Halifax Convention Centre costing city more than expected

City council agreed to pay an additional $301,000 for costs incurred in the 2016-17 year at Tuesday's meeting.

'We're sort of stuck with this,' Coun. Richard Zurawski said on Tuesday

Halifax's new convention centre, which officially opened its doors on Dec. 15, 2017, is off to a costly start. (Jonathan Villeneuve/Radio-Canada)

Halifax's regional council has unanimously agreed to pay an additional $301,000 for the Halifax Convention Centre for the 2016-17 fiscal year, as well an undetermined amount for this fiscal year.

And a new staff report presented to council Tuesday suggests that's not the end of the unexpected costs.

Financial outlooks at the convention centre have worsened, the report says, because a surge in office construction downtown has left the adjacent office tower —which is meant to help pay for the city's portion of the convention centre — with a 70 per cent vacancy rate. That miscalculation has ballooned the projected deficit by millions.

The convention centre, part of a larger private complex known as the Nova Centre, is leased by the province from Events East.

Downward pressure

While HRM is not party to the lease agreement, it is in a 50/50 partnership with the province on the convention centre's operating and capital costs.

Council previously agreed to create a convention centre reserve, where all commercial property taxes from the Nova Centre are placed. The idea was that those revenues would offset the annual costs under the agreement with the province.

But as the report points out, when the agreement was laid out in 2010, "there was no other office construction underway in the downtown core.... Since 2010 there has been considerable office construction in downtown Halifax leading to higher vacancies than expected and downward pressure on office leases."

The office tower is finished, but only 30 per cent occupied, according to the report.

Eight years ago, it was anticipated that the annual taxes from the Nova Centre would start to fully offset the convention centre payments around Year 6 and in the first year there would be a deficit of $1.8 million.

Now, however, the projections from the first year have grown to a deficit of $3.5 million. 

Projection from surplus to deficit

In year 10, the amount in the reserve balance was projected at almost $5.8 million. That number is now a deficit of $17.7 million.

"There is considerably more office space downtown than in past years, leading to lower office rents and hence lower assessed values than would exist otherwise," the report states.

"While the economy remains strong, it is extremely difficult to ascertain when assessments for the downtown office market will again start to rise. This broader downtown trend will continue to affect the HCC reserve."

The report says the province approached HRM in 2016 and asked to be reimbursed for $301,500 in payments made to Events East. This included two items not included in the budgeted amount, listed as ICT peripherals and governance, and an exceeded amount for sales and marketing.

'I think we have to'

Because these items were not within the memorandum of understanding with the province or in the information report, it had to be approved by council.

Several councillors at Tuesday's meeting said they felt as though they had no choice but to pay the $301,500 bill — knowing this would probably be a continuing trend for future years.

"We're sort of stuck with this," said Coun. Richard Zurawski.

"I don't see that we have a whole lot of wiggle room here, that this is going to come up next year as well and this is one of the things that the die has been cast and that all we can hope for is an uptick in the economy to allow hotels and convention centres ... to do what they're supposed to do and move ahead."

Coun. Tim Outhit said he would be supporting the motion "because I think we have to."

But he said he also thinks council needs to think about ways to get people working and spending money downtown again.

"I think we need to start promoting the heck out of downtown and making sure that these new buildings, be they commercial or residential, actually do have people in them."

Along with agreeing to pay, council also voted for another staff report for additional updates and recommendations on the business case for the Halifax Convention Centre and its reserve fund.