By Gerry Barker
July 10, 2017
Here’s the premise of a story that won’t go away. It’s about the losses associated with the Guelph Municipal Holdings Inc. (GMHI) and how some $163.474 million was lost in a bungled former administration’s attempt to create energy self-sufficiency in Guelph.
It’s a story that most people cannot figure out because they were not told details of the financial misadventure by the GMH Board of Directors chiefly composed of city councillors. They worked behind closed doors. Further, two of them, Coun. June Hofland and Coun. Karl Wettstein are still silent about their association as directors of GMHI.
Now it’s alarming that council continues to vote for projects such as the $12.3 million extension of trails over ten years. The off-road maintenance of these trails is estimated to be $271,000 a years. Council balked at this one and ordered staff to re-think its recommendation. In making this recommendation, why didn’t the staff, particularly those senior managers, think the maintenance costs were excessive particularly in winter?
Council caught it and recognized it was too high.
But I digress, the following is a statement by the accounting firm, KPMG, auditors of GMHI’s consolidated balance sheet.
“In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Guelph Municipal Holdings Inc. as at December 31, 2016 and its consolidated results of operations and its consolidated cash flows for the year ended December 31, 2016 in accordance with International Financial Reporting Standards.”
As quoted in the Guelph Tribune July 3, 2017: “Pankaj Sardana, the CEO for Guelph Municipal Holdings Inc., the parent company for both Guelph Hydro and Envida Community Energy Corp., also updated councillors on the status of the district energy project, which has seen millions of dollars written off or written down from the city’s books.”
The key words here are “millions of dollars” If anyone should know, it would be Mr. Sardana who addressed the dire financial condition of GMHI 14 months ago.
“The expenses are higher than the revenues, and expect to remain so for the duration of the contracts,” he added.
Here are the figures on the GMHI balance sheet audited by KPMG
The consolidated total audited current assets of GMHI are $67,943,000.
The total consolidate non-current assets according to the audit is $162,653,000.
Total assets are $230,596,000
“The capital asset has been written down to nothing, zero,” Sardana told councillors, adding many of the assets from the district energy portfolio are now considered “onerous.”
Now, here is what the audit declared as GMHI Liabilities:
Total current liabilities: $30,736,000.
Total non-current liabilities:
Provision for liabilities and changes $ 490,000
Senior unsecured debentures $94,283,000
Employee future benefits $10,297,000
Customer deposits long term portion $ 5,196,000
Deferred revenue $22,472,000
Total current liabilities $163,474,00
Share capital $67, 530, 000
Accumulated other comprehensive loss $ (555,000)
Retained earnings $ 147,000
Total Shareholder’s equity $67,122,000
Total liabilities $230,596,000
The shareholder’s equity is worthless. The former administration used public funds to invest in the Community Energy Initiative. It needed capital to finance its blind ambition to change Guelph and convert its demand for power through what turned out to be a failed District Energy plan.
Few people knew the depth of losses that GMHI generated over five years. Almost all of GMHI meetings were conducted in closed session.
Shifting the deck chairs on the Titanic
Now the city is moving money between agencies controlled by GMHI to pay down part of the debt owed by Envida Community Energy, the total of which is estimated as $20 million.
Trouble is, it’s our money that is being shuttled around with Peter paying Paul.
According to the Tribune, “following discussion of the money lost … Mayor Cam Guthrie remarked that it “does feel good to feel that my concerns have been validated.”
How does the Mayor feel now that he and his council are stuck with a huge problem: What do we admit to the citizens? The KPMG audit reveals a brutal situation in which the public’s financial resources have taken a monumental financial dump of dollars.
There was the deliberate use of secret meetings denying the right of the public to be informed of what was going on. It was not only undemocratic but a cover-up by senior city employees and at least four councillors plus the former mayor as chairperson, who served on the GMHI board of directors.
This allowed the city council members of the board to have total control of GMHI including Guelph Hydro.
When you are not accountable, you can get away with anything
During this period, millions were being spent and committed to projects that were never openly discussed in public. GMHI never made any money but sent $1.5 million annually as a dividend to the city to validate its existence. It was all a phony exercise in which money was taken from capital funds to pay the dividend. No one questioned it yet in 2015 the GMHI board said more than $9 million had been transferred to the city over six years. In that same year, GMHI lost $2.8 million.
Now we are seeing some of the fallout. Guelph Hydro is buying the dying Eastview generating plant that relies on a dwindling methane-gas supply from the former landfill site. Also approved during a special meeting, councillors, acting as GMHI shareholders, approved the sale and transfer of solar panels. Ownership of solar panels on top of the Guelph Hydro headquarters was transferred to the utility. Also approved was the sale of solar panel installations on eight city facilities back to the city.
The sale of Eastview will generate $558,000. The solar panels on the Guelph Hydro HQ roof solar panels $796,000. The city solar installations transfer cost $276,000.
Following a question by Coun. Dan Gibson, chief administrative officer Derrick Thomson confirmed the assets were being sold to generate cash that could be used to help pay Envida’s lenders. Who were these lenders? Did this involve the holders of the senior unsecured debentures, one for $65 million and the other for $30 million?
Who is liable for repayment of these debentures that are listed on the balance sheet as a liability?
Mayor Guthrie, as a councillor for those four GMHI years, were you ever informed of what the former mayor and her entourage were doing? Were all members of council receiving regular reports of the GMHI and Guelph Hydro activities in relation to the Community Energy Initiative?
Was the plan to make the city “look good?”
In the past, Guthrie has called the district energy project “a vision that was rammed forward” because the city “wanted to look good.”
Well Cam, you and your council colleagues have known about this multi-million dollar financial disaster for almost three years. Or maybe you didn’t because there was no Chief Financial officer in place to raise the alarm. It took two and a half years to finally hire a CFO who has financial accreditation and experience to provide the necessary checks and balances needed to sort out the mess.
In 2014, the voters figured it out that there was gross mismanagement by the city administration. As a result, you were elected mayor with the majority of people seeking change.
Unfortunately the honeymoon ended March 25, 2015 when council approved what turned out to be a 3.96 per cent property tax increase. That was a long way from your election promise to contain the property tax to no more than the Consumer Price Index.
But while that was a repudiation of you as Mayor, there was a much bigger problem brewing. While praising the contribution of the GMHI board, you did take over and named two councillors to the board. One was Karl Wettstein, who had served on the GMHI board for four years. The other was Coun. Cathy Downer. Wettstein remains silent on the activities of GMHI along with Coun. June Hofland, the former chair person of the city finance committee.
Did the city finance committee ever discuss what was going on with GMHI and Guelph Hydro, both owned by the City of Guelph?
What possessed elected officials to develop such a brain cramp about their connection with GMHI? Were they so loyal to the former mayor’s vision that they refused to blow the whistle?
What the public needs to be told are details of the wind-up of GMHI and the Community Energy Initiative. And, it is more important, to be informed of the costs resulting from this misadventure.
Stop playing games. Report to the real shareholders the details of this costly exercise to fulfill the ambition of a community leader who is no longer in power.
Meanwhile lets stop spending public funds on trails, road shrinking to create more bike lanes, wading pools, art centres and wellbeing giveaways until our house is put in order through an action plan.
Let’s learn from what happened in the 2014 election. The real political power in Guelph for the past ten years has rested with the 12 ward councillors. This will be the 2018 battleground and the citizen’s only opportunity to restore political balance on city council