Ottawa's real-estate deal is bad for taxpayers
Globe and Mail Update
July 17, 2007 at 11:12 PM EDT
Most homeowners would consider it absurd to sell their property and rent it back in order to pay for a new roof or other maintenance. Moving from ownership to being a tenant just doesn't make sense.
Yet that's what the federal government is planning for a handful of prime real-estate assets owned by Canadians.
By the end of the summer, the federal government will pick a new owner or owners for nine of the best federal office buildings located in major cities across the country.
The plan is to sell these buildings and the land on which they are located, which taxpayers currently own outright, then guarantee the new owners that the federal government will lease back 100 per cent of the space for 25 years.
In addition, the government promises the new owners that taxpayers will foot the bill for all maintenance and upgrades to the buildings' interiors. Tax dollars will ensure that heating systems, windows, elevators, plumbing and electrical systems in these soon-to-be-private buildings are kept in top shape.
Sounds like a sweet deal for the new owners, but is this a good deal for taxpayers? On the surface, the answer would seem to be no. And a more detailed examination of the transaction isn't possible because most every important detail is secret.
All documents, studies, valuations, and advice about the sale and leaseback are being withheld from the public. The federal government has established a cloak of secrecy so dense that even members of Parliament are being kept in the dark. In fact, a parliamentary committee recently called for the sale to be put on ice until these details are made available to the public.
The public is not allowed to see the study conducted by the real-estate wings of two banks (Bank of Montreal and Royal Bank of Canada) that recommended the sale and leaseback plan for these nine buildings. These same two banks are now acting as real-estate agents in the sale of the buildings — for a commission fee — creating the strong appearance of a conflict of interest.
The identities of the bidders are secret, as are the details of their bids. And taxpayers will pay Deutsche Bank almost $2-million to review the transaction before it's final. This, too, will be kept secret.
With so much information being withheld, it's reasonable to ask: What is the government trying to hide? And can taxpayers expect to be treated in this manner by the new owners?
Some details have leaked out. The Globe reported last month that taxpayers could lose up to $600-million if the deal goes wrong and there are irregularities in the valuation of the properties, including one building that was valued at $120-million in excess of the market price.
According to the man in charge of the sale, Public Works Minister Michael Fortier, successive governments have failed over the years to properly maintain the buildings. Taxpayers, who ultimately own these assets, are faced with a multibillion-dollar maintenance bill to bring the federal real-estate portfolio up to scratch.
This is a reasonable assessment of the situation. But offering the buildings at fire-sale conditions is penny wise and pound foolish in the long run. According to James McKellar of the Schulich School of Business at York University: "it looks like the government's doing the right thing today, but it is really short-term gain for long-term pain."
It's also important to note that Mr. Fortier has been silent when it comes to making a commitment that money from the sale will be used to fix up the buildings in need of repairs.
This is a bad idea for taxpayers. According to our calculations, Canadians could pay as much as $2 in rent for every $1 received in proceeds from the sale.
Locking taxpayers into 25-year leases removes the flexibility the government requires to manage its real property needs, which go up and down according to the number of public service workers it employs, as well as other factors.
If the government gets out of real estate today, what happens 25 years down the road when it may wish to resume ownership? After 25 years, its expertise in building-asset management will be long gone.
Ottawa should scrap this sale and leaseback plan and come back with an alternative that makes economic sense for taxpayers and can be proudly shared in all its detail.
John Gordon is national president of the Public Service Alliance of Canada, whose members work in the buildings that are for sale.