Saturday, January 26, 2013

Tales From the Crypt: #yegarena

Well holy crap-balls it's back. The #yegarena has arisen from the dead and as any dark lord will tell you, the deals gotta get worse all the time. You keep coming back with worse and worse deals, beating the population into submission after you get them hooked on what they love, and you provide.

What the hell is wrong with this city? We get a bad deal, we agree on a worse framework with a guy who tries to pull a fast one on us then goes and dicks around in Seattle to try and instill a little fear in us that the Oilers might leave otherwise. We're told, it's either this or we renovate Rexall and who wants to pay for that? Well, apparently Northlands does, because they're now doing it anyway and are going to compete with the new arena. Now this guy is back with an even worse deal and we're all like "oh wow, that's a great deal! thanks Mr. Katz!", WTF?!

From the Edmonton Journal:
What’s it going to cost?

All in, $601 million. That breaks down as:
- Arena construction, $480 million
- Winter Garden pedestrian bridge across 104th Avenue, $53 million
- Arena land, $25 million
- Community rink attached to arena, $21 million
- Pedestrian corridor through the arena, $15 million
- Link to MacEwan LRT station, $7 million

Who’s going to pay for it?

It seems like everybody, one way or another.

- The city: $219 million ($140 million for the arena, $25 million for the Winter Garden, $25 million for the land, $15 million for the pedestrian corridor, $7 million for the LRT and $7 million for the community rink).
- Katz Group: $143 million ($115 million for the arena, $28 million for Winter Garden).
- Ticket buyers, through a surcharge: $125 million.
- The province: $107 million ($100 million for arena, $7 million for community rink).
- The feds: $7 million for rink.

Is all that funding guaranteed?

Don’t go throwing around the G word just yet. Mayor Stephen Mandel is certain the province will provide a source for the $100 million, but we’ll have to watch the March 7 budget to see whether he’s right.
They said no.
While the city’s arena contribution seems secure — property taxes on future downtown development, parking fees and other sources — it must still apply for rink grants from the federal and provincial governments.
Assuming growth in Alberta remains on pace for 35years...
Who will take care of this giant oil drop?

The city owns the land and arena. Katz Group subsidiary Edmonton Arena Corp. will operate it and keep all the revenue over a 35-year lease, paying its share of the mortgage and interest as about $5.5 million in annual rent.

But rehabilitation and replacement of structural, mechanical, electrical and other systems, the so-called capital maintenance, will be handled by the city using $1.5 million collected annually from the ticket tax.

If that’s not enough money, they can boost the surcharge in 15 years.
Again, assuming people in 15 years are just going to have the spare change lying around. Economies around the world are collapsing, revolutions everywhere, the U.S. has suspended it's "debt ceiling" with downgrades imminent and here we are talking about ticket surcharges in 15 years in case their isn't enough money for maintenance which is only going to become increasingly expensive while we contend with diminishing returns? Brilliant. I guess we better hope interest rates remain low so the consumer and government borrowing sprees can continue, eh?
And the property taxes?

The arena corporation, the Oilers and their related companies will pay the city a maximum $250,000 annually for business done during events, in addition to provincial education taxes.

That’s a fixed amount, not based on assessment. City chief financial officer Lorna Rosen says it’s reasonable considering the $60,000 in property taxes now paid at Rexall Place.

Setting the value of such special facilities is difficult and without this arrangement the city could have lost future assessment appeals, she says.

The Calgary Flames don’t pay any property tax.

All the restaurants, bars and shops in the arena that aren’t owned by Katz will pay their own taxes, but whatever they pay over $250,000 for event business will cut the Katz tax bill by the same amount until it reaches zero.

How much is the ticket tax?

Likely seven per cent, the same as most tickets at Rexall Place.

If the surcharge churns out more cash than needed for mortgage payments and the maintenance fund, the surplus goes to Katz, on the theory that he would have received all this money from ticket prices if the tax didn’t exist.

What’s to stop Katz from demanding a sweeter deal in a few years?

Company executive vice-president John Karvellas says they have no intention of coming back to the table once everything is set in place and his boss made “significant compromises” to reach an agreement.

More to the point, NHL commissioner Gary Bettman has indicated the league will support the 35-year location agreement that’s part of the proposed contract.
Seriously Edmonton, did you not see RedTV the other day? Have you not been observing as Alberta's number one trading partner's leaders gobble around like chickens with their heads cut off? I know we don't bring in royalties as a city, but come on, we're going to be hurting as a result of the effects. Do you know what happens when a larger government runs massive deficits? They offload their costs to the smaller governments, the cities.

I'm telling you Edmonton, in the near future we are going to need the capital that's being put into this for much more important purchases. I'm not even going to go into my standard arguments against this deal or the arena, readers of this blog have heard them all before. In the current economic climate this commitment is much too long and much too risky. There is no possible way they can have a reliable economic forecast on this project 2 years out, let alone 15, or 35; they might claim to but how many governments are getting their economic forecasts right these days?

I'm not opposed to spending, but if we're going to go into debt doing something lets make that something worth everyone's while. The people of Edmonton should not have to shoulder the entire risk so that a private entity can reap all of the rewards. Edmonton, this isn't 2003, it's 2013; the world is an economic basket case and the fiscal storm is starting to hit Canadian shores. There has got to be a million things that $600M could go towards helping the population weather the storm, rather than providing a new entertainment centre and distract from it.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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