Depending on who you ask, the city is, might be, or is not subsidizing Skybox Grill, the restaurant located at Servus Credit Union Place, under a lease that was renegotiated when the city purchased its Starbucks licence.
But documents obtained by the Gazette indicate the restaurant does benefit financially from the arrangement.
Copies of two reports, marked confidential but available on the City of St. Albert's public website, indicate that as the city was pursuing a Starbucks licence last summer, it negotiated a new arrangement with Skybox Grill so Starbucks could occupy the main-floor space, and also reduced the lease Skybox pays for its second-floor location to the lower end of the market rate.
The reports are no longer available on the website.
"I have to say we are not subsidizing them," said acting city manager Chris Jardine. "They are paying fair market value for the space they are leasing from us. We made a business arrangement to sublet that main floor kiosk and factored that into our overall bottom line."
Leading up the Starbucks licence purchase, Skybox ran a small kiosk on the main floor space called Skybox Express. According to one of the documents, the company was considering opening its own specialty coffee shop but had no firm plans. The document estimates such a move would have cost the owners approximately $80,000.
"We're trying to respond to the membership, who are saying the mom-and-pop coffee isn't cutting it for us. We would like to see something more premium," Jardine said.
The city first tried to pair Skybox and Starbucks together, but was unsuccessful. Instead the city bought the licence and negotiated a sub-lease arrangement with Skybox. That arrangement, on paper, would have seen Skybox still paying its lease on the space, with the city then paying Skybox for the sub-let, but at a higher rate.
"Then it came down to how do we now establish that so it makes sense for both parties on how the transaction will work," Jardine said.
Both parties renegotiated the lease for the upstairs Skybox Grill to a lower value, but still within the market range. The goal, Jardine said, was to avoid both sides handing cheques back and forth.
"They are writing us that cheque and we could have written them a bigger cheque and said there's our payment, or we could renegotiate the lease and they pay us a little bit less here. At the end of the day, it was still that agreed-upon amount."
One of the reports indicates the combination of the sub-lease and lower rent for the upstairs restaurant would amount to $80,000 net compensation annually for Skybox. While Jardine wouldn't say what the actual numbers are, he said it works out to less than $80,000.
"Yes, there's no question about it that this business opportunity we worked with Skybox for Starbucks definitely has a business value for Skybox. There's no question about that. I don't think we've ever hid that."
Jardine also said those costs were factored into the Starbucks business model and its forecasted annual revenues.
"Everything was legal. There was nothing on the down-low or questionable other than the question of the ideology or the philosophical appropriateness of the city running a Starbucks directly."
Secrecy
Coun. Cam MacKay is more concerned about the confidential nature of the arrangement, insisting that complete transparency should be a part of doing business with the city.
"If a decision like this was to have been made at a regular city council meeting, then the public could have weighed in on whether they wanted to subsidize a restaurant or not," MacKay said. "I think this concept of third-party confidentiality has to change within the government. I don't think it has a lot of merit."
MacKay says there is no question the city is subsidizing Skybox Grill.
"I don't think you can view it any other way. We have city property we are renting back to ourselves for a large sum of money, so I don't see how you could sell it any other way."
Mayor Nolan Crouse said it's city policy not to disclose the details of its agreements.
"We are not going to disclose agreements with the private sector as a matter of policy. The agreements with the private sector are private so we're not going to disclose them," Crouse said.
"In retrospect, because of the concerns, I suppose we could have disclosed that, gone to Skybox and said, 'do you want us to lay out your money?'"
Whether or not the arrangement with Skybox is a subsidy, in Crouse's opinion, is a matter of 'semantics.'
"We had a lease agreement with Skybox for all of their spaces. We are leasing back at a higher rate. It comes across like that and yet what we're trying to do is run the best concession in Western Canada and turn a profit. No one seems to care that the Akinsdale or the Fountain Park Pool lose money at their concessions."
MacKay is also concerned it will be difficult to account for the arrangement on the city's ledgers, but Jardine insists the renegotiated deals are all on the books.
"We can account for it. At the end of the day, the numbers add up pretty simple. It's not an Enron accounting exercise."
