How Guelph Municipal Holdings Inc, covered-up losses of $68.3 million

By Gerry Barker

August 5, 2019

Opinion

Part Four of Seven

Previously in Guelph Speaks:

Catch-up synopsis of the first four posts about the turbulent and financial history of the two Guelph administrations serving the city in the past 13 years.

The introduction of the seven-part series summarizes the impact on the citizens.

Part One –The birth of the Community Energy Initiative and the failure of citizens to petition for an audit of the city’s finances by the Ministry of Municipal Affairs and Housing.

Part Two – The unrealistic goals of the Community Energy Innovation plan to restrict greenhouse gases, by 50 per cent less energy per capita.

Part Three – Executive spite cost citizens $23 million more than the new City Hall contract when the general contractor, Urbacon Building Group Inc, was fired with the project 95 per cent completed.

And now, Part Four- A convenient collusion in which Guelph Municipal Holdings Inc. lost $66 million

Details of this GMHI audited financial loss of $66 million, has been surrounded with few details of why, in four years, it lost $66 million.

More importat to citizens, is what did GMHI and Guelph Hydro, do with the money?

In this part you will learn about what we do know, including the duplicate management of Mayor Karen Farbridge and Ann Pappert, Chief Administrative Officer of the Guelp. The mayor was also chair of CMHI and CAO Pappert was also Chief Executive Officer of GMHI.

That set the stage for a convenient collusion that ended with the city stuck with a debit of $66 million.

Read on for the details of this project, how it was mismanaged, conducted its business in secret and there were no checks and balances by our elected representatives. The public interest was ignored as was accountability and transparency.

Again what did GMHI and or the city do with the money over the four years?

There are three clues to what happened. First clue, in May 2016, a report to council from the GMHI management stated the holding company, owned by the city, was losing money and the business plan was not viable.

The second clue was a devastating staff report in July 2016 that declared GMHI was $68.3 million in the hole.

The third clue was the 2016 consolidated audit by the accounting firm KPMG that, among other things, stated the shareholder’s liability was $66 million.

It is calculated by a staff management’s review that GMHI has an “investment impairment” of $68.3 million. By 2017, it was estimated GMHI had lost an additional $17 million and was losing money every year. The reason was the operation of GMHI’s defunct District Energy operations that had to continue servicing customers with hot and cold water.

Double-barreled command enhanced by closed-session meetings

It didn’t help the public to understand what was going on because the GMHI Board of Director’s (BOD) meetings were conducted in closed-session as were a number of council meetings regarding GMHI.

To be blunt, the Farbridge-inspired Community Energy Innovation (CEI) an enterprise project, created in 2007, was a financial disaster with little or no hope of ever becoming remotely viable or an asset of the city and its citizens.

These projects, inspired by the CEI manifesto, impacted needed infrastructre maintenance as funding was diverted to GMHI.

Proof is that in 2017, city council approved a special one per cent levy on property owners in the 2017 budget following the 2016 KPMG audit of GMHI. The money was to be applied to infrastructure maintenance and replacement.

The CEI manifesto is still being used today as a guideline to fulfill the objectives of the environmentalists looking to change the city to conform to their principlres.

This decision by council was made following a staff report that there was a shortfall in infrastructure requirements of $400 million.

In my opinion, this levy was a ludicrous attempt to thwart public interest into believing council was doing the right thing dealing with infrastructure demands.

Some words of wisdom from someone who has been there

Back then, for the newly elected Mayor, Karen Farbridge, the comment of former U.S First Lady, Michelle Obama, at the 2012 Democratic Convention: “ Being President doesn’t change who you are. It reveals who you are.”

Becoming mayor, revealed who Ms. Farbridge was. As we subsequently learned, she was canny, comfortable in her persona, secretive and determined to change our city into her image of what it should be.

Did I mention that she was ruthless in dominating her administration?

It became the centrepiece of the CEI and reflected the vision of Mayor Farbridge.

In retrospect, we learned who Ms. Farbridge was. She became the uber boss of Guelph, serving not only as Mayor but also chair of the GMHI Board of Directors with her CAI, Ann Pappert, as Chief Executive Officer of GMHI.

A convenient collusion denied public participation

To the best of my knowledge, neither woman had any technical experience in managing large energy projects. They oversaw the GMHI energy projects that cost citizens $68.3 million as well as the corporation of the City of Guelph.

As it turned out, the city corporation was also the GMHI banker.

Their secretive complicity reminds one of the lines in the movie, Field of Dreams: “If we build it, they will come.”

Today, Guelph’s enironmental dreams linger as both Ms. Farbridge and Ms. Pappert are gone. There is no apparent benefit to the public to show for the huge investment made by the unknown “institutional investors.” These unidentified investors spent millions in the GMHI projects because they were convinced their boss, Mayor Farbridge, was in charge and knew what she was doing.

Now we know the identity of those investors.

They were the members of the Guelph city council supported by senior managers. Translation, those “unknown investors” were the citizens of Guelph represented by those city councillors they elected. It was a colossal failure by those elected representatives to assume their sworn fiduciary responsibility.

There was no public knowledge of the GMHI operations or the growing financial losses that built up for four years. The GMHI Board of Directors operated almost all the time in closed-sessions.

Nightmare at 1 Carden Street

The defeat of Mayor Farbridge in October 2014 was the start of the flood of information until May 16, 2016 when a report signed by GMHI’s CEO Pankaj Sardana. He replaced Ms. Pappert who left the administration ten days later.

There were no tag days for Ms. Pappert who was paid $263,000 for five months work according to the 2016 provincial Sunshine List published in March 2017. That amount included her 2015 performance bonus of $27,000. Wouldn’t that be called double dipping?

But why repeat the bonus in 2016 when she only worked for five months?

Council hired the accounting firm KPMG to conduct a consolidated audit of GMHI and its links to both Guelph Hydro and the city. That revealed the shareholder’s liability of $66 million.

The KPMG audit confirmed the cost of a project that was controlled by the Farbridge administration, aided and abetted by city councillors and senior staff.

Servicing the carrying costs of this investment by the city loan was estimated to carry 2 per cent interest cost. That’s $1,300,000 per year. When this is added over slightly less than three years, the debt is now stated as $68.3 million on the GMHI and city books.

Now, add in the growing annual $1,967 245 of GMHI “tax losses” of Guelph Hydro subsidiary Envida Community Corporation. You don’t have to be an accountant to figure out this was a growing serious financial disaster. It adds up to between debt-servicing and so-called tax losses, to some $3,268,245 every year.

Note: Tax losses can only be recovered when there are tax gains. GMHI never made a dime in its existence.

The arrangement of “the investors” loan to GMHI was one pocket being picked by another, with the public not knowing how their money was being played.

This was an example of municipal corruption at the highest level. It deserves a provincial inquiry to return the city to responsible management and reveal the truth.

Following the mone

The sick joke about all this is the some $10.5 million that GMHI allegedly sent to the city treasury through Guelph Hydro over a six-year period. Was it just a book entry on the GMHI balance sheet or did the cash really get transferred. How does a money-losing millions GMHI afford to send an annual dividend of $1,500,000 to the city?

That money was paid indirectly by the City of Guelph with no reduction of principal of the GMHI “investors” loan. It was the accounting merry-go-round of money between GMHO, Guelph Hydro and the city. Remember the city, that’s you and me, were the bankers.

Did Guelph Hydro, through its subsidiary, Guelph Hydro Electric Services Inc (GHESI), mortgage the city by more than $66 million due to those “institutional investors” aka city council, who provided the money?

The answer is no. The funds were advanced by the City of Guelph and approved by council. Who served on the GMHI Board of Directors? It was four loyal Farbridge councillors, Lise Burcher, June Hofland, Karl Wettstein and Todd Dennis, giving the mayor an ensured majority on city council and GMHI Board.

This resulted in blocking public accountability and transparency conducting the public’s business.

There’s a new sheriff in town

When newly elected Mayor, Cam Guthrie, took over city council he was handed a rock known as GMHI. As a member of the previous council, did he know about GMHI and its financial problems? It took a year of learning about the serious damaging details facing the GMHI financial disaster.

Yet, under his watch, city council held 42 closed-session meetings in 2015, thereby denying the public information about GMHI and its troubles. The shroud of secrecy descended barring accountability. During this period, who was his chief source about GMHI? Why it was CAO Ann Pappert.

Is it possible that Ms. Pappert sold out Karen Farbridge? Is that why council, in closed-session December 10 2015, rewarded Ms. Pappert with a $27,000 retroactive performance bonus? Was it for her work as CAO and CEO of GMHI since 2011?

Following the devastating staff report in July 2016, details of the depth of the GMHI mess became known, but not all the details. The plan to bail out of the multi-million dollar debacle was not revealed.

Any attempt to keep this failed project alive is just pushing more money down the rabbit hole, with no guarantees the city ever gets our money back or stops the bleeding of funds.

Next, Part Five: Along comes Alectra

1 Comment

Filed under Between the Lines

One response to “How Guelph Municipal Holdings Inc, covered-up losses of $68.3 million

  1. Rena

    Hopefully there is a special place in hell for all those who have been complicit in this monumental screw up to the taxpayers of Guelph.

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