Maybe I am dazed and confused by attending too many consulations on Lansdowne but there seem to be some obvious loose ends. We need better understanding of two questions of definition in the Lansdowne redevelopment proposal.
The first is defining what is needed to upgrade the stadium and civic centre. It seems that OSEG, the project proponents, are defining what is to be done. Just how crucial are VIP suites to the success of football? How important is it to install wider seats in the stadium?
The reason for my concern is that OSEG decides what is done; OSEG gets the contract to do it and the city pays for whatever OSEG defines as required. We do not seem to be challenging the extensive nature of the renovation. If we look at some other apparently successful CFL football teams and OHL hockey teams, we might rethink what needs to be done.
My second concern about definition centres around the phrase "net cashflow". The panels on display at the public consultations say "The proposed partnership agreement would see the net cashflow of the stadium, retail and parking operations shared between the City (MSC) and the OSEG according to a formula." The formula is of course the famous waterfall which provides for the City to be paid last.
But maybe being paid last does not matter if there is no "net cashflow". Depending on how we define "net cashflow", it would be easy for OSEG to charge management and like fees to such an extent that no "net cashflow" is ever generated. My examination of the documents released to date give no indication that terms and conditions for establishing "net cashflow" will be established. Failure to do so could be the equivalent of signing a blank cheque.
Clearer definition is needed.
Wednesday, September 30, 2009
Monday, September 28, 2009
Greening or getting the green
Planting one blade of grass in the acres of asphalt at Lansdowne would constitute greening (and an improvement in my mind) but it is not certain how green Lansdowne will become. Nor is it clear who will get the green (i.e. the money) for any greening initiative.
In today's Citizen, Kate Jaimet writes under the title "Green theme for Lansdowne" that there is controversy over the plans for the proposed "front lawn". This is described by Graham Bird, a consultant to the City, who has emerged as one of the most enthusiastic salesmen for the proposal, as an open grassy area only used for parking on rare occasions .
People who are less enamoured of the proposal question whether the "front lawn" can be used for much other than parking.
One of our problems is that it is not certain what is actually proposed for the "front lawn". There has been talk of concrete blocks with small holes through which grass could grow. Another possibility cited in the article is a system of plastic rings below the surface of the soil giving a more lawn-like appearance.
Until we understand what exactly the proponents have in mind, and until they can point to an installation in Ottawa we can visit, it is hard to know what the "front lawn" will be like.
But in today's article there was one aspect which I found curious. In discussing the possible use of the "front lawn" for concerts, festival activities etc. the article says "The city and the NCC would decide on the programming while the Ottawa Sports and Entertainment Group would manage the events for a fee. The city would reap any profits and absorb any losses from the events."
I am not sure that this passage gives a correct interpretation of the business arrangement as proposed. If an event, the Tulip Festival for example, wants to use the front lawn, it would contract with OSEG to use the space and pay a rental fee. That fee would go to OSEG. Only after OSEG has covered all its costs, including any administrative charges and profit, would any funds be transferred to the mysterious "closed system" and then funds would be run through the "waterfall". Only after payments are made to the lifecycle reserve fund, to OSEG as return on its investment, and to OSEG to pay off its investment, would the City receive anything. At least that is my understanding.
I am in favour of greening in the sense of removing some of the acres of empty asphalt but I think we need to know what exactly is proposed. Moreover we need to know how the money is moving.
In today's Citizen, Kate Jaimet writes under the title "Green theme for Lansdowne" that there is controversy over the plans for the proposed "front lawn". This is described by Graham Bird, a consultant to the City, who has emerged as one of the most enthusiastic salesmen for the proposal, as an open grassy area only used for parking on rare occasions .
People who are less enamoured of the proposal question whether the "front lawn" can be used for much other than parking.
One of our problems is that it is not certain what is actually proposed for the "front lawn". There has been talk of concrete blocks with small holes through which grass could grow. Another possibility cited in the article is a system of plastic rings below the surface of the soil giving a more lawn-like appearance.
Until we understand what exactly the proponents have in mind, and until they can point to an installation in Ottawa we can visit, it is hard to know what the "front lawn" will be like.
But in today's article there was one aspect which I found curious. In discussing the possible use of the "front lawn" for concerts, festival activities etc. the article says "The city and the NCC would decide on the programming while the Ottawa Sports and Entertainment Group would manage the events for a fee. The city would reap any profits and absorb any losses from the events."
I am not sure that this passage gives a correct interpretation of the business arrangement as proposed. If an event, the Tulip Festival for example, wants to use the front lawn, it would contract with OSEG to use the space and pay a rental fee. That fee would go to OSEG. Only after OSEG has covered all its costs, including any administrative charges and profit, would any funds be transferred to the mysterious "closed system" and then funds would be run through the "waterfall". Only after payments are made to the lifecycle reserve fund, to OSEG as return on its investment, and to OSEG to pay off its investment, would the City receive anything. At least that is my understanding.
I am in favour of greening in the sense of removing some of the acres of empty asphalt but I think we need to know what exactly is proposed. Moreover we need to know how the money is moving.
Sunday, September 27, 2009
Risks and rewards
It's hard, even for a conscientious journalist, to get the whole story.
In today's Ottawa Citizen, Patrick Dare makes a valiant attempt at explaining the complex Lansdowne Partnership proposal. He makes excellent points, in particular his statement "...it is highly unusual for a city to dedicate property taxes to a specific expense, as is proposed in this project -- in this case, using the taxes from the retail buildings to cover the debt needed to fix up the stadium and arena for the sports teams to use."
But putting aside my objections to dedicating any of the property tax revenue to the calculation, please look at Mr. Dare's statement: "To pay most of the estimated $7.1 million in annual servicing costs for the city's debt for the construction project, the city is counting on a separate revenue stream: three-quarters of the property taxes from the new retail buildings ($2.8 million per year) and the savings that result from no longer paying for the operations and urgently needed renovations in the existing buildings (estimated at $3.8 million)."
Maybe arithmetic has changed since I left elementary school, but 3.8 plus 2.8 used to equal 6.6. Even with all the questionable assumptions, we are half a million short, every year.
And all the assumptions are questionable.
If the amount the city should be paying for the the renovations of the buildings is $3.8 million, why is OSEG on the hook to only put a minimum of $1.5 million into the lifecycle fund? (Answer: Because the city has invested $110 million into addresssing all the deficiencies of the past.) So can you really credit the $3.8 million in saving, since we have never, ever, spent $3.8 million on this?
And the idea that we can credit 3/4 of the property taxes from the retail buildings to pay, not the principal, but just the carrying costs of the city's investment in the rehabilitation of the stadium and civic centre, is, not just "highly unusual" as Mr. Dare would have it, but rather creative accounting on steroids.
But I don't want to criticize Mr. Dare. In fact he has obtained some new information and I am grateful for it. He reports "The city would issue a $117 million debenture to cover its share, That half of the Lansdowne project would be put to public tender." The idea that there would be a public tender for the city's portion of the project is completely new -- maybe it is confusion on Mr. Dare's part.
Earlier in his article, Mr. Dare writes "The City would rebuild Frank Clair Stadium (for football and soccer teams) and the Civic Centre (for the hockey team), but have the businessmen manage the construction and operate the facilities, as well as the rest of the site." I find this statement impossible to reconcile with the comment about a public tender.
I never expected to see Mr. Greenberg installing drywall or Mr. Ruddy painting washrooms in the the new updated Stadium. Of course they hire other people to do the specific work. Moreover they are smart business people who try to get the best value for money in the subcontracts they sign. But the overall contract is with OSEG. OSEG is to get the contract management fees. The less they pay the sub-contractors, the more money is left for them.
This is not competitive bidding in the usual sense of government procurement.
Even worse, it appears that OSEG are the ones who are deciding what should be done. They are the ones who want to replace the seats in the stadium. They are the ones who say that VIP suites are needed. They are the ones who are specifying what is needed in the stadium and in the civic centre.
So let's consider this from the outset. OSEG determines what is needed. The City agrees to pay for whatever OSEG wants. The City hands over cash to OSEG to buy whatever it wants. OSEG goes and gets whatever it thinks it needs at the lowest possible price and pockets the balance as a management fee.
Am I the only person who thinks this might not be the smartest arrangement for the City?
In today's Ottawa Citizen, Patrick Dare makes a valiant attempt at explaining the complex Lansdowne Partnership proposal. He makes excellent points, in particular his statement "...it is highly unusual for a city to dedicate property taxes to a specific expense, as is proposed in this project -- in this case, using the taxes from the retail buildings to cover the debt needed to fix up the stadium and arena for the sports teams to use."
But putting aside my objections to dedicating any of the property tax revenue to the calculation, please look at Mr. Dare's statement: "To pay most of the estimated $7.1 million in annual servicing costs for the city's debt for the construction project, the city is counting on a separate revenue stream: three-quarters of the property taxes from the new retail buildings ($2.8 million per year) and the savings that result from no longer paying for the operations and urgently needed renovations in the existing buildings (estimated at $3.8 million)."
Maybe arithmetic has changed since I left elementary school, but 3.8 plus 2.8 used to equal 6.6. Even with all the questionable assumptions, we are half a million short, every year.
And all the assumptions are questionable.
If the amount the city should be paying for the the renovations of the buildings is $3.8 million, why is OSEG on the hook to only put a minimum of $1.5 million into the lifecycle fund? (Answer: Because the city has invested $110 million into addresssing all the deficiencies of the past.) So can you really credit the $3.8 million in saving, since we have never, ever, spent $3.8 million on this?
And the idea that we can credit 3/4 of the property taxes from the retail buildings to pay, not the principal, but just the carrying costs of the city's investment in the rehabilitation of the stadium and civic centre, is, not just "highly unusual" as Mr. Dare would have it, but rather creative accounting on steroids.
But I don't want to criticize Mr. Dare. In fact he has obtained some new information and I am grateful for it. He reports "The city would issue a $117 million debenture to cover its share, That half of the Lansdowne project would be put to public tender." The idea that there would be a public tender for the city's portion of the project is completely new -- maybe it is confusion on Mr. Dare's part.
Earlier in his article, Mr. Dare writes "The City would rebuild Frank Clair Stadium (for football and soccer teams) and the Civic Centre (for the hockey team), but have the businessmen manage the construction and operate the facilities, as well as the rest of the site." I find this statement impossible to reconcile with the comment about a public tender.
I never expected to see Mr. Greenberg installing drywall or Mr. Ruddy painting washrooms in the the new updated Stadium. Of course they hire other people to do the specific work. Moreover they are smart business people who try to get the best value for money in the subcontracts they sign. But the overall contract is with OSEG. OSEG is to get the contract management fees. The less they pay the sub-contractors, the more money is left for them.
This is not competitive bidding in the usual sense of government procurement.
Even worse, it appears that OSEG are the ones who are deciding what should be done. They are the ones who want to replace the seats in the stadium. They are the ones who say that VIP suites are needed. They are the ones who are specifying what is needed in the stadium and in the civic centre.
So let's consider this from the outset. OSEG determines what is needed. The City agrees to pay for whatever OSEG wants. The City hands over cash to OSEG to buy whatever it wants. OSEG goes and gets whatever it thinks it needs at the lowest possible price and pockets the balance as a management fee.
Am I the only person who thinks this might not be the smartest arrangement for the City?
Wednesday, September 23, 2009
Sweeping statements
There is too much salesmanship masquerading as analysis around the Lansdowne project.
I have been re-reading the staff report to Council on the Lansdowne partnership proposal and am irritated that what purports to be analysis is in fact a sales brochure.
In my earlier posting "Contradiction and confusion" I noted that the staff report claimed that housing would only be built in phase 2, an optional second stage of the project. This is contradicted by the Memorandum of Understanding.
I also noted that the infamous waterfall of revenue is misdescribed in the staff report. The report suggests that the City is in first and fourth position to receive revenue. In fact the first revenues simply go into a reserve fund. The City is dead last to get anything out of the project.
But on re-reading there are other statements that leap out as unsubstantiated claims. For example, it is maintained that "enhancing trade show and consumer show space on the site would have jeopardized... ...a transformation plan that respects the intention of Council's motion, the unique characteristics of Lansdowne Park, and the financial viability and long-term sustainability of the site." I have seen no evidence to support such a claim.
On the financial front, the staff report says "Compared with historical operations of Lansdowne, the project is expected to generate positive cash flow to the City over the life of the proposed agreement with OSEG". What does such a sales pitch mean? Does is mean that a positive cash flow will be received over the life of the project? Or maybe it means that the negative position of the City will be less than in the "historical operations of Lansdowne"? What is taken into account in coming up with such a statement? How would the cash flow compare if a different sort of arrangement were struck (selling an asset, or receiving rent for example)?
And the most laughable of all is the statement "The financial due diligence carried out by the City and its consultants on the OSEG proposal has demonstrated, among other things, that the City would be receiving fair value under the Plan." For suspicious outsiders, the failure to release any of the meaningful analysis backing this statement looks strange. Moreover, the fact that the City is proposing to strike this deal with the consortium that refused from the outset to contemplate entering into any sort of competition, raises no end of red flags.
Now the really dedicated reader will have noted that there is a document prepared by Pricewaterhouse Coopers among the many documents issued in respect of this proposal. Some might be lulled into believing that a large and highly regarded firm has blessed this project and declared its finances above reproach. No, the Pricewaterhouse Coopers document has an interesting disclaimer at the end. Translated into layman's language is says - 'we were hired to prepare some Power Point slides and here they are'.
Frankly the staff report, thrust under the Councillors' noses at the last minute on September 2 is a disappointment. It is not surprising that the Councillors adopted a flurry of motions to try to get answers to questions which the the staff report failed to address.
Redevelopment of Lansdowne is an important issue for Ottawa. It should be the subject of sensible debate and analysis. Sweeping statements of assurance are to be expected from a salesman. What we need is real analysis.
I have been re-reading the staff report to Council on the Lansdowne partnership proposal and am irritated that what purports to be analysis is in fact a sales brochure.
In my earlier posting "Contradiction and confusion" I noted that the staff report claimed that housing would only be built in phase 2, an optional second stage of the project. This is contradicted by the Memorandum of Understanding.
I also noted that the infamous waterfall of revenue is misdescribed in the staff report. The report suggests that the City is in first and fourth position to receive revenue. In fact the first revenues simply go into a reserve fund. The City is dead last to get anything out of the project.
But on re-reading there are other statements that leap out as unsubstantiated claims. For example, it is maintained that "enhancing trade show and consumer show space on the site would have jeopardized... ...a transformation plan that respects the intention of Council's motion, the unique characteristics of Lansdowne Park, and the financial viability and long-term sustainability of the site." I have seen no evidence to support such a claim.
On the financial front, the staff report says "Compared with historical operations of Lansdowne, the project is expected to generate positive cash flow to the City over the life of the proposed agreement with OSEG". What does such a sales pitch mean? Does is mean that a positive cash flow will be received over the life of the project? Or maybe it means that the negative position of the City will be less than in the "historical operations of Lansdowne"? What is taken into account in coming up with such a statement? How would the cash flow compare if a different sort of arrangement were struck (selling an asset, or receiving rent for example)?
And the most laughable of all is the statement "The financial due diligence carried out by the City and its consultants on the OSEG proposal has demonstrated, among other things, that the City would be receiving fair value under the Plan." For suspicious outsiders, the failure to release any of the meaningful analysis backing this statement looks strange. Moreover, the fact that the City is proposing to strike this deal with the consortium that refused from the outset to contemplate entering into any sort of competition, raises no end of red flags.
Now the really dedicated reader will have noted that there is a document prepared by Pricewaterhouse Coopers among the many documents issued in respect of this proposal. Some might be lulled into believing that a large and highly regarded firm has blessed this project and declared its finances above reproach. No, the Pricewaterhouse Coopers document has an interesting disclaimer at the end. Translated into layman's language is says - 'we were hired to prepare some Power Point slides and here they are'.
Frankly the staff report, thrust under the Councillors' noses at the last minute on September 2 is a disappointment. It is not surprising that the Councillors adopted a flurry of motions to try to get answers to questions which the the staff report failed to address.
Redevelopment of Lansdowne is an important issue for Ottawa. It should be the subject of sensible debate and analysis. Sweeping statements of assurance are to be expected from a salesman. What we need is real analysis.
Monday, September 21, 2009
Commercial compatibility
Plunking much additional retail activity into the midst of neighbourhoods dominated by small-scale merchants is seen as a threat to the established merchants of the Glebe and Old Ottawa South. Most of the business people active along Bank Street see the proposed shopping for Lansdowne as having a negative effect on their prospects.
One example is the effect that the multi-screen cinema proposed for Lansdowne might have on the Mayfair Theatre.
But it has occurred to me that there may be destructive competition built right into the partnership proposal. I wonder if it makes sense to have the Farmers' Market next door to the rumoured "Whole Foods" supermarket. I understand that Whole Foods stores sell herbal toothpaste -- an item unlikely to be found in the Farmers' Market. Nevertheless I believe that vegetables and fruit are the principal features of both.
I also wonder whether the various food outlets can all prosper. If the Aberdeen Pavilion is full of restaurants, there are cafes along Bank Street, a full-featured hotel, plus concessions in the civic centre and stadium, this is represents quite a few seats. Many additional diners would need to be attracted to Lansdowne to support all this service. Moreover we need to consider the effect on the existing pubs and restaurants in the Glebe and Ottawa South.
One example is the effect that the multi-screen cinema proposed for Lansdowne might have on the Mayfair Theatre.
But it has occurred to me that there may be destructive competition built right into the partnership proposal. I wonder if it makes sense to have the Farmers' Market next door to the rumoured "Whole Foods" supermarket. I understand that Whole Foods stores sell herbal toothpaste -- an item unlikely to be found in the Farmers' Market. Nevertheless I believe that vegetables and fruit are the principal features of both.
I also wonder whether the various food outlets can all prosper. If the Aberdeen Pavilion is full of restaurants, there are cafes along Bank Street, a full-featured hotel, plus concessions in the civic centre and stadium, this is represents quite a few seats. Many additional diners would need to be attracted to Lansdowne to support all this service. Moreover we need to consider the effect on the existing pubs and restaurants in the Glebe and Ottawa South.
Sunday, September 20, 2009
How did we get here?
I speculate that in the negotiations city staff had an unclear mandate but they were being pressed by their political superiors to reach a quick and favourable result. On the other side I believe OSEG put forward their initial hard line positions and were amazed to see them adopted. Rather than negotiations, I think the time was spent finding ways to make a bad deal look better than it is. This could be an example in which the expression "putting lipstick on a pig" can be applied without it being offensive to anyone.
Some people who have been following my reasoning have asked what has led us to this stage. They agree that the Lansdowne partnership proposal does not appear to be favourable to the interests of City taxpayers and they wonder why the process has led to such a poor result.
First, I reject all the conspiracy theories which have been bandied about. No, I don’t think the city staff are on the developers’ payroll. No, I don’t think Councillors’ votes are up for sale.
Let’s consider the position of the principals in OSEG. I take at face value the declaration by the four gentlemen that they do want to see professional football return to Ottawa. I also believe that none of them consider that a football team be viably operated on a stand-alone basis. Some sort of subsidy is required.
Then look at the business background of the four partners. One is a successful promoter of sports; his role in the enterprise is to make the team function well as a business, to build a solid fan base and to make the kind of community connections which support a team.
The other three gentlemen are in land development. I believe all three have done well in that business. Thus if they are to consider working on a plan to cover probable losses in the pro football undertaking, they unlikely to first propose raising turnips as a money-maker. They brought their sets of skills to the problem of getting football back in Ottawa and this naturally led in the direction of a land development project.
On the City side there was a keen memory of the sad history of Lansdowne Park. Several grandiose plans for redevelopment had been floated in the past and yet nothing had been achieved. While the old City, the Region, and then the new City realized they held the park as an asset, a budget for proper maintenance, let alone revitalization, of the park was never forthcoming. The NHL team moved out of the civic centre, the prime tenant for the stadium vanished and the Ex had financial woes requiring City support. Lansdowne Park became one of those nagging issues no one wanted address – a "hot potato". To make matters look even worse, Lansdowne was set up as a profit-centre in the City’s accounting system. (Few other aspects of City activity are expected to show a profit.)
With the election of 2006 and the rapid cancellation of the light rail project, the new City administration had established a solid record for not doing things. It needed to demonstrate its ability to deal with festering problems and get on with the business of the City. A megaproject was needed.
So I would suggest we had City politicians eager to move ahead and cautious City staff who remembered only too well the frustrations of the past.
Against this background we had the announcement of the design-to-develop competition, the conditional CFL franchise, the refusal of the football consortium to compete, and the suspension of the competition. Statements were made that quick action was needed before the CFL franchise disappeared. This call for speed was surprisingly followed by a prolonged period in which the proposed arrangement was hammered out. In the meantime another group proposed a soccer stadium and suggested that senior levels of government would invest in soccer.
In March and April the two stadium proposals were considered. This was not really a competition and it had not been determined whether the City was to have a stadium at all. Then Council decided that the Lansdowne proposal was the City’s priority stadium project – not that any stadium was a priority, but if there were several stadium issues around that the Lansdowne one should be considered first.
So against that background negotiations began from April 22 for 60 days and then extended to September 2.
The City negotiating team had no indication that an open air stadium is a priority for the City. Nevertheless, it seemed that they could not return to Council with a recommendation that the project be abandoned. After all, there was no standard by which they could reach such a conclusion; no budget envelope had been established for the negotiating team and all they had to work from was a hodgepodge of motions – no housing, no subsidy to sports etc.
I suppose this left the City team unsure of what they could expect from the negotiations. Council was divided with some Councillors apparently opposed to any sort of negotiation whatever, while others seemed to be willing to agree to anything to get football back in town and the Lansdowne problem out of the way.
So what did the City negotiating team do? It looks as though they muddled on, ignoring completely some aspects of the Council instructions, fudging other parts and showing limited interest in the financial aspect of the project.
Certain Councillors had particular concerns they wanted to see in the negotiated outcome. For example the experience of the last great attempt to redevelop Lansdowne led to the instruction that no housing be built on the site. This was in the final motion adopted on April 22 but had not been the subject of meaningful debate. For better or worse, this restriction was ignored. Does it matter much if housing (as opposed to a movie theatre or supermarket or hotel) is built on the site? Some would say they are all the same.
Similarly there was a clause in the motion authorizing negotiations which called for no subsidy to professional sports as a result of the redevelopment of Lansdowne Park. Surely this was seen as totally unrealistic by both sides of the negotiation. It is the fundamental nature of the project. The only possible outcome of the negotiations was to develop a complex system by which this essential element is hidden. Concealing reality is surely the objective of the Municipal Services Corporation, the "closed system", the waterfall, and ridiculous understating of the city resources dedicated to the project.
So what has produced such a bad deal? City staff had already been told by Council to go ahead and speedily produce an arrangement. In the absence of better negotiating instructions, they did exactly as they perceived they were to do.
City staff had no instructions to play hardball. They could not say that any specific aspect of the OSEG position was a deal-breaker. After all, it appeared that some members of Council were willing to take any arrangement, no matter how bad it was for the City.
I expect the OSEG negotiating team could not believe the responses they received at the negotiating table. Without any instruction to resist, the City could yield on anything and everything. As long as it could be presented well to the public, there was no reason to deny an OSEG demand.
If this speculation describes the negotiations, the outcome is no surprise.
Some people who have been following my reasoning have asked what has led us to this stage. They agree that the Lansdowne partnership proposal does not appear to be favourable to the interests of City taxpayers and they wonder why the process has led to such a poor result.
First, I reject all the conspiracy theories which have been bandied about. No, I don’t think the city staff are on the developers’ payroll. No, I don’t think Councillors’ votes are up for sale.
Let’s consider the position of the principals in OSEG. I take at face value the declaration by the four gentlemen that they do want to see professional football return to Ottawa. I also believe that none of them consider that a football team be viably operated on a stand-alone basis. Some sort of subsidy is required.
Then look at the business background of the four partners. One is a successful promoter of sports; his role in the enterprise is to make the team function well as a business, to build a solid fan base and to make the kind of community connections which support a team.
The other three gentlemen are in land development. I believe all three have done well in that business. Thus if they are to consider working on a plan to cover probable losses in the pro football undertaking, they unlikely to first propose raising turnips as a money-maker. They brought their sets of skills to the problem of getting football back in Ottawa and this naturally led in the direction of a land development project.
On the City side there was a keen memory of the sad history of Lansdowne Park. Several grandiose plans for redevelopment had been floated in the past and yet nothing had been achieved. While the old City, the Region, and then the new City realized they held the park as an asset, a budget for proper maintenance, let alone revitalization, of the park was never forthcoming. The NHL team moved out of the civic centre, the prime tenant for the stadium vanished and the Ex had financial woes requiring City support. Lansdowne Park became one of those nagging issues no one wanted address – a "hot potato". To make matters look even worse, Lansdowne was set up as a profit-centre in the City’s accounting system. (Few other aspects of City activity are expected to show a profit.)
With the election of 2006 and the rapid cancellation of the light rail project, the new City administration had established a solid record for not doing things. It needed to demonstrate its ability to deal with festering problems and get on with the business of the City. A megaproject was needed.
So I would suggest we had City politicians eager to move ahead and cautious City staff who remembered only too well the frustrations of the past.
Against this background we had the announcement of the design-to-develop competition, the conditional CFL franchise, the refusal of the football consortium to compete, and the suspension of the competition. Statements were made that quick action was needed before the CFL franchise disappeared. This call for speed was surprisingly followed by a prolonged period in which the proposed arrangement was hammered out. In the meantime another group proposed a soccer stadium and suggested that senior levels of government would invest in soccer.
In March and April the two stadium proposals were considered. This was not really a competition and it had not been determined whether the City was to have a stadium at all. Then Council decided that the Lansdowne proposal was the City’s priority stadium project – not that any stadium was a priority, but if there were several stadium issues around that the Lansdowne one should be considered first.
So against that background negotiations began from April 22 for 60 days and then extended to September 2.
The City negotiating team had no indication that an open air stadium is a priority for the City. Nevertheless, it seemed that they could not return to Council with a recommendation that the project be abandoned. After all, there was no standard by which they could reach such a conclusion; no budget envelope had been established for the negotiating team and all they had to work from was a hodgepodge of motions – no housing, no subsidy to sports etc.
I suppose this left the City team unsure of what they could expect from the negotiations. Council was divided with some Councillors apparently opposed to any sort of negotiation whatever, while others seemed to be willing to agree to anything to get football back in town and the Lansdowne problem out of the way.
So what did the City negotiating team do? It looks as though they muddled on, ignoring completely some aspects of the Council instructions, fudging other parts and showing limited interest in the financial aspect of the project.
Certain Councillors had particular concerns they wanted to see in the negotiated outcome. For example the experience of the last great attempt to redevelop Lansdowne led to the instruction that no housing be built on the site. This was in the final motion adopted on April 22 but had not been the subject of meaningful debate. For better or worse, this restriction was ignored. Does it matter much if housing (as opposed to a movie theatre or supermarket or hotel) is built on the site? Some would say they are all the same.
Similarly there was a clause in the motion authorizing negotiations which called for no subsidy to professional sports as a result of the redevelopment of Lansdowne Park. Surely this was seen as totally unrealistic by both sides of the negotiation. It is the fundamental nature of the project. The only possible outcome of the negotiations was to develop a complex system by which this essential element is hidden. Concealing reality is surely the objective of the Municipal Services Corporation, the "closed system", the waterfall, and ridiculous understating of the city resources dedicated to the project.
So what has produced such a bad deal? City staff had already been told by Council to go ahead and speedily produce an arrangement. In the absence of better negotiating instructions, they did exactly as they perceived they were to do.
City staff had no instructions to play hardball. They could not say that any specific aspect of the OSEG position was a deal-breaker. After all, it appeared that some members of Council were willing to take any arrangement, no matter how bad it was for the City.
I expect the OSEG negotiating team could not believe the responses they received at the negotiating table. Without any instruction to resist, the City could yield on anything and everything. As long as it could be presented well to the public, there was no reason to deny an OSEG demand.
If this speculation describes the negotiations, the outcome is no surprise.
Friday, September 18, 2009
What is Lansdowne Park anyway?
This might seem to be a strange question but it is quite relevant to the discussion about the proposed Lansdowne partnership proposal.
Most people think of Lansdowne Park as the area, enclosed by fencing, which is occupied by SuperEx. When SuperEx is on, you have to pay to get into Lansdowne Park.
Most of us are also aware that there is adjacent parkland which is not normally thought of as Lansdowne Park. Signage indicates that this is Sylvia Holden Park.
Sylvia Holden Park is made up of a narrow strip of land along the south side of Holmwood Avenue. That narrow strip is in two parts with a break where the back of the Horticulture Building comes out to Holmwood. In addition there is large piece of land between O’Connor Street and the canal which contains two baseball diamonds, grassed areas and a splash pool.
Many of us have assumed that the partnership proposal calls for the strip along Holmwood to be turned over to the Municipal Service Corporation and then passed on to OSEG. The plan calls for stacked townhouses along Holmwood. We have believed that the ball diamonds and the land "north of the fence" which resembles a traditional community park is retained by the City. This is incorrect.
The Memorandum of Understanding included in the partnership package released on Sept. 2 is very clear on this point. Clause 3.4 (probably mis-numbered and should be 3.1) says "The project will involve the whole of Lansdowne Park and Sylvia Holden Park."
In the short term this would mean negotiating with OSEG to use the ball diamonds – potentially an issue for Little League folks and others. In the longer term, this means the potential re-purposing of a classic park for residential or other development.
Once the park is in the hands of the Municipal Service Corporation and under long-term lease to OSEG, there is no specific impediment to changing the use of the land. No doubt, re-zoning and site plan approvals would be required, but I have read nothing which is intended to restrict the actions of the Municipal Service Corporation in pursuing income.
Most people think of Lansdowne Park as the area, enclosed by fencing, which is occupied by SuperEx. When SuperEx is on, you have to pay to get into Lansdowne Park.
Most of us are also aware that there is adjacent parkland which is not normally thought of as Lansdowne Park. Signage indicates that this is Sylvia Holden Park.
Sylvia Holden Park is made up of a narrow strip of land along the south side of Holmwood Avenue. That narrow strip is in two parts with a break where the back of the Horticulture Building comes out to Holmwood. In addition there is large piece of land between O’Connor Street and the canal which contains two baseball diamonds, grassed areas and a splash pool.
Many of us have assumed that the partnership proposal calls for the strip along Holmwood to be turned over to the Municipal Service Corporation and then passed on to OSEG. The plan calls for stacked townhouses along Holmwood. We have believed that the ball diamonds and the land "north of the fence" which resembles a traditional community park is retained by the City. This is incorrect.
The Memorandum of Understanding included in the partnership package released on Sept. 2 is very clear on this point. Clause 3.4 (probably mis-numbered and should be 3.1) says "The project will involve the whole of Lansdowne Park and Sylvia Holden Park."
In the short term this would mean negotiating with OSEG to use the ball diamonds – potentially an issue for Little League folks and others. In the longer term, this means the potential re-purposing of a classic park for residential or other development.
Once the park is in the hands of the Municipal Service Corporation and under long-term lease to OSEG, there is no specific impediment to changing the use of the land. No doubt, re-zoning and site plan approvals would be required, but I have read nothing which is intended to restrict the actions of the Municipal Service Corporation in pursuing income.
Thursday, September 17, 2009
Battle of the press conferences
Today we have had the pleasure of two press conferences on the proposed Lansdowne partnership project.
In the morning, Prof. Ian Lee from Carleton's Sprott School of Business gave his interpretation of the documentation on the project. His reading of the financial structure of the project coincides closely with my own views expressed in earlier postings to this blog.
Media reports indicate that in the afternoon, Mayor O'Brien claimed that Prof. Lee's interpretation was all wrong. When pressed to cite an example of error, apparently the Mayor had no response for reporters.
I was surprised to learn that the Mayor complained that Prof. Lee has a Ph.D. in public policy. The Mayor complained that the criticism had not come from a person with "a more astute understanding of finance". Apparently no one bothered to inform Mr. O'Brien that Prof. Lee was formerly a banker who had Shenkman Corp. as a client.
It will be very interesting to hear some specific rebuttal from OSEG or City spokespersons who may have a "more astute understanding" than that demonstrated today by the Mayor.
In the morning, Prof. Ian Lee from Carleton's Sprott School of Business gave his interpretation of the documentation on the project. His reading of the financial structure of the project coincides closely with my own views expressed in earlier postings to this blog.
Media reports indicate that in the afternoon, Mayor O'Brien claimed that Prof. Lee's interpretation was all wrong. When pressed to cite an example of error, apparently the Mayor had no response for reporters.
I was surprised to learn that the Mayor complained that Prof. Lee has a Ph.D. in public policy. The Mayor complained that the criticism had not come from a person with "a more astute understanding of finance". Apparently no one bothered to inform Mr. O'Brien that Prof. Lee was formerly a banker who had Shenkman Corp. as a client.
It will be very interesting to hear some specific rebuttal from OSEG or City spokespersons who may have a "more astute understanding" than that demonstrated today by the Mayor.
Wednesday, September 16, 2009
Better than nothing is no recommendation
In discussing prospects for redevelopment of Lansdowne Park, I often hear the comment that we should go along with the Lansdowne Live proposal because the alternative is doing nothing.
I have stated many times that we should be looking at various ways to address the redevelopment of Lansdowne. If that examination shows that the Lansdowne Live proposal is the best alternative, we should select it and proceed.
But we have not considered alternatives. We haven't even considered the outline of what we want to do.
For example, we have not had a real debate about the City's need for an outdoor stadium. Some don't think we need one; others think that a stadium should be first on the list of things the City should work on.
Even Mayor O'Brien, who I think is a cheerleader for the Lansdowne Live proposed partnership, seems to think that other things such as flooding in Kanata, dumping sewage in the Ottawa River and public transit are more important issues than a stadium project.
Just for the sake of argument, let's say that an open-air stadium in Lansdowne Park is the city's number one priority. (I doubt that this is the case, but this is just to get you thinking.)
One possibility is that the City could offer to sell Frank Clair Stadium and the Civic Centre. If running such facilities is a paying proposition, maybe someone would be willing to purchase the lot. I believe that in Toronto the former SkyDome was sold to private interests (at a great loss) but presumably it is no longer a drain on the public purse.
But you say, no one in their right mind would buy the Stadium and Civic Centre with a hope of making money. Professional sports teams cannot pay rent at a level which would make ownership of the facilities profitable.
If it is true that a stadium and arena must be run at a loss, we need to consider whether taxpayers should subsidize professional sports and, if they should, at what level and how. Maybe the City could simply pay an annual subsidy to the new football team. This would be transparent and understandable. Revenue raised by the team plus the city subsidy might make it possible for the team to pay a rent which would make a stadium viable. The other possibility is that the city pay a subsidy to the stadium owners rather than to the team which is the principal tenant of the stadium.
Another possibility is that the city retain ownership of the stadium and civic centre but sell other parts of Lansdowne Park to raise money. The cash could be used to fix up the stadium and civic centre.
But if having an open-air stadium is such a big priority for the city, it appears that we have the resources to pay for it. The current partnership proposal calls for the City to ante up 129.3 million dollars at the outset. Either we have this money or we do not.
Of course there is also the possibility that an open-air stadium is not a priority for the city. We could use our 129.3 million dollars for some other purpose.
I have stated many times that we should be looking at various ways to address the redevelopment of Lansdowne. If that examination shows that the Lansdowne Live proposal is the best alternative, we should select it and proceed.
But we have not considered alternatives. We haven't even considered the outline of what we want to do.
For example, we have not had a real debate about the City's need for an outdoor stadium. Some don't think we need one; others think that a stadium should be first on the list of things the City should work on.
Even Mayor O'Brien, who I think is a cheerleader for the Lansdowne Live proposed partnership, seems to think that other things such as flooding in Kanata, dumping sewage in the Ottawa River and public transit are more important issues than a stadium project.
Just for the sake of argument, let's say that an open-air stadium in Lansdowne Park is the city's number one priority. (I doubt that this is the case, but this is just to get you thinking.)
One possibility is that the City could offer to sell Frank Clair Stadium and the Civic Centre. If running such facilities is a paying proposition, maybe someone would be willing to purchase the lot. I believe that in Toronto the former SkyDome was sold to private interests (at a great loss) but presumably it is no longer a drain on the public purse.
But you say, no one in their right mind would buy the Stadium and Civic Centre with a hope of making money. Professional sports teams cannot pay rent at a level which would make ownership of the facilities profitable.
If it is true that a stadium and arena must be run at a loss, we need to consider whether taxpayers should subsidize professional sports and, if they should, at what level and how. Maybe the City could simply pay an annual subsidy to the new football team. This would be transparent and understandable. Revenue raised by the team plus the city subsidy might make it possible for the team to pay a rent which would make a stadium viable. The other possibility is that the city pay a subsidy to the stadium owners rather than to the team which is the principal tenant of the stadium.
Another possibility is that the city retain ownership of the stadium and civic centre but sell other parts of Lansdowne Park to raise money. The cash could be used to fix up the stadium and civic centre.
But if having an open-air stadium is such a big priority for the city, it appears that we have the resources to pay for it. The current partnership proposal calls for the City to ante up 129.3 million dollars at the outset. Either we have this money or we do not.
Of course there is also the possibility that an open-air stadium is not a priority for the city. We could use our 129.3 million dollars for some other purpose.
I pay property tax too!
In today's Citizen, Roger Greenberg (CEO of Minto Group and principal participant in OSEG) writes that "Municipal realty taxes and the $3.8 million-per-year savings that the city would otherwise lose on Lansdowne Park ranks ahead of our financing".
As I have noted in previous postings, the City has consistently failed to adequately provide for the maintenance of Lansdowne Park in the past. There is no reason to believe future City budgets would provide significant money for the park. Thus the expenditure-avoided argument is invalid. It would be similar to arguing that if I sold my yacht, I could buy a new car. Since I have no yacht, the argument makes no sense.
The claim that the City enjoys some sort of windfall in property taxes from the proposed project at Lansdowne Park needs to be carefully considered.
Unless it is a special exemption (a church for example), every privately owned piece of real estate is subject to property taxes. If Mr. Greenberg's company built a commercial building anywhere in Ottawa, it would be subject to property taxes.
But if Minto built its building in Barrhaven (just as an example) it would be subject to full property taxes and there would be no discussion about the revenue to the City being used to pay off any specific capital investment by the City. It would be assumed the Barrhaven Minto building (as an example) would be bearing the tax burden as its share for services delivered by the City. For instance, if there were a fire in the building, firemen would come to rescue the occupants and extinguish the fire. Stated simply, property taxes are to pay for City services.
My property taxes on my humble residence, and taxes paid directly or indirectly by others, go into the pool of funds which pays for the services we all receive. The tax revenues are not earmarked to pay for specific investments by the City.
So what is so special about the proposed commercial developments on the Lansdowne Park land?
Now some might argue that additional private investment (such as building shops at Lansdowne) generates additional revenue for the City. That is correct and that is one reason the City encourages investment.
But commercial investment responds to a perceived demand. If we expect demand for consumer goods to grow, the market will respond and new retail outlets will be established, not necessarily on Lansdowne Park, but anywhere. Wherever that retail investment occurs, tax revenue will be generated for the City.
I cannot imagine that Mr. Greenberg and his partners really want taxes paid on development at Lansdowne to be dedicated to paying off city investment in the stadium and civic centre. That would only be possible if city services were not delivered to the shops, offices, hotel etc. proposed for Lansdowne. Under such a plan firemen would stand by and let occupants be burned to a crisp in the new Lansdowne hotel. This is unimaginable.
My position is that property tax revenue generated by commercial activity at Lansdowne would be generated by other commercial investment if the Lansdowne development does not go ahead. People will spend their money somewhere else and taxes will be paid.
The assertion that the City's investment in redevelopment of Lansdowne is carried or repaid through property taxes on the property should be dismissed from the discussion.
But there is an interesting question about taxes and commercial development at Lansdowne. Property taxes are calculated on the basis of an assessment by MPAC (Municipal Property Assessment Corporation). The assessment takes into account the value of the land and of the building. But the proposal for Lansdowne seems to have the City providing land rent-free for the commercial development on the site. This might mean that the assessments for Lansdowne commercial development are artificially low because no land value is considered.
In other words, there is a possibility that commercial development on the Lansdowne site is doubly subsidized -- no payment of rent for the land and artificially reduced property taxes. Both of those subsidies would be unfair. It would be unfair to businesses trying to compete against a subsidized competitor. It would be unfair to all taxpayers who have to pay more tax to make up for those who benefit from paying less than their fair share.
I should also make one final point about the quotation from Mr. Greenberg. He uses the expression "ranks ahead of our financing". Indeed that is the nature of taxes. Tax collectors don't fool around. Of course taxes take precedence over repayment of the private group's investment. Just try not paying your income taxes in order to reduce what you owe on your credit card.
But Mr. Greenberg raises the question of the ranking in which investors are paid in the Lansdowne proposal. That is exactly my point -- OSEG gets its money first and the City is left with whatever is left.
As I have noted in previous postings, the City has consistently failed to adequately provide for the maintenance of Lansdowne Park in the past. There is no reason to believe future City budgets would provide significant money for the park. Thus the expenditure-avoided argument is invalid. It would be similar to arguing that if I sold my yacht, I could buy a new car. Since I have no yacht, the argument makes no sense.
The claim that the City enjoys some sort of windfall in property taxes from the proposed project at Lansdowne Park needs to be carefully considered.
Unless it is a special exemption (a church for example), every privately owned piece of real estate is subject to property taxes. If Mr. Greenberg's company built a commercial building anywhere in Ottawa, it would be subject to property taxes.
But if Minto built its building in Barrhaven (just as an example) it would be subject to full property taxes and there would be no discussion about the revenue to the City being used to pay off any specific capital investment by the City. It would be assumed the Barrhaven Minto building (as an example) would be bearing the tax burden as its share for services delivered by the City. For instance, if there were a fire in the building, firemen would come to rescue the occupants and extinguish the fire. Stated simply, property taxes are to pay for City services.
My property taxes on my humble residence, and taxes paid directly or indirectly by others, go into the pool of funds which pays for the services we all receive. The tax revenues are not earmarked to pay for specific investments by the City.
So what is so special about the proposed commercial developments on the Lansdowne Park land?
Now some might argue that additional private investment (such as building shops at Lansdowne) generates additional revenue for the City. That is correct and that is one reason the City encourages investment.
But commercial investment responds to a perceived demand. If we expect demand for consumer goods to grow, the market will respond and new retail outlets will be established, not necessarily on Lansdowne Park, but anywhere. Wherever that retail investment occurs, tax revenue will be generated for the City.
I cannot imagine that Mr. Greenberg and his partners really want taxes paid on development at Lansdowne to be dedicated to paying off city investment in the stadium and civic centre. That would only be possible if city services were not delivered to the shops, offices, hotel etc. proposed for Lansdowne. Under such a plan firemen would stand by and let occupants be burned to a crisp in the new Lansdowne hotel. This is unimaginable.
My position is that property tax revenue generated by commercial activity at Lansdowne would be generated by other commercial investment if the Lansdowne development does not go ahead. People will spend their money somewhere else and taxes will be paid.
The assertion that the City's investment in redevelopment of Lansdowne is carried or repaid through property taxes on the property should be dismissed from the discussion.
But there is an interesting question about taxes and commercial development at Lansdowne. Property taxes are calculated on the basis of an assessment by MPAC (Municipal Property Assessment Corporation). The assessment takes into account the value of the land and of the building. But the proposal for Lansdowne seems to have the City providing land rent-free for the commercial development on the site. This might mean that the assessments for Lansdowne commercial development are artificially low because no land value is considered.
In other words, there is a possibility that commercial development on the Lansdowne site is doubly subsidized -- no payment of rent for the land and artificially reduced property taxes. Both of those subsidies would be unfair. It would be unfair to businesses trying to compete against a subsidized competitor. It would be unfair to all taxpayers who have to pay more tax to make up for those who benefit from paying less than their fair share.
I should also make one final point about the quotation from Mr. Greenberg. He uses the expression "ranks ahead of our financing". Indeed that is the nature of taxes. Tax collectors don't fool around. Of course taxes take precedence over repayment of the private group's investment. Just try not paying your income taxes in order to reduce what you owe on your credit card.
But Mr. Greenberg raises the question of the ranking in which investors are paid in the Lansdowne proposal. That is exactly my point -- OSEG gets its money first and the City is left with whatever is left.
Tuesday, September 15, 2009
Bizarre assumptions and legerdemain
In my previous posting, I indicated that I could not understand why the City of Ottawa and its taxpayers are to be treated so shabbily in the proposed Lansdowne Partnership. To conceal the imbalance in the financial arrangements, residents are treated to blue-ribbon sleight of hand.
--- Understate the cost to the City
The first light-fingered move is minimize the City's gross contribution to the project. Here are the methods I have detected so far.
The City's assets (land, buildings and other physical assets such as utility connections) are assigned no value whatever but are turned over to the partnership for 30 -50- 70 years. The cost of moving the SuperEx from Lansdowne to Albion Road is considered only in passing (I seem to recall an estimate of 7 million dollars in cost to the City). Then there is the cost associated with moving the trade fair exhibition space out of Lansdowne; does this involve a cost to the City?
--- Questionable sources of funds
In addition to borrowing 116.9 million dollars to put into the project, the City proposes to dip into "parking reserves" for 4 million dollars. How were these reserves accumulated? If merchants have paid cash-in-lieu of parking into this fund, they may resent having paid for a parking garage for the retail competitors.
But one of the most audacious claims is that 8.4 million dollars in costs to the City will be avoided between 2010 and 2012. City budgets have not included generous provision for maintenance of Lansdowne Park, so there is no validity to the claim that the money will be saved by approving the proposed partnership agreement.
The fact is that the proposed partnership calls for the City to hand Lansdowne Park to OSEG on a silver platter. That platter consists of 129.3 million dollars in cash, plus asssuming unidentified costs for the SuperEx and for trade show facilities.
--- Overstate revenue for the City
To make the deal look better, it is suggested that the City will receive property tax and avoid ongoing costs. These are described as positive cash flows over the period of the partnership.
The costs to the City which are supposedly avoided are bogus. The City has not spent such money in the past and there is no reason to imagine such sums would be spent in the future.
But the big distortion is the idea that property taxes paid on the development at Lansdowne pay off the significant investment the City is expected to make in the project. This is such a distortion of logic that it warrants a detailed explanation in my next posting.
To summarize, the partnership proposal as presented understates the cost to the taxpayers and overstates the anticipated flow of funds to the City.
--- Understate the cost to the City
The first light-fingered move is minimize the City's gross contribution to the project. Here are the methods I have detected so far.
The City's assets (land, buildings and other physical assets such as utility connections) are assigned no value whatever but are turned over to the partnership for 30 -50- 70 years. The cost of moving the SuperEx from Lansdowne to Albion Road is considered only in passing (I seem to recall an estimate of 7 million dollars in cost to the City). Then there is the cost associated with moving the trade fair exhibition space out of Lansdowne; does this involve a cost to the City?
--- Questionable sources of funds
In addition to borrowing 116.9 million dollars to put into the project, the City proposes to dip into "parking reserves" for 4 million dollars. How were these reserves accumulated? If merchants have paid cash-in-lieu of parking into this fund, they may resent having paid for a parking garage for the retail competitors.
But one of the most audacious claims is that 8.4 million dollars in costs to the City will be avoided between 2010 and 2012. City budgets have not included generous provision for maintenance of Lansdowne Park, so there is no validity to the claim that the money will be saved by approving the proposed partnership agreement.
The fact is that the proposed partnership calls for the City to hand Lansdowne Park to OSEG on a silver platter. That platter consists of 129.3 million dollars in cash, plus asssuming unidentified costs for the SuperEx and for trade show facilities.
--- Overstate revenue for the City
To make the deal look better, it is suggested that the City will receive property tax and avoid ongoing costs. These are described as positive cash flows over the period of the partnership.
The costs to the City which are supposedly avoided are bogus. The City has not spent such money in the past and there is no reason to imagine such sums would be spent in the future.
But the big distortion is the idea that property taxes paid on the development at Lansdowne pay off the significant investment the City is expected to make in the project. This is such a distortion of logic that it warrants a detailed explanation in my next posting.
To summarize, the partnership proposal as presented understates the cost to the taxpayers and overstates the anticipated flow of funds to the City.
Monday, September 14, 2009
The City as financial victim
In my previous lengthy and complex posting, I outlined my understanding of the financial arrangements in the Lansdowne proposal. I have many questions and objections about such a deal.
First off, there is no value attributed to the land or the existing physical plant, both of which are being turned over to OSEG under a long-term lease. The land is definitely worth something and it is being made available for the construction of commercial buildings. There is no indication that the owner of the land receives any rent. In addition the existing stadium and civic centre may need to be rehabilitated, but they do have value. Again no rent is being paid.
I cannot understand why the City’s equity in the partnership is deemed to represent only 20 million dollars. This is an remarkable understatement of what the City brings to the partnership proposal. Not only is the City providing the use of the land and the current physical plant, it is also investing 129.3 million dollars in the rehabilitation of the stadium & civic centre plus construction of parking facilities.
By ridiculously understating the value of what the City brings to the table, the partnership arrangement represents a significant transfer of wealth to the private sector partner at the expense of Ottawa taxpayers.
I fail to see any reason that net revenues should be distributed to OSEG (both return on and return of equity), prior to payment to the City. Why should the lesser investor be given preference over the greater investor?
In any event, OSEG is covering the cost of financing the retail element of the project prior to turning over any money to the "closed system". By contrast the City is on the hook for financing costs for 116.9 million dollars (and I will argue even more), prior to receiving anything.
Of course the first action of the new Municipal Services Corporation is to award the contract for the rehabilitation of the stadium and civic centre to OSEG. There is no question of competitive bidding so there is no reason to believe that the MSC will get good value for the 129.3 million dollars it proposes to spend.
Promoters of the Lansdowne partnership campaign (such as OSEG and various members of Council) have made much of the fact that OSEG is willing to take on the project (without competition) on a fixed-price basis. Somehow that does not seem very impressive. Does the City not normally seek definitive price quotes when it buys goods and services?
The proposal to establish a Municipal Services Corporation needs to be carefully examined. What exactly will be the role and responsibility of the corporation? How will the directors of the corporation be appointed?
The CFL football team is to pay annual rent of $300,000 for use of the stadium and the OHL hockey team is to pay $100,000 for civic centre. This money goes into the "closed system" so potentially much of this comes back to OSEG. Is this a stream of rental income that can justify $110 million investment by the City in rehabilitation?
All of these comments come directly from the documents presented to Council, but I have many more concerns. Those concerns spring from mistaken assumptions or from issues deftly sidestepped in the documents released to date.
First off, there is no value attributed to the land or the existing physical plant, both of which are being turned over to OSEG under a long-term lease. The land is definitely worth something and it is being made available for the construction of commercial buildings. There is no indication that the owner of the land receives any rent. In addition the existing stadium and civic centre may need to be rehabilitated, but they do have value. Again no rent is being paid.
I cannot understand why the City’s equity in the partnership is deemed to represent only 20 million dollars. This is an remarkable understatement of what the City brings to the partnership proposal. Not only is the City providing the use of the land and the current physical plant, it is also investing 129.3 million dollars in the rehabilitation of the stadium & civic centre plus construction of parking facilities.
By ridiculously understating the value of what the City brings to the table, the partnership arrangement represents a significant transfer of wealth to the private sector partner at the expense of Ottawa taxpayers.
I fail to see any reason that net revenues should be distributed to OSEG (both return on and return of equity), prior to payment to the City. Why should the lesser investor be given preference over the greater investor?
In any event, OSEG is covering the cost of financing the retail element of the project prior to turning over any money to the "closed system". By contrast the City is on the hook for financing costs for 116.9 million dollars (and I will argue even more), prior to receiving anything.
Of course the first action of the new Municipal Services Corporation is to award the contract for the rehabilitation of the stadium and civic centre to OSEG. There is no question of competitive bidding so there is no reason to believe that the MSC will get good value for the 129.3 million dollars it proposes to spend.
Promoters of the Lansdowne partnership campaign (such as OSEG and various members of Council) have made much of the fact that OSEG is willing to take on the project (without competition) on a fixed-price basis. Somehow that does not seem very impressive. Does the City not normally seek definitive price quotes when it buys goods and services?
The proposal to establish a Municipal Services Corporation needs to be carefully examined. What exactly will be the role and responsibility of the corporation? How will the directors of the corporation be appointed?
The CFL football team is to pay annual rent of $300,000 for use of the stadium and the OHL hockey team is to pay $100,000 for civic centre. This money goes into the "closed system" so potentially much of this comes back to OSEG. Is this a stream of rental income that can justify $110 million investment by the City in rehabilitation?
All of these comments come directly from the documents presented to Council, but I have many more concerns. Those concerns spring from mistaken assumptions or from issues deftly sidestepped in the documents released to date.
Financial complexity hides much
Although I have reservations about various aspects of the Lansdowne Live project, my greatest concern involves the financial arrangements. I don’t think it is a reasonable deal for the taxpayers of Ottawa.
Depending which document you read, the story changes somewhat but, to make my concerns understandable, the following is my interpretation of the proposal. This interpretation is the basis for my objections in following posts.
First, the City hands over Lansdowne Park and the physical assets on the land to a new Municipal Services Corporation [MSC]. Then the City of Ottawa (that same city that has no money to take independent initiatives at Lansdowne) finds 129.3 million dollars which it turns over to the MSC.
Without competition, MSC awards a contract to OSEG to refurbish the stadium, the civic centre and to build parking garages, an investment of 129.3 million dollars.
MSC turns over operation of the entire park, including the refurbished stadium and civic centre to OSEG.
OSEG invests 97.8 million dollars to build retail buildings and associated parking garages. OSEG expects to invest 19.6 million dollars in the football and hockey teams.
A new mysterious entity called "the closed system" is created; it is unclear how the closed system relates to MSC. However net revenues from the stadium and civic centre apparently go to the "closed system", as do net revenues from the retail component, parking and the two identified sports teams (the 67's hockey team and the future CFL football team).
The principle appears to be that each of the various elements of operation cover their respective costs, including cost of financing, prior to calculation of a net revenue payable into the "closed system". On an annual basis, a distribution of funds from the "closed system is carried out.
The first call on the revenue in the "closed system" is a deposit to a lifecycle fund for major maintenance requirements of the stadium and civic centre. The lifecycle fund is held by the MSC. OSEG provides a guarantee that a minimum deposit to the lifecycle fund is effected each year regardless of the revenues secured for in the "closed system". It is anticipated that the lifecycle fund will be exhausted every six years in a cycle of accumulation and expenditure.
Once the lifecycle fund obligation has been fulfilled, additional revenues in the "closed system" are allocated first to provide a defined 8% return on equity to OSEG. Next funds are allocated to repay OSEG its equity in the project with the equity amortized over 30 years. Apparently OSEG equity is about 20 million dollars in 2013 when the operation of the redeveloped stadium begins. I assume that OSEG equity is required to arrange the financing for the retail and parking elements. Coincidentally the setup costs for the football and hockey teams are of the order of 20 million dollars, but I imagine that OSEG initiative is distinct from the partnership arrangements.
Only after the lifecycle fund payments, the 8% return on equity to OSEG and the 30 year amortization of OSEG equity is effected, is any payment in respect of the City’s equity to be paid. Somehow it is deemed that the City’s equity is only 20 million dollars and it is intended to pay a return to the City on such deemed equity at a rate of 8%.
If there are further funds in the "closed system" for distribution, these are split equally between OSEG and the City.
In summary, revenues go into a "closed system" and are paid out in the following order:
- payments into a lifecycle reserve fund
- payment of return on equity to OSEG
- payment of equity to OSEG on a 30 year amortization
- payment of return on equity to the City
- any balance is split between OSEG and the City.
Depending which document you read, the story changes somewhat but, to make my concerns understandable, the following is my interpretation of the proposal. This interpretation is the basis for my objections in following posts.
First, the City hands over Lansdowne Park and the physical assets on the land to a new Municipal Services Corporation [MSC]. Then the City of Ottawa (that same city that has no money to take independent initiatives at Lansdowne) finds 129.3 million dollars which it turns over to the MSC.
Without competition, MSC awards a contract to OSEG to refurbish the stadium, the civic centre and to build parking garages, an investment of 129.3 million dollars.
MSC turns over operation of the entire park, including the refurbished stadium and civic centre to OSEG.
OSEG invests 97.8 million dollars to build retail buildings and associated parking garages. OSEG expects to invest 19.6 million dollars in the football and hockey teams.
A new mysterious entity called "the closed system" is created; it is unclear how the closed system relates to MSC. However net revenues from the stadium and civic centre apparently go to the "closed system", as do net revenues from the retail component, parking and the two identified sports teams (the 67's hockey team and the future CFL football team).
The principle appears to be that each of the various elements of operation cover their respective costs, including cost of financing, prior to calculation of a net revenue payable into the "closed system". On an annual basis, a distribution of funds from the "closed system is carried out.
The first call on the revenue in the "closed system" is a deposit to a lifecycle fund for major maintenance requirements of the stadium and civic centre. The lifecycle fund is held by the MSC. OSEG provides a guarantee that a minimum deposit to the lifecycle fund is effected each year regardless of the revenues secured for in the "closed system". It is anticipated that the lifecycle fund will be exhausted every six years in a cycle of accumulation and expenditure.
Once the lifecycle fund obligation has been fulfilled, additional revenues in the "closed system" are allocated first to provide a defined 8% return on equity to OSEG. Next funds are allocated to repay OSEG its equity in the project with the equity amortized over 30 years. Apparently OSEG equity is about 20 million dollars in 2013 when the operation of the redeveloped stadium begins. I assume that OSEG equity is required to arrange the financing for the retail and parking elements. Coincidentally the setup costs for the football and hockey teams are of the order of 20 million dollars, but I imagine that OSEG initiative is distinct from the partnership arrangements.
Only after the lifecycle fund payments, the 8% return on equity to OSEG and the 30 year amortization of OSEG equity is effected, is any payment in respect of the City’s equity to be paid. Somehow it is deemed that the City’s equity is only 20 million dollars and it is intended to pay a return to the City on such deemed equity at a rate of 8%.
If there are further funds in the "closed system" for distribution, these are split equally between OSEG and the City.
In summary, revenues go into a "closed system" and are paid out in the following order:
- payments into a lifecycle reserve fund
- payment of return on equity to OSEG
- payment of equity to OSEG on a 30 year amortization
- payment of return on equity to the City
- any balance is split between OSEG and the City.
Sunday, September 13, 2009
A true football project
There are people, many people, who would like to see CFL football return to Ottawa. For many football fans, it is difficult to see why others are raising objections to the Lansdowne Live proposal. After all, this is a plan which has been promoted as a means of bringing back football.
But it is worth noting that even if everything goes ahead full steam, there will be no football team on the field until 2013 or 2014. Why is it taking so long?
One reason for the delay is that the Lansdowne Live proposal involves much more than football. For some reason, you cannot have a football team until you have a supermarket, a shopping centre, a multi-screen movie theatre and VIP boxes in the stadium.
If you wanted to establish a football team, would you build a supermarket as your first step?
No, probably the first step would be to look into temporary stands for fans in the existing stadium. It would be nice to replace the seats in the stands, but need that be the first concern?
Similarly, if the idea is to bring professional soccer to Lansdowne, what really needs to be done?
All this is to say that, if football (or soccer) is the objective, there are quicker and surer ways of restoring football than the complexity of the Lansdowne Live proposal.
But it is worth noting that even if everything goes ahead full steam, there will be no football team on the field until 2013 or 2014. Why is it taking so long?
One reason for the delay is that the Lansdowne Live proposal involves much more than football. For some reason, you cannot have a football team until you have a supermarket, a shopping centre, a multi-screen movie theatre and VIP boxes in the stadium.
If you wanted to establish a football team, would you build a supermarket as your first step?
No, probably the first step would be to look into temporary stands for fans in the existing stadium. It would be nice to replace the seats in the stands, but need that be the first concern?
Similarly, if the idea is to bring professional soccer to Lansdowne, what really needs to be done?
All this is to say that, if football (or soccer) is the objective, there are quicker and surer ways of restoring football than the complexity of the Lansdowne Live proposal.
Who is pushing this project?
I used to think that Lansdowne Live was a project being promoted by Messrs. Greenberg, Shenkman, Ruddy and Hunt. Now I am beginning to wonder if I have it wrong.
On August 29 the Citizen ran a column by Kenneth Gray under the headline "Councillor touts revamped Lansdowne plan". According to my Oxford Concise "tout" is to "solicit custom persistently". The article quotes Councillor Chiarelli as saying "I feel good about the whole thing".
In the Sun of September 1 an article is headed "Lansdowne plan has mayor in sales mode" and Mr. O'Brien is quoted as saying "I believe the business transaction and site planning is the best possible plan available that is tax neutral for the citizens of Ottawa."
And Le Droit ran an article on September 2 under the headline "O'Brien promet un beau melange" and goes on to quote the mayor saying "c'est un beau melange de prudence sur le plan economique et de design artistique de niveau international".
Wow! It seems that some of our elected members of Council consider that is their job to promote this deal. If OSEG has been considering hiring a PR team, they can save their money -- just rely on our local politicians. After all, they were out selling the proposal before any of the details were released. They would probably sell me a used car even before it comes onto the lot!
On August 29 the Citizen ran a column by Kenneth Gray under the headline "Councillor touts revamped Lansdowne plan". According to my Oxford Concise "tout" is to "solicit custom persistently". The article quotes Councillor Chiarelli as saying "I feel good about the whole thing".
In the Sun of September 1 an article is headed "Lansdowne plan has mayor in sales mode" and Mr. O'Brien is quoted as saying "I believe the business transaction and site planning is the best possible plan available that is tax neutral for the citizens of Ottawa."
And Le Droit ran an article on September 2 under the headline "O'Brien promet un beau melange" and goes on to quote the mayor saying "c'est un beau melange de prudence sur le plan economique et de design artistique de niveau international".
Wow! It seems that some of our elected members of Council consider that is their job to promote this deal. If OSEG has been considering hiring a PR team, they can save their money -- just rely on our local politicians. After all, they were out selling the proposal before any of the details were released. They would probably sell me a used car even before it comes onto the lot!
Saturday, September 12, 2009
Contradiction and confusion
Understanding the "Lansdowne partnership plan" isn't easy. There are many documents to read including:
1- the staff report to Council (23 pages - available on the city website)
2- the glossy giant-sized "plan" document (56 pages - available on the city website)
3 - a 5 centimetre thick book of appendices
4- a slide presentation to Council (promised on the city website but not there)
But it would be simpler for everyone if the documents didn't contradict each other. Or maybe someone could tell the public which documents are correct and which are in error.
Just to illustrate the problem, here are some of the contradictions.
-- When is the housing built?
The staff report to Council describes all residential components as being in Phase 2 Before Council it was said this was "plug and play" (apparently intended to suggest that residential components were optional and subject to some subsequent decision by Council). This is contradicted by the Memorandum of Understanding including in the glossy plan document. Clause 4.5 of the MOU says "The Stadium, the Retail Component, the Front Lawn, the Holmwood Townhouses and all parking except residential and hotel component parking, must as a condition of the Project, proceed concurrently."
Well, are the townhouses in phase 1 or phase 2?
-- When does the City get paid?
In the staff report to Council it is said that "the City of Ottawa is in the first and fourth position in the waterfall structure" indicating that funds start flowing to the City. But later on the same page (and in other documentation) it is clear that the first payments go into the "Lifecycle fund". This is not a flow of cash to compensate the City; it is a reserve fund for major maintenance of the stadium and civic centre. That fund will be called upon to keep the facilities from deteriorating. It is like the reserve funds of a condo or a portion of rent paid to a landlord to cover real costs. OSEG receives return on its equity and repayment of its equity before any distributions are made to the City.
So how is the City first in line to receive payment?
The more you read these documents, the more questions you have.
1- the staff report to Council (23 pages - available on the city website)
2- the glossy giant-sized "plan" document (56 pages - available on the city website)
3 - a 5 centimetre thick book of appendices
4- a slide presentation to Council (promised on the city website but not there)
But it would be simpler for everyone if the documents didn't contradict each other. Or maybe someone could tell the public which documents are correct and which are in error.
Just to illustrate the problem, here are some of the contradictions.
-- When is the housing built?
The staff report to Council describes all residential components as being in Phase 2 Before Council it was said this was "plug and play" (apparently intended to suggest that residential components were optional and subject to some subsequent decision by Council). This is contradicted by the Memorandum of Understanding including in the glossy plan document. Clause 4.5 of the MOU says "The Stadium, the Retail Component, the Front Lawn, the Holmwood Townhouses and all parking except residential and hotel component parking, must as a condition of the Project, proceed concurrently."
Well, are the townhouses in phase 1 or phase 2?
-- When does the City get paid?
In the staff report to Council it is said that "the City of Ottawa is in the first and fourth position in the waterfall structure" indicating that funds start flowing to the City. But later on the same page (and in other documentation) it is clear that the first payments go into the "Lifecycle fund". This is not a flow of cash to compensate the City; it is a reserve fund for major maintenance of the stadium and civic centre. That fund will be called upon to keep the facilities from deteriorating. It is like the reserve funds of a condo or a portion of rent paid to a landlord to cover real costs. OSEG receives return on its equity and repayment of its equity before any distributions are made to the City.
So how is the City first in line to receive payment?
The more you read these documents, the more questions you have.
Any intention of listening?
It is Saturday September 12. In searching on the City of Ottawa website, there is no sign of the town hall public consultations which are supposed to start September 21. Nor is there any indication that the online forum to gather public comments has been set up.
Am I a cynic to think that the City of Ottawa and OSEG are less than enthusiastic about hearing from the public?
Am I a cynic to think that the City of Ottawa and OSEG are less than enthusiastic about hearing from the public?
Friday, September 11, 2009
"Isn't that special!"
Years ago the "Church Lady" made frequent appearances on Saturday Night Live. When she disapproved of something, her comment was invariably "isn't that special".
The Lansdowne Partnership Plan which was revealed to the public on September 2 certainly fits into the category of something special.
It would appear to the observer that the City's policies for procurement of goods and services should apply since it is proposed that the city spend big bucks. No, we are told this is something different; it is an unsolicited proposal.
So you might assume that the City's policies for unsolicited proposals might apply. No, we are told this is a public private partnership.
Then you might imagine that the City's policies for public private partnership (P3's for the cogniscenti) would be applicable. Wrong again, we are told, this is something unique.
Maybe others accept the unique nature of the proposal, but I am very uncomfortable about entering the twilight zone where no rules apply and anything goes.
One of the concepts discussed in political theory is that of "rule of law" versus "rule of man". The idea is that we have a body of accepted policy rather than operating on the basis of personal whim. In the case of the Lansdowne redevelopment proposal now before us, we seem to be drifting into the dangerous field of making decisions on the basis of personality rather than of policy.
The Lansdowne Partnership Plan which was revealed to the public on September 2 certainly fits into the category of something special.
It would appear to the observer that the City's policies for procurement of goods and services should apply since it is proposed that the city spend big bucks. No, we are told this is something different; it is an unsolicited proposal.
So you might assume that the City's policies for unsolicited proposals might apply. No, we are told this is a public private partnership.
Then you might imagine that the City's policies for public private partnership (P3's for the cogniscenti) would be applicable. Wrong again, we are told, this is something unique.
Maybe others accept the unique nature of the proposal, but I am very uncomfortable about entering the twilight zone where no rules apply and anything goes.
One of the concepts discussed in political theory is that of "rule of law" versus "rule of man". The idea is that we have a body of accepted policy rather than operating on the basis of personal whim. In the case of the Lansdowne redevelopment proposal now before us, we seem to be drifting into the dangerous field of making decisions on the basis of personality rather than of policy.
Thursday, September 10, 2009
What's the rush?
Lansdowne Park has been neglected for years. Nevertheless the public of Ottawa (and Ottawa City Council) is being stampeded to quickly agree to a questionable plan for redevelopment of a valuable piece of property.
The documentation on the proposed "partnership" was made available to the public (and apparently to members of City Council) on September 2. Hundreds of pages of documentation were released. By some miracle, certain members of City Council absorbed all this material and instantly came out in support of the project as presented.
The public is supposed to have an opportunity to express its views about the proposal in town hall consultation sessions during the week of September 21 (i.e. 11 days from the moment I write this). However we have no information on where or when these town hall meetings are to occur.
The city is also planning to set up an online forum to capture views from the public. Apparently the timetable would call for that forum to wrap up by early October.
All this feverish activity (if it ever gets underway) is designed to lead to a Council Committee meeting on October 26.
It took OSEG (the proponents of this deal) from October 20,2008 to March 18, 2009 (150 days) to polish up its first proposal submitted to the City. Then it took from April 22, 2009 to September 2 (134 days) to negotiate the second version of their proposal. The negotiations which were to take 60 days took twice as long as planned.
Against this background it is hard to see why we need to rush quickly through the process of public consultations.
The documentation on the proposed "partnership" was made available to the public (and apparently to members of City Council) on September 2. Hundreds of pages of documentation were released. By some miracle, certain members of City Council absorbed all this material and instantly came out in support of the project as presented.
The public is supposed to have an opportunity to express its views about the proposal in town hall consultation sessions during the week of September 21 (i.e. 11 days from the moment I write this). However we have no information on where or when these town hall meetings are to occur.
The city is also planning to set up an online forum to capture views from the public. Apparently the timetable would call for that forum to wrap up by early October.
All this feverish activity (if it ever gets underway) is designed to lead to a Council Committee meeting on October 26.
It took OSEG (the proponents of this deal) from October 20,2008 to March 18, 2009 (150 days) to polish up its first proposal submitted to the City. Then it took from April 22, 2009 to September 2 (134 days) to negotiate the second version of their proposal. The negotiations which were to take 60 days took twice as long as planned.
Against this background it is hard to see why we need to rush quickly through the process of public consultations.
Purpose of this blog and background brief
For many months, I have been following with interest the public discussion about the redevelopment of Ottawa’s Lansdowne Park. As the debate continues I want to expose my thoughts and give others a chance to weigh in with their views. The topic can be approached from many different viewpoints and the documentation about the issue is becoming vast.
As general background, Lansdowne Park has been a subject of public debate in Ottawa for a long time. The talk heated up in 2007 with the rumour that there might be a plan to return football to Frank Clair Stadium, located in the park. In November 2007 City Council voted to initiate a design competition but this was halted in May 2008. In March 2008 a group of business men announced they had secured a conditional franchise from the Canadian Football League. When the consortium were asked if they proposed to participate in the competition, they said they would not do so. Their refusal to compete was the basis for the suspension of the competition.
In October 2008, the consortium promoting the return of football announced a plan for redevelopment of Lansdowne Park which they titled "Lansdowne Live". The focus of that plan was the rehabilitation of the Stadium and of the hockey arena known as the Civic Centre. They also proposed various commercial development on the park site.
Eventually another proposal for an open-air stadium came from owners of the large enclosed hockey arena located in Kanata in the Ottawa western suburbs. That proposal was submitted by the owners of the Ottawa Senators, a National Hockey League team. Their proposal was to secure a franchise for a major league soccer team to play in the proposed stadium.
With the design competition still suspended, Ottawa City Council agreed to have the two proposals for an open-air stadium analysed by city staff. Meanwhile the City had contracted for a study -- a needs analysis -- which would look at what would be required for a stadium. That study indicated that neither of the two proposals (Lansdowne or Kanata) were the best sites for a stadium.
When the analysis of the two proposals was presented to City Council, it was found that the Lansdowne proposal was preferred. City staff had proposed that Council consider whether having a stadium at all was a priority for the city, but Council sidestepped that question and directed city staff to enter into negotiation with the Lansdowne proponents. The consortium had adopted the name Ottawa Sports and Entertainment Group (OSEG).
Those negotiations continued from April 22, 2009 to September 2, 2009. On September 2, considerable documentation on what was called the "Lansdowne Partnership Plan" was released and is the basis for public debate in the Autumn of 2009.
As general background, Lansdowne Park has been a subject of public debate in Ottawa for a long time. The talk heated up in 2007 with the rumour that there might be a plan to return football to Frank Clair Stadium, located in the park. In November 2007 City Council voted to initiate a design competition but this was halted in May 2008. In March 2008 a group of business men announced they had secured a conditional franchise from the Canadian Football League. When the consortium were asked if they proposed to participate in the competition, they said they would not do so. Their refusal to compete was the basis for the suspension of the competition.
In October 2008, the consortium promoting the return of football announced a plan for redevelopment of Lansdowne Park which they titled "Lansdowne Live". The focus of that plan was the rehabilitation of the Stadium and of the hockey arena known as the Civic Centre. They also proposed various commercial development on the park site.
Eventually another proposal for an open-air stadium came from owners of the large enclosed hockey arena located in Kanata in the Ottawa western suburbs. That proposal was submitted by the owners of the Ottawa Senators, a National Hockey League team. Their proposal was to secure a franchise for a major league soccer team to play in the proposed stadium.
With the design competition still suspended, Ottawa City Council agreed to have the two proposals for an open-air stadium analysed by city staff. Meanwhile the City had contracted for a study -- a needs analysis -- which would look at what would be required for a stadium. That study indicated that neither of the two proposals (Lansdowne or Kanata) were the best sites for a stadium.
When the analysis of the two proposals was presented to City Council, it was found that the Lansdowne proposal was preferred. City staff had proposed that Council consider whether having a stadium at all was a priority for the city, but Council sidestepped that question and directed city staff to enter into negotiation with the Lansdowne proponents. The consortium had adopted the name Ottawa Sports and Entertainment Group (OSEG).
Those negotiations continued from April 22, 2009 to September 2, 2009. On September 2, considerable documentation on what was called the "Lansdowne Partnership Plan" was released and is the basis for public debate in the Autumn of 2009.
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