Memo to city administration: It’s about the spending, stupid

By Gerry Barker

September 22, 2016

There was a guy named James Carville who, in the 1992 Presidential election, coined the phrase, “It’s the economy, stupid.” Carville was a political agent for Democrat candidate Bill Clinton who was facing George H.W. Bush. That one sentence galvanized the U.S. electorate to elect Clinton their new president.

It doesn’t take much more convincing that Guelph has not only a spending problem but the problem of carrying the baggage of money wasted on various schemes initiated by the former Farbridge administration.

There have been a number of revelations of money wasted. The Urbacon city hall contract lawsuit added an additional $23 million to the original cost of the building, taking the cost to $65 million. An impatient mayor triggered the firing of the general contractor, when the building was 95 per cent finished, caused this. That led to the defeat of the former mayor. She has yet to apologize for that mistake in judgment.

Did the public approve of this?

In her eight years in office, the former mayor and her council majority of supporters, allowed the number of full-time city staff to balloon by more than 35 per cent. The population increase during that period was 6.5 per cent.

Along comes the $37.1 million spent by the city-owned Guelph Municipal holdings Inc. (GMHI). The board was chaired by the mayor and four members of council, giving the chair absolute authority.

She exercised that authority behind closed doors without any public participation or input. Last May 16, we learned the truth about her secret project to develop two District Energy Node pumps, powered by natural gas and through a complex underground co-generation system, supplied hot and cold water to nearby buildings.

The Node located in the Sleeman Centre, supplies the co-generated hot and cold water to the two, new hi-rise Tricar Condo buildings, Sleeman Centre, RiverRun Theatres and St. Mark’s church.

Pankaj Sardana delivered the bad news to council in an open meeting. He said the project was started with a bad business plan and should never have been started in the first place. His presentation to the GMHI shareholders, aka city council was supported by the former CAO, Ann Pappert, who had served a Chief Executive Officer(CEO) of GMHI for four years.

If anyone knew of what GMHI was planning, it had to be her. But no one, the former mayor, the four councillors or Ms. Pappert serving on the GMHI board, said a word. Mr. Sardana’s presentation was the first indication of trouble with this project.

The devil is in the details

On July 13, the staff presented a detailed report on how the project failed and the associated costs. Those costs included the sum of $68.5 million an “impairment” asset on the city books. What is the interpretation of an ”impairment” charge? If the recoverable amount of an investment is less than its carrying value, then the asset is deemed to be impaired. The value must be written down to the recoverable amount.

Now most people know that the city must balance its books every year.

But because Farbridge persuaded her city council comrades to form GMHI in 2010, as a separate corporation, the finances went off the city books. This clandestine approval allowed her to pursue her dream of energy sustainability and reduction of carbon.

This $68.5 million is impaired because the cost of carrying the asset is some $3.5 million and exceeds the revenue. But there is no provision in the city income to pay these interest costs annually. The result is the so-called “asset” becomes a liability on the city books. In other words, the citizens have to pay for this colossal, multi-million dollar mistake. Yet Mark Amorosi keeps saying the city finances are in solid condition.

The mysteries remain: How was that impaired investment money spent? Was it a term loan? Who guaranteed it? Are there hard assets to provide collateral under-pinning the funds?

Mr. Sardana only mentioned that there were investors bankrolling the funds. It now appears that those “investors” were Guelph Hydro through it subsidiary, Guelph Hydro Electric Services Inc (GHESI). This is the billing and collection department of Guelph Hydro. The cash flow from some 55,000 customers each month is estimated to be more than $20 million or $240,000,000 a year.

The next question: Did the former mayor use that cash flow to finance her abortive Community Energy Initiative (CEI)?

And did her demands for GMHI financing, impact the Hydro costs of the estimated 55,000 customers in the past four years? During that time consumer Hydro charges increased by 42.5 per cent in Guelph.

If you can’t use it, pay someone else to take it off your hands

And what is the provincial electricity system doing during that period? Among other things, it is paying U.S. Border States to take its excess power off its hands. That indicates that since 2006, power consumption has dropped in Ontario by 13 per cent. Yet, the province continues to expand wind, solar and natural gas fired generators adding another 1,300 megawatts (MW) this year. The province’s supply of power now has an installed capacity of 40,000 MW.

The highest daily peak demand was in 2006, during the summer, when demand reached 27,000 MW. This year, during a severe drought for most of the summer months, the peak demand exceeded 23,000 MW for just one day.

Despite these facts of provincial power capacity and usage, the former mayor amalgamated Guelph Hydro that is owned by the city, with GMHI. She gained complete control, using the utility as her piggy bank to fulfill her CEI dream of power sustainability and climate control.

Mr. Sardana says that neither GMHI nor the Guelph Hydro subsidiary, Envida Community Energy Corporation, is financially viable.

With what we know now, I feel the police should investigate this whole GMHI/Guelph Hydro failed plan. If for no other reason, the public needs assurance there is no evidence of fraud, misuse of public funds, failing to disclose GMHI financial data of the operations to citizens. There should also be an investigation into complicity on the part of the former mayor, members of council serving on the GMHI board of directors, and Guelph Hydro.

We know that the Bloc of Seven majority supporters of the former mayor will never agree to any investigation of the CEI despite the evidence, that is now public that they tried to suppress. In fact, the city is advertising for people to apply for the CEI public advisory board, despite the history of CEI and the financial mess that remains.

By failing to accept their responsibility to effectively represent their electors, they face a backlash, if not next year but the year after, when they must answer to the voters in the October 2018 civic election.

In Guelph, preparations are underway to create the staff’s 2017 budget recommendations to Council sometime in the next few weeks. Rumours have been flying about the financial condition of the city.

Citizens who will be able to make presentations during the process will closely follow this procedure to finalize the next city budget.

There is a viable cost-cutting alternative financial plan on the table prepared by Guelph resident, Pat Fung, CPA, CA. It will be interesting to discover how this plan will affect the outcome. To obtain a copy, go to www.guelphspeaks.ca and it is available for downloading.

Please participate, it’s our future.

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2 Comments

Filed under Between the Lines

2 responses to “Memo to city administration: It’s about the spending, stupid

  1. I was thinking about the recipients of the heat generated under GMHI – retail, hockey, theatre and……….THE BIBLE? Maybe Karen threw the Bible in to her plan to dissipate some of the heat? One quote from the Bible: Numbers 32:23 “Be sure your sin will find you out”. Regardless of any GMHI holding company! One small error Gerry… I am not positive, but I wonder if the church in question might be St. George’s church, not St. Marks? I don’t believe Guelph has a St. Marks church. If the CAO made the same small slip, his quote might become “Robbing Peter to pay Dick”. Problem is, in this city we have too many of the latter.

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