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Monday, July 30, 2012

Council rejects (giving) a bonus

The Sysco deal that wasn’t has generated a lot of discussion online and in the coffee shops around town.

And why not? The headline in the London Free Press was certainly designed to set that off.

“Council “blew” it with Sysco,” it trumpeted. At first glance, it would appear that was the opinion of the Free Press or the journalist, Hank Daniszewski.

But wait. Read a little further in the story and you find that it is actually the opinion of Stephen Full-time Orser. Whether there were others on council who shared that opinion is not mentioned.

But there certainly were some who felt quite differently. In fact, a majority on council voted against caving in to Sysco’s demands for special treatment. Contrary to the Free Press portrayal, it was Sysco that decided to play hardball from council’s perspective.

There is little doubt that Sysco wanted to come to London and that the council was eager to please. After all, Sysco was talking about eventually creating up to 250 to 350 jobs. Not quite 10,000 mind you, but still, nothing to turn up one’s nose at. And too, the jobs would be warehousing jobs, not exactly what one would think of as high value-added jobs, more like close to minimum wage jobs, but jobs nonetheless.

But Sysco also wanted the one remaining large parcel in a most desirable location. A piece of land like that, choice industrial land in Innovation Park near Bradley and Veteran’s Memorial Parkway, already serviced, is not easy to come by. But the city was prepared to make a deal. It agreed to sell the 65 acre parcel (26 hectares), for the $3.47M offered by Sysco, $53,000 per acre, $22,000 per acre below the list price established by council in 2009. Already, that represented a savings to Sysco and a loss to London taxpayers of $900,000.

But there’s more. Even at its listed price, the land is subsidized by taxpayers. To purchase and service a property of that size and location costs the taxpayers of London about $100,000 per acre; the actual subsidy was more than $3M. That’s because council made a decision many years ago to waive development charges for industrial land. So while a home buyer will pay about $23,000 in development charges for a new home, and a commercial establishment $168 per square meter, the $148 per square meter that it costs to service industrial land with roads and sewers and water is picked up by the taxpayer.

There were other pieces of land in the city that could have done the trick, land owned by the city and industrial lands privately held. Sysco wanted none of them. It wanted the best parcel at the lowest price and then it wanted the parcel graded as well, for another $726,000 to be paid by you.

And for what? A warehousing operation that traditionally creates five or six jobs per hectare, or about 150 jobs. That’s the number Sysco originally predicted although the estimates quickly ballooned.

Unlike Dr. Oetker, which also received very generous accommodation by the city (and lots of money from other levels of government), this would not be a manufacturing facility. The food products are made in Texas or elsewhere and would be delivered to London for further distribution in the region. A drop off and pick up spot. It’s hard to make a business case for using taxpayer’s dollars in that way.

But there’s another reason too.

Council had received legal advice about the bonusing provision of the Municipal Act. It limits the extent to which municipalities can offer financial incentives to businesses and industries to locate or relocate to their area. You can see why. If you have cities undercutting each other at the expense of the taxpayer, everyone loses except the industry. And it annoys the businesses already in town that taxpayers’ dollars would be used to take business away from them. And how do you decide which businesses to help and which to leave to their own devices?

Of course, in order for the issue of bonusing to arise, someone has to make a complaint. To date there have not been many of these, and those that have gone to court have tended to receive a decision sympathetic to the municipality. Justices are reluctant to overrule a duly elected council; they assume that the local council understands the local situation.

It’s clear from the letters to the editor that at least some of the public have difficulty understanding why a council would balk at spending $726,000 to create jobs. After all, why would we let them go to Woodstock? It also took a significant loss on its land sale, its regular prices being somewhat higher than London’s.

From my perspective, the millions of dollars that it would have taken to attract Sysco would be better spent supporting our local small businesses, those that have a commitment to the community, rather than undermining them by providing incentives and bonuses to their competitors. Alternatively, we could spend it on public transit to get people to the jobs that are available. Or, we could use it to upgrade the aging infrastructure so that businesses and customers aren’t inconvenienced by breakages and disruptions.

Or finally, it could be put into an economic development fund so that council could begin to find a way to pay for all those ideas that it has been soliciting from the public.

After all, with a zero tax increase policy and a resounding "no" to an economic levy, money is not easy to come by.

Orser, of course, has a solution. Sell off our existing assets.

Like industrial land at rock bottom prices. Graded, of course.


Full-time taxpayer said...

No problem, Gina.

It's all good.

Orser got his name in the paper.

Isn't that what it's all about.

Rod said...

We should never forget that the Free Press itself represents QMI. QMI might like a better deal for its industrial land, or the taxes it pays; well if that can of worms is opened, then....

Rod Brawn said...

We should never forget that the Free Press itself represents QMI. QMI might like a better deal for its industrial land, or the taxes it pays; well if that can of worms is opened, then....

Interested Party said...

Once again, Mr. Full Time tosses off comments without knowing what he is talking about.

These large businesses that come in with low paid jobs and asking for all kinds of concessions will turn around and leave just as soon as the next place offers them something better. Smaller, local businesses are part of the fabric of London and are not so quick to leave. Let's give big breaks to them instead.

Council got it right. How long will Sysco stay in Woodstock before they pull out of town for greener pastures?

Todd said...

Agree. Government should not subsidize the entry or expansion of companies into their borders. That's not "creating jobs"; it's simply buying them. I also agree that newcomers should not receive extraordinary treatment over companies that have been in London for years. That is the tactic of the likes of Bell and Rogers who ignore loyal customers and chase after "switchers."

The $726 K figure would be better spent on marketing the city. I read an interesting story about the city commercial tax rate of 4.12% being one of the highest in the area, but lower property values make the final bill less than comparible properties in other cities. Advantages such as these should be promoted.

Brian Aziz said...

A question for Gina...I'm curious why it would cost so much to grade the property? Even if we hired a few temporary drivers for six months and gave them a couple of earth movers on loan from the city it seems we could push around some dirt for less than 3/4 of a million. I asked Paul Hubert and he told me the city engineers made the estimate. He couldn't give me details as to how that money would be spent to achieave graded ground but suggested I could find my answers here.

Anonymous said...

As usual, excellent analysis, Gina

Anonymous said...

many of the jobs in a warehouse in Woodstock will be held by Londoners, perhaps as many as those if the place was in the far east end of London. Yeah, some tax revenue is lost, but in the scheme of things, perhaps a $100K per year (if that). A pretty long pay back for all the subsidy. But it was just to get Orser's name in the paper and to deflect attention from our crooked Mayor Joe.

Anonymous said...

Gina, FYI, Sysco is paying between $22-25 an hour versus Dr. Oetker at $12. Typical socialist NDP comments.