Tuesday, May 22, 2012

Shipyard needs to weather strong winds.

The last couple of weeks had me working on another transportation project, so I left the blog alone for a spell.

That latest back and forth on Facebook though, on the Point Hope shipyard issue lately inflaming debate at city hall and out in the public realm, needed more than just a twitter length rejoinder.

Two questions were raised in particular than need further exploration.  One was the notion that the shipyard wasn’t under threat so there is no need to rush to decide on land ownership or management issues.  The other was around Dockside Green and the city’s haste in approving a residential development so close to a busy industrial site.

First to the issues around the shipyard and land ownership.  Ironically, Councillors Isitt and Gudgeon have done a good job of demonstrating exactly why ownership is a better option for Point Hope than a long term lease arrangement.  Their efforts to politicize the decision already poses a threat to a good business plan and 200 plus new jobs.

Here’s a shipyard that’s been on the same site for 130 years and working on a strategy to take it through the next several decades.  With the potential of significant growth in contract work and the jobs that come with it, a measure of security and some freedom to manage the property to meet their needs is now more immediate than it perhaps has ever been. 

That addresses somewhat the question of why now.  For the past several years Pont Hope has been working with the city to gain approvals for new and different buildings on their site, initially to enclose painting operations (something which speaks to the neighbourhood issues as well), but also to expand their marine railway operations to allow more vessels in the yard at any given time.  Federal shipbuilding contracts that Point Hope will get a piece of in the near term, and the ongoing maintenance and repairs that will follow, are a game changer.  That new work, and the extent to which it provides an opportunity for a much more diverse and robust marine industrial operation wasn’t there when the last council took office, and discussions on the nature of the relationship between the city and the shipyard go back easily that far and probably a lot longer.

The city’s willingness to consider a right of first refusal, which is basically as far as the process has advanced, is now cause for political gamesmanship which turns the shipyard into a political football more so than a cornerstone of a vibrant local economy.  For their business, the very real threat of a city captured by politicians with a different agenda in play, and perhaps changing every three years for the next several decades, is not a strong foundation for long term planning.  For the banks they need to borrow from, that uncertainty elevates the risk of any investment.

One of the important questions raised at the recent public form asked “is this property surplus to the city’s needs”.  I suppose one could imagine that a piece of land, created with fill over the city’s history, and saturated with all sorts of contaminants, and operating for more than a century as a shipyard (and operators will tell you that no other location in the region is so uniquely suited to support the kind of shipyard we have here), might have another use 35 or 40 years down the road, or next week or next month, depending on the flavour of the day.  Most anyone with a practical appreciation of the history of the shipyard, the city’s marine economy, and a better understanding of the role of cities in community building and economic development would, I think, find no better fit for the shipyard properties, at the very least.

Alternate uses proposed at the forum were not particularly helpful in understanding either the potential of the lands, or the needs of the city. 

Housing is not a feasible land use where potential clean-up costs could run into the millions.  The city, especially if it were to lose the significant tax revenue associated with the shipyard, is in no position to finance those costs, let alone carry the possible tax free status that would be assumed for an affordable housing development on the site.  There are better models, and the city has pursued some of those already.

Health issues prevent the use of contaminated land for housing, at least at ground floor levels, and the prospect of further economically viable uses at the site are wishful thinking at best.  Dockside Green, with plenty of commercial space planned, is far from building out, and nearby at Bayside and the Roundhouse, the other, more sympathetic ground floor commercial uses that may be attached to those developments are also some years away from realization.

Parks, greenspace and pathways were also suggested, and similar to the other issues associated with housing etc., the land in question is zoned for industrial use and is protected by a number of city plans, backed up by democratic process too, that are now under attack by new councillors with a sudden interest in other ideas.  So much for the sound planning foundation so important to some critics of the proposed sale. 

Parks, by the way, will already see a significant increase in inventory where the “S” curve approaching the old bridge is set to disappear.  It responded to community desires, protects a more sympathetic piece of property along the waterfront, but it too needs to be balanced against the city’s other needs, and one of those is a robust and diverse economy to support the city’s services, operations and other assets.  Victoria is not, and cannot afford to become a resort community.  We should be doing what we can to help make sure we protect the shipyard and the jobs it brings to the city.

Leasing the property, as proposed by some, suggests a management regime that is clearly very problematic for the shipyard owners.  Councillors using the issue for political purposes would love nothing more than to hold onto the property, for ideological reasons, and thus perhaps ensure that city ownership could be used as leverage over any current or potential tenant to advance a more political agenda – hardly a solid foundation on which to build a long term business plan.

The city has not, by the way, sold anything yet.  It has negotiated an option for the shipyard to purchase (a public process) and make a more sensible arrangement to support a business that has been on the same site for more than a century.  It relieves the city of any risk associated with contaminated site clean-up costs and the conflict of being both regulator and landlord.  For the shipyard and any of the banks they need support from to fund the $60 million graving dock expansion, financing will likely be more difficult for four parcels of leasehold property subject to changing political whims than one parcel of fee simple land (and already zoned for the proposed use).

I think the way forward should be pretty clear.  The city is not in the land speculation business – it is in the community building and development business.  It uses its assets and resources to support a vibrant, local economy among many other responsibilities.  The timing is right, the exchange will happen at market values, the use is the right fit and for those that believe history only began after the last election, the property is already governed by the community plans, harbour plans, and economic development plans endorsed by successive generations of community leaders and council.

I’ll encourage my council to support the more sensible and practical approach a majority have already voted for.  It’s not just an academic discussion but a very real challenge to the more than 200 new jobs that a working, and growing, shipyard business can bring to the city.

Next blog:  Dockside Green.

Sunday, May 6, 2012

Where the money is going:  http://www.flickr.com/photos/luton/7003678940/in/photostream

When the Johnson St. Bridge referendum was held in Victoria, a cost estimate was offered to the electorate based on a project that included a well-defined set of works.  It did not include the cost of moving a secure data line owned by telecommunications giant Telus, who had insisted from the outset that the city was not to touch their utilities infrastructure lest they damage something of value (and what it carried they wouldn’t say).

Fast forward a year or so and the city’s contracted risk managers pushed back, suggesting to project engineers that a higher risk (and associated liabilities), would face the city if the line was not moved to keep it safe from an errant backhoe or other damage from the construction project.  Costs could balloon and schedules would be derailed by legal claims and project interruptions that the risk assessment proposed the city could ill afford.

A cautious and responsible approach had city and consulting engineers returning to plead with Telus for permission to move the line, understanding that the city would have to absorb the cost, and the project budget pressured after the fact.  The city and council could have stuck within the confines of the promised budget figures to hold the line, but that would have represented a failure of responsibilities to protect the project timelines and exposing taxpayers to the cost of doing damage to Telus property, among other problems it would have created for the bridge project.

Wisely enough, the decision at council, save for a few errant votes, took the safer course of moving ahead with the recommendation to move the line and take the political heat for changing the scope and budget for the new bridge.  Predictable accusations of cost overruns and poor management followed.  But the real issue is whether or not the city made the right choice in picking higher up-front capital costs to avoid the risk of more costly and problematic impacts on the project had the line been damaged during construction.

It is not a nickel and dime question, since project design, management and in the ground work to move the Telus line added more than $4 million to the overall cost of the new bridge.  There are other costs to be accounted for, and most of them well thought out and responsible scope changes, though still the accusations of runaway costs continue to dominate the political debate.  Never the let the facts interfere with a good story, as the saying goes.

Costs are real enough to be sure, and paying for them always a genuine challenge, though the city has managed well enough to secure funding (bringing investment, jobs and new durable infrastructure into the city).  There are those who will continue to score political points on the extra costs, and critics who have a different agenda (it’s always been about saving the old bridge and nothing else), but when the new bridge completes and the city returns to a new normal, more thoughtful reflection on the decisions of the day may come to different conclusions about what the right choice was.

On the Telus line though, and that $4 million balloon in the project budget, the city and council made the right choice, though some may yet pay a more political price as the future unfolds.  Stay tuned.

Tuesday, May 1, 2012

City land and the shipyards

Point Hope Shipyards has been anchored alongside Victoria’s Johnson St. Bridge for 130 years.  It’s not going anywhere else.  The current owner is pretty firm on that – he knows that the site is perfect for his business and the most sensible for the ship repair industry that has been part of the city’s maritime economy for much of its history.

The property itself is under city ownership, and leased to shipyard owners and operators, an arrangement that has the comfort of the familiar, even if a new proposal to sell the property outright makes more sense for both the shipyard and the city.

For the shipyard, ownership provides security of tenure and options to develop the site most effectively to support a growing business.  It would give them clear title on which to build the improvements they plan to sustain the next half century of operations.  They’ve been good stewards of the property and have earned the experience necessary to managing a piece of property that the city would do well to dispose of.  They’re well versed in managing the industrial impacts of their operations and in containing, if not remediating the accumulated contamination on site.

For the city, and understand that cities are in the development business, not the real estate business, it would transfer an asset into capable hands and excuse city hall and our citizens of the responsibility of managing the liabilities associated with a parcel of industrial property that for all intents and purposes has no other viable use.  Victoria values its working harbour and city planning documents are consistent in wanting to protect the shipyard and a shrinking marine industrial land base that has still helped to keep the local economy afloat.  It brings good jobs to a city well suited to the business of ship building, maintenance and repair.

The prospects for that model are very good.  Point Hope is planning a graving dock that will allow larger vessels and more complex projects to add value to their business.  New federal shipbuilding contracts are taking shape and the facility needs to be ready to take advantage of not just the capital projects, but more so the ongoing repairs and maintenance a new fleet will require.  The impact will be well beyond the 200 plus new jobs the shipyard expects to create. 

As a property owner, Victoria has been in the unusual, if not problematic role of being both landlord and regulator that creates enough headaches on its own.   The city has more than enough to do managing aging infrastructure, growing program responsibilities and increasingly diverse services along with the complex business of city building.  It’s just not part of our core business to act as superintendent of an industrial property that has no foreseeable future as anything but a shipyard – and we should be celebrating that, not chasing the illusion of a more profitable use or windfall profits if we just wait long enough.

To be sure the city needs to, secure a good return for the sale of the property.  The proceeds will come in current dollars and though some may imagine winning the lottery associated with another 30 years or so of speculation, that scenario would sell the city short.   A contaminated site is not going to be well used as a park or converted to another luxury condo development for absentee owners.  That would require costly and risky remediation that is better left to those with the experience, or a better strategy to contain the site and keep it operating as intended. 

Better value and better returns are there to be had as the shipyard takes advantage of the security of ownership and invests in improvements that will not only generate a desirable and sustainable marine industrial economy, but also significant increases in assessed values and tax returns for a city that needs new revenue sources, not more strategies for nickel and dime cuts to jobs and services.

Victoria needs to be careful managers of property portfolios and hang on to those pieces that are essential to our core business.  But even with some of our new responsibilities, like housing, Victoria has been quick to transfer ownership and management of properties purchased to agencies that are in the housing business.  The same needs to be done with the shipyard, where the ideology of ownership is like an anchor in the sand just when we need to set sail on a new course to a more sensible and sustainable economic future.