City agrees to pay $9M CRA clawbacks for EDR, REAL

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Regina city council has agreed to foot a $9-million bill owed by two city-owned corporations for pandemic wage subsidies.

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Economic Development Regina (EDR) and Regina Exhibition Association Ltd. (REAL) were hit with the Canada Revenue Agency (CRA) bill late last year.

After a gruelling nine-hour meeting Wednesday, council voted unanimously to cover almost all of the debt by way of city-provided grants.

“I think everybody associated with this is frustrated,” said Mayor Sandra Masters, “but at the end of the day, we’ll repay it, and we’ll continue to deal with the effects of COVID, I suppose, for another couple years.”

A CRA audit ruled last fall that neither municipal corporations were eligible to receive funds from the Canada Emergency Wage Subsidy (CEWS), as they did not meet the program’s requirements as an employer.

EDR owes $918,000, while REAL is on the hook for just over $8 million. Both figures include interest, compounding at a rate of 10 per cent until the debt is paid.

Tourism Regina was still under the umbrella of EDR at the time and accounts for approximately $239,181 of the sum owed.

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Roberta Engel, REAL’s interim president and CEO (and former chief financial officer at the time of the application), said trying for CEWS was an attempt for any help to retain staff during shutdowns.

The funding covered 33 per cent of wages in 2020 and 26 per cent in 2021, she said, allowing REAL to keep “a significant number of local people in our community employed.”

REAL was forced to cut staffing by almost two thirds, going from 157 full-time staff in 2019 to just 47 “almost immediately after COVID hit,” said Engel.

EDR missed out on about $1.5 million in revenue over 2020 and 2021, primarily due to the loss of a destination marketing fee collected from the Regina Hotel Association.

“The revenue drop was real and it was severe,” noted president and CEO Chris Lane on Wednesday when asked by council why EDR applied for the wage subsidy.

Both corporations were notified that the CRA was examining the subsidy in August and argued on the validity of their eligibility in October. The final ruling was released in November. In April, REAL and EDR asked the CRA to waive the interest for both organizations, but have yet to receive an answer.

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Lane and Engel said they each consulted with auditors, tax consultants, legal counsel, other similar organizations and even directly with the CRA to gauge eligibility for months before applying.

“We are a not-for-profit and have an independent board, and we receive funding from multiple sources,” said Lane, adding that “similar organizations with different ownership structures qualified and are not being required to pay back.”

Engel confirmed that had REAL not utilized the subsidy, it would have been knocking at the City of Regina’s door for supportive funding anyway.

“I don’t think this is us cleaning up their mess or their errors,” said Coun. Dan LeBlanc (Ward 6). “I think it was very rational and reasonable, at the time, for them to have applied (and) it sounds like both organizations have done what they could to show why they came within CEWS parameters.”

Funds will come from the city’s general fund reserve which, along with another council approved request to cover a $2.7-million operational deficit for REAL from 2023, will bring the balance of that reserve down to $7.1 million.

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The recommended minimum balance for the general reserve is $23 million, a problem set to be discussed at the next city council meeting.

EDR will front $250,000 of its own money toward the debt, sourced from an unused agriculture and food funding surplus earmarked for a YQR-Minneapolis flight revenue guarantee among other projects.

REAL, in contrast, has “no fiscal capacity” to contribute any money without increasing its debt allowance further, even after asking for a boost to cash flows earlier this fall.

Currently, REAL holds $19.4 million in debt of an allowed $21 million. A $2.7-million grant from the city was given at budget time just to cover principle and interest payments for 2024.

To put the onus on REAL to cover the clawback would require another debt restructure for an additional $5 million, guaranteed by the city against its own $660-million debt ceiling. Administration urged against this route, estimating it would result in spending $13.8 million over the term of a restructured loan instead of $8 million up front.

EDR will not be required to return any interest paid if the CRA does agree to waive that portion owed, but REAL will be asked to reimburse returned interest to the city.

lkurz@postmedia.com

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