Save Union Station

Bulletin

SAVE UNION STATION - Bulletin No. 20, July 21, 2003.

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"I think we must start over. I'm sorry, but we must. My rule is, when in doubt, don't." That's how Councillor Anne Johnston summed up her position last Friday. (See below.) The flaws in the bidding for Union Station are becoming more and more apparent, surprisingly even to those who have been negotiating. And the level of discomfort is rising just as the momentum seems to be slowing. Will it enough to stop this wildly flawed process? Councillors Doug Holyday, Paul Sutherland and David Soknacki seem blind to any flaws and continue to strongly support the Union Pearson bid, but do they have enough support on the rest of the Council to push it through this week?

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In this issue:

1. ACTIONS. Please - call councillors

2. Where we stand today

3. The July 15 staff report - a remarkable document

4. Comment and action on the July 18 meeting

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1. ACTIONS. Please - call councillors.

We are now down to the wire. City council will consider this matter either July 23 or July 24. Please, phone councillors. Tell them they have an obligation to protect the public interest, and that is best done by agreeing that this bidding process has been fatally flawed and a fresh start is needed. Examples of the unresolved issues can be seen in the July 15 staff report. It is not in the public interest to proceed at this time, no matter what the reply of Union Pearson to the ultimatum of the committee on July 18.

Please call your own councillor, and call a few others. Phone numbers are readily available at http://app.toronto.ca/im/council/councillors.jsp . Often councillors will not be available to speak with you, in which case you should leave you name, number and a statement of concern about Union Station.

2. Where we stand today

The unexpected happened at the special Administration Committee meeting on July 18, and some people believe there's now enough confusion that the proposed long term lease to the Union Pearson Group may not be approved by City Council when it considers the matter on Wednesday July 23 or July 24. Others believe the committee's actions were but a small hiccup as a majority of council rushes to approve the deal.

What tweaked the committee's interest was a July 15 report from city staff indicating that negotiations with Union Pearson to reduce the term of the lease from 100 years to something shorter - as the committee had requested - had not been successful. Union Pearson was only willing to reduce the lease from 100 to 60 years if the compensation payable to the city was reduced by $10 million. It would agree to an 80 year term for a reduction of $5 million. Staff found themselves unable to agree to these sizable amounts (they suggested lesser amounts,) hence there was no agreement to recommend.

Staff laid out a number of alternatives: adopt the original recommendation for 100 years (Option A); adopt Union Pearson's proposals for a shorter term and less money (Option B); adopt the staff position for a shorter term without such large reductions in compensation, and if Union Pearson wouldn't agree to it, then begin negotiating with LP Heritage, the other bidder (Option C): or simply abandon Union Pearson and begin negotiating with LP Heritage (Option D).

To jump to the end of the story, the committee recommended Option C to city council, and said Union Pearson had until midnight July 22 to agree and if it did not, staff were instructed to begin negotiating with LP Heritage.

Since Union Pearson have made it very clear Option C is not something they can agree to, one might think this is the end of the road for its bid. However, when council meets on July 23, it can decide to change and/or disregard the committee decision. One can assume there will be much behind-the-scenes strong-armed tactics to ensure Union Pearson gets its way in the end.

However, the July 15 staff report draws attention to a number of important issues that have not received much attention, and may interest councillors. Further, the process at the committee shows that some councillors are beginning to feel uneasy with the 100 year lease to Union Pearson. We'll deal with each in turn.

3. The July 15 staff report.

This report makes a number of arguments about why a new bidding process should be undertaken, and why a fresh start is a good idea. There are

four items of note in this report: the cost of signing a long term agreement before agreeing to `future density', that is, new structures over the Station; the cost of the new Union Station subway design from the TTC; financial implications of the reduced lease term; and financial implications of steam heating and cooling through Union Station.

a) Future density.

If substantial new office or retail space is to be built over the Station or the tracks, or if tracks and platforms are to be realigned, it will be necessary to sink large support columns through the Station down to bedrock. That will interfere with any leases signed for areas where the columns will be placed, and substantial compensation will have to be paid. But city council decided to sign the long term lease first, then to seek bids for future density, which seems to have the process backwards.

On page 7 of the report, staff acknowledge the problem:

"In order to protect the City's ability to build out improvements in the `Upper Area', Union Pearson will be required to provide easements for access and support, subject to reasonable objective requirements. To build out any improvements in this space will necessarily interfere with Union Pearson's tenancy… This will require indemnification of its (and any sub-lessee's) costs of disruption (i.e. actual direct costs of accommodating the build-out and lost revenues, if any, during disruption) to be covered by the party undertaking the build-out."

These costs will have to be paid by whoever wins the bid for `future density' which means that the compensation to the city will be reduced accordingly. The costs will probably be substantial, which means the reduction in revenue to the city will be substantial. Signing the lease for the Station first and worrying about future density later is getting the horse before the cart, and will be very costly to the city in terms of lost revenue. Staff have made a strong financial argument for starting over and doing this right.

b) Subway station design at Union Station

The TTC has been reconsidering the design of the subway station at Union Station to better serve GO commuters heading north through the PATH system. The plans presented by the TTC at an open house in late June showed new connections to the west of the current Union Station/TTC interface at the concourse level, but it involves, as staff point out, taking away rentable retail space (now used by MacDonald's) and therefore a loss of revenue to Union Pearson which would be passed on to the city as lower rent. This will further reduce the amounts payable to the city by Union Pearson, and is another example of why there should have been better co-ordination between the city and the transportation authorities before any bids were solicited.

c) Financial implications

The staff report is not clear on exactly what the financial implications of the various offers are for the 60 and 80 year terms. Apparently a confidential report has been prepared for councillors, but this has not been made public.

What is clear is that the money flowing to the city will be reduced. It is known (by the votes of the Selection Committee on May 8, 2002) that the LP Heritage financial bid was much better than that submitted by Union Pearson, although since the bids have never been made public, it is not known by how much. Now Union Pearson's financial offer is being reduced further. Does this mean it is now 20 per cent lower than the bid by LP Heritage? 30 per cent lower?

It seems as though what was originally an inferior contract being made with Union Pearson is now a bad deal, and that the public interest is not being fairly protected. Of course, without seeing the bids themselves, one will never know the difference between the bids - we can only go on the information made available, which favours LP Heritage's financial offer, not Union Pearson's offer.

d) Steam heating and cooling

Staff report that Union Station generates revenue by buying steam in bulk from Enwave, and selling it retail to Union Station lessees (such as the Bank of Nova Scotia) and surrounding buildings. Enwave wants to buy the steam pipes from the city so it can capture this profit, and as staff note this "will have financial implications to the operation of Union Station and may affect the financial return to the city (or successful proponent.)" Yet again, this is another matter that staff had apparently not factored into the lease of the Station.

The conclusion one draws from this report is that there are a number of important financial issues that have not yet been resolved - in fact only thought of late in the game. Staff make a strong argument, by example, of the reason why starting over makes good sense. (Click here to access this report)

4. What happened at the July 18 committee meeting

A number of motions were placed at the July 18 meeting of the Administration Committee, and they give a sense of the differing opinions. All eight members of the committee were present for voting, so five votes were needed for a motion to pass. In the order in which they were voted on the motions were:

a) Rob Ford's motion to receive all reports and start the bidding anew lost. It was supported by Ford, David Miller and Anne Johnston.

b) David Socknacki's motion to give Union Pearson a 100 year lease (Option A) lost. It was supported by Soknacki, Doug Holyday, and Paul Sutherland.

c) David Miller's motion to offer a 50 year lease to Union Pearson (per the original Request for Proposals), lost. It was supported by Miller and Johnston.

d) Frances Nunziata's motion to give Union Pearson until midnight July 22 to accept the 60 year term (Option C) carried. It was supported by Nunziata, Brian Ashton, Johnston, Miller and Soknacki.

What was clear was that councillors such as Nunziata and Ashton, who previously have supported the long term lease to Union Pearson, now feel that's not wise, whereas Sutherland, Holyday and Soknacki firmly support the 100 year lease on the terms Union Pearson has proposed.

Anne Johnston's speech was the most heart-felt: "I have a huge amount of problems with the whole thing," she said. "I find I'm agreeing with the last speaker all the time, and if everyone is right, then something is wrong. I think we must start over. I'm sorry, but we must. My rule is, when in doubt, don't."

Representatives for Union Pearson made many pitches for the viability of a long term lease, saying that many building were on land leased for about 100 years - First Canadian Place, Scotia Plaza, Yonge-Eglinton Centre, and so forth. Most examples did not deal with public land, except for Yonge-Eglinton Centre which has been subject to considerable controversy to ensure the city secures fair return. David Miller used it as the example of the risks involved in long term leases. "We must be very cautious with the long term, since it involves a lot of money,"

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