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,
PURPOSE
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
of Markham.
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.
CONCLUSION
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.
Sincerely,
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