The true cost to council tax payers of Birmingham’s new civic library could top £590 million, the Birmingham Post has discovered.
Interest repayments on money borrowed to build the Centenary Square library and other extra costs, including maintaining the building, means that the final bill may be three times the “maximum” £193 million figure that the city council has been quoting for two years.
Financial estimates for the project were discussed behind closed doors by the council cabinet this week, with councillors and officials claiming the figures were commercially sensitive and should remain confidential for the time being.
However, following mounting anger among opposition Labour members and some backbench Tory councillors about the real cost of the library, council leaders agreed to a request by the Post to publish part of the cabinet report.
The figures show that the council will borrow £135 million, with interest repayments at £7.5 million a year for 40 years – making a total of £300 million.
Adding on the remaining £48 million of the £193 million headline figure would bring the cost to £348 million.
But on top of that has to be added £15 million to repay additional loans taken out by the council between now and 2013, when the library is due to open, plus the £15 million cost of the project team appointed to drive the scheme forward – making a total of £378 million.
Finally, the estimates assume that the council will be able to offset the cost by raising £34 million in sponsorship and public subscriptions, although none of this has yet been identified. Failure to raise all of the sponsorship money would bring the final library bill to £412 million.
The council is also making plans to set aside £3 million a year for annual maintenance on the new building over a 60-year period, a projected total of £180 million – making a grand total of £592 million.
Council leader Mike Whitby told the cabinet that “major and significant” savings to the cost of the library had been negotiated with contractors Carillion, who will be paid a fixed lump sum of £144.5 million to deliver the building by June 2013.
He said: “We have had very healthy negotiations with Carillion and have already made major savings in the headline price.”
In fact, the only savings so far agreed amount to £4.2 million off Carillion’s bill – a reduction in the £193 million headline figure of less than three per cent.
The scale of the long-term financial commitment for the library prompted Tory councillor Randal Brew to warn that the city might be overstretching itself by racking up expensive interest repayments.
Coun Brew (Con, Northfield), who last year unsuccessfully challenged Coun Whitby for the Tory group leadership, said he was concerned that the council was “storing up problems for the future” with the growing cost of repaying loans which would eat into money that could otherwise be spent on front-line services.
The city already has £2.4 billion of debt, although it remains safely within the limits set by the Government for prudential borrowing.
Coun Brew added: “These schemes seem to be costing us more than we first thought. The next few years will be difficult enough in terms of public spending pressures from central government.”
Ian Ward, deputy leader of the opposition Labour group, said it was “highly unlikely” that the council would be able to raise £34 million in sponsorship in the present depressed economic climate.
Coun Ward (Lab, Shard End) added: “Mike Whitby’s claim that this is coming in under budget simply isn’t right. This is an extremely expensive project and I think we have to question the value for money for council tax payers.”
The council remains confident that substantial reductions in the final bill for the library can be achieved.
Assistant culture director Brian Gambles said he expected minimum additional savings of about £17 million. It was also unlikely that more than a fraction of a £10 million contingency fund would be spent, he added.
Mr Gambles said: “What we have negotiated with Carillion is £4.2 million below their target cost. That’s an immediate saving. Carillion’s fixed lump sum is £144.5 million, of which about £100 million is fully tendered, negotiated and agreed.
“The other £44 million is fixed only in the sense that it has a ceiling. It won’t be any more than that, but may well be less.
“The furniture for the library hasn’t been designed and we have a generous allowance for it. We can be very confident that we will be within that.
“We know we can drive down further some construction components of the budget.
“The cost of removing the contents of the Central Library to the new library is still under discussion.
“I would be confident that the £4.2 million we have already identified as a saving will be in the order of 25 per cent of the total savings.”
Mr Gambles warned against becoming too concerned about repaying borrowing costs, the impact of which will be reduced by inflation over 40 years.
He said: “When you buy a house over 25 years with, say, a £200,000 mortgage you don’t think of the cost of the house in terms of the £400,000 that you will be paying back.”
The £3 million a year set aside for maintenance was an essential part of the project, he insisted.
Plummeting land values take toll
The business plan for the new library has fallen foul of the credit crunch and plummeting land values.
When council leader Mike Whitby announced in October 2007 his grand plan to build the library on a car park in Centenary Square, he envisaged raising a quarter of the £193 million cost from selling valuable sites in the city’s possession.
The deal rested on using £30 million from a capital receipt for the Wholesale Markets site at Digbeth and £15 million from disposing of the Paradise Forum site of the existing Central Library.
In fact, the 21-acre markets site has still not been sold and the council has long since realised that the redevelopment of Paradise Circus is likely to be so costly and complex that there is little chance of any profit from land sales.
A further £39 million of the cost of delivering the new library was unaccounted for, even in 2007.
Estimates in the original business plan by Capita Symonds proved to be sound. The cost of construction was set at £89 million, preliminary work at £27.6 million, and construction cost inflation at £30 million – a total of £147 million. As it turns out, construction firm Carillion will be handed a fixed-lump sum of £144.5 million to deliver the library.