The federal government has committed $51.4 million for a new convention centre in Halifax. Defence minister Peter MacKay made the announcement this morning at an $80/plate Chamber of Commerce breakfast attended by about 200 of the business and political elite of Nova Scotia. Notably absent from the event were NDP MPs and MLAs from the peninsula.
“If we build it, they will come,” said MacKay of the convention centre, discounting criticism that the business case for the convention centre is overblown. Building the convention centre, said Mackay, will “take the ‘no’ out of ‘Nova Scotia.’”
MacKay’s announcement represents a $4.4 million increase from the original $47 million ask from the federal government. The exact costs of the proposal are hopelessly convoluted; originally the cost of the convention centre alone were said to be $159 million, while the complete complex, including the convention centre, a hotel and a “financial centre,” were said to be $500 million. But private developer Joe Ramia has never made his books public, and it’s impossible to separate the convention centre from the rest of the complex.
In any event, the provincial and municipal governments have agreed to a complicated financing scheme for their portions of it—the province will assume property tax, but each level of government will each pay capital costs of $56 million amortized over 25 years, and split $2.9 million for operating expenses. Moreover, under the deal the city will be responsible for half Trade Centre Limited’s budget shortfalls, a responsibility that in the past was covered almost entirely by the province; last year, some $5 million was transferred from provincial accounts to TCL to cover past losses.
In a scrum with reporters after the announcement, MacKay acknowledged that the extra $4.4 million from the feds reflected an increase in Ramia’s costs, and that the figure was arrived at after considerable negotiation. Premier Darrell Dexter said that the province’s cost had not increased, but he seemed to be referring to the immediate costs as outlined in the provincial-municipal agreement.
But the convention centre proposal is tied into the financial centre—an 14-story building that Ramia says will house a large financial services firm he has lined up.
“I would assume any building that doesn’t have any tenants is not [viable],” said Dexter. “Of course he has to go out and make sure he has tenants and work his business model in order to support the project.”
On that note, I asked, is there any promise of future payroll rebates for a tenant in the financial centre?
“No,” said Dexter.
There’s been no conversation about that?
“No.”
So we’ll never hear about conversation—
“No, I’m not saying that,” interrupted Dexter. “You asked me if there has been any and I’m saying there’s not. But you know something, if we can use payroll rebates to attract good, solid financial services companies to this province, I’m more than happy to talk about it.”
How much would you be willing to pay in payroll rebates? I asked.
“That’s a ridiculous question,” replied Dexter. “It’s a ridiculous question because companies that come here come with a business plan in order to be able to fit within the province’s program. You’re trying to speculate about something that currently doesn’t exist.”
For the record, financial services firm Citco, which has already been promised up to $7 million in payroll rebates for increasing operations in Halifax, was the official sponsor of the chamber’s breakfast. It’s widely speculated that Citco will be Ramia’s tenant, and will seek additional payroll rebates; if so, the amount of the rebates should be seen as an additional taxpayer subsidy for the convention centre.
From here, Ramia and he province have to formalize their agreement in a contract, and then Ramia can start the design and construction process. MacKay said he expected the convention centre to open in 2015.
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This article appears in Aug 11-17, 2011.
‘Notably absent from the event were NDP MPs and MLAs from the peninsula.’
seriously? Megan Leslie MISSED A PHOTO OP!? Call the ambulance, she must be dead.
I’ve read the articles many times and I can’t find the piece of information I’m looking for to put this in to context.
Can anyone tell me to the best of their knowledge what that total public commitment will be to this project over it’s lifetime?
Also, there was a line from the Premier today that indicated that they would now also be borrowing money on behalf of the developer so that the developer can save money (no more detail was given). In this sense isn’t the $340m they’re calling private money actually more accurately described as a low interest loan from the government on top of the committed money?
This may be the best deal ever for Nova Scotia but if no one can add up the costs and benefits across the three levels of government we will never know.
What do we know? We really need infrastructure and maintenance for existing infrastructure.
We can not party our way to new wealth any more than Montreal can. It’s crumbling infrastructure, in spite of all the leisure and sport money that Canada could ever muster over a generation, is a cautionary tale – a cracked and broken testament to the fact that this kind of thinking doesn’t work. Stadiums, convention centres, ovals, sports centres, soccer pitches and concerts are not infrastructure and deeply distract us from the work of building wealth in the community.
No matter how shiny the mega-project dream is, there are no short cuts or easy ways to build new wealth. It’s simple and old fashioned. It takes work.
jwc- Dexter was non-commtal on financing Ramia’s portion of construction costs.he seemed to leave open the possibility, without confirming it.
Ramia knows when every major downtown lease is up for renewal and will have already targeted federal & provincial governments. Ask Dexter if he’ll be entering into leases for new space.
So this morning Mr MacKay commits $5mil more than originally asked for because DD, a couple of weeks ago, told him the cost of the project went up. When queried, DD would neither confirm or deny Mr MacKay’s statement. Why not? Either Mr MacKay is lying or DD is (and who is getting this extra $5mil). Our esteem mayor is once again out to lunch as he had no idea about this announcement. I’m sure glad everybody is on the same page. Hell if they can’t even get it together for the money announcement, how on Earth are they going to compleat it in an efficient manner? Yes, that last line was a joke.
I could see how this happened in Ottawa. “Well the kids have decided to buy a lemon of a car and won’t listen to reason. Well I suppose we should try to bail them out as usual”. Or something similar in vein.
JWC. The total commitment will grow – That is for sure. This thing is costing more before we even start and its already late. Does the developer even have the financing in place? can he sustain his portion of the cost increases? Normally developers must put up a performance bond and in this case I would suggest it imperative but NOOOO we have turned it around the other way with recent reports we are now going to give him money up front. OH boy even if I liked the project concept I sure do not like the way the monies are being bandied about with a private public partnership
The Coast needs to update its graphic from the old original concept to the new one that has been in circulation for at least 6 months now. Unless, of course, they are trying to intentionally make this project look worse than it is. But they would never do that. Of course.
Wally: “It is already late”? Really? Why is that? Is it maybe because nobody in govt could make a decision to save their life until now? How can a project that is not approved be late?
“Culture of defeat” – yeah, we know what that’s all about down here. We’re the masters of that.
gus the total timline start to finish has been lengthened. regradless of late decisons the end date is no longer out from opriginal end date than the length of the delay. No culture of defeat – Sorry if I use some common sense and financial acumen combined wit a distaste of funding privte of profit projects with public monies.
I look forward to reading your articles. What would we do without articulate, thoughtful writers. Seriously, thank you Tim, you make Halifax a better place.
OK, I’ve asked the government folks as earnestly as I can and I’ve received either ‘don’t know’ or no response from all. Sooo… here’s my calculation. Tell me where I might make adjustments:
All three levels of government and the developer have clearly stated that they do not know the final cost of this project to the public.
It seems no one knows exactly the final total cost to Nova Scotians over the life of the project and there is a disincentive for the proponents to let these numbers be known in aggregate.
Still, we can make a pretty good estimate based on what is known. I look forward to any discussion of the premises which I will state as clearly as I can:
1/ Federal infrastructure funding redirected from other NS projects to the CC construction
$51 million
2/ Estimated construction overage (things always cost a little more) – 15%
($159m x 15%) = $24 million
3/ Yearly payments from PNS and HRM for building
$14 m x 25 years = $350m (this is likely where the STV get their estimate.
4/ Loss from operation at TCL (assuming they continue to do at least as well as they do now…
$4 m x 25 years
5/ General marketing and promotion
$1 m x 25 years (it ‘s likely higher in the early years and if things don’t go well but this is a low estimate)
6/ Property Taxes forgone on the space (They’ve exempted the CC from taxes!)
$480k x 25 years
7/ Interest on loan from province to finance the “private portion of the convention centre. This is the recent bit of news where the Province says it will borrow the money to build the centre on the developer’s behalf to “save money”
$390 m x 4% x 25 years
8/ Payroll rebate to induce companies to locate in new centre
$2 m per year x 25 years
9/ Increase in downtown infrastrucutre and services to support centre
$300k per year x 25 years
And add it all up, check it over…
Total cost to the people of Nova Scotia over 25 years NOT including actually buying or owning anything at the end is…
just a little over $1 Billion DOLLARS !!!
$1,009,350,000.00
My view is there are very few things you could do in Nova Scotia that could cost this much over this long and have such little economic benefit to the province or be of such low redeeming quality.
Alright JWC. I’ll take the bait 🙂
1. The Federal Infrastructure funding, imo, isn’t ‘redirected’ unless it was already announced for other specific infrastructure projects first, and then taken away from them and committed to the CC instead. In the absence of these other phantom infrastructure projects, this money is ‘directed’ funding, not redirected.
It’s important not to draw invisible lines to everything and anything that could be funded in the province and claim that those projects (like a Yarmouth Ferry or hiring more doctors/nurses) are what this $50M was ‘redirected’ from. These are different pots of money, and the Federal Infrastructure pot is earmarked for specific types of projects. That $50M is never going to be given by the Feds to hire more doctors.
Now, if you want to count this as opportunity cost, you’d have to provide analysis on the economic returns from this alternative unknown “opportunity” so we can actually determine that the $50M is better spent elsewhere, within the confines of what “infrastructure funding” is allowed to be spent on.
Until that’s presented, I think it’s not accurate to say the $50M of federal cash is a “cost” on Nova Scotians, as opposed to it being Federal cash (revenue) we wouldn’t otherwise have received to inject into the economy.
2. Cost over-runs: In the original agreement, the developer agreed to carry all cost over runs. We have no reason to believe this is not still the basis of the agreement, even after the expiry of the original quote. As far as I understand it, government is waiting for a new quote: as in – a fixed-price quote like the one provided previously.
3. Yearly Payments: This figure needs to deduct the amount that TCL currently spends annually on their existing building so we can identify the amount of “new” additional costs to tax payers and not count costs that we currently incur whether the new CC goes up or not.
4. Operational loss: Again, you’re using existing deficit of the current CC, so this figure is not a “new” expense that will result to tax payers from the new CC, and should not be counted to determine the impact of having a new CC versus keeping the existing one. Only the amount of incremental deficits should be used.
5. Marketing Costs: These are already counted under “operational loss” of the existing CC, since this is an existing activity in their operations and not a brand new one. So this line shouldn’t be counted unless you can estimate the amount of additional marketing expenses that may be incurred by the new CC over and above what they already spend.
You’re correct in that there will be additional expenses in the beginning (updating current marketing materials, website, etc.), but the ‘incremental’ spend, imo, will be limited.
6. Taxes: TCL is a crown corporation. Correct me if I’m wrong, but I don’t believe government pays property taxes to itself. They’re the only tenant of the CC, so it makes sense that they don’t charge tax to themselves on their lease payments. Furthermore, it’s important to note that the rest of the development: the hotel and financial tower where commercial or residential tenants may lease space, are not exempt from taxes.
7. The talk about a loan guarantee is speculative at this point. Even if the Province did do that, why the assumption that the Province will pay the interest and not the developer?
8. Payroll rebates: These are given to companies to locate in Nova Scotia, not to locate in the CC. A company can choose to locate in Burnside and will still get that payroll rebate. If they use their $2M on a warehouse in Burnside, would you still count that against the new CC?
Rebates are a cost to taxpayers alright, though some might argue that the benefits from the jobs exceed the cost. But this is not a cost to tax payers resulting from the new CC, and shouldn’t be counted. Rebates existed before the CC, and will exist after it, and they’re not tied to it.
9. Increases in infrastructure and cost of servicing downtown: I hope so!! That’s the whole economic argument part of this whole thing: increased activity means increased spending and job generation. I’m assuming you’re referring to road work, water, sewage, transit, power, etc. Who are the workers who will get paid for the additional ‘servicing’ costs? Tax payers.
Nice come back Issmat… as an aside I recently read your opinions on the Tax Reform ISsue from last year and I wanted you to know I support your position and thought your notes were right on in response to Tim’s columns.
One more round on the CC.
1. The Fed money was committed to infrastructure in Nova Scotia… so it was coming here no matter what. They just had to pick a project. It was supposed to be from infrastructure but the brief allowed that the money could also be used for convention centres (because convention centres are not infrastructure any more than a hot tub is infrastructure for a kitchen)
2. You are saying there will be no cost over runs that will come back to the tax payer. Let’s put a pin in that one and see how it works out.
3. If I include money already spent on the existing CC then I would also have to add in all the costs associated with running it and owning it in to the future. This would make things even worse. I was trying to give a little break by firewalling that issue and dealing only with the second CC.
4. If the government would do like my mother used to tell me, “Just stop it!” and let private enterprise like hotels and the Risley’s do conventions then this amount would be saved. The truth is we don’t have any meaningful projections of what the new total loss from operations per year will be. Maybe you have a better estimate. I am expecting the worst given the economy and new technology. Have you been watching the stock and oil markets?
5. I’m including this as general PNS marketing push which will be required to feed this beast over and above the inhouse costs plus the amounts that surely will have to be spent to placate the regional folks who were told that the second CC will bring people and spending to the regions of NS.
6. Taxes – this is an HRM issue. It’s HRM that collects property taxes and it is HRM that has agree to forgo collecting property taxes on the new facility. To be clear they are not in the habit of forgoing taxes on properties they don’t own but they are doing this for optics to avoid adding to the “operating subsidy”. Any way you look at it it has to be considered a cost.
7. The only advantage to borrowing the “private” financing on behalf of the developer is to save him money on interest and financing costs. I think this is code for subsidized loans. Again, we’ll see. This is really the worst case.
8. I think payroll rebates have a place. They can be used to “buy money” and I think that’s smart. Is this specific buy smart? It remains to be seen. But it’s a real cost to the taxpayer that has to be included in a total 360 degree costing of the plan.
9. I’m mixed up here. The second centre increases the cost of infrastructure spending downtown. It is not covered by property taxes so other tax payers have to pick up the costs. Yes, some of those costs, exactly as you’ve described them will go to city workers and contractors. This is “churn” at best and does not create any new wealth for Nova Scotia.
And you know that’s a good place to stop my note. There is a lot of confusion in Government about what is economic development – what creates new wealth – and what simply churns wealth or simply converts wealth form public to private wealth. It’s an important point to consider. I believe that there are only a few simple ways to create new wealth and it is unhelpful to make a simple economic process in to… hokus pokus.
Cheers Ismaat !
jw
Issmat – TCL has paid property taxes for decades. In this new CC the province has said to hell with that because they don’t want HRM getting the money. In the HRM presentation the finance guy flagged it as a major issue for HRM.
Thanks for the correction. I wasn’t quite sure if the Province paid taxes for the current CC.
Having done a quick search now, it appears that taxes will not be waived for the new CC. Here’s an excerpt from a December article announcing the deal between HRM and the Province:
“Other facets of the deal include that property taxes will be treated as a shared cost, with the current property tax on the existing convention centre used to determine the taxes for the new one. The province had earlier asked for a property tax waiver.”
http://www.cbc.ca/news/canada/nova-scotia/…