Toronto 880 Bay Street | ?m | 44s | Infrastructure ON | WZMH

[sixrings]

im pretty sure centralizing the offices into one office will either be cost neutral or infact save money. its exactly the same reason telus and rbc built new buildings downtown. i dont hink either telus or rbc are in the business of making decisions that lose money.

 

[Northern Magus]

The whole idea for this is to save money on renting space and/or consolidating staff downtown so that other properties can be sold off.

We're seeing far too much right-wing knee-jerk reaction on this from Junkie, who's inferring political interference where there's likely none.

But then again, why let key details get in the way of a rant.

 

[agoraflaneur]

I echo the sentiments of those who support this tower, with caveats because I don't have all the details of all government office operations in the city. But this would be my argument:

The generalized push for good office space in prime downtown locations is being driven by economics, not politics. Since the government operates in many different locations, they would save money by centralizing operations. They would not pay rent to other people here, and if they own all the buildings they are moving out of, they will profit from the good prices right now by selling those locations and concentrating employment. Further, it must be that the new building will be energy efficient, saving the government (us!) in utility and other costs. Last, government, like business, must compete for talent, and a Bay street location would be much better for pulling in talent and keeping employees happy (I know, slightly different employment dynamics for government, but still the same idea).

I agree that borrowing money to do this might not be good, but I think the government could make back the construction costs by selling vacated properties/not paying rent. Plus, all the income from the jobs created by the construction will be taxed, lowering the actual cost!

For me, build this tower.

 

[AlvinofDiaspar]

Mind you, the government cannot escape the poor optics even if the economics is sound. Sadly rationality isn't something voters necessarily possess.

AoD

 

[Xray_Crystal_Junkie]

How is that a knee-jerk reaction or acting irrationally? I provided a few real stats as to why this could worsen an already disastrous situation, i.e. the provinces fiscal situation. How can you just blindly accept the notion that this will save money in the long term? Sure, go ahead and show me a detail report outlining how this will do wonders and save us lots of money. There are plenty of questions to be answered first. For instance, how much are these departments paying in rent currently? What are the projected future rates? Even if their are savings, how long will it take for them to be realized?
As a crude example: The building costs 100 million (which seems low), and the current rent payed by these departments is a cumulative 2 million a year (seems high to me but I really couldn't be sure). So then in this hypothetical example, we wouldn't see savings for 50 years (and that doesn't take into account the maintenance, utilities, etc of the new building). Even if the numbers were different and we realized savings in 30 years, is that even appropriate in this climate?
And what would be the interest rate we could secure for bonds (it keeps rising the more debt we pile on)? What risk would that add by expanding the portfolio?

Sure, pretty buildings and claims of efficiency are nice... But at this point in time, when our balance sheet is in shambles, we just cannot afford these things. Perhaps once we've tamed the deficit (the promised 2017-18 timeline seems like a prayer) it would make more sense.
If I'm wrong, please show something to prove it.

 

[AlvinofDiaspar]

X-ray:

Depends on who is building the tower - I would suspect it is going to be done by P3, where the private sector assumes the construction cost in return for a long-term lease from the government. That's a scenario that wouldn't add any debt - variants of this model would also allow for transfer of the property to the province after x number of years, etc.

AoD

 

[Bayer]

We just cannot afford these things.

There are many government offices in class A buildings in Toronto (777 Bay and 1 Dundas West, for example). I know bean-counting is the true favourite sport of many Ontarians, but governments are elected to make decisions, not to be constantly micromanaged.

 

[agoraflaneur]

This is simply just an instance of McGuinty rewarding his downtown Toronto (where I live), vote-liberal-no-matter-what constituency. This building isn't necessary. As much as I love skyscrapers and would love to see more in this city, we have a tonne going up already and would be glad to see this one cancelled or put way into the future.

What a laughable statement! You state that, because we have debt, we should not spend. As pointed out, spending to save money is good economics.

Just because buildings are being built around us doesn't mean the govt. shouldn't own one. If rents make a profit in other buildings, they can for us too.

You don't provide any numbers or even any reasoning as to why this shouldn't happen other than debt, and as pointed out, even that can be mitigated.

Why is the burden of proof only on the other side? When major companies are doing the same thing, I don't see that this one-sided view can be supported.

 

[southofbloor]

Xray_Crystal_Junkie...

Correct me if I am wrong, but I think your issue with the government's decision has more to do with the size of the Ontario Public Service. Your office consolidation argument seems counter to my understanding of the decision making process in government. I am sure multiple committees and 50 different briefing notes were prepared to justify the cost saving associated with consolidating government offices downtown.

 

[Silence&Motion]

X-ray, you have to think of government debt over the long term rather than in absolute numbers. That's why Canada and Ontario are in much better shape than Europe (or the US for that matter). Those other countries are running structural deficits with no realistic plans for how to close the annual gap. Canada and Ontario both have long term budgets that aim to close the gap within a few years.

While I don't know the economics behind this specific building, I think it's realistic to assume that it is probably being built for economic reasons and not because Dalton McGuinty is a skyscraper geek like us who just wants to see another really cool, tall building in downtown Toronto. Many people have already suggested reasons for why a building like this may cost the government less money in the long run. For all we know its construction may actually be part of the plan to reduce the deficit over the long term. Again, I can't prove that this is the case, but nor have you proven that it's being built for the sake of having a cool new building, or for patronage, or whatever else you are suggesting. Until one of us offers solid evidence one way or the other, it's a matter of deciding which explanation is more reasonable rather than jumping to conclusions.

 

[Xray_Crystal_Junkie]

X-ray:
Depends on who is building the tower - I would suspect it is going to be done by P3, where the private sector assumes the construction cost in return for a long-term lease from the government.
AoD

That's a scenario I could most certainly get behind. The talk from insiders on this thread back in February though stated that it was going to be a government built building on government owned land and that it was being shelved or pushed out far into the future because of budget constraints (exactly what I'm arguing). But now it seems it's back on, is anyone aware if the plans on construction financing have changed?

I don't see why a developer would take the risk of construction costs and then agree to some rent-to-own contract though. Is that common?

 

[AlvinofDiaspar]

Xray:

Who knows, none of us are privy to the details but given it's a government that has shelved needed but high profile projects such as the west end courthouse, I don't think they will be too keen to be seen blowing one B on an office building for civil servants. And why wouldn't the private sector not be interested? Long-term leasing arrangements with government clients is as steady a revenue stream as it can get.

AoD

 

[Xray_Crystal_Junkie]

You don't provide any numbers or even any reasoning as to why this shouldn't happen other than debt, and as pointed out, even that can be mitigated.

Yes I did. Hypothetical but they illustrate my point. And we can not continually bury our heads in the sand and say we'll figure out the debt part later.

Even if their are savings, how long will it take for them to be realized?
As a crude example: The building costs 100 million (which seems low), and the current rent payed by these departments is a cumulative 2 million a year (seems high to me but I really couldn't be sure). So then in this hypothetical example, we wouldn't see savings for 50 years (and that doesn't take into account the maintenance, utilities, etc of the new building). Even if the numbers were different and we realized savings in 30 years, is that even appropriate in this climate?
And what would be the interest rate we could secure for bonds (it keeps rising the more debt we pile on)? What risk would that add by expanding the portfolio?

Why is the burden of proof only on the other side? When major companies are doing the same thing, I don't see that this one-sided view can be supported.

That's a joke right? Why is the burden of proof on the side that wants to build a 100+ million dollar building? Perhaps because they want to spend 100+ million dollars... I want to build 100+ million dollar rocket ship with government money. Do not ask me to justify it or explain the economics though. The burden is on you to prove why I shouldn't build it

Xray_Crystal_Junkie...
Correct me if I am wrong, but I think your issue with the government's decision has more to do with the size of the Ontario Public Service. Your office consolidation argument seems counter to my understanding of the decision making process in government. I am sure multiple committees and 50 different briefing notes were prepared to justify the cost saving associated with consolidating government offices downtown.

No to your first point. While the public service is no doubt bloated, that's not what I'm advocating. I'm just asking why we need this building and a (very expensive) change from the status quo. It may save money, but as I pointed out earlier, it may take decades to see those savings and there couldn't be a worse time to add more debt.

X-ray, you have to think of government debt over the long term rather than in absolute numbers. That's why Canada and Ontario are in much better shape than Europe (or the US for that matter). Those other countries are running structural deficits with no realistic plans for how to close the annual gap. Canada and Ontario both have long term budgets that aim to close the gap within a few years.

Except that this is not true. Ontario is NOT is better shape than a lot of those places you mention. The only reason it's not a bigger deal is that the Federal government would have to backstop any default on Ontario's debt or else it would cause financial ruin for the country. The federal government is in a better position and would be forced to pick up the tab. Bond traders know this which is why they keep shoveling money into our coffers for 3 or 4% annual interest, despite our decreasing ability to pay it back.
Oh and there is no plan in Ontario. There has been zero cuts, and a laughable voluntary wage freeze that was torn to shreds in arbitration.

While I don't know the economics behind this specific building, I think it's realistic to assume that it is probably being built for economic reasons and not because Dalton McGuinty is a skyscraper geek like us who just wants to see another really cool, tall building in downtown Toronto. Many people have already suggested reasons for why a building like this may cost the government less money in the long run. For all we know its construction may actually be part of the plan to reduce the deficit over the long term. Again, I can't prove that this is the case, but nor have you proven that it's being built for the sake of having a cool new building, or for patronage, or whatever else you are suggesting. Until one of us offers solid evidence one way or the other, it's a matter of deciding which explanation is more reasonable rather than jumping to conclusions.

Agree with this overall. I'm begging for a report to outline why this is a good idea RIGHT NOW. It's not just simply a case of "this will save us X dollars in 20 years", there are large implications of spending this much money when we're already broke.

 

[Xray_Crystal_Junkie]

Xray:

Who knows, none of us are privy to the details but given it's a government that has shelved needed but high profile projects such as the west end courthouse, I don't think they will be too keen to be seen blowing one B on an office building for civil servants. And why wouldn't the private sector not be interested? Long-term leasing arrangements with government clients is as steady a revenue stream as it can get.

AoD

I hope you're right.

Oh I'm not saying that scenario wasn't possible, I had just never heard of such an arrangement. I thought the standard was to seal a long term contract with a tenant but not to hand over the property after X amount of years. But I'll admit you're no doubt much more knowledgeable about this sort of thing than I am.

 

[southofbloor]

Xray_Crystal_Junkie,

It is probably the right decision now because multiple lease agreements are coming due. Regarding the current cost for government to lease office space, where did you $2 million cost come from?