Why Banman’s Arm’s Length EDC Is A Bad Idea

Part II     –  from Abbotsford Today,  (and noting that this kind of analysis, whether you agree with the writer, or not, will rarely be found in the ‘Abbotsford News.’)

Mayor Banman and all councillors except Henry Braun and Patricia Ross approved a Development Corporation intent, which was brought forward/supported, by a majority of the same members on the Economic Development Committee/Mayor’s Economic Prosperity Task Force, who, in the past have worked with other city committee members and/or organizations, which they serve/served on (Abbotsford Chamber of Commerce Executive Board, Abbotsford Airport Authority, and City Industry Development Committee) in promoting various projects, which have cost the taxpayers millions or would have cost millions, if passed.

These include:

Plan A
The 2006 Economic Development Commission members all endorsed Plan A and gave their support.”

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Plan A was touted as a necessary “economic driver” to facilitate bringing many skilled employees into the city and reason why the Abbotsford Chamber of Commerce said, “we vociferously support Plan A,” and according to past Chamber President, Fiona Brett, “ it is a well thought out business plan.”

Unfortunately, the arena project had a $30 million cost overrun, which was taken out of city reserves and resulted in $30 million shortfall in 2009 for road construction and added to this amount, $20+mil in taxpayer subsides over 5 years for arena/hockey, start -up costs and AESC renovations for an AHL team. In addition, the city signed a 10 year contract (majority of AHL contracts are three years with ability to extend contract two years), and just recently at the five year mark, the hockey contract was terminated, requiring a $5.5 million city buyout, in addition to a $2.147 hockey subsidy for 2013.

2011 “Vote P3 Water” Plan

The City of Abbotsford told Abbotsford residents, a $300 million P3 water plan was required or the city would run out of water, before 2016. Abbotsford residents were misinformed about the cities’ water demands and availability of water.
The Economic Development Advisory Committee supported this plan and in fact, members, Satvir Gill and John Friesen put their name to a “yes” vote advertisement in the Abbotsford News promoting the $300 million, P3 water plan and EDC vice-chair, Dave Holmberg and past Abbotsford Chamber of Commerce, president, Alvin Epp went on CKNW Talk Radio to cement support for the P3 water plan.
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Abbotsford Chamber of Commerce president (2011) / Mayor’s Economic Development Task Force member, Patrick Giesbrecht and other past Chamber Presidents, in addition to various Chamber of Commerce members/supporters, namely, Christine Wiebe (Spirit of BC – PlAN a,) Shawn Neuman, Domain 7 (offical Abbotsford Heat sponsor and Dave Krahn, developer (member on CIDAC /developer and owner of Mill Tower, Gladys Ave, also, added their names to a P3 Water “yes” vote endorsement.

A P3 water “yes” vote would have meant with “no federal funding the city would’ve hoped to receive $63 million financial grants and other recoveries plus $30 million in reserves.

That would’ve left $235 million to be borrowed at 4.25 percent. Over 25 years, that would result in payments of approximately $15.85 million per year for the another $1.3 million a year for the city to run the plant, resulting in annual payments of $17.4 million per year or $435 million over 25 years. The P3 would’ve cost $1 million per year more to operate than if, the city operated it.

The city indicated it proposed to pay off the amount with water user rate increases and DCC’s and water rates were predicted to rise 10% per year, 50% over five years.

Pat Soanes, also, pointed out payments could not be deferred or paid thru internal borrowing, due to contract.”
Source: Abbotsford News, October 11, 2011
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The City of Abbotsford would , now, be looking for alternate sources of revenue to pay for the P3 water project, since Development Cost Charges have declined considerably, to about half the value of what they were between 2006-2008 (250 – 350 million annually.)

Development Cost Charge Rates

Prior to the Plan A vote in November, 2006, Council was informed in Sept., 2006, by a Dayton & Knight consultant’s report about the need to raise Development Cost Charge rates to help pay for a new water source and James Sewage plant upgrades.

http://www.abbotsford.ca/Assets/Abbotsford/Water+Resources/Reports/Historical+Reports/2006+Master+Plan$!2c+Dayton+$!26+Knight$!2c+June+2006.pdf

In January, 2007, the Abbotsford news headlines read: “Need to find a new water source. Gordon suspects DCC’S TO RISE DRAMATICALLY.”

“Abbotsford Engineering Director, Jim Gordon believed DCC’S will have to increase to raise some of the funds. Whatever option is taken to generate more, water, Gordon said it will take “big dollars. It will affect DCC rates but I do not think anyone wants to run out of water. We cannot sit here in good faith and run out of water and we know growth is coming.”

Source: Abbotsford News: January 16, 2007

Between, 2006 and 2008, City of Abbotsford received approximately $350 million in building permit values per year on which DCC’S were collected, yet, they never raised the DCC rates (rate paid by developers for capital projects due to growth in the city,) until, end of 2008. “The City of Abbotsford agreed to hike its DCC’S in 2008 to take into account higher construction costs . However, those higher rates have not been passed on to local developers, who are still paying fees at 2007 rates. Council’s decision to lower rates now (2009) means that developers will pay their DCC’s at 5% less than existing 2007 levels. That is 12% less than the proposed 2008 fee.”

Source: Abbotsford News: January 16, 2007

The City of Abbotsford failed to collect appropriate DCC’S, when building permit values were at an all time high, prior to the economic downturn and as a result City of Abbotsford has ended up short of funds for capital projects such as new water source and water treatment plant, due to “grow and development.”
It wasn’t until 2010, when the Economic Development Advisory Committee decided to recommend a DCC rate increase to help pay for the McCallum/Clearbrook Rd Interchange projects and airport upgrades, which resulted in the city having to resort to internal borrowing for a portion of the 2010 Interchange project costs.

**The Economic Development Advisory Committee advises council on DCC rate increases or decreases.

https://abbotsford.civicweb.net/Documents/DocumentDisplay.aspx?Id=25311

http://www.abbynews.com/news/137946288.html

City of Abbotsford Exit from F.V.R.D (Fraser Valley Regional District)
The Abbotsford Chamber of Commerce lobbied the City of Abbotsford to leave the FVRD, because the Chamber Executive indicated, it would save the city $ 2 million per year. The city explored this option and if, the City of Abbotsford had left the F.V.R.D., as Frank Pizzuto, City Manager in 2011 said “we would have to remove ourselves from the hospital district and we would have to take the $54 Million debt with us.”

http://www.abbynews.com/news/114679779.html

Councillor Braun and Councillor Ross are to be commended for raising concerns about the transparency issue of an “ arms length” development corporation and lack of about public consultation about this latest public business venture proposal, between the City of Abbotsford and select developers/business business people in this community.

In fact, Abbotsford residents should be very concerned about the city entering into another publicly funded business venture. We are all aware of the “arms length” business deal, between the City of Abbotsford, Calgary flames and Abbotsford Heat owners and ensuing lack of transparency and escalating costs to the taxpayers of Abbotsford.

An important part of the transparency issue of a “stand alone” development corporation is public access to financial information of the corporation, in terms of development projects, which could be undertaken, by the committee.

Fiscal information about development projects initiated between the city and select developers on a new development corporation would not be provided, by the City of Abbotsford thru Freedom of Information Access, due to third party privacy protection

Deputy City Manager, Jake Rudolph, “maintains a corporation would dedicate itself to the economic development of the municipality, not undertaking development projects.”
Source: April 22, 2014 Abbotsford News

However, City report COR34 -2014 states, “the functions” can become involved in development projects, which would be directly funded by the taxpayer to try to generate revenue for the city. That is where the problem of lack of transparency comes into play.

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In December, 2010, Professor Garrett Powers did a case study of “Economic Development corporation’s
“shadow” government and fight for public transparency and accountability.” His paper explored
“the limited public accountability of local quasi-public development corporations in negotiating and
implementing public redevelopment projects by examining the history of the Baltimore Development Corporation.” {Pg. 149}

He stated, “ for almost two decades, the BDC strenuously resisted public inquiry and oversight, a
tradition inherited from its predecessors that originated as a private business led entities preforming tasks under contract with Baltimore (City).” {Pg. 1}

“Like other quasi-public local development corporations, the BDC justified its need for secrecy as necessary to ensure the BDC’S effectiveness and efficiency in negotiating with private businesses in redevelopment projects.” {Pg 1.}

“The current BDC has become that which is was nominally created to avoid: a beaurocracy, full of managers, but with limited leadership at the top or focused mission at the bottom.” Yet, unlike a public beaurocracy, BDC is unaccountable to the electorate and able to hide its use of public funds and powers behind the smoke screen if it has private status.” {Pg. 1}

Powers concludes that “the BDC and other quasi-public local development corporations have been granted excessive autonomy from public accountability, especially by courts too much influenced by the progressive mantra that effective governance requires government to become more “business like.”

This view ignores the powerful role that these quasi-public entities play in reshaping cities courtesy of their control of the uniquely public power of eminent domain and public financing. The limited perfunctory review by elected bodies, like the board of the planning, negotiating and implementing of redevelopment projects preformed by these quasi-public entities is not sufficient to ensure public approves projects done in their name and with their funds, with enhanced power should come increased responsibilities, whereas the BDC is permitted to inhabit the “shadowy” neverworld, with tremendous power to reshape Baltimore on behalf of the public but without any obligation to explain its actions or any direct accountability to Baltimore’s electorate.” {Pg. 4}

Given the information above, one might say, what do the problems associated with the BDC in the US have to do with operations of Economic Development Corporations in Canadian cities?

The fact is, the same concerns raised about operations of the BDC have surfaced, related to the operations of economic development corporation’s in Canada and one example lies right next door, the Surrey Development Corporation (SDCC), which, too, has raised citizen concerns about transparency, conflict of interest and spending public funds on high risk development projects.

“Jim Cox, CEO of the Surrey Development Corporation (SCDC) shrugs off critics suggestions that his organization is competing with private developers and putting taxpayers money at risk.”

Source:
http://www.biv.com/article/20140408/BIV0111/304019936/-1/BIV/city-development-strategy-risks-The

Brian Hutchinson, Globe & Mail reporter, further, points out, “ well known development consultant, Michael Geller quit the Surrey Corp. Board, because he was uncomfortable about some deal the corporation was considering.

Michael Gellar, who was board member on the SDCC until he resigned in 2010 stated, the purpose and activites of a municipally owned development corporation should be different than a private development corporation.

Gellar said,‘ he had no problem with cities trying to capitalize on their land or even build commercial projects that the private sector won’t, as long as it could be proven they were a developer of last resort.

But he does not support cities devleoping their land with the explicit goal to make money as Mr. cox has sadi SCDC has.

That’s where we part ways, There’s not only the appearance of conflicts. There will be conflicts
He also has a problem with the city plunging into an investment that every other private developer in the city judged as too risky.”

Source:
http://www.theglobeandmail.com/report-on-business/industry-news/property-report/smart-or-risky-when-suburban-cities-become-developers/article8169738/ars-critics/

Doug MacCallum, ex-Mayor of Surrey, also, had this to say about the operation of the SDHC in Surrey:
“The city should start simplifying its operation more. They’re developing too much beaurocracy and trying to do everything. They need to get back to basics, to be simple and just do governance that
all city governments do and not all these things the private sector can do better.

He calls for the corporation to be disbanded, claiming it’s existence creates a conflict of interest.
McCallum said, a development corporation where shareholders are council are in a conflict of interest
when it comes before them to vote on it. It’s like voting for themselves,a huge conflict.
SDCD was incorporated in 2007 with the mission to help advance the cities financial, social
and business community goals through the development of the citys surplus land holdings
and strategic purchase of lands ripe for redevelopment.”

Source:
http://www.vancouversun.com/news/Surrey+city+hall+waste+money+says+former+mayor+Doug+McCallum/9696498/story.html

Brian Hutchison of the Globe and Mail even goes farther, “calling the Surrey Development Corp, an obscure real estate business that’s wholly city owned. He says, the SCDC came up with the cash required for a new brewery building on city owned land that was also procured.

Hutchinson indicated, it’s an awkward situation and reminds him of another publicly financed project next door in Abbotsford. There local taxpayers were forced – thanks to a deal struck by their city
council – to cover heavy losses incurred by a professional hockey team that plays for empty seats in the publicly financed arena.”

Source:
http://fullcomment.nationalpost.com/2013/12/03/brian-hutchinson-surreys-beer-

Professor Garret Powers stresses ability to “engage in public discussion with various groups such as a business chamber and individuals in the community about a cities’ economic present and future, instead of relying on a position on a EDC board will permit freer conversation with multiple viewpoints and with new information publicly realized. This will ensure decisions are made on an informed basis, permit, the electorate, which includes the business community to hold politicians accountable for their decisions. They deserve to be known for more than the home of “Shadow government.” {Pg. 149}

Powers, furthermore, indicates “in light of these inevitable conflict of interests, the culture of secrecy
and autonomy from political accountability justifies the perception that the Baltimore Development Corporation is a “shadow government,” doling out contracts to politically important individuals. – as when the BDC negotiated subsidies for the hotel of a major campaign contributor or when BDC award no bid demolition contracts to a frequent contributor to Mayor and other city elected officials.”
{Pg 143}

He highlights, “ the transformation of the BDC into a autonomous entity in which municipal employees were a small minority put the BCDC in the shadows with the board shielding the mayor from political fall out while simultaneously limiting the mayor’s freedom of action. All discussions, negotiations and reports of the BDC were secret preventing public from understanding whether the board truly independant and acted as a check on the mayor’s power. Even if the board acted responsibly, it was not accountable to the public.” {Pg. 144}

“This perceived culture of cronyism corrodes the reputation of a city and drives away potential
economic development.” {Pg. 143}

“This culture of doing business with select developers has already happened in Abbotsford, without, a development corporation and opens the door for further partiality, related to development. The only way to limit these conflict s of interest is through transparency, accompanied by political and legal accountabilty.” {Pg. 143}

Powers says, “the BDC did not happen with the result of thoughtful public debate on the purpose, responsibilities and limits of an economic development entity in relationship with the rest of city government.” {Pg. 144}

This process has not happened in Abbotsford, either and that is why Councillor Henry Braun and Patricia Ross are legitimate in raising concerns about lack of public consultation on the city forming an
Economic Development Corporation, using taxpayer’s money to fund it’s operations.

He feels, “focus should be on small narrowly focused entities, but subject to transparency and a clear chain of command to the office of economic development. These entities would be responsible for implementing the direction established by the head of economic development office in consultation with mayor and council and for coordinating efforts with other municipal Depts. and private businesses.
They would most likely be effective as teams within a relatively small office or Dept. that would enable constant and direct communication between deputy mayor and these specialized entities.” {Pg 148}

Plans to set up a “stand alone” economic development corporation in Abbotsford does not reflect the ‘process of a citizen driven action’ but an action driven by the Abbotsford Chamber of Commerce, via the Economic Development Advisory Committee, which includes several people directly linked to the Abbotsford Chamber of Commerce including specific developers, which serve on the various city economic development committees and have development interests in this city.

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An economic development corporation would provide them ability to promote their own business interests under the umbrella of “working to foster the cities’ growth and development,” without any public transparency on development projects.

Private developers, who are not represented, by the Abbotsford Chamber of Commerce members on the cities’ Economic Development Committee and a new development corporation may have limited
input on development strategies and projects in the city.

“Focus and leadership appear to be the key ingredient to successful economic development not necessarily the degree structure of a public entity resembles that of a private firm.” {Pg. 145}

“The decision not to privatize underscores the important role that private economic development entities play outside any formal link with government, esp. if it leads to more public discussion of alternatives for future development. The city needs to “involve private developers at the local level, a method that would expand the number of participants in the potential redevelopment.” {pg. 146}

Source: The Baltimore Development Corporation – A case Study of Shadow Government and fight for Public Transparency and Accountability.Page 1, 4 and 143 -149
http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1021&context=mlh_pubs&sei-redir=1#search=%22government+transparency+private+entities%

Interestingly, Mark, Hauser, Governing Institute makes a very valid point about “city advisory committees failure of public participation,” which is clearly happening on the cities’ advisory committees, the Economic Development Advisory Committee in particular and may be extended to
an economic development corporation.

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http://www.governing.com/gov-institute/funkhouser/col-failure-promise-public-participation-government.html

This Modas Operandi between the City of Abbotsford, City Advisory committees and Abbotsford Chamber of Commerce and in near future, a new arms length development corporation does nothing to strengthen the legitimacy and sustainability of the government in Abbotsford.

 

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