Councils are left on the hook for unprofitable projects

Councils have to bail out the losses racked up by public pools and leisure centres, says Conor Ryan, Investigative Correspondent.

Councils are left on the hook for unprofitable projects

Lavish designs and costly heating bills have left the ambitious programme to deliver new swimming pools across the country draining local authority resources.

In many areas, limited companies set up to run new pools on behalf of the councils have had questions asked about their ability to trade as a going concern.

Some authorities have had to write off multi-million euro debts. Others are bound to cover losses however great they may be.

This has all happened after councils bet on investing in bigger complexes in an attempt to deliver sporting centres that would be financially viable.

However, the result is that some struggling councils are having to cut costs across all spending areas, yet are bound to do what ever it takes to keep loss-making pools in business.

Leisure centres were particular showpiece projects for government capital grants in the build-up to the boom.

In May 1998, the new Fianna Fáil-Progressive Democrat coalition made a decision to pump money into recreation.

From a very small level of investment historically, €20m a year was allocated to building projects each year for 2000, 2001, and 2002.

The criteria used was that the funding had to be required to make the facilities viable. Fifty-eight schemes were initially given support from a €57m fund.

Things started out okay. Eleven pools, which had received a total of €42m in grants, were surveyed based on their performance in 2003 and seven reported that they had made a profit. Those that made a loss blamed it on the lack of extra offerings, such as gyms and halls. This was a philosophy that guided later and larger splurges.

Like most areas of spending, the largesse after 2003 went into overdrive. A €15m estimate in 2004 became a €32m estimate in 2005.

By 2007, €326m had been spent on swimming pools. Central government grants accounted for €94m of that.

However, this €94m figure did not represent the total taxpayer liability for these schemes.

The projects were for the most part undertaken by local authorities with, in most cases, a private sector partner.

Before many of those projects received funding, it had been flagged that such operations struggled to wash their own face.

The public-private partnerships were pursued despite Department of Finance advice, dating back to 2001, which said swimming pools were not suitable for PPPs because they were too small in scale to justify the cost of transferring risk to investors.

However, rather than reconsider the approach, a value-for-money report commissioned by the Department of Sport in 2007 said local authorities opted to size up in a bid to justify the expense.

“The cost of a modern public standalone swimming pool is such that revenue generated on a ‘pay per swim’ basis only is probably not sufficient to repay capital and cover operating costs, and this is a regular theme of feasibility reports,” said the value-for-money report.

“Consequently it, has been becoming a pattern of sports and leisure development that swimming pools become part of a larger sports/recreation facility incorporating a gym/fitness area, games area, jacuzzi, treatment rooms, cafeteria, and perhaps part of a larger sports complex with indoor and outdoor playing surfaces.

“As a result, the scale of local authority sports developments has grown considerably. At present, the cost of a multi-use complex (including core pool/fitness/outdoor leisure features) has been up to €20m.”

The €20m figure was well above the maximum grant available from central government. So the councils found other sources of money, which included additional borrowings and guaranteeing the debts of private sector operators.

A run through some of the schemes shows how public-private partnerships now require significant financial commitments on behalf of many local authorities.

The initial promises have had to be called in as profits failed to accumulate as planned.

In some cases, the burdens are significant. Leitrim County Council will have to find €6.1m in 2018 to buy back its swimming pool from a group of investors.

Others have operational agreements to fund deficits that arise, such as in Waterford where the council has guaranteed a private company’s liabilities up to €4m.

Kerry County Council will have to take over Killarney Town Council’s obligations to pay off debts for its new €16m centre on the outskirts of the town.

Kerry already had to step in and commit to keep Ballybunion’s swimming centre afloat.

Another way in which taxpayers’ money has been indirectly used to fund the swimming pools was through loans offered by councils to companies set up to operate the complexes.

In some cases, like Kilkenny, these have subsequently resulted in multi-million euro debts being written off.

Wicklow County Council is owed more than €20m by two new pools which are losing money and do not plan to repay the debt in the near future.

Limerick City Council has said it will not chase €2.9m it was due from the Grove Island leisure centre.

The glut of new and refurbished complexes in towns throughout Ireland was originally aimed at ensuring there was one pool for every 50,000 people.

It was felt Ireland compared poorly with Scotland, where there is a centre for every 15,000 people.

And beyond political capital, the value-for-money review said investment in these facilities was a more inclusive way of channelling funds than other options.

“No other piece of sports/recreational infrastructure can provide the same level of access and availability in terms of catering for all age groups and fitness levels, in all weathers, for up to 18 hours a day, seven days a week,” it said.

The outcome of lavish spending is not uniform across the country. In areas such as Laois, pools are reported to be trading successfully.

However, in others, the debts are mounting and councils are having to drag money from elsewhere to fill the gap.

Kerry

Killarney Leisure Centre.

It has taken deep pockets to deliver and maintain the impressive-looking Killarney leisure centre.

The €16m project was completed in 2008 following grant aid welcomed by the then sports minister, and former Kerry South TD John O’Donoghue.

It is owned by a subsidiary company of Killarney Town Council but is run by a management firm.

Hotels, which have their own pools in the town, did complain that public money would be used to underwrite the losses at the rival complex.

The pool also got mired by a spat between the council and the construction contractor Frank McGrath. An arbitration process resulted in a settlement that cost the council another €800,000 in 2012.

Despite settling that dispute, the centre continues to be a drain on the town council’s budget, which will become the county council’s problem after the elections.

The 2014 budget for the council included €472,856 in support for the centre.

This included €271,895 to repay debt, €43,976 to cover salaries and €150,000 to cover operational losses in the centre.

In 2013, the subvention from the town council was €443,362 as loan repayments were less but the same €150,000 was needed to plug the income gap.

Like all figures, they can be hard to place but, in perspective, the town council’s final full year budget in 2013 had set aside €312,497 to maintain its housing stock, €417,691 on repairing roads and €813,770 on the operation and maintenance of the water supply to the town.

Another troubled project in Kerry is the €5m Ballybunion Health and Leisure Centre, owned by community shareholders, which benefited from grant support under the last National Development Plan.

In 2012, it got into financial difficulty when it had to close for 11 weeks because of an unpaid energy bill.

The council stepped into the breach and guaranteed to underwrite the losses of the centre for 10 years if the Department of Sport provided a €163,000 grant to install a self-sustaining heating and power plant for the centre.

This guarantee was called on to balance the books last year and again in February the council agreed to provide €40,000 to company.

Tipperary

Thurles swimming pool.

Auditors have flagged uncertainty about the future of Thurles swimming pool unless the local authorities in Tipperary continue to cover its losses.

The company has €108,000 worth of debt on its books and the directors of the firm said it was reliant on North Tipperary County Council to keep it trading as a going concern.

The pool is owned by Thurles Town Council, which will cease to exist after the local elections.

Between 2011 and 2012, the council pumped €265,000 in to the business.

Wicklow

Bray swimming pool.

Two local authority pools that benefited from significant investment in recent years owe the council more than €20m but do not intend paying it back anytime soon.

Greystones and Bray had pool projects built under the last National Development Plan and are operated by two subsidiary companies of the council under the brand name Shoreline.

The Greystones complex is controlled by Wicklow Recreational Services Ltd. It owed the local authority €13.6m at the end of 2012. However, its directors reported that they were satisfied nobody would be seeking repayment “in the foreseeable future”.

In Bray, a large devaluation in 2012 left it with combined losses of €1m and a loan due to the soon-to-be defunct Bray Town Council of €10.7m.

Like its sister facility in Greystones, the directors said the company is not expecting to have to repay this any time soon.

Galway

Salthill swimming pool.

For so long, Leisureland in Salthill was one of the most famous pools in the country.

But even before the winter floods closed it down for lengthy repairs, it was under water.

In successive years, the company running the centre on behalf of Galway City Council has flagged its financial troubles.

The council had to cover a €683,474 deficit in 2011 and another €626,879 in 2012. Its directors have allowed Leisureland to remain open, but only on the assumption that its losses will continue to be covered by the local authority.

The local government auditor said that the company only remains solvent because the city council is keeping it afloat.

Management at the city council have told the local government auditor that it and Leisureland’s board of directors are “acutely aware that the facility is struggling to break even”.

In the budget adopted for this year, the council said it expected the situation to improve with the commissioning of energy-efficient gas boilers and its own mini-power plant. Heating water has been a major burden on all pools in the country.

Funding has been cut marginally for 2014.

This budget was adopted before the freak winter storms swamped the promenade at Salthill and destroyed much of the equipment in the centre.

The bill for the work is expected to cost €1m but the work required to get it working will mean Leisureland will miss the busy summer season and cannot reopen until September.

Limerick City

The people of Limerick City have had to write off a large loan and commit to paying for the continuing losses at the new Grove Island complex.

The centre was supposed to be operated by a company jointly owned by the developer of the Corbally mixed-use scheme, Jerry O’Reilly.

The city council guaranteed a €5.5m loan but taxpayers were to be protected by a mortgage over the shares of Mr O’Reilly’s Kings Island Development Ltd.

There was also a personal guarantee offered by Mr O’Reilly of €1m.

However, Mr O’Reilly, who also built Dundrum Shopping Centre, went into Nama and the city council took over the running of the Grove Island centre.

In 2010, the council raised a flag that the developer did not have the resources to meet his guarantee, but he could transfer assets.

The shares held by Kings Island Development transferred to the council and it became liable for all of the debts used to buy the complex.

Auditors have raised concern that the liabilities of the leisure centre are €8m more than its assets. This includes grants which the local authority has guaranteed.

The council has indicated it will not seek the repayment of €2.9m it is due from Grove Island and it will cover the business’s bank loan installments.

Under the Freedom of Information Act, Limerick City Council was asked to release all documents relating to its decision not to call in the debts of the company and underwrite its operating losses until at least November 2014.

However, it said there was too much information covered under the scope of the request to release them.

In December 2012, the council advertised for a new tender to run the centre on behalf of the council.

Limerick County

Askeaton swimming pool.

Limerick County Council own a notch more than half of the shares in Askeaton swimming pool but are carrying all of the burden for balancing its books.

In the most recent accounts filed for Askeaton Pool and Leisure Centre Ltd, the auditors drew attention to the fact that the company was reliant on the council for annual financial support.

In 2012, it required an injection of €117,000 from the council to stay afloat. In 2013, it received another €100,000.

However, when its directors met last year, they were unable to give a cast-iron assurance that it could continue to trade as a going concern because the council may not continue to fund it.

Last September, councillors did vote to approve €50,000 overdraft facility for the pool. Management said the council had invested €715,000 by way of a capital grant and had guaranteed a €4.2m loan over a 15-year period.

The council said the operating environment for the new pool was very difficult as, due to the recession, people had ditched annual memberships in favour of the less certain ‘pay as you go’ approach.

The director of service said there was a “whole range of issues” that were being tackled to improve the viability of the pool.

Leitrim

The county’s leisure centre adopted a different funding model to get the project up and running in 2005.

Thirteen investors helped to build the complex and in 2018 the council is obliged to buy it back from them for €6.1m. In the meantime, the local authority also pays for the loan interest charges linked to the centre at a cost of €160,000 a year.

The council has set aside €2m to help cover its commitment in 2018.

Longford

Longford got a new swimming pool and sporting complex to replace the 50-year-old facility on Market Square but with it has come a financial drain.

The new centre is jointly owned by the town and county council, until the former is abolished this month.

It has offered a vastly improved set up but it has been unable to balance its books and it only remains open because the local authority is helping to pay its bills.

The local government auditor submitted its annual review late last year and having examined the pool’s 2011 accounts said work was required to get it out of the red.

“In order to address the difficulties being experienced by the company the directors have embarked on a programme of restructuring to restore the company to profitability,” it said.

However, the management company has filed accounts since then and confirmed the situation is worsening.

Although turnover rose by 3.9% in 2012, the extra revenue was sucked up in repairing the heating system and energy costs.

This meant the pool lost €172,014 in 2012, compared to €146,561 in the previous year. This had a big impact on its funding deficit. The facility is now underwater to the tune of €875,934. It also owes Longford County Council €1.89m, but the authority has said it will not look for the funding back at the moment.

This allowed the directors to keep the business trading but its auditors, Farrell Grant Sparks, said it was only able to do so because the council had committed to provide whatever cash was required to honour its debts.

In late 2012, a wood pellet heating system was installed to cut heating bills and a new management structure was also established.

Waterford City

The €15m Regional Sports Centre was opened in 2008 by the then sports minister Martin Cullen, a local TD.

However, mounting loss on an existing debt burden has been provoking the concern of local government auditors for a number of years when assessing the effect the special purpose vehicle was having on the authority’s accounts.

“The increasing losses and falling income of the company is a matter of concern, as the council has underwritten the company’s long term loans of €3.8m,” the auditor noted at the end of 2013.

Three years ago, the auditor asked for a full review of the company to ensure it returned to profitability. This has not resulted in the desired turnaround. In 2013 its operating loss hit €213,000.

The facility was delivered under a public-private partnership under the Swimworld brand in Galway. Along with government grants the company also borrowed €4m itself and the council acted as guarantor.

In 2013, the Waterford company’s short-term liabilities increased and its overall shareholder’s deficit grew by 86%. However the company is safe because the city council has guaranteed its liabilities up to €4m.

It also contributes to its budget shortfall and, in 2012, the city council paid €153,750 to the private operator.

Roscommon

Roscommon Leisure Centre Ltd is another operation that is still in business only because taxpayers have committed to cover its losses.

It received more than €100,000 from the council between 2011 and 2012. But of most concern to the auditors was the fact that the council owned 100% of the company but it was not reflected on its accounts.

The council management said due to staff shortages it will not be able to incorporate the pool into its financial statements until 2015 at the earliest.

Kilkenny

A €14.2m loan due to the people of Kilkenny was written off when the new leisure centre proved unable to pay it back.

The Kilkenny Local Authorities Leisure Complex Ltd has been jointly owned by the town and county councils and until 2011 each had been due to be repaid €7.1m.

However, several difficulties came to a head in 2010 at the new centre. High energy costs were a particular issue and the auditors noted that it would have trouble trading if the councils’ support was withdrawn.

The council executive asked members to consider writing off the loan.

This was approved and instead of being owed €14.2m the council got shares in the company. The county council used its reserves to cover the multi-million-euro hit it had to take on the investment.

The council has said the situation has improved on a day-to-day basis and the leisure centre is breaking even.

“The council does not subsidise the operational costs of the leisure centre which is exceptional for a facility of this nature.

“The depreciation cost of the facility was an upfront infrastructural investment by both Kilkenny local authorities for the people of Kilkenny,” it told the local government auditors.

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