Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Thursday, November 03, 2011

Unplugging city sell-off

There are good business deals and bad ones, but City Hall today seems ready to sacrifice financial sense for ideology with its plan to sell what we hold in common.

This week the Executive Committee voted to sell the city’s share in Enwave but delayed its decision on monetizing 10 per cent of its Toronto Hydro shares as well as some real estate assets, seeking more information. This was a pleasant change from the new normal at City Hall, where big decisions are rushed into with little consultation.

Let’s examine the arguments for sell-offs.

Staff, likely at the urging of the mayor’s office, have noted that the sale of assets would allow the city to invest in other needed capital projects such as transit.

You could say that if the estimated $600 million from selling assets (including Enwave, Toronto Hydro and real estate) were invested in the city’s future, it’d be a good thing. Perhaps the money could go to repairing and building rec centres, libraries and daycares, since studies show that investments in early childhood result in better outcomes and cost savings in the future.

Alternatively, you could argue that transportation would be the best recipient of the sales cash.It could improve TTC service or ease the more than $400 million backlog in road repairs.

Sadly, I fear this is not the debate we will have. While transit was cited as a possible beneficiary of the sale, the cash would likely just go to reducing regular budgeted items for transit capital projects, so we’d be no further ahead.

Other needs might arguably deserve this money. But Mayor Rob Ford and some on council see such revenue as an easy way to fill the current deficit hole deepened by the ill-advised tax freeze.

As for Enwave, some say the city can sell its share and recoup part of the investment made in getting Enwave going over 25 years ago. However, the company is struggling financially and unattractive to private investors, so we’d likely lose money selling at the wrong time.

Alternatively, we could hold on to our share of Enwave, allowing the corp to expand its successful district heating and cooling operation, which provides inexpensive service to over 100 buildings and gives a competitive advantage to businesses in the downtown, not to mention being a greenhouse gas reducer.

When it comes to selling Toronto Hydro, the stakes are much bigger. Toronto has owned the company since 1911. It was set up to combat the high cost of privately provided electricity.

Similar projects were created in many communities across the country, and it’s remained true that rates are lower where public companies control the electricity system. Alberta and California are extreme examples of what can happen when private forces take over: not only does electricity cost more, but there can also be shortages and economic impacts as power companies relocate, seeking higher prices.

To assess the advisability of the sale of Hydro, we need more information, but if we go with what we now know, here’s the scenario. Based on various valuation methods, Toronto Hydro would be worth from $700 million to $1.5 billion if it were a market company. Taking the mean, you get about $1.1 billion. This means a 10 per cent stake would be worth $110 mil minus brokerage costs, bringing the city’s share to $100 mil.

The money could be used either to reduce the city’s debt or to invest in new infrastructure. On the face of it, this looks like a smart way to manage finances, until you realize that $100 million of city debt costs 4 per cent or $4 million a year to carry (the result of the city’s excellent debt rating, which is better than the province’s). But the average profit turned over to the city by Hydro (it’s pretty steady, since it’s regulated by the Ontario Energy Board) is 50 per cent of $50 to $70 million per year or $25 to $35 million.

Finally, subtract 10 per cent of that, or $2.5 to $3.5 million, that would be turned over to private investors if the city sells 10 per cent of Hydro. The end result is that we’d be $1 million ahead at best.

There’s also the fear that a private investor (although a minority shareholder) would press for bigger dividends from the profits instead of doing what’s currently done: prudently investing the profits in modernization and enviro-friendly practices that better prepare Hydro for the future, in the public interest.

We should always be open to new ideas. The problem is, the sale of city assets is not a new or particularly creative idea – and we should only go forward if we are very clear about the numbers and the purpose of the sale. Filling one-time budget holes should not be one of them.

Origin
Source: NOW 

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