Markham NHL arena was on thin ice from the beginning, newly released documents show

Previously secret reports show parts of the financing were risky, but still endorsed by council. Mayor Frank Scarpitti says they pushed for the best deal possible.

Thestar.com
Oct. 28, 2015
By Noor Javed

Markham's NHL arena dream was premised on a financial plan that was high risk, would not garner an “adequate return” and could have cost taxpayers tens of millions dollars more than the city publicly claimed, according to five of the 13 reports the city has been ordered to release, two years after the project was cancelled.

The reports, released as a result of an appeal to the Information and Privacy Commission of Ontario, filed by Councillor Karen Rea before she took office in 2014, depicts the $325-million public-private arena plan as one that would have mired the municipality in debt for decades to come.

“The debt under the proposal would place significant annual cash flow burden on Markham and carries a significant risk,” says the January 2011 report from financial services company Raymond James. “At this point, from a pure financial point of view, the town does not appear to be earning an adequate return for its involvement in extending or facilitating the debt raise.”

The released reports also seem to counter some of the details that city officials and Mayor Frank Scarpitti were selling to citizens over the two years to get them to buy into the project, starting with the price tag on the 20,000-seat arena.

The city had pegged the project's price at $325 million, and said it would be paid through a “unique public-private partnership.” At first, that had both a private investor and the city each paying half the share of the construction costs, with the city's share to be paid primarily through development fees and voluntary contributions from the development industry. The city planned to borrow the entire sum, with the private group paying it back over time.

In its last iteration of the financial plan, the city's share of the cost was going to be paid primarily by the development industry, said Scarpitti.

According to the Raymond James report, the estimated cost of the project in January 2011 was $416 million - nearly $100 million more than the city had told the public it would cost. And the report found that $42 million worth of infrastructure costs “were excluded” from the contractor's estimate.

In an interview, Scarpitti, who championed the project until the end, insisted that the Raymond James analysis of the arena plan was positive.

“The report said, ‘A $175-million equity investment to help fund a marquee destination in the town is attractive and may be worth pursuing alternatives with respect to the project's feasibility,’” he said, reading from the Raymond James report. “To me they were saying ... this is a plan that needs work and should be pursued. And that's what we spent the next two years doing,” he said. “I have no regrets whatsoever.”

The report also shows that the city and councillors would have been aware of the financial risk of the project when it was first announced in 2011. They continued to push the plan. That's why the city came back with so many versions of the financial plan, said Scarpitti. “By the end, it was pretty much a privately funded arena,” he said.

Marilyn Ginsburg, director of the Markham Citizens Coalition for Responsive Government, said residents had little faith in the plan.

“We didn't have access to the reports, but the members of council did, and it never did make any sense to us. So what were they doing?” said Ginsburg,

A 2012 report from consulting company BDR looked at a number of scenarios Markham could face if development in the city slowed down, and found that 20 years after the project was completed, the city would still have $50 million in debt.

Rea says the reports proved concerns expressed by the public were valid.

“The consultants say the exact same thing as what the residents against the proposal had researched ... the project would have placed significant financial burden and risk on the city, therefore putting the taxpayers of Markham in jeopardy of footing the bill,” she said. “None of the reports released justify the building of a publicly funded arena.”

The city released the Raymond James report this month, after city council voted 6-4 to waive solicitor-client privilege on the document. Scarpitti and three other councillors voted against the motion.

Scarpitti said he has always been in favour of having the documents released, but voted based on the advice of the town solicitor, who “advised us to never waive that.”

Rea said her work is not done yet. The city is seeking approval from the third parties who authored three of the documents, so they can be released. Five others are still secret.

“It has taken a long time to finally get my first appeal fully released to the public,” said Rea. “I will continue to advocate to have the balance of the reports released in the second appeal and to be available for the public to read.”