Sandy Levin on the Pompilii Report

A  week ago and a half ago, the mayor held a news conference to unveil an economic development report. 112 pages long and it didn’t cost the city one red cent. Net yet, anyway.

No, this report was written by a couple of local planning consultants, father and son team Sergio and Justin Pompilii, who just wanted the city to understand what a great opportunity awaited it. 30,000 jobs and 56,000 new residents to buy houses and pay taxes. All that’s needed is a little faith and some up front cash. Also, a little re-jigging of the Urban Growth Boundary. Especially in that area near the 401 where Sunlife wanted to turn a piece of farmland into warehouses a few years ago. If you need a refresher on that deal, click here .

As it turns out, the Pompiliis didn’t have to do a lot of work to pull this off. After all, they represented the landowner in that previous quest to amend the Urban Growth Boundary and they had worked out all the arguments then. Plus, the city paid $50,000 to get an uncritical “economic analysis” of the Sunlife proposal that’s easy to get hold of. Besides, since the younger Pompilii still has the real estate listing for that property, there was plenty of motivation. After all, farmland isn’t worth much on the market. But industrial land, that’s another story.

However, maybe I’m just a bit too skeptical; perhaps there is a public interest being advanced as Sergio Pompilii claims.

In any case, it seems prudent to at least have a look at the information and argument presented.

So I asked Sandy Levin, former city councillor, to give me his thoughts on the report entitled City of London Highway 401 East Employment Land Corridor Planning and Economic Impact Analysis / Justification Report.  

The title itself is telling: what is analysis and what is justification?

Here is what Sandy had to say.

Pompilii’s Pomposity

By Sandy Levin

I love a good consultant’s report: lots of detail, a good business case including costs and benefits, and pro forma cash flows, with lots of examples.  Unfortunately the report by Pompilii and Associates (Sergio Pompilii and his son Justin, both land use planners based in London) is not a good report.  While there are over 100 footnotes and lots of big numbers, the report prefers to make statements rather than provide examples, uses selected data and forecasts to make a sales pitch sound like facts, and completely ignores any costs or timing of costs and revenues.

The most annoying parts are the exaggerations.  First off, the calculation of tax revenue that the city could gain from this proposal includes the education component of the tax bill in the number.  This amount goes to the Province.  To suggest it is part of the city’s tax revenue is misleading at worst, bad research at best. 

There is no information on the costs to the city (or other orders of government) to provide the water, sewer and storm water management for the area although, like the last big 401 development push, the city would likely end up as the buyer of much of the land.  Nor does the report even mention the increase in operating costs of police, fire and other related services.  If I were an investor, I would surely want to know my costs before I leapt in with both feet.  There is an offhand comment in the report that there could be public private partnerships for wastewater but no examples of where similar projects have been carried, nor an explanation that either the users of the service or taxpayers would have to pay back the private investor.  I would be surprised if the Pompiliis would suggest that the users pay because two of their recommendations are for the city to “provide the private sector and manufacturers tax credits, in a similar fashion to the Ontario government”  (municipalities are not permitted to do so in Ontario), and to “lessen or lift the current surcharges the private sector is required to pay for land exposed to Highway 401 and bear the cost of servicing connections from the main to the property lines.”  (Page 68 of the report) 

There is no estimate of timing of costs or of the revenues.  Usually projects such as these require upfront tax dollars or debt to emplace the services such as sewers, water and storm water.  Costs are paid for up front; it is only over time as an area builds out that the tax revenue materializes.  For what the report calls the stage 1 area, city staff estimated in 2009 that it would cost $19 M for the city to provide the services.   What makes the least sense is the proposal in the report for the city to re-designate these lands in the city’s Official Plan for industrial development immediately.  While this would increase the land value to the land owner, but as undeveloped land, does little to increase the tax revenue. 

There is an exaggeration of the estimated number of construction jobs created by the proposed development.   The report cites a 2009 article by Alex Carrick, the Chief Economist with CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.  OK, so far so good.  Carrick’s article estimates the number of direct construction jobs based on the value of all construction in Canada, divided by the number employed in construction (mind you, he doesn’t cite his sources, but let’s leave that one aside).  The figure he gives is 5,700 jobs per $1 billion in construction value, rounded up to 6,000.  Carrick states there are also an equal amount of indirect jobs such as semi-direct or indirect employment by way of manufacturing building materials and HVAC systems or providing a key service in such areas as the design professions, legal, accounting and real estate.  This is how the Pompilii report gets to 12,000 construction jobs created.  While the direct jobs would likely be people in London and the surrounding area, only some of the indirect jobs would be.  Therefore, the number in the report of “12,000 construction jobs” is a stretch.

I mention that the direct jobs will be people in London and the surrounding area because the report moves effortlessly between using numbers for London itself while often citing the Conference Board of Canada forecasts for the London CMA (Census Metropolitan Area).  There is an important distinction and if one is not careful, you end up comparing apples and oranges if you draw conclusions about London from London CMA figures and forecasts.  The Pompilii report compares lots of apples and oranges.  The London CMA includes London, St. Thomas, Strathroy-Caradoc, Middlesex Centre, Thames Centre, Central Elgin, Southwold, and Adelaide-Metcalf.  About 20% of the population of the CMA is outside of London. 

The report is predicated on the premise that if you build it they will come without any supporting evidence.  In an environment of belt tightening by all levels of governments to deal with deficits and London Mayor’s pledge to freeze taxes, to provide servicing to the 401 area during the next five years would require a shift in London tax capital dollars away from existing needs.  It is a business proposal without any figures for costs, without a pro forma cash flow statement. 

Any investor should expect better.

Click on the following link for the full report.