City council puts up $8.7M for REAL, Economic Development Regina to pay back wage subsidy

Regina city council will bail out two municipal corporations by providing them with millions of dollars to pay back pandemic wage subsidies. 

In a pair of votes on Wednesday, council unanimously voted to to provide approximately $8.7 million in grants to Regina Exhibition Association Limited (REAL) and Economic Development Regina (EDR).

The organizations will now use that money to pay back what they owe the federal government for accessing the Canada Emergency Wage Subsidy, which was meant to temporarily support businesses that had to shut down or that lost income due to the pandemic.

Council members acknowledged this may leave some residents frustrated.

"Frankly, I don't think there's one member of council or any member of the public who would like to pay this money back to the Canada Revenue Agency for programs that they designed for COVID relief," said Mayor Sandra Masters. 

Public employers, such as municipal governments, were not eligible to receive funding from the program.

However, both REAL and EDR believed they qualified since "the definition of what constituted a public employer was not clear," according to a city staff report. 

On Wednesday, interim REAL CEO Roberta Engel and EDR CEO Chris Lane maintained their decision was made in good faith and after consulting with legal counsel and the Canadian Revenue Agency. 

Despite the approval during the pandemic a recent audit by the Canadian Revenue Agency found that both municipal corporations were not eligible to receive the subsidy. 

They are now being directed to pay the money provided through the subsidy back. For REAL that means $8 million, or $6.5 million plus interest. EDR must pay back $918,000, or $755,000 plus interest.  

The interest is compounding, which means the longer the two organizations go without paying the debt, the larger the total will be that they are required to pay back. 

As of Wednesday, the figures will have increased from when the notice of assessment was issued by the Canadian Revenue Agency — rising to $8.18 million for REAL and $948,000 for EDR. 

Both organizations have asked the federal government to waive the interest but it's not clear if that decision will be approved. 

The municipal corporations were in agreement that they plan to fight the decision made in the audit. 

"Just because we pay the bill, doesn't mean the fight is over," Engel told council. 

Engel said the decision made by the CRA was made in hindsight. If REAL had not received the Canada Emergency Wage Subsidy during the pandemic then they would've approached city council for funding to keep them operating. 

Masters admitted the organizations were attempting to make the best of a bad situation. 

"The reality is if we were gonna leave those doors open at REAL, and we did, we made that decision," she said.

"Council could have intervened at any point in time and we didn't because we understand the community benefit to that site."

REAL already has budget deficit

A staff report in front of council made it clear that REAL does not have the financial ability to pay back the money on its own. 

The City of Regina is already helping fund REAL's budget deficit, principal and interest payments on its debt and planned capital costs to maintain the organization's facilities. 

That's why staff recommended, and city council approved, a plan to help REAL pay back the subsidy. 

An $8 million grant will be issued to REAL on the condition that if the CRA grants relief to REAL on the interest portion of the payment then the municipal corporation will pay $1.52 million back to the city. 

The other option council proposed was for REAL to pay back the wage subsidy through debt.

The municipal corporation already carries $17 million in debt as of Sept. 30, 2023, and has a debt ceiling of $21 million.

If council had directed REAL to take on more debt, the organization would have to increase its debt ceiling to at least $26 million. 

As a municipal corporation, all of REAL's debt is guaranteed by the City of Regina. 

EDR has some reserves

Unlike REAL, EDR does not carry any significant pre-existing debt that is being covered by the City of Regina.

As a result, the organization has the ability to pay some of the required funds itself. 

The agreement approved on Wednesday is for the City of Regina to provide a grant to EDR totalling $667,885 while EDR will contribute $250,000 to repaying the wage subsidy. 

The city's grant will come from the city's general reserve fund. 

An amendment by Ward 9 Coun. Jason Mancinelli saw a requirement for EDR to pay back the interest if it's forgiven by the CRA stripped from the motion.

Mancinelli said there was no reason to punish an organization working hard to create investment in the city, such as the deal it had helped fund that brought a direct flight from Regina to Minneapolis. 

Council's decision to bail out its two municipal corporations will pull funding from its general reserve fund, which has a balance of $18.5 million. 

The report in front of council makes it clear that the city's decision to pull money from the general reserve to pay back the wage subsidy will push the reserve below the recommended minimum balance of $23 million.