Internal memo warns of massive financial risk, lack of information in Toronto Community Housing breakup

A March 2017 memo from ousted CEO Greg Spearn raises significant concerns with the direction taken by the city on one of Mayor John Tory’s signature plans.

Thestar.com
June 1, 2017
By Jennifer Pagliaro

An internal memo from the ousted Toronto Community Housing boss to city staff warns of the risk of hundreds of millions of dollars in costs, financial losses and a lack of information with the developing plans to remake the corporation.

The memo, obtained by the Star through a freedom of information request, reveals the direction city staff planned to take implementing one of Mayor John Tory’s signature plans ahead of a report expected later in June. It also highlights tensions between the city and housing agency over those plans, which have been delayed for months, and reveals concerns Toronto Community Housing officials and tenants have not been properly consulted.

The memo, written by now former CEO Greg Spearn, contained several significant concerns, including financial implications of breaking up the company totaling more than $700 million in legal fees and loan default alone.

More than 20 pages of the memo forwarded to the city were censored by Toronto Community Housing, an agency of the city, before being released to the Star.

Separately, the Star obtained an uncensored version of the memo, which shows that some of the more troubling passages of the memo were blacked out for public view, leaving unanswered questions about who wanted that information kept secret and why. The Star is publishing the uncensored, 35-page version online.

“Moving ahead at this time without a more detailed analysis of the financial, operational and tenant impacts could pose significant risks for both the city, and TCHC, - and especially for tenants,” Spearn wrote to deputy city manager Giuliana Carbone and copied to city manager Peter Wallace and other senior staff on March 17. Spearn recommended the process be slowed to allow for “informed and meaningful dialogue.”

It “would be helpful to our joint effort if TCHC could have a more continuous insight into the city’s evolving thinking regarding our future mandate,” the memo reads. “Careful provision of information, consultation and meaningful responses are necessary, and as such we feel this cannot be achieved in the time frame outlined.”

Those passages were all blacked out in the official version sent to the Star, with TCH claiming the passages were exempt from disclosure because they were deemed to be “advice” to government and protected under provincial access to information laws.
Spearn, who left the corporation as interim CEO abruptly in April after, the Star reported, he was said to no longer be in the running for the permanent top job, could not be reached for comment. He has not spoken publicly since his departure.

In January 2015, shortly after his election, Tory announced a task force on Toronto Community Housing led by former mayor Senator Art Eggleton to explore restructuring the corporation, improving the lives of tenants and stabilizing the housing provider’s finances as it faced a $2.6-billion repairs backlog.

A year later, the task force recommended the largest shakeup in the corporation’s nearly two-decade history. A series of 29 recommendations included splitting up the company, creating a non-profit arm to focus on tenants, and hiving off some units to other social housing providers in the city.

At city hall, Tory’s executive committee directed staff return in spring 2016 with an “overall approach” and again in fall 2016 with a full implementation plan. The committee requested staff report back on financial risks and impacts related to the final recommendations.

But when a city staff report, titled “Tenants First” as the plan has become known as, returned in July, it asked council to agree to moving forward with a plan that would carve out an undetermined number of TCH’s 58,500 units to a new non-profit corporation and other non-profit housing providers in the city. That report did not contain any financial analysis of that direction. It recommended staff return with that analysis and a more detailed plan at the beginning of 2017.

Spearn’s memo outlines that city staff are considering carving out a third of the corporation’s units by transferring the entire seniors’ portfolio - some 14,000 units and 67 buildings - to “a new entity with linkages to the city’s long-term care division” and also transferring 5,000 additional units to existing social housing providers.

Spearn also explained that whatever is left of the corporation may experience difficulty repaying debt after assets are transferred. Much of TCH’s debt is not tied to a specific building, the way a mortgage is.

“Removal of these assets without substantive improvements to the current funding model will have significant negative consequences for the remaining portfolio that is already strained,” Spearn wrote.

In fact, transferring the seniors’ units elsewhere would put TCH in a “worse financial position” by about $22 million annually, Spearn said. This is in part, he wrote, because the seniors’ units see fewer late rent payments then the rest of the portfolio. Though the units represent just 25 per cent of the asset base, they are responsible for 38 per cent of TCH’s net operating income.

The memo also focuses on concerns a plan to consult tenants just a month before the first implementation report was scheduled to be released was not enough time for “meaningful” consultation.

And it details, at length, possible labour relations issues with up to 500 staff affected, impacts on pensions and collective agreements.

Cityspokesperson Wynna Brown said in an email that “a range of options are still being considered.”

“As part of our due diligence process, staff are considering all risks associated with asset transfers and any other recommendations being contemplated,” she wrote.

Brown said the city has requested information from TCH, including “comprehensive financial, capital, operating, and asset information and a review of their processes and procedures.”

The mayor’s task force held four public consultations and the Tenants First team has held eight consultations across the city. A tenant’s advisory committee, she said, has been meeting weekly.

A statement from Tory’s spokesperson Don Peat said the mayor “believes we need to do better for TCHC tenants,” noting ongoing pressure on the province to contribute a third of the funding - $864 million - for necessary repairs.

“He also believes we need to take action to fundamentally change TCHC and he looks forward to seeing the final report on Tenants First later this month.”

Kevin Marshman, who replaced Spearn as interim CEO in April, said in an emailed statement: “Toronto Community Housing supports the Tenants First report and the city’s goals to implement changes that will improve how we deliver services to tenants, our housing and our finances. The March memo identified considerations on the early draft direction. Since then, discussion on Tenants First has evolved.”