Stop Stiffing The Taxpayer On Lansdowne Park

Stop Stiffing the Taxpayer on Lansdowne Park Ian Lee, Michael Tiger, Ken Leese, Lorne Cutler, Stylianos Perrakis, Koby Smutylo, Harri Vikstedt, David Adderley “The Olympics can no more have a deficit than a man can have a baby”, Montreal Mayor Jean Drapeau, 1973 “Zero means zero”, Mayor Larry O’Brien, 2006 “The Lansdowne football stadium will be revenue neutral”, Mayor O’Brien, 2009 “The Lansdowne proposal will not cost the taxpayer a dime”, Councillor Chiarelli, 2009 In the very contentious and controversial debate over the future of Lansdowne Park, the Mayor and some councillors claim that the Lansdowne scheme will not cost the taxpayer any money. To support this claim, the Lansdowne Live scheme relies on a questionable accounting technique called “tax increment financing” (TIF) developed years ago in the US, whose purpose was to encourage economic development in areas of urban blight. The central argument underlying TIF is that public debt borrowed to finance development in blighted neighbourhoods generates development, thus generating municipal taxes that would not otherwise be realized. So, public borrowings are justified by claiming the debt “repays itself” from new taxes. This argument is only valid if the debt produces genuine “incremental growth” that would not otherwise occur. The Mayor, supporting councillors and Lansdowne Live partners “creatively” applied TIF financing to public lands called Lansdowne Park. They argued the absence of development at Lansdowne Park proved “incrementality” and thus justified TIF financing. This is ridiculous! There was never any development at Lansdowne Park precisely because it was not and is not zoned for private development. Lansdowne has been and still is a public asset for the entire city (not primarily a neighbourhood park). The Lansdowne Live scheme misguidedly uses TIF to subsidize a private sports franchise that has already failed twice. This is “reverse Robin Hood” – using citizens’ taxes to benefit corporate developers. The forprofit professional sports team could in future relocate to another city or simply go out of business, leaving behind a shopping mall that does not pay rent and a “white elephant stadium”, similar to the baseball stadium. The Lansdowne partners are unwilling to co-invest in stadium renovations – their scheme proposes that taxpayers take all the stadium risk. This highly “creative accounting” proposal raises larger issues that must be addressed as it affects the governance of our city in a very fundamental way. Normally, municipal property taxes are paid into the city’s consolidated revenue fund. This fund pays for all city services: garbage collection, snow removal, roads, transit, sewers, police, fire, etc. However, TIF financing violates the equality of claims on the fund, because this repayment would be prioritized over essential city services. But there are still larger problems with TIF financing. In 2009, the City commissioned the Hemson Report to analyze municipal taxes in Ottawa. The City found that homeowners inside the Greenbelt on average paid more taxes than they consumed in municipal services, while the rural citizen on average pays less taxes than they consume. In plain English, the urban citizen is subsidizing the rural citizen. The Mayor and supporting councillors appear to be using this analysis to justify “assigning” 75% of the potential Lansdowne Live realty taxes (mostly from the shopping mall) to fund the $117 million debt incurred by the city for the stadium. They then claim that the project is revenueneutral or “free”. But those taxes are needed to provide services to taxpayers outside the Greenbelt and especially to the Lansdowne Live buildings. The Lansdowne scheme asks the city to borrow $117 million financed at 5.35% for 40 years. Repayment of such a loan at $7.1 million each year is not “free”. Stadium redevelopment costs may increase significantly, as we have recently seen with LRT cost estimates. And if interest rates

increase as forecast from their historically low level, the final repayment will be much larger, leading to even higher taxes. The City now owes approximately $1.2 billion in long term debt and is facing an enormous increase in indebtedness due to the City’s share of the rapidly escalating costs of LRT (criticized by Premier McGuinty and Minister Watson). Incurring an additional 10% extra debt or more for a stadium can only jeopardize the LRT decision. Supporters claim that TIF accounting makes the stadium “free”. Yet TIF financing has been called misleading accounting by people as diverse as Terrence Corcoran of the Financial Post and Ralph Nader. It merely shifts the cost of the lunch to someone other than the eater. Debt is still debt – Ottawa taxpayers will be on the hook for repayment of the loan with or without a sports franchise. TIF is based on wishful thinking, questionable tax allocations and misguided economics. Taxpayers must tell their councillors to defeat the Lansdowne scheme, to restart the process by first creating a Lansdowne Vision, and then an investment-design competition based on the agreed vision. If the vision includes a stadium at Lansdowne, insist that the entrepreneurs who would profit from a professional sports franchise be responsible for investing in required stadium improvements to shoulder their fair share of the financial risks. Stop (s)TIFing the taxpayer on Lansdowne Park! Ian Lee is a business professor at Carleton and former Mortgage Manager at BMO Michel Tiger is a retired economist and former FTA-NAFTA negotiator with Industry Canada Ken Leese is a serial technology entrepreneur who co-founded Fulcrum Technologies Lorne Cutler is a financial consultant and former banker at EDC Styliano Perrakis is a professor of corporate finance at Concordia University and co-author of a textbook on investments in 6th edition Koby Smutylo is Senior Corporate Counsel at Corel Harri Vikstedt works in the financial industry in Ottawa David Adderley is a venture capitalist in Ottawa