Auditors find risks, gaps in city's oversight of Lansdowne deal

Independent auditors have found both "gaps" and"limitations" in how the city tracks one of its largestpublic-private partnerships, the 30-year deal with Ottawa Sports and Entertainment Group (OSEG) atLansdowneParkand TD Place.

Under the 2014 agreement, OSEG runs the stadium and sports teams, parking garage and commercial areas at Lansdowne, and also covers any deficits, while the city retains ownership of the land, runs the parkand put $210 million into the redevelopment.

This latest auditinto the complicated "waterfall" agreement builds onthemes from an earlier2017 audit and its followup, which found city staff lacked understanding and oversightof the complex contracts.

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This time, auditors pointed out staff only scrutinize how the Lansdowne partnership's annual accounting compares to the previous year, which doesn't give them much insight intowhether the deal is living up to expectations.

"It's like you're not benchmarking, so you don't have a sense of what you expected originally," explained deputy auditor Sonia Brennan.

Auditors said the city manager's officecouldn't even produce a copy of the original assumptions and financial model from 2009 that led to OSEG's proposal being approved.

OSEG contribution 'overstated'

Another gap is related to the more than $100 million in additional fundsOSEG's owners haveinjected into Lansdowne, and on which they accumulate eight per cent interest each year.

The city has no direct role in approving those extra OSEG contributions, auditors noted. That matters because in the "waterfall" order of financial priorities,OSEG owners get paid out before the city receives any return on its investment.

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Auditors alsofound the amount owners had contributed was "overstated" by$6.5 millionafter OSEG and the city settled a dispute over steel corrosion in the TD Place roof. Thatcould leadto an extra $14 million in interest accumulated over the life of thedeal.

The auditors andfinancial staff disagreed aboutwhether this was an accounting error, andauditor general Ken Hughes did underscore there was no "bad faith" on the part ofOSEG.

City executivesaccepted all 11 recommendations, butcity manager Steve Kanellakos said he felt staff had "stringent oversight over what's happening with the waterfall."

He also said staff still firmly recommend city councilextend the deal at Lansdowneto 2054 and allow OSEG access to a reserve fund to help the group deal with the pandemic's blow to itsretail and sports teams .

Originally, the audit was supposed to immediately rise to full city council Wednesday, the same day council was to vote on that revised deal with OSEG. Mayor Jim Watson is now expected to delay both until council meets Dec. 9.