'New money' stretches the truth
Waterfront investment comes from city
John Foden
National Post
Monday, May 14, 2007
City council claims to have attracted $160-million of new investment to Toronto's waterfront. The fact that the money the city attracted was its own - $132-million from the city and another $15-million from TEDCO, a city- owned agency -- seems not to matter.
Despite being warned Project Symphony would "yield a financial return lower than would be acceptable for a private investor given the risk profile," and although a staff report advises that the project is unlikely to attract any third-party permanent financing, the city executive committee unanimously approved the deal.
So, it's true that a new building will rise on the water, but calling it new investment is a stretching the truth a considerable way. It's like telling your wife you got a raise by withdrawing money from your RRSP.
Cities get rich by attracting new money, not by spending their own. External money sources represent real growth. It reflects a dynamic investment climate.
But the private sector wasn't even asked to bid on this development. The city report suggests that they weren't interested because extensive tax incentives weren't in place. Yet TEDCO's incentive plan won't be ready until the fall.
If true, then it's worse than expected, for spending public money on a commercial real estate project that private capital considers unattractive surely reflects bankrupt economic development planning and ineffective investment strategies.
But all this is not the only trouble here.
The design has been widely panned as pedestrian and unimaginative ( just what the waterfront needs).
The area is bereft of services preferred by workers. Nor is the site served by a subway, which is certain to increase vehicular traffic. Brokers and the office development community consider it to be well away from the downtown core. These conditions will significantly affect occupancy rates and cash flow --and ultimately the city's credit rating.
And not only will the city pay for the building, it is offering the tenants, Corus Entertainment, Inc., preferential tax treatment, foregoing $18-million in taxes over 20 years to relocate an office that already holds an address in the city.
TEDCO argues that this sweetheart deal is necessary in order to retain a high-tech, creative employer, one who wasn't threatening to leave town. They claim that this tax holiday is what private investors need to be attracted to the water.
But surely the plan to recruit investment does not include robbing Peter to pay Paul, moving jobs from Liberty Village (and other areas) to the eastern Bayfront. Although the city does not seem to consider this action counterproductive, replacing the 800-1,000 jobs taken from Liberty Village now becomes a massive assignment, as fewer than 1,000 net new jobs have been created in Toronto since David Miller took office.
Toronto spends approximately $2.40 per capita each year on economic development, compared with $10 in Calgary, $23 in Montreal, $24 in Chicago and $57 in New York. For its money, the city has lost of 2% of the employment base since 1987, while the surrounding municipalities have added to their by 78%. You get what you pay for, and shifting the furniture won't change the fact that the house is falling apart.
Of course, this project answers to a political agenda, which is to put something -- anything -- on the waterfront. After all, once it's up and visible no one is going to ask who paid to build it. No doubt, it's intended to symbolize new political courage at city hall, a sign that Toronto's open for business. But it's hard to fathom how investors will interpret this as a progressive sign of responsible administration.
After listening for weeks about the prospect of bankruptcy, it's clear that the city has arrived there sooner than expected. - John Foden, who worked on the mayoralty campaigns of David Miller in 2003 and Jane Pitield in 2006, is president and CEO of PresterJohn.
© National Post 2007
