Hydro land deal unjustifiable

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This article was published 15/06/2016 (3432 days ago), so information in it may no longer be current.

According to Manitoba Hydro, it’s just business.

Strip all of the mind-numbing technical details of the real-estate appraisal, and the allegations and counter allegations of bad faith, and that’s Hydro’s excuse for forcing the city to pay $20.4 million for 16 acres of land needed for the completion of the southwest BRT corridor. Council approved the deal on Wednesday.

All in all, it’s a pretty sad excuse. This is a deal between two levels of government that is unjustifiable in almost all respects. One that will punish taxpayers when all is said and done.

How did we get into this mess? A review of key facts and dates is essential to understanding the truth of the matter.

Hydro and the city agreed to perform an initial appraisal that valued the land at $12.7 million. However, the appraiser wrote the fair market value down to $4.6 million after considering the value of adjacent land, the use of the land (transmission corridor) and its lack of access to major traffic routes.

Unhappy with that value, Hydro sought a second appraisal that pegged the value at $34 million, arguing that the initial value ignored several important material issues. After some negotiation, it agreed to reduce that price to $20.4 million. Like a child being confronted with a nasty but necessary dose of cough syrup, council held its nose and choked the deal down.

Where did things go wrong? The city admitted it did not have an agreement with Hydro on the specific appraisal methodology. That lack of consensus appears to have laid the groundwork for a deal that forced the city to pay more than four times what it originally thought the land was worth.

Is Hydro fleecing the city, or is the utility just getting what it’s due for a valuable parcel of land? Let’s work backwards and examine some of the claims made by both sides.

First, there is Hydro’s assertion the land is worth $34 million. On a per acre basis, that would make it among the most expensive real estate in the city, which it is most certainly not. 

This view is substantiated by some excellent work by Free Press city hall reporter Aldo Santin, who surveyed commercial appraisers and confirmed the $34-million pricetag ($2.1 million per acre) is completely out of whack with market prices. Fully serviced commercial or industrial land on a major traffic corridor can fetch, industry sources said, up to $1.5 million per acre; a recent sale of Hydro transmission corridor land to Manitoba Housing in the Waverley West development fetched about $200,000 per acre.

The conclusion: Hydro’s concerns about the inadequacies of the first appraisal are completely overshadowed by the gratuitous valuation in the second appraisal. This is less a case of Hydro seeking fair market value, and more a bargaining ploy to wring a windfall from the city.

Next, let’s look at Hydro’s strategy after obtaining the second appraisal. While claiming the land could be worth $34 million, it nonetheless agreed to reduce the valuation to $20.4 million. Hydro’s willingness to quickly abandon the second appraisal is a classic bait-and-switch strategy; shock the city with a whacky valuation and then retreat to a more reasonable number that allows Hydro to claim it is acting in good faith.

Hydro is employing classic real-estate negotiating tactics in a bid to game the city and jack up the sale price of the land. And if this were “just business” as Hydro has asserted, it might be acceptable. But this is not a normal business transaction, and both the city and the utility should acknowledge that taxpayers are holding the bag on both ends of this deal.

First, the province has committed $225 million to the BRT project, easily one of the most ambitious and expensive infrastructure projects in the history of the capital city. It is tragic irony that a provincial Crown corporation would employ a strategy that will only serve to drive up the cost of a project that is already heavily cost-shared by the provincial government.

Second, rapid transit must be viewed as part of the province’s overall environmental strategy. Getting more people out of their cars and into a modern fleet of buses moving on a dedicated transitway is one of the most effective ways of reducing this province’s overall greenhouse-gas emissions. 

You want more irony? Currently, Hydro delivers the province’s energy efficiency programs, including financing and incentives to convince Manitobans to insulate their homes and update their heating systems. Considering the environmental benefits of BRT, it makes more sense for Hydro to sell the land for $1 as its contribution to a cleaner, more efficient city.

There is little doubt that Hydro and its CEO Kelvin Shepherd are only trying to obtain the best return possible on the sale of this land in the interests of serving their ratepayers. Hydro is struggling to cover multiple billions of dollars in costs for new transmission and generating assets in an electricity export market that is cursed by low prices. Given all that, it makes sense for Hydro to count its pennies.

However, in almost all respects, this is penny wise and pound foolish. The taxpayer benefits of rapid transit — both from an infrastructure and environmental perspective — completely trump Hydro’s need to maximize its return on the sale of this land.

If Hydro was involved in a deal to sell the land to a private party, it might be able to justify its tactics. But it’s not.

This was a deal that drove up the cost of a major public transportation amenity, a project underwritten by taxpayers at the federal, provincial and local levels. If Hydro had only acknowledged that its ratepayers are also taxpayers, this deal would no doubt have worked out differently.

dan.lett@freepress.mb.ca