As a resident of Squamish, a businessman and someone interested in good public policy,
I read with interest the recent column by Mayor Kirkham about the development of the waterfront lands. Although I knew little about the project, the history of the lands and particularly the Squamish Oceanfront Development Corporation (SODC), the article oozed political spin and I immediately knew there must be a backstory. Turns out there is, and it’s equal parts interesting and disturbing.
It didn’t take much digging to discover that some very poor financial decisions have been made in the past several years. In 2005, the District of Squamish (a public taxpayer funded entity) created the SODC (a private yet still taxpayer-funded corporation) to drive the development of the waterfront. While a CEO was hired, much of the decision making appears to have made by district staff, both elected and administrative.
There are some important differences between the private and public sectors. When you are running a private for profit business, decisions need to be made based on financial prudence, effective risk management and an understanding of future cash flow and profits. Success is ultimately contingent on one thing – a good product that results in happy customers. In the public sector, the line of sight between decisions and financial benefit is simply not there. There is no motivation to generate a profit, and in fact the concept of profit is often viewed as running against the public mandate. In the absence of this line of sight and motivation, public officials can delay for a long time and spend far more than necessary, which they frequently do.
Since the two factors that lead to a good business decision are the prudent use of money and ensuring a happy customer, it made sense to analyze both issues. With respect to money, I tracked the dollar amounts that have been transferred to the SODC from the district since 2005 and compared them to the average returns provided by the stock market, using the S&P 500 index as a benchmark. Even including the 37 per cent loss the stock market experienced in 2008, the $11.5 million investment total would now be worth almost $19 million. Since a decent investor can do better than the market average by a percent or two, the account would realistically be valued at about $20 million. Even an investment in safe government bonds at a 2 per cent interest rate would have created a value of just under $14 million.
I then talked to a couple of large B.C.-based land developers and asked what they thought of the oceanfront lands and the development conditions in Squamish. The responses were clear. Both talked about the need for certainty when it comes to investing millions of dollars, and while there had been a strong appetite for Squamish some years ago, the delays and changes in direction by the various councils has created an atmosphere of uncertainty. Lower demand results in lower value, which is why we see the land recently sold for $15 million, when it could have been more.
In summary, we have paid $11.5 million into the SODC and recovered $15 million, which translates into a net return on the land of $3.5 million. In reality, even if the land was sold for $15 million and we had invested the district funds that were used to create and support the SODC instead of creating a private company to hire consultants by the busload, the total money in the bank at this time would be, conservatively, about $30 million. For the pleasure of the district creating a private company, it has cost us about $26.5 million, or just over $1,500 for every person in Squamish.
There is a lesson to be learned by all of us. I don’t believe any of our politicians intended to lose money or make bad decisions. But they did anyway, because a district council is not a business, and I suspect they simply didn’t know the proper way to proceed. Becoming a politician does not mean a person will become business-minded. The next time you hear a local elected official tell you of the great investments they are making in the community, do the math and make sure you are hanging on tightly to your wallet. This is our money.
Keith Sones
Squamish
