In 2004, Sam Katz swept into the mayor's office on the basis of his reputation as an affable, shrewd and highly motivated businessman.
He was the man who created Canwest Park, the open-air downtown stadium that's the envy of minor-league baseball.
But a month-long city hall squabble over a property next to the ballpark has brought to light the complicated connections between the Katz-owned Winnipeg Goldeyes and a ball club-controlled non-profit organization that built the taxpayer-funded stadium.
A Free Press investigation into the interlocking relationship between the for-profit Goldeyes and the non-profit Riverside Park Management has raised questions about the transparency of the arrangement, both in terms of common business practices and the involvement of Winnipeg's highest elected official.
Legal, accounting, ethics and non-profit governance experts suggest that the relationship between the Goldeyes and Riverside Park is unusual from a business perspective, casts a negative pall over city hall and may permit the baseball team to put off paying some of its taxes.
Co-founded by Katz in 1997, Riverside Park Management was created to hold a leasehold stake in the future Canwest Park, a stadium that would eventually seat 7,482 after it was completed in three stages for approximately $15.9 million.
Three levels of government and the Pan Am Games Society contributed $8.8 million to the project, while the Goldeyes and Riverside financed the remaining $7.1 million.
Under a complex arrangement, Riverside Park leases four parcels of city land -- the baseball stadium and adjacent parking lots -- from the City of Winnipeg and sublets the land to the Goldeyes.
The team, in turn, receives payments from Riverside Park, presumably to pay back part of the construction debt. Between 2000 and 2005, Riverside Park reduced its debt to the Goldeyes by $1.3 million, according to financial statements filed in court in response to a lawsuit from Crocus Fund investors.
During the same period, the Goldeyes increased their annual rent payments to Riverside Park from $575,000 to almost $1.09 million, according to the financial statements.
In 2000 and 2001, the Goldeyes were only supposed to pay Riverside Park $75,000 a year, according to a copy of the original lease filed with the provincial Municipal Board.
A corporate lawyer and taxation expert hired by the Free Press to review the Goldeyes' financial statements could not draw any conclusions about the purpose of the accelerated rent payments, primarily because he did not have access to Riverside Park Management's books.
Former president Katz and current Riverside Park Management president Jason McRae-King have refused to release the company's books. Unlike charitable organizations, non-profit organizations are not required by the Canada Revenue Agency to release their books.
Without Riverside Park's statements, it is impossible to tell whether the non-profit organization amassed a surplus during the years 2000 to 2006. Under CRA rules, non-profit organizations are allowed to carry surpluses, but the excess money can not be distributed to anybody because non-profit organizations do not have shareholders.
Riverside Park's main expenses are lease payments to the City of Winnipeg in lieu of realty taxes. In 2008, those payments should have amounted to $328,000, according to city documents obtained by the Free Press.
But in 2005, when the Goldeyes paid Riverside Park $1,092,000, the non-profit was only required to pay the city $243,000, according to city documents. The company likely also had other expenses, such as professional fees and salaries paid to its three directors: president McRae-King and property developers Robert and Sandy Shindleman.
But since the non-profit Riverside Park does not pay corporate taxes, it is possible for the for-profit Goldeyes to reduce its own corporate taxes -- albeit only in the short term -- by paying its sister company more money than Riverside needs to cover off its expenses. (In simple terms, the more the baseball club pays in rent during a given year, the less taxable income it has.)
The test of whether the accelerating rent payments are legitimate would be if a third party -- that is, a company with no connection to the Winnipeg Goldeyes or Riverside Park Management -- would deem those rent payments reasonable, according to the corporate lawyer hired by the Free Press.
But again, that can not be determined without reviewing Riverside Park's books to see the company's actual expenses.
Riverside Park president McRae-King said he does not want to release the books because that would result in another newspaper story about the company.
"I don't see anything to gain," he said in September.
Katz, who resigned his Riverside Park presidency on April 23, declined to answer questions about the accelerated rent payments during an interview earlier this week.
But in a September interview, Katz said there is no long-term tax advantage to transferring money from the Winnipeg Goldeyes to Riverside Park.
"It has nothing to do with tax avoidance whatsoever," he said. "In the end, everything has to be accounted for."
Gary Miles, a partner in the Winnipeg chartered accounting firm Miles & Shaffer LLP, said he too does not see any long-term tax advantage to the interlocking relationship between the Goldeyes and Riverside Park.
But he said he can see no reason for the baseball club to set up a non-profit company to build Canwest Park, when it could have created a for-profit company.
Riverside Park's ostensible non-profit mandate -- Katz said it was created to allow children to access Canwest Park, although the company's articles of incorporation make no mention of this -- does not make sense, since the ballpark is used by amateur sport and community groups only 11 times a year, Miles suggested.
"There's something we're missing," he said. "I'm totally mystified as to why they need a non-profit corporation."
Colin Craig, the Manitoba director of the Canadian Taxpayers Federation, said the Winnipeg Goldeyes never should have created Riverside Park Management.
"Why was it set up this way in the first place? It just seems to be a messy operation: Land from the city is leased to a non-profit, which then leases it to a for-profit company. It should have been leased directly to a for-profit," he said.
Craig, a former city council employee, called on Riverside Park to release its books, especially because the company came before city council to change the terms of one of its leases in September.
Riverside Park's non-profit status was also questioned by Pat Hardy, a Winnipeg consultant who helps charities and non-profit organizations create governance structures and raise money.
"Anybody can set up a non-profit," she said, "and there's not a lot of (oversight)."
The corporate lawyer hired by the Free Press to review the Goldeyes' financial statements said he has never seen a relationship similar to the Goldeyes/Riverside Park Management arrangement. He said he would never advise a client to set up a non-profit organization, calling such an entity "a regulatory black hole."
As of April, 6,291 active non-profit organizations were registered in Manitoba, according to a provincial finance spokesman. A further 331 non-profits, registered federally or in other provinces, were also active in Manitoba, he said.
According to Manitoba's Corporations Act, company directors, officers, shareholders and creditors can go to court to ensure their non-profits comply with their intended mandates. So can the director of the Companies Office, but "only where there is some overriding public interest involved, such as fraud or public safety," the provincial finance spokesman said in a statement.
A spokeswoman for the Canada Revenue Agency declined to be interviewed about federal oversight procedures for non-profit organizations. Typically, CRA audits are triggered by unusual filing patterns.
Non-profit governance consultant Hardy said she is not aware of any oversight mechanism employed by the CRA to ensure non-profit organizations conform to their mandates.
Winnipeg's leading ethics expert said it does not matter whether Riverside Park Management's relationship with the Winnipeg Goldeyes complies with federal statutes.
"The issues in this case don't pertain to legality, they pertain to morality. It's what we call public-service ethics," said Arthur Schafer, the director of the University of Manitoba's Centre for Professional Applied Ethics. Schafer, one of Katz's former teachers, is a regular critic of the mayor.
Schafer said the mayor should go out of his way to engage in business practices that surpass the minimum ethical standard expected of people who are not elected officials.
He believes Katz should have divested himself of the Goldeyes and any other companies that do business with the city.
"If the rules in place (at the city) permit the mayor owning the Goldeyes, the rules are wrong, they're mistaken. They promote cynicism in the political process and they discredit the whole system," he said.
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