Awful big cost for smaller Liquor Mart

Hey there, time traveller!
This article was published 11/06/2018 (2825 days ago), so information in it may no longer be current.

On a muggy Friday afternoon when many Winnipeggers were already dreaming of barbecues and refreshing dips in the lake, it was announced that Manitoba Liquor and Lotteries (MLL) had struck a deal with True North Real Estate Development to locate a new 4,000-square-foot Liquor Mart in the $400-milllion True North Square, now nearing completion downtown.

The project as it is now envisioned is considerably smaller than the one the previous NDP government announced back in 2015. Back then, True North and the NDP imagined a multi-faceted liquor and food emporium where you could buy fine wines and spirits, upscale groceries and sample some of the goods in a café or restaurant of some sort. All in all, this project would have occupied 45,000 square feet across two floors of one of the new True North Square towers.

But that project is no more. To get out of its lease commitment for the bigger store, MLL has agreed to pay True North compensation in the amount of $2 million. You read that correctly — the government is paying the private developer $2 million for the privilege of building a smaller Liquor Mart.

Why in the world would a government that stakes its reputation on fiscal austerity and value-for-money audits pay $2 million to get out of the lease signed by the previous NDP government?

From the outset, the Progressive Conservative government was enraged about the project, with Premier Brian Pallister accusing the former NDP stewards of rushing into a lease with True North without a proper business plan or accurately forecasting the costs needed to build this new monument to fine alcohol and food. For the most part, the Tories are not wrong.

There was no specific business plan for the True North Square project. A feasibility study was done to create an upscale Liquor Mart and grocery operation somewhere in the city, with most of the likely locations being in other, more suburban parts of the city.

The current government says the lack of planning meant taxpayers would have been on the hook for $80 million in total costs over 20 years. That’s a pretty substantial tab, and likely good justification for downsizing the whole project. But that assumes the figure in question is even remotely connected to reality.

A government official confirmed that the number used last week is an estimate of the gross costs of developing and occupying the space in True North Square, which means it excludes any estimate of the revenue that could be generated from operating the larger Liquor Mart. And that’s a pretty disingenuous way of justifying the decision to scale back the project.

Also suspicious is the lack of detailed comment by True North itself.

From the moment True North Square was announced, the developer celebrated the participation of Manitoba Liquor and Lotteries. In fact, it was almost impossible to find a news release on the project that did not mention the development of a “flagship” Liquor Mart for the benefit of the hundreds of new True North Square condominium owners, other downtown residents and office workers.

However, when the Tory government released news of the downscaled Liquor Mart plan, True North Real Estate Development President Jim Ludlow released what can only be called a cursory statement on the agreement to downsize the Liquor Mart.

Government officials claim True North is satisfied with the $2 million settlement and may have already found another tenant to occupy the space the Liquor Mart no longer needs. That may be true, but True North is not showing much of its hand at this point.

Ludlow’s statement said True North would continuing its efforts to develop “a unique food hall” along side the Liquor Mart.

“True North will continue with that plan,” the Ludlow statement continued.

The True North Liquor Mart narrative runs parallel to another story about downtown real estate which, once again, has seen the current government taking extraordinary steps to undo projects started by the NDP.

That was certainly the case when the new Tory government kiboshed plans to consolidate all of the staff of the newly merged liquor and lottery crown corporations in a refurbished office building on Kennedy Street at Graham Avenue. The $75-million cost to renovate the building was the central cog in a broader plan to achieve more than $20 million in savings from disposing of all the satellite leases now being used for liquor and lottery employees.

No matter. Pallister made no secret of the fact that he hated the project and the costs associated with it — about $75 million for renovations.

Pallister accused the NDP of stepping outside the mandate of a crown corporation by buying a building and in essence becoming its own landlord; real estate development is, in the premier’s world view, something better left to the private sector. The project was halted and the building purchased by the NDP was later sold again for nearly double what was paid for it.

Left out, however, is how the current government will streamline operations at MLL. For now, the Pallister government is content to keep all MLL employees where they are, a cheaper alternative in the short-term that may, in the long-term, cost more money.

Strip away all of the hyperbole, and you’re left with a story about a government that wants simpler, less-expensive solutions to its problems. One that would rather defer or cancel expensive capital projects to help it bring the summary budget closer to balance. And one that would rather leave landlord duties to the private sector.

Some of this strategy is justifiably practical. However, it is also heavily informed by philosophy.

Practical wisdom says that government should look for the most cost-effective solution to every problem it encounters. It is simply not cost-effective in every case for crown corporations to lease office space; owning a building can be, in some instances, more efficient. And a project that is cheaper in the short-term does not mean it has long-term benefit for taxpayers.

For now, Pallister has gotten what he wants, which is a smaller Liquor Mart in True North Square. We’ll have to wait to see whether the $2 million he paid for that smaller Liquor Mart was money well-spent.

dan.lett@freepress.mb.ca