In the City of Vancouver, councillors are wising up to the fact that it may not be good for the city to be in the real estate business.
Fortress Investments is not going to restructure the loan on the Olympic Village and the city will now assume the full burden of that loan, in the hope that these condominiums will product a healthy profit after the Olympics. It has also been reported that what was to be one of Vancouver's largest social housing program will be cut, as the City of Vancouver does not have the funds available to finance all that.
Frances Bula reports on a council discussion with staff here.
"But as you can read in the last line of Rod’s story, the city’s manager of business planning, Ken Bayne, made the fatal error of saying the following about the city’s use of $400 million of its current working capital reserves as a loan for the Fortress project:
“In fact, it may actually benefit our operating budget, because of a higher return than we normally get on our investment projects.”
Councillor Kerry Jang rose to reprimand him. “That’s a pretty dangerous point,” he said. “We have to make sure we are not into real-estate speculation. I don’t think we as a city are into real-estate speculation.”
Ken then had to apologize, I’m sorry if I appeared to be making light of the situation blah blah blah. Very squirm inducing."
Our very own Township of Langley real estate consultant Mr. Bruce Maitland is also mentioned on this Frances Bula blog:
"As former real-estate division head Bruce Maitland (now retired) told me recently, that was the policy the division pursued as a way of continuing to grow the city’s assets. The city didn’t want to get into development itself. But by acquiring strategic pieces of land and then doing the preparatory rezoning work itself, it got to capture some of the profits as the land gained in value. Now other cities are seeking his advice on setting up property endowment funds so they can do the same thing."
As you may know, Bruce Maitland just delivered a presentation on a Vancouver-style Property Endowment Fund (PEF) to a joint meeting of Township Council of Priorities and Standing Finance Committee meeting just last week. After this same meeting, Councillor Kim Richter was overheard saying to Standing Finance Committee member Ken Baker, "Do you see the mentality of this council?" This after several council members asked Maitland some very direct questions pertaining to the operation of such a PEF in the ToL in a market such as the one we find ourselves in. Council members also expressed concerns that upzoning might work in Vancouver, but would be certain to outrage Township residents.
"Do you see the mentality of this council?"
-- Councillor Kim Richter
We see other municipalities taking a very cautious approach to creative funding like PEF's, and the City of Vancouver having to eat a major loan with $319.5M in City of Vancouver money now going into this project. One has to wonder why the Green-Richter slate is ramming this PEF down the throats of Township taxpayers and council. Maybe its because there was no signs of fraud or waste discovered by the Standing Finance Committee? Maybe its because the Standing Finance Committee has discovered that in order to have a zero-based budget for 2009 they will have to steal from reserves and cut services in a municipality that already has one of the lowest tax rates and service levels that are adequate, but not over the top? Maybe its because maintaining the status quo (keep things as they are), they will have a shortfall of $1,675,745 in 2009 that will balloon to an $8,681,599 shortfall in 2011 that will then require a 15% increase in ToL Property Taxes to resolve, unless major cuts are made now. Bruce Maitland said that in order for the PEF to work, the municipality must take on risks and invest in servicing lands to be sold to developers. How will we have a zero-based budget, adequate services, and take on risks to make money on lands in a time of serious economic decline? Do you see the mentality of this slate?