The Arena

I have had a number of letters and emails asking about my position on the arena. I apologize that I have been slow in responding but I wanted to take the time to respond thoroughly rather than give you all quick answers, as it has been a complicated subject. My reasons for deciding to support the current proposal are complex and have not come easily.
 
As many of you know my concerns about the arena proposal fell into three categories. The first was that the design and the planning of the arena must be done in such a way that they would be a benefit to downtown rather than put the substantial gains we have made in the past 10 years in our downtown at risk.
 
My other concerns were linked: would the public benefit to the citizens of Edmonton outweigh the public risk?  Second, on the question of public risk, Council has always said quite clearly that no existing tax dollars were to be spent on the arena and that there would be no increase in taxes to existing taxpayers to pay for it. There were a number of proposed ways to do this, all of which could work. The question for me was how likely were they to work and what were the implications if they went wrong?
 
The third linked question is the question of public benefit. If it did go right, what were the benefits that average Edmontonians would see from the building even if they never bought a hockey ticket or set foot in the new facility?
 
So where do I believe we are currently at on these questions? My concern about design has been addressed in a number of ways. First we passed zoning that makes it tie in to our new downtown plan.  That means the new buildings must focus their energies on creating activity and life at the street level and beyond the interior environs of the building. The original idea of the winter garden above street level connecting to a commercial area also on the second floor is gone. I was strongly opposed to the winter garden as I felt it would mean very little of the activity in the new building would connect to the rest of downtown outside, and this was one of the major benefits having an arena downtown could bring. Although there will likely still be a pedway across 104 avenue to help pedestrian traffic leave the arena it will immediately come down to street level once it is across the road, therefore the commercial opportunity for restaurants and other amenities will all be at street level rather than a floor up as originally proposed. As well, the zoning makes it very clear that all the buildings connected to the project have to be pedestrian friendly and supportive of the street activity outside. Also, there has to be good public access throughout the whole site, in particular so there is a welcoming, convenient and active public realm connecting to the new MacEwan LRT station. It is also part of the deal that the City will have decision-making power on both the choice of architect and the design of the arena itself.
 
On the question of public financial risk, a number of demands were a part of our
17 point motion as the negotiating base for our administration. I had thought that the Katz group would balk at some of those conditions, but in the report back we received a few weeks ago it was clear that all of those conditions have been agreed to by Katz.
 
Most important of these was an agreement for them to fund a further $125 million out of a surcharge on tickets sold at the new venue. This is in addition to the $100 million Katz was already committed to putting into the project. This means that a further $125 million is being funded out of the proceeds of Oilers' games and other events. Therefore, this ticket surcharge is both a user-pay source of funding and represents our cut of the revenues of the arena.  Katz has also agreed to cover all operating and maintenance costs (major and minor) for the new building out of these funds so there will be no ongoing cost to the City for the building for the 35 year length of the agreement. We also retain 4 weeks at no cost to the City in the arena to use as we wish over the course of every year.
 
There is also a commitment that the project cost will be capped at $450 million. Towards this $450 million the City will make an investment of $125 million. None of this $125 million will be paid for out of existing property tax sources now or in the future nor would there be any tax increase to citizens to fund this arena. The money we borrow to cover this $125 million will be paid back using a number of sources, none of which would exist if there was no new arena built. These sources include the $2 million currently paid every year to the Oilers to subsidize the deal worked out in the last negotiations over Rexall Place. This money would no longer go to the Oilers. Another portion would come from the new taxes on the taxable portion of the new arena (i.e.. concessions and new parking.) A third stream of money would come from parking revenue in existing City parkades currently not used in the evenings. And finally, approximately $40 million would come from the Community Revitalization Levy (CRL) which allows us to use any incremental increase in taxes from new building built as a result of the arena development over the ensuing twenty years. The principle this is based on is that if the arena is not built these new properties would not exist either. The Province allows a system where we can take this additional money and invest it in the infrastructure that encourages the building of these new buildings in order to create the incentive for this growth. Arguably, these are indeed property taxes but they are taxes that would not exist if there was no arena or new building, and they would be paid specifically by the owners of the new buildings only.
 
It was this last piece that had given me the greatest worry as there is always the danger that nothing gets built and thus these funds are not forthcoming. Originally the suggestion was the CRL could make the City in excess of the $130 million if all goes well, but there were no guarantees of this.  So, by reducing our reliance on this funding to $40 million of this money for the arena itself, we have achieved two things. First, we have significantly decreased the risk of the money falling short, and second, and perhaps even more important, we have made it possible to use the balance of the funds to spend on other downtown projects apart from the arena. And this change speaks to my final question, that I needed to understand the public benefit of this project.
 
The new downtown plan calls for a number of catalyst projects designed to further encourage the revitalization of our City's core. They include everything from new park space to a rebuilding of Jasper Avenue. The challenge for the plan was how to fund these other projects. Essentially the 17 conditions we put on the arena deal included that the bulk of the CRL money would go, not to the arena, but to other projects designed to continue the reinvigoration of downtown. This means that the benefits to the citizens of Edmonton will be significant even if they never choose to step through the doors of the arena or go to an Oilers' game. And this last point is important because we need to make sure that if this is to be a public project that there is significant public benefit. By ensuring that we get a good public building through design, and also ensuring that the economic benefit of the redevelopment is broadly invested in the whole of downtown and not the arena itself, it means that we get benefit well and beyond what happens in the arena itself.
 
There are some other considerations that came into my thinking. I have complained for years about the blight on our downtown created by vacant land and underused surface parking lots. This is a project that will fill almost three blocks of that vacant land and take gravel parking lots and turn them into something far more useful.
 
It is also true that although Rexall still does have some good years left in it, within the next few years it would need a significant reinvestment (a 2008 study estimated $250 million.) Even with that, its life span would be coming to an end sooner rather than later. I believe it is the responsibility of a city of our size to have an arena. It is part of the infrastructure expected of a City. Essentially this deal gets us that new arena for about 25 cents on the dollar. Arguably, there is not much risk of losing the Oilers as we are one of the better markets in the league, and if we did lose our hockey team they would probably be easily replaced. That said, I am not convinced that another owner would be as keen to toss in $225 million to make it happen. As it is in Winnipeg and Quebec City, an existing arena is part of the precondition of bringing a team there. In other words, we could wait for another decade or so to build a new arena, but I doubt the deal would be as good.
 
The other question that has been raised is the whole issue of the non-compete clause the Katz group is asking for. The reality is the City has no ability to deliver that agreement. Only Northlands can agree to that. They have a lease with us that only they can break. If Mr. Katz wants a non compete clause he will have to negotiate that with Northlands.  If anything, Northlands' bargaining position has been increased by the draft agreement. Either Mr. Katz will have to come to an agreement with Northlands, or he will have to decide if he wants the new arena enough to go ahead without a non-compete agreement. Northlands cannot be compelled to agree to a non-compete. If there is to be one, it will have to be negotiated.
 
The one other misconception is that the City will be purchasing the land from Mr. Katz. In fact, Mr. Katz has never owned the land. He has been paying for options on the land but has not purchased them. With this deal the City would purchase the lands at the price agreed to in the options. The City would continue to own the arena lands as well as the building. Mr. Katz would have a limited term right to purchase back parts of the land for other projects at our cost plus interest. If he does not exercise that option within a certain period, the City will have the right and ability to develop the land itself or find another developer. The advantage of this is that we can make sure that the land does not continue to remain vacant. Any deal to sell the land either to Katz or another developer could ensure that that land was actually developed. One of the biggest impediments to the development of downtown has been land speculators who would prefer to keep their land than use it for productive purposes. This deal would mean we could at least get three blocks of downtown land out of that destructive cycle.
 
The final piece of the puzzle is where the remaining $100 million of the money will come from. The City is not prepared to put any further funds in. We could not do so without breaking our commitment not to use tax dollars. Clearly it is the hope of the Katz group that this final piece of the puzzle will come from the Provincial Government. We have committed to supporting them in this request but ultimately the decision is up to the Province not us. As long as it is new money coming into the City from the Province this can only benefit the City. I would not, however, support redirection of any monies that the City currently receives from the Province. In recent weeks there has been talk of the Province giving us extra infrastructure money through the Municipal Sustainability Initiative program (MSI) that we could spend on the arena if we so chose. This makes me a bit uneasy. If it means that we would now be using funds that the City could choose to use for something else (that would now go unfunded) then a much larger decision making arc has to come into play. Now we are no longer just looking at the merits of the arena itself. We would now have to weigh the benefits of the arena against the benefits of other possible ways we could spend that MSI money.  If, however, it is money that we would not receive unless the arena project went forward then I would have more comfort. Up until this point, the City has not committed any resources to this project that could be spent elsewhere or that would exist if the arena did not go ahead. That may or may not be the case with the MSI money. Until we know what the Province is or is not going to do, however, there is no way to make that call.
 
In summary, the deal that is currently on the table would mean that the City would get and own a new arena, and the potential benefits that come with it both to the City at large and to the downtown, without any use of our current revenues. The costs would be covered either by Katz, other governments or out of new revenues that the City would only earn should the arena go ahead. Given the potential benefits and minimization of the risk, this satisfied my conditions of making sure the gain by the citizens of Edmonton far outweighed the risk to us as a City. Depending on what the Province's response is, this may change. If the choice becomes between an arena and some much needed other infrastructure projects, then an entirely different evaluation becomes necessary. I will be weighing those options once they become clear in deciding whether or not I can continue supporting moving forward on this project.
 
Thank you all once again for your input. These large decisions for the City are never easy, and all of your thoughts have been very valuable to me.