Category: Edmonton Oilers

University of Alberta sports economist Brad Humphreys has chimed in (at The Sports Economist, natch) with his analysis of the Edmonton Oilers arena deal, and if anything, he’s even more pessimistic than I was yesterday. Among Humphreys’ concerns:

• The current construction cost estimate for the arena (not counting land and roads and bridges and other needed infrastructure) is $480 million, up from a $450 million estimate in March 2008. But given the actual inflation rates since then for steel, concrete, and labor costs, the actual cost in 2013 dollars is more likely to be $517.5 million.
• In her new book with the really long title, Harvard planning professor Judith Grant Long estimates that the average sports facility deal comes in at about 25% above the stated cost estimate. That would make the expected Edmonton arena cost $562.5 million.
• Filling in the gap by increasing the projections of revenue from the Community Revitalization Levy — future increased property tax revenues from the project, aka a TIF — is awfully dodgy, since “if they could have raised an additional $15 million from the CRL when it was proposed as part of the financing package years ago, why wasn’t the CRL contribution higher back then?”

In other words, the funding gap may still be pretty large — though it could be the kind of gap that doesn’t show up until you’ve already agreed to build the project and suddenly realize that there isn’t enough money to pay for it. Man, this really is the week for that, isn’t it?

 

 

 

The NBA owners’ vote to reject the relocation of the Sacramento Kings wasn’t the only big arena-related decision yesterday: The Edmonton city council also voted to approve a new funding plan for the long-in-the-works Oilers arena. The council voted 10-3 to commit a series of different public funding sources to a now-$604-million arena, with Mayor Stephen Mandel declaring triumphantly, “This is actually 100 per cent.”

Of course, Mandel has said that before, but this time he apparently means it. So, how did the city finally fill that pesky $100 million arena funding hole? Let’s refresh ourselves on where the arena plan stood back in January:

• $219 million in arena cash, plus $74.9 million to buy land, from the city, which would pay for it out of an annual $2.5 million subsidy that it currently pays to the Oilers, new parking revenues, and a tax-increment financing district (known as a Community Revitalization Levy in Canada, but based on the same principle of “any new tax money gets kicked back to pay for the project”).
• $125 million from a tax on tickets at the new arena.
• $143 million from Oilers owner Daryl Katz, with most of it payable in $6.5 million a year increments toward the arena itself, and the rest in $28 million toward a new pedestrian bridge to get fans there.
• $114 million from “other levels of government.”

That’s $676 million, but the old arena cost estimate was $601 million, not counting the $75 million in land costs, so it all adds up. Except for the part where $114 million was unaccounted for.

And the new plan:

• $279 million from the CRL, parking fees, and the like.
• $125 million from the ticket surcharge.
• $184.4 million from Katz, including an extra $15 million that the owner agreed to kick in yesterday.
• $25 million from the provincial Regional Collaboration Program.
• $7 million from the province of Alberta.
• $7 million from the federal government.

That adds up to … $627.4 million. So it’s actually still $50 million short of where things were in January. Maybe the city is no longer counting its land costs as part of the deal? It’s hard to tell from the documents released by the city, and press coverage that includes offenses to math like “$23.69 million in third party funding ($25 million from the provincial Regional Collaboration Program, and $7 million each from the province and the federal government)” isn’t likely to help much either.

Basically what appears to have happened yesterday: Katz agreed to kick in some extra cash; the city gave up on raiding its Municipality Sustainability Initiative fund and is instead just assuming the CRL will raise more money; and the remaining gaps were filled in by flat-out assuming the cash will come from the provincial and federal governments.

That’s a whole lot of assumptions, and pretty much still amounts to “we’ll borrow the money and figure out how to pay for it later” — in particular, just flat-out upping the projected revenues from the CRL increases the odds that new revenues will fall short, and end up eating the lunch of the general fund, as Greg LeRoy of Good Jobs First memorably put it. Plus the RCP money still isn’t approved, and lord knows where those $7 million contributions from the province and feds are supposed to come from.

Still, Mandel and the council say it’s a done deal, so it looks pretty likely that this is a done deal, and any shortfalls will be worked out later. (Because that always works out.) Which means that Edmonton taxpayers are now going to be on the hook for more than half of the cost of a new arena for the 7th-most-profitable team in the NHL, owned by Canada’s 11th richest man. It’s still not the worst arena deal in history, but that doesn’t make it a good one.

Today could be the final vote to determine the fate of … ha ha, you thought I was going to say the Sacramento Kings, didn’t you? (Because you, um, don’t read headlines. Yeah, that’s it.) No, I’m talking about the Edmonton Oilers arena project, where the Edmonton city council has called a special meeting for 1:30 pm today to discuss the $480 million project and how to fill a persistent funding gap that’s either $30 million or maybe $44 million or maybe a lot more than that, but who can be bothered with trifling details like “numbers” when there’s an arena to be built?

Coun. Bryan Anderson confirmed the meeting will deal with the arena, which still needs $30 million out of the required $480 million in construction funding.

“It sure as hell wouldn’t have come forward this quickly if there wasn’t a solution on the remaining money,” Anderson said.

Anderson, who knows the details but wouldn’t discuss them, said he has talked to several of his colleagues and thinks the proposal will be approved.

Meanwhile, an Edmonton resident plunked down $5,000 of her own money to poll her neighbors on whether they think the arena deal is a good one, and got a resounding “no”: In a poll of 300 randomly selected city households, with a 5.6% margin of error, 61% say no taxpayer money should be used on a new Oilers arena, 83% oppose the city taking on half a billion dollars in arena debts (some of which would be repaid by Oilers owner Daryl Katz, but by no means all of it), and 71% think the city should go back and renegotiate a better deal.

And also meanwhile, Edmonton apparently did get neighboring communities to agree to kick in $25 million in government-capacity-building money toward the arena last Friday, though apparently only by not actually recording the votes for and against the proposal:

Board CEO Doug Lagore said he recorded the vote as 17-7, which just meets the threshold to pass under the board’s regulations.

However, Lagore said St. Albert Mayor Nolan Crouse “didn’t complete the roll properly. I don’t know what he did.”

An Edmonton Journal audio recording of the proceedings suggests one vote cast against the arena was missed and accidentally counted in support. If eight of the 24 members vote against a motion, it fails.

Man, today’s council meeting is going to be just awesome.

Give Edmonton elected officials credit: They’re not giving up on finding ways to shovel more arena money at Oilers owner Daryl Katz just because the province of Alberta won’t give them any and because it’s a pretty terrible idea. The latest plan: Get the neighboring communities on the Capital Region Board to ask the province to kick in $25 million from its Regional Collaboration Program, which is supposed to be used for capacity-building programs for local governments, but hey, potato, potahto, right?

Alberta Minister of Municipal Affairs Doug Griffiths responded (in the CBC’s paraphrase) that “he is glad to see the region working together to support the arena project, however, he added it could be months before the province makes a decision on the matter.” If Alberta does approve this money, after adding in $45 million from the city’s Municipal Sustainability Initiative fund it would only leave Edmonton $30 million short on its $100 million arena funding gap … or $44 million short if it’s really a $114 million funding gap … or more than that short if it’s true that Katz isn’t really putting in as much money as he claims he is. The CBC reports that Edmonton Mayor Stephen Mandel “said he has some ideas where the city will make up the cash, but would not yet give any details.” Can’t hardly wait!

The Edmonton city council thinks they’ve come up with a new way to fill the Oilers arena funding gap, and this time it’s not beating their head against the provincial government’s door. Or just spending the money and hoping they can pay for it later. Well, okay, yes, it is just spending the money and hoping they can pay for it later, but pay for it later in a different way:

City council could look to the community revitalization levy to cover the missing $55 million needed for the proposed downtown arena project if the province doesn’t come through, some councillors say.

The levy is up for debate Wednesday as administration presents a list of revitalization projects that could be funded with the projected increase in taxes from development in the levy area. Administration earlier suggested development around the downtown arena project will raise $612 million to $1.1 billion over the 20-year life of the levy.

The CRL is essentially a Canadian version of a TIF, wherein future growth in tax revenue gets kicked back to pay for the project that (allegedly) helped sput its growth. The Oilers arena is already being funded by CRL money, but now it sounds like Edmonton is considering just increasing the amount of pretend money that it projects the arena will generate in the future, magically creating more cash to pay off the arena debt. And if the money doesn’t turn up, well, hey, they were just going to blow it on parks and roads anyway.

So the Edmonton city council indeed met last week, and indeed decided to throw a few million dollars a year extra at a new Oilers arena. It did not, however, actually figure out how to pay for all of the shortfall in arena funding, instead — wait for it — asking yet again for the province of Alberta to fill in the rest of the gap:

In the recent budget, the province increased the amount it grants Edmonton annually through the Municipal Sustainability Initiative, which helps pay for municipal infrastructure projects, by $3 million.

City administrators recommended the city put the increase toward the arena over the next 20 years, which would raise $45 million of the $100 million arena shortfall.

Councillors approved the plan in an 8-5 vote, while making the deal contingent upon receiving clarification from the province with respect to the remaining $55 million…

Coun. Kim Krushell said the vote can be seen as a challenge to the province.

“Where are you in this equation? We’ve met you again halfway because we stepped up on the $45 million with the MSI and we’re waiting for the balance,” she said. “That’s the message that’s been sent out.”

Okay, to recap: Alberta premier Alison Redford said when she was elected in 2011 that she wasn’t going to give Edmonton any arena money. Then she said it again. And again. And again. And again. She did, however, point out that Edmonton was welcome to use its MSI money if it didn’t have anything better to do with it.

The Edmonton council has said, okay, fine, we’ll spend our latest allocation of MSI money, which should raise enough to pay for $45 million worth of arena debt. But we still have another $55 million of arena debt unpaid for. (This on top of the $294 million in arena debt and land costs it’s already agreed to, but we don’t talk about that anymore.) Where’s our money for that, huh, Premier Redford?

The Alberta government’s answer was prompt in coming. Care to guess what it was?

Municipal Affairs Minister Doug Griffiths repeated the government’s long-standing position that Edmonton can use its Municipal Sustainability Initiative (MSI) funding for the project, but there will be no additional money.

“We are going to continue to support municipalities through MSI, and that is the perfect place that allows municipalities to make the decisions they need to make,” he said Thursday.

So all Edmonton needs is $55 million in blood from a stone, and this Oilers arena thing is totally happening. Except that it really needs $69 million in blood from a stone, since the funding gap was last reported at $114 million, not $100 million. But I guess we don’t talk about that anymore, either.

The Edmonton city council is meeting today to discuss the Oilers‘ $601 million arena plan, which has had a $100 million budget hole for almost as long as there’s been an Oilers. And this time, the council appears to be ready to acknowledge that the province of Alberta isn’t going to bail them out with a surprise $100 million check, and instead is looking to “Plan Bs.” Such as, Edmonton Journal columnist David Staples?

To keep moving the project, [Edmonton Mayor Stephen] Mandel will resort to Plan B, pulling together some combination of infrastructure money, new taxes from the arena district development, and possibly an additional contribution from Katz.

Coun. Bryan Anderson says the city doesn’t need $100 million right now, it just needs to cobble together funds from various sources that will cover a $5.75 million annual loan payment. “There will be a plan proposed to produce the capital dollars that are missing.”

I can’t tell if Anderson actually means that the city isn’t going to worry about how to pay off $100 million, but will just worry about how to pay off $5.75 million this year, then figure things out all over again next year, or whether this is just awkward wording by Staples. But if that is what they’re considering, it’s really not likely to end well.

Alberta premier Alison Redford has followed up her report of two weeks ago that there’s no money in the provincial budget for $100 million toward an Edmonton Oilers arena by saying that no, seriously, there no money, you’re not going to be getting any money, you got that yet?

“On the issue of tax dollars for the pro sports arena in Edmonton, my answer is no,” Redford told a crowd of municipal politicians in Edmonton. “When every one in this room from every municipality are facing the same difficult budget decisions that we are, I can’t think of a worse time to have this discussion.”

So, um, why are we having this discussion? Apparently “sources” told  iNews880 radio that the province was about to allow the city to borrow against a new revenue stream of some kind to get arena money. So of course iNews880 had to ask Redford if it was true. And surely those sources couldn’t have been just starting a rumor in order to get the media to pester the premier, in hopes that she’ll get sick of it and relent, right?

In case you weren’t tipped off to the idea that Edmonton Oilers owner Daryl Katz wasn’t going to get his requested $100 million in provincial funds for a new arena when Alberta officials said there was no money in the budget, now it’s official: The budget is out, and there’s no money in it. The province indicated, as it has before, that Edmonton can use money from its state provincial-funded Municipal Sustainability Initiative budget if it wants, but Edmonton pointed out, as it has before, that it already has dedicated that money to other projects.

So, we’re back in the same stalemate we’ve been in for years: Despite Edmonton being willing to give Katz a ton of money, there’s still a $100 million hole that nobody is offering to fill. Downtown Business Association Jim Taylor said yesterday that “the arena is a done deal and this doesn’t change it,” but there are done deals, and then there are done deals.

A FoS reader finally directed me to the updated Edmonton Oilers agreement on the city of Edmonton website, and it clarifies some of the confusion around who’ll be paying for what. Team owner Daryl Katz’s $5.5 million in annual rent payments, it turns out, are meant only to pay off his original $100 million commitment (at about 3% interest, taking advantage of cheap government loans); this will be increased proportionally to cover an extra $15 million in new costs, so Katz will actually be on the hook for more like $6.5 million a year. As for the $28 million he’d be paying towards a new $53 million pedestrian bridge, the new agreement specifies that he’d indeed be paying that, “amortized over the 35 year term of the lease with interest costs included” — though it doesn’t say whether those would be additional rent payments or what, and whether low-interest provincial loans would be used for those as well. Add it all up, though, and Katz could end up paying about $8 million a year toward the cost of a new arena, which should be just about covered by whatever he gets for naming rights plus the $2 million a year in advertising at the arena that the city has committed to buy.

Though speaking of naming rights, one Edmonton city councillor now wants to reclaim those and use them to fill in the remaining $100 million budget hole that the province of Alberta keeps insisting it won’t be filling:

Councillor Kerry Diotte tells iNews880 the province has said all along that the extra money won’t be provided.

“That has been their stand and I think the only thing to do now is find a plan “b” and it is alarming that we don’t have a plan “b.” explains Diotte. “I would suggest in this case if it is to go ahead it would have to be money from the Katz group.”…

“I’ve been saying for quite some time now with the naming rights it is something that this city should retain,” explains Diotte. “The city is building the arena and we should have a right to name it and make the money from that name. In other markets that could be worth $100-million, indeed in this market it is probably worth about $100-million over 35 years.”

That’s not a bad guesstimate, though of course $100 million over 35 years isn’t going to be nearly enough to pay for $100 million in construction costs right now. But more to the point, Katz is presumably counting on that naming rights money to cover his rent payments (because who wants to have to pay for things out of your own pocket, amirite fellow rich guys?), so it’s going to take another pitched battle if Diotte expects to use it to cover arena costs instead.

Alberta Premier Alison Redford reiterated last week that the province won’t be coming up with any lottery money or anything else to help with the Oilers arena, though she did say that Edmonton could use provincial Municipal Sustainability Initiative dollars if it wants. Except that Edmonton has already used up its MSI money, and no additional funds are expected so long as the Alberta economy continues to be in the tank. (Apparently low oil prices are the problem, so this could always change if the U.S. starts sucking up gasoline like there’s no tomorrow again.) Which means Redford is effectively saying: We gave you all the money we have, if you want to spend it on an arena rather than something else you already planned, that’s your business. Everybody in Edmonton doesn’t really need a sewer, do they?