I’m starting to get the sense that the debate about the new arena is going to remind me of one of the great moments in Olympic short track speed skating.
Somebody’s going to win but it’s probably going to have nothing to do with the merits of their performance.
Edmonton city councillor Don Iveson has posted his reaction to yesterday’s long awaited unveiling of the plans for Katzopolis. Iveson opposes the plan although his reasoning is…curious.
He starts out by listing the reasons that aren’t why he’s opposing the new arena.
I am not saying no because the request was announced to a room full of people other than City Councilors wl (at a building owners and managers industry luncheon).
Y’know, I get the sense that this bothers him a little bit, even if it’s not the basis for his opposition. I actually thought that this was sort of weird myself - if I’m asking people for money when there are going to be pressures on those people not to give me the money, I want to work hand in hand with them. The mayor, who has been a big supporter of the Oilers and the new arena scheme, was obviously surprised by the announcement yesterday. Even if they had Iveson (correctly, as you’ll see) pegged as an arena opponent, it seems sort of weird to expose the mayor to questions about this without first letting him know the details of the thing. It struck me as weird but this is the organization that paid Nikolai Khabibulin, so this is just sort of par for the course. Maybe Tambo and Lowe developed the arena strategy as well.
I am not saying no because our municipal borrowing power is limited by law, nor because what’s left within our ‘credit limit’ will be needed for the most part to fund our portion of the next phases of LRT, should the province in turn come forward to fund the NAIT, West and Millwoods LRT lines.
This actually seems like an excellent reason to say no. “Governments have limited resources and I am of the view that there are other areas in which we can get a better return on our investment.” That’s WHY you should say no to certain capital spending projects!
I am not saying no because the Coliseum (as I knew it growing up) has a generation of functional life left in it as far as I can tell…
Another excellent reason to say no.
…nor am I saying no because Northlands needs a better seat for any new scheme than the spot in the nose-bleeds they currently occupy.
This seems a little weird. Who cares whether Northlands has any involvement in the project? I don’t entirely understand why this is or would be a dealbreaker. He had the right reasons above
Iveson goes on to explain why he IS saying no:
…it’s not our City’s place to give private industry access to government borrowing power. We are fourtunate [mc79: This is the Canadian spelling of “fortunate”, I guess] enough as municipalities in Alberta to borrow through something called Alberta Capital Finance, which – thanks to the fiscal discipline of both local governments and the province – enjoys among the best credit ratings you’ll find (and thus lowest interest rates) anywhere. The public sector has earned this. The private sector has not.
This argument smells to me. The line about the public sector having earned the best credit ratings thanks to fiscal discpline while the private sector has not…that just seems bogus. This point was made to me by a friend, but one difference between the public sector and private sector is that the public sector can steal money more money from the “customers” if it needs to in order to pay the bills; the private sector can’t.
The bit about it not being the City’s place to give private industry access to government borrowing power seems lame to me though. If this deal was going to rain benefits on the City of Edmonton that grossly exceeded the costs of doing the deal and there were no better ways to make use of the money, why wouldn’t the City want to do it?
Moreover, what does it matter that private industry is involved? The City contributed to the cost of the new Art Gallery, presumably because they thought that the investment of tax dollars in it generated benefits for Edmontonians that exceeded the costs of the investment and that they couldn’t get more of those benefits by spending the money differently. Why is there a different test involved if private industry is involved? Benefits to the City of Edmonton are benefits to the City of Edmonton.
The second reason I am saying no is that I knocked on thousands of doors jn 2007 and this issue was raised by at least a thousand people. Only one told me the city should help finance a new arena. So I have my marching orders.
And this is just lame. If this is how he makes decisions, the voters of his ward could save whatever they’re paying him and spending on the costs of his office and just use polldaddy.com or something. I’m a Burkean on the whole direct democracy thing. I’ve met Iveson and he’s not a dumb guy. He recognizes a variety of good arguments against the arena in his post, even if he chooses to base his opposition to the arena on spurious grounds. People like me (and his constituents) don’t have the time to perform the sort of analysis that needs to be done of proposals like this. Many of us lack the necessary education and resources to do so. If Iveson thinks it’s a good idea and a good use of tax dollars, he should convey that to his constituents. Otherwise, what’s the point?
mc, I think you’re taking Don too much at his word in this piece. To me, it reads that he’s clearly against the arena for every reason he mentioned (yes, even the ones he’s saying aren’t the reason), but he’s just using a rhetorical device in his writing style to make the point.
The two reasons he gives would be the proverbial straws, the icing on the cake he dismisses in the first half of his argument.
I thought about that but figured that if he meant it the other, it’s unbelievably petty to hvae the first reason you’re not saying no to be that the Oilers didn’t come and kiss your ring. He’s friends with some friends of mine and seemed like a decent guy when I met him; I’d hope that that isn’t seriously one of the reasons.
If you’re right though (and you may be), whoever ghosts his blog is a lousy writer. I would have organized this entirely differently and had the stupid stuff as reasons why I’m not saying no. The credit limit and the functionality of RX1 are the only really relevant considerations I see there. The logic is goofy regardless of the rhetorical device.
I would have organized this entirely differently and had the stupid stuff as reasons why I’m not saying no.
Hell I might have even refuted those arguments so as to move the discussion forward.
Well Tyler, you’ve been fingered by the blog in question, so I expect that you’ll soon feel the full wrath of his supporters…
Seriously though, as a government institution, doesn’t the City of Edmonton as a corporation have access to better/different interest rates than do private corporations? I can’t say I have a great deal of expereince in Finanace, but my understanding of how governments can make certain purchases at a better rate than private groups is because of their nature as permanent institutions. They cannot go bankrupt. As a result of this structural power, can access better interest rates because the lenders have more certainty that they will get their money back than if they were to lend to Rexall Sports Entertainmnet.
Also, I don’t get the impression that this is an ego issue, as you describe it. But it doesn’t seem very humble on Katz’s part to go announce this plan to the people who could be seen as his peers in the area who are very successful business people, celebrate the vision of it, and then take off his hat, put on his best pair of puppy-dog eyes and say “Please Mr. Mandel, pay for the big up-front portion of my vision and help me and my friends make a boat load of money.”
I’d be a much bigger fan of your critique of the post if it did more than critique his ghostwriter’s style of writing. And to be honest, I’d still like to hear such a critique, if you are willing.
As a result of this structural power, can access better interest rates because the lenders have more certainty that they will get their money back than if they were to lend to Rexall Sports Entertainmnet.
I don’t know about Canada but cities in other countries can and have defaulted on their debt. With that said, I agree with you that governments have structural advantages over private enterprise that makes them more creditworthy, all things being equal. What I find sort of odd is that Don put it in the following terms: “The public sector has earned this. The private sector has not.” I doubt it has anything to do with having “earned” things - it’s a structural issue, like you say.
Also, I don’t get the impression that this is an ego issue, as you describe it.
To be clear, I don’t necessarily think it is an ego issue, although it’s weird that he’s bringing it up if isn’t, unless he’s commenting on how he’d go about asking the city for money.
I’d be a much bigger fan of your critique of the post if it did more than critique his ghostwriter’s style of writing. And to be honest, I’d still like to hear such a critique, if you are willing.
Funny. I’d have sworn that I did just that.
Also, no one’s ghosting his blog. Don was the managing editor at the Gateway back in the day (when the managing editor was in charge of the Opinion section), and I can all but guarantee he’s writing it on his own.
For reference/those interested: http://peel.library.ualberta.ca/search/?search=raw&pageNumber=1&index=newspapers&field=body&newspapers_type_article=on&newspapers_type_ad=on&newspapers_type_picture=on&newspapers_size_small=on&newspapers_size_medium=on&newspapers_size_large=on&newspapers_size_xlarge=on&publication_GAT=on&rawQuery=%22Don+Iveson%22
Yeah, I saw that. He explained in a supplement to his post that he wrote the thing on a red-eye. Fair enough.
This actually seems like an excellent reason to say no. “Governments have limited resources and I am of the view that there are other areas in which we can get a better return on our investment.” That’s WHY you should say no to certain capital spending projects!
Agree. It’s not like the City of Edmonton is swimming in a pile of money just dying to find something to spend it on:
http://briandell.blogspot.com/2010/01/dbrs-notes-edmontons-growing-debt.html
I wish we could have an honest discussion about the proposed arena. Edmonton already has a full slate of capital projects planned. We should be thinking about whether or not we should be spending $400M on a cultural vanity project, not whether or not the City of Edmonton could finance it at a better rate than Katz (which is obvious and irrelevant).
I think Iveson is with it. After he met with Katz he apparently commented that it was not a good deal for the people of his ward. Seems to me that although he didn’t justify it outright in his blog he contemplated whether it would or would not benefit his constituents and clearly felt it would not.
The fact that his constituents don’t want it anyway just makes his life easier.
When did he meet with Katz? My understanding is that the details of what Katz was proposing weren’t really known until yesterday.
All the Councillors have met with Katz and Black at least once. It was in the papers in Edmonton earlier this year.
I’m grew up in the NE and am a Eastglen graduate but to be quite honest the Coliseum is by far the ugliest entertainment area that I have ever seen! When people want to attend an event and ask where to stay I start to laugh and caution them….the Forum (Coliseum Inn), the Sands, the Eastglen Inn, the Crest, the Transit, the Londonderry (or whatever its called)….it is absolutely embarrassing…what a city.
Seriously Edmontonians this isn’t about a sports arena its about creating an entertainment district in a part of downtown that has been in decay since the 80’s (the glory of the CN tower is long gone). This combined with our developing Arts district, LRT and hopefully some river valley development (and this coming from a ecologist..come on the valley in its current state is anything but natural!) and we’re well on our way in creating a place where our kids want to stay!
Snicker.
When did he meet with Katz? My understanding is that the details of what Katz was proposing weren’t really known until yesterday.
Can’t remember the exact date, it was in the last 3 or so months if I remember correctly.
Meh. The sound of hairs being split. Iveson knows enough to say no; good enough.
Ross makes the best point in the whole argument…it’s not about making a billionaire richer, it’s about improving the city overall. We’re hearing the same arguments now as when Pocklington threatened to move the Oil in the ’90’s - that some rich guy shouldn’t be helped by taxpayer dollars.
mc, I’ve structured a few deals in my time. “it’s not our City’s place to give private industry access to government borrowing power…” is a very smart reason for opposing this deal. As you point out, the government’s coercive power to tax must be used wisely. To use that coercive power, that all-important government backstop, to enrich a private citizen is the essence of cronyism.
The fact that government resources could be better spent elsewhere is one thing, but debatable. To use government coercion (sleeved as a balance sheet transaction to obfuscate the economic fundamentals) is wrong and it is wrong in all cases.
I don’t think I buy that as a principle. Say that the government was offered a deal whereby it uses its borrowing power to get someone a loan for $1000. There is, with complete certainty, going to be $1,000,000 in benefits for the City from that. Unless you believe all government spending is wrong (and I don’t think Iveson does), why should the city not do that?
@MC,
I know this is entirely off topic, but I thought I should follow up on that chat we had over at c&b a couple weeks back re: the national being a kick ass band. As per pitchfork, they’ll be playing Massey Hall June 8th and 9th. I don’t have your email so this seemed like the easiest way to let you know. I think I’m going to try and get tickets if they haven’t already sold out. A band with that much sound at Massey could easily be one of the best shows of the year…
Accepting contingent liabilities often has some element of, “That contingency will never happen, so I am safe.” I’m sure you see that every day in your job: “Why do you want that clause? We’ll never do that.” Until they do.
In my career, I’ve worked for a few companies that relentlessly price and trim the amount of balance sheet that they have posted in support of their business. These are smart companies, because they realize that although contingent claims show up in no GAAP financial statement, the potential for an economic explosion is real.
For example, a pipeline company with an A credit rating has no trouble guaranteeing natural gas speculation; until it does. At many companies, the amount of corporate guarantee outstanding can exceed the net assets of the company by multiples, and a single contingency can lead to a bankruptcy. See AIG or Semgroup as examples.
In your example, MC, you post a $1000 guarantee for a certain $1 million return. If the return is certain, the investor could guarantee it himself, or the city could do the project itself. The question is more like this: Will you cosign my mortgage for me, ever, without obtaining consideration from me to do that? And if you are willing to cosign my mortgage, how much would you charge me for that service? How will you hedge your risk of my exploding? How do you price the moral hazard that you’ve created (I can default more easily, now, and just put the mess to you). And, more to the point, if you’re willing to cosign my mortgage, why not just buy my house and rent it back to me, since that covers your risk more effectively, and there is an observable market for rent?
That is my main point. Whenever a loan guarantee is suggested as a way to lever against the city’s taxing power, it means that the taxpayer is getting taken. For sure, the city is not being adequately compensated for taking on the contingent exposure, because given the moral hazard and adverse selection problems that guarantees create, it is a near certainty that the taxpayers would be better off in an alternative deal that invests real capital and takes ownership in a project. Subsidized financing is proposed as an alternative to direct subsidies because the subsidy implied the cheap financing would make taxpayers howl blue murder.
The argument against direct municipal ownership boils down to some version of “governments can’t run jack shit,” or some other version of “What have the Romans ever done for us?” It’s ridiculous: if the government has no business taking an equity stake, then it doubly has no business extending contingent claims. The level of business knowledge required to extend balance sheet exceeds that required to simply own the asset, in my experience.