Lorne Cutler, P.Eng MBA, is an Ottawa-based independent financial consultant.
Mr. Cutler gave the following presentation to City Council June 24, 2010.

Key Financial Issues

• Is the Lansdowne Live model truly revenue neutral and will it taxpayers’ exposure be limited as indicated?
• What is the impact of TIF financing?

Revenue Neutrality

• Currently the majority of City Councillors, with the advice of the Auditor General, City Manager, PriceWaterhouse Coopers and other consultants believe that the overall Lansdowne Live proposal is financially viable and will be revenue neutral
• A large minority of council and much of the public do not believe the proposal is revenue neutral and taxes will ultimately have go up to service the proposed debt

The Obvious Solution

• The one solution to this issue that: i) addresses taxpayers’ concerns of potential increases in taxes; ii) recognizes the view currently held by the majority of Council that the project is revenue neutral; and iii) allows the project to proceed exactly as proposed is:

Off-balance sheet financing or project financing

• If proposed model is strong, it should be able to stand on its own without a City of Ottawa guarantee
• Ottawa to establish a Municipal Service Corporation (MSC) which could be given the power to borrow in its own name
• Project could proceed exactly as is!
• Ottawa would direct same payment streams to a special purpose company and MSC would borrow from the market or float a bond
• Some interim financial support could be provided to MSC by the City prior to the project being Cash positive in 2025 for the City but amounts would be fixed on an annual basis and in aggregate and City would charge interest based on its cost of funds
• Funds transferred by the City to MSC can only be used to service the debt and will be held in escrow
• Any funds remaining in MSC at end of project will be transferred back to the City
• It is recognized that interest rates will go up without a City of Ottawa guarantee. For every 1% increase in interest rates, the incremental cost of debt servicing over the life of the loan is $15 mln. or 10% of the incremental cash flow (as per report to Council on June 9, 2010)
• Lenders and/or rating agencies will have to approve financing structure and viability of model
• MSC might have to put up Lansdowne Stadium as security, but not the land, similar to what OSEG will be doing for their commercial complex
• Note – This solution only addresses financing concerns and does not speak to the appropriateness of the overall project

Proposed Loan Structure vs. Current Structure

Tax Incremental Financing

• TIF financing is the practice of allocating taxes from a specific project to fund aspects of the project.
• Common type of financing in the U.S.
• TIF funds are either used to fund infrastructure required for project (Lansdowne model), to reduce taxes for private developer (Shenkman trade centre model), or to directly service the debt of private developer
• Ottawa has never done this type of financing before
• Financing of Ottawa Convention centre only used the argument of the potential for new property taxes from potential new business activity (i.e. incremental hotels, restaurants, etc.) resulting from a new convention centre. There is no direct tie in which is required under true TIF financing.
• Same argument could be used to say that the extension of Terry Fox Road will be financed strictly by the incremental taxes from the residential development inside Terry Fox loop as development would not have happened otherwise. City however, did not tie Terry Fox loop extension to incremental property taxes.

Impacts of Tax Incremental Financing

• If City truly believes in TIF financing then:
• City can further reduce impact to taxpayer for Lansdowne Live project by applying to the Province under the Tax Incremental Financing Act, 2006 for an application of property-based education taxes to also fund the stadium based on Education Tax Increment
• From the Act, definition of an eligible projects includes:

The construction of municipal infrastructure or amenities to assist in:

(i) the redevelopment or intensification of previously developed areas, or

(ii) the development of an urban growth centre identified in a growth plan under the Places to Grow Act, 2005,

• Why are we leaving this money on the table?
• Any project resulting in incremental taxes could be eligible for TIF financing if there is a public component
• Soeurs de la Visitation Convent in Westboro was recently sold for redevelopment
• The Convent, as church property, has never paid taxes
• Any taxes resulting from the commercial development of this site will be incremental and well in excess of what is required to service site
• The developer is not planning to use actual Convent building for commercial uses and has had ongoing discussions with Westboro community on various options for public community use of the convent building
• End uses have not been finalized but discussions include arts centre; social enterprise incubator, health centre, community centre, etc.
• If convent building is used for community use, the developer and Westboro community will be looking for TIF financing to help support conversion and operation of this non-profit, community focused building