Council Ignores Six Lansdowne Red Flags: BENN

Red flags. What should you do when you see one? What about two, or three, or six?

Perhaps, as city council continues to consider the never-ending saga of Lansdowne, councillors should contemplate how many red flags have been waved in front of them. Perhaps councillors should stop and consider what these multiple red flags are encouraging them to do.

Red flag No. 1: Ottawa Sports and Entertainment Group, the developers who sought and received a sole-source contract to redevelop and operate the then-moribund-due-to-willful-neglect Lansdowne Park were seriously over budget. That in part due to their poor due-diligence on the supporting beams that are integral to the north stands and underlying arena and event centre. The same set of developers who are seeking a sole-source contract to tear down the north stands. Hmm. Is it within the realm of the possible that they will be over-budget again?

Red flag No. 2: The city’s auditor general has advised council that staff’s projected capital costs of about $420 million are optimistic. Optimistic being the term used by professional accountants to describe fanciful, dreaming in Technicolor or similar metaphors. That council should be thinking more in the neighbourhood of about $500 million, before taking into account the risk of much higher costs due to the extended construction period. Is it possible that Lansdowne 2.0 will go over-budget and that the city will have to cover the shortfall?

Red flag No. 3: Mayor Mark Sutcliffe recently advised everyone who was listening that it is common for major capital projects to go over-budget. Those include large capital projects such as the LRT, the new not-so-central library and dare I say Lansdowne 1.0. Is it possible that Lansdowne 2.0 will also go over budget?

Red flag No. 4: Ernst & Young, an independent consultant engaged by the city to review staff’s financial projections regarding Lansdowne 2.0, advised council that the projections were optimistic. See above for what that means.

Red flag No. 5: Lansdowne 1.0 has generated 10 consecutive years of losses. Ten consecutive years of not meeting the optimistic (see above) operating projections that a previous council bought into. Ten consecutive years that included a couple of Grey Cup appearances by the Redblacks, the premier draw to Lansdowne. Yet OSEG, the owners of the Redblacks and operators of Lansdowne, are promising better operating results once the Redblacks return to winning ways. Hmm. Is it possible that Lansdowne 2.0, after spending two-plus-times as much as the city spent on Lansdowne 1.0, will generate profits that will make their way into the city’s operating budgets?

Red flag No. 6: OSEG refused to answer a direct question from Capital Councillor Shawn Menard about whether the tenants in the 100-per-cent occupancy retail space received below market rental rates. A direct question from someone who is tasked with overseeing the recommendations and decisions made by staff. Refused. If the answer was no, that the retail tenants were paying market rates, why would OSEG refuse to answer? Hmm. Is it possible that retail tenants are paying below market rental rates, perhaps in the form of inducements and extended rent-free or reduced-rent periods? Is it possible that the below-market rates of today might be contrary to the underlying assumptions regarding the projected future operating results of Lansdowne 2.0?

There are at least three flags telling staff and councillors they can expect the Lansdowne 2.0 capital cost to be much higher than initial estimates. There are at least three red flags telling staff and councillors that the projected operating results are overly optimistic. Put the six red flags together and staff and councillors should be very worried that the expected cash from operations that is designated to service the debt will be insufficient to cover what is likely to be much higher debt load.

During the due-diligence phase of any project, the presence of one red flag tells the professionals there might be serious problems, and to proceed with caution. When at least six red flags are waving, serious consideration needs to be given to declaring the project unfeasible.

At Ottawa City Hall, it appears that a red flag means close your eyes tight and press firmly on the accelerator. Slowing down, let alone stopping is not an option. Their reaction to six red flags? Sigh.

Ron Benn, a finance executive, has been a member of the Centrepointe Community Association for the better part of three decades.

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