Sunday, February 28, 2016

Old City Annex - Down Memory Lane

Another place tax dollars go to die?

Anyone familiar with City Hall on Wallace Street will recognize this distinctive structure on the corner of Franklyn and Wallace Street. It served as rental space for city staff for several years and was finally purchased by the city many years ago. At that time considerable money was spent upgrading the building and I have been told the wisdom of the day said the building should be good for fifty years.

Fast forward to 2011 when for reasons that are shrouded in mystery and speculation city staff of the day convinced the council of the day the building just wouldn't do. To paraphrase an engineers' report of the day 'in a seismic event the structure could fail'. That was the rationale for council being directed by staff into spending over $16 million on that shiny new office behind city hall. The one with an assessed value of less than $9 million. It was also the building that was built without ever going to tender, even though that would have been in violation of the city's own procurement policy of the day. Incidentally, that policy was revised in March of 2011, the same month the new annex deal was decided behind closed doors.

Senior staff of the day would have included Mr. Kenning, Mr. Holmes and Mr. Swabey to name a few. The decision to spend $16 million on that new annex was all done in-camera and was not even made public until more than 30 days after the decision was made. Remember this was all said to be necessary because the old annex was this death trap pictured above.

After the old annex was finally vacated, the city was now left with the task of disposing of it. Had they put the $4 million building on the market we might have found out what it was worth. However, city staff of the day, with council's help, put a restrictive covenant on the property which rendered it worthless. They said the building had to be either demolished or brought up to a seismic standard (not required by the building code) as a condition of sale. My own unproven opinion is that this was done to avoid the possibility of a new owner having the building inspected by another engineer who might determine the building was not in as nearly bad a condition as we were told. It would be hard to justify that new $16 million building if this one was actually still serviceable.

Enter Tectonica/Cracey Holdings

There was an announcement from the city in Dec. 2012 saying that Tectonica Management Inc. and the city had entered into a purchase and sale agreement for 238 Franklyn Street. At that time the city agreed to pay Tectonica $40,000, which was identified as the equivalent of two years taxes. I presume the assumption was that the property would now generate taxes since the city was no longer the owner. Tectonica I believe paid the usual sum of $1 for the property under this deal. I have yet to find out if the city ever actually paid Tectonica the $40,000.00.

Although the announcement was made in 2012, the two year clock did not start running until 2014 meaning that Tectonica was to have either demolished or upgraded the building by Jan. 2016 in order to honor their part of the agreement.

In-Camera Secret Decisions

Apparently in the fall of 2015 Tectonica approached the city of Nanaimo seeking an extension to the agreement on the old annex. From the outside it would appear as if no progress has been made in any substantive way to demolish this building. Behind closed doors the current city council agreed to further extend the agreement with Tectonica for another five years, at this time I am told the deal was actually made with a company called Cracey Holdings. This is the company that until a few days ago did not have a licence to do business in the city of Nanaimo. Apparently not an impediment when doing business with the city of Nanaimo. This whole deal was conducted behind closed doors, for reasons I believe would fail a challenge. Done on the watch of former city manager Ted Swabey.

The reason for proceeding in-camera for the minutes of that meeting are said to be:

That the meeting be closed to the public in order to deal with agenda items under the Community Charter Section 90(1): (e) the acquisition, disposition or expropriation of land or improvements, if the Council considers that disclosure could reasonably be expected to harm the interests of the municipality; 

How one would argue that the interests of the municipality could be harmed by hearing the request for a five year extension on the old annex is challenging. It is unlikely this deal would have seen the light of day had it not been for the watchful eye of Ron Bolin who contacted the city to see what progress was being made on the old annex. I too had been watching the building, being aware that last year this property had been assessed as having a value of only $2.00. This year the same assessment has been applied, meaning the new 'owner' is still not paying any taxes on the property even though the land should be worth more than $500,000 given neighbouring assessments.

How City Hall & City Council Take Care Of YOUR Interests

I made an inquiry at city hall as to why this property was only being assessed at $2.00. Included in the answer to that question was some volunteered information about the current status of this building. This was the first I was aware that a five year extension had been granted last Oct.5/15 at one of those in-camera meetings this council said they were going to cut back on. Remember?

The reason BC Assessment only assessed the property at $2 is because of the covenant the city put on the property requiring either demolition or upgrade. Saying the building had no value because of the covenant doesn't seem to adequately explain the land having no value. That is a matter for BC Assessment and not city hall staff to answer.

At this secretive Oct. 5/15 meeting several things transpired that I find somewhat disturbing not the least of which is the apparent attempt to keep this whole transaction away from the prying eyes of the public. Shades of how the city decided to build the new annex in the first place.

Between Dec. 2012 when the deal was struck with Tectonica Management Inc. and the Oct. 2015 secret meeting where a five year extension was granted, the company changed to Cracey Holdings. This company until only a few days ago was not licensed to do business in Nanaimo.

If the original deal was made with Tectonica in 2012 and registered as a sale, when did that legally change to Cracey Holdings and change to an option to purchase?

In the 2012 statement the deal was referred to as being a purchase and sale agreement, which is now being referred to as an option to purchase agreement. I asked the city if the two are the same thing, and have been told that yes, they are.

As it stands Cracey have control of this asset from 2012 until 2021 and have no ‘skin in the game’, they are basically holding this city taxpayer asset, tax free for 9 years. That seems like a pretty sweet deal for them, but for Nanaimo taxpayers, not so much.

I asked why the city did not consider removing the 219 covenant on the property and putting it back on the market to see if the building and property, once valued at $4 million might recover more than $2 for Nanaimo taxpayers. The answer I received from city staff was:

If Council had not granted the extension, Tectonica may have demolished the building and, at that time, would have been in compliance.   If they had elected not to demolish the building, only then could Council have been in a position to buy back the property and consider the 219 covenant.

This begs the question, why would it not be in the interest of Nanaimo taxpayers to have Tectonica fulfil their part of the agreement entered into in 2012 when they basically added a $4 million asset to their holdings for $1.00. If they did demolish the building, then perhaps BC Assessment might decide that the land is worth at least $500,000 and the city could start collecting taxes on this property. As it is from 2012 until 2021, Tectonica or Cracey have control of an asset worth at least $500,000 to Nanaimo taxpayers.

There is no reason for leaving the 219 covenant on that property, as there are plenty of building bylaws and rules governing the use of that building without completely making it worthless.

There is enough about this whole deal to make the average taxpayer’s tummy do a bit of a flip flop. When we elected a new council it was hoped we were not going to be getting more of the same with secretive, backroom deals that seem to favour some members of the local business community. You don't have to listen to too many coffee shop conversations to learn that Nanaimo's city hall has one very bad reputation as a place to do business.

This Council I am sure have ample reason to revisit this issue and do what is right for Nanaimo taxpayers. Will they?

Comment: I have been on this whole Annex saga since 2011 when in my opinion $16 million of taxpayer money was used in a most secretive and far from straightforward manner. It was the first issue I addressed council about back in 2011 after starting an online petition which gathered nearly 1000 signatures and got coverage in the News Bulletin on two separate occasions. 

I frustrated city staff and myself pursuing an FOI to get the documents that led to that decision which seems to have badly bent many rules, not the least of which was spending millions of tax dollars without ever going to public tender. Concealing the vote so that in the election year of 2011, taxpayers were asked to support councillors without knowing how they stood on this questionable use of tax dollars.

There is much about this whole deal I would like to see subjected to a full investigation to determine if proper procedure, due diligence and adherence to best practices were even ever so slightly followed on this issue.

The electorate has become more and more jaded about how their servants are conducting business on their behalf, and this is one prime example of why that suspicion is not misplaced.

There seems few mechanisms whereby these elected and non-elected officials can be held responsible and accountable for how they use or misuse public funds.



  1. I am afraid our "servants" have the "master" mentality. The taxpayers are the real servants. We dutifully fund this circus and gong show at city hall.

  2. Now that Nanaimo does not have a daily paper, I'm sure glad you are willing to investigate stories like this. Keep up the good work.

  3. Bonafide stories of our tax dollars getting fleeced just keeps getting worse! Thanks for this Nanaimo Info Blog. Maybe we can root out the evil once and for all.

  4. What a bombshell. Council and the city must take action and clean up the mess.

  5. just build some condos, some rentals, some retail etc… plant some greenery and get on with it. the building is a piece of crap. the new offices function, and look good. No one has been made a pauper in the transactions. And in years to come, there will be a vibrant area we all enjoy --maybe ;-))

    Nanaimo just loves 'taxpayer' intrigue, more I think, than actually getting anything done.

    1. this sound like the "mayor" talking - spewing bafflegab and not giving one damn about taxpayer's money!

  6. Not getting anything done?? Really?? $72 million for a $42 million conference centre, $1 million+ for falling down theatre, $16 million on a $9 million building, $10 million for a dam fix, not proven, $60 million ++ to make sure our pristine water remains (if new system actually works) $10 million Bowen Rd. widening .....there is a long list of how Nanaimo keeps dipping into the taxpayers pocket and certainly does get stuff done....

    1. well then, seems we have infrastructure that is begging to be used.

      Let's get the ferry going, let's put up a hotel or two, let's get a first class tourist attraction happening on Newcastle.
      Let's make those investments work !

      throughout time, in every corner of the planet, taxpayers have grumbled-----tired old story

      the solution is to bloody well use the things we put up.
      Let's build a downtown/waterfront that is the envy of the west coast.

    2. yo nuts?

      new boat, hotels, tourist attractions....yo talk'in about my money.

      if it's a good investment let business do it solely on their own. enough of tax bags full of everyone else's.

  7. Taxpayers likely wouldn't grumble if they thought they were getting a fair 'bang for the buck'. Little confused by your statement to lets get the ferry going, built a couple of hotels and a first class tourist attraction ...... those are all NOT places where the City of Nanaimo is mandated to invest. That is strictly the arena for private enterprise, and if they don't see good investment potential, how many people really want the brain trust at city hall diving into the business world. Which by the way they can NOT legally engage.

    1. "City Hall" has done enough already. No more help please.

  8. Excellent reporting. Since the whole exercise involves some very creative accounting, I suggest that you ask the office of the municipal auditor (if the job has been filled since the first appointee was sacked some time ago) to investigate. It seems to me that this is just the sort of SNAFU that the office was created to investigate -- and it was created because the Province heard from many disenchanted taxpaysrs that there was too much tomfoolery -- and worse -- going on at too many city halls in BC.


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