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Wednesday, February 26, 2014

Business plans and election jitters



A couple of nights ago I was engaged in a very long telephone conversation with a representative from the Canadian Opera Company, who was trying to persuade me to sign up for the upcoming season of six performances. It was tempting. Six performances for less than what I had paid for just one a week ago!


It’s not as if there was an alternative closer by. The best I can do to indulge my musical preference is to go to the cinema when performances are piped in live in HD from the Metropolitan Opera.

Going to a filmed performance is not the same as a live one, so it would be great if we could have the real thing available right here in London. But for that, you need a performing arts centre.

One would think that, under the circumstances, I would be beating the drum for a performing arts centre. I probably attend more concerts and performances here and outside London than any of the members of council, including those who are pushing hard for a new facility. I don’t really enjoy driving to Toronto to get my fix.

But the truth is, I am very skeptical. Not of the value of a performing arts centre, but of the players and the process by which this is coming about. The scenario that unfolded before me at this week’s meeting of the Investment and Economic Prosperity Committee  (IEPC) did little to reassure me.

After having been told by the public in no uncertain terms that the two major cultural organizations, the Grand Theatre and Orchestra London—oops, make that Music London—should get together and make a joint proposal for council’s consideration, a working group had been formed with representatives of both organization under the leadership of an independent chair. It had come back with an idea for a $164M project that would basically give Music London what it wanted and throw a $5M bone to the Grand Theatre.

The proponents were enthusiastic as they made their pitch at a hastily called special meeting of the IEPC on February 10th. This would be a public-private venture. There would be a performing arts centre on the site of the current Centennial Hall, Great West Life would toss in the parking lot next door, York Developments (Ali Soufan) would be happy to put in a couple of towers and a boutique hotel and Ellis-Don would build the whole works. Global Spectrum could manage it. Nothing left out. It was a fabulous proposal. Oh, and the Grand could wheel and deal for some new space along Richmond which Shmuel Farhi would be willing to sell if the city was on board.

The whole thing would be call an arts district. It would bring jobs, jobs, jobs. It would bring in taxes, taxes, taxes.

But not so fast. At the end of the day, who would own it? Where would the money come from? Was there really a market for this? What would be the ongoing costs? Who would be responsible for them?

There were a lot of unanswered questions. They would need a real business plan which would cost about $75,000 to prepare using a consultant, Novita, which had done work for the city before.

So now, two weeks later, staff brought forward a report and some recommendations with respect to the preparation of a business plan.

Harvey Filger was hired a couple of years ago to be the director of corporate investments and partnerships. He wanted everyone to know, prior to introducing the report, that there was a lot of interest in this proposal. He had received emails and phone calls about a former Storybook Gardens upgrade that cost $7M which, instead of making money, turned out to be a losing proposition. How was this any different? A rumour was being spread around that staff was trying to block the project. Nothing could be further from the truth. But due diligence had to be done. There was a lot of money at stake and they had to ensure that dealings were at arms’ length and work properly tendered. Staff was recommending that Novita, which is the recognized expert in the field having done over a hundred of these, prepare the business plan. In fact, Novita had been recommended by the proponents themselves. It would cost about $75,000.

But it seemed the proponents had had second thoughts and wanted to do the business plan themselves. They had raised the money for it. If so, they could go ahead but the city would still employ Novita for an independent review. That would cost somewhat less than $75,000 depending on the complexity of the plan.

In the end, that’s what the IEPC agreed to unanimously—with Joe Swan having recused himself—although it took an hour longer than it should have. Nevertheless, there were a few questions that provided some interesting responses.

Ron Koudys, speaking on behalf of the Grand, confirmed that the proponents had agreed that they wanted to do their own business plan. They figured they could have it done by early May.

That’s pretty fast, as these things go, in my experience. But there is need for hurry here; an election is just around the corner and none of them really wants to run on the performing arts question. Better to have it as a decided matter of council. Those opposed can vote against it and point to their record. 

Those in favour can say they tried if it fails, but if it wins, it will be a done deal.

And what a deal is being contemplated! The private sector gets a $100M condo and boutique hotel development on the most desirable piece of land in the city, gets paid by the city, province and federal governments to build a performing arts centre to bring in business, a private operator will run the centre and cost overruns will be picked up by the city. A construction company gets to make more than a few dollars on building the whole thing, creating some temporary jobs, and the ownership of the centre will be with a recently rejuvenated Performing Arts Centre Tomorrow (PACT). It’s enough to make your head spin.

The only real question in the mind of the mayor was where the money would come from. That, of course, was not his problem; staff could find it.

City treasurer Martin Hayward has been down this road before. There were only two places: sell off assets or raise taxes. But if you sell off a productive asset, by council’s own rules, the proceeds have to be re-invested in a productive enterprise. You’ll be hard pressed to find a performing arts centre that makes a profit. And besides, the city wouldn’t own it in any case if PACT had its way. The city could call in its promissory note to London Hydro, but it gets a 6% return on the investment, money that goes directly into general revenues. If you lose that, you have to hike taxes by about 1.5%. It’s a vicious cycle. So you’re left with taxes. And Joe says he’s still committed to a tax freeze.

Fontana wasn’t listening. He was sure that staff would come back with seven or eight options for financing this deal. He talked as if it had already been approved.

But $16.5M is a lot of money to give away to a newly re-formed group whose governance has yet to be established. Will the provincial and federal governments really pony up another $15M each as is hoped? Why is the private sector not throwing in real dollars when it certainly has expectations of making some profits? What recourse will the city have if the proponents don’t actually come through with a performing arts centre?

These are a few of the questions I worry about. And I have great difficulty in trusting this council with this venture. There are the optics of a member of council, even one who declares a conflict of interest, being the driving force behind this endeavour. There is the problem of a mayor who has played fast and loose with tax dollars in a private charity scheme, leading the charge. There is the concern that too many members of council are sitting on the campaign contributions of the proponents. There is the problem of too many members of council who don’t understand basic finance making this decision.

In any case, when the matter came before the whole council, all present and accounted for, the following day, it became clear that support for this venture was lukewarm at best. Nancy Branscombe was prepared to support the review of the business plan, but she was in the same frame of mind as Paul VanMeerbergen had been at IEPC . Not a hint that a tax increase would be sought to implement it! That was not on for her. She remained unmoved by the argument that if the city doesn’t have skin in the game, you can’t attract money from the province and the feds.

Denise Brown and Sandy White were even dubious about putting up any money for an independent review. “Holy moly,” White sputtered. “It’s a private facility with private money.” Besides, they’d soon be a lame duck government and it wouldn’t be fair to put this on to the next council. Brown thought council should first have a look at the business plan and then decide whether to have an independent review.

Chair Matt Brown reminded them that this was the process they had agreed to almost three years ago but to no avail. Those were heady times when they thought they could do anything. Now an election was staring them in the face.

In the end, they agreed to go with the business plan and a review by Novita. They agreed to let staff look for possible sources of financing. But no taxes could be used. That makes it unlikely that other levels of government will be interested. After all, they would have to use tax money for this. Why should the benefiting municipality be off the hook?

It was a serious blow for Fontana and Swan both of whom want this to happen albeit for different reasons, I suspect.

Do I want a performing arts centre? You bet I do.

Do I trust these players to bring it about? Not so much.

Let’s see what the business plan and the review tell us.





4 comments:

Tired taxpayer said...

At this stage of the game, who would trust anything Mr. Fontana says or count on him to do anything right?

Do us all a favour Joe, can all the bright ideas. Go back to Arva and contemplate where it all went wrong -- in blessed silence.

Joe Pritchard said...

It would be nice but way beyond London's needs and ability to support.

Frank L. said...

You're right that a performing arts center would let Londoners enjoy more music events Gina. Probably good for a city. I can't picture hearing an Opera at the Bud.

Still it looks like this deal has too many problems to go through. Who owns what is a pretty big hurdle. Looks like private business gets all the revenue and the city covers any losses. Let a new council take this on and people running should tell voters where they stand. That's not quite a referendum but asking the people running where they stand is the next best thing. We should walk away from this.

Anonymous said...

so White says, “Holy moly,” White sputtered. “It’s a private facility with private money.” but her "mentor" Cheryl Miller voted to spend tax money on the Bud Gardens. What makes this different? Oh, and by the way, this proposed facility would replace Centennial Hall which has hosted over the years people like Stompin' Tom, Ron James and so on. They would still be playing (if alive) at the new facility. So it isn't just for the Orchestra. Why the proponents have not made this clear from the start is beyond me, but I lay the blame squarely at the feet of Swan.