Draft East End Arena Audit Leaked (Part 2)

"Shortfall at WFCU Centre -again

When Windsor councillors sit down next month to set this year’s budget, they’ll likely have to dip into city reserve funds for the third straight year to cover a revenue shortfall at the WFCU Centre…

"I have some explaining to do, yeah," said Jan Wilson, Windsor’s executive director of leisure and recreation services…

Because of last year’s poor performance, city council was forced to withdraw more than $676,000 from a municipal reserve fund to help balance the recreation department’s 2010 budget. The reserve draw for the same purpose the previous year was $811,000." (Doug Schmidt, The Windsor StarFebruary 22, 2011)

I am certain that you understand now why the MRO  airport building meeting today will  be  held  in camera.  Another $20M or so of taxpayer money has to be  found for the huge cost of the airport hangar!  Is this another Edgar (aka Eddie) white elephant in the making like the East End Arena?

The game  respecting the timing of the  arena  deal is the  same  as with the  400 Building  audit.  Delay  that audit because if it  had come out  in time there  was  no way that  citizens would  have allowed the  City to do the  arena deal  on  its  own!  The  400 Building  audit was a disaster!

The fear has to be that  Ms Berry’s arena  audit will cause the  same  kind of  outrage!  So delay  it and then  get rid of the  staff  by outsourcing  audits to  tame  external auditing firms.

Delay  the  arena  audit because it  demonstrates that  the business  case for a  taxpayer  paid  arena was  not there!  If it was disclosed now who  would  let the  City  move forward  on an MRO  facility  without a  strong business case that  has  never been  disclosed  publicly.

All  we  have  heard  is the  head of Premier Aviation saying:

  • "The hangar will be big enough to accommodate a Boeing 747, and Di Bartolo said he’s already had expressions of interest from U.S. airlines to do MRO work on their wide-body airplanes.
  • "We’ll be capable of receiving a wide-body should the need arise," Di Bartolo said. "We’ll play it by ear." (Francois Shalom, The Gazette January 15, 2011)

Do you remember reading that  in the Messenger when this  deal  was being  promoted? I sure  do not!

Councillor  Marra will have to help kill the MRO deal today or send it back for a  major business case review by showing  his  "leadership" given his remarks  on  the  arena:

""We’re going to need a very serious discussion on this. This is not a good way to operate any kind of business," said Coun. Bill Marra.

Or will he and the other  Councillors fold again if the Mayor scolds them!

Here  is where I  help out the  City’s Audit  group to make their  investigation  so  much  simpler.

You see, dear reader, I really would  like their  report  on the East End arena made  public before  Council outsources the Audit  function to a  tame  outside accounting firm.  Otherwise, we  may  never see anything.

If  you thought the  400 building and the  Dunbar  Audits  were a fiasco,  you  ain’t seen nothing  yet! 

Here are some  questions and answers to  make their task go  quickly

1. How and why did a public-private partnership concept to build an arena downtown at a maximum City cost of $15m and no other risk wind up in the East End with a City-run project at 100% with all risk on taxpayers

That is one of the big mysteries of the arena file considering that this was one of the Mayor’s campaign promises:

“We need to revive the idea of public/private partnership for a new arena. It is the only realistic strategy available that will ensure that this project will become a reality.

The case for a new arena has been made over the past several years by numerous groups. We need to move forward, recognizing what other municipalities already know. London, Mississauga, and Sarnia all have new structures that have become successful entities and address community needs. Their example is worth noting: a multipurpose facility cannot be built by public nor the private sector interests acting alone. The synergy created by the private/public partnerships gives better service to the taxpayer, and allows a much needed multipurpose facility to be built in our City.

The partnership protects the asset to make sure that it continues to serve the community for the long term by attracting trade shows and conventions and by fostering new economic activity. It provides diversified management experience and substantially reduced taxpayer cost, and encourages a broader spectrum of usage.

A public/private partnership is the key to our arena’s ongoing success and viability. Council has already allocated the required money and land for this project – we need to aggressively seek a partner.”

The only explanation given by Edgar (aka Eddie) was the following in a Windsor Star Interview before the last election. As I wrote:

“Consider this shocking revelation from the mouth of Edgar when interviewed on the Star website about why the arena was moved to the East End. Note the time-frame especially and ask yourself the question why citizens did not know this at the same time as well. Ask yourself why proponents for the arena bothered if this decision was already made and was known publicly.

Consider all of the debate and effort spent over a two-year period when Edgar had already made plans for new East End arena

WINDSOR STAR INTERVIEW

“Mayor Eddie Francis:

Mike, here’s the reason the arena got moved to the east end,

early in 2004 we were part of discussions witn the OLG and the province of Ontario and Windsor Casino Limited as it related to their plans for expansion. In 2004, their plans did not contemplate a 100,000 sq. ft. facility and did not contemplate the Colleseum as it is today as an entertainment centre.

Through our discussion with the parties we had indicated to them that if they built a proper convention centre, we would get out of the convention business and we did by transffering the Cleary to the college, which in turn brought 1,000 students downtown,

Furthermore, we understood that if the casino was going to build a 5,000 seat entertainment complex with big name acts, that city building an arena downtown would’ve been killed and 99.9 per cent of the residents would have chased us out of town for building another white elephant. So as not to repeat the mistakes of the past we came up with a plan that allowed us to mover forward with an arena on the east side, which was made financially viable by consolidating Adstoll Arena, Riverside Arena and the Edward St. Community center into the WFCU Center. Had we not done that, we would’ve spent another 30 years talking about the arena and most of the people typing in today would be saying don’t vote for the mayor because he can’t get an arena built.

Note the key points:
 Why wasn’t the public let in on this
 The decision was made almost immediately after Edgar was elected as Mayor, in early 2004
 It completely contradicted his election platform of building a downtown arena in partnership with a private group.
 Note an arena “cannot be built by public nor the private sector interests acting alone” but we did it alone in the East End
 Building an arena downtown made no economic sense so instead we have the “white elephant” in the East End now
 A plan was made to move the arena to the east end.

Great, so we  have a white elephant  now  in the  East  End and  one  possibly  in the  making at the airport.

2. Beztak rejection—was it fair how they were attacked in such depth but not anyone else

Of course not but so what. They needed to be run out of town. Interestingly, the Raceway deal was used as the alternative to them.

3. Was this all a done deal and worked out in advance

There would appear to have been the plan back in 2004 to go to the East End and to sell off the other local arenas. Presumably, that would generate money for the East End arena since the other arenas no longer existed.

4. Was the process all a phony but designed to select a favoured company regardless of cost

No definitve answer can be given but it is hard to suggest that what the City went through for several years made sense if the Mayor had already decided that an East End arena was necessary. As an example:

“The heated debate over where a new arena should be located, and what it should be — a basic hockey venue with enough seating for Windsor Spitfires fans or a "multi-use" project with numerous ice pads, restaurants and other amenities — comes days after city council decided to revisit an issue it has failed to resolve for decades.

"Right now, you have everybody coming out of the woodwork saying this is what we can do for you," said Mayor Eddie Francis. Since a Monday Windsor Star article announced council plans to revisit the issue, he said he’s heard of three or four new proposals.

Council will address what it needs and what steps it should take starting at a strategic planning session April 23.

"Everybody’s out there now with a proposal, everybody now has an idea," Francis said. "I want to be very clear about something: We are not going to be reacting, we are not going to rush to anything before city council decides what those steps are and what it needs." (Brian Cross. The Windsor Star. Apr 14, 2005)

5. Was Project Ice Track (PIT) treated the pits

Yes. As I wrote before

“However, there is one common statement in both Choices:

“Administration be authorized to enter into negotiations for the acquisition of the required lands in the East end of the city…”

In the end, it does not matter which Option is chosen. In the end the only thing that Administration is authorized to do is to go and try and buy some east end land. No matter what, east end land will be bought and something will be built there.

6. Were the Spitfires tied up by the City so PIT could never get them

Yes. As I wrote:

“I wonder how tough the City was in negotiations. I recall that in one of the Administration Reports, it is said that, if the Project Ice Track proposal is selected, then Administration would try to bring Project Ice Track and the Spitfires together to negotiate a deal. Yet at the same time the Report also states that the City and the Spitfires have been talking about the East end arena and "through preliminary discussions with the Windsor Spitfires, a framework for a new agreement with the city has been reached."

7. Were there unreported collateral deals not in the City’s interest to get the deal

TBD

8. Was the business case justifying the arena a proper one based on reality or was it based on a dream that bore no relationship to reality especially based on the actual experience

Excuses are given why the arena is not making the kind of money it was supposed to make even though a sophisticated company, Global Spectrum, was hired.  The recession  is an excuse for everything although the  Casino  theatre seems to be doing  well during this period of time.

This could be viewed as a Municipal Megaproject running amok at taxpayer expense.

Overoptimistic projections and big expectations of profit to justify it not borne out by the reality. Now taxpayers are at risk. Imagine the profits or lack thereof if the Spitfires do not field a good team and do not win the Cup.

See today’s Star too:

Last year saw the number of non-OHL special events more than double over the 2009 figure -from 18 to 39. But the original business plan at the time Philadelphia-based Global Spectrum was hired by the city to attract and handle bookings promised 71 such events in each of its first two full years of operation…

Failing to attain the revenue goals promised in the facility’s business plan, however, means administration has to look elsewhere in the recreation department’s budget to make up the shortfall -or else council can agree to draw money out of reserves…

Trent Merritt, general manager of events at the WFCU, said he wasn’t around when the original rosier business plan projections were made. He said he’s drawn up a "realistic estimate" for 2011 that looks at 26 events being hosted this year, a third less than last year’s lineup, and with another projected deficit."

9. How could an arena to be built in Port Huron in 1999 cost so little today especially when much of the concrete forms to be used were all scrapped

This does not seem to make much sense considering costs have risen since 1999. How can a 1999 arena priced at $60M be built in 2006 after the increase in costs over that time period (eg 35% for the bus terminal, tripling for streetscaping) for $48M.

Moreover, consider this

“October 4, 2006 as justification:

"The Collavinos were hired to complete the precast concrete work in the project and say it could not possibly be done for less money since much of the preliminary work has already been done at the expense of the Port Huron developer. "

Some of the components of the project are already available," Duben said. "This is a case where you can single source." (Roseann Danese. The Windsor Star Oct 4, 2006)

Yet, here is what also happened:

“Though they couldn’t salvage the existing pre-cast which had become too weathered, they did grind it down and reused the materials.” (Daily Commercial News Ian Harvey November 21, 2008)

10. Was the City “extraed” to death

TBD

11. Where was PCR for all of the years of the arena debate and how did they just appear all of a sudden and after one or two letters become the contractor of choice

Here is the explanation given:

“The Collavinos are smart people. Why did they wait until September, 2006 to dust off their plans.

"It’s no secret Windsor has been looking for an arena for a long time," Renzo said Thursday.

"I’ve had this idea for a while — I never had a reason to bring it out until the council resolution…

"They are confident such a project could not be done for less money because much of the pre-construction work has been taken from an arena project in Port Huron that was never finished. That development stopped midway through construction when the bank pulled the plug on the private developer who had hired the Collavino firm Renaissance Precast Industries to provide precast concrete forms." (Windsor Star September 22, 2006)

Why didn’t they act in 2002, when they knew Mostafa Afr’s Port Huron arena project was dead

12. Why were the other possible proponents just noted and filed

They just were. No reasonable answer provided.

13. Was the Purchasing by-law circumvented thereby allowing another MFP-type deal (If so, what happened to all of the protections we thought that the PWC report was to give us)

It appear as if there is no protection at all if a sole source project is permitted. In other words, MFP can happen again.

How did we get the sole source provision in the Purchasing By-law? It happened under Edgar’s watch:

"In fact, if there is a sole-source problem in Windsor, then he is directly responsible for it!

BY-LAW NUMBER 9-2000 passed in January, 2000 had no provision in it dealing with sole sourcing. When Edgar became Mayor, PURCHASING BY-LAW NUMBER 400-2004 was passed on December 13, 2004. It added a new section that is relevant for our purposes:

  • SOLE SOURCE PURCHASE

    32. (1) A Sole Source purchase may be used for the purchasing of goods and/or services for Contracts of any Contract value, in the following circumstances:

    (i) Where a public/private partnership exists.

In passing, remember MFP. It was a P3 that the City entered into and we hired Price Waterhouse Ccoopers to design protections to ensure that an event such as that could never happen again. Section 32 (i) was the perfect end-run around the work done by PWC!"

14. Was there validity for the sole source justification

We know the following:

“The city’s audit committee will examine a pattern of sole-sourcing major projects when it looks at the construction of the $71-million WFCU Centre.

Angela Berry, the city’s lead internal auditor, said there is concern that the city is too often steering around its purchasing bylaw by failing to put projects out to competitive bids. “ (Dave Battagello. The Windsor Star. Dec 26, 2009)

I prepared very extensive BLOGs on the subject and my conclusion was that there was no basis for sole sourcing.

No one has come forward with a justification for sole sourcing yet that I have seen.

15. Why was it not mentioned that the City had its own arena plans which it purchased and why weren’t they used

A good question that has never been answered.

The City paid millions for arena plans yet never used them when deciding to build another arena. The PCR plans were NOT the only ones around:

“The city also received a letter last week from the Toronto architectural group NORR, the company that designed and developed plans for the Western Super Anchor site downtown when city council decided it would proceed with an arena on its own.

The city spent about $3 million for those drawings, which were subsequently shelved after council voted against a go-it-alone project because the price tag came in at $48 million.

"They’re just saying we’re still here if you’re interested," Francis said Tuesday of NORR’s letter.” (Roseann Danese. The Windsor Star Oct 4, 2006)

16. Was the Spitfires lease deal a good one for the City considering the huge sums to which the Spitfires are entitled over the term of the agreement

The Councillors had no clue:

“City council approved the agreement with the Spits in the fall of 2006, but councillors themselves were not shown copies of the deal. Council endorsed it based on an administration report that was then taken away following in-camera discussions.

"I couldn’t tell you what’s in there," said Ward 5 Coun. Percy Hatfield, one of several councillors who will be seeing details of the multimillion-dollar deal for the first time this week.

"I look forward to seeing it," said Ward 1 Coun. Drew Dilkens. "We had a discussion (on the arena deal) many moons ago … but I don’t recall that discussion." (The Windsor Star April 29, 2008)

I wrote the following BLOG looking extensively at the Arena deal “May 05, 2008 Kids And Seniors Subsidize Millionaire Spits’ Owners In Arena Deal” http://windsorcityon.blogspot.com/2008/05/kids-and-seniors-subsidize-millionaire.html

I made this remark after making 22 comments on the Agreement:

“Let’s go through the Agreement so that you will see what I mean. What is important to note is that many of the fees and revenues are paid to the Spits on the basis of the Entire Facility and not just the Spits’ arena. That means that the City does not get those revenues but that they are given to the Team…

The Spitfires did very well on this transaction as I am sure that you will agree. Effectively, they pay very little to rent to play hockey in the newest arena in the League. I must admit that I don’t see a benefit for taxpayers but I do see us taking all of the financial risks on the Arena.”

The wFcUnaming rights agreement was not too hot either in my opinion. As I wrote:

1. “City receives $1.62 million over 10 years, payable $40,000 quarterly per year. (If one does a present value calculation that works out to about $1 million)
2. Marty gets the right of first bid to renew the deal for two periods of 10 years each (If that is the right of first refusal, it means that no one will ever bid seriously for the naming rights in the future because Marty can always match or beat their deal)
3. It is not the naming rights just for the building but for a whole bunch of extra places as well (That means that City can’t sell those rights to others to earn extra money. One may wonder why Marty was put on committee for other namng rights. Has City Hall just created a possible conflicts issue for Marty that could result in embarrassing him since he is both a naming rights proponent and a naming rights decision-maker?)
4. Use of a private suite and not just for hockey (The Spitfire’s VIP suite at the Barn goes for $2000 per game. I do not know what an East End Arena suite goes for. If there are 34 to 40 nights of hockey per year plus who knows how many other events that take place, it means Marty doesn’t have to pay a lot of money to get a whole bunch of tickets for the games or other events and the Arena loses money.)
5. Only WFCU ATM machines can be used (Well, the City makes some money from that but we don’t know how much or whether others would have paid for the rights)
6. Marty get some kind of a WFCU kiosk in the building, although not quite sure what that means (But, there is no charge for that)”

17  What was the total cost of the project and was it "on budget" based on original costs

TBD. It started at $48M. Again as I wrote:

"Did you like the "trust us" answer respecting the site selection and what it would cost. The Administration who could not price the bus terminal properly as an example are telling us that they can figure out what the land will cost! I am sure that the big developers in the east end are asleep not knowing about the arena. When someone comes knocking on their door asking to buy 70 acres of land they will scratch their heads and wonder who the buyer is. We know the real reason for not disclosing price don’t we. Clearly someone was smart enough to figure out that yesterday’s Star headline would have read $70M arena rather than $48M. Do you think taxpayers would be as happy today seeing that price?"

18  Were any“overage” costs buried in Departmental budgets and if so, which ones

TBD

19 Should the developer where the arena land was purchased have paid some of the costs normally as development that the City has paid

TBD

20 Why was his land picked and not others that cost less in the area

Apparently, there may have been a site selection fiasco. There was an ‘in camera’ report collected back by the Clerk immediately following the meeting as is the custom. There supposedly was an Administrative matrix report that pointed out the properties available. That report should be released so we will know how well the chosen land compared with other properties

21 Did the City do proper due diligence before doing the deal with Mr. Farhi

See above. Will the City get stuck for environmental clean-up costs after buying the Wickes property if contaminants migrated?

"The city’s department of public works is submitting a request for $800,000 from the upcoming capital budget to pay to decommission the site and have the factory, southeast of the WFCU Centre, demolished.

Sonego said the city is "in the process of emptying the building" of the nine tenants which occupied space within the large complex.

With concerns over how many industrial contaminants still lurk below the surface, an earlier estimate prepared for the city pegged the reclamation cost at up to $6.3 million…

Sonego told The Star last fall there was "a fair level of contamination" with the possibility of leakage into the adjacent Little River and Hawkins Drain." (Doug Schmidt, The Windsor Star Wednesday, April 14, 2010)

22 Did we get value for money ie what was left out to be paid for after the next election eg parking

Parking is still an issue and who knows what the land would cost in the area if land was to be purchased now for parking. After all, Edgar told us about those "shrewd investors" buying up property around our new downtown.

23 Did we get comparable arenas at the East end site with the smaller City arenas that are supposed to be closed (eg less seating)

As I wrote:

“Ex-hockey dad, mayoral candidate Dave Wonham first pointed out the lack of seating at the three "Practice rinks" so tournaments could not be held. Now we will have "bench seating" for 150 at each rink. That is a far cry from the number of seats at Riverside (700 seats) and Adstoll (900 seats). You just know that additions will blow up the cost higher.”

24 Why was a sound system not included originally in the package but added subsequently

One guess: not to anger the Casino upfront as a competitor. Also, it would have added a significant cost to the project. As I wrote before:

“Another interesting litttle quirk and perhaps if Gord Henderson is right, the reason why the Casino is not objecting. In the first letter sent by PCR, the project had a viewing capacity for 7,000 for hockey viewing and 8,000 for concerts. In the PCR proposal the seating capacity is said to be about 6,500. There is NO provision for a sophisticated sound system that would be needed for entertainment and concerts.”

25 Was the land exchange PLUS paying for the cleanup PLUS the 3 year tax holiday a good one for the City

TBD. However, one wonders what due diligence was done by the City considering this comment by Councillor Gignac:

“Land registry documents obtained by The Star also show council agreed to pay Shmuel Fahri $4 million for 40 acres where the new arena is to be located — less than one-third of the overall Lear plant lands Fahri paid $8 million to acquire just over a year earlier in July 4, 2005.

He has retained ownership of the plant and surrounding property.

Coun. Joanne Gignac, a member of the arena steering committee, said she had no idea what Fahri originally paid for the land.

"The ($4 million) was a price council thought was reasonable," she said.

"We then included the property on Riverside Drive. Rather than pay (more) cash, we had the land deal with Mr. Fahri. He was interested in that." (Dave Battagello. The Windsor Star. Aug 14, 2007)

26 Why was everything rush, rush, rush to get everything done before the Council term ended eg no definitive plans and yet the deal was signed at the last Council meeting and is this a proper way to do municipal business

If everything was tied up in a nice package BEFORE the election, then the costs of unwinding after would have made it virtually impossible for the new Council to do so.

27 Are legitimate arena costs now charged to General Revenues since the project is finished eg interest costs on borrowings and if so, how much

TBD. At least we know that some interest costs were buried.

That should keep Ms Berry busy for a bit but also  save  her a  lot of time.  Perhaps we can  see  her report by mid-March now.

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