355 $410 $442 $465 $488 $495 $493 $469 $423 $419 Debt $m adjusted LTP* 355 $390 $422 $445 $468 $475 $473 $449 $403 $399 Debt $m LTP amendment 355 $386 $446 $506 $538 $545 $542 $517 $471 $466 Cumulative Change to LTP over 9 years 0 ($4) $24 $61 $70 $70 $69 $68 $68 $67 Debt/Revenue Ratio - adopted LTP - Limit 225% 189% 217% 222% 224% 223% 217% 209% 190% 165% 157% Debt/Revenue Ratio - LTP Amendment - Limit 225% 189% 204% 225% 243% 245% 237% 227% 207% 182% 173% Change to LTP 0% (13%) 3% 19% 22% 20% 18% 17% 17% 16% Assumptions: The financials presented are based on the Civic Administration building build and own option described above. Under the lease option the rates requirement would be slightly higher from 2020 and would result in a rates increase of 5.1% in 2020 which is above the rates increase limit. A lease liability would also be recognised in the balance sheet which would be slightly higher than the new debt associated with the build and own option. However, the lease liability would not be recognised in the debt to revenue ratio limit in the current financial strategy. Tauranga Civic Space Options Programme Business Case 76

79 The table above is based on the population growth and CPI assumptions contained in the adopted Long Term Plan. The opening debt position has been revised downward by $20 million in 2016/17 to reflect higher development contributions, unbudgeted Council revenue from land sales and slower capital delivery. The interest rate on debt has been revised downward by 0.5% from 6.0% to 5.5% in respect of the Capital Projects contained in the Amendment, to reflect the significant downward movement in interest rates since the Long Term Plan was adopted. All costs shown in the report are adjusted for inflation, unless otherwise stated Civic Administration Building funding is recovered 70% from rates funded activities and 30% by activities funded by user fees and charges including Wastewater, Water Supply and Building Services. The following table provides details of all the capital projects proposed in the Long Term Plan Amendment, including the type of project, when the project is planned to be carried out, the annual and total cost and the type of project: Table 26. Long Term Plan Amendment Capital Projects Financial Case Conclusions The recommended preferred way forward is deemed to be affordable in that it is largely consistent with agreed rates levels. Analysis demonstrates that Financial Strategy limits on rates and rates increases are forecast to be exceeded by small amounts in some years from The Council has the opportunity in the Long Term Plan to re-assess rates limits, and ensure that rates requirements are maintained within the existing financial strategy levels by reviewing and reprioritising the capital programme and operational expenditure. The financial information presented in the tables for the preferred way forward are based on Council building and owning the Civic Administration Building. A different procurement method (e.g. leasing) would lead to slightly different financial impacts as described above. The Commercial Case demonstrates Council has flexibility in procurement. The final procurement method is yet to be determined and could be build and sell, outright leasing or a joint venture to name a few options. Tauranga Civic Space Options Programme Business Case 77

80 Commercial Case The Commercial Case provides an indication of the likely commercial viability of the preferred way forward. More detailed consideration of the Commercial Case will be undertaken at the Detailed Business Case stage and investigate potential suppliers, and how those suppliers may be utilised. Market capability The characteristics of the proposed programme of work will be attractive to the market and generate interest from a variety of supplier types. The size and scale of this requirement is not unusual in the Waikato/Bay of Plenty, or in New Zealand. Different ownership models will generate interest from a variety of supplier types. Regional suppliers have the skills, capacity and access to capital for this type of development. In the event that scale, complexity and risk profile of the development expands, suppliers with proven and complementary track records for large scale developments will likely need to be sourced nationally. Own versus lease The basic options for the procurement of the Tauranga City Council workplace accommodation are: I. Council to build and own. Examples of organisations that are following a similar strategy include a. Zespri II. Council to develop a building to sell and lease back: a. The sale and lease back option could be pursued with the private sector, or b. A special purpose authority could be established by the Council which would own, manage and lease the property. Council is currently considering the establishment of a development agency to deliver a wider portfolio. It may not be efficient from a time or resource perspective to establish an agency for just this aspect of the programme. III. Outsource the development of the building to the private sector, which would retain ownership and lease back to Council. There are a number examples of this approach in the last three years including: a. PMCoE: Christchurch and Wellington Accommodation Precincts Programme b. IRD Hamilton c. Trustpower, CLM Elizabeth Street, IRD Tauranga CBD d. Fonterra Global Headquarters, ASB New Zealand Headquarters, Auckland IV. Develop a joint venture with a private sector organisation, with the latter taking the lead in development. This would involve the retention of an equity stake in the building. An example of this type of development was undertaken by Christchurch City Council with Tauranga Civic Space Options Programme Business Case 78

81 Ngai Tahu for its office accommodation. A derivative of this would be for Council to subsequently purchase back the whole of the development once complete or at a later date. The latter three options would require detailed risk allocation analysis in order to secure an appropriate commercial deal that benefits both parties and creates a viable and attractive deal to the commercial market, and demonstrates value for money to ratepayers. This is a commonly adopted framework in New Zealand. Council s decision to own or lease is subject to further testing of whole of life cost comparison, the capacity for risk management and satisfying the local political environment. The decision to own or lease will be contingent on perceptions of whether or not developing, owning and/or investing in commercial property is considered a core business activity of the Council, especially in a relatively small local property market. A Council owned and funded model is most like Business as Usual and will tend towards traditional procurement models that have well established processes within Council. The office, carpark and open space as one project would be possible in this case, with social infrastructure like the Library and Museum also forming a typical Council led project profile. If an alternate development model is selected for the office space other elements could be bundled in, such as the proposed Harrington Street car park and / or Durham Street hotel. Bundling elements for scale could offer additional opportunities for generating supplier interest. However the viability of each of these elements locally may negatively impact the overall viability of the development. In addition the local development community may be excluded due to its ability to raise the necessary capital. Adding additional (non-council) elements such as retail, increased GFA and/or co-location opportunities into the office development to increase scale and catalyse the city centre improvement could provide investment diversity and flexibility, however the private sector is likely best placed to respond. Private sector innovation can be advantageous. The own versus lease options will be subjected to further analysis at the Detailed Business Case stage to determine which approach best meets the Strategic Case objectives and drivers. Private sector partnering The benefits of the Council engaging with the private sector include the ability of the private sector to provide fresh ideas and fresh perspectives to the challenge. Property currently represents an excellent investment in the market. This adds to the likely attractiveness of the proposed development to the private sector. A Council partnership with the private sector is likely to generate significant interest, given the quality and tenure that Council will offer as a tenant. However comparatively lower local market rents for high quality office accommodation, and associated capex costs, may impact the commercial viability compared to similar developments in larger markets. These two opposing factors will require further analysis and market testing to ensure a robust view. In addition the provision of car-parking is also likely to impact on the attractiveness of the investment to private investors as it will increase the overall cost of the development. Tauranga Civic Space Options Programme Business Case 79

82 The civic open space will also need careful consideration regarding inclusion in any development bundle as the private sector has generally expressed low interest in the supply and development of civic open spaces. Due to the potentially high level of political and community involvement the Council may be better placed to deliver this outcome. For example Wynyard Quarter space activation was Council led, while the remainder of the building development was developer led. Other elements that would impact the viability and/or attractiveness of the deal to private sector developers include bundling the development with any or all of the following building developments: Library building Museum building Performance venue New Harington Street parking building Durham Street Hotel. In addition the level of financial attractiveness of public car-parking to investors will require further analysis in the Tauranga context as the revenue streams for car-parking are currently controlled by Council policy and rely on a whole of network revenue approach to retain the parking asset as a user pays activity. It is a generally agreed principle that the more complicated the deal, the increased likelihood of additional time and risk of incompletion. The development market is more likely to respond favourably to a requirement that is well structured, fair and has clear political support. The commercial model for office development is better understood within the private sector than the development of social infrastructure such as Libraries and Museum s. Factors that influence this include the specialised nature of the design which make it difficult to re-tenant. This may impact the attractiveness of the proposal within the private sector. A private sector partnering approach presents the highest time risk to Council due to the uncertainty around forming a suitable development agreement. This can be mitigated by Council continuing to lead the design in parallel; however this in itself introduces other issues. More particularly, progressing the design too far will both limit the opportunity for private sector innovation and is likely to de-incentivise the commercial deal itself. Accordingly, Council will need to prioritise / balance the relative strategic drivers around timing and private sector involvement. It is suggested that Council structures its programme of works around bringing forward those items that will bring certainty to the private sector, for example a consenting strategy / constraints as well as continuing with its workplace strategy. Scale, risk and complexity of development The private sector may be enticed by a risk allocation model that includes elements such as Council underwriting and/or capex contributions or leveraging the cheaper cost of borrowing capital that may be available to the Council. As Council carries out further Business Case assessments of the elements of the more ambitious option, including the specialist purpose elements such as the museum, library Tauranga Civic Space Options Programme Business Case 80

83 and performance venue, attracting investors with longer term investment strategies and return objectives investment horizon will be necessary. The risk profile, time requirement and subsequent attractiveness of the proposal to suppliers, will change with scalability i.e. from the least ambitious to the most ambitious option. Detailed analysis of all the risk factors will be undertaken in the Detailed Business Case stage and the outcome of this analysis will inform the preferred procurement approach and delivery structure for each project. Other risks (opportunities and threats) The advantages of leasing include greater responsiveness to changing organisational needs. Leasing transfers the risk to the private sector. The private sector developer is in a stronger position to develop a bigger building. The additional space is leased to other tenants until the anchor tenant grows enough to take over the rest of the space. Political risk: A large scale development of this size may exclude the local development community and Mum and Dad investors. This could present political risk to Council if it is perceived as dominating the tenancy market for the foreseeable future by providing additional space for private sector commercial office activity. Perception of Value for Money: In the event a development partner approach is the most appropriate outcome, perceptions around the private sector benefitting from public sector investment will need to be addressed. Market credibility risk: This requires mitigation through clarity on programme and project objectives, as well as developing an appropriate risk share approach in any competitive procurement and negotiation process. Additionally clear political willingness to engage with the private sector is required. Risk transfer costs: Risks transferred by engagement with a private sector led development will result in greater cost clarity but with some higher up-front costs. The fast track process for establishment of the Programme Business Case will introduce conservatism into the capital cost estimates as suppliers will factor in larger contingency margins to mitigate their exposure to risk. Capital cost has a significant bearing on the viability for development as well as the analysis of lease versus own. The additional concept design work being undertaken will mitigate some of this risk. The process of engaging with the private sector is protracted and this results in the need to manage expectations with key stakeholders including staff, Council and ratepayers. Risk goes hand in hand with the level of control over time, cost, quality and development outcomes. For example if the Council wants to control the process from a time perspective then it will present a lower risk to develop and deliver it themselves. Council is not yet in a position to make a firm decision on its preferred procurement approach until such time as some key decisions have been made. The most significant of these relate to the various matters covered in this commercial case. Tauranga Civic Space Options Programme Business Case 81

84 Given the level of uncertainty in some key areas it is recommended that Council proceeds with more detailed assessments before actively engaging with the development market. Reduced uncertainty is expected to result in better engagement and therefore increased value for money. Tauranga Civic Space Options Programme Business Case 82

85 Management Case The Management Case addresses the achievability of the proposal and planning arrangements required to both ensure successful delivery and to manage project risks. Project Management Strategy and Framework Council established a high-level project establishment plan at the outset of the Council Civic Spaces Options project. The plan, referred to as Council Campus and Civic Facilities Project Establishment Report - 25 August 2015, outlines the objectives, approach, project stages and decision-making gateways based on Better Business Case Methodology. Council s internal policy Project Management Structure was applied. The Management Case assesses at a high level the capacity, capability and proposed delivery structure that could be appropriate to deliver the next stages of the Business Case and through to the implementation stage. As the project transitions from Programme Business Case through to Detailed Business Case and Implementation of the preferred option(s), the delivery structure will evolve to suit. A possible suitable governance and organisational chart is as follows with key commentary below. Tauranga Civic Space Options Programme Business Case 83

86 Diagram 4. Potential Governance and Organisational Chart Tauranga Civic Space Options Programme Business Case 84

87 Taking a Programme of Works approach to delivery and implementation will best realise the project objectives in an efficient and cost effective manner. This approach differs from a typical project approach in that the various separate elements (projects) are delivered under a formalised and coordinated structure. The organisation chart included above represents a possible governance and delivery structure for the full programme of works once this current tranche of work has been concluded. This will require review and finalisation once the Programme Business Case has been considered and the scope and timing of the preferred option has been identified. In addition, depending on the capacity, skills and responsibilities of the Programme Manager there may be a requirement for a Programme Sponsor type role to bridge the gap between governance and implementation. Of the existing workstreams, Funding & Finance and Economics will continue predominantly in relation to the exploration business case work around the library, museum and performance venue. As other elements of the programme have more certainty around them, additional project specific governance and structures will be wrapped around what was previously addressed via the Masterplanning and Elements workstreams. Council currently has a core project team comprising largely of Council staff supplemented with a small number of key consultants. This team will need to change and/or be added to in some areas as appropriate with each tranche of delivery. The team is relatively small at the moment and as the project progresses the team size will grow. Team members can be procured or engaged through the market or seconded from within the organisation. A number of appointments will be required by Council for the next stage of the Business Case and/or delivery of the preferred option(s) of the project. As noted above, further analysis is required as to timing to align with the various final tranches of work requirements. Some of the core project roles are: Table. 27. Roles & Responsibilities Role Responsible for Programme Manager Change Manager Risk Manager Technical advisors (Who: External Consultants 22 ) Single point of responsibility to Council s Programme Steering Group to oversee and co-ordinate the outcomes of the preferred option against the Strategic Case objectives. This includes interfacing between the individual project sponsors for co-ordinated portfolio reporting and decision-making Responsible for delivery of the organisational change workstream Responsible for establishment and management of the Programme Risk Framework Business case, property, development advisory, project management and design consultants. Providing specialist expertise as required to assist Council in achieving its objectives 22 Note: in order to progress the office, open space and parking elements to the Detailed Business Case phase the majority of the consultant team will need to be procured Tauranga Civic Space Options Programme Business Case 85

88 User Representatives (Who: Manager Library Museum Specialist Performance Venue Specialist 23 ) Responsible for design briefing and inputting, business establishment including systems, human resources and operational structures and management of the respective facilities post-handover. These roles may be internal or externally sourced and the nature and level of experience dependent on the preferred option(s). Exact roles and responsibilities will depend on the agreed Project Management framework adopted and the associated organisational structure required. Outline Project Plan Below is a possible programme delivery outline for the full scope of works envisaged by the Civic Space programme. This reflects the current state of various individual project elements that have advanced to different levels of detail. In particular the office, open space and parking is considerable more advanced that the library, museum and performance venue. The outline project plan will be subject to further review once the Programme Business Case has been considered and the scope and timing of the preferred option has been identified. Diagram 5. Potential Programme Delivery 23 Note: these interim specialist roles will need to be replaced by full-time permanent Director positions as the individual projects progress Tauranga Civic Space Options Programme Business Case 86