This Week At City Hall: I Have Seen The Future And It’s All Stadium

This Week at City HallWhat you see above is no mere artist’s representation of what the new Roughrider stadium might look like. No, it’s an actual photograph from the future that Prairie Dog has acquired using the ChronoPhoto app for the iPhone that Steve drunk-downloaded on Friday. He’s been snapping up a storm ever since. Apparently, I’ll be completely gray in six months, City Square Plaza will be turned into a skate park, Hill Tower 4 will be just lovely and the Capital Pointe site will remain a vacant lot until the heat death of the universe.

That’s the future, Regina. You can’t change it.

As for this particular future photo, it’s from the stadium’s inaugural game in 2017. Of course, this is after the CFL has died and been resurrected as the GFL — the Ghost Football League — where dead CFLers come back from the grave to thrill their fans for all eternity. In the foreground, you can see the gauzy outlines of Sully Glasser° and Piffles Taylor posing for photographers from the equally dead print media.

And good news! Ticket prices will come way down when all this happens because you don’t need to pay ghost players — at least, not until the Spectral Labour Fairness Act of 2128. The Riders will have never been more profitable.

And it’s a good thing, too. I imagine there will be some pretty tense days when the CFL goes under because based on the stadium financing model executive committee is considering at their meeting this very Wednesday, taxpayers are already on the hook for the vast majority of the costs of building the Riders’ new home. It’d be seriously inconvenient if the project’s lone private backer were to disappear.

 

And oh what a lone private backer it is. The Rider organization is coming through with $25 million over the first two years. And they will be responsible for coming up with an additional $500,000 per year in sponsorship revenue over 30 years. That’s comes to a grand total of $40 million.

According to the report going before executive committee on Wednesday, the rest of the funding for the construction of the stadium looks like this.

• $100 million loan from the Province of Saskatchewan
• $80 million grant from the province
• $67.4 city debt
• $25 million, the aforementioned Roughrider contribution
• $3.3 million for land the city is contributing to the site
• $2.5 million transfer from the city’s General Fund Reserve on Sept 17, 2012

And that comes to $278.2 million. That’s the figure council likes to pass around when it reports the size of the project.

What that leaves out are the costs of maintenance and the costs of paying off all that debt. Over the first 30 years of the stadium’s life, those costs look like this….

• $188.8 million for maintenance
• $100 million for repayment of provincial loan principal
• $63.1 million in interest payments on the provincial loan
• $67.4 million for repayment of the city’s capital debt principal
• $49.5 million in interest payments on the city’s debt
• $53.6 million in principal and interest payments on the city’s interim debt

That works out to another $522.4 million. So, when you add up initial capital costs, maintenance and debt servicing you have a $800.6 million $633.2 million project. (UPDATE: I double counted the $100 million provincial loan and the $67.4 million city loan when I first did the math. Hence the crossed out number. My apologies.)

To pay for all this, the city will be kicking in $405.6 million. Or, assuming a 200,000 population, $2,028 for every single person in the city. (Or, assuming a population down the line of 350,000, $1,159 per person. Or, assuming the actual current population of about 193,000 people, $2,102.)

Of course, the city makes a few assumptions in getting to these numbers. For instance, it assumes inflation will be 2.2 per cent for 30 years. Interest rates, they assume will run from 3.5 per cent in 2013 up to 4 per cent by 2015.

Leaving aside that interest rates and inflation have been remarkably low in recent years, through careful use of the ChronoPhoto app, Prairie Dog has been able to determine that, as with the three decades between 1983 and now, absolutely nothing is going to change over the next thirty years. Nothing unexpected will happen. There will be no crises or emergencies. Financial markets will either go up or stay stable.

It’s all smooth sailing ahead.

But city staff seemingly have yet to download this handy app because they actually ring a few notes of caution in their reports.

In their risks and constraints section, they note….

1) As part of the MOU, the City is managing the procurement process, but has assumed all risk of capital cost overruns on the project. While cost reductions would typically be achieved through design modifications, there is also a risk that the funding partner’s objectives may not be fully achieved within the facility.

2) A facility fee of $12.00 per game ticket revenue will be earned by the SRFC and submitted to the City in lieu of loan payment. It is assumed this equates to $3.3 million annual revenue. If Saskatchewan Roughrider game attendance does not meet expectations this will impact the financial model.

3) SRFC have agreed to a $25 million capital contribution to be received by the City, 50% in each of the years 2016 and 2017. If SRFC is unable to achieve this revenue target the financial model will be impacted.

4) The additional City debt identified in this financial plan could constrain the City’s ability to borrow for other major capital projects, based on the current borrowing limit of $350 million.

5) Interest rates are currently favorably low; however, if the market changes, a 0.5% increase in interest rate on a debt of $100 million, over 30 years has a $10 million additional expense affect on the financial model.

6) Maintenance costs have been assumed at 1.75% per year. However, the design and construction of the stadium could result in maintenance requirements that are higher than this rate, which is based on industry standard ranges.

7) While the financial plan and arrangements between REAL and SRFC show REAL being able to achieve a break-even financial plan for the stadium, any variance to this projection could result in a requirement for City funding to support the stadium operations.

And what happens if anything goes wrong? Staff’s report states,

“if any of assumptions in the financial model change or do not come to realization, contingent revenue options will be required, inclusive of additional mill rate increases or other revenue alternatives.”

It’s also worth noting that the report looks at the impacts of taking on so much debt with this project.

“The City will have a major debt implication borrowing up to $200.4 million by 2015 for this project. The debt decision could impact other capital infrastructure projects such as the Waste Water Treatment Plant and other capital projects that are currently unfunded, such as the North Central Shared Facility, Municipal Justice Building, major facilities, roadway and bridge projects.”

“The allocation of City debt to this project could constrain the City’s ability to borrow for other major capital projects based on current borrowing limits and where existing debt is currently committed.”

It later notes that by 2017, when you factor in money that needs to be borrowed for the waste water treatment plant and other city commitments, the city will have a total debt of $338 million — and that isn’t including the $100 million provincial loan.*

Our debt limit is currently $350 million. And our current debt is $81.6 million.

It might be worth noting that back in Sept 2012, finance committee had a look at a status report on city debt.** It showed how, as of the end of 2011, our debt burden ratio (which measures debt burden versus city expenditures) was a mere 3.2 per cent, well below the 5.0 per cent that credit rating agencies recommend a city not exceed.

It also noted that our debt capitalization ratio (how much of our capital is paid for with debt) was 7 per cent, much lower than Saskatoon, Winnipeg, Calgary and Edmonton.

And it noted that our debt service ratio (total interest and principal payments versus total revenues) was just 2.5 per cent, well below the 10 per cent that credit rating agencies say is the upper limit of safe.

Former mayor Pat Fiacco heralded these numbers as evidence of council’s sound fiscal management and proof that the city was in fine financial shape. He left office a month later with the stage set to change those numbers dramatically.

Because if you could take pictures of ratios with the ChronoPhoto app, you’d see that by quadrupling our debt load, all these ratios will explode.

And that isn’t going to do much for our AA+ credit rating. Nor for the favourable interest rates we’re relying on for the city’s repayment calculations.

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FOOTNOTES
* For some reason I’d been working under the assumption that the $100 million provincial loan would not be counted against our debt limit. I’m pretty sure this came up near the end of last year when a preliminary report came forward about funding the stadium plan, but I don’t have time to double check that. But, according to this report, we don’t seem to know yet if the $100 million will be counted against our debt limit or not. We have to apply to the Saskatchewan Municipal Board to get a waiver. And if they turn us down we’re going to have to ask to extend our debt limit — again — to $450 million. Here’s what Wednesday’s executive committee report says,

The City’s current debt limit is $350 million and does not take into account the new revenues identified in this plan. The City will apply to the Saskatchewan Municipal Board (SMB) for an additional $100 million debt limit increase to cover the Provincial loan, or an exemption to the limit, with the understanding that the SRFC facility fee revenues will cover the loan payments. If the application is approved, the City’s debt limit would increase to $450 million, or the limit would specifically exclude the $100 million provincial loan. If not approved by SMB, the City will work with the Province to revise the financial plan.

** A report on city debt which somehow manages to never reveal what exactly the city’s debt is nor break down what manner of debt we have.

° In an earlier version of this article, the ghost of Sully Glasser was mis-identified as Frank Tripuka, who even in 2017 is ineligible to play in the GFL due to being insufficiently passed on. We apologize for any confusion.

Author: Paul Dechene

Paul Dechene is 5’10” tall and he was born in a place. He’s not there now. He’s sitting in front of his computer writing his bio for this blog. He has a song stuck in his head. It’s “Girl From Ipanema”, thanks for asking.

You can follow Paul on Twitter at @pauldechene and get live updates during city council meetings and other city events at @PDcityhall.

14 thoughts on “This Week At City Hall: I Have Seen The Future And It’s All Stadium”

  1. “$800.6 million project”

    I think you got the math wrong on that. You are double counting the $100M loan from the province and the City loan of $67.4M. The debt repayment section includes lines for principle payments of those loans which is the covered in the first section of project costs. So that takes it down to mere $633.2 M, which given the number of overly happy sunshine and rainbows estimate on interest rates and inflation should mean just about nothing. After all I don’t see anything mentioning a contingency which given the documents should be at least 20% of capital costs.

    If they approve this project, I might have to seriously look at moving out of this City. I won’t be able to afford the future tax hikes of 6% plus for a 30 years straight. Mmm, any suggestions on where I should move?

  2. You are right and I will correct that. Thanks Tim. (Please note time this was posted. Math was not working right.)

  3. Nice work Paul.

    Any idea how the city arrived at the construction costs for the stadium? Are they working with blueprints for the stadium that allows them to project detailed material and labour costs?

    Based on the overrun costs of the City Square Project, I assume this time the city has all its ducks in a row before they proceed. Right?

  4. According to a presentation that Rider president Jim Hopson gave to the Regina & District Chamber of Commerce in October, the football team’s initial preference in 2007 was to see Mosaic Stadium renovated and upgraded to the tune of $100 million.

    Then the province got involved and that idea went out the window. It was a provincial study that first floated the idea of building a $431 million domed stadium. When the federal government declined to get involved, the province and other funding partners backed away from that idea, but the gold standard of a new stadium had been planted in everyones’ minds.

    What we have now is a relatively expensive project with relatively modest provincial involvement, and the city on the hook for a pretty substantial portion of the long-term cost of the stadium. There is some potential down the road for provincial and federal funds for the redevelopment of the old Mosaic Stadium site and the CP rail yard property north of downtown, but at this point I don’t believe anything has been agreed to.

  5. MANY MANY KUDOS To Mr. Paul Dechene, for not only attacking this report LIKE A BOSS, but also being able to summarize 350 pages into a very brief, yet informative, yet humourous article. You will NOT get this from other media sources, ladies and gentlemen!!! This right here is why I LOVE Prairie Dog, and why I LOVE Mr. Dechene as my #1 reporter in all of Regina.

  6. #3 – As far as anyone at City Hall or City Council has been able to provide feedback, the $278.2M price tag that has been identified on this project actually has absolutely nothing to do with actual construction costs, in any way possible. What the $278.2M price tag is, at least according to my City Councillor, Mr. Mike O’Donnell, is what the City “can afford”, and the beautiful toilet seat design from our English consultant, who received $700,000 to draw up such plans, is simply “what can be built” for the $278.2M, or at least from his experience.

    Keep in mind that, that was over a year ago, inflation continues to skyrocket, and the toilet bowl design you saw was NOT what will be approved down the road. They are still requesting Requests for Proposals (RFP) to see what actually can be built from construction companies based on our “requirements” that are based off the consultant’s report from England. I know, convoluded at best.

  7. The condition of Frank Tripuka needs to be upgraded, from dead to alive. He’s not currently eligible to play in the Ghost Football League.

  8. @1: In addition, it’s not clear that the $53.6M in costs associated with the city’s interim debt should be considered a cost of the stadium, especially since it includes paying down the principal on our current debt. There is a debt-related opportunity cost associated with the stadium plan (especially since the plan carries our current debt obligations past the next 30 years), but those costs need to be compared to an alternate scenario (one that potentially includes paying down our current debt much sooner) as opposed to being cited as a cost compared to a non-specified baseline.

    To me, though, the biggest flaw in this report is the ridiculous 2.2% inflation figure. In the past 5 years in Saskatchewan the cost of construction labor and materials have far outstripped the general inflation rate. Given the government’s aggressive growth policy, especially focused as it is on natural resource extraction, there is no reason to think these cost increases (which are the major components of the stadium cost) will slow down. The macroeconomics story of the past 40 years has been the rise in influence of various schools that have rejected some or all of the basic Keynesian principles (including Harper’s accursed Calgary School of Economics). The 2008 crash taught most of the world that these schools were largely bullshit, and Keynes had it mostly right all along. Unfortunately, nobody seems to have told the City of Regina and the Sask Party, who are gearing up to double down on growth during a local boom.

  9. Brad: About the interim debt, that’s a good point I hadn’t considered.

    But, is that debt going to count against our debt limit? I think it is.

    And I’m not entirely clear on how and when or even if that interim debt is going to be applied against the other debts we will be taking on.

    Wait a second…. How is this interim debt different from the city using one credit card to pay off another?

    If nothing else, doesn’t this need for interim debt seem like a sign that this isn’t the most robust of financial structures?

    Anyway, I guess my point is that the interim debt is going to be tying up more financial resources we could be using on other things. And, actually, that list of maintenance and debt payouts that’s above was lifted directly from staff’s report. So if they’re including it, I’m including it.

  10. Ed: My apologies to Mr Tripuka, if he is indeed alive.

    But I have to tell you, in preparing this blog post, I consulted Twitter. And Twitter assured me that Mr Tripuka was indeed eligible to play in the GHL. Do we really want to start calling Twitter a liar? Oh sure, I realize now that Wikipedia indicates that Mr Tripuka is both animate and corporeal. But Wikipedia is a noted liar.

  11. @ Brad (#8)

    Good point about the interim debt, but I think that is peanuts compared to the insane inflation estimate. 2.2% might be more accurate if it were a monthly figure. *grin*

    Also I still think their interst estimate is out to lunch…”let’s assume time stops here despite the lowest interest rates in the last 50 years”. It won’t last and the cost will be paid by the taxpayer.

  12. There’s a strong possibility I completely misunderstood the “city’s interim debt” line item (what can I say, I’m not really a finance guy). Does that item indicate that there is an expected discrepancy between the city’s planned outflows and projected inflows from funding sources which will require one or more bridge loans to manage cashflow? If that’s the case, then I think any interest payments and associated fees should count towards the ultimate cost, but not the principal (since the cost of the principal will ultimately be shifted to the long-term loan). If that’s the case, then it is indeed kind of like using a line-of-credit to pay down a credit card.

    Or do they instead mean it in a non-“interim financing” sense and more of a plain-language sense? By this, I mean: “payments toward the principal and interest of the city’s other debts during the 30-year period in question (i.e. the interim of the report)”. It is with this understanding of the “interim debt” that I wrote my original comment.

    Or do they perhaps mean it in a third way, where some of their current debt obligations have been secured as short-term (interim) loans which will be paid off with stadium-related loans? If that is the case, are those previous obligations stadium related, or do they intend to use stadium-secured funding for non-stadium items (e.g. Stupid Square overruns)?

    I have so many questions, and perhaps I should rely upon Paul to answer them for me. So, does anyone know where I can secure: a) a copy of the report; b) a finance guy to answer my questions about the report; c) the free time to go through the report; and d) enough beer to survive reading the report?

  13. Brad: All good questions.

    My understanding is that the interim debt is going to be used to fill in the gaps because a lot of the revenue in the plan comes annually (they call it annualized revenue, i believe) and won’t always be available when expenses need to be paid.

    So, for instance, the Riders are paying their $25 million in two annual payments. And their additional $15 million comes in $500,000 annual chunks over 30 years. But the capital costs will be mainly up front and need to be paid out before all the annual revenue streams come in.

    But structuring things this way, it just seems to me that the city is opening itself up to more risk. What if the Riders or SportSask (who’re leasing space in the stadium) face funding challenges of their own one year? All of a sudden we’re left holding on to a wad of debt we hadn’t planned for.

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