Rachel Brighton, publisher of Coastlands: The Maritimes Policy Review and columnist in the Chronicle-Herald, is a knowledgable and insightful commentator on Nova Scotia’s often-foolish attempts at economic development. So it’s with great disappointment to read her commentary in todays Chronicle-Herald, “Halifax convention centre looks like a good bet.”
But, now that it looks like the convention centre is going to get built, Brighton’s commentary gives me the excuse to review the economics and costs behind the thing, and to plainly lay out the various claims and numbers, so that down the road we can give the lie to the false promises of the last few years.
Actual costs of the convention centre
The gist of Brighton’s argument is this:
Now that the federal government has pledged money towards the convention centre, it remains for the developer to commit to the project and nail down the final capital costs. The province and Halifax Regional Municipality have each committed $56 million to have the centre built by Rank Inc. as part of a mixed-use $500-million project.
While the province and municipality could lose money on the operation of the centre, their combined investment pales in comparison with the money that the province has been pouring into business development, with equally uncertain results.
[emphasis added]
“This might suck, but it doesn’t suck as bad as the rest of the stuff we do” isn’t much of an endorsement, but even that weak cheerleading is wrong, on both counts.
Brighton says the province and city “could” lose money on the operation of the convention centre, but let’s be clear: there’s no “could” about it; both levels of government will lose money on it, period. That’s inarguable, as Trade Centre Limited’s own numbers demonstrate.
How much will the governments lose? Well, there are lots of moving balls, and some ambiguity, but the numbers made public so far—which are just a portion of total costs—aren’t good at all.
Let’s start with construction and operational costs. When the province and city came to an agreement, the Canadian Press reported that:
[The provincial department of Infrastructure’s] breakdown calls for amortized payments of $10.4 million to cover the developer’s construction costs, and then another $2.9 million to the developer for operations and upkeep of the three-storey facility.
The proposal would have those costs split between the province and the city. The federal contribution, which has not yet been secured, would be needed by 2014.
The province never gave a clear indication of how it came up with the $10.4 million annual payment figure—when I run the numbers I come up with usurious interest rates of over eight percent. The agreement brings developer Joe Ramia into the equation, and city documents show the province paying Ramia’s 6.9 percent interest rate so as to in backhanded fashion keep the convention centre debt off the province’s official debt ledger. Does the apparent still-higher interest rate mean the province paying some of Ramia’s non-convention centre costs as well? I don’t know. Regardless, I’ll stick with the numbers the province itself gave out and leave it at that.
So, the city and province are together paying a total of $10.4 million annually for construction and $2.9 million annually for operations of the convention centre, making the total annual payment $13.3 million, or $6.65 million for each the city and province. Total costs to the city and province over 25 years is $330 million, or $165 million each. (Understand that “operations” means for the facility— lights and heat, that sort of thing—NOT operation of Trade Centre Limited.
But then there’s the matter of Trade Centre Limited’s operating deficits. TCL always operates at a deficit— last year the province made a $4.8 million payment for several years worth of deficits, and TCL’s 2010-2011 deficit alone was about $1.8 million. Right now, under the contract for operating the existing convention centre, the city is limited to a $700,000 annual charge for operating deficits. But under the new agreement, the city will be responsible for half the deficit, no matter how large it gets. It’s really anyone’s guess what the future operating deficits will be— even if the convention centre operates as promised, there will be larger-than-now deficits; curiously, TCL never projected how much. The big fear, however, is that the convention centre doesn’t operate like TCL says it will—if all us naysayers are right— then the city’s liability is unlimited.
Unlimited? Don’t believe me? Understand that right now Ireland is right now facing exactly that situation with the Dublin Convention Centre, and is now subsidizing the thing to the tune of 500 Euros per delegate.
And wait, we’re not finished calculating costs. There is still a gigantic cost that’s never been calculated—the fate of the existing convention centre and the office tower above it. The last we heard, the city agreed to take over the complex, and is in negotiation with the province for possible financial assistance on that front. Whatever happens with it, there will be enormous costs—tens if not hundreds of millions of dollars—to retrofit if for whatever its future use will be, and then whatever public subsidies have to go into operating it. (It’s possible, of course, that the city will simply end up mothballing a complex it can’t afford to retrofit or operate, giving us another hole in the downtown landscape.)
Benefits
Of course, convention centre supporters have all sorts of projections for increased tourism, increased taxes, increases in downtown business in the shadow of the convention centre, and on an on and on. For the sake of this article, I’m going to take those numbers at face value—Let’s run a cost/benefit analysis with convention centre supporters’ own numbers and see what we get.
First, though, let me make two comments: I don’t believe any of the supporters’ numbers. TCL’s behaviour on this front has been reprehensible; as I wrote last year, and you can follow my analysis in great detail, here:
Let’s recap: We had four consulting firms doing an analysis on the need for and potential economic impact of a proposed convention centre, basing all their projections on a 150,000 square foot convention centre, as opposed to the 120,000 square foot convention centre that’s proposed. Along the way, the firms added in an arbitrary inflator that made the future delegate count much higher than was justified, and then that figure was used by Gardner Pinfold to forecast the economic impact of the convention centre. But Trade Centre Limited evidently wasn’t happy with even those inflated results, and so did their own in-house delegate projection that was more than double that projected by the consultants; those higher figures were then given back to Gardner Pinfold to run a second economic impact analysis that showed a supposed economic impact two-and-a-half times the first.
Second, many, many convention centres—damn near all of them—fail to meet the delegate projections made to justify their construction. Halifax convention centre boosters simply discount this—“Halifax is different,” they say, and cart out the already discredited economic impact projections and mumble on.
And I can anticipate the reaction to my use of the Dublin example: “But Ireland had a financial collapse!”… so let me be clear: I think even without a financial collapse, the Halifax convention centre delegate projections, and resulting economic impact analyses, are bogus, and won’t be met, even if economic good times return. Of course I can’t predict the future, but given the utterly wrong-headed implementation of “austerity programs” around the world, I would not be surprised if we see a 1930s style economy with “unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability” into the future. I just want to put this out there, because I don’t want people 10 years from now to say, “well, no one could’ve predicted this horrible economy, so you can’t blame us for our faulty convention centre analysis.” Yes, people are predicting it, and it’s a distinct possibility.
Still and all, let’s for the sake of argument say the shining projections made by convention centre boosters actually materialize. How do those numbers compare to the costs outlined above? Let’s take each government separately. (I’ve spelled this out before, here, and I’m plagiarizing some of my own text below.)
On the provincial side, the second, revised, let’s double the delegate numbers economic impact analysis, shows that by year 10 of operation the expanded convention centre will generate (page 7) “$40 million in provincial total direct and spin-off taxes above the net present value of taxes generated associated with the current WTCC operating at the baseline level of events over the 10-year period.”
That’s an average increase of $4 million annually in provincial tax receipts, created by an annual expenditure of $6.65 million in provincial tax expenditures—a loss of $2.65 million each and every year.
Understand that the expected tax receipts number is the total tax receipt projection, from all direct, indirect and spinoff economic activity, all new income taxes and all new sales taxes—there’s no “extra” not being counted. I’m also not counting the provincial half of increased TCL deficits.
On the city side, the same inflated economic impact report says, on pages 4 and 5:
Estimating property tax potential from this new facility is difficult to do in a theoretical way. To illustrate the scale of taxes, we have compared hotel properties and office buildings in the Central Business District. The Prince George Hotel generates almost $600,000 in annual property taxes. The convention hotel will be about double the size in terms of rooms with an estimated 400 rooms that will generate a higher average rate. This suggests the hotel portion could generate HRM in the order of $1.2 million in tax revenue.
The office tower component will also generate tax revenue. The larger office facilities in the Central Business District currently, such as Purdy’s Wharf and Maritime Centre, generate between $1.2 and $1.5 million in taxes. The new office complex will have similar square footage and could be expected to generate at least this level of tax.
We estimate the convention facility itself will generate more than double the current Trade Centre, which pays about $600,000 in municipal taxes.
The new convention facility will generate additional business for downtown establishments. In turn, we expect this incremental commercial activity to improve the real estate value of properties in the vicinity of the new convention centre. Based on a review of assessment data in the area, bounded by Brunswick Barrington Blowers and Duke tax rate increases attributable to assessed values increasing by 10% and 25% respectively, would be in the order of $150,000 to $350,000.
Based on this report, the best case scenario is an increase in annual city tax revenue in the following amounts:
Hotel: $1.2 million
Office Tower: $1.5 million
Convention Centre: $600,000*
Nearby increase in assessments: $350,000
Total: $3.65 million/per year.
*The actual amount received in property taxes for the convention centre will be somewhat less than projected, as explained here.
That increase in city tax revenue of $3.65 million annually comes at a tax cost of $6.65 million annually, for a net loss of $3 million, each and every year for 25 years. Again, there is no “extras” I’m avoiding, and I am not counting the city’s share of increased TCL deficits, or the cost of buying, retrofitting and subsidizing the use of the existing convention centre.
Failing at economic development
Again, the numbers above come from reports convention centre advocates themselves point at to justify building the thing. I didn’t make them up; you can check them yourself. It’s a $5.65 million annual loss to the collected levels of government—or $141.25 million over the 25-year lease agreement—even after all the increased tax revenues are factored in.
Brighton says that this real cost “pales in comparison” to the losses incurred by other economic development schemes, after having listed about $5 million in losses incurred by Nova Scotia Business, Inc.
I’m no fan of NSBI’s discretionary loan program, but neither do I think that $5 million is more than $5.65 million. I can only assume that Brighton has not followed the convention centre story closely.
So, if loans to companies aren’t good, and convention centres aren’t good, what kind of economic development program would I support?
Well, instead of trying to lure outside money into the province, how ’bout if we work instead on reducing the money we ship out of the province? If we can keep more money at home, it will circulate more among ourselves, putting more of us to work at better wages, etc.
And as I see it, our biggest, most needless loss is the money we pay for energy—the oil that heats our houses, the gasoline that fills our automobiles, the coal that fires our electric plants. The money we spend on energy goes straight out of province, never to return. And the amount we spend on energy will undoubtedly increase in future years, becoming still more of a drain on our household budgets and our provincial economy.
Instead of trying to entice Rich Dude A from somewhere else to have a party here, we should instead be working to reduce the costs of Buddy B from Nova Scotia to heat his house and commute to work. All of our economic development money should be put into energy retrofit programs, mass transit and renewable energy.
Of course, not a lot of well-connected business people can get special insider deals through such programs.
This article appears in Aug 18-24, 2011.
The Herald has done a wonderful service to the downtown core. First they sold their building to Joe Ramia so he could tear it down to make room for this Convention Centre. Folks got several years to appreciate how fast businesses dependent on the lunch and after hours drinks crowd flatten when a major employer moves their employees uptown. Visitors got to see how creepy scary it is having empty lots and boarded up sidewalks. Then the Herald set out on a PR mission devoting column inch after column inch to how we need the CC deal, this deal, no other deal, and they kept that message firm right up until the federal monies were granted, and then gushed their kudos to Joe Ramia for saving good ole downtown Halifax.
Yeah, Tim, I can see why you alone are bothered with how costly, how risky and how stupid this deal is for Nova Scotians. Good thing you don’t work for the Herald, they’d never let you print that final sentence.
“All of our economic development money should be put into energy retrofit programs, mass transit and renewable energy.”
What a ridiculous statement.
Energy retrofits produce a one-time economic boost for those in the business, and then it’s gone. Mass transit is a money-loser; always has been and always will be. It makes no sense to categorize it as an economic development advantage; we already have plenty of buses running empty, polluting the air; not sure why we need more. As for renewable energy, that is already happening, as NS has some of the most ambitious targets of any province. Maybe this thing called Muskrat Falls might be of interest to you.
The thing is, Tim, you’ve been arguing against this development from the day it was proposed. Your paper continues to use an incorrect and out of date image of the development on every story you run. And you use hyperbole and straw-man arguments to oppose it, even though the war is over and your side lost.
It must be tough when even fellow lefties like Brighton see it as a good thing.
I have read Tim’s article twice and I can’t find any annual income from the new convention centre (only indirect revenue from tourism dollars). I see that he has property tax factored in, but in addition, the current convention centre had direct revenue of $6.883 million for the year ending March 31, 2011. This was an all time high and an increase of $1 million over the previous year. (so much for the theory of declining convention trade income that Tim and the Save the View group keeps advising us of). Trade Centre Ltd. estimates that the direct revenue from the new Nova Centre will increase to $12 million to $14 million within 10 years (which seems realistic – just 10 years of inflation will result in much of that increase).
Part of the yearly cost of the new convention centre includes an operational cost of $1.7 million. This is partly offset by the $1 million that the Trade Centre Ltd. will save from operational cost of the current facility. Facility upgrades for the new convention centre will be an additional $1.2 million. However, at least part of this cost is already being incurred by the current WTCC I convention centre (is Tim saying that the WTCC I has no annual facility upgrade or operational costs?).
I have no doubt that there will be losses in the first few years but these losses will be much less than what Tim is forecasting. Most, if not all, of the yearly losses will be offset by increased property taxes (which is an item that Tim did include).
Tim also doesn’t understand that the interest rate of 6.9% is based on the actual cost to the HRM and province of $47 million dollars each for their portions of the cost; part of the interest cost is already factored in as an interim interest cost which saves both levels of government from paying any lease cost until the convention centre is complete (once again Tim, there is no hidden conspiracy). The individual $59 million dollar costs that are often quoted by you and others, already includes the interim interest charge.
In my case, buying a $70 transit pass saves probably $300 a month in car costs- car payment, insurance, upkeep, gas, repairs, etc. That’s $300/month, most of which would otherwise go to out-of-province insurance companies, car companies, gas companies… which I now spend locally. Then there’s the retrofit I did on my house, which is easily saving me $2,000/year on heating costs, which I now also spend otherwise, mostly locally. Multiply that by several hundred thousand, add in the increasing costs of energy in the future, and them’s a hell of a lot of economic development.
Thanks for the explanation, Tim. Now I am completely confused.
Be happy Tim, there are some exciting developments occurring in the region – a new convention centre, a massive lower Churchill Falls hydro power project that will supply clean energy to the Maritimes, the huge King’s Wharf development with no government funding required, a potential massive shipbuilding contract coming to Halifax, a possible stadium, etc., etc.
Maybe for a change, ex-Nova Scotians will start returning to the province instead of moving to Ontario and Alberta.
“In accepting the award, Ramia reflected on his 37 years as an owner/operator of a Canadian furniture retail store and on his hopes for the future of the industry.
“The furniture industry continues to evolve, and as retailers, suppliers and manufacturers, we have to be open to changing the way we do business in the marketplace,” he said. “We have to recognize that we, as a group, are responsible for turning furniture into a ‘want’ instead of a ‘need’. Furniture has to be marketed as a lifestyle enhancement, rather than a household item that needs to be replaced when worn or broken. As a group, we need to be prepared to embrace changes demanded by the marketplace that will allow our industry to flourish.
“As a first step, we have to recognize that our competition does not lie within our industry – retailer pitted against retailer or manufacturer pitted against manufacturer,” he continued. “Our competitors are other industries that compete with us for a share of the consumers’ disposable income. In order to effectively compete with these other industries, the retailers, suppliers and manufacturers need to work in partnership with each other. We need to function as a team.”
See Tim, you just have to view the Convention Centre as a couch to figure out how the big boys play the game.
The mere fact that you continue to knowingly use the outdated drawing of the building plans, and therefore are purposefully misrepresenting what the project will actually look like. speaks quite plainly not only to your bias (which is one thing, everyone has a bias) but more importantly to the fact that you are obviously willing to misrepresent facts (what you show is NOT what the Nova Centre will look like, and you know that) makes one question the entire rest of your premise. You use that drawing because you know that it paints the Nova Centre in a worse light than the new drawing of what the developer plans to build.
Given that the picture you use at the top of every article about the Nova Centre is a misrepresentation of a fact, why should I not question how your bias might be colouring the facts in the rest of your article?
The picture is now a graphic, introducing the topic. I’d have to pay someone to make another one… and besides, it’s a historic artifact of the crap the developer wanted to give us, which is very relevant imo. It’s unlikely we’ll get the second drawing either, so why should I use that?
Get over it Tim. The convention centre is moving ahead and you are wrong. This will be a great investment in our city and province and will spur other investment in the area.
” …..the province paying Ramia’s 6.9 percent interest rate so as to in backhanded fashion keep the convention centre debt off the province’s official debt ledger. “
It won’t be off the provincial balance sheet. Accounting rules regard the annual payments as an obligation and the total payments for the length of the agreement will be present valued and thus appear as an obligation on the balance sheet.
When the P3 schools were built the PV of the lease obligations were not on the books, but shortly after that scheme kicked the accounting rules changed across the country and the obligations are now on the books. A debt by another name is still an obligation and must be accounted for.
Fenwick, Bo Gus, Steven: [say sensible stuff]. Tim: [twirls pencil, checks email, scrathes armpit].
Wow Tim – your work never ceases to amaze me. You slam city staff for making assumptions and then you turn around and do the same…but yet yours are right versus staff? I didn’t realize you went to Harvard Business School.
Then you say that you won’t use an update to rendering because its an example ‘of the crap the developer wanted to give us’. Well, you know the old saying Tim – a person in a glass house, shouldn’t throw stones.
Fenwick16 – Finally someone actually thinking before writing. How about you take WTCC’s numbers with the things you say Tim missed, make your own assumptions and put the table online so we can see what in heck Estabrooks and Dexter were reading to get behind this. Most of you sound like you drank some kool-aid at the last Fusion party. Tim says they aren’t his numbers, he did not make them up. And he is just a reporter, and probably barely passed grade 10 math. So, someone show us the basic numbers that the go-ahead was based on, and show where Tim is wrong. Heck, if a reporter can add up a few columns, I sure one of you smart asses can.
Let me start by saying I am a pro-development guy who could care less about the view, but I think if tax payer money is involved in a commercial venture, it shouldnt be at significant risk. That being said, I don’t know how anyone can be for or against this thing. Nothing has been made clear.
First, have the financial numbers from the old trade center been made public? Im talking numbers of delegates, all the financials, etc. Last I heard they were a “trade secret”. Maybe they were released and I didnt notice, but I have been following this thing fairly closely.
Second, couldn’t the old trade center be brought up to date for hundreds of millions of dollars? Please understand how bizarre it will seem to visitors to see a new trade center down the street from a fairly new, yet “old” trade center.
Third, are there any non-governmental clients lined up to rent space in this new building? Private partners who have expressed interest in renting space? Will governmental tenants come from other buildings on the peninsula? Will there be a net gain in terms of rented square footage downtown? If not, and the tenants will come at the expense of other office buildings, would this possibly hurt tax income from surrounding buildings?
I am not an economist (probably obvious), but if there was a real business case for this project, couldn’t they just get financing from a bank? I know the economy is bad, and banks aren’t lending, but they do still lend when there is a chance to make money. Thats what they do. Or even another developer who might shoulder some of the risk, and invest some money? No major REIT type outfits expressing interest to me is a signal that this isnt a good idea. If there was money to be made, you’d think they’d be in on it. Those outfits do still buy these type of things. I believe a convention center in Toronto was purchased by a REIT just the other day.
I really feel like the desire to fill the vacant lot on Argyle has more to do with this plan going forward than any sound reasoning. I used to live in the Carlton building, am well familiar with the area, and would like to see a useful structure there as much as anyone, but another trade center? Down the street from a trade center? Doesn’t that just seem strange?
This could very well be a good idea, maybe it will be a smashing success, and I hope it is. But as a guy who has recently done a business plan, projections etc. and actually got some money/credit from a bank, I know I wouldnt have gotten that without more details than we are being shown. By now they should have a well developed list of clients who have at the very least expressed interest in possibly renting space. Thats what I want to see more of: nuts and bolts business plan stuff. Hell, show me a letter from a convention planner that says “We would have gone with Halifax, but you need a new convention center” That would be an excellent start.
Be Interesting:
I am unclear as to the relevance of asking if there are non-governmental clients looking to rent space, and this forming a business plan for borrowing money?
There will be no tenants leasing space in the convention centre. They would however be renting space in the office portion of this project, all of which is being built using private money. To borrow this money, the private developer will have to present a business plan to a bank, who (exactly as you described) will decide whether this project represents a viable risk. If it does, then it goes ahead. Furthermore, all portions of this project have to move forward at the same time (as per the arrangement) and therefore if a bank will not lend for the non-confence centre portion the entire thing does not happen.
The convention centre portion, which receives public money, is separate and distinct from the office/hotel portion which is 100% private and will require a private lender based upon a business case.
It is a common misconception that public money has anything to do with paying for the other parts of this project. Therefore, you questions about office leasing in fact have nothing to do with the public money.
Lastly, I myself have been directly involved in the organization of several large scientific conferences, and can tell you for a fact that in my first-hand personal experience the WTCC was deemed insufficient for hosting a conference that otherwise would have come here.
fenwick16 your argument for a stadium in HRM on Skyscraperpages has fair less validity then this new development in Downtown Halifax. I love how you sit in Toronto wishing on us in Nova Scotia a stadium that essentially would sit empty for 350 plus days a year with no private company coming forward despite a couple of appeals from the city for actual private partners. I personally support the Nova Centre as a project because at least for rural Nova Scotia`s involvement financially we had MR Joe Ramia and Scott Ferguson travel to New Glasgow , Truro, Sydney , Lunenburg and many other places looking for opinions of how this can be successful. The almighty quest for a stadium via a financial boon doogle like the Commonwealth Games or Fifa Womens 2015 did not. OF course hey fenwick 16 you love conversations that shut down any thought that deals with the reality of economics in Nova Scotia and hence why you don`t live here but continue to deal in fantasy.