The “unofficial” Ottawa Lynx blog

As part of an ongoing look at some of the issues still remaining, today the blog turns its attention to PPPs and the fairness component of the argument.  Now strictly speaking, Lynx Stadium was never a “Public Private Partnership” project, but it many ways it resembles one. 

Construction Financing

Lynx Stadium:  The City of Nepean and Howard Darwin.

Bell Sensplex:  Ottawa Community Ice Partners (which includes the Ottawa Senators Hockey Club, Ottawa Senators Alumni, and Morley Hoppner Group).

Ownership

Lynx Stadium:  Retained by the City.

Bell Sensplex:  Retained by the City (after 30 years).

Programming and marketing

Lynx Stadium:  Responsibility of the tenant.

Bell Sensplex:  Responsibility of the tenant.

Bumps in the road.

But here’s where their paths diverge - how the City dealt with the “debts” for each.  As part of the initial agreement between the City and Howard Darwin that saw Lynx Stadium constructed, Mr. Darwin was required to put up roughly $4.5 million of the estimated $17 million cost.  When the team was sold to Ray Pecor in 2000, a good chunk of that debt remained and it was transferred to Ray Pecor. 

In 2007, less than three years after it opened, the Bell Sensplex ran into financial difficulty and the City extended a lifeline in the form of a $1.4 million bailout.  This on top of the $250,000 pumped into the complex each year for thirty years.  The situation at a second PPP, the Ray Friel Centre, was worse.  In that instance, the management company (the PPP partner) is purported to have underestimated its operating costs while overestimating revenue at the same time.  As a result (surprise!), it claimed it couldn’t make a profit and planned to terminate their agreement with the City.  The bottom line result for the City?  $1.4M more for the Sensplex (with an exposure for the entire construction cost of approximately $25M) and $12M more for the Ray Friel Centre debt.

Fairness

Here’s where I take issue with the City.  Both PPPs were bailed out - I don’t think anyone would argue that point.  In the case of the Sensplex, it may be just the beginning of the bailouts, and not everyone on Council is happy about it -

Coun. Alex Cullen opposed the bailout, arguing that the city should take over and run the facility like community centres and hockey rinks built in the past.

“We owned them, we operated them,” he said. “And one of the reasons why we do so is to ensure, first of all, that we can provide the services that our public wants and that we are not in the business of generating a profit for our shareholders.” 1

“They have already drawn a million dollars out of the operating reserve. This after we guaranteed the construction of the facility through the municipal capital facilities agreement. We waived property taxes. We contribute toward their operating reserve. And we’re a guaranteed client for 2,400 hours of ice time a year. And they can’t make ends meet?” 2

                                                            [Councillor Alex Cullen]

And in the Lynx case?  You need to cast your mind back to 2000 and the amalgamation process.  As part of the agreement that brought the 12 regional municipalities together “(b)  all the assets and liabilities of the old municipalities on December 31, 2000, including all rights, interests, approvals, status, registrations, entitlements and contractual benefits and obligations, become assets and liabilities of the city on January 1, 2001, without compensation.  1999, c. 14, Sched. E, s. 5 (3).” 3.  So the initial construction costs owed by Ottawa ceased to exist.  To its credit, the City did negotiate a new operating agreement with Mr. Pecor when he took over the team, but did they disclose to him that they were about to unburden themselves of their debt to the City of Nepean - without compensation, while forcing him to continue to carry his share?  Not likely.  And while there was nothing compelling them to extend the same debt forgiveness to Mr. Pecor, one might think that the financial status of the Stadium and their own guiding principles could have been viewed as mitigating factors -

“Basically, I think the city has broken their own rules,” he said.
The stadium has been nothing but a good deal for the city, in his opinion.

“This ball park cost the city $16 million. When I left here, the city had received $17,600,000 in revenues generated from this park. From my point of view, the ballpark paid for itself … and it helped this street (Coventry Road) develop,” he said. 4

                                                   [Howard Darwin]

“It cost the city $16,900,000 to build, and it was paid off in 2001 thanks to revenue streams from sources such as major corporate sponsors, the 32 box suites, parking, attendance, the naming rights ($5 million over five years when it was Jetform Stadium until that deal ended), the larcenous $500,000 a year in rent the city was charging Darwin.” 5

[Earl McRae]

Remember:  “(The City is) not in the business of generating a profit for our shareholders.”  But if the Stadium has been paid off, isn’t the last unforgiven share of the debt actually a winfall for the City?  And more importantly, in my view anyway, why has the City shown a willingness to let everyone off the hook (i.e. The Sensplex, The Ray Friel Centre, themselves) except Ray Pecor?

More to come.

Footnotes:

1 - CBC Ottawa, April 26, 2007

2 - Daily Commercial News and Construction Record.

3 - City of Ottawa Act, 1999

4 - The Ottawa Sun, July 15, 2007

5 - The Ottawa Sun, August 25, 2006