We have a fixed-price contract in place for the construction of the stadium, a set-in-stone date for it to open and if anything deviates from that plan it’s all on the private contractor’s head. We have scientific estimates for the costs of running and maintaining the facility, a crack corporate team to operate the place and a sensibly crafted payment scheme to handle all the debt we’re taking on so it won’t overtax the public.
What could possibly go wrong?
No idea. Unforeseen reversals of fortune are, by their nature, unforeseeable.
But, if some future public accounts auditor (who’s probably in high school right now) is going to uncover any unpleasant surprises associated with the stadium, I’m willing to bet they’ll have snuck into the project via a decision a little like the one Regina city council will be considering Monday night.
Because, remember how we were given a careful accounting of how much debt will be required to cover the costs of construction and operation of the stadium? It’s supposed to be a little over $200 million to be paid off over 31.5 years.
Well that number is about to creep up by $4 million on Monday.
Now, technically, the city isn’t taking on any new debt. Regina Exhibition Association Ltd is.
REAL is the city-owned corporation that’s currently in charge of running Evraz place and will be in charge of running and maintaining the new football stadium.
But, the thing is, because we own REAL, we get the privilege of approving or denying any request by them to take on debt. And we also get the privilege of providing a guarantee of the debt to HSBC — we’re co-signing their loan, as it were. And that means they get a better interest rate.
But it also means we’re on the hook if, for some reason, REAL has to default on their debts.
Plus, any debt REAL takes on will count against Regina’s debt limit.
So when I said we’d be on the hook for $4 million more in stadium debt, that’s what I mean: IF something goes wrong, we have to pick up the pieces. As long as everything goes as planned, your property taxes aren’t going to be paying this debt off. REAL will. Likely with some of the money you spend at their concessions. So when you’re at a Rider game complaining about over-paying for the shitty, watered down beer you’re drinking from a plastic cup,¹ look around at your opulent surroundings and remember that you get what you pay for.
Make you feel better?
Now, this $4 million in stadium-related debt is part of a larger request by REAL to borrow up to $13 million to cover their capital expenses. The bulk of that money will be used for upgrades and maintenance at Evraz Place.
So yeah, technically there will be $13 million extra going against our debt limit. (I’m just focussing on the $4 million attached to the stadium.)
Currently, our debt limit sits at $450 million and at the end of last year we owed $275 million.
By the end of 2015, we’re planning to be $363 million in debt, leaving us $87 million in wiggle room in case we need to borrow more money.
When council says yes to REAL’s borrowing request on Monday, that wiggle room will shrink to $74 million. And that reduces the city’s ability to borrow to pay for whatever urgent needs may come up.
Administration points this out in their report:
While the increase will leave $74 million in debt available to the City, it reduces the availability of debt financing to support other high priorities that may arise and could potentially impact the City’s credit rating if not repaid as and when due.
But, don’t think by writing all this I’m some angry ogre saying, “RARGHHHH! Give REAL no gold! Stomp their buildings! Smash their zambonies! Grind their bones to make my bread!!”
On the contrary. I’m no expert but $74 million still seems likes loads of available debt in case trouble arises. And the capital maintenance and upgrade plan Evraz lays out seems reasonable. Hey, I’m all about preserving things for the future by doing proper maintenance in the present. Don’t want Evraz turning into another Connaught.
Plus, borrowing now will lend stability and predictability to Evraz’s finances and that’ll help their capital program work out. And I imagine they’ll be able to pay everything off the way they say they can. Sure, I’ll imagine that.
Add to all this that Evraz is a great facility where kids learn to play soccer and hockey and get to pet cows during Agribition. It warms whatever cockles are left in my shrivelled heart.
In fact, as I was reading this report, I kept thinking, “Yeah man, Evraz is awesome! We can’t let it fall into disrepair!” and forgot that nearly one third of the money they’re asking to borrow is going towards food and beverage equipment for the new stadium.
And THAT, ladies and gentlemen, is how you sneak extra costs into the stadium deal.
You make a list of perfectly reasonable requests for money for one thing and then in some corner of the report you quietly ask for something small and equally reasonable-sounding for the stadium. And boom, there, you’ve introduced a wee creeping cost into the project.
Now, at this point, I want to stress that I don’t think there’s anything shady about Monday’s report. Everything is on the up-and-up. There is no hanky panky going on (as far as I can tell). REAL needs money for zambonies and shower heads, kick plates and cladding, hot-dog machines and plastic-cup dispensers.
Fair enough. It’s all good. And assuming they pay off their debts the way they assure us they can, it won’t cost the city an extra penny.
But there are going to be 30 years of little reports like this. Somebody’s got to watch them. And I’m old and, frankly, at the best of times I’ve never been that healthy.
Things on me creak. I’m going to be out of this game long before things go haywire.
If they go haywire, that is.
Maybe they won’t. Maybe I should try optimism in these, my twilight year.
But then I note that last January, even before the stadium project really kicked off, we learned that the cost of borrowing for the stadium would be slightly higher than planned and that means we’ll be paying off the stadium over 31.5 years instead of over the 30-year term that was promoted to the city in a financing report the year before that.
And that extra year-and-a-half of debt is going to cost us an additional $13 million over initial estimates.
Now, this year isn’t even a quarter over and we’re finding out that REAL is going to put another $4 million against our debt limit to pay for stadium-related stuff. We don’t know if that’s going to cost the city anything in the long run. Everything in this report suggests it won’t.
But still, this represents a slight, stadium-inspired shift in the city’s debt picture versus the one they promoted in January 2014.
Both surprises are tiny when compared to the city’s overall stadium contribution of about $400 million across the 30 years of the project.²
But the project is barely underway.
And while REAL’s borrowing request on Monday probably won’t end up being a wee creeping cost added onto the stadium project, it demonstrates that there are always ways costs can sneak in.
Unfortunately, it won’t be until the project is over, the debts paid off and the documents declassified that we’ll be able to find out where all the cracks were and what exactly the wee creeping costs were.
They’re like some Doctor Who villain that you can only see in hindsight.³ In the here-and-now, when their claws are out, slicing your financial forecasts to ribbons, they’re completely invisible to you.
Guess we’ll just have to wait and see what surprises are in that auditor’s report of 2045. I suspect I’ll be too old to care by then.⁴
Hope some of you are still spry and paying attention.
¹ Whenever I go to outdoor events or stadium shows or what-have-you — anything where you have to drink beer from a plastic cup — even if I see the person pour my beer from a freshly opened can, it always, without fail, tastes shitty and watered-down. I honestly don’t think that the stadiums of the world are watering down our beer. It’s either something psychological I have against those flimsy plastic cups — ie, my problem. Or it has to do with chemistry — like beer molecules mixing with plastic molecules to produce water. And shit.
² Report EX13-2, “RRI – Stadium Project Funding and Financing,” which was approved at executive committee’s Jan 16, 2013 meeting, includes the estimated city contribution of $405.6 million to the stadium project:
“Over the course of the 30 year life cycle of the stadium, the City will be contributing an estimated amount of $405.6 million, which includes interest payable on the up to 30 year financing arrangements.” [p 6]
“The revenue funding split is $180 million from the Provincial contribution and loan, $75 million from SaskSport, $140 million from the SRFC and the remaining $405.6 million in funding from various City revenue streams.” [p 10]
That $405.6 million city contribution rose by approximately $13 million in Jan 2014 when the city had to expand the repayment term on the $100 million province-backed loan. (Detailed above.)
Splitting $418 million over 31.5 years equals $13.27 million a year.
³ A Doctor Who villain created by Stephen Moffat, that is.
⁴ Precisely how old I’ll be in 2045 is neither here nor there. (And none of your business, besides.) My point is, 30 years is a really, really long stretch of time. As a comparison, in the Back To The Future series, 30 years was considered sufficiently far in the future that it would bring us flying cars powered by fusion generators, automatically resizing clothes and hovering Barbie scooters. None of that worked out for us. But in the 30 years since Back To The Future, we got the internet. In other words, all the hovering Barbie scooters we’re preparing ourselves for today will turn out to be cat memes and porn tomorrow.