Here’s what the convention centre is costing us: Morning File, Friday, December 15, 2017

News

1. Tire-burning

Jennifer Henderson reports:

“I say to the Dept of Environment: Now that you know, what are you going to do about it?”

Lydia Sorflaten was a talking about an affidavit by an internationally-known toxicologist expert who accuses the province of applying the wrong scientific data to approve a one-year pilot project to burn tires at the Lafarge cement plant near Brookfield. Sorflaten lives near that plant at Shortts Lake and heads a group called Citizens Against the Burning of Tires (CABOT).

CABOT and the Ecology Action Centre were trying to persuade a Nova Scotia Supreme Court judge to admit the expert opinion evidence of  the Ontario toxicologist during a judicial review next March of Environment Minister Iain Rankin’s decision to greenlight the project.

Click here to read “Brookfield residents ask court to consider new tire-burning evidence.”

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2. Convention centre

The new Halifax Convention Centre “opens” today, but that doesn’t mean you can actually go in and walk around or that any conventions are happening or that the province has signed a lease with Joe Ramia for it, or… well, I don’t know what it means, really. I guess someone got a key to the place, and they’re going to start loading it up with canned goods and whatnot. But today’s the day.

To celebrate, a group calling itself Halifax Sane Development will demonstrate outside the facility (on Argyle Street) from 10–11am. According to the group’s press release:

Five years ago, heritage advocates and concerned residents of HRM opposed the misuse of at least $400 million in public funds over 25 years to have a new Convention Centre.

Five years later, the Convention Centre is nearly finished. Though there is no convention hotel which was promised, and event bookings are far fewer than forecasted by Trade Centre Limited (TCL) now called Events East. The Convention Centre has swallowed a public street, and put local businesses in financial peril due to major construction on what were once historic, open and walkable streets downtown.

We still object to the new Convention Centre because it’s the wrong development for the wrong piece of land in the wrong area — we already have a convention centre that’s 35 years old which could have been refurbished, re-appointed, and used at a fraction of the cost. We still
a) want to preserve built-heritage
b) explain to the public the actual cost to the public of this essentially privately-owned building
c) show there is opposition to a trade centre that we all know has and continues to be opposed by many of the public for good reason

From time to time people ask me if I have an accounting of cost for the convention centre. It’s impossible to get an exact figure, and some people will even disagree with me on the parameters for the cost, but here’s the best I can come up with at this time:

Capital Costs

$169.2 million, but this is more complicated than that single figure.

The federal government is committed to paying $51.4 million to developer Joe Ramia when the Nova Centre reaches “substantial completion,” which is a building industry term that (shorthand) means the exterior and interior walls are complete, the electricity and power plant are in place, and so forth. From my understanding, interior office and retail space (the first floor along Argyle Street) doesn’t have to be completed, and obviously no hotel will be operating. I’m not sure about landscaping. In any event, substantial completion is expected in February, at which time the province signs a lease with Ramia for the convention centre and the federal government pays the $51.4 million.

The remaining $117.8 million will be split between the provincial and municipal governments ($58.9 million each). The province will secure financing for the annual payments to be made to Ramia, amortized over 25 years… except maybe not. Maybe the province just pays the money up front and charges the city an annual fee — it’s impossible to know now how the Finance Department will handle this on the provincial end.

But assuming something like a 1.5–2 per cent interest rate, the city will be paying about $2.9 million a year for each of the 25 years. The province may pay an equal amount. Inflation may be greater or less than this. If inflation is higher than the interest rate, then the city actually “saves” money through the loan, but if inflation drops, then the real price to the city is somewhat higher.

Marketing and preparation costs

Over the past few years, both the city and the province have been transferring funds to Trade Centre Limited for “marketing and business development” of the new convention centre — that is, over and above the governments’ normal annual operating subsidy to the old convention centre — and to “prepare to operate” the new convention centre (new software and the like).Those costs have been:

City
2017 — $890,500
2016 — $1,139,500
2015 — $640,000
2014* — $490,080
2013* — $243,500
Total city costs: $3,403,580

Province
2017 — $3,078,500
2016 — $586,000
2015 — $1,025,00
2014* — $490,080
2013* — $243,500
Total provincial costs: $5,423,080

* The 2014 annual report TCL submitted to Public Accounts does not separate out the 2013 and 2014 provincial and municipal transfers for marketing for and preparation of the new convention centre but instead gives a single combined figure of $980,160 in 2014 and $487,000 in 2013. For the above table, I’ve split those costs equally between the two governments.

Total marketing and preparation costs: $8,826,660

Ramia’s operational costs

$2.9 million annually, to be split evenly between the provincial and municipal governments. This figure comes from a 2010 announcement, and so may have increased since then. This is the amount for simply keeping the physical structure of the convention centre up and running, cleaning it, making needed upgrades and repairs, and so forth. So not for the operation of the convention centre itself.

This is a substantial increase to the city’s past annual operating subsidy to TCL for the old convention centre, which in recent years has been:

2017: $641,439
2016: $633,833
2015: $630,680

So the new arrangement is an increase cost to the city of about $1.3 million annually, and then a new cost to the province of $1.95 million annually.

HCC operating losses

This is the amount the two governments will split to cover the budget shortfalls of the new Halifax Convention Centre. It’s entirely a mystery figure, and will undoubtedly vary from year to year.

We can make some guesses, however.

In the past, the province alone covered budget shortfalls at the old convention centre. Trade Centre Limited has usually had an annual deficit, but the annual reports don’t separate out the convention centre part of the corporation (TCL also operated the office tower, the Metro Centre, Ticket Atlantic, and before it was sold, Exhibition Park). But the total annual deficit over the past few years has been around $1 million annually.

In terms of the new convention centre, because it’s a larger facility requiring greater operating expenses, the potential for deficits is greater. Let’s lay out some scenarios:

Wildly successful: No annual deficits
Mildly successful: $1 million annual deficits
No change in success: $2 million annual deficits
Mildly unsuccessful: $2–$4 million annual deficits
Wildly unsuccessful: Unlimited potential annual deficits

World Trade and Convention Centre

This could have been an enormous expense to the city. Under the agreement for the new convention centre, if no one else stepped in to buy it, the city would have been required to purchase the crappy old office tower on Argyle Street above the old convention centre. This would have resulted in not just the purchase price, but also the costs of upgrading the building and then (presumably) moving city offices into it.

But George Armoyan has committed to buying the building (the sale still hasn’t gone through). So those costs will likely not be borne by the city.

However, there are still costs related to separating the office tower from the city-owned Metro Centre. That’s a tangled mess of logistics, and undoubtedly the city will share some of those costs.

I’m guessing that Armoyan will try to repurpose the building to bid on city offices (the city’s lease for Duke Tower expires in 2020). If so, and if he’s successful, the city may have some relocation costs.

Argyle Street

The new streetscaping of Argyle and Grafton Streets cost the city $6.8 million.

Property taxes

As I understand it, the province will pay the city property taxes on the convention centre part of the Nova Centre complex. According to the  2009 Gardner Pinfold Environmental Impact Assessment, that would amount to $1.2 million a year. That’s a shift from one government to another, so not a true increased cost to the “taxpayer” generally (although taxpayers outside of HRM might view that differently).

But there’s a bigger issue here. The same Economic Impact Assessment broke down the expected property tax payments to the city as follows:

Estimating property tax potential from this new facility is difficult to do in a theoretical way. To illustrate the scale of taxes, we have compared hotel properties and office buildings in the Central Business District. The Prince George Hotel generates almost $600,000 in annual property taxes. The convention hotel will be about double the size in terms of rooms with an estimated 400 rooms that will generate a higher average rate. This suggests the hotel portion could generate HRM in the order of $1.2 million in tax revenue.The office tower component will also generate tax revenue. The larger office facilities in the Central Business District currently, such as Purdy’s Wharf and Maritime Centre, generate between $1.2 and $1.5 million in taxes. The new office complex will have similar square footage and could be expected to generate at least this level of tax.

We estimate the convention facility itself will generate more than double the current Trade Centre, which pays about $600,000 in municipal taxes.

The new convention facility will generate additional business for downtown establishments. In turn, we expect this incremental commercial activity to improve the real estate value of properties in the vicinity of the new convention centre. Based on a review of assessment data in the area, bounded by Brunswick, Barrington, Blowers ,and Duke, tax rate increases attributable to assessed values increasing by 10% and 25% respectively, would be in the order of $150,000 to $350,000.

Based on that report, the best case scenario is an increase in annual city tax revenue in the following amounts:

Hotel: $1.2 million
Office Tower: $1.5 million
Convention Centre: $1.2 million
Nearby increase in assessments: $350,000
Total: $4.55 million/per year.

See the problem here? That’s right: there’s no hotel. Also: the office tower is nearly empty. And: lots of nearby businesses are struggling.

I have little doubt that there will eventually be a hotel operator, so maybe after a year or two or three or four, we’ll reach that $1.2 million in property tax revenue for the hotel, but for now it’s an empty building. Sure, even empty buildings pay property taxes, but we have no way to know what that tax will be.

Same with the office tower.

Property tax receipts for the Nova Centre and surrounding blocks are supposed to offset the city’s operating expense, but that’s looking like an iffy proposition. And even if the full Gardner Pinfold project materializes, that’s still a backwards way of looking at things.

While the city is separating out the Nova Centre and the couple of blocks surrounding it to look at revenue received from property taxes versus costs of the convention centre, that’s not the purpose of property taxes. Rather, we have property taxes to pay for all city services across the municipality — policing, firefighting, parks and recreation, road costs, etc.

In general, residential property taxes don’t “pay for themselves.” That is, the taxes I pay on my house don’t cover the services I receive. Nor should they. And, again generally speaking, commercial property taxes “overpay” for the city services delivered directly to the property, and again, that’s how it should be. We can’t have a functioning city by delineating out costs per property parcel. We have all sorts of collective costs that make it possible for us each to work and live and operate businesses in the city, and so everyone pays into the whole.

Look at it this way: Before the Nova Centre was built, back when the site contained the old Chronicle Herald building and Argyle Street bars were still hip, the area generated a lot more in property taxes than the city spent on services directly for those businesses. But now we’re suddenly saying that all that’s required is the Nova Centre and surrounding blocks generate enough in property taxes just to cover the expense of the convention centre, and nothing else.

It’s doubtful that those property taxes will actually cover the convention centre costs, at least for the first few years, but even if and when they do, it’ll still be a net loss to the city.

Total costs

Total capital costs (in 2017 dollars): $169.2 million

Marketing and preparation costs for new convention centre: $8,826,660

Argyle Street: $6.8 million

Total already spent or committed to: $184.8 million

Annual payment to Ramia for operations: $2.9 million

Annual convention centre operational costs: $2 million?

Effective annual loss in tax revenue: ?

Total estimated annual costs over and above amortized capital costs: $125 million over 25 years

Total cost: At least $309.8 million

I think the actual number, however, will be much larger. More like half a billion dollars. And we haven’t even discussed the effects on the downtown office space market, the destruction of the Argyle Street bar scene, the loss value of the old historic downtown that now has an ugly sentinel in the middle of it…

One thing is certain: moving forward, Events East (the new name for TCL) and the politicians and bureaucrats will spin the numbers positively. Here’s what we should look out for:

Delegate counts: They’ll conflate local conventions with national and international conventions, but in terms of economic impact, it doesn’t matter how many local conventions or events are held at the new convention centre. What matters is the number of people travelling here from out of province.

Downplaying costs: the annual operating costs and the coverage of shortfalls will be hidden deep in budgets, and supposed economic impacts will be highlighted.

Economic impacts: These are always dodgy suppositions, but are made even dodgier with wildly large “multipliers.” Be especially aware of economic impact studies that rely on data provided by or collected by Events East rather than by independent third parties.

Opportunity costs: Never will any politician or bureaucrat talk about what else we could’ve done with the money going into the new convention centre. The hundreds of millions of dollars we’ll spend on this thing could’ve gone to poverty reduction, education, new economic programs, recreation programs, cops, or any number of other public uses. It’s not enough to say “the convention centre resulted in X dollars of economic impact” because it could have been that, say, “lowering university tuition resulted in 2X dollars of economic impact and lowered the debt burden on graduating students besides.” We make political choices, and the choice was made that the highest and best use of our tax dollars was to build the convention centre. This is not self-evident, to put it mildly.