Winnipeg Free Press - PRINT EDITION

Katz defends loan guarantee

Insists risk to taxpayers is 'next to zero'; contradicts internal civic documents

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Mayor Sam Katz maintains there is "next to zero risk" Winnipeg will lose money if the Fort Rouge Yards redevelopment project fails.

The mayor's defence of the project he has championed puts him at odds with internal civic documents and the city's chief financial officer, who revealed there is a chance taxpayers could be on the hook for $7 million if the developer defaults during the condo-construction phase.

On Tuesday, Katz said the city's financial position is secure in a council-approved plan to backstop a loan to developer Andrew Marquess's company, Gem Equities, to turn the Fort Rouge Yards into a 900-unit townhouse, condominium and commercial development alongside the Southwest Rapid Transit Corridor. The Federation of Canadian Municipalities agreed to give Gem Equities $14.7 million worth of loans, and Winnipeg city council voted to guarantee $10 million of it.

Katz said the property's value will increase and Winnipeg could buy out the other lender and sell the property in the event the developer defaults during condo construction. He said "any astute individual" familiar with development knows there is hardly any risk involved and Free Press scrutiny of the potential risks is an attempt to squash the city's largest infill project.

In a year-end interview with the Free Press in December 2011, Katz said "the city has zero risk" if the Fort Rouge Yards redevelopment fails.

His comments Tuesday came one day after chief financial officer Mike Ruta told the Free Press there are risks involved with the transaction that could add up to $7 million for taxpayers. "I still very much believe there is next to zero risk for the City of Winnipeg," Katz said during an interview on Tuesday afternoon. "Everybody should be supporting this type of project and yet for some unknown reason, the Winnipeg Free Press is doing everything it can to kill this project."

Earlier this week, the Free Press obtained documents through a freedom of information request that revealed Ruta said default during the condo construction is a "messy circumstance."

Ruta explained to the Free Press the city is first in line to recover its investment over all other financial claims to the property if Marquess has installed infrastructure -- such as water and sewer lines -- on the property and banks have not advanced money to Marquess. However, Ruta said Winnipeg would be in second position -- behind another lender -- to recoup its investment if the city takes over the Federation of Canadian Municipalities' loan and other banks have advanced money for the condo project.

Ruta said that means if Marquess defaults during condo construction, the city will be on the hook for $7 million in loans and would have to try to find another developer to step in and finance and complete the project. Gem Equities has agreed to build a $3-million bus depot for the city near the bus rapid-transit line to offset the total risk of $10 million.

Internal emails show senior city officials approached a large developer who might be interested to step in should the project fail during construction.

Coun. Mike Pagtakhan (Point Douglas) voted against the loan guarantee last fall and said there was no briefing on the matter before it came to council. He said everybody wants to see the Fort Rouge Yards redevelopment move ahead, but the city needs to ensure its interests are protected.

City administration is still doing due diligence on the loan guarantee, and Pagtakhan said that's a good thing since Winnipeg needs to make sure the final deal is "iron-clad."

"At the end of the day, the level of protection was, I'd say, a little less than unclear," he said, referring to the risks outlined in the initial report to council.

Canadian Taxpayers Federation Prairie director Colin Craig said the problem with these types of loan guarantees is taxpayers are on the hook if the project doesn't pan out. Craig said Winnipeg should not give loan guarantees to private entities because of the associated risks.

"I guess the bottom line is the city shouldn't be in deals like this in the first place," he said. "It's not right for taxpayers to subsidize business, period."

Republished from the Winnipeg Free Press print edition February 15, 2012 B1


Updated on Wednesday, February 15, 2012 at 10:24 AM CST: Swaps out colour photo with better version

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