Newcastle Now and Hamilton Chamber of Commerce have taken Newcastle City Council to task over plans to change how they are financed and force them to compete against outside groups for ratepayer funds.
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Council chief executive Jeremy Bath said in a statement on the council’s website on Monday that the five “business improvement associations” (BIAs) in Newcastle had been “diverting” an increasing ratio of their funding to administration and salaries, including 46 per cent this year.
The statement says councillors will consider on Tuesday night a recommendation to establish a new framework which “ensures funding is directed to events, local projects and infrastructure”.
“BIAs will not be able to request funds ... for administrative costs and staff salaries,” it says.
Councillors will also discuss an external review of the BIA model completed by consultants AECOM and a separate Centium Group investigation into how Newcastle Now has been funded.
Mr Bath said AECOM had recommended a third party manage administration on behalf of all five BIAs, a move he said would free up about $500,000 for events and programs “rather than red tape and bureaucracy”.
Under the heading “summary of key financial issues”, the AECOM review says it received “incomplete information” from the council and there was “poor financial disclosure relating to BIAs” and a lack of public information relating to how funds have been spent since the groups started in 2011.
The council posted the statement and the full AECOM review on its website after a Newcastle Herald report on Monday in which Newcastle Now and the Hamilton chamber questioned why the review had been listed as a confidential item on the council agenda.
The five BIAs are independent bodies funded by separate levies on commercial ratepayers in the central business district and suburban centres. The council collects the funds and disperses them to the BIAs.
But Mr Bath said the BIAs would have to compete against other groups for at least part of the $1.345 million funds it collected.
He said the AECOM review had found 34 issues relating to governance which needed to be addressed.
“Earlier this year a BIA requested more than $100,000 with no explanation of how the money would be spent,” he said. “Another requested to spend all (and more) of their special rate funding on administration.”
Newcastle Now chairman Edward Duc said the recommendation to councillors was “not consistent with any other BIA model around the world”.
Executive manager Richard Christian said having the not-for-profit BIAs competing against other organisations was “likely to go against the fundamental purpose and objectives of the BIA model”.
Newcastle Now said in a statement that it spent 19 per cent of its funding on “direct administration and compliance and a further 19 per cent goes directly towards delivering projects”.
Hamilton chamber president Nathan Errington, who is not paid, said the proposed funding arrangement would compromise the “independence and hard work of small business”.
He said the chamber spent about $140,000 a year of BIA funding from Hamilton ratepayers on hosting events such as Carnivale, a Supercars event and Christmas in Hamilton, organising business networking events and promoting the suburb.
“There is no doubt in our minds, and the minds of the business community funding us, that BIAs provide great value to the City of Newcastle and, in fact, undertake events, initiatives and activations that cannot be undertaken by council for the budget or the timeframe that we operate within,” he said.
“A key element of the review is that monies will not be used to pay for expertise. It is through contracting and employing the very best support and skills that we have been able to ensure that Hamilton engages and promotes local business effectively and efficiently.”
The AECOM review was conducted at the same time as Mr Bath launched the Centium investigation into whether Newcastle Now had been operating without submitting annual business plans, in breach of its 2011 funding agreement.
The investigation claimed the jobs of two council employees who had been acting as liaisons with Newcastle Now.
The issue flared early this year when lord mayor Nuatali Nelmes criticised Newcastle Now over its advocacy on behalf of traders during light rail construction.
Mr Bath suspended the group’s funding in July, though it has been surviving on a drip feed of payments since then.
READ THE FULL COUNCIL STATEMENT
Council will consider a recommendation to introduce competition for funding among local business improvement associations, to generate more events and initiatives throughout the city, tomorrow night.
More than $10 million has been paid since 2012 to the business improvement associations (BIAs) of the City Centre’s Newcastle Now, the Hamilton Chamber of Commerce, the Wallsend Town Business Association, the Mayfield Business Association and the New Lambton Chamber of Commerce.
This funding is made available from a special rate paid by commercial ratepayers to fund additional promotion and marketing of their local business area.
Four of the five BIAs have this year requested Council funding. Collectively, they propose to this year spend 46 per cent of their ratepayer funds on administration and salaries.
An annual contestable process for the $1.345 million in ratepayer funding is recommended following the finalisation of a report by AECOM (below). The report, which will be considered at the Council meeting tomorrow night, lists 34 issues relating to governance that require addressing by the BIAs.
Council will also consider a recommendation to replace the current model of funding agreements with a new framework that ensures funding is directed to events, local projects and infrastructure. BIAs will not be able to request funds from the City of Newcastle for administrative costs and staff salaries.
A separate, independent report by the Centium Group into funding provided to Newcastle Now will also be shared with Councillors Tuesday evening. This report was prompted by the discovery that around $7 million has been paid to Newcastle Now without a business plan submitted or approved, a requirement stipulated in the association’s funding agreement signed by its then and current Chairman Edward Duc in November 2011.
City of Newcastle’s Chief Executive Officer Jeremy Bath said the AECOM report found that the governance arrangements for BIAs require significant improvement.
“Earlier this year a BIA requested more than $100,000 with no explanation of how the money would be spent," Mr Bath said.
"Another requested to spend all (and more) of their special rate funding on administration.
“More than $10 million of commercial ratepayers’ money has been provided to BIAs during the past seven years. During this time, the amount that is being diverted to administration and salaries has substantially increased.
“For example, every year for the past five years, Newcastle Now has spent at least 43 per cent of its funding on administrative costs and salaries. In 2016, this figure exceeded $600,000 out of total funding of $1,161,596. And in 2017, 56 per cent of Newcastle Now’s funding was diverted to administration and salaries, a record percentage.
“Every dollar that is spent on administration and salaries is a dollar that isn’t going towards on-the-ground delivery of events and programs that attract people to local shops and businesses.
“AECOM recommend that administration expenses instead be managed by a single independent third party on behalf of all five BIAs. Through economies of scale, this will ensure an estimated half a million dollars more is invested into local business areas in the form of events and programs rather than in red tape and bureaucracy.
“The City needs more events, and more focus on tourism and economic development. BIAs can play a critical role in achieving this.
“Significantly, Council will also introduce a more open and contestable process for at least a portion of the annual $1.345 million that is currently exclusively available to the BIAs.
“Competition will bring about a lift in the quality of events and projects that ratepayers’ money is spent on. It will encourage fresh, dynamic ideas for how we drive better visitation and spend in our local business areas.
“Wallsend and Hamilton BIAs have done an outstanding job cultivating events that draw large numbers to their areas and positively promote local shops. Going forward, successful events like the Wallsend Winter Fair, Hamilton Carnivale and China Week will be able to apply for funding in three-year blocks to ensure events have certainty from year to year.
“City of Newcastle is contacted every week regarding inspiring new ideas for events or activations that could promote Newcastle and increase economic activity. BIAs will now compete with these groups for the funds that commercial property owners pay annually in the CBD, Darby Street, Hamilton, Mayfield, Wallsend and New Lambton.
“To further improve governance, any funding request will now include KPIs that explain how the success of an event or program is measured.
“The proposed framework includes improved transparency around the boards of the five BIAs and a clear process for recruitment and selection to a board. A number of property owners who pay the special levy have indicated a view that BIA boards are a closed shop with limited turnover and visibility of how decisions are made.
“A vision and purpose must also be better articulated to ensure consistency in the evaluation of a BIA’s performance. For example, Newcastle Now has a goal to “help and encourage the city (of Newcastle) to live up to its name as Newcastle Business Improvement Association”.
“This goal is at best ambiguous, and at worst makes no sense. Either way, evaluating its performance in meeting its goals is impossible.
“Council will separately review the geographical boundaries of the BIAs. It’s clear that the City’s rapid transformation in recent years which has seen improved establishment of local business areas in Honeysuckle, Carrington, Waratah and the Junction, is an opportunity for the creation of new or expanded BIAs,” Mr Bath said.