A Tale of Two Cities or The Perils of P3’s

On June 6, 2011, the Canadian Press reported a fall-out between some members of Quebec’s  Parti Québecois and their leader, Pauline Marois, and of their resignation from their party caucus. Not much was said about the reason why these long-time and well-known members of the Quebec National Assembly would do so and are now sitting in the house as independents.

Three PQ stalwarts resigned because they refused to follow their leader in supporting a bill that would make legitimate a controversial agreement for the management of Quebec City’s proposed $400 million multi-use entertainment centre that would include a hockey arena. The plans call for a building to be paid for mostly with public money: $200 million by the Quebec provincial government, $187 by the City of Quebec and $13 million raised through the sale of the arena seats. The City had also negotiated a property management contract with Quebecor Media Inc. without using a  public tendering process as stipulated by the Quebec Cities and Towns Act.

Quebecor Media Inc. is a Canadian media company based in Montreal with vast controlling interests in Canadian newspapers, cable TV, internet services, TV stations and channels, music and video stores, CD distribution and publishing houses. Amongst its many holdings, the company owns the Sun Media Corporation, Videotron internet provider, TVA Broadcasting Group and canoe.ca. The revenues for Quebecor Inc. for the first quarter of 2011 were over $990 million. Until recently, Brian Mulroney was on the Board of Directors.

By securing management and naming rights to the projected entertainment complex, intended to attract big names in show business as well as major North American tours, Quebecor is also trying to secure an NHL franchise for the city of Quebec. These rights will be for a period of 25 years with financial commitments of $110 to $200 million with profit sharing between the parties.

Denis de Belleval, a former provincial minister and a former city manager of the city of Quebec, and a Quebec businessman, Alain Miville de Chêne, have filed a motion in Quebec Superior Court, as citizens, to quash this property management contract. Mr. Miville de Chêne has called the deal a “reverse public-private partnership” wherein all the risks have been shifted to the public sector while  the private sector will reap the profits.

The Quebec Charest government intended to pass a Bill last week that would have prevented any legal challenge to this Quebecor deal. However, the Bill was eventually postponed to Sept 15, 2011, after much acrid criticism by the general public. The Canadian Bar Association, the Quebec Bar Association and many Quebec municipalities disagreed with a process that would have rewritten after the fact the rules of public tendering by municipalities. There were rumblings by house sitting members of both the Liberal and the Parti Québecois parties.

A Parti Québecois mutiny shattered all desire by the Charest government to pass such a controversial Bill before the summer recess of June 10^th, under the cover of an omnibus Bill described by Mr de Belleval as a “Burka Bill”. That Quebecor Media Inc has a near monopoly on all forms of media in Quebec was not enough to shape public opinion in their favour.

 A preliminary hearing on this bill was held early in June 2011. The mayor of Quebec city, Régis  Labeaume, the first witness at these hearings, stated that his city government did without a public bidding process to not hinder the return of an NHL team in his city. He had been contacted by the CEO of Quebecor, Pierre Karl Péladeau, shortly after his landslide victory of November 2, 2009. Péladeau, who had previously made an unsuccessful bid to buy the Montreal Canadians, had communicated with the National Hockey League about the return of professional hockey to Quebec City. He told Labeaume that a condition for obtaining a NHL franchise was a new arena.

To circumvent the mandatory public bidding process, Labeaume had an executive from a Quebec insurance and financial services firm, Industrielle Alliance, negotiate terms between a number of potential investors who would want to build the amphitheatre and bring on a return of an NHL hockey to the area. Lebeaume did not identify these interested parties at the Legislative Assembly hearing. He simply accepted the Industrielle Alliance CEO’s advice that Quebecor was the best bidder. No public tenders were issued.

 On October 2, 2010, 60,000 blue face-painted supporters holding Quebec flags paraded through the streets of Quebec City (“la marche bleue”) to show their support for a city NHL team. This well-organized and Quebecor Media Inc funded and publicized event was to impress both the Ottawa and Quebec governments for public funds. Charest promised $200 million and Harper sent his regards.

Labeaume and Péladeau signed an agreement on February 26, 2011.

The $400 million multi-use amphitheatre will be owned and paid for by Quebec taxpayers. The province will invest $200 million, the city $187 million and $13 million will be raised by the unusual sale of arena seats by an organization known as “J’ai ma place”. To finance the $187 million, the City of Quebec will find $62 million in budget cuts and borrow $125 million over 20 years.

The amphitheatre is to be built close to l’Autoroute Laurentienne, a major highway similar to  Ontario’s 401, and will also be close to established public city transit. A commercial building and a hotel are also to be built with an increase in city property values and taxes. Well over 20 restaurants, bars and similar establishments are already in its proposed vicinity.

 If Quebecor Media Inc succeeds in obtaining a NHL franchise, which is not a given, it will pay $63 million to name the amphitheatre for 25 years, plus a yearly rent averaging $5 million per year. The city, as the owner, will also get 10% of the entertainment business net profits.

As a private enterprise venture, Quebecor will manage and seek profit from all sources of entertainment including hockey, all food concessions, all business leasing, all franchises, all advertising, all sponsorships, all beverage sales, alcoholic and non-alcoholic, and all parking fees. Moreover, since Quebec City will be the legal owner of the amphitheatre, Quebecor will not pay any municipal taxes.

If the coveted NHL franchise is not attained, the 25-year naming fee is reduced to $33 million and the rent down to $3.15 million yearly average, starting with $2.5 million for the first five years. The city will get 15% of the entertainment net profits.

The city will also impose a $4 surcharge on all entertainment tickets sold.

The City of Quebec and the City of Ottawa are both capital cities with a modest population. Historically, the loyalty of each city’s sports fans is of the most dependable kind, with a slight dash of jingoism. However, the population base of these cities is barely enough to support a team in the high stakes sports businesses of the North American continent. Both cities are government towns surviving  mostly on a civil service, associated agencies and a concomitant tourist trade. The NHL Quebec Nordiques failed in 1995 and the CFL Ottawa Rough Riders folded in 1996. A CFL rebirth by the Ottawa Renegades lasted a mere two years.

It is reasonable for commercial sports enterprises to seek financial relief from the public field in the form of private-public partnerships. Unfortunately, these partnerships are now being engineered in ways that lack the transparency customary and mandatory for public purse enterprises.

Ordinary citizens in both Ottawa and the City of Quebec are accusing their municipal government of illegal manoeuvres and have deposited motions in the Superior Courts of their respective provinces to quash what they consider to be inappropriate and wrongful agreements with the use of public purse and property.

While the Quebec City/Quebecor agreement was initiated in 2009 after Mayor Labeaume’s election, a scheme for Ottawa’s Lansdowne Partnership Plan (LPP) started under former Mayor Larry O’Brien’s mandate  and was inherited by Jim Watson, the current Mayor and former Ontario Minister of Municipal Affairs.

In May 2006, Ottawa’s auditor general had noted in his property management audit that the City of Ottawa did not have a fully articulated long-term vision for Lansdowne Park, a 37 acres (16 hectares)  140 years old city-owned stadium, exhibition halls and park facility along the banks of the Rideau Canal, a UNESCO World Heritage site. The auditor recommended that a long-term plan and vision in conjunction with the citizens’ expectations be undertaken.

 In the summer of the same year, the Ottawa Renegades CFL team folded.

Afterward, Jeff Hunt, an Ottawa businessman and owner of the successful Ottawa 67s Junior A Hockey Team, sought to purchase this CFL franchise by partnering with Golden Gate Capital, a mutual funds group of Toronto owned by entrepreneur Ernest Anderson and managed by Anthony Primerano. Mr Anderson later withdrew due to health reasons. However, his organization was already under investigation by the Ontario Securities Commission and Golden Gate Capital enterprise failed in 2009 leaving a trail of lost investments and embittered investors in what appeared to have been a fraudulent business. Golden Gate Capital was fined by the Ontario Securities Commission.

In the fall of 2006, Howard Sokolowski, a major Toronto land developer and co-owner of the Toronto Argonauts football team, was tasked by the CFL to find a new owner for the Ottawa Renegades franchise. He later met with John Ruddy, owner of Ottawa’s Trinity Group specializing in business land development, and the name of Jeff Hunt came up. Mr Hunt later met with the two and John Ruddy later travelled to Monaco to talk to Bill Shenkman, another Ottawa land developer. Afterwards, Roger Greenberg, CEO of Minto Group, was contacted and the four then planned to form an association to acquire a CFL franchise for a Ottawa-based football team.

In November 2007, following their auditor-general’s recommendation, the Ottawa city council passes a motion to initiate a design competition for Lansdowne Park and approved a budget expense of $350 million to cover the necessary studies, consultants and public consultations to carry it out. Between January and March 2008, a media campaign and public consultations were carried out, organized by Nanos Research. City staff and City Council were well represented at public roundtable discussions and open-house meetings.

In March 2008, the Canadian Football League announced that a conditional franchise had been awarded to an Ottawa business group, Ottawa Sports & Entertainment Group (OSEG). The members of this Group were Hunt, Ruddy, Shenkman and Greenberg.

In May 2008, the Ottawa city manager took it upon himself to cancel the ongoing consultations for a design competition for Lansdowne Park and so advised the City Council.

In October 2008, the city received an unsolicited proposal called “Lansdowne Live” from OSEG. In April 2009, the Ottawa council instructed city staff to negotiate a partnership agreement with OSEG and subsequently in September of that same year, received a report from staff proposing the adoption of the Lansdowne Partnership Plan.

This public-private land development partnership involves, amongst many others, the refurbishing of a stadium by the city, the demolition of a century-old Canadian history significant exhibition hall, the heritage de-designation and relocation of another exhibition hall, the rezoning of a 140 years old park for public events to one allowing large businesses such as a 10-screens cinema theatre, tall residential towers and many townhouses on an adjoining green park for quiet leisure. The private developers would have right to build and use public land for 30 to 75 years for nominal rents such as $1 a year.

The City of Ottawa would thus be a business partner in an obscure profit sharing pyramid above  other secondary partnership and business groups. Abstruse and still not well understood arrangements of this nature between private enterprises and public administrations such as municipalities are commonly described in the media as P3’s for public-private partnerships

Consequently, the City of Ottawa is being legally challenged in the Superior Court of Ontario by a group of its citizens and taxpayers. Concerns involves the transfer of publicly owned lands to private use, the non-observance of the city of its own bylaws and a lack of transparency by city staff and elected councillors while dealing with public property.

A recent challenge under the Ontario Heritage Act before the Ontario Conservation Review Board was successful. Ottawa Council is presently obligated to review its previous decision to remove a city heritage designation on a 90 years old exhibition building to allow for its relocation at great risks and thus enable the building of a cinema complex and underground parking. 

A challenge under the Ontario Planning Act because of the proposed zoning changes has been heard by the Ontario Municipal Board and a decision is pending and should be given soon.

The challenge before the Ontario Superior Court is under the Ontario Municipal Act.  It questions the very legality of the process and is asking the Court to quash all Council decisions in that matter. The Ontario Superior Court will be sitting in Ottawa from June 21 to 23. A decision is expected in late summer or fall of 2011.

At this hearing, it is expected that Ottawa taxpayers will finally be able to know the many permutations of a complex and convoluted business agreement between a municipality using public land and public funds to partner in a land development enterprise. To shift the risks to the public sector and to allow entrepreneurs to reap nearly all the profits by using public land or property cannot be perceived as being for the common good.