Katz Group asks for $6M annual subsidy for downtown arena

 

Downtown arena price tag could be $475 million, mayor says

 
 
 
 
Illustrating the proposed arena in downtown Edmonton.
 

Illustrating the proposed arena in downtown Edmonton.

Photograph by: Supplied, Edmonton Journal

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EDMONTON - Locked in negotiations over a proposed downtown arena, the Katz Group has asked the city for several new concessions, including a $6-million annual subsidy to help pay for maintenance and operations, according to sources involved in the talks.

The proposed downtown arena could now cost as much as $475 million, Mayor Stephen Mandel said Thursday.

That would be $25 million more than the projected cost when the city and the Katz Group signed an agreement last fall.

Mandel said Thursday the Katz Group has suggested the cost overrun should be split equally between the city and Oilers’ owner.

City councillors met behind closed doors Wednesday to discuss the latest proposal put forward by the company.

Coun. Don Iveson said the Katz Group’s new conditions amount to a request for an annual subsidy from city taxpayers.

Asked about the $6-million subsidy, Iveson said that figure was included in the new request, as were additional concessions the company asked for.

Last October, Katz agreed to put $100 million toward the arena, paid out with interest in instalments of $5.67 million a year over the life of a 35-year lease.

Getting $6 million a year back from the city would offset that contribution entirely, said Coun. Brian Anderson.

“In effect, the city would be paying the entire cost of the $100 million,” Anderson said. “Do you think anyone in their right mind would agree?”

That subsidy wasn’t the only new funding request made by the company, Anderson said.

“There are others that are equally concerning.”

If city council agreed to pay the $6-million annual subsidy, Anderson said, “as a citizen, that would offend me.”

The mayor said the $25-million increase in the overall construction cost isn’t the primary sticking point in negotiations.

“People shouldn’t be silly to think that council wouldn’t have the courage to finalize a deal to build a great facility for a few dollars,” Mandel said. “Not that $10 million is a few dollars, but it’s about building a great city.”

Mandel said he could not discuss those other major issues because the negotiations are private.

“Certain things are fairly public knowledge ... but I think the rest of it needs to be kept to the negotiators, see if they can find solutions to it,” he said. “But the gap is substantial.”

In a letter sent to the city manager this week, Katz Group executive vice-president John Karvellas said outstanding issues include “offsets to or limits on capital maintenance and operating costs.”

Paying for the proposed $50-million Wintergarden is another issue. Council had agreed to pay 50 per cent of the cost of that feature, to a maximum of $25 million, Mandel said.

“The cost is higher than that and they’re trying to pare it down to a number that was originally planned,” he said. “I’m not sure what the status of that is or where it’s at, but I think that $50 million to build a bridge across the road should be more than adequate.”

Coun. Kim Krushell said under the October 2011 deal the city was only to contribute capital dollars, not money for operational expenses.

That deal left the Katz Group with the risk but also the revenue, she said. An ongoing operating subsidy would change that, and require the whole deal to be renegotiated.

“I’m very reluctant to participate in an operating subsidy,” she said. “What was in front of us yesterday was the expectation that we would give a lot, and I’m not prepared to do that as a councillor representing the citizens of Edmonton.”

If the Katz Group wants to increase the funding it should make a better business case and sell it to the public, she said. “There’s no support that I’ve seen for going beyond that $450 million.”

The Katz Group’s letter this week said under the current agreement it is impossible to ensure “revenue streams from the arena will be sufficient to ensure the Oilers’ long-term sustainability.”

Iveson said constituents have been flooding his office with calls, emails and tweets, mainly expressing anger at the Katz Group request.

It has been suggested the new requests may be a ploy by the company intended to scuttle the negotiations in preparation for moving the team. “That worry has been expressed,” Iveson said. “That’s been the leverage behind this all the way along. If that’s their intent, it would be handy if they could come out and say it.”

Anderson said he had “no opinion” on that particular topic.

“I’m sure there isn’t any one of the councillors who would like to see Edmonton without an NHL team,” he said.

Krushell said the Katz Group has never threatened to move the team.

“Obviously one of the concerns that’s here is there is no location agreement on the Oilers,” she said. “I’m hopeful what this is all about is a negotiation ploy.”

Thursday’s developments followed a frustrating day for city council. On Wednesday, councillors rejected the Katz Group’s request for more public dollars, perhaps putting the future of the project in jeopardy.

The agreement signed last fall by the city and the company called for a $450-million arena to be paid for with $125 million from the city, $100 million from the Katz Group and $125 million from a ticket tax. The project has always been short $100 million.

Municipal Affairs Minister Doug Griffiths repeated the province’s position once again Thursday.

“I’ve been very clear,” he said. “We’re not going to cut a cheque for the arena.”

Griffiths said the province’s Municipal Sustainability Initiative provides stable funding to municipalities that amounts to roughly $502 per person. In other provinces, he said, the average transfer to municipalities is $192 per person.

“We provide substantial funding to municipalities, and the idea is that municipalities are autonomous, they are elected, they represent the views of those that elect them, so providing the funding and letting them made decisions about the priorities is paramount.”

He said the province is currently formulating the 2013 budget and it is not clear whether MSI funding will increase. The government’s first-quarter fiscal update suggested the province is headed for a $3-billion deficit in 2012, but Griffiths said the budget process is not based solely on those results.

“We’re always evaluating whether we can, within our own budgets, provide municipalities with more funding for MSI,” Griffiths said.

“If we do increase MSI funding because funds are available – if we do – increases will be provided to all municipalities using the very strict formula and the City of Edmonton can do with it as it sees fit.”

Richard Andersen, president and CEO of Northlands, said he hasn’t had any discussions or felt any pressure from the Katz Group or the city to reconsider a non-compete deal for Rexall Place to help assure the success of a new downtown arena.

“That was taken off the table eight or 10 months ago,” said Andersen. “You can’t ask for the success of your business to depend on the failure of ours. That’s been a common statement we’ve made for many years, and no one in their right mind would shut their business down so a competing business could be successful. We’re a not-for-profit. Every dime we make, we put back into the community.

“The Katz Group certainly has every right to ask for whatever funding they feel is appropriate. And the community certainly has every right to determine what they feel is appropriate.”

Jim Taylor, executive director of the Downtown Business Association, said he doesn’t envy the tough position of either party.

“I think city council has done a good job of convincing Edmontonians that this would be a good thing for Edmonton and downtown,” said Taylor, adding he isn’t surprised with the escalating costs. “I think it’s going to be very difficult for them now to go back to the citizens and say, ‘Yeah but.’

“But that’s negotiations, and most of the time we never see those negotiations if two companies were doing it.”

Taylor said he’s optimistic an arena agreement will be reached.

“It may not be the arena we’ve seen shiny pictures of, and it may cost a little more, but city council and the Katz Group have come a long way down the road and the bottom line is, the Edmonton Oilers need a new arena to play hockey in. Rexall Place is not going to the rink they can play in even in the short time.”

With files from Karen Kleiss and Jodie Sinnema

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To read the Katz Group letter, visit edmontonjournal.com/edmontoncommons

 
 
 
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Illustrating the proposed arena in downtown Edmonton.
 

Illustrating the proposed arena in downtown Edmonton.

Photograph by: Supplied, Edmonton Journal

 
 
 
 
 
 
 
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