Taxpayers paid $8m to keep St. Paul’s Hospital land buy off provincial books

$156.7m property vacant as NDP mulled business plan, spends billions on other hospitals

The process of buying Vancouver land to build a new St. Paul’s Hospital cost B.C. taxpayers about $8 million with the deal kept off the public accounts, and financing shuffled through the Ministry of Health, Vancouver Coastal Health (VCH) and Providence Health Care.

 

Now, the $156.7 million piece of land has sat vacant, waiting for the BC NDP government – which has pledged more than $23 billion in other hospital spending since taking office – to mull the business case for the proposed billion-dollar hospital and research facility on Vancouver’s False Creek Flats.

 

That mulling ended Feb. 15 as Premier John John Horgan and Minister of Health Adrian Dix announced a new hospital is going ahead.

The land purchase tale dates back 15 years.

PHC had approached the ministry in 2004 for $25 million borrowing approval and was refused, a December 2007 briefing document shows.

Instead, a public-private partnership took on the mortgage for the purchase.

Vancouver-West End NDP MLA Spencer Chandra Herbert, in whose riding St. Paul’s sits, called the financing a failure.

“In terms of wasting money, $8 million, it’s a lot of money.”

 

PHC Loan Attempt by on Scribd

 

Vancouver Esperanza Society, an arm’s-length group of PHC created for the purchase, bought the land for $24.5 million in 2004. The society’s members were financiers and business people.

Then health minister George Abbott told the legislature in November 2005 that PHC had the option to buy the land for $24.8 million.

But it wasn’t the province that provided security for the purchase. That fell to the City of Vancouver, which agreed it would purchase the land as that security.

PHC took possession of the land in 2015 for $45.5 million after the Royal Bank of Canada mortgage was extinguished.

“Esperanza was a non-profit society. They were just holding the land for us until which time the project could get going and we could take the land off their hands,” PHC spokesman Shaf Hussain said. “The $45 million is what they owed to the bank.”

 

Mortgage Terms by on Scribd

 

 

Land Transfer by on Scribd

 

 

When PHC did take the land off Esperanza’s hands, it became tax-exempt under the Vancouver Charter, an income loss of $2.4 million for the city so far. The tax bills had gone to Esperanza, but money went from the Ministry of Health to PHC to cover those invoices – $5.8 million.

When the purchase was complete, the land was transferred to PHC and Esperanza was dissolved.

 

Property Tax Discussions by on Scribd

 

Victoria Tax Documents by on Scribd

 

Had the government opted to purchase the land itself for PHC, the mortgage costs could have been less, the taxes zero.

The principal for Esperanza’s mortgage was $24.5 million, with interest at the prime lending rate plus 2%. The March 10 land purchase took place when prime was 4%, making the loan subject to a 6% interest rate.

The province, with a double-A credit rating, noted in its 2004-05 to 2006-07 forecast a long-term borrowing rate at 5.41% for 2004.

Over the 10-year mortgage period, the cost to the province would have come to about $41.5 million.

“Come on, people, figure that out. You go with the low interest,” Chandra Herbert said.

A December 2007 memo prepared for the ministry said PHC was aware of uneasiness about how the transaction was handled.

It said the use of Esperanza as a property-acquisition vehicle “continues to create a level of discomfort among many stakeholders and constituents because the transaction was not straightforward and transparent.”

The document said the acquisition method would be exploited by those opposing public-private partnerships and that a freedom of information request on Esperanza’s creation “will continue to provide fodder to such groups until the property transfer to PHC is concluded and Esperanza dissolved.”

 

2007 Discomfort Memo by on Scribd

 

PHC gave Esperanza more than $41.6 million between 2007 and 2014, PHC financial records show. Almost two-thirds of PHC revenue comes from the government-funded VCH, PharmaCare and Medical Services Plan.

“Our agreement with Esperanza was that they would hold the land and accrue the costs until we were ready to purchase the land, at which point we would pay out Esperanza’s outstanding amount owing on the land,” Hussain said. “That amount was $45.5 million. We bought it in 2015.

With the dramatic increase in the land’s value, Hussain calls it “a great investment on our part.

The purpose of the purchase is to build a modern hospital with research and teaching facilities to serve the province. It would replace the old Burrard Street hospital that opened in 1894. While the current site has had many additions, most recently a critical care unit, the building’s integrity remains questionable.

An undated memo for former deputy minister of health Gordon Macatee said PHC had funded costs through $8.5 million proceeds from the sale of other Vancouver land.

Providence documents, signed by former B.C. attorney general Geoff Plant, indicate VCH gave Providence a loan of $30 million in 2015-16 for acquisition of the land.

“The demand loan receivable represents funds advanced to PHC during the fiscal year ended March 31, 2016, to assist PHC with the acquisition of the Station Street Lands,” VCH documents said.

The unsecured loan is at a rate of 1.95% with payment due on demand at any time, at the time of sale of lands not used for a hospital or sale of the current Burrard Street hospital lands, the documents said.

So why didn’t the province just purchase the land in the first place?

Hussain said the “provincial government at the time said no.”

“I think because the purchase would’ve added debt to the provincial books and at the time there was a major emphasis on getting the province’s financial books in order,” he added.

Moreover, Hussain explained, the timelines on building the new hospital were unknown and “to add debt to the provincial books didn’t seem a good idea.”

“Therefore, another avenue was the Esperanza Society, who held the land until we had a decision and clarity on St. Paul’s,” Hussain said.

 

Business Case Continued

The business case discussed by Abbott in 2005, needed for work to start on the new hospital, was completed in mid-2018 and has been submitted to Victoria.

“In the meantime, our planning team is working on other aspects of the project, including continuing to work with the City of Vancouver on the rezoning process for the Station Street site,” Hussain said.

Providence July 2017 records show the reasoning could cost more than $2.5 million in city and consulting costs.

PHC had expressed concerns in the December 2007 document that having the city provide security for the mortgage “may decrease PHC’s leverage as it deals with the city in the rezoning process.”

The NDP government in late 2017 hired former Vancouver city manager Penny Ballem on a $24,000 contract to move the St. Paul’s redevelopment forward. In January, NDP Health Minister Adrian Dix appointed Ballem to the VCH board with an annual retainer of $15,000, plus $500 for meetings over four hours and $250 for shorter ones. The maximum payment is $45,000.

Replacement of the hospital has been an on-again, off-again situation for years, with the NDP having hounded first Gordon Campbell, then Christy Clark’s Liberals to keep the hospital at the current site and upgrade it.

There was no mention of St. Paul’s in the NDP’s 2018 budget, although Dix had anticipated funding the business case, which has been in development for years.

Documents show a case was ready in January 2018 but was later updated and submitted with the approval of VCH chair Kip Woodward.

PHC won’t release costs to create the business case, suggesting they can be obtained through an access to information request.

Details of the business case and work timelines have not been forthcoming from the ministry.

 

Esperanza Society

Esperanza’s constitution, registered March 23, 2004, states its purpose as being to purchase land for a public health-care facility with no income or profits for its members.

Long-term board directors of the now-dissolved Esperanza, according to B.C. registry records, included venture capital financier John Woodward, construction executive Hugh Magee and former Catholic Health Association of BC executive director Susan House.

Woodward’s brother Kip Woodward was chair of VCH from 2010 to 2018 and PHC chair from 2006 to 2010.

Magee created Canada Diagnostic Centre, one of Canada’s first private diagnostic and imaging centres. In 1996 he co-founded the Cambie Surgery Centre private surgical facility, which remains subject to controversial court actions.

An October 2009 memo from Kip Woodward to then minister of health Kevin Falcon suggested allowing PHC to contract services to private clinics, selling services to foreigners and using assets to generate revenue from non-Medical Services Plan groups such as “federal employees, status Indians, RCMP, MPs, private insurers and WorkSafeBC.”

Dix had challenged Woodward as having a conflict of interest while in opposition but little came of it. In appointing Ballem, Dix thanked Kip Woodward “for his eight years of leadership and dedication” at VCH and PHC.

“I am personally thankful and appreciative of his assistance and look forward to working with him in the future on new projects,” Dix said.