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Whig Standard Feb 20 2007
Tax hike a likely result
Nixing construction would prove costly
Ian Elliot
Local News - Tuesday, February 20, 2007 Updated @ 11:24:27 PM
By Ian Elliot
Whig-Standard Staff Writer
Cancelling the downtown arena could drive city property taxes through the roof
or cause city services to be slashed to pay for the penalties and legal bills
incurred.
A report from city staff in December estimated the cost of walking away from the
project at that time would be as much as $13.4 million.
A one-per-cent increase in city taxes raises about $1 million, and the city
would be on the hook for all the penalties, fees and unrealized profit on the
part of the companies doing the work.
The city would either have to take from its reserves, raise taxes or cut
spending to pay those penalties.
“It should be noted that with the cancellation of the project, all costs to be
covered by the city would have to be funded by reserve funds or by tax levy as
there would be no donations, grants or projected revenues from operations to
finance the expenditures,” the report stated.
City finance officials said since no reserve exists that is earmarked for
cancelled projects, council would have to decide whether to tap into one of its
four pre-existing funds – capital, repair and replacement, other, or the
municipal utility reserve fund.
City budget documents indicate there was approximately $75 million in those
funds at the end of 2006.
Experts in the field say the $13.4-million cancellation cost seems low, given
that many of the settlements would have to be litigated or negotiated, and the
penalties and legal bills could run as much as double that when everything is
tallied.
Without a new arena, the city would also lose the Kingston Frontenacs and the
economic spinoffs from the team.
It might also face a lawsuit from the team itself. The city and the Frontenacs
have signed a 20-year lease with options for a further 20 years, and the team
gets a share of game-day revenues, ticket sales and advertising revenue over
that period. The deal is dependent on a new facility.
Doug Springer, one of the owners of the Kingston Frontenacs, also went on the
record yesterday as saying if the arena is killed, the Ontario Hockey League
team is as good as gone.
Denis Chamberland, a Toronto lawyer who is a municipal procurement expert and
who regularly advises public bodies on contract law and risk mitigation, said
what Kingston is considering is known as “terminating for convenience” and is an
extremely rare occurence.
“Projects don’t get terminated for convenience just because politicians think it
would be nice to do a project differently or not to do it at all,” he said.
He says it is not uncommon for candidates to run for office in opposition to
high-profile projects and even get elected on that stance, but once contracts
are signed, they cannot be torn up without substantial financial penalty.
“It’s one thing to run with that as a platform, but, after the fact, people need
to come to their senses and start thinking about the lawsuits that will follow.”
Mayor Harvey Rosen, who has called the motion “Disney-esque,” is a solicitor and
he warned of the jeopardy posed to the city by reneging on a signed contract.
“The danger involved is that by cancelling the contract, you are admitting
liability, and it is established that in such a case, you’re responsible for the
opposing side’s legal costs in addition to your own,” he said.
Rosen also noted city taxpayers would face an outlay of tens of millions of
dollars and would get nothing for that money.
Rosen also feared that by cancelling the contract, the city would be sending a
clear message that Kingston is not a place where companies should be doing
business.
Some councillors have said the city could offset some of the costs of cancelling
the contract by selling the steel and other building materials it has already
ordered to another buyer.
Rosen was one of the lawyers involved in the liquidation of Royal Trust, and one
of its assets was steel for an unfinished Toronto skyscraper.
“That prefab steel sold for just pennies,” he said.
Pat Quinn, an engineer who is president of the Professional Engineers of
Ontario, also scoffed at the idea that the city would make any significant money
trying to sell the tonnes of structural steel.
While nothing prohibits steel being reused for another job – and some
conservation-minded builders do use it – it would have to be matched to a
project that uses exact the same grade and thickness of steel. Because of the
costs of cutting, redrilling and shaping it to fit the new job, the city would
be lucky to get half of what it is worth.
“If it’s already been drilled and cut for your arena, the only thing you would
be able to use it for as it is is another arena of the exact same size and shape
that someone happens to be building two blocks away, and the chances of that
being the case are pretty remote,” he said.
Chamberland noted that companies involved in the project, and organizations such
as the Frontenacs who have signed contracts dependent on the new arena, are
entitled to sue for the profit they expected to realize but didn’t as a result
of the city’s decision.
Although he has been involved in cases where municipal politicians threatened to
renege on signed contracts for political reasons, he said it was not
commonplace, and seemed taken aback at the particulars of Kingston’s case.
“They’re ready to incur $14 million in penalties to get out of a project that is
$4 million over budget?” he asked.
“That’s amazing.”