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Keith Gerein: Edmonton's finances again skating uphill due to Lewis Farms Recreation Centre

Coming to council for more money now, when the facility is two-thirds along, offers no legitimate option. Rejecting the request at this stage would cut into the integrity of the project, such as not opening one of the two arenas, or leaving the library or pool unfinished.

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In a council meeting last week discussing the Lewis Farms Recreation Centre and Library, Mayor Andrew Knack was keen to push back on the narrative of Edmonton’s struggles with project management.

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Despite cost pressures hitting governments pretty much everywhere these days, he said, well over 90 per cent of Edmonton’s projects are delivered on time and budget.

It’s an assertion that happens to be simultaneously accurate and misleading.

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While it is a defensible position to say Edmonton has had a better record in recent years, the projects that still tend to go off the rails most often are the big, complicated, expensive, high-profile projects.

Few people care if a $250,000 skate park is on budget or not, but a lot notice when costs soar for the south LRT expansion, the 50 Street overpass, the Yellowhead Trail freeway conversion, new fire halls, the Enterprise Commons IT upgrade and so on.

The Lewis Farms project is the latest to join the list. We don’t yet know what extra cash injection is needed to see it through to completion, since the projected amount is being kept under wraps so the city can protect its negotiations with contractors. But the escalation is clearly substantial, not to mention frustrating.

To understand how we got here, a little context is useful.

Back in late 2021, when the previous council voted 12-1 to approve around $310 million in new debt for the project — Ward papastew Coun. Michael Janz was the lone dissenting vote — I criticized the decision as an unnecessary spending risk.

My concern was that the city was seeing signs of financial headwinds coming out of the pandemic that made a palatial new recreation centre feel like a luxury. It was not just the prospect of adding to the city’s already uncomfortable debt load, but also the extra operational costs, since these facilities do not generally run at a profit.

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Hindsight is, of course, an unfair lens, but it is also clear that council should have been paying more attention then to the gathering storm, which turned out to be nastier than expected — hyper-inflation, squeezed revenue, a structural deficit and growing maintenance backlog, etc.

So that’s the first point to note, that the project probably shouldn’t have been approved when it was.

The second point, in the context of what’s done is done, is to say that news of a cost escalation is hardly a surprise. And yet, the timing of this one is a bit vexing.

The project is now 65 per cent complete, and some components are even further along. So the question arises as to why contracts haven’t been locked in at this relatively late point, leaving them open to inflation.

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The city’s explanation is about sequencing. The choice was made to award different packages at different times rather than all at once.

The “heavy” stuff involving steel and the building’s shell were locked down early at lower rates, but later-stage pieces like landscaping and interior work were deliberately delayed. Negotiating those deals years before work could begin would have subjected the project to high bids because contractors would have included a “risk premium” to guard against future price uncertainty, the city said in an emailed statement.

In addition, the sequenced process allows the city to employ “active-value engineering,” the statement said. As actual prices come in for the later-stage work, the city then has better real-time information to determine which elements have good value that are worth retaining, and which elements can be refined, shrunk or simplified. The approach has led to an estimated $90 million in savings, the city said.

Simply put, the city has been trying to manage risk in a difficult price environment, and has been grinding away to reduce costs. But despite those efforts, a historic rise in construction inflation — the city pegs it at 46 per cent since 2021, double their initial forecast — has still led to a substantial cost overrun.

Decision without a real option

I am not in a position to offer a financial analysis of the city’s approach, other than to say at least some of the explanation comes across as logical. However, I can say that the process does come with a negative oversight and/or political tradeoff.

Some of you may remember that back in late 2022, a year after the rec centre was approved, administrators were back in front of council complaining about inflation and asking for a $58 million boost so that the project could still be built to original specifications.

Council rejected the increase, and told administrators to scale things back to align with the previously approved budget. It was early enough in the process that council could make that choice.

Coming to councillors for more money now, when the facility is two-thirds along, offers no legitimate option. Rejecting the request at this stage would cut into the integrity of the project, such as not opening one of the two arenas, or leaving the library or pool unfinished. Some critics might say council should do just that on principle, but that is not a realistic choice.

And it leads to perceptions of game playing with tax dollars.

Going back in history once again, this time to 2005, I can remember frustrations around the costs for constructing Hall D at the Edmonton Convention Centre. To get the price down to a level council could accept, administration agreed to take out several elements. But it turned out later that many of these things — chairs, a sound system, blackout curtains for the big windows — weren’t really optional at all, and council had to add them back in once the project was nearing completion.

I don’t think the same thing is necessarily occurring with Lewis Farms, but either way, the process has put this council in a similar bind.

Whatever the case, the focus should now be on what options are available to recover some of the extra cost.

For one thing, I think council should re-examine its rejection of selling naming rights on these facilities.

Maybe it’s time to start charging at least nominal parking fees at recreation centres and city attractions. And perhaps admission fees for non-Edmontonians should be higher, given a lot of this facility’s clientele will undoubtedly come from Parkland County, St. Albert, Spruce Grove and so on.

It’s unfortunate to be in a position to have to consider these measures, but that’s the reality.

Yes, 30 or so months from now, when the Lewis Farms venue finally opens, it is sure to be immediately swamped, especially given how long west Edmonton has been waiting for the facility, how much the city has grown in recent years and how much pressure the existing recreation centres face.

The two new rinks will help address a shortage of ice time in the city. Families will make memories in the aquatic centre with its 53-metre pool and waterslide. Teens will love the gyms and fitness area. Lunches can be eaten in the accompanying park.

And yet, all that considered, this still feels like a questionable burden on the city’s books.

We are where we are for a lot of reasons, some of which are outside of municipal control, but also due to a flawed choice four years ago to approve an unnecessary project at a volatile time — like buying a new home entertainment system when the roof is leaking overhead.

kgerein@postmedia.com

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