Lister shrinkage escapes council notice
June 13, 2006

It wasn't mentioned in Monday's passionate debate at city council, but the proposed replacement building for the Lister Block has shrunk in size - from 120,000 square feet promised in 2005 to 100,000 square feet today. The reduction means one-third less tax revenue for the city from the project, and less economic impact on the downtown. The change seems to have escaped the notice of councillors, and wasn't mentioned in the verbal report presented to them yesterday by their staff.

The city would still lease 60,000 square feet, but as a result of the shrinking building size that now constitutes 60% of the project rather than the 50% originally promised. Since the city exempts itself from paying property taxes, the expected annual addition to city tax coffers would only come from the 40,000 square feet to be rented to other as yet unidentified tenants.

The May 2005 city staff report stated that "LIUNA advised the city of Hamilton that it plans to proceed to redevelop the Lister building to create 120,000 square of office space" and that LIUNA had asked the city "to commit to 60,000 square feet of office space in order to secure financial viability for the project." That deal was approved last year, tentatively committing the city to pay $32.3 million for the 15-year lease of the space.

The May 3, 2006 staff report presented to the city's heritage committee uses the same 120,000 figure: "The proponent proposes to construct a first phase of a minimum of 120,000 square feet of new, Class 'A' office space in the downtown core."

But the staff report that went to Monday's meeting on the Lister says that LIUNA now "proposes to construct a first phase of a minimum of 100,000 square feet of new, Class 'A' office space in the downtown core." The change was not mentioned in the verbal presentation given to councillors on Monday by Tim McCabe, the city's director of development and real estate.

The change has also largely escaped the notice of the media. The Hamilton Spectator used the 120,000 figure exclusively in last year's coverage of the Lister deal, and that was the square footage given in the newspaper as recently as May 24.

The 100,000 figure appeared for the first time in the daily on Monday, although there is a hint in a May 31 column by Andrew Dreschel where he speaks of "doubling" the size of the current building - which is 50,000 square feet.

The public change is size appears to date from May 28 when LIUNA unveiled its new plans to replace the existing Lister Block with a replica building. But the drop in size wasn't noted in the Spectator's coverage which said that "the only major change to developers' proposal is to restore, not raze, the two buildings on either side of the Lister Block, including the 1854 Thomas building".

The buildlisternow.ca website established at the time of the unveiling to support LIUNA's proposal refers to "a new building with 100,000 square feet of office and retail space which will add more economic vitality and employment to the area."

The reduction of 20,000 square feet also seems to have escaped the notice of Joe Rinaldo, the city's treasurer, who issued a report to councillors today that still assumes a 120,000 square foot building. Rinaldo was responding to questions from councillors about the economic impact of the replacement of the Lister Block with a new building.

He calculates the amount of taxes the city expects to collect from the new building, noting that "similar to other lease agreements, staff will pursue an exemption from property taxes on the 60,000 square feet of City occupied office space; therefore the property tax impact is based on the balance of the total 120,000 square feet."

In a table titled "municipal tax implications on 60,000 square feet", Rinaldo calculates that $268,600 will be paid to the city annually in property taxes. But with only 40,000 square feet actually promised by LIUNA, that number would drop to $179,000.

Rinaldo's report also provides the first clear statement of the total costs to the city of the 15-year lease compared to the rate the city usually pays for office space. He gives the latter figure as $21.7 million as against the lease with LIUNA that will cost $32.3 million. From this he determines the city will pay a bonus of $10.6 million for the much more expensive LIUNA lease arrangements.

The annual extra leasing cost to the city is given as $705,000 - as compared to the apparent extra tax revenue of $179,000. It is noteworthy that if the city simply invested the $10.6 million bonus at 5% it would earn $530,000 a year in interest.

The most recent city staff report on the deal (giving the 100,000 figure) is on the city's website at
http://www.myhamilton.ca/NR/rdonlyres/FE667F6E-3E7C
-487F-B58C-49C7CB26D31F/0/Jun12PED06169.pdf. (large pdf file)

Today's memorandum from Rinaldo to the councillors can be found on the CATCH website at http://www.hamiltoncatch.org/pdfs/ListerBlockUpdate-S.pdf.