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.