By Gerry Barker
March 20, 2017
If there ever was the opportunity to develop a documentary to describe the woeful record, it is now outlining how three administrations have lost more than $136 million in ten years. Perhaps it’s time to reconcile the city’s finances by hiring a Chief Financial Officer with experience and savvy.
Here is a draft outline that details the events that have drained the financial resources of the city, to the extent that the current Guthrie administration is engaged in selling Guelph Hydro to rebuild the financial losses of previous administrations.
The Guthrie administration is hamstrung to even pay for needed infrastructure repairs and replacements, let alone reducing costs. A new city report clearly states that it is going to cost double what the administration estimated when approving the 2017 budget.
And council couldn’t even get that straight when it voted to double the so-called special property tax levy from one per cent to two percent. The staff recommended a one per cent levy to help pay for the infrastructure costs but council added another one per cent to pay for “city buildings.” The reality? It is an attempt to start construction of the $60 million South End recreation centre.
Trouble is there is no capital funding for this project. So council approved shelving some $700,000 to replace the parking meters downtown, a project in the 2016 budget, to produce parking revenue. Then council turned around and spent some $650,000 toward pre-construction costs of the South End recreation centre.
Most people would believe this is a commitment to proceed with the project. Most people will figure out what is occurring is a back-door attempt to force the next council to come up with the capital funding for the project.
Both Ward Six councillors, Karl Wettstein and Mark MacKinnon, pushed this attempt to force future councils to pay for it.
Is this any way to run a city? Any way to mortgage future generations of residents to pay for something they did not vote for? Is it right to ignore the costs of infrastructure to assuage the desires of a minority of citizens?
Already, there are decisions being made to ensure the re-election of the present majority of council including the mayor. A key problem is the greatly diminished level of reserves that have been used to shore up projects and balance sheets for far too long.
That’s where we stand today. But let’s look back at how and when we got into this mess.
Back to the future, Guelph style
In February, City Solicitor, Donna Jaques, resigned and left for a job in North Bay with the Ontario Northland Railway. Deputy Chief Administrative Officer, Mark Amorosi, who was dismissed, followed right after her departure. They are yet further additions to the exodus of senior executives leaving the city since Mayor Cam Guthrie was elected. Scott Worsfold, another city lawyer resigned last fall.
More than 20 senior managers have left the city since 2014. These are the people who administer the operations of our corporation. In any business, the adage is it’s more difficult to replace a key employee than to fire the incumbent.
An example is the recent announcement that the General Manager of the Community Energy Initiative (CEI), Rob Kerr, has been dismissed. At the same time the city is setting up a Climate Change Office. Is this really needed? Premier Wynne is already taxing us through our Hydro bills for our use of household fossil fuels. These include use of natural gas in a variety of appliances including barbeques, stoves, dryers, fireplaces, furnaces, and water heaters.
And now we need a Climate Change Office?
What follows is a documentary of how our city investments have been squandered by three administrations. Since 2007, these administrations have created social engineering projects that most people did not request or want.
It documents abuse of the public trust, its right to know and participate. We have been subjected to absolute control, secrecy, distortion of facts and unparalleled arrogance. So, we can only blame ourselves as we elected them. Here is a record of how our money was misused and managed without recourse on our part.
Scene One: The genesis of a financial disaster
It’s early in January 2007 when the newly elected Mayor of Guelph, Karen Farbridge, persuades leaders of organizations across the city to join, creating the Community Energy Initiative. More than 20 prominent individuals accepted her invitation to join and participate. They represented the Guelph Chamber of Commerce, The University of Guelph, Guelph Hydro, Industrial and commercial leaders and energy experts.
Little di we know then of the impact on city finances of this project.
Scene Two: Spending $16 million renovating a derelict building on someone else’s property
Mayor Farbridge becomes immersed in running her city and introducing a number of initiatives. These included approval of spending $12.7 million to move the Civic Museum into a leased former derelict convent next to The Church of Our Lady. This project took five years to complete and cost more than $16 million. Of that amount, the federal and provincial governments provided roughly $6 million. As an aside, more than $1 million was spent landscaping the hill in front of the Museum, on land the city does not own.
Scene Three: The $33 million great landfill diversion scheme
With little public input, council approved a new solid-waste management system. It included spending $33 million on an organic waste-processing facility that had a processing capacity that was three times the needs of Guelph for 20 years. It was operated by Aim Environmental a subsidiary company of the builder of the plant, Maple Reinders. Another Maple Reinders subsidiary called Organix sold the compost produced.
Details of the organic operation were never revealed to the public, including the sale of the composted material. The city management said it could not reveal the details because of “private proprietary interests.” An internal audit of the waste- management operations in 2016 revealed it was losing $270,000 a year. The Executive Director of Environmental Services, Janet Laird, resigned after the 2014 election. Her General Manager, Dean Wyman, left in December 2015 for a job in Edmonton.
The department is now undergoing a rationalization study to develop a greater degree of effiency and reduce reduce costs of an operation that is losing $270K a year. This is under the leadership of Deputy Chief Administrative Officer, (DCAO) Scott Stewart. Good luck, Scott.
Scene Four: A fateful decision to get tough and lose millions
It’s spring 2008. Mayor Farbridge was getting impatient about the progress of General Contractor, Urbacon Buildings Group Corporation, building the new city hall and renovating the old city hall into a provincial court. The original contract was $42 million for both projects. On September 19, 2008, Acting CAO Hans Loewig ordered Urbacon off the site, supported by Guelph Police.
For his loyalty, former CAO Loewig was given a four-year contract starting at $199,000 plus generous benefits, including several weeks of vacation annually. Ann Pappert replaced him in 2012.
Urbacon responded by suing the city for breach of contract and sought $19,184,181.71 in damages. This began a legal wrangle that lasted for five years and eventually included five lawsuits. Fast forward to March 2014. Justice Donald MacKenzie delivered a stunning verdict in favour of Urbacon and chastised the chief city witness, the site manager, Murray McRae for his testimony. The mayor’s impatience cost a $23 million overrun of the new city hall, from $42 million to $65 million.
Here is a comment from a guelphspeaks posting September 9, 2014:
“This remains an epic error in judgment for which the Farbridge administration must take responsibility. How can they say, with a straight face, that the costs are covered and there will be no impact on taxpayers? They’re manipulating your money to suit their agenda and again avoiding responsibility.”
As it turned out, it was CAO Ann Pappert, who made that claim misleading the citizens.
Scene Five: The year of multi-mistakes leading to the defeat of the mayor
Election year 2014, witnessed several events. They included the Urbacon decision, transit strike and approval of the $34 million police HQ renovations which would take more than five years to complete. These events impacted the future of Mayor Farbridge and four council supporters who either decided not to run or were defeated.
The progressives were stunned over the loss of their leader. Changes came swiftly. The top senior staff was reorganized when Janet Laird retired to Whistler, B.C. and Derek McCaughan resigned. The shuffle occurred before Cam Guthrie took over as the city’s new mayor, December 1, 2014.
Observation: The city administration does not have much success when it comes to constructing major capital projects and staying on budget. Besides Urbacon, there was the Civic museum, both of which exceeded contracted costs by $33 million.
Scene Six: It’s 2015 and we’re off to a rocky start
Early in 2015, there were events that would shape the new council that was dominated by seven supporters of the previous Mayor and her policies. In January, Mayor Guthrie attacked me in an email urging his followers to ignore me. The outburst was attributed to a piece I published in guelphspeaks.ca in which I said the council was reviewing CAO Ann Pappert’s contract.
The Mayor, for whatever reason, supported Ms. Pappert until the day she gave her notice in April 2016 that included her extravagant retirement payoff estimated to be more than $150K. Early last year, concerned citizen, Rena Akerman, sent a detailed email to other citizens outlining the performance of the CAO in the past four years. Mayor Guthrie threatened legal action against Ms. Akerman. Fortunately for him, that didn’t happen.
Scene Seven: the Guelph Municipal Holdings debacle
In 2015, there was an even bigger scandal brewing. Mayor Guthrie and Coun. Karl Wettstein were appointed as council representatives on the Guelph Municipal Holdings Inc (GMHI) board of directors. The former mayor said GMHI was to manage the city-owned assets including Guelph Hydro, its subsidiary Envida Community Energy Corp. and the Guelph Junction Railroad.
Simmering below the surface was this disastrous experiment created by the former mayor. It is a wholly-owned corporation of the city. Mayor Farbridge appointed herself as chairperson of the GMHI board of directors, composed of a majority of her council supporters, plus two members of Guelph Hydro and two independent directors. CAO Ann Pappert was appointed Chief Executive Officer of GMHI and remained in that job for four years.
On May 16, 2016, the truth was revealed in a GMHI situation report signed by Ms. Pappert in her capacity as city CAO, and Pankaj Sardana, her successor at GMHI. In fact, in its five years of existence it has never made a dime but the losses climbed to more than $26.6 million. This loss, according to a May 16, 2016 was reported and presented to council, jointly by CAO Ann Pappert and Pankaj Sardana, CEO and CFO of GMHI.
The report stunned everyone when Mr. Sardana said GMHI had lost $26.6 million and had no financial ability to continue operations. It turned out to be only the tip of the iceberg. GMHI had accepted a loan of $65 million from Guelph Hydro to expand its projects to achieve electric power self-sufficiency for the city. That loan is now an impaired asset on the city’s books and was on the 2015 Financial Information Report valued at $69 million. “Impaired Asset,” means that the receiver of the funds, GMHI, has no money to pay the interest on the loan. Also it has insufficient assets underlying the loan.
Over time, this large loan will have to be written off. Unless, the city can sell Guelph Hydro and profit from the estimated proceeds of more than $150 million. Later this year, the Strategic Options Committee will make its recommendation after shopping Guelph Hydro in the market place.
It is only recently revealed the former mayor and the GMHI board had secured land in the Hanlon Business Park and Downtown to build large natural gas-fired generation plants as part of its Community Energy Initiatives. Again, public input was not invited or considered.
The two natural gas plant sites were obtained when the Guthrie administration shut down operations. Guelph Hydro was brought into the city as part of its finances.
It is now plain what the former mayor was bent on accomplishing. Electric power self-sufficiency and sell Guelph Hydro to the highest bidder to get rid of the losses.
Please think about this: If Ms. Farbridge had been re-elected in 2014, we would still be kept in the dark while millions were poured into a scheme to make our city self-sufficient in electricity supply. If fact, Mr. Sardana said that in order to make the two $8.7 million District Energy Nodes to break even, it would require an additional investment of $60 million.
Did the former mayor ever consider the billion it cost to dismantle two partially built gas-fired plants by Premier Dalton McGuinty to save four Liberal seats?
Well folks, so far it’s only cost you and me $96 million including the $65 million loan from Guelph Hydro. It will eventually disappear into the mists of One Carden Street.
For comparison, the Ontario gas plant tear down cost just over a billion dollars. The population of Ontario (including us) is more than eight million people. So Guelph loses $96 million spread over some 121,500 residents and businesses. Our loss will cost $790 per person, babies, young, old and the infirm. That money has gone.
McGuinty’s gas plant loss cost each of the eight million population of the province $12,500.
But wait a minute! We are included in the Provincial figure so that means every citizen of Guelph is responsible for $13,293. A high price to pay for badly managed, high cost social engineering schemes, all of which failed on both levels of government.
The real problem is that it’s public funds that have been misspent. Regardless of whether it’s posted in the Guelph Hydro books or the city books, it’s a stunning loss and misuse of public money. The city has no choice but to write it off.
But here’s the concern for all citizens: Until there is an independent investigation and forensic audit of the whole GMHI debacle, the people will never know the truth. Most recent development is the dismissal of Rob Kerr, general manager of CEI and the formation of ”Climate Change Office.”
Is this what Karen Farbridge promised when she campaigned in 2006 to “Put Guelph back on track?” Just asking.
Scene Eight: Revenge: Thy sting is not so sweet
In early 2015, Susan Watson, a strong supporter of the Farbridge administration, hired a Toronto lawyer to represent her in an action before the Compliance Audit Committee (CAC). It was in regard to a $400 donation that had been given to former Ward Six candidate Glen Tolhurst by the civic action group, GrassRoots Guelph (GRG). Her lawyer argued that GRG was not permitted to donate to candidates under the Ontario Elections Act (MEA).
Two of the three CAC members voted to have an independent auditor examine Mr. Tolhurst’s election financial statement and the role of GRG. As members of GRG, my wife, Barbara, and I, were subpoenaed to appear before the auditor, William Molson of Toronto. We were questioned for an hour and a half. A couple of weeks later the auditor presented his findings to the CAC committee exonerating Mr. Tolhurst and GRG of any breach of the Municipal Elections Act.
The estimated $11,000 costs of this procedure were paid by the taxpayers and not by Ms. Watson who initiated the complaint.
Scene Nine: Along comes the mother of municipal financial failures
Starting in 2011, GMHI annually deposited a $1.5 million dividend to the city. In 2015, GMHI said it had sent a total of $9 million to the city as dividends. The only problem was the GMHI never made any money. Ten days after signing the report, she left the city to work for the Province of Ontario.
So far, more than $8.7 million, the cost of installing the two District Energy nodes, has either been written off or written down. But there remains a number of unresolved issues including contracts with those buildings connected to the co-generation thermal system supplying hot and cold water. The city cannot afford to subsidize these already installed connections to five large buildings. The statement has been made that it will continue to supply the service. The city has maintained that the Community Energy Initiative is under review with decisions to be made when a staff report is presented to council.
The real problem lies with the $65 million Guelph Hydro loaned to GMHI after board chair Karen Farbridge and her board voted to fold Guelph Hydro and its subsidiaries into GMHI. Since then, the city has taken control of Guelph Hydro. But a major problem remains. In doing so the city has shifted the Guelph Hydro loan to GMHI into its own books as an asset, although impaired. That means that in 2015, that impaired asset had grown to $69 million because GMHI had no money to even pay the interest. The huge problem is that there are no assets in GMHI or funds to even pay the interest on the loan.
Well, the fact is the city now has the loan on its books it’s like lending your son or daughter $25,000 to go to college and never expecting it to be paid back. It’s all in the family.
Scene Ten: The fallout of financial mismanagement will affect all of us for years
Please think about this: If Ms. Farbridge had been re-elected in 2014, we would still be kept in the dark while millions were poured into a scheme to make our city self-sufficient in electricity supply. If fact, Mr. Sardana said that in order to make the District Energy Nodes to break even it would require an additional investment of $60 million.
It is only recently revealed the former mayor and her colleagues on the GMHI board had secured land in the Hanlon Business Park and Downtown, to build large natural gas-fired generation plants as part of its Community Energy Initiative.
Again, public input was not invited or considered. Did the former mayor ever consider the billions it cost to dismantle two gas-fired plants, partially completed by the McGuinty Liberals to save four Liberal seats?
Well folks, so far it’s only cost you and me $96 million including the $65 million loan from Hydro.
When you stop and think, imagine what that $96 million could have done to capital spending in the city. Particularly for a new downtown library, the former mayor promised that 19 years ago. Or the South End recreation centre that was promised by the same mayor nine years ago as a priority.
These are bread and butter issues. We have been held hostage for ten years now by a radical group of progressive councillors who are “big picture” representatives. They obsess about climate change, energy, bicycle lanes, public transit, water sold commercially from the aquifer, protecting the environment.
Running a city is not rocket science. Councillor’s primary responsibility is to make sure everything works. It includes roads, water supply, waste disposal, parks and recreation, cleaning the streets, picking up the garbage and creating jobs.
And please don’t tell me that we are better off than we were four years ago adding more than 400 new full time equivalent employees, with property taxes soaring by 14.2 per cent and user fees for using our own dump and managing our storm water.