In the hearing before Ontario Superior Court which terminated last week, the lawyer for the Friends of Lansdowne maintained that the only independent review of the financial arrangements supporting the Lansdowne Partnership plan, was the study in 2008 by Deloitte. That study was never released to the public, nor was its existence made known to members of City Council.
The lawyer for the City denied that claim and said there were other studies conducted. It is difficult to take that counter claim seriously.
It was said that the financial arrangements were studied by Graham Bird Associates(GBA) and by PriceWaterhouseCoopers (PWC). But Graham Bird Associates was retained to carry the process through the administrative and legal hoops, not to analyse the deal. Although I believe the contract between the City and GBA is not public, it is difficult to imagine that the firm did not have a strong financial incentive to move the project forward. It is unlikely that GBA would minimize their revenue by placing obstacles in the quick execution of the LPP.
As for PWC, they were retained by GBA, not to analyse the financials of the deal but rather to create a business model based on assumptions provided by the City and their "partner" Ottawa Sports & Entertainment Group.
In arguing the City's case, their lawyer also claimed that the two reports issued by the City Auditor General constitute an independent analysis of the LPP financials. While the Auditor General is independent, his range of examination was tightly controlled. Moreover, the report which the Auditor General received from an independent US consultant on the LPP is not available.
So the bland assurance in staff reports that due diligence has been conducted with respect to the financial arrangements behind the LPP seem to be pure and simple puffery.
Monday, July 4, 2011
Sunday, July 3, 2011
A great landlord
Sitting in Court for seven days provides an opportunity to learn much. One thing I learned is that the City of Ottawa is a very generous landlord.
The Friends of Lansdowne (FoL) are challenging the City's arrangement with Ottawa Sports and Entertainment Group (OSEG) known as the Lansdowne Partnership plan. FoL indicates that the City is providing an illegal "bonus" to OSEG by providing the land for the development of the shopping complex at a mere one dollar per year for a term of thirty years. According to the explanation given to the Court by the City's lawyer, the City is not conferring a "bonus" in its $1 leasing arrangement because there is provision for a payment to the City.
It is in examining that payment that we learn how generous and understanding a landlord the City is.
According to the argument presented to the Court, a calculation of the value of the land was undertaken by the City and the market rent was ascertained. It was then discovered that if the City were granted "deemed equity", and a return to the City on that "deemed equity" were established, a revenue stream equivalent to rent could be projected by using the financial model created under the Lansdowne Partnership plan. No doubt the City's lawyer would say that it is a mere matter of semantics whether such return in considered "rent" or "return on deemed equity".
But there is a bit of a problem with the City's argument. The return on "deemed equity" is only payable at the fifth level of the "waterfall" -- the series of prioritized payouts from the "net cash flow" of the entire Lansdowne Partnership. What this means is that every other financial obligation is to be satisfied prior to the City of Ottawa receiving any return whatever on its "deemed equity".
Payments are made to OSEG not only to provide a return on its investment but also to repay what OSEG has invested (including any payments for cost over-runs on the stadium) before any money is available for the City as a return on its "deemed equity".
So all of this makes the City of Ottawa a remarkable landlord.
Normal landlords don't care about your other financial obligations. If you don't pay your rent in full and on time, you are out on the street. A normal landlord would not allow you to defer rent payment to allow you to pay your bar bills or keep up your car payments.
By contrast, the City of Ottawa is an ideal landlord. The City is happy to permit its tenant to give priority to every other imaginable demand before expecting that any payment equivalent to rent be effected.
May we all be so lucky as to have as splendid a landlord as the City of Ottawa!
The Friends of Lansdowne (FoL) are challenging the City's arrangement with Ottawa Sports and Entertainment Group (OSEG) known as the Lansdowne Partnership plan. FoL indicates that the City is providing an illegal "bonus" to OSEG by providing the land for the development of the shopping complex at a mere one dollar per year for a term of thirty years. According to the explanation given to the Court by the City's lawyer, the City is not conferring a "bonus" in its $1 leasing arrangement because there is provision for a payment to the City.
It is in examining that payment that we learn how generous and understanding a landlord the City is.
According to the argument presented to the Court, a calculation of the value of the land was undertaken by the City and the market rent was ascertained. It was then discovered that if the City were granted "deemed equity", and a return to the City on that "deemed equity" were established, a revenue stream equivalent to rent could be projected by using the financial model created under the Lansdowne Partnership plan. No doubt the City's lawyer would say that it is a mere matter of semantics whether such return in considered "rent" or "return on deemed equity".
But there is a bit of a problem with the City's argument. The return on "deemed equity" is only payable at the fifth level of the "waterfall" -- the series of prioritized payouts from the "net cash flow" of the entire Lansdowne Partnership. What this means is that every other financial obligation is to be satisfied prior to the City of Ottawa receiving any return whatever on its "deemed equity".
Payments are made to OSEG not only to provide a return on its investment but also to repay what OSEG has invested (including any payments for cost over-runs on the stadium) before any money is available for the City as a return on its "deemed equity".
So all of this makes the City of Ottawa a remarkable landlord.
Normal landlords don't care about your other financial obligations. If you don't pay your rent in full and on time, you are out on the street. A normal landlord would not allow you to defer rent payment to allow you to pay your bar bills or keep up your car payments.
By contrast, the City of Ottawa is an ideal landlord. The City is happy to permit its tenant to give priority to every other imaginable demand before expecting that any payment equivalent to rent be effected.
May we all be so lucky as to have as splendid a landlord as the City of Ottawa!
Saturday, July 2, 2011
Foolishness versus illegality
In the seven days in which Ontario Superior Court has heard the case of Friends of Lansdowne versus the City of Ottawa, the complex Lansdowne Partnership Plan has been discussed in great detail. As I have listened to the lawyers present their clients' positions, is has been clear that there is much to criticize.
But for the Court, no matter how unwise or even foolish the arrangement may be, the issue is: do the City's actions constitute a violation of law?
The question of legality goes beyond what is sensible. There is no law against making a bad decision, or, put more bluntly -- stupidity can be perfectly legal.
The argument from the Friends of Lansdowne centres on three issues:
- Can the City of Ottawa ignore its own procurement policies without violating the requirement in the Municipal Act that it establish and maintain such policies;
- Has the financial arrrangment struck with Ottawa Sports and Entertainment Group provided a benefit to a private party which is contrary to the Municipal Act; and
- Has the action of the City in withholding information or in presenting misleading information to the public and to elected officials constituted bad faith.
If the Court finds that any one of the allegations by the Friends of Lansdowne is valid, there may be a basis on which the the actions of the City may be nullified.
But in looking forward to the prospect that the Court might indeed quash the City's arrangment with OSEG, what exactly would that mean in practical terms?
While such a decision by the Court would certainly be a major story in the media and could be a political bombshell, it need not set back the redevelopment of Lansdowne Park in a major way. If the City really wants to rebuild the stadium and fix up the arena, it can go ahead and do so. After all, the City is putting up all the money for the redevelopment. If the City would like to have another organization take on the management of the facilities or to take responsibility for maintenance, it can readily run a competition to select firms to supply such services. If the City wants to sell or lease some of the property to generate revenue, it can do so.
In the hearing last week, the Lansdowne Partnership Plan was likened to a marriage. These days there are all sorts of ways in which relationships develop which are not marriages. And many of us would advise our adult children that rushing into marriage can be unwise.
If the Court decides that the LPP marriage should be annulled, that might be the best outcome for both parties.
But for the Court, no matter how unwise or even foolish the arrangement may be, the issue is: do the City's actions constitute a violation of law?
The question of legality goes beyond what is sensible. There is no law against making a bad decision, or, put more bluntly -- stupidity can be perfectly legal.
The argument from the Friends of Lansdowne centres on three issues:
- Can the City of Ottawa ignore its own procurement policies without violating the requirement in the Municipal Act that it establish and maintain such policies;
- Has the financial arrrangment struck with Ottawa Sports and Entertainment Group provided a benefit to a private party which is contrary to the Municipal Act; and
- Has the action of the City in withholding information or in presenting misleading information to the public and to elected officials constituted bad faith.
If the Court finds that any one of the allegations by the Friends of Lansdowne is valid, there may be a basis on which the the actions of the City may be nullified.
But in looking forward to the prospect that the Court might indeed quash the City's arrangment with OSEG, what exactly would that mean in practical terms?
While such a decision by the Court would certainly be a major story in the media and could be a political bombshell, it need not set back the redevelopment of Lansdowne Park in a major way. If the City really wants to rebuild the stadium and fix up the arena, it can go ahead and do so. After all, the City is putting up all the money for the redevelopment. If the City would like to have another organization take on the management of the facilities or to take responsibility for maintenance, it can readily run a competition to select firms to supply such services. If the City wants to sell or lease some of the property to generate revenue, it can do so.
In the hearing last week, the Lansdowne Partnership Plan was likened to a marriage. These days there are all sorts of ways in which relationships develop which are not marriages. And many of us would advise our adult children that rushing into marriage can be unwise.
If the Court decides that the LPP marriage should be annulled, that might be the best outcome for both parties.
Friday, July 1, 2011
Rube Goldberg remembered
Back in the thirties and forties, there was a noted cartoonist, Rube Goldberg (and a similar British humourist, Heath Robinson) who drew pictures of very complex arrangements of mechanisms to accomplish mundane tasks. Bubbling tea kettles and bouncing balls combined with other devices to turn pages in newspapers or stir soup pots.
After sitting in court for seven days listening to the description of the Lansdowne Partnership Plan, I could not help thinking of those cartoons from the past. The lawyers from both sides described an extraordinarily complex business arrangement. But try as I might, I could not see the need for such complexity.
Much of the humour in the old cartoons comes from imagining the foolishness which would prompt anyone to assemble such ludicrous arrangements. I would have enjoyed the humour in the complexity of the Lansdowne setup, but I kept remembering that somehow I was paying for it all.
In fact, the more the complex arrangement was explained to the judge, the less funny it seemed. The complexity looked as if it were designed to conceal the reality of the arrangement rather than actually contributing to a positive outcome.
After sitting in court for seven days listening to the description of the Lansdowne Partnership Plan, I could not help thinking of those cartoons from the past. The lawyers from both sides described an extraordinarily complex business arrangement. But try as I might, I could not see the need for such complexity.
Much of the humour in the old cartoons comes from imagining the foolishness which would prompt anyone to assemble such ludicrous arrangements. I would have enjoyed the humour in the complexity of the Lansdowne setup, but I kept remembering that somehow I was paying for it all.
In fact, the more the complex arrangement was explained to the judge, the less funny it seemed. The complexity looked as if it were designed to conceal the reality of the arrangement rather than actually contributing to a positive outcome.
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