December 06 , 2007
NEVP Appears Before Committee
Madame Chair and Committee Members:
Thank you for the opportunity to appear before you today on behalf of the Public Service Alliance of Canada.
Joining me this afternoon is Mike McCracken. Mike is Chairman and CEO of Informetrica. His firm is a privately-owned Canadian company specializing in quantitative economic research.
PSAC commissioned Mike's firm to analyze Phase 1 of the Real Estate Plan.
It will surprise no one that we think the sale and lease back of several properties owned by the people of Canada was a bad deal for citizens. Mike has concluded that it is also a terrible deal for taxpayers.
In a moment, Mike will brief you on the highlights of his analysis.
But first, let me outline some of our general concerns with the sale and leaseback of the initial set of properties. Because virtually no details are publicly available about Phase 2 of the Real Estate Plan, it is difficult to comment on it. All we can do is examine the recent transaction and anticipate what Phase 2 might bring.
Our concerns are rooted in the belief that the sale of these assets is akin to the privatization of public space. In a world where Canadians are bombarded virtually every waking moment by commercial messages, images and values, the loss of any public space is a serious matter.
In a real sense, these buildings are the bricks and mortar of the public services PSAC members deliver to Canadians.
It is our view that the sale of these properties further diminishes the role and leadership of the Canadian government in our communities and is in keeping with the view that less government is better government.
The properties in question belong to the people of Canada.
As our representatives, your Committee has properly objected to the secrecy adopted by the government when it came to conducting the sale of these buildings.
Your call for a moratorium on the sale was entirely appropriate and prescient, given the Federal Court injunction in relation to the Musqueam Band objection concerning its unresolved land claim.
Information this Committee demanded was withheld. Canadians were kept in the dark about the government's plans to sell our property.
Some, but not all, details related to the sale have since been released, but only after the transaction was announced. If one is to encourage good behaviour through praise, then the government deserves credit for this limited release. But key documents remain secret, the Larco lease among them.
In fact, the most important details – the real numbers contained in a prospectus prepared for bidders called the Confidential Information Memorandum – continue to be withheld to this day.
The Confidential Information Memorandum contains a description of every property; it provides the details a potential bidder would need to craft an offer to purchase. It includes a statement of Net Operating Income. It outlines Operating Expenses, Taxes, Management Fees, Parking Income, and the like. It also includes a detailed schedule of capital improvements the new owners will pay for.
Without the details contained in the Confidential Information Memorandum it is impossible to properly evaluate the sale.
I daresay Public Works has probably withheld this confidential document even from government members of this Committee.
With respect, vague assurances that this is a good deal are not be good enough.
When you see the numbers, I believe you will quickly come to the same conclusion that Informetrica has reached – that taxpayers lost big time in this transaction.
You might be wondering – how does she know?
The truth is PSAC has obtained a copy of the Confidential Information Memorandum. We were given the document on condition that we keep it secret.
For this reason, unless the Minister or Public Works Canada releases us from this undertaking, I cannot give you the document.
But we will brief you on our analysis of it. Mike will review the vital statistics from the sale and leaseback transaction, including the capital costs and the before and after operating costs.
His analysis highlights the important factors to consider in evaluating future transactions, including:
- discount rate – what it is and why it's important;
- transfer risk of ownership to the private sector – capital & maintenance costs;
- residual value – an estimate of the value of the properties in the future; and,
- 20% efficiency of the private sector.
Some of you may be aware that the company which bought the seven federal properties – Larco Investments Ltd. – plans to demolish one of Vancouver's most architecturally-significant buildings.
Graham House was designed by the famous Canadian architect Arthur Erickson in 1963. He describes it as the building that launched his career. It is currently listed as a building of primary cultural and historic importance.
The prospect of the destruction of Graham House has sparked weeks of controversy and pleas of clemency in Vancouver. Larco has met this with stony silence, refusing comment, preferring to communicate by dispatching lawyers for a demolition permit.
This cavalier attitude only amplifies our concern about the government's troubling tendency toward secrecy, especially when it comes to the protection of heritage buildings, several of which are part of second phase of the Real Estate Plan.
The limitations of our ten minute time slot prevent us from canvassing all of our concerns. I hope we will be able to speak to those I've had to leave out later in the meeting.
We are pleased to answer any questions you may have.
Date Modified : 2010/07/28
