HOPE FOR A SECTION 37 CULTURE DEAL

GONE SIDEWAYS

A consultant meddles in the business of offers ideas to two past clients, who

are in a lawsuit over this, in hopes of creating a *Xanax-like effect.

Because, why not?

A PRESENTATION

*Unfortunately any anxiety relief al luded to here wil l

only be metaphorical. These are just unsolicited thoughtz (yes, with a “z”)

on how this test-run Section 37 deal for Arts and Culture

could have worked for all parties involved (and sti l l

can)!

DISCLAIMER

So, please proceed with humour and an open

mind.Or, don’t.

(What can I really do?)

ABOUT THE LAWSUIT…

The Toronto Media Arts Centre (TMAC), has

launched a lawsuit against the City of Toronto (and

developer Urbancorp, a non-client)

These news outlets have covered the story (click

for the articles):

WHERE THE PUBLIC PICKED UP ON THE STORY:

By launching the lawsuit and being first to consult the

media (and social media) about it, TMAC has been the

one to position the issues, thusly:

Their community arts group has been betrayed by

the City in a deal that ended up favouring a private

developer, wasting a lot of time, public expense and

goodwill; what’s to say this couldn’t happen again?

TMAC is seeking court protection and enforcement of

their shared contract terms with the City and the

developer

(The City and developer have generally declined to

publicly comment on the case. Ward Councillor Ana

Bailao denied any wrongdoing. )

DETAILS FROM THE PAPERS:

1. The Condo and Community portions of 36 Lisgar were supposed to be registered together.

2. But the City allowed the registration of the Condo separately, which allowed the

developer to finish its contractual obligation, and to receive its sale proceeds

/ “carrot”. This also effectively ended the contract between the 3 parties.3. However, the Community portion

remains unfinished. In addition, TMAC has been cut out of the contract as the purchaser of the place, after 4 years of preparation. The City is now holding a public consultation / “RFP” for another community group to occupy the building. TMAC is suing.

SO, IF I ’M NOT MISTAKEN, TMAC CONTENDS THAT INSTEAD OF THIS

RELATIONSHIP WITH THE CITY:

“Historically, Alice, this is how you navigate the rabbit hole of dealing with profit-seeking developers .”

IT WAS MORE LIKE:

“WTF!”

AND NOW TMAC’S LIKE:

“You was my brother Charlie, you coulda looked out for me a little bit.”

AND NOW THE CITY’S LIKE:

“You was my brother Charlie, you coulda looked out for me a little

bit.”

[not shown in picture: the developer]

#drama

However, these 3 parties’ 4-year history

together wasn’t so black and white.

There had to be some good between them all, and there still can be.

“Good”!? Some groups in the

community arts (and members from the City, or developers who fear

bad press) may be impatiently wondering: isn’t this 3-way deal, a

recipe for disaster?

BEFORE WE UNPACK THAT QUESTION

FIRST, THINGS FIRST

THE CITY STARTED OUT DOING A GOOD THING

Any developer that wants to add more storeys and units to a condo (i.e. more density) could possibly bypass City Council’s permission altogether and appeal to the Province at the “OMB” to get itBut, since the City holds the ultimate sign-off to register a building, it behooves developers to play nice and deal with the City first, through a Section 37 deal (tho, many complain this constitutes a “shakedown”)

So, the fact that the City and the Ward Councillor, Ana Bailao got a “$9 million” culture space (plus a park etc.), in this case, to offer to a non-profit group in the community was a GOOD thing (as opposed to possibly nothing). To ensure it ended up being a “community benefit”, not albatross, was the problem.

SO, LET’S AT LEAST AGREE

That Section 37 deals to get Arts and Culture spaces are valuable for the City to secure (btw, this is a new thing for the City to deal with).

Update: the talk at City Hall now is to possibly scrap Section 37s for something more standardized, and clearer to deal with, than these case-by-case headaches

Opinion: scrapping Section 37s would result in tons of development in the long-term with no consideration for cultural space which would result in a cheek-and-jowl un-livable city. Having said that, a better way to process the $XX million fish for the community, is welcome.

Both TMAC and the City, by nature, want to

protect this ability for the community to “get something” out of the rampant development happening in Toronto.

As for developers: they don’t always succeed at the OMB

in getting their density increases, so they often have

to deal with the City. Also, culture space in their

buildings (as opposed to a box-store) means cache for

sales. So, they may also agree that Section 37

contributions make sense.

A. They spent a lot of time, effort and

resources these past 4 years trying to

steer the deal right

B.They wanted this community space to

be a long-term sustainable home for

non-profit arts

C.They generated excitement in the

community about the possibilities of

the new digital media arts on Queen

West

D.They are careful stewards of public

money

SECOND, CAN YOU TELL TMAC AND THE CITY

APART?

E. They wanted the developer to

finish the building properly

F. They watched that TMAC and

its member organizations were

financially sound

G. They signed a contract for the

purchase and sale of the public-

use space to take place between

TMAC and the developer, with the

City as a fallback custodian

The point is, TMAC and the City have shared a

lot of the same thinking and goals

(and probably still do).

So, how did things go so terribly wrong?

T H E R O O T O F T H E P R O B L E M M I G H T B E T H A T T W O N O N - P R O F I T S

G O T I N A D E A L W I T H

A P R O F I T- M A X I M I Z I N G C O M PA N Y( i . e . a l l S e c t i o n 3 7 s a n d o t h e r d e a l s i n T o r o n t o , l i k e 3 P s , w h i c h h a v e

b e e n k n o w n t o e n d u p s e m i - d i s a s t r o u s l y )

IN CASE ANYONE’S CURIOUS: PROFIT-MAXIMIZATION 101

Maximize revenue potential (i.e. money coming in) by:

Buying up something fast-appreciating (i.e. land in downtown Toronto,

say, Liberty Village or West Queen West)

Increase sales potential (i.e. lobby for more density; more units to sell)

Market condos/building to buyers as being part of sexy “cultural” district

Minimize expenses (i.e. money going out) by:

Producing as cheaply as possible (minimize: time, labour, materials)—but

RISK: building deficiently and being found out, and delaying

registration (i.e. final OK)

So, obviously, a pr ivate developer would need to be

held accountable in any give-and-take deal with non-profi ts (especial ly stewards of publ ic

money!)—or else, the developer would leverage i ts greater resources and know-how to

maximize i ts profi t, necessar i ly at the expense of the non-

profi ts . That is their M.O. , af ter a l l—

we al l know i t !

Developer promises a “$X

million” facility, but isn’t

required to prove that $X was

spent; $X is complex to calculate

City allows developer to hire its

own (but approved) cost

accountant

Non-profit has to hire Project

Manager to check, but isn’t

privy to developer’s numbers

“Finished” product may be

deficient; arguing ensues

Major deficiency would be

prohibitive for any non-profit to

correct

Developer cares about

finishing & registering the

Condo portion (because that

triggers receipt of sale

proceeds), City tries to tie

completion of Community

portion to the registration, but

risks pissing off 400-600 new

mortgagees who have to pay a

wasteful “phantom rent” if

registration is delayed

AS IT IS, HERE ARE SOME *DIFFICULTIES OF HOLDING A

DEVELOPER TO ACCOUNT

*However, i t should be noted that a l l these “diff icult ies” arose due to loose contract

wording drawn up by lawyers, or to bad decis ions made by

humans—They are NOT

the Laws of the Universe. These things are highly changeable to, l i teral ly,

anything else that may make more sense!

And some things can be fi xed in retrospect by those who value

preserving cultural benefi ts and civ ic goodwil l .

AND WHAT IFEVERYONE JUST DID

WHAT WAS IN THEIR POWER TO DO?

THE CITY

THE CITY HAS THE ROLE OF A FACIL ITATOR

The role of the City is to facilitate socially-good activities to

flourish in Toronto, in a financially responsible way. The City has

been known to use its administrative tools, services, and

departments to make Council-approved things happen all the

time. • i.e. A little-known tool (p 118) is from the City Manager’s Office,

where the City can directly lend or guarantee an aggregate total of $300M to certain cultural community groups. In 2014, the City used only $55K of this facility. This tool could (have) be(en) used to ensure low borrowing rates, which frees up resources for community activities and sustainable financial operations for any cultural project with the goal of success (!)

Any community arts group entering into a deal

with a profit-driven developer and a $9-billion City

corporation needs advocacy and just treatment. This

can be enforced by mindful parties, or a contract.

Often, the non-profit goes through a major deal

just once in its organization’s lifetime; the City can

leverage its regular expertise to ensure a smooth

ride

THE CITY SHOULD GUIDE NON-PROFITS THROUGH COMPLEX DEALS

!

CITY COUNCILLORS SHOULD POOL THEIR COLLECTIVE INTELLIGENCE

Some City Councillors have more active wards than others

in terms of brokering Section 37 deals—some of which end

well

This needs to be shared / standardized as much as possible! • What do those contracts look like? • What did those developers do to be “civic-minded”? • What were the time lines of the projects?• What penalties were in place for each party? • What was expected of the community group that benefitted?

THE CITY SHOULD CLARIFY THE WARD COUNCILLOR’S ROLE IN SECTION 37

According to the City’s own commissioned study on all the Section 37

practices in the corporation, by Gladki Planning Associates, a ward

Councillor’s role in Section 37 is limited to two things:• Before a Section 37 deal, helping to identify, through public

consultations, suitable community arts non-profits in preparation for any development that may happen in the ward

• During the deal, acting as the liaison for service bureaus within the City that the public doesn’t normally have access to—like Real Estate Services, whose Director Joe Casali finalizes whether or not to register a building or extend a closing date due to deficiencies

The study found that Section 37 deals remain frustratingly case-by-case

in our huge city. (One factor has been that some Councillors, more than

others, are involved for much longer / in-depth in the deal, to the benefit

or detriment of a project.)

THE DEVELOPER

DEVELOPERS ARE FOR-PROFIT, IN CASE THEY FORGET

Developers deserve to get paid millions for the construction

of quality living- and community-spaces. Just like they deserve

to get penalized if these buildings are late or deficient. Section

37 deals are a way to help developers earn some more sales, if

they give some more to the community. Failing this condition,

there should be nothing more that anyone from the public

needs to sacrifice (i.e. condo buyers, community groups etc.)

for this private corporation to make its profit. Zero pressure.

DEVELOPERS CAN BECIVIC -MINDED

(SERIOUSLY! )

Developers give to charities all the time and get tax credits, tax-

deductions, good press, positive branding etc. under Corporate Social

Responsibility (CSR)

Some social developments (i.e. Section 37s) might not best be

approached as a profit-maximization opportunity—maybe it’s better to

come out supporting the community directly from which the company has

made / will make a lot of its money, FIRST, and then the trust will follow.

(How about an RFP in that order?)

For instance, Urbancorp’s ubiquity downtown west may be perceived as:• a banal attempt to cash in on the “build low-grade high rises on fast

appreciating land” formula, but has bitten off way more than it can chew (i.e. the multiple cases of delays we all know) OR

• an investment in a long-term cultivation of a cultural district and relationship with the community

(Which perception will win out?)

THE COMMUNITY GROUP

COMMUNITY ARTS GROUPS SHOULD WORK WITHIN THEIR L IMITS

Notwithstanding the spontaneous good nature and good

faith of the City and the developer, which may (not) happen, a

non-profit itself should foresee the limits of their participation

in a rich deal (i.e. to manage and operate a space, in

cooperation with others, that is several times beyond status

quo in scope and size AND consider a new governance model

AND raise millions as a new entity), and be prepared to call it

quits if it’s just not feasible• Indeed, several former TMAC member orgs have had to do just

that• However, those who can stick with it, more power to them

COMMUNITY GROUPS, BY NOW, SHOULD SHARE COLLECTIVE INTELLIGENCE

Every time there is a new (Section 37) deal, each community group

that benefits has to painfully reinvent the wheel with expensive

consultants. Whether positive or negative, community groups in

Toronto could educate and consult each other on their navigational

experience

Being chosen as the intended occupant of a “$XX million”

community space may seem like a fairy tale dream come true• But what were the demands on the group to occupy the space?

Finance-wise? Governance-wise? Was it fair? What would make this easier? Community groups can organize and let other sectors understand that non-profits aren’t an equal partner in development deals; that minnows swimming with sharks can be hazardous.

• They can empower their sector to improve their treatment

Back to the question:

Is a Section 37 deal, with two non-profi ts

(one of whom is small) and a profi t-

maximization company, necessarily

a recipe for disaster?

N O. I N T H E I N T E R I M , H O W E V E R , T H E R E I S A N E E D

T O R E S T O R E T R U S T A N D G O O D W I L L I N T H E C O M M U N I T Y R E G A R D I N G T H E S E D E A L S . L E F T

U N D O N E , A N I M P O R TA N T A L L I A N C E W I L L R E M A I N D A M A G E D .

FIN