After over a year of stonewalling, the Ford Government has finally released the full 297-page lease to Therme Canada for the spa at Ontario Place, accompanied by a four page “fact sheet“ (scare quotes mine). The reason for this reversal is that the Auditor General is doing an audit of the Therme lease, so the information will nonetheless come out when the Auditor General reports.

Sunshine is the Best Disinfectant

In my view, contracts or partnership agreements are a major tool of governance and should be submitted to the same scrutiny as the budget, international treaties, or collective agreements with public sector unions. Last year I posted about requiring this through a Partnership Transparency Act. All the Government would have to do is present the completed partnership agreement to the legislature for ratification, as it would a treaty. With a majority government, the outcome of the vote would not be in doubt, but at least the process would provide the opposition parties with a chance to scrutinize and debate the agreement. And perhaps the prospect of such a debate would improve the deal the government negotiates.

Money Today or Money Tomorrow

Elsa Lam, writing in Canadian Architect, has analyzed the lease. I will focus on the subtitle of her article: “To receive $1.8-3.2 million per year in rent and park maintenance, the Province has committed to spending over half a billion in public dollars now.” The half billion dollars in expenses by the Province includes $200 million in site preparation and $300 million for a parking garage. The rent and maintenance payments depend on the spa’s profitability.

How should we compare the Province’s outlay today with its stream of returns over 95 years? The Province’s “fact sheet” boasts that the province will recover $1.96 billion in rent and maintenance payments over the life of the lease. It calls the payments nominal, which means they are in current rather than constant dollars. Any economist knows that, for a valid comparison of today’s dollars and future dollars, the payments should be in constant dollars. In addition, future payments should be discounted to take into account the time value of money, or the fact that money in hand today can be invested. To analyze public sector investments, a standard discount rate is 5 percent. A constant dollar a year from now would be worth approximately $.95 today, a constant dollar two years from now approximately $.90 today, and so on. It is well known (but I won’t attempt to prove it mathematically) that the present value of an infinite payment stream is simply the annual payment divided by the discount rate. Taking Ms. Lam’s maximum of approximately 3 million constant dollars in annual rent from opening day to eternity, the present value of rental and maintenance payments to the Ford Government is approximately $60 million, far less than the government’s $500 million contribution today. For a business-oriented government, this looks like a lousy deal. The $1.96 billion in nominal payments in the “fact sheet” is intended to make the deal look good: spin, not economics.

One might argue that the goal of government is not to make a profit narrowly-defined, and other values might be in play. If this were the case, the Ford Government should explain the values that have lead it to strike such a disadvantageous deal with Therme.

So-Called Economic Benefits

The “fact sheet” also cites annual economic benefits of $294 million in GDP and 2000 jobs while the Spa is being built and $128 million in GDP and 800 jobs when it is in operation. This claim is in line with the Ford Government’s narrative that the Ontario economy was in freefall under Liberal Premier Kathleen Wynne and its policies have revived it. A more convincing counter-narrative is that the Ontario economy has been at full employment for most of the last decade, except during the pandemic. (Indeed, the unemployment rate in 2018, the last year Wynne was premier was 4.6 percent, which is where it stands now.) If people weren’t employed building and operating the spa, they would be employed doing other things. Without the spa, there might have been a more modest redevelopment of Ontario Place, renovation of the Ontario Science Centre in Don Mills, and more money spent on low-to-moderate income housing and healthcare. The Therme Spa is Doug Ford’s vanity project for Toronto, his exaltation of the body at rest and immersed. Ontario Place was built in response Expo 67 and was intended to be a celebration and exploration of Ontario, its history, its heritage, and its future – a much more active and thoughtful vision.

The Poison Pill

Ms. Lam shrewdly notes that as soon as Therme receives its excavation permit – very likely in 2025 – the province can cancel the contract only after the facility has been operational for 10 years, with 5 years notice, and the government paying to demolish Therme’s building and providing a new site. When there is a poison pill in a contract, the question to ask is what the parties are afraid of. The obvious answer is a new government that doesn’t support the spa. The Ford Government is thus trying to force its successor to live with the spa.

Time for the Auditor General to Weigh In

Ms. Lam and I have both taken a first look at the Therme contract and we don’t like what we see. We look forward to what the Auditor General discovers, using a large full-time staff and investigative powers not available to independent bloggers. This story is far from finished.