Sheegl sowed seeds in current drama at city hall

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This article was published 07/02/2015 (3926 days ago), so information in it may no longer be current.

Right now, former Winnipeg chief administrative officer Phil Sheegl is probably somewhere having a good laugh at the mayhem he has unleashed.

Mayor Brian Bowman is scrambling to mend fences with True North chairman Mark Chipman after rashly and erroneously alleging True North got favourable consideration on the purchase of a lot at 220 Carlton St. owned by the city’s downtown development agency, CentreVenture, as part of a $400-million development.

The spat between the mayor and Chipman has raised questions about the new mayor’s judgment and has put the True North project in jeopardy.

Gone from the civic service but hardly forgotten, Sheegl has to find this rather humorous because, when all is said and done, he is the one who sowed the seeds of the current drama. Sheegl fled his post in October 2013, just before two damning real estate audits revealing his sloppy and ethically challenged management style were made public. Before leaving, however, he had a major hand in the financing of the expansion of the RBC Convention Centre.

To be clear, the convention centre has been nothing but efficient and effective in managing its expansion. The $181-million project is on time and on budget, two qualities missing from many other Sheegl-led initiatives.

But financing of the convention centre expansion contains some calculations — authored by Sheegl — that ultimately connected the convention centre and a hotel to 220 Carlton.

First, a big step back to the very beginnings of the convention centre expansion. In the terms of the original tripartite agreement, the city and province agreed to kick in $51 million each; the federal government would pay $47 million.

With those funds in hand, the convention centre still needed a bridge loan of $33 million to complete the project, which would be guaranteed by the city. But how would the convention centre pay back the loan?

In its original business plan, the convention centre estimated that after expansion, it could expect to generate an additional $17 million in convention revenue from hosting larger events. A complicating factor, however, was that to fully realize all those future revenues, the convention centre needed a new hotel nearby. A shortage of hotel rooms would make it impossible for the expanded facility to host the biggest conventions. And even with the hotel, the city and the convention centre were still short $16 million.

According to sources close to the convention centre negotiations, former CAO Phil Sheegl devised a plan to use incremental taxes generated by a new hotel near the convention centre. Those taxes, over a 25-year period, were estimated at $16 million. It was an unusually high estimate; most of the hotels in the city at the moment would produce much less than that over the same period. Nevertheless, the loan repayment plan had several immediate impacts on the convention centre’s construction contract. The contract awarded to Stuart Olson contained a requirement that a hotel be built. Failure to do this would result in the contractor paying a financial penalty. The size of the penalty? Not surprisingly, it was $16 million.

Sources confirmed there was no coincidence at work here. At Sheegl’s insistence, Stuart Olson was obligated to build a hotel near the convention centre site or face a penalty exactly equal to his estimate of incremental taxes such a facility would generate over 25 years. (Stuart Olson would ultimately agree to pay the city $3.75 million to be free of the hotel obligation.)

It should be noted the construction contract was very unusual. Construction industry sources say general contractors are almost never asked to find tenants; their expertise is building things, not recruiting hoteliers. When Stuart Olson and its agent Matthew Southwest could not or would not find a hotel partner, the deal that Sheegl assembled began to unravel. Now, the convention centre was at risk of completing its expansion without the hotel rooms needed to host big events. And without a hotel development, the city would be $16 million short of taxes to service the loan.

But Sheegl complicated matters even further when he directed CentreVenture to purchase the Carlton Inn at 220 Carlton St. Stuart Olson/Matthew Southwest had looked at the lot as a possible location for a hotel, but were frustrated because the owners were asking an unreasonable price.

At Sheegl’s request, CentreVenture was asked to get involved in hopes of a better price on the land. A deal was signed so that if CentreVenture could get the land for a fair price, Stuart Olson would build a hotel on part of it. Later that same year, council authorized a line of credit for CentreVenture to purchase 220 Carlton.

So to review, this was the process devised by the former CAO: finance the expansion of the convention centre with a bridge loan; pay for that loan with revenues from larger conventions and from taxes on a new hotel; force the general contractor to build that hotel; threaten to charge the contractor a $16-million penalty if they fail; then force CentreVenture to buy land for the hotel.

Bowman claims his concern about the CentreVenture-True North deal on 220 Carlton is all about process, and not about personalities. If that’s true, perhaps the mayor is also concerned about a former CAO taking out a $33-million loan with no way to pay for it, a decision that has undermined both the convention centre expansion and the future of downtown development.

If the mayor really wants to know who is at fault for this mess, he should start by looking beyond all the people frustrated by what has happened, and find the one guy in the room who is laughing his head off.

dan.lett@freepress.mb.ca