CalgaryNext rejected: Why city staff think the arena proposal is 'not feasible'

On Jan. 1, city staff entered into an agreement with executive members of the Calgary Flames and Stampeders ownership group to learn more — much of it on a confidential basis — about their proposal for a downtown arena and stadium.

The two sides met six times over the ensuing 10 weeks, talking in detail about the project, dubbed CalgaryNext.

• Ken King holds out hope for CalgaryNext as councillors look for 'Plan B'
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On April 20, the city released its report on the proposal, minus the confidential details, and concluded the project was "not feasible."

Here's why.

'Significant costs will be incurred'

The bottom-line figure in the report that grabbed the most headlines when it was released was $1.8 billion.

That's the city's high-end estimate of the total costs associated with the proposal, including not just the $890 million to build the facility, but also these additional expenses:

• $80 million worth of land in the West Village
• $166 million for pedestrian bridges and underpasses, a realignment of Bow Trail, riverbank enhancement, roads and traffic signals
• $56 million for site preparation and utility infrastructure
• $105 million for revitalization work within the proposed community revitalization levy (CRL) boundary
• $85 to $140 million for environmental remediation
• $371 to $390 million in interest payments

That last bullet point is based on the assumption that the city could finance the various debts that would be required for the entire project over a period of 20 years at an interest rate of three per cent.

The report also notes the extra debt burden would push the city close to its overall borrowing limits, which would require council "to choose between CalgaryNext and other high-priority infrastructure projects."

Public money for private benefit

Of the $1.8 billion in total costs, the city estimates between $1.303 billion will $1.377 billion will be public dollars.

That's assuming the city finances a proposed $250 million up-front — which is to be paid back with a "ticket tax" on events at the facility, once it opens — as the Flames ownership group has said it would prefer.

If the ownership group borrows the $250 million itself and eats the interest costs, the total public share is estimated between $1.219 billion and $1.293 billion.

Either way, the city would receive none of the resulting operating revenues from the facility and any increased revenue from property taxes would go to paying back the debt on the CRL. (More on that below.)

The report notes a "significant portion" of the public dollars would be used to fund components of the facility "which would not provide direct benefit to the public."

It concludes: "The financing model is not fully aligned with the guiding principle that public money should be used for public benefit."

'Numerous challenges' with the fieldhouse

One aspect of the project that would provide direct public benefit is the fieldhouse.

The idea is that the stadium component of the facility would double as a fieldhouse for public use, complete with retractable bleacher seating that would move out of the way when the building isn't hosting a Calgary Stampeders game.

In exchange, the Flames ownership group wants the city to directly kick in $200 million. They note the city is already planning to build a new fieldhouse at roughly that cost, although it has yet to figure out where it will get the money from.

The city report, however, notes "compromises" would be required in order to "integrate an indoor professional footbal stadium with a public fieldhouse."

For one, the facility would be unavailable for public use during many "prime time hours" and even when the stadium isn't occupied by CFL games, events at the adjacent arena "could also impact parking, vehicular traffic and congestion, and interior building movement."

The venue also wouldn't offer the "complementary outdoor amenities" that currently exist at Foothills Athletic Park, such as the outdoor track, sports fields and tennis courts.

All in all, the report cites "numerous challenges" with the proposal and recommends the city stick with the "preferred location" for a new fieldhouse at the University of Calgary campus.

Concerns with the CRL

A key component of the plan from the get-go was that $240 million of the $890 million in construction costs would come from a CRL, or community revitalization levy.

Effectively, a CRL is a loan that is paid back by future growth in property-tax revenues resulting from a project and related development.

Project proponents have highlighted the success of this funding mechanism in spurring the redevelopment of Calgary's East Village, but the city report raises red flags about how effective it would be in West Village.

One of the biggest worries is how long the CalgaryNext development would take, from start to finish, due largely to the difficulty in cleaning up the contaminated soil in the area.

An "expedited" clean-up would take six to eight years at a cost of up to $140 million, according to the report, while a more "measured approach" would cost less — about $85 million — but would take between eight and 10 years.

All told, that means it would take between nine and 13 years for the facility to open, once the first shovel hits the ground.

That length of time would "impact the feasibility of repaying a CRL within 20 years," the report states.

City staff also worry the extended time lag increases the risk that key financial assumptions of the CRL will turn out to be incorrect due to changes in the economy and market conditions.

"The East Village CRL calculations were also completed on a block by block basis but since the ultimate land configuration for West Village is undetermined, a block by block analysis is not possible and only a global demand estimate for all of West Village is provided," the report cautions.

Final call up to council

Given all these concerns with the CalgaryNext proposal, the report recommends building a new arena and stadium separately.

The best spot for an arena would be somewhere in or around the Stampede grounds, according to the report, which also advises the city look at renovating and upgrading McMahon Stadium instead of replacing it.

With $2 million in structural and mechanical work, city staff figure the stadium would still have a projected lifespan of 25 to 30 more years, and it's estimated a full renovation and modernization would cost between $69 million and $89 million.

Of course, all this represents is the opinion of unelected officials, albeit ones who studied the proposal in detail.

It will ultimately be up to members of city council to determine how Calgary proceeds, and they are set to to discuss the report and vote on its recommendations at their meeting on April 25.