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Fixed interest loan presents pathway for Newcastle Art Gallery expansion to proceed

Fixed interest loan presents pathway for Newcastle Art Gallery expansion to proceed
July 23, 2021

A financial report concludes that a loan with a fixed interest rate of less than 1% presents a pathway for the City of Newcastle to fund the $35.6 million expansion of the Newcastle Art Gallery – doubling the Gallery’s size.

The financial report recommends the preferred funding option is to borrow up to $22.6 million over a 10-year fixed rate term from NSW Treasury Corporation, which is the central borrowing authority for the New South Wales public sector.

Newcastle Lord Mayor Nuatali Nelmes said while this funding option has been identified as preferable, City of Newcastle would continue to seek Federal and State grant funding before taking out the loan to ensure all available grant funding options have been exhausted.

Last year, NSW Arts Minister Don Harwin ruled out funding the Newcastle art gallery expansion. While Minister Harwin has praised plans for an upgrade of the Newcastle Art Gallery he has also previously told Council the State Government would not be paying for it.

City of Newcastle has already approved a development application for the project, which includes upgrading and expanding the Gallery to provide modern facilities such as a new café and retail shop, multi-purpose and educational program space, improved display and secure international standard loading dock.

An additional 1,600 square meters of exhibition space will include dedicated areas for the Gallery's collection on the lower level, while the upper level will cater for a variety of travelling exhibitions, including international shows.

Newcastle Lord Mayor Nuatali Nelmes advised "An expansion of the Gallery has been discussed for 16 years with more than $10 million raised by the community to support the project. I’m pleased to say that City of Newcastle staff have identified a funding pathway to more than double the size of this wonderful community asset and make our shared dream a reality.

"With the current favourable economic conditions, including historically low interest rates, the time has come for City of Newcastle to make this project happen.”

Lord Mayor Nelmes said a number of options including using cash reserves, external loans or a combination of both, have been evaluated in the report to Council, with a recommendation to borrow up to $22.6 million via a fixed interest rate loan of 0.88% over 10 years to fund the balance required for the expansion project.

The various options were compared on their Net Present Value (NPV), with estimates showing that borrowing up to $22.6 million over 10 years at all-time low interest rates far outweighs the benefits of using our own cash.

Lord Mayor Nelmes adds "City of Newcastle is committed to the Newcastle Art Gallery continuing to be a symbol of excellence and source of pride as a major cultural asset for our state, which is home to a nationally significant collection that includes more than 7,000 works valued at $115 million.”

Loan borrowings are a desirable option given the current economic conditions, which enable Council to undertake this significant work while continuing to deliver a budget surplus and cash reserves.

A tender report will be submitted to Council later this year seeking approval to award a construction contract.

Fast Facts

Newcastle Art Gallery was Australia’s first purpose-built regional art gallery, officially opened by Her Majesty Queen Elizabeth II in 1977.

The Gallery is home to the most valuable collection in regional Australia, with more than 7,000 works valued at $115 million, including art by Arthur Boyd, William Dobell, Donald Friend, Tracey Moffatt, Margaret Olley, John Olsen, Patricia Piccinini, Gwyn Hanssen Pigott and Brett Whitely.

The current footprint of the 44-year-old building only allows 1% of the collection to be exhibited over the course of a year.

The outstanding cost of the expansion is estimated to be $35.6 million, with City of Newcastle having already invested $3.6 million getting to the project to the position of being shovel ready.

Significant funds are being held in trust with the Newcastle Art Gallery Foundation Board for the specific purpose of expanding the Art Gallery, including a $10 million bequest from Valerie Ryan, a commitment to additional community fundraising of $2.5 million and $500,000 from the Margaret Olley Art Trust.

City of Newcastle committed to contributing $16.2 million towards the project (including the $3.6 million already invested) following a unanimous resolution of Council in February this year.

The project was included in the NSW Government's Cultural Infrastructure Plan 2025, which identified the redevelopment of the Art Gallery precinct as a ‘regional opportunity’.

A business case prepared in accordance with NSW Treasury guidelines demonstrates a Benefit-Cost Ratio (BCR) of 1.77 and a positive Net Present Value (NPV) of $24.1 million for the project, which is expected to create 170 jobs, including 152 in construction and 18 ongoing once it is complete.

The expansion is expected to inject more than $1 million into annual regional revenue by attracting more than 14,000 additional local visitors and tourists each year.

Further additional visitation is estimated at 73,590 in relation to use of the additional Gallery facilities outside of exhibition spaces; generating revenue of $2.7 million in relation to the use of these facilities.

Images top: Newcastle Lord Mayor Nuatali Nelmes at Newcastle Art Gallery; images centre and above: Newcastle Art Gallery expansion project renders Courtesy City of Newcastle 

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