Prudent checks and balances were largely ignored when the provincial government loaned more than $38 million to ensure construction of the Holman Grand Hotel in downtown Charlottetown. A series of questionable decisions over a period of seven years exposed the province to serious financial risk.
Auditor General Jane MacAdam’s annual report released Wednesday suggests that questionable transactions were the norm for this hotel file from 2008 to 2014.
Cabinet kept making decisions to approve and restructure loans over the objections and concerns of crown lending agencies. The loan topped out at $38.6 million in 2014 and had been paid down to $35.5 million as of March 2015.
The loan has been written down a further $10.6 million after the auditor general examined Island Investment Development Inc.’s (IIDI) year-end financials and made a calculated re-assessment on reasonable repayment expectations.
Why do we have expert panels and oversight if their advice and concerns are being ignored and overridden? Crown corporations should have assessed these loan requests, make a business decision and forward them to cabinet with a recommendation.
Instead, cabinet took the lead role and approved the loans after lending agencies had raised red flags about the Holman deal. Concerns about a higher debt load, ability to repay and possible cost over-runs were ignored. IIDI was notified only when the deal was done.
Obviously cabinet, or certain members of the inner circle, took a personal interest in getting the hotel built. The rationale was fine – help with downtown redevelopment and strengthen the viability of the Confederation Court Mall.
The Holman Grand is a great addition to the downtown and provides an anchor for the mall. The underground pedway to Confederation Centre is an added attraction for patrons using both facilities. But the mall continues to struggle with the once-booming food fair reduced to a soup and sandwich operation, while empty spaces plague various floors.
The province went in with its eyes wide open on this deal. A political decision was made to issue the loans because there didn’t appear to be any assessment done on the economic development return.
Security for the loans hinged on little more than the business reputation of Richard Homburg. The deals perpetuate the public perception about a loose government attitude in handling the lending portfolio.
A year ago the auditor general was concerned that crown corporations and agencies were writing off or forgiving loans without cabinet approval. This avoided public scrutiny. Now cabinet is side-stepping its own crown agencies.
Ms. MacAdam should be doubly outraged.
If a default happens or credit protection is sought, the province could be at risk for many millions of dollars. The track record involving these loans, which already provide significant concessions to the borrower, gives reason to worry.
The auditor general considers overall approval and management of most loans issued by Finance P.E.I. and IIDI as adequate. That’s the good news. The bad news is that both had concerns with the Holman loans.