Council considers taking over financing of Olympic Village to save costs

Vancouver's finance director is recommending the city pay for the rest of the Olympic Village's construction through a direct loan to the builder, saying that method of financing would cut down on costs.

A report from Kenneth Bayne presented to city council Tuesday afternoon suggests the city's best option is to take over financing the project and advance the next construction payment, due in February, directly to the developers.

A direct loan to builder Millennium Development Corp. would have the advantage of cutting financing costs for the project because the city would charge interest of about five per cent, less than half of what Millennium is currently paying to its financers, Bayne says.

If council approves the recommendation, it will borrow up to $458 million to finish construction of the Olympic Village for the 2010 Winter Olympics.

Bayne also recommends the city use Millennium's $29-million deposit on the Southeast False Creek land, where the Olympic Village is being built, to help cover the February payment for construction costs. The city would then have until March 3 to borrow the rest of the money to complete the project, Bayne said.

The city received unlimited borrowing power to ensure the project's completion after the B.C. legislature approved Bill 47 during a special sitting over the weekend, allowing the city to borrow money without going to referendum.

"Providing this type of support is a highly unusual role for the city to play," Bayne says in his report to council.

"However, the refusal of the current lender to provide funding to complete the project suggests that this may be the only way to ensure project completion."

Fortress Investment Group, a New-York based hedge fund, was to loan $750 million for the project. But it stopped payments to Millennium in September, after it had provided $317 million, because of the ongoing turmoil in global financial and real estate markets. Since then, the city has been covering construction costs with a $100-million bailout loan approved during an in-camera council meeting on Oct. 14.

Cost overruns have pushed the project cost to $875 million. The development site is on city-owned land worth $200 million, putting the value of the whole development at more than $1 billion.

Games tainted: organizers

The City of Vancouver planned to sell some of the 1,100 condos following the Olympics to recoup its investment, but the worldwide recession has caused housing prices to drop.

While the Vancouver Organizing Committee, known as VANOC, has repeatedly said the village's problems rest with the municipality, its executive vice-president in charge of marketing and sponsorship acknowledged Tuesday that the problems are tainting the Games as a whole.

"When you hear the words Olympic bailout, people assume that these are costs that are being spent because of the Games, which is simply not the case," Dave Cobb maintained.

"If the village, for example, … makes $200 million, I don't think people are going to be saying that's Olympic profit and contributing it to us."