Use Ed Tel fund for new arena

Most Edmontonians have seen the concept images of the proposed new entertainment and sports complex. Many seem to agree the project is a vast improvement over the current arena, and that moving the arena downtown has the potential for economic spin-offs that will benefit the city in the long term.

Only two problems exist: the project is missing $100 million in funding and it’s missing the community rink/practice facility wing that will complete the complex.

Mayor Stephen Mandel, city council and Oilers owner Daryl Katz have worked really hard to crunch the numbers and sell the project, but the bottom line is that ultimately all funding for infrastructure comes from the same source.

Be it a bridge, sewer, LRT station or museum, spending money on one project takes money from another or raises taxes. And no one seems willing to raise taxes.

But the proposed complex is not “infrastructure,” it is a revenue-generating business venture. So, how do you fund a city-owned venture?

Does anyone remember Edmonton Telephones? Do you remember what happened to the money the city received when it sold Ed Tel?

At last report, the proceeds were worth $626 million. This is invested in bond and equity markets with two goals: to maintain the value of the fund in relation to inflation and to provide an annual dividend to the city to offset tax requirements. Last year the fund contributed about $25 million to the city. And while these numbers may sound good, both are down from previous years.

No exit strategy

But the worst part about the city’s approach to the Ed Tel Endowment Fund is that there is no exit strategy. The current plan will continue until the world ends or the financial markets implode. Given the current European and American debt problems, the latter will happen first.

So what’s stopping the Ed Tel fund from investing in the arena project? No provincial funding, no new tax dollars — just Edmonton investing the proceeds of its past in the prospects of its future.

The big question is how much an investment in the arena complex will be worth in 35 years versus the potential value of the current fund. The primary tenant of the new building has agreed to pay for all capital improvements until then, so presumably there will still be a fully functional building that can be leased or sold. And the value of the building will depend on how much downtown Edmonton is worth 35 years into the revitalization plan. On the other hand, the future value of the fund will depend on the stability of financial markets and fund managers’ ability to predict. Conceivably, given the fund has to pay an annual dividend, that value could be zero.

However, the biggest difference in this strategy (versus the current funding concept) is that the city will still have the potential to borrow $350 million to $450 million from the province to fund true infrastructure projects, such as LRT expansion. In effect, the city can trade the mortgage on the arena project for more LRT financing, trade the equity holdings in the endowment fund for equity in the arena and have shovels in the ground on both projects next year.

Forty years from now, our grandchildren might criticize the decision to spend the fund on a “white elephant” every time property taxes go up. Or they might be happily riding the LRT to concerts and hockey games as they have always done.

Edmonton can cross its fingers, hope for grants and stock market gains and wait for the future to arrive. Or it can be bold and make the future happen now. Ed Tel brought the future to Edmonton for decades. Shouldn’t the endowment fund do the same?