The short story is that your taxes will go up while the developers will cash in.
Far from being revenue neutral, the Lansdowne Live proposal will hit taxpayers' pocketbooks. The city will spend $110 million for a luxury class stadium, some underground parking ($19.5 m) and greening of the “front lawn”. Overall parking will be grossly insufficient (possibly reduced by half) and access limited. The city will give away 10 acres of valuable public land for $1 a year to developers for 30 years to build a shopping complex , an office block, a hotel, a Cineplex and condominiums. To pay for all of this, the city will borrow $117 million and repay it over 40 years. At 5.35% interest, your taxes will have to cover $285 million in repayments.
These costs don’t even begin to factor in the new proposals that have come forward since last November: a “world class stadium”; a 50,000 sq ft art gallery; a front lawn designed by world class designers; and a new trade centre. While some of these proposals might make for a more attractive development, taxpayer will pay even more.
The city's $129 million cost for Lansdowne amounts to $469 per household, based on 275,000 residential properties. Repayment of $285 million over 40 years amounts to $1,036 per residential property. These figures do not account for many additional costs.
Unlike most stadiums built in Canada, there will be no federal or provincial funds available. Ottawa taxpayers will absorb the full cost. This is highly unusual, especially for a capital city. It's due to the non-competitive sole source process which the Mayor and a majority of councillors followed. The developers will not put a penny into the stadium. They will, however, be the primary beneficiary of the public’s investment.
Council plans to give the Ottawa Sports and Entertainment Group (OSEG) the contract to oversee the entire project, including construction of the stadium, and the management of the entire park for 30 to 50 years or more. OSEG's many management fees and indirect benefits are unknown - but a 30 year deal should be highly rewarding.
Free land is the real deal
Stadiums are not profitable operations for taxpayers. It is taxpayers who will take on most of the financial risk of this stadium deal. In contrast, shopping centres are highly profitable and shopping centres built on free public land are even more profitable for their owners.
The Lansdowne "partnership" with the city is a complex and opaque financial deal. Detailed financial numbers and assumptions have not as yet been made available to the public or to councillors. PriceWaterhouseCoopers (PWC), the accounting firm that provided its advisory services for the business plan, stated "With respect to prospective financial information throughout this report...we express no assurance of any kind on such information. ....We take no responsibility for the achievement of predicted results."
While football is important, the heart of this deal is free public land given to the developers for 30 years, which amounts to a major subsidy to OSEG. The proposed shopping complex will be about 300,000 sq ft or more, similar to the nearby Billings Bridge mall. It is grossly unfair for the City to give away public land for a shopping complex. It creates unfair market conditions that favour mall owners over small local businesses, especially those nearby on Bank St, who pay full market price for their land or full market rents.
Your Taxes and the City's Debt Servicing Plan for Lansdowne
The estimated debt servicing for the proposed $117 million debenture is $7.1 million annually for 40 years or $285 million in total. To repay this debt, the city proposes:
a) to use theoretical savings on the existing Lansdowne operating budget (money that has never actually been spent in the past); b) to divert some incremental property tax dollars from the new complex; c) to use some city parking reserves in the early years d) to include air right sales for the proposed condominiums; and e) to use the City’s share of possible profits from various activities at Lansdowne (e.g., football, hockey).
A). The city states that its planned, but never implemented, budget expenditure of $3.8 million for maintaining Lansdowne should now be considered a saving and be applied to the debt servicing. However, the City only spent $2 million a year over the past 5 years, which is why Lansdowne deteriorated so rapidly. Thus, City spending will increase.
B). Property taxes for the shopping complex have been estimated at $3.8 million. The city has proposed diverting or siphoning off 75% of the new property taxes, or $2.9 million annually, to service the stadium debt. Diverting property taxes to a specific project is highly unusual and a potentially damaging fiscal approach that has never been used before in Ottawa. It means that 75% of the property taxes will not be going towards common municipal services, such as fire, paramedics, police, road works, sewers, snow clearance and social services. Everyone else will be paying these property taxes and, therefore, supporting the shopping mall. If the City was running a surplus and lowering our taxes every year instead of raising them, perhaps this approach would make sense. This is not the case. This new development will be doing nothing to help the rest of the City cover its many costs.
C) The remaining funds needed to cover the $7.1 million annual debt service would be taken initially from city reserves and later from profits from future operations, if any.
Overall, the Lansdowne proposal is a bad financial deal for city taxpayers who will shortly be called upon to support new debt for water and sewage treatment facilities ($240 million), for light rail (a $2.1 billion city investment), for a new trade and exhibition centre and for a new location for the Ottawa SuperEx. The City’s long term debt load is currently about $550 million. Once these new debts are incurred, taxpayers can expect much greater tax increases than this year’s 3.9% hike.
The Murky Financial Package and the Lansdowne Waterfall
OSEG has proposed a complex and highly opaque "financial partnership structure". It's presented as a closed "waterfall" that supposedly shares the revenues and expenses between the city and the developers. It pools the revenues and expenses from the football and hockey franchises, the rents (after debt servicing and other operational expenses) from the shopping complex , the stadium and a few other revenue streams, such as parking or other events. A business plan was presented that estimates some of the revenues to year 2042 and suggests that the city's $117 million in debt will be repaid in 30 to 40 years, if everything works according to plan. Unfortunately, the City will have to repay the debt, even if nothing works according to plan.
The proposal calls for the city to transfer full ownership of the 37.5 acres of Lansdowne Park to a new Municipal Services Corporation (MSC) with its own Board of Directors which will enter into leases and arrangements with OSEG for 30, 50 and potentially 70 years. This could provide OSEG with full control over all activities at Lansdowne, including, scheduling, pricing, permitted activities and more. It will likely remove normal public input and control over Lansdowne for decades. It is proposed that this new Corporation be given independent authority to borrow money on behalf of the City – a matter of concern to taxpayers.
How the Lansdowne Waterfall Benefits OSEG before the Taxpayer
Revenue (after expenses, including management fees) will flow from the various components of the project to the Waterfall. Depending on what the sponsors ultimately decide to build, revenue can come from the stadium, a 300,000 sq ft shopping complex, parking, a 100,000 sq foot office block, a 180 room hotel, a condo tower, 40 townhouses and a Cineplex. As the price of Lansdowne goes up, however, the City and OSEG may try to cram more onto the site so more potential revenue can be generated. The city will collect some revenues from all of these, be it air rights or property taxes, but all will be built on public land provided rent free for 30 years. Moreover, OSEG will have overall control over the construction and all subsequent management arrangements. There will be considerable management fees and OSEG will likely have control over many contracts.
From whatever is ultimately built, the Waterfall financial model would see revenue (after expenses) flow into the Waterfall. Cash would then flow from the top and be siphoned off at various levels to provide various types of returns . What remains reaches the bottom level. The waterfall levels, in order of what gets paid first, are:
- a lifecycle fund to maintain the stadium and arena ($1.5 million annually);
- 8% return on OSEG's equity invested in the two sport franchises ($1.6 million annually on their equity of $20 million);
- annual payback or return on OSEG's equity amortized over 30 years;
- annual 8% return on the city's deemed equity which is estimated at $20
million for the free city land (note the value of this land was estimated before rezoning – there was no competitive bidding); and
- a 50/50 split of any remaining cash. While these revenues would all start to accrue in 2013, each level of the waterfall would start to fill up at vastly different times.
Under the proposal: 1) payments to the lifecycle fund would commence in 2013; 2) payments for OSEG's annual 8% return would begin in 2019; 3) OSEG's return on equity would begin in 2026; and 4) the City's 8% return on deemed equity would only begin in 2029. Thus, even though the city has invested far more, OSEG proposed taking out its relatively small equity investment of $19.6 million in sports franchises ahead of the city and its taxpayers. Councillor Wilkinson’s motion has proposed that the City’s repayment for its cash or reserve contribution be made at the same time as OSEG’s.
The revenue stream to the closed waterfall does not include OSEG's debt
servicing costs for the shopping mall. These costs are drawn off from the rents before any monies are placed into the shared waterfall. The net result is that the proposed partnership places OSEG at the front of the line and benefits OSEG far more quickly than taxpayers.