Municipal inspectors took a closer look at the Tawatinaw ski hill and lease agreement and uncovered issues with offers to sell the land below market value, sole-source contracting and a councillor’s possible pecuniary interest.
“We heard many concerns related to both the ski hill and the negotiation of the management fees,” inspector Ted Gillespie said at the report’s public presentation Aug. 30.
Municipal Affairs directed Strategic Steps Inc. to conduct an inspection into Westlock County’s affairs and the findings were publicly released last month.
“After reviewing the council decision-making related to the ski hill property, it is apparent that the county suffered from weak council leadership during this term and poor administrative guidance, particularly in 2015 where shortcuts were taken and expert advice was not followed during the new chalet construction,” the report stated.
The report concluded that former CAO Peter Kelly didn’t follow legislated competitive purchasing practices and gave out a sole-source engineering contract in 2015, totalling $31,970.
“Kelly informed inspectors that at the time, they couldn’t find an engineer to meet timeframes for the project so he brought in an engineer from Nova Scotia with Alberta Licensing,” the report continued.
Inspectors also took issue with council putting the future of the facility to a plebiscite vote on Oct. 16.
“Now, after acting in an improvident manner and creating a ‘messy’ situation, it seems that the council is attempting to sidestep their leadership responsibility by having the public help them decide the matter,” the report said.
The ski hill was originally operated by the Ski Club Association but was taken over by the county in 2006.
The report noted that historically the ski hill ran a deficit, as many recreation facilities do and an advisory board with non-profit status was formed to raise money for capital purchases.
In July 2015, the municipality sent out proposals for site contract managers, but staff told inspectors that without clear leadership, they were unsure whether to prepare a Request For Decision to purchase the land, or lease it.
A few months later in November, council approved a three-year lease agreement, in principle, with DK Consulting. As part of the agreement, DK Consulting had the option to purchase the land in year three.
The final lease, which was approved Dec. 8, 2015, gave DK the option to buy the ski hill for $2.2 million once the contract reached its end date. Coun. Jim Wiese resigned as councillor following the lease approval.
However, inspectors found the potential sale price of the hill was less than its market value.
“We found that setting the purchase price three years in advance appears to be in contravention of section 70 of the Municipal Government Act, which requires a municipality to do prior advertising before the disposal of any recreational land or any land that’s being disposed of at less than market value,” Gillespie said.
Inspectors added that it was unclear how a future market value could be determined three years in advance.
“New management at the county also found issues with the lease, particularly with respect to the option to purchase, which may not be in compliance with the Act,” Gillespie added. “There also appeared to be issues with casino and grant funding used for the ski hill facility improvement, which might have to be returned if the facility was sold to the private sector.”
Inspectors also heard that there may be valuable frack-sand deposits on the land, which could also impact the future market value.
According 2015 annual financial statements included in the report, the 2016 lease agreement shows the ski lodge’s asset value was $527,499 less than the cost to build the lodge. As well, the lodge was “written down to its market value at Dec. 31, 2015.”
After a year of operation, the report said DK Consulting wasn’t able to operate the hill on a break-even basis, as the contract required the company to pay $18,000 yearly to the county, on top of taxes.
The report indicated that on June 28, 2016, council suspended all rent and tax payments until a new agreement could be drawn up. That fall, council reviewed and approved a revised lease, which removed the lease and tax payments.
Eventually a new operating agreement was drawn up Dec. 1. The revised agreement had the county paying DK Consulting $60,000 a year for two years to operate the hill. The option to purchase was also removed.
“There were concerns expressed by ratepayers about the $60,000 annual fee,” Gillespie said. “Staff pointed out that the annual operating cost of the ski hill prior to the management agreement was in the order of $200,000 a year. In effect, they were saving money for the municipality.”
On that note, inspectors found council did no wrong in that regard.
“The ski hill, like most recreation facilities everywhere, has a history of running a deficit and requiring its operation to be subsided by the general tax base,” Gillespie continued. “Council was fully within their authority to enter into this agreement. In doing so they had to balance the benefit to the community with the cost and they certainly have the right to do that.”
By Dec. 31, 2016, there was $53,716 in outstanding lease and tax payments. This past January, council approved an extension on the payment deadline and the full amount was paid March 20.
However, inspectors raised concerns with vague wording in a Jan. 24 council motion to go ahead with an operating agreement based on “Option #1” presented in camera, which was then approved for the final agreement Feb. 28.
“The council resolution wording is vague, lacks transparency and does not give any description of financial implications associated with Option #1,” the report said. “As Option #1 was discussed in camera, there may not be a clear record of what it contained.”
Upcoming plebiscite
On April 11, inspectors indicated that council discussion came around to whether they should be in the business of operating or subsidizing the ski hill. It was decided to put the issue to the public and wording for a plebiscite was finalized May 9.
With that in mind, the report said that it seemed council was attempting to sidestep its leadership responsibility by having the public decide the matter.
It was also noted that it was unclear how the county would communicate with residents so that they can make an informed decision when they vote.
“The ‘question’ wording presumes that electors know the ‘operating cost impact’ of the ski hill,” the report said.
“The inspectors heard many emotional comments related to the ski hill throughout the inspection.”
“Certainly consultation options are valuable, but the question for electors in October 2017 may only be meaningful if the voters truly understand the complex issues and opportunities surrounding the ski hill facility.”
Pecuniary interest
Public concerns were shared with inspectors about a councillor’s wife working for the Tawatinaw Valley Ski Hill while the councillor continued voting on matters related to the hill, like the chalet construction and operator’s agreement.
The report noted that the councillor also sat on the Tawatinaw Valley Advisory Board.
Though not identified in the inspection, current-reeve Don Savage was the councillor in question.
The report noted that council did seek a legal opinion in April 2016, which concluded that there was no pecuniary interest as defined in the Municipal Government Act.
However, it did note that the question asked to legal counsel about allocating money to complete repairs to the ski hill facilities, rather than broader ski hill matters.
“Based on the advice received, the council member was required to vote on the ski hill repairs, but it is unclear if a pecuniary interest was present when this council member voted on the ski hill operating lease agreement or suspending rent and tax payments,” the report said.
Inspectors were told that this councillor’s wife no longer worked at the ski hill during the time of the inspection, though it was not known if she was still employed with DK Consulting.
