Downtown Arena Funding Finalized
May 16, 2013
Yesterday afternoon I voted against an arena deal that I feel puts too great a risk on City finances for a return that is not guaranteed. But I also voted against a process I felt was disrespectful to constituents by not letting people’s voices be heard, and for introducing new information in-private or at the last minute throughout (exemplified again by Council receiving the report as the meeting began yesterday).
I know that at this point the deal has been made, but I remain wary of the burden of risk and borrowing the City is poised to assume. Borrowing costs will be $800 million, with $541 million of debt being added in a city:
- With scattered fire station coverage
- In need of sewer pipe renewal and flood prevention infrastructure
- Needing more parks, playgrounds, recreation facilities, and libraries
- Needing upgrades and repairs to its roads and streets
Is a new arena core municipal infrastructure that requires public money?
Under the current model, proponents argue that the Community Revitalization Levy (CRL) ensures only new revenue pays for the arena, and that infrastructure and services will not be scaled back as a result. However, there are finite development dollars and investment is likely to be drawn away from other parts of the city. Increases of tax revenue in the arena district may come at the expense of less development, and thus tax revenue, in other areas. Borrowing so much against future development also limits where the City can borrow for other projects in the meantime.
The success of the CRL is only projection as well, and if it does not live up to speculations, the City will be left scrambling to find other ways of paying its debt.
To be clear, I want to see downtown revitalized. I just believe that a public investment of this magnitude needs a more tangible return, and not put the City so much at risk.
The narrowness of this debate was troublesome, as we defined our agreement parameters by the needs of the current team owner and the NHL. This was not framed as a project for Edmontonians; it was a project for the Oilers, and negotiations determined how the City could fit into it.
I was pleased that the Edmonton Arena Corporation has now agreed to put an additional $15 million up front, but wish the agreement did not stipulate the City take on the balance of the outstanding funds (about $137 million more owed by the EAC). The upfront money, however, was not enough to sway my opinion on the deal.
We have many questions left to answer, such as what happens with Northlands and Rexall Place, and all the specific costs of this new financial arrangement, including construction overruns.
Moving forward, I will work to help the City get everything it expects from this deal. Though I am wary of the funding arrangement, a new arena has the potential to improve our downtown, and I am hopeful it reaches our City’s most optimistic expectations.
Arena Master Agreement not Worth the Risk
April 12, 2013
This week Council voted, albeit by a tighter margin, to take another step closer to a deal with the Edmonton Arena Corporation (owned by Darryl Katz) for an arena downtown. I have been opposed to a framework that I view as unfair to Edmontonians since its inception in 2011. Since then it has only gotten worse. The latest iteration yesterday grants millions more of public subsidy in the form of a tax cap, diverts money from public infrastructure funds, and offers little protection should the EAC fail to meet its obligations.
I am troubled that discourse of this issue characterizes those against this deal as neglecting downtown or not caring about it. I am happy to support any project that could improve our core. I am not willing, however, to support a deal that leverages hundreds of millions of municipal money for dubious return. The $278 million – including the latest $45 million from the Province’s Municipal Sustainability Initiative (MSI) – the city has committed thus far could have a lot of impact in other ways. And that money is only the direct cost.
One issue that has not gotten a lot of attention is the tax cap of $250,000 a year included in the deal. Granted, this is limited specifically to arena events, I think it is worthwhile to point out that this is, in effect, another form of subsidy. Currently, the lands slated for arena development are assessed around $57 million. At last year’s tax rate, this property would have brought in close to $1.1 million in tax revenue. After the arena is built, standard taxes on such a development would push the $5 million range, if not higher. In this way, the City’s “ownership” of the arena ends up costing more than if EAC owned it and the City could charge taxes. Part of the expenses of any business is property taxes, but the City absorbs this portion of operating expenses for the EAC, while they keep all revenue from any arena event.
A few of my Council colleagues shared my concern about using a modest increase of the MSI funding towards this project. This increase was not because of the arena project, nor can we expect the same level of funding year after year. Earlier in Wednesday’s meeting, Council voted to increase spending to combat potholes by $22 million. This is an example of where infrastructure money should be going. Diverting $3 million a year towards the arena project from our infrastructure resources does not constitute a provincial contribution. This will have a tangible impact on the City’s ability to deliver core services.
My last major concern – from the latest agreement April 10 – is the lack of financial security/guarantees the City of Edmonton gets in this deal. The Katz Group’s $115 million contribution is spread over 35 years and paid in biannual installments as rent. EAC is a new company, established independently of the Katz Group’s other interests and assets. Should the company become unable to make its payments (and 35 years is a long time for any business), the City has no collateral from the EAC to recoup its investment aside ownership of the Oilers. The team is only as valuable as the price someone is willing to pay for it. Should the NHL become unprofitable, that EAC asset (and currently they have none) could effectively become worthless, further putting the City at risk.
The arena deal seems as though it has too much momentum to be stopped at this point, but I will continue to voice my concerns. Should it ultimately be finalized, I hope that all the development projections are true, revenue comes as predicted, and our government’s obligations to its citizens are not diminished by this unprecedented financial commitment.
LRT Financing Model Leaves Questions Unanswered
February 20, 2013
On February 20, 2013, Council deliberated and passed the Southeast to West LRT Capital Profile 11-66-1673 and the funding for Phase 2, Stage 1a - Millwoods Town Centre to Centre West by a vote of 11-1, with me opposed. These reports and funding strategy further solidify the City’s intention for the construction of the SE LRT under a Public-Private, or P3, Partnership model. Deliberations were conducted in-private, and so I am restricted from speaking about specific details. The conclusion I drew from the discussion was that the City is sacrificing transparency and affordability by adopting a P3 approach to this vital transit infrastructure. I was taken aback by the cost estimates provided as the City’s share for operating and maintenance over the 30 year life of the agreement. Again, I cannot go into detail.
Findings from across the country warn of the perils of P3 arrangements. From hospitals to transportation infrastructure such models have lead to cost increases that were unexpected or hidden when they were approved. While the Government of Canada has lured municipalities and provinces into taking this approach with the promise of grant funding, experience from other jurisdictions suggest it is both risky and more expensive.
I am all for the LRT system being expanded. My vote today was against a funding model in which the City gives up autonomy of its transit operations for the sake of short-term financial attractiveness, not against the LRT expansion. Transit infrastructure is a big investment. My hope is that as we continue looking for options to expand the LRT, we don't compromise the long-term viability and quality of transit for Edmontonians.
Serving my third term in Council
In the October 2010 municipal election, I was gratified and humbled to receive a third mandate. This term, City Council faces some historic deliberations: LRT expansion, revitalization of mature neighbourhoods (including the Jasper Place Revitalization Plan implementation), and downtown revitalization (with the much-discussed arena question).
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