Bonds may still leave taxpayer picking up bill
Critics have questioned whether issuing bonds can save the arts district from a severe financial shortfall and prevent taxpayers footing the bill.
The government has underestimated the budget by billions of dollars, forcing officials to explore alternative financing options, in addition to the income derived from investing the approved budget of HK$21.6 billion.
According to Michael Lynch, the chief executive officer of the West Kowloon Cultural District Authority, apart from seeking donations, sponsorship and selling naming rights, issuing bonds will also be part of the funding strategy, and that negotiations with the government on the matter are already under way.
Chau Kwong-wing, a professor at the University of Hong Kong who reviewed the arts hub's budget, said that issuing bonds was a wise decision from a political point of view as it did not require seeking approval from lawmakers, who were already highly critical of the project's development.
However, on the financial front, the government may have to be the guarantor for the bonds issued, so that the authority could borrow the money from the public at a lower interest rate than otherwise available.
'That means the government will have to pay for the authority's debts if the arts hub's operation suffers a loss. So it's taxpayers who end up paying the bill,' Chau warned.
On the other hand, the authority would need to borrow the money at a high interest rate if it did not have the government's backing. 'The authority might then be forced to earn more profit by holding more commercialised events or adding more high-end dining and retail facilities in order to return the money.'
Raymond So Wai-man, dean of the business school at Hang Seng Management College, echoed Chau's views.
'Without the government being the guarantor, few members of the public will be willing to buy the bonds, as an arts hub relying on ticket revenue does not seem an attractive investment tool.'
But So said it was right for the authority to take a prudent investment approach, as it could not afford to lose the money.
'It has to maintain the cash flow for construction in the early years.'
Compared with bonds, allowing a private party to purchase the right to name an arts facility would be a more feasible and timely financing option, So said. 'Of course, local artists hate seeing names of the rich placed on arts venues. That's the dilemma,' he added.
One such controversy resulting from naming rights embarrassed the University of Hong Kong six years ago, after alumni opposed the university's plan to name its medical faculty after Li Ka-shing, after receiving HK$1 billion from the tycoon.
Democratic Party lawmaker Lee Wing-tat, vice-chairman of a committee that was formed under the Legislative Council to monitor the arts hub's development, said the chances of Legco approving extra funds for the project were slim.
'The government once promised in a council meeting that it would not come back for more money,' he said, urging the authority to seek sponsorship from private sector.
He added that government research had shown that internationally acclaimed museums like the Guggenheim in Spain and Pompidou in France received sponsorship that covered 30 per cent of their operating costs.
The building costs in Hong Kong dollars of Foster's first arts hub design in 2002. Prize money for the original contest was HK$11.5 million