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Thursday, July 19, 2012

Should the city be responsible for Fred MacGillivray's million dollar pension?

The ticket scandal raises the question: what happens to Trade Centre Limited's $40.7 million deficit?

Posted By on Thu, Jul 19, 2012 at 12:16 PM

Thanks to auditor general Larry Munroe, we now know the details of how Fred MacGillivray, who was then the president of provincial crown corporation Trade Centre Limited, lifted the ticket operation away from the city-owned Metro Centre and made it part of TCL's operation. As a result, the city has been shorted about a million dollars, at least; we may discover the figure is much larger, as more details emerge.

As we've reported before, besides the government pension that all provincial employees receive, MacGillivray managed to negotiate an additional bonus pension that last year was valued at over a million dollars.

Given what we know about MacGillivray's culpability with regards to removing the box office receipts from city coffers, it makes no sense for the city to agree to have any responsibility for MacGillivray's pension.

But if we're not careful, the city may soon be on the hook for not just half of MacGillivray's million dollar pension, but also half of Trade Centre Limited's deficit, which last year was $40.7 million.

Let me explain.

Like any large organization, Trade Centre Limited has lots of capital debt, outstanding accounts and liabilities for things like future pension payments for its employees. There's nothing inherently wrong with this, although we could argue that the deficit hasn't been paid down as quickly as it should have because TCL has been losing money for about a decade.

Here's the details of TCL's equity deficit, as reported in the 2010/11 financial statement, the most recent available:

fred_s_pension.jpg

I've highlighted the line that is MacGillivray's pension. Note also the total deficit at the bottom, $40,731,462.

Because Trade Centre Limited is a provincial crown corporation, wholly owned by the province, the deficit is ultimately a provincial responsibility. Should TCL ever go out of business, or if there were some horrendous tragedy that killed a hundred people and TCL couldn't pay the resulting lawsuits, the province would be on the hook. Normally, however, this deficit wouldn't be an issue—it'd be rolled over from one year to the next, it would come down a bit some years, go back up others.

But these aren't normal times. The city and province just signed a deal for a new convention centre, which will be run via "a new management model." The agreement calls for operational costs, deficits, any profits (ha!) and liabilities of the new convention centre to be split 50-50 by each government. In and of itself, this is a rotten deal for the city, but let's leave that aside and think about that TCL deficit.

As presented to city council last week, the agreement for the new convention centre makes no mention of what's going to happen to the existing TCL deficit. I've asked Jane Fraser, the deputy minister of infrastructure, what would happen to the deficit, and she didn't know. I've also asked city CAO Richard Butts, and he didn't know. I've asked Fraser's staff the same question, and have gotten no response. Likewise, the city's finance director, Greg Keefe, had no idea what would happen to the TCL deficit.

Here's what should happen: TCL should cease operations, with all debts and obligations paid off by the province. Only then should a new corporation be created to operate the new convention centre, with the city and province splitting all financial responsibilities from that point forward. Oh, and it should not be assumed that TCL employees should simply move into a new office—there should be a national search for executives for the new corporation, and TCL employees can apply for the jobs just like anyone else.

I fear, however, that that's not what going to happen. Fraser hints that TCL "might" be the manager of the new convention centre, and everyone I've talked to takes it for granted that TCL president Scott Ferguson will run the place. When I suggest that Ferguson should have to apply for the job, I'm treated as if I'm a rude interloper.

We're on course for the absolute worst scenario: that the existing Trade Centre Limited, with the same set of employees, and carrying the same capital debt and pension liabilities, takes over operation of the new convention centre, and there are only minor tweaks to the TCL board, and the 50-50 city/province split becomes effective.

If that happens, and it looks like it might, then the city will have effectively taken on over $20 million in debt that it should have never incurred.

If so, total city payments for the "new" convention centre look like this:

$5.1 million — annual financing of construction for 25 years
$1.1 million — annual operation and upkeep of the building, for 25 years
Unknown — annual operational deficit
$30 million (?) — purchase and renovation of existing WTC building
$20.3 million — assumed TCL deficit
Total: $205.35 million + unknown operating deficits
To his credit, when I talked to Butts yesterday he said that he has no authority to enter into an agreement that would increase the city's debt. Therefore, city council would have to agree to taking over half the responsibility for TCL's deficit.

That creates a bizarre scenario, where councillors are asked not just to assume a liability of $20.35 million, but as part of that to pay half the million dollar pension of the man—MacGillivray—who lifted the Metro Centre box office from the city without authority.

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