(This is still a work in progress).
On Wednesday, October 7, 2010, Jane Fraser of the Nova Scotia Department of
Transportation and Infrastructure Renewal presented a briefing to reporters and others on Rank Inc.'s proposal to build a new Trade and Convention Centre in Halifax.
On Thursday, October 8, 2010 both David Jackson and the Editorial Staff of the Chronicle Herald reported on the details of this briefing, including details of the projected economic impacts of the project, as well as the proposed costs. The total cost to build and operate this new centre was pegged at $325 million over the course of 25 years. There are no upfront costs. Instead the city and province would pay a 25 year capital lease, once the building is completed.
A capital lease is an instrument where the province and city (presumbly through
Trade Centre Ltd.) would take possession of the new building once it is built.
They would not own the building, instead someone else would own it (the Chronicle Herald article does not specify if this owner shall be Rank Inc. or a financing company). They would pay that person an annual payment for 25 years, at the end of which they would normally own the building (for better or worse). This is similar to a mortgage, except that with a mortgage the borrower is liable for the debt, and puts the building up as collateral in case of default, whereas here the titular owner of the building (and presumably the debt) is the person being paid, and they can use the residual value to collateralize their other activities.
If this capital lease were a mortgage for $112 million for 25 years, with monthly payments, with a final cost of $255 million, it would be at about 8%. According to Bloomberg, on February 19, 2010, Nova Scotia issued $250m in 30-year bonds at 4.7%.
Public-Private Partnerships (collaquielly "P3") have been tried in the past in Nova Scotia. Some schools have been built, and the toll highway in the Valley are examples of P3's. A private company contracts with the government to build and maintain a government infrastructure in exchange for an annual payment. Title remains with the private company, and so the whole value can be used by that company as collateral on their other projects. The private company is responsible for operation of the asset, and hence can dictate the usage of the asset other than the specific purpose that the government has contracted it for. The private company is also responsible for the maintenance on the asset, and so any lack of maintenance is at its discretion. At the conclusion of the lease, title remains with the private company. (For better or worse: if the operator chooses to treat the asset as having a fixed lifetime that does not extend beyond the end of the lease, then they can choose to not maintain it, and tear it down at the end. On the other hand, if title reverts to the government, they may end up with a white elephant such as this convention centre is reported to be.)
Unlike other capital leases, at the conclusion of this contract, the developer will own the asset.
Scratch Notes
David Jackson of the The Chronicle Herald published a story from a news briefing by Jane Fraser (NS Transportation and Infrastructure Renewal).
The article laid out the costs of the new convention centre to the developer as $159 million total construction cost or $119m construction costs, $21m engineering/design, $19m interum financing. No government funding is provided until the centre is completed in 2014.
In 2014, the bill of $159m comes due. The plan specifies the Government of Canada would be providing a lump sum of $47m at this point. This leaves the Province of Nova Scotia with a bill of $57m to Nova Scotia, and and City of Halifax with a bill of $57m. Between the province and Halifax, it will cost a total of $255m spread over 25 years, or $10m per year. Added to this is $2.9m per year in operations, maintenance and upgrades. The total then is $6.6m per year for Nova Scotia and $6.6m per for Halifax, for a total for the Halifax taxpayer of $13.2m per year. The Herald editorial board in their Op/Ed calculates this as $13.1m/year.
The benefit is predicted at $86m spread over 10 years of direct and spin off "benefits." According to Mr. Jackson's article this is $8.6m/year, or $4m/year of tax revenue. According to the editors at the Herald this is $86m/year in increases to "economic output", and $17.1m/year of tax revenue. According to Scott Ferguson of Trade Centre Limited, a further benefit is an increase by $6m/year of revenue to the convention centre corporation ($6m grows to $12m-14m).
The benefit figures are derived from a report (here) by Gardner-Pinfold, an economics consulting firm, which based its figures on a report by Trade Centre Limited of lost opportunities from the current trade centre.
All the figures for economic spinoffs, tax revenue, and costs are provided by Trade Centre Limited, and do not appear to have been validated independently by the government. The Department did request and receive an analysis by Deloitte of whether the province could beat the bid by the private contractor should they build it themselves. Despite the government's better access to financing, this report revealed that it would have cost $26m more for the province to build it than Rank Inc.
A call has been placed to the Media Relations staff at Transportation and Infrastructure Renewal to clarify:- $8.6m/year or $86m/year, which is the accurate figure- What is the basis of the tax revenue calculations, and what is the correct estimate- What is the basis for the "economic output" estimateUpdates when I get a call back from Cathy MacIsaac, the person designated as the one who can get the answers. Update: 9/Oct/2010 4:10pm Voice mail from Transportation and Infrastructure Renewal reports that Trade Centre Limited is the one who knows all these figures. Call has been placed to Suzanne Fougere to get the correct figures and find out who the lost opportunities were and where they decided to go.Background on the lost opportunities: David Jackson's report quotes Scott Ferguson of Trade Centre Limited as saying that the current facility is inadequate to the requirements, and convention planners have decided not to come to Halifax as a result.Suzanne was able to put her finger on the exact information required: https://conventioncentreinfo.com/documents/studies/ (2010 Supplement, and TCL Market Projections). Answers being extracted.
