VANCOUVER - Vancouver taxpayers could be on the hook for $875 million for building the 2010 athletes village if the builders and their bankers can't make a new deal.
The City of Vancouver began covering the monthly costs of building the $1-billion project in October after the project's original lender refused to pay out any more cash.
That arrangement ends at the end of this month and if a new deal isn't negotiated between Millennium Development and lender Fortress Investments, either construction on the project will grind to a halt or the city will need to find the money to keep it going.
The city has been legally obligated to finish the village, if the developer couldn't, since it finalized the loan with Millennium for the project in 2007.
But it was only Friday that the full implications of that agreement became clear.
"The Olympic village is a billion-dollar project, and the city taxpayers are on the hook for all of it," newly elected Vancouver Mayor Gregor Robertson told reporters late Friday.
"To my great frustration, we can't turn back the clock on the actions of the last mayor and council. We are financially and legally committed to complete this project."
His release of details of the deal ends months of speculation around the village finances, which began when news leaked from a closed-door city council meeting that the city advanced $100 million to the builders, on top of the $190-million loan guarantee in the original deal.
The leak helped Robertson win the mayor's chair in November after he promised to disclose the full finances around the village within a month of taking office. That deadline was Thursday.
Robertson said he's furiously working on negotiations between Millennium and Fortress, the U.S. hedge fund backing the project, to try and protect taxpayers from risk.
"It's a difficult pill for taxpayers to swallow, some very questionable decisions have been made by previous mayor and council that have put us in a difficult position," Robertson said.
"At this point, the important thing is that we move this forward, we get this project built, we act in the best interest of taxpayers to reduce those losses as significantly as we possibly can."
The financial risk for taxpayers comes if the city were forced to take complete financial responsibility for the project and then be unable to sell off the housing units at a price that would cover the cost of the development.
A decline in real estate prices had already led many to speculate that Millenium would have to take a hit on its potential profit for the village and also why Fortress was getting shy about continuing its financing.
Fortress did not respond for a request for comment Friday, but city officials said the lender stopped paying out instalments of the loan to Millennium in September, when it determined the estimated $125 million in cost overruns on the project meant the company wouldn't be able to pay back the $750 million it was borrowing to build the village.
That's on top of the $200 million the company was to pay the city of Vancouver for the land, a prime piece of waterfront real estate.
Part of the original deal was that the city held title to the land until the village was complete and Millennium paid back the loan, which gives the city the valuable asset as leverage should it need to seek its own financing for the project.
Robertson didn't rule out asking the provincial government for more money to cover any further costs. The provincial minister in charge of the Olympics, Colin Hansen, did not return calls for comment.
The organizing committee for the Olympics, known as VANOC, gave $30 million for the village but that money is being used specifically to cover the cost of 250 units of social housing that will be built within the 1,100 units of housing overall.
As the Olympic organizers are themselves in the middle of a budget review and looking for savings due to the global economic climate, it's unlikely further money will come from them.
"The eyes of the world are upon all of us and, as a community, we need to come together in our collective support for the city in this unprecedented economic environment," said a statement from Dan Doyle, VANOC's vice-president of construction.
He offered the mayor and council support but not much else.
"We fully support Mayor Robertson, city council and the city administration in their efforts to responsibly manage the construction and long term legacy and viability of this key venue in an extremely challenging economic environment."
With the city's back against a hard deadline, it's likely renegotiation will be difficult, said Tsur Somerville, a business professor at the University of British Columbia's Sauder School of Business.
Fortress is essentially playing financial chicken with the city of Vancouver, he said.
"The person who gets screwed is the person who can't walk away," said Somerville.
"And at the end of the day the people who can't walk away are some combination of the province and the city. So, then it comes down to is it cheaper to provide this loan guarantee or is it cheaper to play chicken and have to scramble."
With files from The Canadian Press
