Sudbury man’s KED project cash flow model not far from the truth
Local professional engineer Ian Berdusco has written a preliminary cash flow model for the Kingsway Entertainment District, which projects an annual municipal deficit in excess of $6 million. The city’s estimate, which only takes into account the municipal arena, is $4.9 million
There is some debate regarding some of the numbers he uses, but Ian Berdusco doesn’t seem too far off the mark in his cash flow model for the Kingsway Entertainment District.
This, despite social media (where his report found its feet in the community) proving a breeding ground for KED-related misinformation.
Berdusco is a local professional engineer with an MBA majoring in finance, and he’s been drafting the model during evenings and weekends for the past few months. It concludes that the municipal impact of KED will include a net municipal cost of $6.2 million in its first year of operation and a total of $61.5 million in its first decade.
An established KED critic, Berdusco said the cash project was partly inspired by his recent purchase of a home in Greater Sudbury.
“I’m the next generation of landlords and taxpayers in Sudbury, and I want councilors and staff to be careful with our money and follow best practices,” he said.
Although city staff disputed some of the numbers and assumptions he used in his report, Berdusco said he was never under any illusions that they wouldn’t, c That’s why he was careful to use the word “preliminary” to describe his model. , which he intends to serve as a starting point.
This, he said, is also why he performed a sensitivity analysis which accounted for a 40% discrepancy in his calculations, which still indicates a municipal subsidy of at least $30 million at the during KED’s first decade.
“It reassured me in my conclusion that this arena is not going to be self-funding,” he said – a claim that city staff did not make but which made the rounds on social media and local reports in recent years.
Sudbury.com last week asked city staff for comment on the accuracy of Berdusco’s report, prompting a review by three key administrators: Executive Director of Financial Assets and Fleet Ed Stankiewicz, Director of Engineering Services David Shelsted and Director of Financial Planning and Budgeting Steve Facey.
The trio logged on to Sudbury.com earlier this week to share their collective perspective on Berdusco’s reporting.
The City’s current total estimated municipal cost for the Year 1 project is $4,907,672.
This includes the annual debt repayment of $4,251,972 for the $90 million loan the city took out for the project, which it will pay over 30 years. It also includes an annual operating deficit starting at $655,700 in the first year, which was reported in last year’s updated PricewaterhouseCoopers report on the project.
The city estimate is limited to the municipal arena while Berdusco’s cash flow model incorporates the full impact of KED on the municipality, including the Genesis Hospitalities hotel and the Gateway Casinos center.
Although the city’s approved budget for the project is $100 million, including $90 million in debt and $10 million in fundraising, the updated cost estimate last year l increased to $113.8 million.
This, Shelsted said, “would be the value if you basically brought that out the three to four years for inflationary measures and cost escalation.”
The $100 million estimate and the updated $113.8 million estimate include not only the construction of the arena, but also “all-in” expenses such as road works and management ponds rainwater.
That clarified, the true cost of the project will not be fully understood until the third quarter of this year, when City Council is expected to approve a final budget alongside a design-build tender.
This is relevant to Berdusco’s report due to his document citing outstanding funding of $40.5 million, bringing the total funding for the project to $130.5 million when only $90 million has been approved so far.
Additionally, Berdusco’s report assumes an interest rate of 4.5% when the city acquired a 30-year interest rate of 2.416% for the original $90 million loan.
There are a few other sticking points. Berdusco’s report cites the highest rated hotel in the city as being $12.4 million while the highest rated hotel in the city is the Hampton Inn and Homewood Suites which is over $20 million.
City staff also believe Berdusco’s estimate that the casino’s future estimated value is low at $12 million. They didn’t risk an estimate, but pointed to this recent story, which cites a $60 million casino, which is the same estimate presented in 2017.
Related to their disagreement over assessed value is a debate over how much tax revenue the KED would bring in. Berdusco’s report estimates a total of $651,305 in the first year for the hotel and casino. The PricewaterhouseCoopers report cites estimated tax revenue of $4.264 million. However, this estimate calls for a total assessed value of $160 million and the completion of “a new casino, hotel, conference center, new commercial uses, and new film and television studios.” .
Even city staff question PricewaterhouseCoopers’ tax revenue estimate.
The $4.264 million estimate depends, “if in fact it’s $160 million in assessed value,” Stankiewicz said, adding that building value doesn’t necessarily translate into assessed value.
As it stands, Gateway Casinos and Genesis Hospitality have been the only partners to publicly state that they are committed to building their respective businesses on the KED site, although some business owners in the area have also expressed their interest in developing in the region.
Despite viable debate over some of those numbers, Shelsted said a lot remains up in the air when it comes to KED, with past estimates becoming stale and the final budget and costs expected later this year.
“We’re trying to do our best to keep the board and the public up to date on where the cost estimates stand,” Stankiewicz said. “When you delay the project for four years, there is obviously an escalation in costs. … We’ve seen higher than normal inflation in recent years, and there tend to be bigger numbers.
While Berdusco has said he disagrees with some of the city’s points of contention and admits some of his numbers are wrong due to outdated information or incorrect assumptions, he hopes to see the city undertake a similar exercise to hash data that anyone can get.
Having evaluated $10 billion worth of capital projects in his professional career, he said he “can’t recall any of those projects ever being approved without a cash flow assessment. cash is associated with it”.
This cash flow model, he said, “has to be done by someone who is third party, independent of the city.”
A note on operating deficits
The extent to which the city should subsidize the Kingsway Entertainment District municipal arena underlies much of the debate regarding its finances.
Pages 73-75 of the city’s 2022 budget proposal highlight various areas of city spending, including an annual grant of approximately $4 million for the city’s 14 municipal arenas, which include 16 rinks and seven community halls.
In email correspondence to Sudbury.com, a city spokesperson clarified that the average net municipal cost of the Sudbury community arena was calculated at $541,482 in 2017.
Figures fluctuate from year to year based on events booked and live event attendance, with the pandemic-era years having had a significant impact on its operating costs and revenue.
The PricewaterhouseCoopers report quotes the Year 1 operating deficit for the KED arena at $655,700, which excludes the annual capital funding cost of $4,251,972 that the city is expected to pay for 30 years.
Tyler Clarke covers city hall and political affairs for Sudbury.com.