Another Farbridge hangover: Tell the truth about the Guelph Municipal Holdings fiasco

By Gerry Barker

January 12, 2017

Mayor Guthrie made a statement last week reporting the city had avoided spending some $60 million to complete the two District Energy Nodes in the Hanlon Creek Business Park and the Sleeman centre.

This was part of the Guelph Municipal Holdings Inc. (GMHI) plan to supply energy to the city instead of receiving electricity from the Provincial power grid, as is the case today.

The underlying plans that the previous mayor made as chairperson of GMHI was supported by four members of council serving on her board. This board conducted all its meetings, in closed sessions, thereby eliminating any public participation in the process.

The plans were based on the Community Energy Initiative (CEI) that was planned and executed by the Farbridge administration starting in 2007 when she was elected mayor.

The only thing that stopped the plans was the defeat of Ms. Farbridge in the 2014 civic election. But terrible planning, combined with absorbing the city-owned Guelph Hydro into GMHI over a four-year period, set the stage for a financial melt down.

But some of the credit goes to Mayor Cam Guthrie for taking over GMHI and commencing a post mortem on the multi-million dollar mistake, fostered by the previous mayor and her administration. Here’s his latest announcement:

  1. The original contractual obligations to spend $60 million dollars on furthering these two district energy nodes have now been avoided.
  1. The security deposits for both nodes totaling $612k has been returned with no penalties.
  1. The land in which Envida was to build a district energy plant has also been re-negotiated allowing the city to sell most of it to a private developer. This resulted in no losses on the sale of this parcel of land and revenue to the city of approximately $1.3 million dollars.

Let’s clarify a couple of important details.

GMHI CEO and CFO Pankaj Sardana told council that $60 million back in May 2016 was needed to make the installed District Energy Nodes viable. That was not money spent and will not be spent.

In point two, the Mayor has persuaded the Independent Electricity System Operator (IESO), a Crown Corporation, to return contract security deposits of $619,000 that would guarantee 10 megawatts of power from each Node per year. Neither Node delivered any power.

The question is, what was the source of those deposits, the City? GMHI? Guelph Hydro? More important where is the refund going?

In Point Three, it is revealed that the former mayor had even bigger plans. GMHI secured two parcels of land in order to build two Natural Gas-fired generation plants, one in the Hanlon Park and the other downtown. Part of the proposed Hanlon gas plant site has been sold to a developer for $1.3 million. Was this property offered by tender as required under the Ontario Municipal Act?

How does this square with the admission, May 16, 2016 by former CAO Ann Pappert and GMHI CEO and CFO Pankaj Sardana that GMHI had lost $26,637,244? That’s tne number they both signed off on May 16 at a meeting of Council representing the shareholders of GMHI. Ms. Pappert resigned 10 days later.

The big picture of a deal gone bad, really bad

First, for the average person this is very difficult to unravel and digest what happened, how much has it cost and who was responsible?

Let’s start with the write-offs. The capital cost of the Hanlon District Energy Node of $5.1 million will be written off. With only two customers, it loses a reported $55,000 every year. The Sleeman Centre Node cost was $6.1 million with $3.6 million being written down.

Mr. Sardana told the May 16 meeting of council that GMHI had some $18 million in tax losses. Those losses are never going to be realized because the money-losing GMHI is financially defunct. Translation, they are losses, period.

That totals losses of capital of $8.7 million. So far, that closely equals the amount it took to settle with Urbacon Buildings Group in 2014. Former Chief Administrative Officer, Ann Pappert told the public that the settlement would not affect property taxes. Her administration raided three unrelated reserve funds for $5.7 million to pay the settlement of which little has been paid back.

The Guelph Tribune fails to report the cost of the underground thermal energy system connected to two Tricar condominium buildings, the RiverRun Theatres and the Sleeman Centre. Instead, we are told that the thermal system, powered by the Sleeman Centre District Energy Node will continue to supply hot and cold water for heating and cooling.

Finally, there is that $65 million borrowed from Guelph Hydro by GMHI. In his May report, Mr. Sardana said neither GMHI nor Envida Community Energy having any financial resources to even pay the interest on the loan.

In the 2015 Financial Information Report, the city reported that there was an impaired asset outstanding of $69 million. The reason the amount had increased was because there was no money in GMHI to pay the interest. Presumably, there are no hard assets underlying this $69 million because GMHI is essentially bankrupt.

So the city takes on this debt, lists it on its book as an asset. As the city has folded Guelph Hydro into its financial orbit, it’s only a matter of time before the “impaired” asset becomes a liability and will have to be written off,

Because of the operational secrecy employed by GMHI over the four years, there are still many questions that need answers. The ultimate hypocrisy employed by GMHI was sending a so-called dividend to the city each year to justify its existence. It was just a return of our money while GMHI in its entire history never made a dime.

I don’t know how you feel about this, but the prospect of writing off some $99 million is one of the main reasons that the administration has no money for needed capital projects such as a new Downtown Library, Wilson Street Parking garage, and the South End Recreation Centre.

Yet this council approved converting $700,000 slated for new parking meters to paying some $650,000 toward initial planning of the South End Recreation Centre. Council was told that initial planning would ultimately cost $3.5 million. It didn’t matter, the majority voted for it anyway.

This was a decision to delay installing new downtown meters for another two years thereby failing to start creating revenue.

Finally, this council passed a motion to hire 13 new employees at an annual cost of more than $1 million. That friends, is increasing overhead when there is no courage among most councillors to reduce the high cost of staff.

Since Mayor Guthrie took office there have been more than 45 additional employees added to the staff.

Those are some of the reasons why our city is in a financial mess and cannot afford to even come close to its nine-year capital-spending plan.

The irony is that Guelph resident, Pat Fung, CA, CPA wrote an excellent analysis of the city’s financial management based on four years of the city’s own audited financial reports plus two year’s of reports by external consultants BMA.

Yet in September, Mayor Guthrie outlines what needs to be done to create the 2017 budget. His remarks were right out of the Fung recommendations. He also told a town hall meeting that the greatest cost to the city was the staff

But that’s not what the 2017 budget was all about.

 

 

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12 Comments

Filed under Between the Lines

12 responses to “Another Farbridge hangover: Tell the truth about the Guelph Municipal Holdings fiasco

  1. Joe Black

    2018 election bye bye …

  2. geo

    I really, truly, honestly believe that this GHMI fiasco needs to be investigated by the police (not the locals) This is fraud!

  3. Capricorn

    Agree with Geo. No way those responsible should be able to walk away with no consequences. The public should request an investigation.

  4. guelphspeaks reader

    These politicians put ideology, and pandering to public whims and facade-building before fiscal and business prudence. Guelph Municipal Holdup Inc is a perfect example, in contrast to say, a minor issue like the Niska Bridge, or the downtown parking meters, which generate huge public outcry. But the secrecy around the spending and ultimate loss of something like A HUNDRED MILLION DOLLARS gets swept off the table, while Farbridge supporters and complicit councillors go, “lalalala I can’t hear you” at any whiff of justifiable requests for accountability. The nerve! How dare the great unwashed interfere with the powers that be! The secret meetings, the high-flying spending, the awards…oh, all the awards…..none of them came from the business planning sector, that’s for sure. But when it’s time to build what the city really needs, everyone cries poor and sticks it to the ones who provide the money for this operation and calls it “brave”.

  5. Fred

    Pat Fung for mayor and CEO. No more cheese for the rat hole.

  6. Glen

    As an indication as to how poorly thought out (if at all) the GMHI/DE fiasco is, has anybody disclosed the COST of generating a BTU of heating or cooling for the 2 customers connected to the Envida unit in the Hanlon Park unit and the PRICE paid for that energy by the customers? What is the likelihood that the city is on the hook (for forever & a day) for the thermal energy losses and piping inefficiencies in the system? Also, did any of the “brain trust” calculate the COST of generating a KWHr of electricity compared to the commercial PRICE of buying it from the existing hydro network? These are questions to be answered before the whole GMHI boondoggle is swept under the rug. There should be an external audit of all the GMHI related activities carried out by forensic accountants, engineers, and lawyers and those responsible should be publicly held accountable.

  7. geo

    GHMI sent the City a dividend each year which in fact was not a dividend. A dividend is money paid out to shareholders from earnings. As Gerry has revealed GHMI earned nothing, nada, zilch.
    Is this not fraud? Wouldn’t GMHI’s books have to be manipulated to show a profit before they could send the City a dividend cheque?

    • Geo: One would think so.In 2014, the last annual statement I saw from GMHI was it lost $2.8 million but actually sent $1.5 million to the city. Further the report stated that it had delivered $9 million to the city since 2011. If that’s not a Ponzi scheme, I am a financial doofus.

      But it gets better. May 16 2016, Chief Administrative Officer Ann Pappert and her successor at GMHI, Pankaj Sardana, both signed off on a document that stated GMHI lost more than $26 million since inception. Folks, this is on the record.

      When the Left, the Donaldson’s, Best, Pickerskil and Holstein, the voices of denial keep ignoring the reality of financial management, they had better read the city’s own Financial Information Reports that are submitting each year by the administration. How to explain losing $23 million on building a new city hall? How do you explain why the administration admits the Community Energy Initiative created by the Farbridge adminstration spends your money, believe me it’s in the millions to create her version of the perfect city.

      Everything the former mayor initiated and supported has resulted in keeping promised capital projects being delayed because of her failed social engineering projects, It’s ignored and displays the ignorance of the Left supporters and advocates whose knowledge of critical financial matters is absolved into indifference..

  8. Laura

    I read Brian Holsteins January 2017 opinions in the on line Guelph Mercury apparently about Gerry and some of the posters on this blog. Of course he never mentioned the name of this blog or Gerry’s name. I wonder why not? He never mentioned the reason why citizens are angry about the increase in taxes caused by the excessive spending without even a business plan on the failed district energy plan something he himself promoted in his role as a Farbridge supporter. Or the ever increasing number of administrative city staff while our services are cut, our roads deteriorate and soon we will be paying to clean up Imaco and the leaking landfills along our rivers. I guess he expects us to keep quiet and open our ever shrinking wallet to pay for the the cleanups and also the GMHC loss thru our electric rates. It is clear to me there people who believe that we should not criticize or be negative just sit back shut up and pay your taxes or remortgage or sell your house if you can’t afford to live there while the city spends money on vanity projects

  9. Capricorn

    I too read Brian Holstein’s article as well as the one by Martin Ford. Transparent and arrogant are the words that come to mind. Funny that Brian Holstein used the words “seemingly orchestrated” while both their articles criticized the use of the word gang or block. These folks are starting the campaign early, and using juvenile insults to try and discredit anyone who doesn’t lean their way. I think it’s too late, and all their silly submissions to the Mercury discredit them more than ever. Now that the Mayor has exposed the failure of DE , makes you wonder what else we don’t know. Trust must be earned and it’s been broken by the secrecy surrounding the losses.

  10. sabre6 sabre6

    Gerry: Please continue to send me info but at my new address; sabre6@cogeco.ca Keep up the good work.  We moved from the south end to Elora; Guelph is ridiculous and will just get worse with the inaction, inept government and south end build with little infrastructure planning.  I do not know why other cities, such as Toronto, are hauled on the carpet:" for incamera meetings and yet Guelph is immune.  Regards, Doug Andrews

  11. Laura and Capricorn, thank you for your Jan. 14 and 15 responses. Brian Holstein is a City of Guelph senior ‘old boy’s club’ employee.

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