December 20, 2012
Hon. Bob Chiarelli Hon. Dwight Duncan
Minister of Municipal Affairs and Housing Minister of Finance
c/o 3rd Floor, Ferguson Block, 7th Floor, Frost Building South, 77 Wellesley Street, West, 7 Queen's Park Crescent
Toronto Ontario, Toronto, Ontario
M7A 1Z8 M7A 1Y7
Dear Ministers Chiarelli and Duncan,
We are residents and taxpayers of the City of Markham who are concerned about Markham Council's plans to incur a $1/2 billion public debt for a proposed 20,000 seat “NHL-ready” hockey arena. The City intends to enter into a financial arrangement and associated agreements with a private consortium to construct and operate the facility in the hope of successfully competing for a future NHL franchise.
Markham intends to secure and provide 100% of the facility’s upfront financing to cover the estimated $326 million cost which will soar to $500 million when interest carrying charges are factored in. Markham taxpayers will be legally responsible for servicing the entire debt.
The project was planned and negotiated in secret without an open public process. In spite of the Province's municipal accounting and budgetary guidelines, the project has never been included in Markham’s annual budget or capital forecasts. Contrary to the City's own purchasing policy, Council intends to award all construction and operating contracts for this $1/2 billion project without a competitive tender or open bidding process thereby exposing taxpayers to increased cost and risk.
The facility, including all sports and entertainment operations, will be run by the private consortium while the building will ultimately be owned by the City on land originally intended for public park purposes. Markham proposes to classify the arena as a "Municipal Capital Facility" to avoid the customary taxes, fees and charges that would otherwise be levied on a private facility. This designation is worrisome since the extent to which public access will be permitted is not known at this time. Limits on public utilization of the facility may serve to contravene the regulations to Section 110 of the Municipal Act.
We believe that the City of Markham is not acting in the best interests of Markham taxpayers. In our view, the Council is attempting to circumvent Provincial legislation, thumb its nose at long-standing principles for open, transparent and accountable municipal government and cast prudent financial management practices out the window...all to the disadvantage and peril of current and future taxpayers of the City
Consequently, we are asking the Province to intervene and suspend the City's dealings on this matter until the Ministries have had an opportunity to review the circumstances surrounding the project along with Markham's questionable actions to date. We are also writing to express our support for Mr. Andre Marin's proposal to include the municipal sector within the purview and mandate of the Provincial Ombudsman's Office to prevent the proliferation of practices such as are now occurring in the City of Markham.
THE "UN-PUBLIC" PROCESS
Certain politicians and senior administrative staff met clandestinely and exclusively with a few business interests to facilitate the assembly of a private consortium to develop and undertake the project without the benefit of a competitive proposal call.
Neither the project itself nor the proposal to take on public debt was ever subjected to public scrutiny or debate in the context of setting the City's long-term spending priorities or in planning for the City’s infrastructure needs including new investment, replacement, operation and maintenance costs.
After negotiating in secret for over 18 months, a Council meeting was hurriedly convened in April of this year without significant notice or meaningful public consultation to approve a "draft financial framework" committing Markham taxpayers to a $1/2 billion debt obligation.
In response to wide-spread criticism of the process and ratepayer concerns about the financial deal, Markham hastily mounted a thinly veiled marketing campaign to "sell" the project under the guise of "community information meetings". In an attempt to counteract burgeoning community opposition to the project the City surreptitiously authorized an incomplete and slanted telephone survey deliberately designed to elicit a higher favourable response for the project.
Markham continues to negotiate detailed cost-sharing and operating agreements behind closed doors. The City has stated that these legal agreements will not be made public. Taxpayers will only be given the "essence" of the agreements. Markham consistently refuses to make reports and documentation available to the public and has stated that nothing will be released until after the arena is built or the associated site plan application is denied. These actions are completely disrespectful of residents and taxpayers and are contrary to the requirements for open, transparent and accountable local government.
THE FINANCIAL "NON-PLAN"
To support its assertion that this project will not result in a tax increase, the City is purporting to use several revenue streams to cover the debt repayment. Council's "draft financial framework" calls for a cost-sharing agreement with the private consortium to recoup $250 million, or $12.5 million annually, over a period of twenty years. The agreement, therefore, constitutes a contractual “promise to pay” for half of the project's anticipated costs.
A distinct corporate entity is to be created to enter into all legal agreements with the City, including the associated cost-sharing arrangements, as well as to undertake the construction, operation and management of the facility. This will effectively contain the consortium's financial risk in the event of a breach or default on its part.
By restricting the City's legal reach solely to arena-related assets, Markham's ability to fully recover damages or costs, in the event such legal recourse is ever necessitated, is severely constrained. This arrangement could exacerbate taxpayers' already considerable financial risk given the well-documented history of financial problems and failures associated with these types of facilities across North America.
Markham proposes to impose a variety of additional fees and charges to cover the balance of the debt including parking fees, tax increment financing, section 37 Planning Act payments and what it calls “voluntary development contributions". The latter revenue stream, so-called “voluntary development contributions”, are intended to raise $140.0 million, or $7.0 million annually, over the twenty year financing period. The charges are to be collected concurrent with the City's approval of development applications. The proposed charges, referenced in a City report, range from $4,000 to $6,500 per residential unit depending on the type of unit and where it is located. The charge will be adjusted over time, in the same manner as development charges. In the City's opinion this will provide an incentive for "early adopters" to pay, in the form of a lower fee.
Development industry representatives have voiced concerns about the efficacy of the charge and about the potential for abuse, specifically, the City delaying or turning down applicants who resist or refuse to pay. These concerns notwithstanding, City Hall's "arm-twisting" is already well advanced and the "voluntary" charges are already being squeezed from developers. No doubt the increased cost to developers will simply be passed on to new home buyers, further eroding housing affordability in Markham.
In spite of any coerced acquiescence or grudging compliance with the "voluntary development contribution", it is our view that this practice is discriminatory and that it effectively constitutes a development pre-condition, notwithstanding the claimed “voluntary” nature of the charge. It is our contention that there is no legislative authority for this charge.
The so-called "voluntary development contribution", in our estimation, mimics a development charge yet fulfills none of the requirements of the Development Charges Act, 1997. The Development Charges Act, 1997 requires a background study to be undertaken to determine the amount that can be levied on new development bearing in mind ten-year average service levels. Once the level of the charge has been determined, the municipality can only implement the charge by formally amending its development charges bylaw thereby allowing for public consultation and an appeal process.
It is our view that the legal framework for financing growth-related infrastructure projects is being knowingly circumvented by the City. None of the mandatory provisions of the Development Charges Act, 1997 have been met. This may be explained by the fact that the City's predisposition to secrecy precludes the use of development charges given the legislation's mandated need for public input. Alternatively, the City may have recognized that the proposed arena is predominantly, if not entirely, non-growth related and therefore could not generate significant development charge revenue.
Irrespective of the reason, the City has opted to levy its' "voluntary development contribution" knowing full well that such a charge has no legal status and all funds collected are perpetually insecure. Consequently, when this charge is challenged in the courts as it surely will be, all funds collected will be at risk and Markham taxpayers will be on the hook for the entire $140 million liability.
Failure to correct this situation could set a precedent whereby we see, in effect, a return to the "Let's Make a Deal" lot levy regime that existed prior to the proclamation of the original Development Charges Act in 1989. Inaction would also allow a massive financial liability to accrue over time imposing a heavy burden on future Markham taxpayers when the courts inevitably adjudicate on the illegality of the so-called “voluntary development contribution" and determine that the landowners and developers were under practical compulsion to pay.
We also suggest the municipality’s desire to implement tax increment financing lies outside the current municipal finance legislative framework. In spite of acknowledging this fact in a Council presentation on April 20, 2012 which states "the Provincial TIF Act is prescriptive in terms of the types of projects that would qualify and this project does not meet the TIF guidelines", the City still chose to ignore this by proposing to institute an additional charge on future commercial property which would be earmarked to pay a portion of the annual debt servicing costs for the arena.
Our request, therefore, is that your Ministries intervene to suspend Markham's dealings on this matter until provincial officials have conducted a thorough review of the circumstances surrounding this project and Markham's practices related thereto.
Furthermore we believe the Province should consider a permanent oversight mechanism that allows for the review of local Council actions in circumstances such as this, particularly where local taxpayers are threatened with significant long-term adverse financial impacts. As mentioned earlier, we support the Provincial Ombudsman's proposal to include municipalities within the purview and mandate of his Office.
We would be happy to meet to further discuss this matter.
Norman Manara Lorne McCool
cc. Mr. Andre Marin, Office of the Ombudsman of Ontario,
Bell Trinity Square, 483 Bay St., 10th Floor, South Tower,
Toronto Ont. M5G 2C9
Mr. Brian Tuckey, President and C.E.O, BILD GTA
20 Upjohn Road, Suite 100, North York, Ont. M3B 2V9