The Scandal of the Federal Government Putting Up for Sale
Key Real Estate that It will Never Afford to Buy Back Again

by
William Krehm

It is as though the press sensed that there was something rank about the Harper Government’s big real estate sale, but they couldn’t or didn’t dare utter the real scandal involved. Thus The Globe and Mail (19/03, "Ottawa’s real estate targets exceed market appraisals" by Daniel Leblanc) reported: "The Harper government is hoping to sell nine buildings for hundreds of millions of dollars more than recent market appraisals as part of its controversial plan to lease back the office space for 25 years confidential figures show."

But that is hardly the stuff of scandal. You can find such details almost every day in its Financial Section particularly in the latter parts of a real estate and income trust boom with REITs riding the crest. Besides overpricing properties put up for sale will usually be a self-correcting indulgence — the property will simply not sell, and that is what the market is supposed to be about.

But this, first announced in February is no simple market deal. For it comes with 25-year lease-backs of the office space by the buyers to the government attached. And since there is no mention of price adjustments not only to the price level, and the criticism of the article seems to be on an utter lack of adjustment of lease-back rentals over a quarter of a century period, it seem that we are to have more than 25 Christmases coming with the quarter of a century — at least as far as the buyers of the properties cum lease-backs are concerned. Just on the basis of the price level — let alone the downtown office space in growing capitals compounding at say 3% that will end up a wild bargain. Add to that the special appreciation of choice downtown sites and a 25-year lease back of the properties to the government, the web of underlying circumstances seems so dreadfully awry. And yet the one advantage of a minority government is that those in power are more vulnerable and accordingly less able to intimidate and repress. Unfortunately we do not have a minority civil service and it is the civil service that decided on the privatization of the CNR — under a distinguished former head of the civil service — and subsequent sales. In that way our government has taken a giant step, first for denying the existence of invaluable assets, and shedding them to bailout the deregulated speculative financial sector from future massive losses to come just as it has for those already suffered.

But there were in the earlier papers references to the need of the government to avoid massive spending to update the neglected maintenance of the building. But that cuts no ice. Even for a lesser covenant than that of the Government of Canada any mortgage company will include the financing of modernization, alterations that can be drawn only as the improvements committed to get under way. That is routine in the real estate and mortgage business. No need to sell the properties on 25-year unadjustable lease-backs. There is, however, the detail that the present boom of income trust -REITs pass muster unchallenged. The reason? Downtown real estate in thriving cities throw off increasing revenue, as those communities thrive and downtown property in them becomes in short supply. Every bit of improved infrastructure, physical or human, makes crucial downtown real estate more precious.

A Cluster of Suspicious Circumstances

That is the first suspicious circumstance. But there is a further even greater one. The government, were it fool enough to finance the improvements of its key real estate with private banks and/or mortgage companies, would have no difficulty in finding appropriate mortgages to finance the necessary neglected maintenance.

But the government would have had no need for that. It is the sole shareholder of the Bank of Canada. The Bank of Canada Act in its subsections 14(2) and 18(c) makes clear that the central bank is free to trade in the debt of the federal government and can give the Governor should he refuse to hold federal (or provincial or corporation bonds which would include municipalities) that the Minister of Finance of the Government wished. Obviously if he wished to finance the proper updating of the maintenance of government buildings he would need only to instruct the Governor of the Bank of Canada in writing, and the government has 30 days or he is out. If it is financed through the Bank of Canada, which was nationalized by a Liberal Government in 1938, and 12,000 private shareholders bought out during a depression at a good profit after three years of owning the stock., all the interest paid on the Bank of Canada loan returns to the Government — less some minor overhead expenses — as dividends. That is not funny money, note well, but a basic capitalist institution.

Obviously this would have been the course for the government to take. There would have been no need to sell buildings that the government will never be in a position to buy back. And every improvement to the services of our large cities sends the value of well-located real estate in them still higher. That is why the Norman Conquerors of Britain, rarely parted with properties located at nodal points of the Roman roads that the Anglo-Saxons were unable to continue building. They rented those in nodal points like London or York on 100-year leases with adjustments of rents during their leases.

There is then many more and more significant questions to be asked than the one asked by NDP MP Peggy Nash: "It may look good on the books in the short term that there is a big sale price. The question is whether this is in the long-term interest of Canadians, because we are going to be on the hook for these arrangements." For example why has the government not brought its buildings up to scratch by making use of the Bank of Canada Act which is still on the books, though unused and never referred to? Why is it still on our law books? Because in 1982, when the Canadian constitution was being drafted, PM Brian Mulroney proposed putting "zero inflation" and the independence of the Bank of Canada from the Government of Canada in the Constitution and his own caucus on Finance Committee turned him down. He did not dare tamper with the Bank of Canada Act. And to this date, none of the parties with members in parliament have addressed the anomaly of the Bank of Canada Act being on our law books, but never made use of or referred to. That is hardly a setting in which democracy is likely to flourish.