Read some of Don's previous blog posts on this topic:
Two years ago I said ‘this is probably the best deal we can get under the circumstances – it’s just the circumstances I have a problem with.’
That comment was more about serious concerns I have about how pro-sports franchises do business with their host cities – and I’m still bothered by this, as are many, many citizens. (more…)
CRL Catalyst Project List.
There are three camps on this question. There are those who believe the Oilers are priceless, and would pay anything. There are those who believe pro sports are worthless to Edmonton and/or who really don’t want to see any investment downtown; and consequently don’t want to see any city dollars whatsoever going into a new arena (and might or might not support putting money into the existing arena, which will need some work eventually).
Then there’s the rest of us: open to the idea of a new arena downtown, aware that it could spark new investment, but not too happy about how the negotiations have played out and concerned that the City is being asked to put a lot on the line to make it happen. (more…)
I know a lot of friends and supporters have questions about my vote yesterday. Perspective would vary in part depending on what people think we were voting on.
The actual motion was to endorse a design concept and approve a very specific updated framework to fund and lease out the arena. It is more or less the same arrangement that I voted against in 2011.
But politically, that wasn’t the way the vote was framed at all – the question it came down to was more or less, do you support downtown Edmonton?
I hope that in time the two questions can be separated, and that my support and advocacy for downtown can speak for itself. (And that support for buying the land, the zoning, and the CRL mechanism to enable a suite of Downtown catalysts including the arena, will be seen as constructive.)
My main issue, and I’ve addressed this in greater detail previously, remains with the economics of professional sports and the degree of subsidy (usually indirect, in the form of tax concessions, reduced rent, control of all other revenues, etc) they require of their host municipalities. I know we weren’t going to fix that with this deal but the phenomenon still doesn’t sit well with me, and that’s just a matter of principle.
I know I could have said “the economics of this deal still give me pause, but I’m going to support it because we need to move Edmonton ahead.” That would have been the politically astute thing to do, as I alluded to yesterday. But that would be walking away from a strongly held principle, and in the end I just couldn’t fold on it.
I might have been able to support it if the terms had shifted significantly, for example to include a larger user-pay component and, ideally, less borrowing on our books. I was really hoping we might get there after hitting the reset button in October.
I don’t begrudge my colleagues for having a different view. And I don’t begrudge the Oilers or their owner for trying to get the best deal they can.
In fact, and I said this yesterday too, it probably is about the best deal the City could get under the circumstances. It’s still the circumstances I have a problem with. Let’s all agree to disagree and move on. I will do my best to be positive and support the will of Council.
So, from here on out our specific focus should be on ensuring it delivers on all it promises to do for downtown. I can get behind that and continue to move ahead constructively.
What happened yesterday? Essentially, the City and the Katz Group will resume negotiations, but only after we set some new conditions for how those negotiations will take place. It’s a small, cautious step forward for everyone. I felt I could support that, but it doesn’t mean I’m on board for everything in the Oct 26, 2011 framework.
The most important thing to know about yesterday’s Council decision is that the City will continue to explore options for design alternatives that can reduce project costs, in keeping with our October 17 motion. We will still get those options at our January 23 meeting. Design restraint, and alternate operational models, could help reduce the impact on taxpayers.
The issue of the missing $100 million of public funds from another government was ‘the elephant in the room’ yesterday, a cliche I was guilty of introducing. The Katz Group’s position was that the City must find those funds. In my view, if public dollars are required to make this happen, the significance of any provincial dollars is that they would correspond to the value to the Region and Northern Alberta. Absent those dollars, any alternate funding source should also reflect the fact that this is not only about Edmonton (as the Katz Group indicated yesterday, 35% of the patrons come from more than an hour’s drive away).
As before, I’d rather any new dollars needed to make the deal work come from the user-pay side rather than the property tax side, because allocating future tax dollars always has an opportunity cost for the City. There is a way to do this by moving from a Katz Group-controlled ticket surcharge to a City-controlled ticket tax like we have today at Northlands. It could expose the City to more volatility from one year to the next, but it would share in the upside as well (right now the Katz Group has to pay the same amount whether it’s a lockout year or a cup-run year).
To give credit where its due, the Katz Group has taken a number of the more problematic demands off the table, like expecting the City to lease space in their office tower. They backed off an annual subsidy request but substituted it with a new mechanism that would see new tax revenues in the arena district above the CRL forecasts allocated back to the arena. While I’m not at all sure the idea is legal under the province’s CRL laws, that approach would give them incentive to go ahead aggressively with the surrounding development to generate the higher tax revenues. I don’t know if this will fly but it indicates movement on their part, which is valuable.
The other thing they offered to do was put their arena financial performance model numbers up against ours for scrutiny to a third party, which can’t hurt. The results of this are not likely to be shared publicly but it will help Council understand where the Katz Group’s math is steering them. We may hope the process also allows the Katz Group to understand the nuances of our take on the arena financial performance model.
The motion passed yesterday reads as follows:
1. That Administration re-open negotiations with the Katz Group based on the October 26, 2011, Framework.
2.That Administration negotiate an extension in the deadline in the Land Inventory Agreement from December 31, 2012 to April 30, 2013.
3. That Administration work with the Katz Group to identify and appoint an individual who could act as a mediator by January 23, 2013.
4. That the Mediator appoint a financial analyst to evaluate the City’s and the Katz Group’s financial assumptions and analysis for arena revenues and expenses.
5. That Administration work with the Katz Group under the support of the mediator to evaluate all other non-financial issues.
The idea of a new arena downtown is not dead, but round one of negotiations is now over. Round two can now begin in earnest and from my study of American arena deals in mid-size cities it takes at least two rounds to find a deal everyone can live with.
I think this is actually a good step in the process. We were too far apart on some key money issues. As a City we were not understanding the Katz Group’s position with respect to the economics of the building and team and the request for additional public subsidy. And I don’t think the Katz Group had an understanding of the difficulty we would have persuading our public to put additional funding into the deal.
So what does Round Two look like? It starts with the motion Council approved last week to look at other options.
The October 17 motion adopted unanimously (yup, unanimously) by Council.
One of those options could be to update the numbers for renovating Rexall Place to see if that’s improved, however there are some fundamental structural limitations and logistical challenges to that renovation, which is why I now believe a new building would be preferable. If the choice is to build a new building, I have always been open to the idea of doing so downtown.
My issue with the previous deal was the allocation of cost, risk and benefit, which you can trace here.
The real question is whether we can still partner with the Katz Group to build jointly or whether the building should instead be built by the City with the Oilers as a tenant. This carries some more risk in the long term as far as keeping the team in Edmonton, but it also allows some opportunity to shift some of the design objectives toward better value and better integration downtown: that is, a better arena for less.
On the matter of waiting for the Katz Group to build it privately, I do think there is probably a case to be made (though they have not made it to my satisfaction) that our market is not rich enough to make a private arena pay for itself.
Come what may, I believe Council genuinely wants to ensure we have an NHL franchise here for the long haul. Just not at any cost.
