By John Swartz
Just when the way forward looked clear for the Building Hope project, Orillia council put up a yield sign Monday night. A previously delayed motion to grant the project an amount of more than $400,000 equal to anticipated development charges (DC) and to waive a requirement for a security deposit on construction was back on the agenda.
A recent announcement by the federal government to approve Building Hope’s Canada Mortgage and Housing Corporation’s (CMHC) grant of $6.3 million removed the stumbling block some councillors had about granting the DCs since $11 million of the $14 million dollar project was secure.
However an amendment removed the grant consideration. In 2018 council did agree to a DC deferment, which means Building Hope would pay them at the end of construction, with interest, rather than up front. The amendment did also provide the City make a grant for the DCs at that time, so effectively council deferred the cost to another budget year.
But, when it came to the security waiver, councillor Ted Emond moved the amendment and asked for a special meeting of council May 27 in order to have Building Hope secure funding for the deposit rather than waive the fee.
“If the City waives that, the City is putting at risk the cost of finishing parts of the project. Our experience with projects over the years is that probably a third of the time we need to draw on those securities in order to finish up things. People aren’t dishonest about it, it just happens. I don’t want to put the City at risk and I want to give Building Hope every opportunity to deal with this issue because it’s their problem. If they can’t that’s fine, or if they can in part we’ll see what that means,” Emond told SUNonline/Orillia.
“We just postponed making a decision, urging them to find alternative funding for that 600-plus (security deposit). If they return and have not been able to do that then council has to decide whether they will, or will not, waive those securities.”
Following the decision, Building Hope co-chair Glenn Wagner spoke with media. He was perplexed with this twist.
“As far as the servicing waiver, it’s interesting that (in) council’s due diligence, not once did they ever ask that question, or was it ever discussed, which is kind of strange. Now we’ve got another delay. I thought the whole idea for us was doing due diligence over the last three weeks and now we’ve got another question, so I’m a little surprised at that. The one councillor that made that motion never attempted to make due diligence with me over that time, never attempted to call me and talk to me about the issue of site services, and never made any suggestions of other options we might look at, so that was a little surprising, and the fact we have to do that in basically two and a half, three weeks,” Wagner said.
Pending a positive outcome at the My 27 special meeting of council on this issue, there may not be a delay for the project, and there are options both sides can consider. During the course of the hour and 20 minute debate, councillor Ralph Cipolla remarked in his experience Building Hope has some avenues they can try. Wagner on Monday night did not know what Cipolla might be thinking, but speculated what it could be.
“If they are talking about getting some kind of bond from the contractor, of course we don’t have a contractor, the project still has to go to tender, so that in essence can delay the project,” said Wagner inferring the timing for this project is not the usual one construction projects have.
“If we go to a bank, it’s pretty difficult to go to a financial institution and say we want you to give us a bond for this, but the City is not willing to do it,” Wagner said. Cipolla was suggesting those ideas he told SUNonline/Orillia later in the week.
“If we have a performance bond from the contractor then that would be OK. What the contractor does is take out a letter of credit to ensure the construction is finished properly,” Cipolla said. “Building Hope can get a letter of credit from the bank. They’ll only charge 1% or 1.5%, which is less than $10,000. It’s my experience in the construction trade they’ll give them a letter of credit at sometimes no charge as part of their donation. You can ask the bank, or the company that’s doing the financing, to donate a letter of credit.”
Creative as those sound, what is driving all the angst on both sides is the fact the project is moving ahead on steroids mostly because of developments at the county/province/federal levels. The County of Simcoe is the conduit for provincial housing grants and they did approve a grant for phase one of the project. However, last year the county suggested to Building Hope not to rely on having grant money available for phases two and three because the province can change policy anytime and it might be best to accelerate the project while money is available.
“What happened is the government of Ontario released money in the homes For Good project, so there was a couple million dollars available through the County for transitional housing. Since this is the only project in Orillia that was on the horizon for transitional housing the County approached Building Hope and said can you move that part of your project forward,” Emond told SUNonline/Orillia. “The problem they are getting is the county is suggesting the timeframe on the Homes For Good project is not open ended. In other words, at some point they need to demonstrate they are actually going to use the money, so they are under some pressure to move this project forward.”
Building Hope went into high gear amassing grants in very short order, but this had the net effect of asking the City to do things in a hurry and not according to normal procedure. This is where the bottleneck stems, staff have marching orders to do things in a particular way and council, not having this set of circumstances to consider before, is listening to staff.
“What I was trying to do is protect both the Building Hope and the City. If it’s not built properly, or if the contractor goes bankrupt, or whatever it is, the board of directors are liable. Unless the board of directors has insurance and their insurance company should be able to provide that kind of insurance,” Cipolla told SUNonline/Orillia.
Coming to council in what seems like a repeated fashion in a relatively short amount of time makes Building Hope look like they have their hand out constantly. In fact Emond mentioned during debate Building Hope has made three funding requests for the project, to which Wagner took exception.
“We’ve really been to the City once, not three times, at least once of our own volition. Not once in all this time that I’m aware of has the Lighthouse asked for operational funding, ever,” said Wagner. He counts one time because of the county’s advice to accelerate the project, and another because of the DC condition the CMHC put on the grant. The third was to ask the City to grant the cost of the land and defer development charges, for which Building Hope initiated discussion. Wagner thinks some at City Hall are losing sight of how much funding has been secured and the savings for numerous municipal and agency budgets the Lighthouse Soup Kitchen operations (which form the backbone of the Building Hope project) has.
“I think with this kind of legacy project, as councillor Lauer said – we’ve got almost $10 million from other government agencies, to suggest that the City because they give to the county, shouldn’t at least consider chipping in, and we are happy with what they’ve done, don’t get me wrong there, (but) it’s not that big an ask compared to what we’ve done and what we’ve got from other government agencies,” Wagner said following Monday night’s council decision. “We save the City and the other social agencies, the hospital, the police, we save them millions of dollars a year.”
Wagner’s big concern is cash flow once construction starts in August. The timing lag between grant installments due to Building Hope as construction progresses and payments due to the contractor as milestones are met is hampered when almost $634,000 is removed from their bank balance for a security deposit.
Other Possible Solutions
But that much money may not have to be tied up for a lengthy time, say to end of construction. There is a possibility the security can be transferred to the contractor once the contracts are signed, meaning Building Hope returns the deposit to their accounts. This is not unusual, and in fact most security deposits are made by contractors in the form of performance bonds, or letters of credit.
“That’s an option. I would consider it,” Cipolla said.
Also, the security requirements are structured in pieces and the report from development services shows two lists, one for engineering securities and one of $329,000 for landscaping. The practice of the City is to release security obligations as milestones are met. For example, when the City signs off on sewer connections, which happen early in the construction phase, that amount is released and returned, in this case the estimate by the City is $40,000. The list goes on to include water connections, site preparation, storm water management, and etc.
Emond is willing to consider a mix of waiver for a portion of the security deposit and cash from Building Hope, with the City’s share reduced by milestone releases rather than on Building Hope’s side.
“From my point of view personally, for every dollar they are able to put towards the project is reducing by a dollar the risk to the taxpayers, so sure if they came up with half of it that’s half the risk. I’d be much more open to consider the continuing support.” Emond told SUNonline/Orillia.
So it appears doors aren’t closed on the project and a creative solution can be worked out for what amounts to a very untypical development process.
“We’ll do what we need to do, as we’ve done all along. It’s going to be difficult, I think, within the next two and a half weeks; matter of fact, that evening council had suggested we make a report we have a fundraiser that takes place that night at one of the local churches,” said Wagner.
The motion council passed does not rule out making a waiver, so if the exercise of trying to get funding for the waiver does not pan out council can still waive in total or in part.
(Photos by Swartz – SUNonline/Orillia) Artist’s rendering Building Hope.