Tuesday, December 28, 2010

Domed stadium price tag stale-dated; Crown Investments Corporation blacks out key financial information in P3 Canada Fund application

The Saskatchewan Party government’s quest for a $431 million domed stadium in Regina hit a brick wall recently when federal Crown corporation PPP Canada Inc. informed the province that its proposal under the second round of funding of the P3 Canada Fund would not be moving beyond the preliminary assessment phase — at least for now.

According to the StarPhoenix, Ron Styles, president & CEO of SaskTel and the government’s lead official on the project, said on November 25, 2010, that the stadium project has not been moved into the comprehensive assessment phase.

But, he said, it also hasn’t been turned down.

“Our application has not been rejected but it has not been moved into the second round yet pending a decision by the federal government whether they will change the criteria across all their programs -- not just P3 Canada’s -- but whether they would change the criteria regarding professional sports team involvement in these kind of projects,” said Styles. [Stadium proposal in limbo (StarPhoenix, November 26, 2010)]

The P3 Canada Fund totals $1.2 billion over five years, and is earmarked for non-federal public infrastructure public-private partnerships. The amount of the funding support, in combination with any other direct federal assistance, may not exceed 25 percent of the project’s direct construction costs.

The Wall government’s predicament is of its own making.

The first blunder was to engage in a process where it knew going in that the federal government had little interest in helping fund a project that involved a professional sports franchise.

According to a background paper prepared by Crown Investments Corporation of Saskatchewan (CIC), PPP Canada officials told the Wall government that the P3 Canada Fund investment criteria does not ordinarily provide for funding of facilities used primarily by professional sports teams.

“Saskatchewan understands from discussions with P3 Canada Fund officials that under Fund investment criteria, facilities used primarily by professional sports teams are ineligible for investment,” the undated document states. “Saskatchewan further understands that these investment criteria originated from Industry Canada when the Build Canada program was undertaken in the 1980’s. Saskatchewan further understands that these were established at that time in negotiation with the provinces.”

The report goes on the say that the underlying rationale for excluding professional sports teams primarily relates to public concerns raised when the Corel Centre in Ottawa was developed in support of the establishment of the Ottawa Senators NHL hockey team.

“Saskatchewan, therefore, understands that the issue of concern is that P3 Canada funds not be used to subsidize the operations and potentially increase profits of a privately owned enterprise,” the report notes.

The Wall government’s argument is that the Saskatchewan Roughriders football club would not be the primary tenant and account for no more than ten percent of anticipated days of usage. Furthermore, the football club is registered under the Non-Profit Corporations Act of Saskatchewan and, as such, is neither privately owned nor profit seeking.

It was back on October 20, 1993 — just five days before the federal election that year — when then Tory Government Services Minister Paul Dick publicly confirmed the federal government was giving $6-million towards construction of the Palladium, the future home of the Ottawa Senators.

The Ottawa Citizen reported at the time that the funding was conditional on Terrace Corporation, the hockey club’s principal owner, finalizing the rest of its $200-million financing package for the arena’s construction.

The grant was originally approved by cabinet in August, but never announced. The announcement was postponed until the Ontario cabinet decided whether it would provide a loan or guarantee to build the project’s $35 million worth of infrastructure, which includes a highway interchange, said the newspaper.

Dick’s political opponents were apparently furious, attacking the grant as a desperate pre-election ploy to save his Lanark-Carleton seat. [Government confirms Palladium grant (Ottawa Citizen, October 21, 1993)]

Brian Mulroney’s Tory government was subsequently annihilated in the federal election, with Dick losing his seat to Liberal newcomer Ian Murray.

On November 12, 1993, the new Liberal Industry Minister, John Manley, confirmed the grant’s conditional approval. [$6M Palladium grant confirmed (Ottawa Citizen, November 13, 1993)]

The Ontario government was officially on board April 13, 1994, when the provincial cabinet approved a $26.8 million loan to build infrastructure such as roads and an overpass. By that time the Palladium’s financing package had grown to $250 million. [Province clears way for start of Palladium (Ottawa Citizen, April 14, 1994)]

In February 1996, the Palladium was renamed the Corel Centre.

The Ottawa Senators, struggling for years with huge debt and low attendance, filed for bankruptcy on January 9, 2003.

CTV’s Mike Eppel told Newsnet at the time that the team was not in financial straits because of high player salaries, which are among the lowest in the league. He said the club just amassed too much debt, mainly from the building of the Corel Centre, whose events, such as concerts, helped subsidize the team. [Ottawa Senators file for bankruptcy protection (CTV News, January 9, 2003)]

The Senators were eventually saved when pharmaceutical billionaire Eugene Melnyk purchased the team in August 2003. He still owns the club and arena, now known as Scotiabank Place.

The CIC backgrounder states that the Canadian Football League “is essentially a breakeven proposition.” A new domed stadium in Regina could mean higher rent and ticket prices for the Roughrider football team. A few crappy seasons with lower than expected fan turnout is not unheard of in Saskatchewan. The risk is enormous. Sooner or later the novelty of a new stadium will wear off. The debt ridden SkyDome in Toronto is a fine example of that.

Regina Mayor Pat Fiacco knew from the start that federal involvement was unlikely.

In November 2008, as the issue was gaining steam, Fiacco told the Leader-Post that federal funding was not really an option.

“Look at the history of what’s happened -- Halifax, Ottawa and Winnipeg, all three requested funding for a stadium and it’s been refused. The federal government has made it very clear it will not be funding stadiums,” he said, adding that any funding possibilities would still be pursued with Ottawa. [Kicking around stadium ideas (Leader-Post, November 6, 2008)]

Fiacco has since changed his tune.

In a June 8, 2010, interview with CTV Saskatchewan, Fiacco criticized the Harper government, saying if it did not participate in the domed stadium project it be turning its back on Saskatchewan because it participates in these projects in other communities.

“I’d be very disappointed if the federal government does not participate,” he said in the television interview. “They are going to receive a significant amount of tax revenue from this facility when it’s up and running.” [Fiacco hints at stadium go-ahead (StarPhoenix, June 9, 2010)]

Despite the warnings, the Wall government pursued the idea and made federal participation a deal breaker. Without it, there would be no domed stadium.

The realty is the only reason the domed stadium plan exists at all is because Mosaic Stadium in Regina, where the Roughriders are the primary tenant, needs considerable upgrades. The province is hoping to get a new stadium under the guise of a multi-purpose entertainment facility.

The Wall government’s second blunder was to table a feasibility study with a ridiculously short shelf life.

On July 20, 2009, the federal and provincial governments, the City of Regina and the Saskatchewan Roughriders announced a joint investment of up to $1 million for a feasibility study into an all-season, multipurpose entertainment facility in downtown Regina. The feasibility study would be completed in January 2010 and submitted to the partners for review and a decision.

This followed the initial concept review outlining options to address the state of Mosaic Stadium, which the Wall government released that day, a news release said.

The feasibility study was cost shared with 40 per cent through the Canada-Saskatchewan Western Economic Partnership Agreement (WEPA) via Western Economic Diversification Canada; an equal 40 per cent share from the Province of Saskatchewan; as well as 10 per cent each from the City of Regina and Saskatchewan Roughriders Football Club.

Two consultants were hired to complete the majority of work on the study. Stadium Consultants International (SCI) handled the on site planning, preliminary design options and costing. Global Spectrum assisted with the operational and facility business plan aspects of the project, including the scope of opportunities for the facility as a multi-purpose venue.

PCL Construction Management Inc. (PCL) worked with SCI on the issues of construction and costing.

The results of the feasibility study were released March 1, 2010. The proposed design includes a fully retractable roof option, capacity for 33,000 spectators, expandable to up to 45,000 for major events and up to 53,000 for major concerts. The estimated cost: $431.2 million. This includes $386.2 million for the facility plus $45 million for the retractable roof.

The media seemed to focus on the Wall government’s news release and the accompanying 56-page feasibility study summary document for information. What got lost in the shuffle were the 12 appendices, or technical reports, attached to the report. Arguably the most important of these was Appendix 11, the capital cost report prepared by PCL.

PCL’s preliminary construction cost estimate is dated February 9, 2010. It assumes a project start date of October 1, 2010, and construction of the project to be continuous. The expected construction duration is 34 to 36 months, with completion by September 30, 2013. The report notes: “Cost escalation beyond this time frame is not included in this basis of budget.”

The final estimate does not include the cost of underground parking for 215 cars, which is $9 million.

PCL states that the estimate “should not, at this time, be relied upon as a commitment that the contemplated project can or will be constructed for the estimated cost.”

Furthermore, PCL’s numbers assume that both it and SCI are retained to continue with the project. Accordingly, “A five per cent reduction in cost has been incorporated in the final construction cost estimate. (PCL’s cost estimate was $336.4 million, less the five per cent is $319.6 million. The appendix contains a summary of the capital cost report.)”

“To take a different approach to this project would mean starting all over again with the entire project development process at a significant, additional cost,” PCL seems to warn.

So if anyone other than PCL and SCI are chosen to build the new stadium it will cost an additional $16.8 million. This may call into question the fairness of any future public tendering process.

(PCL, by the way, are big contributors to the Saskatchewan Party. For the seven year period from 2003 to 2009 the company donated $54,965.75 to the political party.)

Much of this information, especially the Oct. 1 construction start date, is not mentioned in the Wall government’s news release or the feasibility study summary document.

The project is already three months past the assumed start date with more delays on the way.

Before Christmas, the StarPhoenix reported Ken Cheveldayoff, the provincial cabinet minister overseeing the proposed project, as saying the province needs to decide by the end of February 2011 whether to proceed, even if the federal government hasn’t yet made clear its position on funding such facilities. [Decision due on stadium before March (StarPhoenix, December 22, 2010)]

The shelf life of the feasibility study has most likely expired. The question is why was it so short in the first place? The Wall government was well aware of the timelines for the PPP Canada decision making process.

The P3 Canada Fund program review and submission guide for the second round of funding provides “anticipated timelines for consideration of submissions.”

The preliminary assessment phase was tentatively scheduled to conclude by the end of September 2010. The comprehensive assessment phase could stretch into June 2011.

Page six of the guide book states: “A recommendation to the P3 Canada Board of Directors related to the level, form and conditions of any funding support will follow the Comprehensive Assessment.”

This means it could be the summer of 2011 or later before final federal approval is given.

Another big problem for the Wall government is the lack of transparency on sources of funding and approval dates for the project.

For months the province has been vague on how much money is being requested from the federal government suggesting it’s somewhere between $86 million and $108 million.

However, according to the initial application submitted by CIC to PPP Canada on June 29, 2010, the Wall government is asking for $100 million in support from the P3 Canada Fund, or 23 per cent of the total project cost of $432 million.

The redacted document, which was obtained from CIC through an access to information request, also indicates that the province anticipates the private sector will pony up $71 million towards the project, or just 16 per cent. This means taxpayers would be on the hook for the remaining 84 per cent. This is some partnership.

Ketchum Canada Inc. was retained by CIC in April 2010 to provide an initial assessment of the potential for private support to assist in the funding of the planned domed stadium.

The Wall government sat on the results of the $30,000 study until October 7, 2010, when it released a scant three-page executive summary of the firm’s findings. The media treated it as a “new report,” which it wasn’t. [Private portion $70M (StarPhoenix, October 8, 2010)]

CIC is refusing to disclose a significant amount of key information on the province’s P3 Canada Fund submission.

The province isn’t revealing how much it expects private sector proponents to secure in “cost effective long term financing” to design and build the facility. It is also withholding information on any future service agreement with the “private sector owner.” [Sec. 12]

CIC is refusing to release the proposed procurement schedule and the dates on which the provincial cabinet and Regina city council are expected to approve the project. [Sec. 14 and 15]

And the Wall government is also hiding details on the amount of funding that has already been secured, along with how much the City of Regina and provincial government will be contributing. [Sec. 17]

This is not good.

Issues around delivery and financing appear to be sticking points with the federal government.

In a letter to PPP Canada CEO John McBride dated June 28, 2010, then Enterprise Minister, Ken Cheveldayoff, expressed his “strong support” and thanked McBride for taking the time to meet with then CIC president & CEO, Ron Styles, the previous week to discuss the province’s multi-purpose entertainment facility project and the application for federal funding from the P3 Canada Fund.

Cheveldayoff said that, from the start of the feasibility study, the province has been actively exploring ways to partner with the private sector for innovative design, development and financing options.

“While we believe we have made considerable progress in this area, Mr. Styles informs me that, as a result of his discussions with you last week, there may be several additional approaches to be considered to develop an innovative public-private partnership for design, development and financing of this project,” Cheveldayoff said.

“Should the application be approved, we will be committed to working with you on delivery and financing models that meet the requirements of your program, and that will deliver excellent value for money for Saskatchewan residents.”

It certainly seems the province’s application was on shaky ground right from the start. To date, the public has not been told in detail what these other “innovative” delivery and financing models are.

Cheveldayoff’s letter was followed on August 12, 2010, by a letter of “strong support” from Highways and Infrastructure Minister Jim Reiter, who is tasked within overseeing P3 opportunities within Saskatchewan.

“I would like to confirm that our Government has designated this project as the highest priority among P3 project proposals for Saskatchewan,” Reiter said.

It should be noted that the domed stadium is not the only project that the Wall government is seeking PPP Canada funds. According to a July 22, 2010, letter from PPP Canada CEO John McBride to Saskatchewan’s deputy minister of highways and infrastructure, Rob Penny, the province is also requesting money for something called the Athabasca Road Basins.

The Harper government is not without blame in this fiasco. The big question is why did it bother to participate in the feasibility study when it was clear going in that there would be no funding for a project involving a professional sports team?

In early 2009, CIC contracted two consultants, Rob Giberson, an associate professor (marketing) in the faculty of business administration at the University of Regina, and Bill Shupe, president of W. Shupe & Company Investment Advisory Services Inc. in Regina, to conduct a review of Mosaic Stadium and the possible options for its future.

In June 2009, the $70,000 Giberson-Shupe report, Stadium Concept Review: A Summary Report, identified building a new, all weather multi-use stadium in Regina’s city-centre as the preferred option.

The authors concluded that for the “for the domed stadium project to proceed with Government of Saskatchewan funding support, there will need to be significant funding support from the federal government, City of Regina and the private sector.”

The Giberson-Shupe report was released on July 20, 2009, in conjunction with the announcement that a follow-up feasibility study would be done paid for in part by the federal government.

A committee was established to guide the process, consisting of Saskatchewan Conservative MPs Gerry Ritz (Battlefords-Lloydminster) and Andrew Scheer (Regina-Qu’Appelle), Enterprise Minister Ken Cheveldayoff as committee chair, Sask. Party MLA and cabinet minister Bill Hutchinson, Regina Mayor Pat Fiacco and Roughriders board chair Rob Pletch.

The Harper government knew early on what it was getting into and most certainly was aware of the expected outcome: a domed stadium requiring federal support. And yet, for the last nine months it has strung the province along.

The most recent cryptic message from the federal government came on December 17, 2010, when Prime Minister Stephen Harper said in an interview with French-TV network TVA hosts Paul Larocque and Jean Lapierre that there is “no federal program” to help build an arena so that Quebec City could win an NHL franchise.

“Not now, not in previous decades. Pro sports are first and foremost the responsibility of the private sector, and I am encouraging the private sector to come up with a solution,” said Harper.

“If Ottawa did something like that, we’d have to do it across the country and the list is long. Hamilton, Regina, Edmonton, even my hometown of Calgary, everyone wants a new facility.”

Harper suggested that traditionally Ottawa would only get into funding an arena if it were part of Olympic bid. [No ‘federal program’ to build arena for Quebec City: Harper (StarPhoenix, December 21, 2010)]

This follows comments made by Harper in Saskatoon on September 9, 2010, when he told reporters after an event at the University of Saskatchewan’s Diefenbaker Canada Centre that Ottawa has never subsidized professional sports teams, but if that precedent changes, every project in every city has to be treated equally, the StarPhoenix reported.

“These are professional business operations and government does not and has never directly financed professional sports clubs,” Harper said when asked about the possibility of funding new stadiums in Regina and Quebec City.

“Whatever we do in these two cities, we have to be prepared to do everywhere. Ultimately, professional sports teams themselves have to be sound business propositions.”

Harper suggested that the no-funding precedent for stadiums could change, but he didn’t identify the government program that would fund the large-scale programs, the StarPhoenix said.

“In terms of financing major sports facilities -- there are demands here, there are demands in Quebec City and I’m aware of demands elsewhere -- in terms of any of these things going forward, we have to respect the precedents we had in the past and be prepared that any treatment we give to one major city we’re prepared to give to all,” Harper said.

“We’ll be looking at our options in that context.” [Harper cautious on stadium cash (StarPhoenix, September 10, 2010)]

The Harper government could have nipped this controversy in the bud a long time ago and saved everyone a lot of time, trouble and expense. By engaging in the feasibility study it led people to believe there was hope.

What we’re now seeing appears to be a shameless stall tactic by the Harper government, hoping the Wall government gets tired of waiting and pulls the plug on the bid.


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