Arena Update: Over Budget, Potentially For Good

Someday this grand old building will be no more. via upload.wikimedia.org

The last few months have been relatively quiet in terms of news regarding the proposed downtown arena that will someday house the Edmonton Oilers and instantaneously reshape the City of Edmonton. Concept drawings were released in April but there has been nothing of substance, someone finding the missing $100M or an actual cost estimate, to talk about for several months. That changed yesterday when the City released an arena update (you can download the pdf here) that shows that the project, despite several items already being altered or completely removed, is still projected to cost more than the agreed upon $450M. I wish I was surprised by this.

This arena update was supposed to go to Council on July 4 but was delayed by almost two weeks so that "detailed costing to ensure it meets $450 million max price" could be completed. That the project costs couldn't be brought in line with the maximum price despite the additional time makes me wish I could have seen the first estimate. Unfortunately the report contains only the current estimate which is included below.

Project Element Estimate Budget Difference
Arena $485M $450M $35M
Winter Garden $80M $50M $30M
LRT Link $7M $17M -$10M
Pedestrian Corridor $15M $15M $0M
Land $21M $25M -$4M

There isn't much in the way of good news in that table. The two biggest components are significantly over budget and even the cost savings for the LRT are proposed to be reallocated to cover the as yet unfunded community rink. Interestingly, as it stands right now Katz would be paying $55M for the Winter Garden (the City contribution is capped at $25M) while contributing just $80M (the City is offsetting $20M of Katz' investment through an advertising agreement) for the entire arena. That alone should tell you how screwed up the funding agreement for this project is.

In terms of the arena itself, according to the report the city has already removed the team store, gone from zinc to stainless steel for the exterior, removed food and beverage facilities, and changed the flooring on the second concourse with polished concrete just to get the cost down to where it is now. To trim another $35M there will be more modifications required including potentially reducing the amount of parking by as much as half and further modifying the exterior.

If the options included to further reduce the costs were viable or desired by those steering this project they would already be part of the report. The costs implications are clearly understood so there is no reason why they don't form part of the totals. And yet they're not included. Instead they're included as potential options to get the project back on budget, essentially being presented in a way that makes you ask "In the grand scheme of things is this really something I want to try to save a few pennies on?" I could be reading a little too much into it but I see this as a push to increase the total project costs.

The Katz Group statement released last night in response to the report makes me think I'm onto something. From that statement:

With respect to the arena itself, we are very pleased by the public's strong continuing support for the design and master plan, and remain optimistic that we can achieve further reductions to the current estimated cost of construction. The obvious challenge is to find a way to do that without sacrificing the integrity of the arena design, or the revenue streams we need to sustain our investment.

It seems pretty clear to me that the Katz Group sees the project one way, the way the concept plans show it, and there is little or no appetite for any change. This poses a very real problem for the entire project in my opinion. Further delay will result in increased construction costs but with the project still missing $100M in funding at a total of $450M I can't imagine (or at least I hope) that many on Council will be willing to support increasing the project total at this time. The report goes to Council on Tuesday, it'll be very interesting to hear what they have to say.

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