1 2 3 RIM PARK FINANCING 4 5 CITY OF WATERLOO JUDICIAL INQUIRY 6 7 8 9 10 11 HELD BEFORE: The Honourable Mr. Justice R.C. Sills 12 13 14 15 Held at: RIM Park, Manulife Financial Health and 16 Sports Complex, 2001 University Avenue, 17 Waterloo, Ontario. 18 19 20 21 22 23 24 October 17th, 2002 25

2
  1                        APPEARANCES
  2  
  3  James Caskey Q.C.          )Commission Counsel
  4  Stacey Hocking             )
  5  
  6  William McDowell (np)      )MFP Financial Services LTD.
  7  Fraser Berrill             )
  8  Karen Britton    (np)      )
  9  
 10  Chris Paliare    (np)      )City of Waterloo
 11  Richard Stephenson         )
 12  Edward Majewski            )
 13  
 14  Wayne Bumstead   (np)      )John Ford
 15  
 16  Robert Fleming             )Coalition
 17  Paul Berger                )
 18  Barry MacCormack (np)      )
 19  
 20  Kirk Stevens               )Clarica
 21  Melanie Schweizer (np)     )
 22  
 23  Elaine Nairne              )Registrar
 24  
 25  Carol Geehan               )Court Reporter

1 TABLE OF CONTENTS 2 Page No. 3 4 Exhibits 4 5 6 ANDREW FRIEDEL, Resumed 7 Continued Cross-Examination by 8 Mr. Fraser Berrill 5 9 Cross-Examination by 10 Mr. Kirk Stevens 74 11 Cross-Examination by 12 Mr. Richard Stevenson 93 13 14 LYNNE WOOLSTENCROFT, Sworn: 15 Examination-in-chief by Mr. James Caskey 116 16 17 Reporter's certificate 195 18 19 20 21 22 23 24 25

1 EXHIBITS 2 EXHIBIT NO. DESCRIPTION Page No. 3 4 21 Four (4) page document of 5 Mr. Friedel's analysis of 6 debenture financing, with 7 certain assumptions as 8 previously discussed. 5 9 10 22 Region of Waterloo's annual 11 report for the year 2000 23 12 23 Excerpt from Bank of Canada 13 website inflation calculator 54 14 15 24 Document called Schedule B 16 Explained. 75 17 18 25 Brief of documents from Mayor 19 Woolstencroft. 116 20 21 22 23 24 25

1 --- Upon convening at 10:18 a.m. 2 3 THE REGISTRAR: The City of Waterloo Judicial 4 Inquiry is now resumed. Please be seated. 5 MR. COMMISSIONER: Good morning. It's nice 6 to be back in an environment where I don't have to worry 7 about the threat of Anthrax. 8 Okay, Mr. Friedel...? 9 10 ANDREW FRIEDEL, Resumed: 11 12 CONTINUED CROSS-EXAMINATION BY MR. FRASER BERRILL: 13 Q: Mr. Friedel, you were able to do, with my 14 thanks, some homework last night, and you've produced a four 15 (4) page document of your analysis of debenture financing, 16 with certain assumptions that we talked about yesterday. 17 And, Mr. Commissioner, I propose that this be 18 introduced as Exhibit 21. All parties have -- have copies. 19 MR. COMMISSIONER: All right, that will be 20 Exhibit 21. 21 22 --- EXHIBIT NUMBER 21: Four (4) page document of Mr. 23 Friedel's analysis of debenture 24 financing, with certain 25 assumptions as previously

1 discussed. 2 3 CONTINUED BY MR. FRASER BERRILL: 4 Q: Maybe, Mr. Friedel, you could explain to 5 us what -- what you were able to do last night. 6 A: Sure. Let me begin by saying that, 7 ordinarily, this is not the approach I take to doing 8 financial analysis. Ordinarily, I have access to a lot more 9 information in order that I don't have to make quite so many 10 assumptions. 11 Q: Of course. 12 A: So, I'd like to qualify that, first, and 13 then understanding that, I will run through what some of the 14 assumptions are, and obviously, no one else has examined this 15 information to check its accuracy. So let me run through 16 some of the assumptions, first. They're found at the bottom 17 of the page, page 1. 18 First of all, I've assumed annual payments, as 19 opposed to semi-annual payments or monthly payments, just for 20 ease of calculations and so that we can fit it on one page, 21 as a basis of discussion. Secondly, I've used -- 22 Q: Just -- just to stop you, there. Would 23 that make much financial difference, in terms of the 24 financial impact as opposed, for yearly payments, as opposed 25 to monthly?

1 A: Well, it would make some difference, yes. 2 Q: It would be a little -- little bit more 3 expensive? Is that -- 4 A: Well -- 5 Q: -- the case? 6 A: It depends what assumption you make on 7 the rate. 8 Q: Well, at the same rate, if you were 9 paying monthly, would be more expensive than if you were 10 paying an -- annually, from a financial analysis point of 11 view? 12 A: Okay. 13 Q: You agree? That's all I -- 14 A: Well, it depends on -- like my next 15 assumption is that the effective annual rate is 7 percent, so 16 if you keep the same effective annual rate, it doesn't really 17 matter what the payment stream is. 18 Q: Very good. 19 A: Okay? 20 Q: Okay. 21 A: So my second assumption is that the 22 effective rate is 7 percent, as opposed to a semi-annual rate 23 or a monthly rate. 24 My third assumption is that the issue cost 25 will equal 1 percent, or approximately 1 percent of the

1 principle value, okay? So, in order to make the analysis 2 simpler, I've assumed that the outstanding principle that the 3 City is going to receive from this debt issue, is 49,500,000. 4 That's the top number in Column B. 5 That way, 1 percent is approximately $500,000, 6 that brings us to $50 million that we would have to pay a 7 serial debenture on. 8 Q: Very good. 9 A: Okay? All right. So that brings us to 10 assumption number 4, which is that interest costs, or the 11 issue costs, are included in the principle. Now, ordinarily, 12 you can treat that in a number of different ways, for 13 example, the rate can be higher, or you can pay a flat fee. 14 But I've just included in here, because we've got to raise 15 the money somehow. Okay? 16 Then, I have also made a major assumption in 17 terms of the cash flows regarding the -- the -- receiving the 18 money from the pur -- from the debt issue, and then paying it 19 out to the contractors. And, obviously, at home yesterday, I 20 did not have access to the actual cash outflows from the 21 City's perspective, in terms of the construction. 22 So what I've done is, I've assumed that over 23 the next year, after we receive the money, it will be drawn 24 off equally. So I've taken an interest calculation on 50 25 percent of the balance. For lack of any other assumption, I

1 just made that assumption. 2 Q: That's very -- very good, yes. 3 A: And I've used 4 percent. And the reason 4 I picked 4 percent is because it was the same percentage that 5 MFP used in their calculations of a straight line debenture 6 issue. 7 Q: So that's your reinvestment rate, if you 8 will? 9 A: That's right. 10 Q: Okay. 11 A: Well, no, it's an opportunity cost. 12 Q: All right. All right, same thing. 13 A: All right. 14 And then I've also made another assumption, 15 and that is that 1 percent of taxes in 2001 is $265,000, 16 which is the assumption we were working with, in the rest of 17 the financial modeling that we were doing. 18 Q: All right. 19 A: Okay? So I think those are -- are pretty 20 much the major assumptions that I've -- I've made. I've 21 also, I think your associate asked, you know, whether it's 22 going to be a serial debenture or whether it's going to be a 23 sinking fund debenture. I've also kind of abstracted from 24 that issue, and said, the payments are equal, regardless of 25 what type of payment it is.

1 From our perspective, at the City, we don't 2 manage the sinking fund, the region manages that. 3 Q: Okay. 4 A: We get -- we get a stream of -- of 5 payments that are due, and we pay those. And typically, 6 they're fairly similar throughout this -- the period. So, 7 I've considered that, but I don't really think it's an issue, 8 okay? 9 So, I've just assumed straight line payments 10 over thirty (30) years, in this respect. So just, now, 11 moving across the columns, from the left hand side to the 12 right-hand side, Column A is just the year. Column B is the 13 outstanding principle, you can see it comes to zero (0) after 14 thirty (30) years. 15 Column C is the annual interest calculation 16 based on the outstanding principle. Column D is the actual 17 payment. And again, I've used a straight line payment there, 18 totals $120 million. Column E are the user fees, they 19 correspond to the values that are in the Version 5 business 20 plan, so they total $69,262,000, I think that's a number that 21 we should recognize. 22 Q: Right. 23 A: Okay, then I've got an annual tax support 24 column, which is going to end up being a variable, depending 25 on what other parameters we put on this sheet of paper. In

1 this scenario, it totals $62 million. 2 The next column titled, "Total Annual" is 3 simply a sum of Columns E and F, and I've labelled that G, so 4 it just adds those two (2) columns together. It's basically 5 the support that the City has in respect of the park. It's a 6 combination of user fees and tax base support. 7 The annual difference, then, is -- is taken by 8 subtracting Column D from Column G. So in a first 9 calculation, you take 4,029,000 and you subtract $1,526,000 10 and you end up with a def -- deficit, in that year, of five 11 (5) -- $2,500,000. Okay? 12 And then, the last calculation is what I've 13 called a cash balance, because I've assumed that we're going 14 to cash flow the -- the deficit, okay, in some manner. And 15 so, just -- I just need to speak to the first and second 16 calculations, specifically in that column. 17 The first calculation, the first number is 18 1,573,000, and you can see that that is less than 2,500,000. 19 And that's because I've applied the -- the interest of 20 $990,000 on the outstanding cash that we have from the actual 21 proceeds of the debt issue, okay? 22 And then I've applied a 4 percent opportunity 23 cost to the outstanding balance, because we wouldn't be 24 earning that money in the bank. 25 So that -- that one's a little more of a

1 complex calculation compared to the next line which is simply 2 a sum of the 1,573,000 plus the annual deficit of $1,800,000 3 in year 2 of the debt issue and then I've -- then I've also 4 calculated the 4 percent opportunity cost again, each year. 5 Q: Is that because you're assuming there is 6 no opportunity cost or reinvestment income in year two? 7 A: No, no. I'm calculating on a sum, so 8 it's on both values. 9 Q: I see. 10 A: Okay. 11 Q: By what -- what year have you spent all 12 of the $49 million so that that -- 13 A: 2000. By the end of 2001 I've assumed 14 it's all gone. 15 Q: All right. 16 A: Okay. Just for ease of calculation. 17 That obviously wasn't the case, but then we don't have to 18 worry about it anymore -- 19 Q: Sure. 20 A: -- in this calculation. So, just to -- 21 just to recap, the $3.5 million which is the second number in 22 column I is the sum of 1,573,000 plus 1,800,000, so you add 23 those two numbers together first and then you multiply it by 24 1.04 percent to take into consideration the opportunity costs 25 of not having that money in the bank.

1 Q: Okay. 2 A: And then that just continues all the way 3 down to -- until we get to zero. So, initially, that value 4 in cash balance is going to grow because we have a deficit in 5 the early years of the debt issue as the user fees are 6 climbing. 7 Okay, because the tax based and the annual 8 user fee support is a line that has a slope to it while the 9 payment stream is a -- a flat line. And until those two 10 lines cross each other, we have a negative balance at the end 11 of each year. Okay? All right. 12 So then you can see in year 2009 that flips 13 over because now the annual user fees and the tax based 14 support are greater than the payment that we're making on the 15 debt issue. So that's the number $5,191. So it's virtually 16 identical at that time, okay? 17 So now we're starting to have a positive 18 impact on -- on the way we've cash flowed the deficit, the 19 cumulative deficit which is the cash balance column. Okay? 20 Are you still with me? 21 Q: I'm still with you. 22 A: Okay. So now the cash balance figure 23 continues to increase for two more years because the interest 24 calculation, the opportunity cost on that -- that cumulative 25 deficit is greater than what the difference is between the

1 total annual support and the payment. 2 And it's only at that point that we start to 3 draw down that balance. So the maximum value in the 4 cumulative deficit in the cash balance column is $7,258,000. 5 Q: Right. 6 A: And you can find that in year 2015. 7 After that, the difference between the total annual support, 8 which is the sum of the taxation support and the user fees, 9 is big enough to pay for the actual opportunity cost 10 calculation on a cumulative deficit and we can start paying 11 some of the principle off, so to speak. 12 Q: So the maximum at any given time that 13 you'd be into the bank for, if you will, under this 14 calculation, is $7,258,000? 15 A: Yes. We would be borrowing that money 16 from cash reserves, yes. 17 Q: From cash reserves of the bank? 18 A: Well, I've assumed that it's cash 19 reserves. 20 Q: All right. 21 A: Okay. And then that proceeds until year 22 30 where we get to zero. So that at the point at which the 23 debenture issue is now complete, we've also arrived at a zero 24 balance in terms of that cash flowing situation and I've -- 25 I've forced that number of zero by adjusting the tax increase

1 in the year 2001. Okay. 2 So, if you look now at the top there's a -- at 3 the top there's a number of different variables at the top. 4 One is the rate, which is an annual rate as I've discussed of 5 7 percent, the term which is thirty (30) years. Now, I've 6 got an opportunity cost which I've set at 4 percent for all 7 of these scenarios just for lack of a better number. And 8 then I've calculated the tax increase, assuming that 1 9 percent of taxes is $265,000. 10 So, in order to arrive at a zero balance in 11 the cash balance column at the end of thirty (30) years, I've 12 calculated a tax increase of 6.01 percent in 2001. And I've 13 also included the $402,000 in that column that Council had 14 already approved at that point in time. Okay? So I've 15 included that in the base of $1,995,000 of tax based support 16 for the park. 17 Q: Yes. 18 A: The last calculation that I've done is 19 I've translated that 6.01 percent tax increase into a per 20 household impact for an average residence in the City of 21 Waterloo. So 6.01 percent in the year 2001 would have 22 translated into an additional thirty-five dollars ($35) that 23 an average residential property would have been paying, in 24 the City of Waterloo, in the year 2001, and every year, 25 moving forward. Okay?

1 So, that's the first page. Let's go the 2 second page. 3 Q: Can you just refresh my memory, before we 4 leave page 1, and -- and tell me, from your financial model, 5 I think I remember it was $38 million at the end of thirty 6 (30) years, that you plan to raise by taxpayer support? You 7 know, that's -- that's comparable to the $62 million, it was 8 $38 million, I believe, $1.2 million per year? 9 A: It would be something less than $38 10 million, I'm -- I'm looking at the -- Exhibit 20, now? 11 Q: Yes. 12 A: In that -- in that analysis, we've 13 included 37 million two hundred, as per the MFP business 14 plan. But there was a -- a small error in the early years 15 because MFP was assuming we were raising $1.2 million as at 16 2001, which wasn't the case. So, I would think the actual 17 number would be somewhere in the neighbourhood of maybe 18 36,500. 19 MR. JAMES CASKEY: Thirty-six million? 20 21 22 CONTINUED BY MR. FRASER BERRILL 23 Q: Thirty-six million? 24 A: Sorry, thirty-six million five hundred, 25 yes.

1 Q: Thank you. 2 A: Okay. 3 Q: So -- so if we just add that at the 4 bottom of sixty-two (62), we know what -- what was in the 5 business plan at that point in time? Very good? Fair 6 enough? 7 A: It -- it's comparable to the number of 62 8 million. 9 Q: Right. 10 A: I wouldn't add them together, I don't 11 know why you'd add them. 12 Q: No, you just put it at the bottom for 13 reference, that's what I -- 14 A: Oh, okay, whatever. 15 Q: Okay. 16 A: Okay, so that's -- that's one scenario 17 that I -- that I ran. Another scenario, on the second page, 18 basically, the assumptions are all the same, except that I -- 19 I've used a term of twenty (20) years. 20 Q: Which is the regional debenture term, for 21 the most part, is it not? That's the assumption I asked you 22 to use. 23 A: The region will issue serial debentures 24 up to twenty (20) years. If you want to go beyond twenty 25 (20) years, it's got to be a combination serial, sinking fund

1 debenture. But they will do thirty (30) year -- thirty (30) 2 year debentures. 3 Q: Have -- have they done that, in your 4 knowledge? 5 A: Pardon? 6 Q: Have they done that, in your knowledge? 7 A: I'm not sure, but -- but, that's the 8 information that I have from them, that they will do a 9 combination serial, sinker, yes. 10 Q: Very good. 11 A: Okay? So on page 2, you've got a twenty 12 (20) year term. And obviously, the annual payment's going to 13 be greater, so on the previous page it was somewhere around 4 14 million, now we're looking at 4,700,000, which is $700,000 15 more, annually. So obviously, that means that we're going to 16 have to raise more tax up front. 17 So if you look at Column F, we're up at $2.898 18 million in tax support, which is 9.42 percent tax increase in 19 the year 2001, translates to fifty-five dollars ($55) per 20 average residential household in the City of Waterloo. And 21 that drives to a zero (0) balance in the cash flow amount, in 22 the year of 2020, which would be the twenty (20) years of the 23 debenture. 24 And you can see that, in this scenario, we 25 actually have a lower maximum outstanding balance, in terms

1 of the cash flow. And it's in the neighbour -- the maximum 2 value is $4,274,000, and you arrive at that in 2007. 3 The issue, on this page, I think, that needs 4 to be pointed out is that after the year 2020, in the year 5 2021, you have no more debenture payments, but you have 6 $5,484,000 in combined annual tax support and annual user 7 fees, flowing towards the City, that don't have an offsetting 8 expense. 9 So, that's either going to be translated into 10 a significant tax reduction in the year 2021. Alternatively, 11 it could offset other program increases or expenditure 12 increases that the City may be facing at that time. 13 You can see, though, that, using the same 14 assumption, that those proceeds are collected but not spent, 15 and using the opportunity cost of 4 percent, so I've 16 continued with the same formula down that column? 17 Q: Hmm hmm. 18 A: You end up with a balance of $71 million 19 in the year 2030. 20 Q: Could I just point out for you, and ask 21 you to comment, that, coincidentally, perhaps, the $71 22 million is exactly the same contribution or excess or 23 surplus, that was in the MFP scenario, or very close to it, 24 within $2 million? 25 A: Are you asking me a question?

1 Q: I'm asking you to agree or not agree with 2 that. 3 A: Well, I'm agreeing that they might be 4 close, but I don't think they have any bearing on one 5 another. 6 Q: Very good. 7 A: So, if we flip the page over, I've run 8 two (2) other scenarios. One (1) of them is a thirty (30) 9 year debenture at 6.5, which I believe to be closer to the 10 actual rate we would have been able to obtain in the autumn 11 of 2001, which is what the time frame that I believe you were 12 asking me to look at? 13 Q: Yes. 14 A: Okay. So in this scenario, the annual 15 payment is $3.8 million and the tax increase would be 5.26 16 making the assumption that all the other variables are fixed 17 and that translates into an annual household impact of $31 18 million -- $31 per average residential assessment. Okay? 19 And the last page is a 6.3 percent debenture 20 at twenty (20) years which would be the rate that was related 21 to that term, because obviously there's a premium that you 22 need to pay for a longer term debenture. Now, we're looking 23 at a tax rate impact in 2001 of 8.46 percent and that 24 translates into $49.93 per average residential assessment. 25 Q: Thank you for doing that, Mr. Friedel. I

1 -- I understand what you've done and I want to ask you the 2 following question. 3 In the MFP model, it called for a continued 4 $1.2 million tax support, whereas you're -- totalling 5 $36 million whereas your model, in the assumptions that I 6 asked you to use on page 2, calls for $90 million of tax 7 payer support over the same period of time. 8 A: Well, I disagree with that statement 9 because the twenty (20) year debenture would end in the year 10 2020, so the additional support for the last ten (10) years 11 wouldn't be required. 12 Q: But you have it here. In order to pay 13 down the cash reserves on that? 14 A: No, the cash reserve comes to zero in the 15 year 2020. 16 Q: Why did you continue to accrue the 17 embedded tax, if you will, of $2,898,000? 18 A: Because I didn't know what else to do 19 with it. I can't make -- I can't say what Council's going to 20 decide to do with any excess taxation revenue that they're 21 going to be collecting at that point in time. 22 But it certainly isn't going to be going 23 towards the park because the debenture's already paid off. 24 Q: So that the tax payer support required 25 would be the sum of $2,898,000, let's call it 2.9 million for

22
  1  twenty (20) years? 
  2                 A:   I believe that's accurate.  Yes. 
  3                 Q:   All right.  Which is roughly one and a
  4  half times, or I'm just trying to do the math in my head,
  5  it's a higher figure than the -- than the -- than the tax
  6  support that's required under the MFP plan? 
  7                 A:   Yes.  It would be two-thirds of
  8  $90 million because it's twenty (20) years out of thirty (30)
  9  years, so it would be approximately $60 million. 
 10                 MR. FRASER BERRILL:   Very good.  Subject to
 11  what the Commissioner says, that's all of the questions I
 12  have on that exhibit, unless you have some questions? 
 13                 MR. COMMISSIONER:   I -- 
 14                 MR. FRASER BERRILL:   I propose to move on. 
 15                 MR. COMMISSIONER:   That's fine.  Thank you. 
 16  The members of the public that are present must be totally
 17  mystified by the numbers that have been going -- been talked
 18  about.  They don't have the paper in front of them.  But, in
 19  any event, the commentary that you and Mr. Friedel have had
 20  is accurately reflected in those documents.  
 21  
 22  CONTINUED BY MR. FRASER BERRILL: 
 23                 Q:   Mr. Friedel, now I'm -- I'm going to
 24  refer you to another document that I don't know if the public
 25  have either, although it's a public document, and that is the

1 region of Waterloo's annual report for the year 2000. Copies 2 have been distributed, Mr. Commissioner, to the parties and 3 to the witness and I propose that this be Exhibit 22. 4 MR. COMMISSIONER: What year is that? 5 MR. FRASER BERRILL: 2000. 6 MR. COMMISSIONER: 2000. It will be 7 Exhibit 22. 8 9 --- EXHIBIT NO. 22: Region of Waterloo's annual 10 report for the year 2000 11 12 CONTINUED BY MR. FRASER BERRILL: 13 Q: I want to refer you first, Mr. Friedel, 14 to -- on my copy the pages aren't numbered, but it's the 15 fourth page in and the subtitle that I want to refer you to 16 is "budgetary process"? 17 MR. COMMISSIONER: That's on page 4 of the 18 document just -- 19 MR. FRASER BERRILL: Thank you. 20 MR. COMMISSIONER: -- for your information. 21 22 CONTINUED BY MR. FRASER BERRILL: 23 Q: I think you referred, before, in a 24 question I believe that the Commissioner asked, with respect 25 to the amount of time it would take to get debentures, let

1 alone the issue of whether or not you could get them, which 2 is what I'm addressing in this line of questioning. 3 And I understand, at that point, you said, 4 perhaps three (3) months it would take. And that was based 5 on just your experience, or a call to the region, or -- or 6 what's the foundation for that -- that estimate of three (3) 7 months? 8 A: Well, I think that's based on discussions 9 I -- I had had with the region, while I was in the Finance 10 Department, yes. 11 Q: All right. If one reads that paragraph, 12 and I -- I invite you to read it, I won't read it into the 13 record, but as I understand it, the region likes to go 14 through a planning process, when it does -- makes its plans 15 for capital expenditures, or long term debt. Would you agree 16 with that? 17 A: That they have a planning process in 18 place for their own budgets? 19 Q: Yes. 20 A: Yes, I'll agree with that. 21 Q: And the public is involved in that 22 planning process, I understand? At -- at least, this report 23 seems to refer to that. Would you agree with that? 24 A: I agree that they're making that claim, 25 yes.

1 Q: Yes. You say they make that claim, but 2 does that infer that they maybe don't do it. Is -- is that 3 what you're alluding to? Or, trying to imply? 4 A: I'm not part of their process and I've 5 never been involved in the public aspect of it, so I can't 6 comment. 7 Q: All right. In any event, if -- if this 8 document is true, they receive submissions, or at least, 9 input from the public, before they decide to do a budget 10 allocation? 11 A: Okay. That's what they're saying. 12 Q: That's what they're saying. 13 A: All right. 14 Q: And that they, specifically, don't budget 15 for surpluses or deficits, in any -- in any year. That -- 16 that seems to be what they say, as well. 17 A: Okay. 18 Q: And you've never seen that occur, when 19 you've read their financial statements? 20 A: That they -- that they planned for a 21 surplus or deficit? 22 Q: Yes. 23 A: No, we're not, as municipalities, we're 24 not supposed to budget for surpluses and deficits. 25 Q: All right. And, do you understand why

1 the debenturing takes place at the regional level, as opposed 2 to the City level? 3 A: It's set out that way in the Regional 4 Municipality of Waterloo Act. 5 Q: Do you know the rationale for that? Or 6 do you understand the rationale for that? 7 A: I've never delved into why the 8 legislators made that decision, no. 9 Q: Could I suggest to you that it's because, 10 that's where the expertise for this kind of financing lies? 11 A: I wouldn't necessarily agree with that 12 suggestion because the expertise of any particular aspect of 13 running a municipality can shift, as we've seen with garbage 14 collection and transit. The expertise used to be at the 15 lower tier level, now it's at the higher tier level because 16 we've done a transfer. 17 Q: Okay. I want to refer you to page 5, and 18 that's the paragraph, capital financing policies? Were you 19 aware, at that point in time, or are you aware now, that the 20 region has adopted a pay as you go philosophy? And I invite 21 you to read that paragraph before you -- you answer. 22 A: Well, they've adopted a goal of being pay 23 as you go. 24 Q: So they're -- they're moving toward -- 25 toward a pay as you go program, and hoping to get there?

1 A: Yes. 2 Q: All right. 3 A: For their own capital and operating 4 budgets. 5 Q: All right. I want to refer you to page 6 11, under the heading, "Capital Financing". And I want to 7 ask you whether or not the sentence beginning, 8 "For 2000, a ten thousand (10,000) -- $10 9 million regional debenture was issued to 10 finance the replacement of Sunnyside Home, 11 [et cetera]._ 12 And that the regional plans are to issue $20 13 million of debentures for 2001 and 2001. And, I ask you if 14 that affects, at all, your view as to whether or not the 15 region would be inclined to issue $50 million of debentures, 16 when their plan was to issue 10 million in each of 2000 and 17 2001? 18 A: Well, I think you've got to be clear that 19 the numbers you see appearing on this page are the financing 20 requirements that the region needs to run their own 21 operations. But because the Region has the responsibility of 22 issuing debentures on behalf of all the area municipalities, 23 this would not be the total amount of debentures that they 24 would be issuing in those years if requests came forward from 25 the area municipalities. This is for their own use only.

1 Q: I refer you to the bottom of the page and 2 refer to the $140 million total debt outstanding in 1996 and 3 ask you if you know whether or not that includes the debt for 4 all of the composite municipalities or just the Region, at 5 that point in time? 6 A: Well, we've have to look at the balance 7 sheet to answer that question. 8 Q: All right. 9 A: The balance sheet is found on page 25. 10 If you look at the section entitled "liabilities"? 11 Q: Yes. 12 A: The sixth line down is called "municipal 13 debt". Note number 9. "Total outstanding in the year 2000 14 is $213 million". 15 Q: I'm sorry, in the year? 16 A: 2000 -- 17 Q: Yes. 18 A: -- is $213 million. That includes all 19 the debt that the region issued. 20 Q: That's right. But that's not necessarily 21 the capital debt? Let me refer you, maybe we can move this a 22 little faster, to note number 9 on page 34 which is the net 23 long-term liabilities assumed by others. And I assume that 24 this sets out for the year 2000 the total debentures by 25 municipality issued by the region?

1 A: It's the outstanding balance of those 2 issues, yes. 3 Q: Yes. And we see that Kitchener's total 4 is $20 million and the City of Waterloo is approximately 5 $20 million. I assume that if we had debentured this park, 6 as we're talking today, that figure would have moved to 7 $70 million? 8 A: That's right. 9 Q: And that that would have been three and a 10 half times Kitchener's debentures; is that correct? 11 A: From an -- 12 Q: $20 million? 13 A: -- mathematical calculation you're 14 correct. I don't see the relevance of that, but if you want 15 to make the comparison to Kitchener that's fine. 16 Q: Well, Kitchener's a municipality that's 17 about twice the size of Waterloo; isn't it? 18 A: Yes. 19 Q: And Kitchener is also, by implication, 20 going to be responsible for this debt as well, because it's 21 the region that's ultimately responsible for the net long- 22 term liabilities because it's issuing them? 23 A: The City of Kitchener is responsible for 24 the debt payments on its own debt, yes. 25 Q: It's not joint and severally liable for

1 the debts of other municipalities as well through its 2 obligations to the region? 3 A: That could very well be, yes. 4 Q: Those are the questions I have with 5 respect to Exhibit 22 unless the Commissioner has -- 6 MR. COMMISSIONER: Thank you. 7 8 CONTINUED BY MR. FRASER BERRILL: 9 Q: Now, I want to take us to -- back to 10 September 25th and the scenario where you might wake up and 11 realize that you weren't receiving the money from this -- 12 this financing? 13 A: I'm assuming when you say you, you're 14 speaking about the City as a whole? 15 Q: I'm saying about the City as a whole. 16 And I think what you've indicated in referring to Exhibit 21, 17 that there are several ways -- several options you had to -- 18 to increase -- or rather to finance the park and that is set 19 out in Exhibit 21 if you were to use debentures at that point 20 in time? 21 A: Using the assumptions you asked me to 22 use, yes, there are other options, naturally. 23 Q: Did you do a calculation as to whether or 24 not any of the scenarios listed in Exhibit 21 would affect 25 the requirements of the debt load calculations that you have

1 to do annually for the municipality? 2 A: Did I do that last night? 3 Q: Yes. 4 A: No. You didn't ask me to do that. 5 Q: All right. Is it a difficult thing to 6 do? 7 A: If you've got all the information 8 available to you, it -- it isn't that difficult of a 9 calculation, no. 10 Q: All right. Well, I'm not going to ask 11 you to do it, today, it's -- it's not fair. I'll have to 12 take the blame for not having asked you to do that last 13 night, and -- and produce that evidence, myself. 14 But, suffice to say, when you have long term 15 liabilities of $20 million, and you increase them to $70 16 million, and they're on your balance sheet at that point in 17 time, because they are a debenture, stop me if -- if you 18 disagree with -- 19 A: I sure will. 20 Q: All right. So, so far you agree with 21 what I say? It does affect your ability to borrow money, for 22 other projects? 23 A: It affects our borrowing capacity, if 24 we're approaching the limit. 25 Q: All right.

1 A: But just to be clear, the -- the issue of 2 limits on borrowing is not related to the actual amount 3 outstanding, it's related to the payments that you're making. 4 It's an annual repayment limit, not a total debt issue limit. 5 Q: Right, okay. 6 MR. COMMISSIONER: If I understand you 7 correctly, the limit on borrowing is related to 25 percent 8 of -- of the taxation revenue? Is that right? 9 MR. FRASER BERRILL: I think it's termed, 10 "own source revenue", is my understanding. 11 THE WITNESS: Yes, it's own source revenue, 12 it includes -- 13 MR. COMMISSIONER: It's own source revenue. 14 THE WITNESS: Yes, it includes user fee, it's 15 not just taxation. 16 MR. COMMISSIONER: Oh, I'm sorry. Okay. 17 Thank you. 18 19 CONTINUED BY MR. FRASER BERRILL: 20 Q: One of the advantages of off balance 21 sheet financing, at any given point in time, is that it won't 22 affect, or it's ameliorative, if you will, to the debt load 23 calculations, from time to time? 24 A: I'll give you my opinion on that matter. 25 Q: Please.

1 A: Because the debt limit calculation is not 2 based on actual debt issue, which is related to a balance 3 sheet figure, it's related to an operating figure, which is 4 your payment on that debt, I would disagree with what you 5 just said. 6 Whether it's on balance sheet or off balance 7 sheet, if it's a payment with respect to an obligation, then 8 it should be part of the calculations of your annual 9 repayment limit. 10 Q: What, then, are the advantages of 11 treating this debt, as off balance sheet debt, as opposed to 12 on balance sheet debt? In other words, in the scenario about 13 lease, sub lease, which is off balance sheet, if it's viewed 14 as an operating lease, or by way of debenture? 15 A: My own opinion is that, in terms of the 16 City's financial statements, it's not really that big of a 17 deal. The -- for me, the on balance sheet, off balance sheet 18 relates to whether it's treated as a capital or operating 19 lease, which goes back to the taxation legislation treatment, 20 in order to get the benefit to get to the rate of 4.76 21 percent. 22 Q: Okay, well I don't want to -- to get into 23 the income tax applications for other parties, because, 24 presumably, the municipality doesn't pay any income tax. It 25 would be other parties that would gain from -- from that?

1 A: You asked me what the benefit of -- of 2 off balance sheet and on balance sheet was? 3 Q: Right. 4 A: My answer to that is, it doesn't have any 5 benefit or draw back to the City of Waterloo, because we 6 still have to pay that obligation. The only benefit in this 7 instance was that, with MFP, there was a tax driven structure 8 that was related to the treatment of the lease, that allowed 9 the rate of 4.76 to be obtained. 10 Q: All right. So, in your view, it had to 11 be -- or, as you understood it, it had to be an operating 12 lease in order for MFP to get the favourable tax treatment. 13 That was the assumption you were working under? 14 A: Yes, it was. 15 Q: All right. And there were no other 16 discrete, if you will, advantages to the municipality, of 17 being off balance sheet? 18 A: Not in my view. 19 Q: Not in your view. Would you tell me 20 if -- if it was viewed as an advantage by anyone else in, 21 say, the Finance Department, at -- 22 A: I think you'd have to ask those people 23 that question. 24 Q: They hadn't told you that, this is a good 25 deal because it's off balance sheet, from the municipality's

1 point of view, exclusive of whether or not it drove the rate? 2 A: It wasn't a consideration in the 3 calculations that I was doing, and I wasn't in the Finance 4 Department, having those discussions. 5 Q: Okay. I'd like you to turn to tab 36 of 6 your material. That's tab 36 of Exhibit 17. 7 MR. COMMISSIONER: Is that the Exhibit 17? 8 MR. FRASER BERRILL: Seventeen (17), yes. 9 MR. COMMISSIONER: That's volume 2. 10 11 CONTINUED BY MR. FRASER BERRILL: 12 Q: And this is a memo that you wrote on 13 February 21 when you conducted the analysis between the MRP 14 and the WRC, and I invite you to look at paragraph 4 and note 15 the wording in italics and ask to explain to me -- or ask you 16 to explain to the Commissioner what -- what that means in 17 your -- in your view? 18 A: Why did I include that? 19 Q: Yes. 20 A: Because it was a point that was being 21 discussed between Council and the finance department at that 22 time. So I just wanted to clarify it because it was a point 23 they were discussing. In terms of the analysis I did, I 24 don't think it had an impact either way. 25 Q: So -- so it's in italics but it -- it had

1 no significance or symbolism or -- to you? 2 A: Not in the analysis that I was doing. 3 No. 4 Q: All right. Did it have significance or 5 symbol -- or significance to any of the parties that you were 6 writing this to, or did you intend it to have? 7 A: It was a point that had been discussed 8 between the finance department and Council. So it must have 9 had significance to some of those people. Yes. 10 Q: Do you know the nature of that 11 significance or would you be guess, because I'm not going to 12 ask you if you're just guessing, but -- 13 A: It was an issue they were discussing; to 14 what end, I'm not exactly sure. 15 Q: All right. 16 MR. COMMISSIONER: What do the initials "CRF" 17 stand for in that paragraph? 18 THE WITNESS: That stands for our capital 19 reserve fund and that's just the method of pay as you go 20 financing, so to speak, for capital projects. 21 22 (BRIEF PAUSE) 23 24 CONTINUED BY MR. FRASER BERRILL: 25 Q: I'm suggested to ask the question,

1 whether or not you could have or should have explained to 2 Council, at one point in time, that it had no significance, 3 from your point of view? 4 A: That would have been the responsibility 5 of the Finance department. So -- 6 Q: Well, you were writing this memo and 7 italicizing, if you will, the fact it was off balance sheet 8 and presumably in italicizing it, it was of some 9 significance. You could have taken that opportunity, because 10 you were the author of it, to say it was of no significance? 11 A: Well, I think you're assuming that I was 12 involved in the conversations pertaining to this issue, which 13 I was not. 14 Q: I'm not going to pursue it further. 15 MR. COMMISSIONER: Who asked you to prepare 16 the -- prepare this information? 17 THE WITNESS: Mr. Strickland. 18 MR. COMMISSIONER: Mr. Strickland's a member 19 of Council? 20 THE WITNESS: Yes. That's correct. He was 21 at the time. He's not any more. 22 MR. COMMISSIONER: Why did he ask you to do 23 it, if you can tell me? I don't know if you really can. 24 25 (BRIEF PAUSE)

1 2 THE WITNESS: I guess you'd have to ask him 3 that question. 4 MR. COMMISSIONER: Okay. You mean he -- he 5 deliberately asked you and not anybody else? 6 THE WITNESS: I can't remember the exact 7 circumstance of how this request was put forward. I believe 8 -- if you just give me a minute? 9 MR. COMMISSIONER: Yeah. I'm not suggesting 10 there's anything wrong with it I'm just -- 11 THE WITNESS: No. I'm just -- 12 MR. COMMISSIONER: -- asking you from a 13 factual -- 14 THE WITNESS: -- I think I might -- 15 MR. COMMISSIONER: -- point of view. 16 THE WITNESS: Yeah. I think I might be able 17 to answer your question. 18 19 (BRIEF PAUSE) 20 21 MR. COMMISSIONER: The reference in this memo 22 that you wrote to the Mayor and Members of Council dealt with 23 the comparison of the Millennium Recreational Park and the 24 Waterloo Recreational Complex? 25 THE WITNESS: Yes.

1 MR. COMMISSIONER: And that's what you were 2 doing? 3 THE WITNESS: Yes. I was. I was comparing 4 what the annual support would be. I'm sorry. I thought I 5 might have made a note of that in one of the pages that I 6 photocopied out of my day planner, but I can't find it right 7 now. I thought -- I suppose the answer to your question is 8 -- is the same as why you asked me to do these calculations. 9 MR. COMMISSIONER: Well -- 10 THE WITNESS: You're asking -- you're asking 11 -- you're asking questions of me that ordinarily, in the 12 course of our operations at the City, would be done by a 13 different group of people, but my background in finance 14 allows me to do these calculations, even though I don't speak 15 for the City on these matters. 16 And I suppose the answer is, it's very similar 17 in this case. My background was in finance, I have been the 18 Team Leader of Financial Services. 19 20 CONTINUED BY MR. FRASER BERRILL: 21 Q: Well, that's actually before you 22 responded, in your memo of -- at tab 36, you could have said, 23 it's not my job. 24 A: I could have but that's not the kind of 25 relationship we have with the Councillors.

1 Q: So you volunteered your input and wrote 2 Exhibit 36? 3 A: I was asked to undertaking something by 4 Council and I fulfilled that request, yes. 5 Q: All right. And that, I guess, was 6 contrary to your agreement with Mr. Stockie, that you 7 wouldn't get involved in matters relating to the Finance 8 Department? 9 A: I tried as best I could to stay out of 10 their matters, yes. 11 Q: All right. Okay. I'm going to ask you a 12 couple of questions about your understanding, with respect to 13 an operating lease, and how it works. There are two (2) 14 basic elements and -- Mr. Caskey put tab...? 15 MS. STACEY HOCKING: 98. 16 MR. FRASER BERRILL: 98, is it? 17 MR. COMMISSIONER: Is that in the amendment? 18 MR. JAMES CASKEY: Eighty-eight (88). 19 MR. COMMISSIONER: Or, I'm sorry, the 20 addendum. 21 MR. FRASER BERRILL: No, it's in Volume 3 of 22 Exhibit 17 -- 23 MR. JAMES CASKEY: 88. 24 MR. FRASER BERRILL: Tab 88. 25

1 CONTINUED BY MR. FRASER BERRILL: 2 Q: And I'm not going to refer to it, 3 specifically, but I'm -- I'm going to summarize my 4 understanding of it, and ask you if -- if -- whether or not 5 you agree with those principles, and how it relates to what 6 occurred in this transaction? 7 My understanding, from what you've said so 8 far, is that, to get the favourable tax treatment, this 9 transaction had to be viewed as an operating lease. Is that 10 correct? 11 A: That was my understanding. 12 Q: That was your understanding. And, there 13 are two (2) elements, among others, but there are two (2) 14 that I want to refer to, as elements of an operating lease 15 that have to be present. 16 One is, that your incremental cost of 17 borrowing has to be -- has to have been greater than the 18 increment -- or, rather than the -- than the cost of payments 19 under the lease. 20 A: So what figures are you using to make 21 that statement? 22 Q: Well, I'm just talking principles, now, 23 to make it an operating lease. You're in -- the -- the 24 regions, or rather the City's incremental cost of borrowing, 25 has to be greater than the cost under the operating lease, to

1 qualify? 2 MR. COMMISSIONER: You're saying, that's -- 3 I'm not sure I understand the question. But, you're 4 suggesting that that is an element that is included in the 5 definition of an operating lease? 6 MR. FRASER BERRILL: To qualify as an 7 operating lease. 8 MR. COMMISSIONER: When you say, "to qualify 9 as an operating lease," are you talking about, within -- 10 within certain tax structures? 11 MR. FRASER BERRILL: Before your auditors 12 will allow you to treat it as an operating lease on your 13 balance sheet -- 14 MR. COMMISSIONER: Oh, okay. 15 MR. FRASER BERRILL: -- it has to have the 16 characteristics of -- 17 MR. COMMISSIONER: Thank you -- thank you for 18 that explanation. 19 MR. FRASER BERRILL: And that's one (1) 20 characteristic. 21 MR. COMMISSIONER: Do you understand that? 22 THE WITNESS: Maybe you could refer to where 23 that is on this schematic. 24 25 CONTINUED BY MR. FRASER BERRILL:

1 Q: Well, I -- I don't want to refer to it, 2 I'm just asking whether or not you understand that to be the 3 case, or not? 4 A: This schematic represents the CICA's 5 position on how you determine an operating and a capital 6 lease. And I guess I'm asking you to tell me, where on this 7 schematic, that issue appears? 8 MR. COMMISSIONER: Now, that isn't the 9 question. 10 MR. FRASER BERRILL: Well, let's -- let's -- 11 sorry. 12 MR. COMMISSIONER: Mr. Friedel, what -- what 13 the question is, is whether you know that one of the elements 14 that your auditors require to use, in defining an operating 15 lease, is that the incremental cost of borrowing, is greater 16 than the cost of -- 17 MR. FRASER BERRILL: The operating lease 18 payments. 19 MR. COMMISSIONER: -- of the operating lease 20 payments? That's the -- if you don't know the answer, that's 21 fine. 22 THE WITNESS: Well, I'm looking at the 23 schematic, and that -- I would have to say, I don't agree 24 with that statement, while I'm looking at this decision tree, 25 on -- on -- in -- at the tab of -- 88.

1 CONTINUED BY MR. FRASER BERRILL: 2 Q: And even when I refer you to 3 determination of the discount rate and the second box there, 4 it doesn't assist you? 5 A: No, because that -- that box is a 6 decision tree on determining what the actual discount rate 7 is, not determining on whether it's a capital lease or an 8 operating lease. 9 Q: So, when Mr. Robson came to you and said, 10 I can give you financing that's less than your incremental 11 cost of funds and that, therefore, it will be an operating 12 lease, that -- that doesn't twig to you -- 13 A: He never -- 14 Q: that -- 15 A: -- said that. Mr. Robson never said that 16 statement to me. 17 Q: He never made that statement? 18 A: He never said, the incremental cost of 19 funds will be less than -- 20 Q: Or would it be greater than? 21 A: He never said -- he never said your 22 incremental cost of funds will be greater than the rate in 23 the lease and, therefore, it's an operating lease. He never 24 made that statement to me. 25 Q: Very good. There's another element in an

1 operating lease that has to be present and that's that the 2 value of the asset has to be 90 percent -- or has to 3 10 percent greater, rather, than the net present value of the 4 stream of payments under an operating lease; would you agree 5 with that? 6 A: Yes. That's the bottom hexagon in this 7 decision tree. Yes. 8 Q: So that's one of the elements that has to 9 be present? In your mind, now, or looking back on it or 10 anticipating at the time, MFP would be required to impute a 11 value of the park that was greater than the stream of 12 payments in order to have this qualify as an operating lease? 13 A: Yes. I'll agree with that statement. 14 Q: And that was the exercise that they were 15 going through at their premises, if you will, separate and 16 apart, I think as you've indicated, from your analysis? 17 A: I bel -- that's a fair statement from 18 what my perception was. Yes. 19 Q: All right. And what they attempted to do 20 in their exercise was to show a stream of payments that was 21 $300 million against a cost of $227 million to generate a 22 surplus of $73 million that would satisfy that requirement in 23 the -- in the operating lease rules? 24 A: I'm not sure how that calculation ties to 25 what you're talking about in this decision tree.

1 Q: Very good. Now, the next thing I wanted 2 to turn to was -- was Tab 98 and your -- your two 3 interpretation, if you will, of the -- or double 4 interpretation of Schedule B, but rather than do that, I'm 5 sorry to have caused you to reach for it, My Friend, 6 Mr. Stevens is going to take you through that calculation. 7 So I'm going to pass from it and -- and move on to the next 8 area. 9 I want to take you ahead then, Mr. Friedel, to 10 the May 31 meeting you had at MFP and we have your memo on 11 that at Tab 72 and I ask you to refer to that. 12 MR. COMMISSIONER: I'm sorry. Which tab 13 again? 14 MR. FRASER BERRILL: Tab 72 of Exhibit 17. 15 16 CONTINUED BY MR. FRASER BERRILL: 17 Q: And this meeting came after the meeting 18 in Waterloo of May 30th when I think, as you testified, 19 Mr. Robson said, at that point in time, Excel won't work, you 20 should come to MFP and I'll take you through the calculations 21 or the staff will? 22 A: That's what he said. 23 Q: That's what he said. And, at that point 24 in time, I think you volunteered the statement that you 25 didn't think that that was -- that was warranted, him saying

1 that, that Excel was perfectly capable of -- of working the 2 calculations and that you thought that Mr. Robson was just 3 trying to delay the situation? 4 A: That's correct. 5 Q: And I take it, at that point in time, you 6 -- you'd lost faith in what Mr. Robson had been telling you? 7 A: I wouldn't necessarily say that. What it 8 -- what -- one of the things it suggested to me was that 9 perhaps Mr. Robson wasn't doing the actual calculations. 10 Q: That somebody else was? 11 A: That's right. 12 Q: And that he didn't -- he didn't 13 understand them or didn't know them? 14 A: I wouldn't necessarily say that, but he, 15 obviously, was not familiar with Excel. 16 Q: Did you think, at any point in time, 17 that -- that it might be prudent, if you will, to pick up the 18 phone and call someone else at MFP, in senior management, for 19 example, Mr. Wolfraim, the President of the company? 20 A: I had never met Mr. Wolfraim, at that 21 time. 22 Q: Well, that -- that wasn't really my 23 question. 24 A: Were you asking me if I was going to call 25 Mr. Wolfraim?

1 Q: Yes, or -- or that Mr. Stockie was, or 2 that Mr. Ford might call someone else, because the only 3 person you'd been dealing with was Mr. Robson, at this point 4 in time? 5 A: No, because at the end of the meeting, we 6 agreed that I would be going to MF -- MFP the next day, to 7 investigate the issue. 8 Q: And when you were at MFP, the only 9 person, senior person, you spoke to at MFP was Mr. Robson? 10 A: That's right. 11 Q: Was there ever a suggestion, by Mr. 12 Stockie or Mr. Ford, that they talk to someone else, other 13 than Mr. Robson? 14 A: No. 15 Q: Was there ever an occasion when anyone at 16 the City, to you knowledge, spoke to anyone, other -- at MFP, 17 other than Mr. Robson? 18 A: During this time period? 19 Q: During this time period. 20 A: Other than Carmen Roberts and Beau Peleck 21 being at the meeting on the 31st, not to my knowledge. 22 Q: All right. Was this, in part, because 23 there was a -- a close personal relationship between Mr. 24 Stockie or Mr. Ford and Mr. Robson? That they wouldn't go 25 over his head?

1 A: I don't know the answer to that question. 2 Q: It was never said to you, nothing was 3 ever said to you, that gave you that impression? 4 A: No, I don't believe there was. 5 Q: I refer next to the -- the meeting the 6 next day, that you had at -- at Mr. White's office, I believe 7 it was? 8 A: Yes. 9 Q: On June the 1st. And at that point in 10 time, you presented the 5.45 percent calculation, if I can 11 call it euphemistically, that? 12 A: It was discussed at the meeting, I can't 13 recollect, specifically, whether I presented it or whether 14 either Mr. Ford or Mr. Stockie presented it. I've indicated 15 that I was the last one to arrive and the discussions were 16 already underway. 17 Q: Was there, at any point in time during 18 the meeting, that someone blamed or said, this was your 19 responsibility, why is this the case? Was that directed 20 toward anyone, that kind of implication or accusation? 21 A: No. 22 Q: All right. You became the spokesman, I 23 think it was decided at that meeting that you became the 24 spokesman, insofar as the press was concerned. Is that 25 correct?

1 A: Related to the business plan and the 2 financing arrangement, yes. 3 Q: Yes. Why was that the case? Why were 4 you chosen as opposed to Mr. Stockie, or Mr. Ford, or someone 5 in the Finance Department? 6 A: You'd probably have to ask the person 7 that made that decision. I can only say that I had some 8 background in those areas because I had worked on some of 9 that information. 10 Q: Presumably other people had worked on it, 11 as well. But the decision was that you were the best person, 12 the most -- or, the best versed person to respond to 13 questions? Was that the thinking? 14 A: Well, that's how I like to think about 15 it. But I think you'd have to ask the person that made the 16 decision. 17 Q: In any event, there was no discussion 18 about it, that you can tell us about? 19 A: No, the decision was made and we moved 20 forward. 21 22 (BRIEF PAUSE) 23 24 Q: I want to move on to Exhibit 20, that's 25 your business model reconciliation, which I think reconciles

1 with tab 87 of Exhibit 17. 2 3 (BRIEF PAUSE) 4 5 Q: First of all, in preparation of your 6 business model, and let's refer to the -- the final business 7 plan that was presented to Council in, I understand, May of 8 2000. Were there experts retained to assist you in preparing 9 the model, other than KPMG with respect to golf? 10 A: Outside experts? 11 Q: Yes. 12 A: No. There weren't. 13 Q: All right. And you prepared this model 14 then really on your own? 15 A: Well, with input from the people that had 16 expertise in the areas that I was dealing with. Yes. 17 Q: All right. Can you tell me who that was? 18 A: Who those specific people are? 19 Q: Yes. 20 A: Well, they would have been members of our 21 recreation and leisure department. Discussions probably 22 would have included Bob McFarland as a director, Howie 23 Dietrich as -- he was the former team leader of facility 24 services. Mr. Brian Detzler who was -- had a background in 25 parks. Mr. Mark Hillis who was the parks team leader at that

1 time. Mr. Paul Evans who was organization leader of 2 operations at the Waterloo Memorial Recreation Complex. 3 Q: Did -- did these people that you're 4 referring to have bottom line responsibility for these -- 5 these particular areas? 6 A: Responsibility over administering 7 budgets? 8 Q: Yes. 9 A: Yes. They did. 10 Q: Okay. Did you -- what are your 11 qualifications for preparing a business plan? Had you -- had 12 you done one before for an operation of this size? 13 A: Well, my background is I've a business 14 degree. I have a certified management accountant. I was 15 team leader of financial services. So, had I done a business 16 plan for a facility like this, specifically? No. But I was 17 responsible for the preparation of the overall budget for the 18 City of Waterloo, both capital and operating in that 19 capacity. Plus, I prepared the business plan for my own 20 team. 21 Q: In the course of preparing your business 22 plan, did you involve yourself in projections with respect to 23 demographics? 24 A: No. I did not. 25 Q: How about population growth?

53
  1                 A:   No.  I focused on utilization because
  2  there's a physical limit to the amount of activity that can
  3  take place in an asset. 
  4                 Q:   Did you consult any experts in the field
  5  of commercial skating rink operations? 
  6                 A:   No.  As I've mentioned, we consider
  7  ourselves to be fairly proficient in that manner. 
  8                 Q:   Would you say that you're the best
  9  around? 
 10                 A:   I think some of our customers would agree
 11  with that statement. 
 12                 Q:   So the people that do this commercially
 13  would have nothing to add, in terms of how you might get a
 14  better financial performance out of your facilities? 
 15                 A:   I think it's important to understand that
 16  there's a completely different philosophy between a
 17  municipally run facility and a commercially run facility. 
 18  Our intent is to build facilities that are going to last for
 19  multiple generations.  
 20                 So, we're investing tax payers money for the
 21  long term.  Whereas a private enterprise is trying to get a
 22  return on their investment over a much shorter period of time
 23  and they're not totally comparable. 
 24                 Q:   The next exhibit I want to refer to is,
 25  Mr. Commissioner, is -- is an excerpt from the Bank of Canada

1 website and I think -- I think that's Exhibit 23. If the 2 witness has it in front of him. 3 A: What number is that again? I'm sorry. 4 Q: Twenty-three, I believe. 5 A: Thank you. 6 MR. COMMISSIONER: It's a new one. 7 Exhibit 23. 8 9 --- EXHIBIT NO. 23: Excerpt from Bank of Canada website 10 inflation calculator 11 12 CONTINUED BY MR. FRASER BERRILL: 13 Q: First of all, would you agree, 14 Mr. Friedel that the preparation of a business plan of this 15 nature, the exercise that you did, involves a degree of 16 subjectivity and opinion, especially when you prognosticate 17 for thirty (30) years forward? 18 A: I would absolutely agree with that 19 statement. 20 Q: And it's not a perfect science? 21 A: It sure isn't. 22 Q: And we don't know, for example, that the 23 golf course -- what the green fees might be in the market in 24 thirty (30) years? 25 A: We sure don't.

1 Q: They may well be $400? 2 A: It could be a million dollars. 3 Q: It could be a million dollars. They're 4 currently $250, I understand at Glen Abbey and Oaksville, so 5 we don't seem to be too far away from that. 6 A: Well I wouldn't know what the rates are 7 at Glen Abbey. 8 MR. COMMISSIONER: You want to really be 9 stranded, go out to California. 10 MR. FRASER BERRILL: That's -- that's 11 correct. 12 I can remember as a -- as a teenager playing 13 for five dollars ($5), so it's -- 14 MR. COMMISSIONER: Things change. 15 16 (BRIEF PAUSE) 17 18 CONTINUED BY MR. FRASER BERRILL: 19 Q: And I take it there's a certain amount of 20 subjectivity involved in coming to an inflation rate that you 21 might apply to both the prices and the expenses that are -- 22 A: It's certainly an assumption that you've 23 got to make, yes. 24 Q: And I believe that the assumption that 25 you used is the prognostication by the Bank of Canada for the

1 next five (5) years, as between 1 and 3 percent? 2 A: They have a target rate and I tried to be 3 realistic in what my estimate was, yes. 4 Q: Did you refer at all to what I've 5 produced as Exhibit 23, which I took off the Internet the 6 other night? 7 A: No, I didn't. 8 Q: All right. Would you agree that it would 9 be rational to prognosticate on the basis of what has 10 happened in the past thirty (30) years and what might happen 11 in the next thirty (30) years? 12 A: That's a certain approach, I don't think 13 I would agree with it though. 14 Q: And I think we've assumed that you're not 15 necessarily an expert in this, but perhaps my background is 16 as good as yours when it comes to that? 17 A: I can't comment on your background. 18 Q: Well, I'm not going to be a witness here, 19 so my -- 20 MR. COMMISSIONER: I don't -- 21 MR. FRASER BERRILL: -- my background -- 22 MR. COMMISSIONER: -- really think you can 23 argue about it either. 24 MR. FRASER BERRILL: -- perhaps is not an 25 issue.

1 CONTINUED BY MR. FRASER BERRILL: 2 Q: We'll -- we'll let the exhibit speak for 3 -- for what it is then, and -- and I have your answer. 4 5 (BRIEF PAUSE) 6 7 Q: Now I -- I just want to refer to the due 8 diligence you did in the fall of '99, and I'm referring to 9 your DayTimer, which is Exhibit 18 at tab -- 10 MR. COMMISSIONER: 99. 11 MR. FRASER BERRILL: Thank you, Mr. Chair. 12 13 (BRIEF PAUSE) 14 15 CONTINUED BY MR. FRASER BERRILL: 16 Q: Maybe you could pull that up. 17 A: I have it. 18 Q: Have you done it? 19 A: Yeah. 20 Q: You're faster than I am. Now there are 21 two (2) individuals referred to, that you're invited by Dana 22 at E & Y to call at the City of Windsor? 23 A: What -- what day specifically are you 24 referring to? 25 Q: This is September 28th.

1 (BRIEF PAUSE) 2 3 Q: And there's -- there's two (2) names 4 there, Mr. Pinsero and I believe his name is Pinseno 5 actually. 6 A: Oh, okay, sorry. 7 Q: And Mr. Haddad, and I understand it's 8 Tony Haddad and these are officials with the City of Windsor. 9 What was your understanding of the arrangement 10 or the financing transaction in Windsor at that point in 11 time, as communicated to you by Dana? 12 A: You mean did I know any of the specifics 13 of the financing transaction? 14 Q: What did you know, even generalities? 15 A: I don't think I knew very many specifics 16 at all, only that -- 17 Q: Were you told that it was a head 18 lease/sub lease situation? 19 A: I can't recall that specifically, no. 20 Q: All right. There was a reason though 21 that -- that Dana, and is Dana in the Windsor office or the 22 Waterloo office? 23 A: No, she's in the Waterloo office. 24 Q: She's in the Waterloo -- 25 A: She was. She's not there anymore, but --

1 Q: There was a reason that she referred you 2 to those two (2) individuals though, knowing what you were 3 contemplating at that point in time, in terms of financing 4 with MFP? 5 A: She was suggesting that if I wanted more 6 information I could call them directly, yes. 7 Q: All right. And did you ever avail 8 yourself of that? 9 A: No, I did not. 10 Q: Do you know today whether or not that 11 transaction is similar to the transaction that you did with 12 MFP, that Waterloo did with MFP? 13 A: I haven't -- 14 Q: From the point of view of its structure? 15 A: -- I haven't seen any documents related 16 to that financing transaction so I don't -- I couldn't 17 comment on it. 18 Q: All right. Did you pass these numbers on 19 to either Heather Card or Ms. Whittaker, who, I understand, 20 were your successors in finance? 21 A: No. I didn't pass these numbers on to 22 anyone. 23 Q: Okay. Now, I want to refer you to Tab 52 24 and I'm just picking that spreadsheet as an example -- 25 MR. COMMISSIONER: That's Exhibit --

1 MR. FRASER BERRILL: Exhibit 17 as well. 2 MR. COMMISSIONER: -- 17. Thank you. 3 MR. JAMES CASKEY: Mr. Commissioner, I would 4 suggest that we use a different example because I think 5 that's the spreadsheet that we ascertained had -- should not 6 have been in the materials; am I wrong about that? 7 MR. FRASER BERRILL: Well, I'm just wondering 8 about the difference between this and Tab 91. I -- I 9 understand, for the purpose of my question, there -- there 10 isn't going to be a substantial difference. 11 My problem is that when I prepared my cross- 12 examination, I put my questions on this page and I really -- 13 I really only ask -- want to ask you one question and it has 14 to do with column "year 2000 and year 2001" and I don't think 15 they're significantly different on Tab 91, certainly for the 16 purposes of my question. 17 18 CONTINUED BY MR. FRASER BERRILL: 19 Q: My question, basically, is, in this 20 scenario and, as I understand it, it was a scenario until 21 quite late in the process, you were looking at receiving 22 funds over the -- from MFP over the course of two (2) years? 23 A: Yes. 24 Q: All right. Did you have it in 25 anticipation or did you consider that to provide those funds,

1 MFP would have to buy a hedge for two (2) years to be able to 2 provide you those funds later on at 4.76 percent? 3 A: I never thought about that issue. 4 Q: All right. Now, I want to refer you to 5 your evidence that at or about the time of February of 2000, 6 MFP was anxious, I think were your words, to lock in the 7 rates because they wanted to include it in their March 31 8 year end; do you recall that testimony? 9 A: I think I've trying to -- I've been 10 referring to it as a quarter end, but, okay. 11 Q: Well the year end of March -- or MFP is 12 March 31 -- 13 A: All right. 14 Q: -- so it may be a quarter end, but it 15 happens to be their year end as well. 16 A: Okay. Correct. 17 Q: And I'm going to ask you whether or not, 18 in your experience as a CMA or as an accountant, how the 19 commitment to provide funds could be included in revenue, let 20 alone earnings at that point in time? I'm confused by that 21 and I'm wondering why that didn't raise a red flag for you, 22 because I don't see how that works? 23 A: Well, that's a different line of business 24 than I'm in and that's something that I -- I can't answer 25 because that's how MFP would run their business. I don't

1 know the answer to that question. 2 Q: So, MFP was giving a commitment to lend 3 you money for 4.76 percent and that somehow translates into 4 revenue and earnings and you're not quite sure how? 5 A: No. Because they -- how they did their 6 accounting was not something I looked into. 7 Q: And you weren't interested as a 8 professional to ask how -- how they did that? 9 A: No. I'm not a taxation expert. 10 Q: All right. Did you review, at any time, 11 the quarterly reports for MFP and did that earnings stream 12 appear, or did you do that? 13 A: I -- I didn't have any reason to review 14 their quarterly earnings stream. I wasn't looking to invest 15 any money in them. 16 Q: And you weren't looking to learn a little 17 bit more about your partner and his financial status or 18 capability? 19 A: No. 20 Q: Okay. I just want to refer to a few more 21 pages in your day-timer, the next one would be December 2. 22 23 (BRIEF PAUSE) 24 25 Q: And the reference there would be to your

1 discussions with Mr. McFarlane. 2 3 (BRIEF PAUSE) 4 5 MR. COMMISSIONER: What was the date, I'm 6 sorry? 7 MR. FRASER BERRILL: December 2. 8 MR. COMMISSIONER: December 2. 9 10 (BRIEF PAUSE) 11 12 THE WITNESS: Okay, that would be Kent 13 McFarlane from KPMG? 14 15 CONTINUED BY MR. FRASER BERRILL: 16 Q: That's right. 17 A: Okay. 18 Q: Is he the individual that had done the 19 business plan initially that you picked up from? 20 A: He had started the financial plans, let's 21 put it that way. 22 Q: Right. 23 A: Yes. 24 Q: And you were talking to him at that point 25 in time about debt servicing?

1 A: Yes. 2 Q: That's your notation? 3 A: Yeah. 4 Q: Did you mention to him the rates that you 5 were using at that point in time? 6 A: I can't specifically recall that, but 7 when you look at the rates that he was using, they were 5.5 8 percent or the phase 2, or the ultimate model component. So 9 he would have got that information from me, yes. 10 Q: And that was -- yes, that was based on 11 information you gave him. Did he say anything at that point 12 in time about the favourability of the rate at 5.5 percent? 13 A: No, I can't recall any opinion that he 14 expressed with respect to that rate. 15 Q: None whatsoever? 16 A: No. 17 Q: And January 11th is the next reference. 18 And I won't be referring to as many pages as My Friend, Mr. 19 Caskey, did. 20 January 11 there's a reference, a term letter. 21 And can you tell me what was in contemplation on January 11th 22 with respect to that note? 23 A: It was I guess -- it was one of the items 24 that we discussed, but I don't have any recollection of what 25 the specifics were of that discussion.

1 Q: Can I refresh your memory to suggest that 2 perhaps what was in contemplation was a letter that would set 3 out the terms of the financing? 4 A: Okay, yeah, I will agree with that. It's 5 a letter that had some of the details of the financing 6 arrangement. 7 Q: All right, and was there ever a letter 8 produced, or one expected? 9 A: It was not a point that we had discussed 10 at subsequent meetings to my recollection, no, and I don't 11 think I've ever seen a sheet like that. 12 Q: So the anticipation of a term letter was 13 -- was lost from and after that point, in any event? 14 A: Yeah, in my recollection I can't remember 15 discussing it either that day or any other day, but obviously 16 we did, I've made a note of it, so I -- 17 Q: All right. 18 19 (BRIEF PAUSE) 20 21 Q: The next page in your day-timer is -- is 22 February the 3rd. 23 24 (BRIEF PAUSE) 25

1 Q: Can you tell me what is meant by the 2 expression in your notes half way down, _Will indemnify 3 City.", And then I can't decipher that -- "Tax changes don't 4 flow through." 5 Or I imagine it's if, or -- 6 A: No, so. 7 Q: -- so -- so tax -- can you tell me what 8 is meant by -- by that? 9 A: Well I think we had some -- some 10 questions as to whether, if we structured a deal based on a 11 tax scheme and if the tax legislation changed, then who would 12 be bearing the risk of that. And Mr. Robson was indicating 13 that once they had an opinion, then moving forward any 14 changes to the tax legislation would not be at the risk of 15 the City. 16 Q: So there was some concern that you were 17 going to bear some risk with respect to the tax change, and 18 therefore you were seeking an indemnity from MFP. 19 A: I'm not sure we were seeking an 20 indemnity, we -- we raised it as an issue and I -- I believe 21 the way the discussion went was that Mr. Robson said MFP 22 would provide an indemnity to that effect. 23 Q: And that gave you some solace, some 24 comfort? 25 A: Well I think that -- yeah, that would

1 have been of benefit to the City to receive that document. 2 Q: Okay. And -- and the assumption that you 3 must have had in your mind at that point in time was that the 4 City was somehow at risk with respect to tax changes? 5 A: Well, we didn't know that's why we were 6 asking the question. 7 Q: Right. And -- and if -- I guess that's 8 the point, you didn't know if you had liability or not? 9 A: That's right. 10 Q: And if you understood the deal somewhat 11 better at that point in time, in any event, you would have 12 known whether or not you had liability? 13 A: Well, I can't answer that question. 14 Q: All right. 15 A: It's a hypothetical question. 16 Q: If you had an expert advising you that 17 was independent, that was your own, you would know whether or 18 not you had liability? 19 A: Yeah. They certainly would have 20 expressed an opinion one way or another. 21 Q: And the indemnity that you would be 22 seeking from MFP in the event that you did have risk would 23 only be as good as MFP was? In other words, if MFP went 24 bankrupt, the indemnity would not be worth anything? 25 A: That seems reasonable to me. I -- I

1 can't really comment on it though. 2 Q: It's okay. It's not a trick question. 3 A: Okay. I don't see any reason why that 4 wouldn't be the case. 5 Q: All right. The next reference, and it's 6 my second last reference, is to May the 5th and as I 7 understand it, and the Commissioner may have asked the 8 question, I can't quite recall, MFP got a tax opinion that 9 the City of Waterloo owns the park, I imagine that means the 10 park? 11 A: Yes. 12 Q: Could you explain that to me because I'm 13 at a loss to understand what that means? 14 A: Well, I think this relates back to the 15 earlier inquiries that we had had regarding the parking 16 garages, in terms of who actually owns the asset. And 17 Mr. Robson was indicating that the City of Waterloo was going 18 to continue to own the asset here, in this case. 19 20 (BRIEF PAUSE) 21 22 Q: The last reference is to May 29th and it 23 -- and it seems to me that, at that point in time, you're 24 starting to question in your discussions with Mayor 25 Woolstencroft whether or not tax law does apply to you?

1 A: This is of the year 2001, just to be 2 clear. 3 Q: I'm sorry. That's right. 4 A: Okay. So what's your question again? 5 Sorry. 6 Q: My question is, what was being discussed 7 with respect to the comment "can't transfer tax pre-benefit 8 to a taxable group (ownership)"; what did you mean by that? 9 A: Well, I was -- I don't think I was 10 meaning anything, I was copying down what Mayor Woolstencroft 11 was explaining and so this meeting took place after the 12 articles had appeared in The Record and those articles were 13 addressing the legality of such a tax scheme and implying 14 that it wasn't legal to start with. 15 Q: And then at the very bottom you say 16 "legal opinion not obtained"; do I mean -- do you mean a 17 legal opinion with respect to the legality, if you will, of 18 the transfer of tax losses? 19 A: Yes. The City didn't obtain a legal 20 opinion. 21 Q: And at that point in time, you're aware 22 that Windsor had the same transaction that you did or the 23 same style transaction? You say above that "Windsor - same 24 deal"? 25 A: Well, that's the information that

1 Mayor Woolstencroft would have been telling me. But, again, 2 I wouldn't have had access to those documents to verify that. 3 Q: I see. So any information you have is 4 from Mayor Woolstencroft then with respect to this? 5 A: Yeah. This is what -- this is the 6 information she was relaying to me. 7 Q: Very good. And -- and basically all of 8 this was new to you at this point in time? 9 A: Yes. As I've stated, I had been away 10 from the project for a number of months and now I was getting 11 involved again and -- and Mayor Woolstencroft was sharing 12 some information that she had obtained as a result of the 13 papers in the article. 14 Q: All right. 15 A: What did I just say? I think the 16 articles in the paper. Sorry. 17 Q: Now, I'm not sure that I asked you this 18 -- this question, but if you took all of your payments in the 19 spreadsheets, at least the final one that you did and, 20 presumably, the final one that seems to be in evidence in 21 August, that those payments should equal the payments that 22 you would expect to find in Schedule B? 23 A: Can we turn to that one? 24 Q: By all means. 25 A: Okay.

1 Q: Are -- are you turning to Schedule B or 2 are you turning to -- to the August -- 3 A: No, I'm looking -- 4 Q: -- spreadsheet? 5 A: -- for the August spreadsheet which must 6 be in here somewhere. Oh, here it is, it's at tab 95. 7 MR. COMMISSIONER: That's Exhibit 18. 8 MR. FRASER BERRILL: That's correct. Volume 9 2 of addendum -- 10 MR. COMMISSIONER: Thank you. 11 THE WITNESS: Could you pose your question 12 again please? 13 14 CONTINUED BY MR. FRASER BERRILL: 15 Q: My question is, that if you compared the 16 payments that were listed as operating lease payments in the 17 spreadsheet to your financial model, they should compare 18 favourably with the payment -- the payments provided for in 19 Schedule B of the sub lease? 20 A: Yes, I agree with that. 21 Q: All right. And that Ms. Card or Ms. 22 Whittaker or yourself or anyone at the City, could simply 23 pick up Schedule B and pick up this spreadsheet, compare the 24 two (2) and to see whether or not they were offset? 25 A: You should be able to do that comparison,

1 yes. 2 Q: Right. Can you tell me who was charged 3 with the responsibility at the Region of doing that kind of 4 thing at any point in time? 5 A: The Region? 6 Q: Sorry, at the City, of doing that kind of 7 thing? 8 A: I don't know -- I don't know of anybody 9 that was charged with that. At the time that this 10 spreadsheet was last phased in August, we hadn't received the 11 -- the schedule to the sub lease, I believe. 12 Q: So as soon as you received the schedules 13 for the sub lease, you would expect that someone would take 14 that schedule and compare it with the work that had been done 15 on the financial model, the spreadsheet? 16 A: That's a reasonable assumption to make. 17 Q: Those are my questions, Mr. Commissioner, 18 with the exception of one last question, and that is, Mr. 19 Friedel, is it appropriate that you should take any 20 responsibility for the misunderstanding which -- which 21 occurred on the part of the City with respect to their 22 obligations under the head lease/sub lease? 23 A: I think looking back, everybody could 24 have done something different to have avoided this situation. 25 For me personally, I think when I asked Ernst and Young to

1 undertake their investigation in the autumn of 1999, if I 2 would have asked them to continue to look into the tax 3 structure of the deal, I think something may have come to 4 light at that point. So that's certainly one decision that 5 if -- if I'd made differently, could have impacted the 6 outcome of this situation. 7 But I must also say that I think as I've 8 pointed out, when I -- when I interpret the schedule in the 9 sub lease it seems to me that it's purposely designed to be 10 -- to be deceptive and when -- when there's one party trying 11 to deceive another party, that makes it a challenge sometimes 12 to find all the details out. 13 Q: Thank you, Mr. Friedel, those -- those 14 are my questions. 15 MR. COMMISSIONER: All right, thank you. Mr. 16 Stevens, are you going to be next? 17 MR. KIRK STEVENS: Yes. 18 MR. COMMISSIONER: All right, we're going to 19 take fifteen (15) minutes then. 20 THE REGISTRAR: The City of Waterloo Judicial 21 Inquiry now stands recessed for fifteen (15) minutes. 22 23 --- Upon recessing at 11:45 a.m. 24 --- Upon commencing at 12:07 p.m. 25

1 THE REGISTRAR: The City of Waterloo Judicial 2 Inquiry is now resumed, please be seated. 3 MR. COMMISSIONER: Mr. Friedel...? 4 MR. KIRK STEVENS: Good morning, Mr. 5 Commissioner, Mr. Friedel. 6 7 CROSS-EXAMINATION BY MR. KIRK STEVENS: 8 Q: Mr. Friedel, I first want to discuss with 9 you your view that Schedule B has two (2) interpretations, 10 the first being one that would take you to an overall sum of 11 a $112 million, and the second interpretation that sums to 12 $227 million. 13 To go through that exercise, I'd ask you to 14 turn to three (3) things, tab 98 of your addendum, Exhibit 15 19, which is Mr. Fleming's replication of Schedule B. I'm 16 doing that just because it's convenient, I understand this is 17 also at tab 50 of Mr. Stockie's. If you have Exhibit 19, 18 that would be good. 19 I've also had distributed, a sheet which I'll 20 take you through, called Schedule B Explained, and that has 21 two (2) sides to it, so if you can just have those three (3) 22 things it might go a little quicker. 23 MR. JAMES CASKEY: Mr. Commissioner, I think 24 then that Schedule B Explained ought to become Exhibit 24. 25 MR. COMMISSIONER: Okay, Exhibit 24.

1 --- EXHIBIT NO. 24: Document called Schedule B 2 Explained. 3 4 CONTINUED BY MR. KIRK STEVENS: 5 Q: And, Mr. Friedel, if we could take a look 6 at Schedule B, the -- and I'm looking at the definition after 7 the first six (6) years. The first part of that definition 8 reads: 9 "Rent for each month over the course of the 10 remaining term of the lease, ending on the 11 30th of September, 2031." 12 So the purpose of the exercise you'll agree 13 with me, is to calculate the rent for each, or in other 14 words, any month from January 2007 to September 2001 (sic); 15 is that right? 16 A: Yes, it's a monthly lease. 17 Q: Okay. And for the -- the sake of the 18 discussion here, we'll call that number X. Do you follow 19 that? 20 A: Sure. 21 Q: Okay. Then we'll pick a month, any 22 month, and I'm suggesting 2008. So the next key words we 23 have to look at are: 24 "Shall equal one twelfth of the sum." 25 Follow that?

1 A: Yes. 2 Q: And then I ask myself the question, the 3 sum of what? And, Mr. Friedel, would you agree that the 4 first component of that sum is, and I'm quoting from Schedule 5 B again, quote: 6 "The immediately preceding annual rent." 7 Which is said in other words to be the rent 8 paid in the immediately preceding calendar year. So that's 9 the first component of the sum; right? 10 A: Yes. 11 Q: And we can call that for later purposes, 12 R. Now in this example, since we're calculating the rent for 13 2008, am I right in saying that in this example the rent that 14 we're talking about, that R would be the rent for 2007; 15 right? 16 A: Well I think that's where there's a 17 difference of interpretation, but -- 18 Q: Well let's go over that. It says: 19 "The immediately preceding annual rent." 20 Now, we're selecting -- we're solving for the 21 rent in the year 2008, we have to take a look at the year 22 2007; is that right. Is 2007 the year preceding 2008? 23 A: It is the year preceding 2008. 24 Q: Okay. Then the second component of the 25 sum is indicated to us by the words "plus the current year

1 differential"? 2 A: Yes. I'll agree with that. 3 Q: And we call that "D" right? 4 A: Okay. 5 Q: Now, we'll just leave aside for the 6 moment how to get D, but right now then we've got a formula. 7 So, the rent for any month, X, is one twelfth of the sum of R 8 and D? 9 A: Yes. 10 Q: Right? 11 A: Yeah. 12 Q: And when we're multiplying fractions, we 13 really can also divide by the denominator; it's the same 14 thing, right? 15 A: Yes. 16 Q: So it would be R plus D over 12? Now, 17 how do you get to D? Well, the rest of the Schedule B tells 18 us that, right. And D is the differential for the current 19 year, and in our example it's 2008, shall be determined by 20 multiplying the previous year's differential, again in our 21 example 2007, by 1.013223? 22 A: Yes. 23 Q: You follow that? 24 A: Yes. 25 Q: Okay. So the problem then is, at this

1 point, you don't know what the differential is for 2007; 2 right? 3 A: Yes. 4 Q: But, the solution is also given in 5 Schedule B where it says "the differential for the year 2006 6 shall be $347,641.71"? 7 A: Yes. 8 Q: You follow that? 9 A: Yes. 10 Q: And so therefore the current year 11 differential for 2007 if we're computing that is the figure 12 347,641.71 times the 1.013223 and that brings us to $352,239; 13 right? 14 A: Yes. 15 Q: And once we go through that then we're in 16 a position to solve the current differential for 2008; is 17 that right? 18 A: Yes. 19 Q: And if you go through that calculation 20 you get $356,896; right? 21 A: Yes. 22 Q: Now, once we have that, we also have the 23 rent for 2007 and the way to get that would be to get the 24 rent for 2006 which we know is $3,700,000; right? 25 A: Yes, we do.

1 Q: Okay, add the 352,239 and you get 2 4,052,239 and now, finally, we're in a position where we can 3 solve for X. Just like we used to do in Grade 8 or 9 math; 4 right? And you'll agree with me that X is the rent for 2007 5 plus the differential for 2008 and you add those two sums 6 together the 4,000,000, the 356 and you get the 367,428; 7 right? 8 A: I agree with the way you've done the 9 arithmetic, but I don't agree with your calculation of the 10 rent for 2007. 11 Q: Okay. Could you explain? 12 A: I believe that the -- I'm not going to 13 argue with your interpretation of the formula because I agree 14 that's one it can be interpreted. 15 But I -- I think that in the context of the 16 information that we had from MFP at the time and the way they 17 were suggesting to us how to interpret the -- 18 Q: Well, okay let's -- let's -- let's just 19 leave that aside. Okay. We're coming to this formula 20 without any preconceived motions -- notions. Will you agree 21 that the way I've gone through it is the way that you've 22 essentially done it on the third sheet of your Tab 98? 23 A: Yes. I agree that's the way I did the 24 calculations and I'll also agree that if people were coming 25 at this with no preconceived notions, that's likely the

1 answer that they would come to. 2 Q: Thank you. And just to tidy up here, if 3 we could just look at Exhibit 19 itself, Box 1, and this was 4 Mr. Fleming's calculation? 5 A: Yes. 6 Q: Would you agree with me that the problem 7 with that calculation is that it multiplies last year's 8 annual rent by one twelfth or divides by 12 but it does not 9 divide the current year differential by 12? 10 A: Yes, I agree with that. 11 Q: Okay, thank you. Now, you -- you've -- I 12 just want to nail this down. Is there any wording that you 13 can point to, in Schedule B, leaving aside what MFP was 14 telling you, that would justify making the rent for 2006, the 15 base rent in every year, to 2031? 16 A: No, there's no specific language that 17 says that's the case. 18 Q: Thank you. Now, I'd like to just go to 19 the June 4th, 2004 meeting. I think you indicated in your 20 examination by Mr. Caskey, that you and Mr. Ford left the 21 meeting after the fourteen (14) column spreadsheet was 22 produced, right? 23 A: Yes. 24 Q: And that's the spreadsheet that sums to 25 $227 million?

1 A: Yes. 2 Q: Now, what -- what happened? You and Mr. 3 Ford went downstairs? 4 A: Mr. Ford left the room first and I 5 followed him, yes. 6 Q: Okay. And where did you go? 7 A: Mr. Ford went to his office to retrieve a 8 piece of paper. 9 Q: Okay. And what was on that piece of 10 paper? 11 A: I believe it was a copy of the -- the 12 interpretation of the schedule in the sub lease, that he had 13 faxed to Mr. Robson earlier on. 14 Q: Right. And that schedule summed to $227 15 million, was that correct? 16 A: No, I don't believe that's the case, but 17 I didn't see the -- the numbers on his spreadsheet. 18 Q: Okay. My understanding is, that Mr. Ford 19 will say, that he first did the calculation and came to $227 20 million, is that not correct? And subsequently, Mr. Robson 21 explained to him that that was not the way to do it. Is that 22 right? 23 A: I wasn't part of that conversation, so 24 I -- I don't think I'm qualified to -- 25 Q: Okay.

1 A: -- comment on it. 2 Q: All right, so we'll leave that -- we'll 3 leave that alone. 4 You will agree with me, I think you -- you 5 said in your examination in-chief, that between May 30th and 6 June 4th, 2001, when you were aiming to calculate the sub 7 lease payments, you were attempting to get them to mirror the 8 head lease, right? 9 A: Yes. 10 Q: And that was the pre-conceived notion 11 that you were bringing to the interpretation of Schedule B? 12 A: That's right. 13 Q: Okay. Now, tab -- if I could just refer 14 you to your diary entry, tab 99? And I'd just like to go to 15 June 4th of 2001. If you look over to the right side of the 16 page, you referred in your testimony to the last note, just 17 above 8:30 a.m. tomorrow morning, and that refers to _Wayne- 18 question, re: are the payment streams the same?_ 19 A: Yes. 20 Q: Am I correct in saying that, that note 21 reflects that Mr. Steffler was still a bit puzzled, at that 22 point, about the two (2) leases not mirroring each other? 23 Or, am I misinterpreting that? 24 A: No, I believe Mr. Steffler was making 25 that statement, at the meeting, that we had specifically

1 asked MFP the question of whether they should mirror each 2 other. 3 Q: Right. I see, okay. Go to the left side 4 of the page, your note at 4:00 p.m. Does that reflect the 5 actual time you met with Mr. Stockie that day? 6 A: No, I don't think it does. I was at -- I 7 was already at home after work, when Mr. Stockie called me. 8 Q: Okay. So then, am I correct in -- in 9 surmising that, when you arrived at the meeting, Mr. Stockie 10 and you didn't have time to go over the events that -- that 11 Mr. Stockie experienced that day, in talking to people at 12 Clarica, Mr. Astley's call, and -- and Mr. Robson's reaction 13 to that, right? 14 A: Certainly not in -- in any great level of 15 detail, he did provide some explanation as to that Clarica 16 would be -- sorry, that Clarica was going to be there and so 17 on, but not -- not in a great level of detail. 18 Q: Okay, did you discuss it afterwards with 19 Mr. Stockie and go into more detail? 20 A: I'm not sure that was a discussion we had 21 just between the two (2) of us, or if it would have been 22 something that would have involved a larger group of people. 23 Q: Okay, but at some point it was Mr. 24 Stockie mentioned to you that there was something about a 25 confidentiality agreement between MFP and Clarica?

1 A: I'm not sure if it was Mr. Stockie that 2 mentioned it, or if it came out of an issue during the 3 meeting with MFP, Clarica and City staff -- 4 Q: Okay, that's -- that's what I -- I -- I 5 wanted to get at. You're not sure whether that is something 6 that you're reconstructing, or whether there was a reference 7 to it made at the meetings? 8 A: Yeah, I can't tell you exactly when I 9 learned of that specific issue. 10 Q: Okay, I just wanted -- wanted to 11 establish that. 12 A: Certainly I didn't -- 13 Q: But certainly -- certainly Mr. Cameron at 14 that meeting, was urging MFP to produce what -- what's called 15 the fourteen (14) column spreadsheet; right? 16 A: Yes, he certainly was. 17 Q: Okay, and -- and it's very possible that 18 you had discussions afterwards in which the idea of a 19 confidentiality agreement got into your mind, and then in 20 retrospect you're reinterpreting his actions as being 21 consistent with that; right? 22 A: Yeah, I don't know when I found out about 23 it, yes. 24 Q: Okay. 25 A: But -- but it was -- it was clear to me

1 that there was some issue, because even at the time that Mr. 2 Cameron produced the fourteen (14) column spreadsheet, he 3 didn't himself give it to us. 4 Q: Right, okay, and what the issue was may 5 not have been the confidentiality agreement, that -- that's 6 the point that I'm just trying to make? 7 A: Yeah, I -- I couldn't tell you -- 8 Q: Okay. 9 A: -- if I knew about it at that time. 10 Q: Right, yeah, right, my information is 11 there's no specific confidentiality agreement. 12 A: Okay. 13 Q: With it. I think Mr. Cameron can explain 14 that. 15 A: Okay. 16 Q: You described Mr. Cameron in your -- your 17 examination-in-chief as being agitated; right? 18 A: Yes, I did. 19 Q: Is angry a good word to describe his 20 demeanour? 21 A: I don't think I would describe it as 22 angry, I would say more frustrated at the lack of openness 23 from MFP. 24 Q: I see, okay, thank you. 25 A: But --

1 Q: Now you say that you had calculated that 2 if you were going to play a round of golf at the Grey Silo in 3 2031, that the price would be three hundred and ninety-seven 4 dollars ($397); right? 5 A: Based on a number of assumptions that I 6 had made -- 7 Q: Okay. 8 A: -- yes, but roughly speaking it would be 9 in that -- I believe it would be somewhere in the three 10 hundred dollar ($300) range. 11 Q: Okay, and I just want to make -- make it 12 clear, this was not the material from MFP that you had 13 reviewed, you extrapolated from that -- 14 A: That's right, I -- I -- 15 Q: Okay. 16 A: -- I took this sheet home and did some 17 calculations at home. 18 Q: Right. Now you were asked how things 19 might have been different, and I -- I just want to go into 20 that a little bit with you. One of the things you said was 21 that you had a -- a different style than Mr. Ford, and I was 22 just wondering if you can elaborate on that, and explain what 23 you meant by that comment? 24 A: Well I think you can -- you can see from 25 a lot of the exhibits in terms of the numbers and so on, that

1 I -- I tend to get into the details of things. And Mr. Ford 2 tends to be more of a high level person, and -- and deal more 3 in generalities than specifics. And -- and so that was a bit 4 of conflict in the way we approached problems. 5 Q: I see, okay. I think that you had 6 described that your understanding of the way that the tax 7 aspect worked as -- as being at a quote _high level." 8 unquote. Is that -- 9 A: Yeah -- 10 Q: -- that right? 11 A: -- that's right, yeah, I believe I said 12 that. 13 Q: And that was in reference to the -- the 14 capital cost allowance mechanism? 15 A: That's right. 16 Q: I mean I don't mean to be sarcastic here, 17 but instead of quote "High level." unquote. In retrospect I 18 think you'd agree with me that a more appropriate adjective 19 would be general? 20 A: Okay, I -- I have no reason to disagree 21 with that. 22 Q: Or vague? 23 A: General is good. 24 Q: Okay. Now you said that Ernst and Young 25 had never been given a specific mandate to look into how the

1 -- the tax structure might work. But I think you did suggest 2 at one point in your evidence, that E & Y could have been 3 looking out more for the City's interests because the 4 dealings with MFP were reported in the media? 5 A: I certainly didn't engage them to do a 6 more specific investigation of the taxation issue. 7 Q: Right. 8 A: Okay. So I can only speak to what the 9 actions I took. But, yes, I did say that they are members of 10 the community and certainly the information was out there. 11 Q: Okay. 12 A: So there would have been that 13 opportunity, yes. 14 Q: And I'm sort of interested in that 15 because some answers given by a previous witness suggested 16 that Clarica may have been more alert, but, like that other 17 witness, I trust that you don't read the Chronicle or 18 The Record every day as well; right? 19 A: Well, I tend to read the Chronicle. It's 20 a weekly paper. 21 Q: Okay. 22 A: But I cer -- I don't read The Record 23 every day. No. 24 Q: Okay. Now, you also testified that in 25 the period of May 30th to June 4th you -- you met a reporter,

1 I think it was Mr. Crowley, but I'm not sure of that, and you 2 commented that he had a really good question about how MFP 3 could pass on the tax saving to the City when the leases were 4 being assigned to a third party; do you remember that aspect 5 of your testimony? 6 A: I think my comments in terms of -- were 7 in terms of all his questions, not that specific question. 8 Q: Right. 9 A: But, yeah. 10 Q: In retrospect, might it have helped if 11 somebody at the City had the training or the expertise to ask 12 that basic question? 13 A: Well, certainly if we -- if we would have 14 undertaken additional analysis, we may have come to a 15 different conclusion than we came to, yes. 16 Q: I'm going to ask you this and maybe 17 you'll disagree with me, but would it be a good idea to have 18 a chartered accountant on the City's staff to look out for 19 the interests of a large city like Waterloo in the way that 20 you suggested that somebody at E & Y should have been looking 21 out? 22 A: I don't think the specific designation's 23 going to make a difference. All accounting designations are 24 in -- of a general nature and within those designations, each 25 individual can chose to specialize. So, there's -- there's

1 CA's that specialize in auditing. 2 I'm not sure a CA that specializing in 3 auditing is going to have the knowledge to -- to do what 4 you're suggesting. But if there was a CA, a CMA or a CGA 5 that had a training in -- in taxation legislation for 6 corporations, certainly they may have -- have found something 7 out. 8 Q: So, I guess, what you might be saying is 9 that the -- the best type of solution is to ask a firm like 10 E & Y which has general expertise in many areas of accounting 11 to -- to be on the lookout? 12 A: Yes. And that would be very similar to 13 Ms. Justason bringing Mr. Russudeen into the meeting and 14 saying, here's a taxation specialist that works for our firm. 15 Q: But, at least, that should be made 16 explicit or as part of -- part of the explicit retainer with 17 E & Y; is that what you're suggesting? 18 A: No. I'm not making that suggestion. 19 Q: Okay. 20 A: I'm -- I'm agreeing with you that a 21 company like Ernst & Young has specialists. 22 Q: Right. 23 A: Their retainer with the City has to do 24 with the annual audit. 25 Q: Now, I was also intrigued by your -- your

1 statement that being innovative was part of the culture of 2 the City administration; do you recall making that comment? 3 A: Yes, I do. 4 Q: And I take it that City officials spoke 5 of the need to be creative and innovative on more than one 6 occasion? 7 A: Are you speaking of elected officials 8 or -- 9 Q: I'm speaking of both elected officials 10 and administrative officials? 11 A: I think probably more so with the 12 administrative staff. 13 Q: And MFP certainly tried to portray itself 14 as being innovative and creative; is that right? 15 A: I agree with that statement. 16 Q: Now, I mean, I don't want to suggest this 17 in a sarcastic way at all, but I'm going to ask you to 18 comment on this; could it be that the self-image of City 19 officials about being innovative and creative contributed to 20 a mind set that wasn't critical or analytic enough? 21 A: In this particular case? 22 Q: Yes. 23 A: No. I don't agree with that statement. 24 Q: And why not? 25 A: I don't believe that our desire to be

1 innovative contributed to this issue -- the outcome of the 2 issue. 3 Q: Okay. You also said that it would not 4 occur to the City to ask MFP about its business practices. 5 Is that right? 6 A: If you're telling me that's what I said, 7 then I'll -- I'll agree with it, yes. 8 Q: Okay. And there's some validity to that, 9 it would be fair to say, that you wouldn't expect Clarica to 10 be too probing in that regard either, right? 11 A: I would expect that to be a -- a similar 12 type of business relationship, yes. 13 MR. KIRK STEVENS: Okay. Thank you, those 14 are my questions. 15 MR. COMMISSIONER: All right. Thank you, 16 thank you, sir. 17 All right, I guess, Mr. Stephenson? 18 MR. RICHARD STEPHENSON: Thank you, sir. 19 20 (BRIEF PAUSE) 21 22 CROSS-EXAMINATION BY MR. RICHARD STEPHENSON: 23 Q: Good afternoon, Mr. Friedel. I -- I just 24 wanted to ask you one question, by way of clarification, 25 regarding the debenture issue.

1 You indicated to Mr. Berrill that it was your 2 understanding that the region was able to offer debentures of 3 up to a thirty (30) year term by way of a combination of 4 serial debentures and some form of a sinking fund. Is that 5 correct? 6 A: That's what I said. 7 Q: Okay. We've also heard that, typically, 8 debentures call for a straight line repayment schedule, and 9 indeed, that's what you used in -- in some of the scenarios 10 we reviewed this morning. Is that correct? 11 A: Generally speaking, yes. 12 Q: Do you have any information, one way or 13 the other, with respect to the availability of any form of a 14 debenture through the region, on something other than a 15 straight line repayment basis? 16 A: Yes, it could be stepped. 17 Q: Okay. And -- and when you say "stepped", 18 can you just assist us in terms of what you mean by that? 19 A: Well, you could have -- because you're 20 looking at a serial and a debenture -- a serial and a sinking 21 fund, you could have different payment streams under, sort 22 of, the first one and the second one. 23 So, under the serial, you may have a certain 24 repayment of, let's say, $4 million, and then under the 25 sinking fund you may have a repayment of $5 million,

1 annually, so there's a step at year eleven (11). 2 So to a certain degree, it's structured but 3 not as heavily structured as -- as the lease payments were. 4 Q: Okay. Thank you. You were asked 5 questions by Mr. Berrill with respect to, I guess it was 6 really the issue of -- of the balance that the City has 7 struck, in terms of cost responsibility as between users 8 and -- and taxpayers. And he was using the example of the 9 Waterloo Rec Centre comparison. 10 And as we've discussed previously, you did an 11 analysis which indicated that on an annual basis, they had a 12 tax impact of a very similar amount, as -- as was expected 13 of -- of this project, correct? 14 A: Yes. 15 Q: But, just so I understand, in terms of a 16 total tax impact of that project, from beginning to whenever 17 the project is paid off, is the tax impact of the Waterloo 18 Rec Centre similar to what was anticipated for this project? 19 A: Well, if you're looking at the -- the 20 amount related to debt, the answer is, no, because the debt 21 issued on the -- the Rec Centre is ten (10) year debt. So, 22 we would require the tax support for ten (10) years, whereas 23 the debt on this building would be over thirty (30) years. 24 So on a nominal basis, there would be a vast difference 25 between those two (2) numbers.

1 Q: In fact, it would be about three (3) 2 times the size, on a nominal basis? 3 A: Roughly speaking, yes. 4 Q: Can I ask you to turn up the May 26th 5 letter from Mr. Robson to Mr. Ford? And I know that that is 6 at Exhibit 9, tab 33. It may also be in your material, and 7 I'm not sure where it is. 8 A: I have it here. 9 Q: Okay. 10 MR. COMMISSIONER: Can you tell me where it 11 is? 12 MR. RICHARD STEPHENSON: Yes, you can -- 13 maybe you can help me? 14 THE WITNESS: I'm looking at Volume 2 of 3 15 for Mr. Stockie's. 16 MR. RICHARD STEPHENSON: Okay. 17 THE WITNESS: And it's tab 33. 18 MR. RICHARD STEPHENSON: I was close. 19 20 (BRIEF PAUSE) 21 22 CONTINUED BY MR. RICHARD STEPHENSON: 23 Q: And I guess, the -- the first question I 24 have -- 25 MR. COMMISSIONER: Exhibit 9?

1 MR. RICHARD STEPHENSON: -- is -- 2 MR. COMMISSIONER: Okay. 3 4 CONTINUED BY MR. RICHARD STEPHENSON: 5 Q: -- and this letter isn't addressed to 6 you. At what point in time were you -- did you -- did you 7 see it for the first time? 8 A: The first time I can actually remember 9 seeing it would be probably May of 2001. But I may have 10 received a copy earlier than that. 11 Q: All right. Were you -- notwithstanding 12 when you actually saw the document, did you become -- can you 13 assist us in terms of when you became aware, generally 14 speaking, of the content of the letter? 15 A: Well I certainly would have been in 16 contact with Mr. Ford about the rate. And to me, in terms of 17 this document, that's the most critical portion. It speaks 18 to a rate of 4.76 percent, which is what I would have been 19 using in my modelling. 20 Q: All right. And do you recall if you were 21 aware of the hundred and eighty (180) day issue, at any point 22 during, say, 2000? 23 A: No, I -- I don't have any recollection of 24 that hundred and eighty (180) day period. 25 Q: All right. Looking at it, in -- in -- in

1 May of 2001 or indeed I suppose now, I wonder if you can 2 assist me because you were asked to speak about what this 3 letter says and doesn't say. In terms of the hundred and 4 eighty (180) day issue, as I see it, that appears in the 5 second paragraph and it -- that paragraph says in part: 6 "If there's a further reduction in the 7 equivalent term Government of Canada Bond 8 rate on -- upon closing, MFP will re-price 9 the transaction accordingly. If there is 10 an increase in the rate, MFP will hold the 11 circled rate for one hundred and eighty 12 (180) days from the circling." 13 Can I just understand how you understand that 14 letter in terms of what does the hundred and eighty (180) day 15 figure apply to? What aspects of this commitment? 16 A: Well I believe they're saying that they 17 will not raise the rates for a hundred and eighty (180) days. 18 Q: Now if at a hundred and eighty-one (181) 19 days, just to pick a number, after the date of the circling, 20 the Government of Canada Bond Rate is lower than it had been 21 on February 22nd, okay, just make that assumption? 22 A: Yes. 23 Q: Does that -- what rate would MFP be 24 obliged to offer on your reading of this letter? 25 A: I believe the letter indicates that they

1 are -- they would be passing that reduction on to the City. 2 Q: And if it was the same, as it had been 3 back on February the 22nd, what would the rate be? 4 A: It would be the same. 5 Q: Being 5.78 minus a hundred and two (102)? 6 A: That's right, 4.76 percent. 7 Q: Okay. So at -- on your understanding of 8 that commitment, was MFP in a position to simply raise the 9 rates regardless after a hundred and eighty (180) days, 10 irrespective of what the Can -- the Government of Canada Bond 11 Rate was at the time? 12 A: In terms of what's in this letter, no, I 13 don't believe that's the case. 14 Q: All right. 15 16 (BRIEF PAUSE) 17 18 Q: I'll just get you to turn up at Exhibit 19 17, tab 23. 20 21 (BRIEF PAUSE) 22 23 A: Is that my material? 24 Q: Yes, it's your -- 25 A: Okay.

1 Q: -- it's your -- it's volume 1 of your -- 2 your documents, Mr. Friedel. 3 4 (BRIEF PAUSE) 5 6 Q: And when Mr. Berrill was asking you some 7 questions in terms of the rates that MFP had been discussing 8 with the City, he referenced this document and referred to 9 the fact that it was characterized as rates that MFP has been 10 talking about and if you look at the -- 11 A: I've got the wrong document. Sorry. 12 Q: Okay. All right. 13 A: It's seventeen? 14 Q: I'm at Tab 23 -- 15 A: Oh sorry. 16 Q: -- Volume 1, Exhibit 17. 17 A: So that's Corp/Fin 00-17 18 Q: Yes, exactly. 19 A: Okay. 20 Q: And obviously you saw this document at 21 the time and you were involved in the presentation on that 22 date, generally, although not specifically with respect to 23 this report; correct? 24 A: That's right. 25 Q: Okay. The -- and I'm looking at page 2

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  1  of that document and you'll see in, I guess, the third
  2  paragraph, there's the reference there to MFP "talking about
  3  providing financing_; do you see that? 
  4                 A:   Yes. 
  5                 Q:   The second sentence in that paragraph
  6  says "The rate MFP uses and guarantees"; you see that? 
  7                 A:   Yes. 
  8                 Q:   Was the notion of a guaranteed rate
  9  something that was discussed at the February 21st meeting in
 10  the context of this report? 
 11                 A:   I can't recall whether that specific word
 12  was used. 
 13                 Q:   Okay.  Certainly this document was part
 14  of the public record as of that date? 
 15                 A:   Yes.  It was in the Council agenda. 
 16                 Q:   All right.  And, indeed, Mr. Robson
 17  ultimately received a copy of this document; is that correct? 
 18  I believe it's in the package that he gave back to you on May
 19  31st --
 20                 A:   Yeah.  You're right. 
 21                 Q:   -- 2001? 
 22                 A:   Yes.  So he must have had a copy of it. 
 23                 Q:   Okay.  When you were being asked
 24  questions this morning by -- by Mr. Berrill, at some point in
 25  time after you had finished receiving some of the scenarios

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1 that you'd spent time working on last night, you indicated to 2 Mr. Berrill that you viewed there to be other options as, if 3 I could call it, contingency financing options in the event 4 MFP wasn't able to deliver at that point in time and I just 5 wanted to give you the opportunity to assist us in -- in 6 understanding what those other options might have been? 7 A: Well, certainly in the long-term, the 8 balance between the user fees and taxation would have to be 9 re-evaluated by Council. 10 I made the assumption that it was all going to 11 come from the tax base but certainly there could have been a 12 decision made to raise user rates, not only in this facility 13 but across the City to offset some of those additional 14 obligations, so that's a funding source which I would 15 consider to be user fees. 16 In the short-term, we certainly have access to 17 a line of credit at the bank that we can -- we can use to 18 provide bridge financing and also the -- I should be -- make 19 it clear that although the contracts had been signed for the 20 -- the building in September, the actual construction that 21 had happened on this site was extremely minimal. 22 So, while there would have been some financial 23 implications to going back and having discussions with PCL 24 about phasing or something like that, it was certainly an 25 option available to us.

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1 Q: And it was not obvious -- obviously it 2 wasn't explored because the issue didn't come up? 3 A: That's right. I should also point out 4 that there was money set aside in the capital budget for this 5 project. So it wasn't as if we hadn't planned for some 6 expenditure to happen and that was already taken into account 7 in the broader context of our capital projections. 8 Q: All right. Also, from Mr. Berrill this 9 morning and I don't know that you need to turn it up, but he 10 showed you a Bank of Canada print out that dealt with the 11 inflation over the past thirty (30) years; do you recall 12 that? 13 A: Yes. 14 Q: Okay. And I think you'd indicated to him 15 that you -- while you recognised that that might be an 16 approach that could be taken in terms of engaging in some 17 forecasting of future inflation, it wasn't an approach that 18 you necessarily adopted or felt was appropriate? 19 A: No. I didn't feel it was appropriate. 20 Q: And can you assist us as to why you 21 wouldn't have felt that was appropriate? 22 A: Well, I -- I don't think inflation 23 follows cyclical patterns, based on a number of decades. 24 It's -- it's tied more to other factors. And some of them 25 are certainly ones that we don't even know anything about,

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1 and we're still learning about that, in the field of 2 economics, I believe. 3 And -- and whatever projection you use for 4 inflation, you're making some assumptions there. 5 Q: Okay. Now, if I could then get you to 6 turn up, I believe it is Exhibit -- just one moment, please. 7 Exhibit 20, which is your reconciliation spreadsheet? 8 A: Yes. 9 Q: Now, insofar as -- and -- and this 10 document, as I understand it, is -- is, essentially, a -- a 11 presentation you prepared, based upon what the -- the -- the 12 spreadsheet, which indicated the $227 million total lease 13 payments? 14 A: Yes. 15 Q: Okay. And, as you've indicated in your 16 previous evidence, one of the things you did was to take the 17 -- the various revenue projections from the various aspects 18 of the park and then work out a percentage increase, on an 19 annual basis, for each of those components. Is that correct? 20 A: Yes, I did. 21 Q: Okay. Now, insofar as the revenue 22 increase from the park was related to general inflation in 23 the economy, if I can use that expression, the -- the -- the 24 inflation rate akin to the CPI, okay? 25 Would it be reasonable to expect, then, that

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1 the inflation rate applicable to revenues from each of the 2 components, should have been more or less the same number? 3 A: Yes, because that -- the approach we take 4 with respect to our user fees, when we set then during the 5 budget process, is to take that into consideration. 6 Q: Okay. If you were basing this on, again, 7 inflation out in the economy, is there any reason you can 8 think if, why you would apply a -- a -- an inflation rate to 9 golf and -- and ice, in the range of 7 to 8 percent, on an 10 annual basis, and to soccer and banquet, at 2 percent? 11 A: No, there isn't. 12 13 (BRIEF PAUSE) 14 15 MR. RICHARD STEPHENSON: Bear with me one 16 moment, if you will? 17 18 (BRIEF PAUSE) 19 20 CONTINUED BY MR. RICHARD STEPHENSON: 21 Q: Okay. I just wanted to deal with the 22 Schedule B of the sub lease issue for a moment. And, if I 23 could, I'd ask you to turn up, in Mr. Stockie's document 24 brief, at tab 50, the -- 25 MR. COMMISSIONER: I have it here.

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1 MR. RICHARD STEPHENSON: -- the actual sub 2 lease? 3 MR. COMMISSIONER: It's Exhibit 9? 4 MR. RICHARD STEPHENSON: That would be 5 Exhibit 9. Thank you, Mr. Commissioner. 6 7 CONTINUED BY MR. RICHARD STEPHENSON: 8 Q: Have you got that, Mr. Friedel? 9 A: Yes, I do. 10 Q: You reviewed this document at some point 11 in time, as I understand it, starting in late May of 2001? 12 A: Yes. 13 Q: And that was the first time you saw it? 14 A: Yes. 15 Q: And -- and I just want to follow up on 16 some of the questions that My Friend, Mr. Stevens, asked you. 17 First off, as I -- as I'm reading through here, and I'm now 18 looking at the -- the paragraph which follows the -- the -- 19 the stipulated year's end payments? 20 A: Yes. 21 Q: Okay. The first thing I would note is 22 that, in the -- the third and fourth line, the reference is, 23 "The sum of the immediate preceding annual 24 rent (the rent paid in the immediately 25 proceeding calendar year.)"

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1 Do you see that? 2 A: Yes, I do. 3 Q: Am I just right, that that's a typo? 4 Proceeding cannot be proceeding, it's in fact supposed to be 5 preceding? Just as it is in the prior line? 6 A: It could be, I'm not sure if it has a 7 different meaning or not. 8 Q: Okay. Did that issue affect your 9 interpretation of this document in any way, or did you even 10 notice it? 11 A: Well I certainly noticed it. And I think 12 it -- it adds to the general sort of ambiguity of the -- of 13 the sentence, yes. 14 Q: Okay. Now -- 15 MR. COMMISSIONER: I take it you ignored it 16 and considered it to be preceding? That word? 17 THE WITNESS: No, I wouldn't say that. In 18 order to do the calculation and come up to a $112 million, 19 you need to include the immediately preceding year, which 20 would be 2006. 21 22 MR. RICHARD STEPHENSON: I was just about to 23 get to that. 24 MR. COMMISSIONER: Okay. 25

107

1 CONTINUED BY MR. RICHARD STEPHENSON: 2 Q: And as I see this document, there are a 3 list of years specifically enumerated in it, it starts in 4 2001 and ending in 2006 -- 5 A: Yes. 6 Q: -- correct? And then there's some text 7 which then follows with the -- the expression, I just 8 referred to in the third line, of: 9 "The immediately preceding ann --" 10 Sorry, the -- sorry: 11 "The immediately preceding annual rent." 12 Do you see that? 13 A: Yes. 14 Q: And if -- if you are looking for annual 15 rent in this document, what is the immediately preceding 16 annual rent? 17 A: That would be the rent paid during the 18 year of 2006. 19 Q: Okay, and if again in terms of the 20 immediately proceeding calendar year, whatever -- whether 21 that proceeding or preceding, in this document what is the 22 immediately preceding annual -- the immediately proceeding 23 calendar year? 24 A: 2006. 25 Q: All right, so do I understand it

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1 correctly that the -- the ver -- the -- the interpretation of 2 this document that gets you to one hundred and twelve (112) 3 is you simply read the words immediately preceding annual 4 rent and immediately proceeding annual -- calendar -- 5 calendar year, in fact back to the last year which is 6 actually referred to in the document, which is 2006? 7 A: Yes, that's right. 8 Q: And that number generates out 112 million 9 and change; is that correct? 10 A: Yes, that's right. 11 Q: All right. Now I just wanted to make 12 sure that I -- I -- I understood the issue that you were 13 raising in terms of the consequences of these two (2) 14 readings. 15 The -- the hundred and twelve million eight 16 hundred number, is as I understand it, based on your 17 calculations, the -- the -- the sum of the head lease rents; 18 is that correct? 19 A: Yes. 20 Q: All right. And if you in fact read this 21 schedule as we've just described, you wind up at a 22 112,900,000? 23 A: That's right. 24 Q: All right. And then as Mr. Robson I 25 gather explained to you at some point in time, in fact what

109

1 you need to do is not inflate the rent -- the rent in 200 -- 2 A: Seven (7). 3 Q: -- seven (7). All right. 4 A: You don't inflate the differential. 5 Q: Inflate the differential in 2007. And if 6 you do that you wound up at exactly a 112 million eight 7 hundred; is that correct? 8 A: Yes, it is. 9 Q: And can you think of any reason as a 10 random element or coincidence or what have you, that that 11 interpretation could lead to precisely that number? 12 A: No, I can't. 13 Q: And in terms of, as I understand it, the 14 rents in the head lease are expressed on an -- a monthly 15 basis? 16 A: Yes, they are. 17 Q: And if you do this calculation in the -- 18 in the fashion suggested to you by Mr. Robson, you -- the 19 total is the same, you've indicated that. Is -- are the 20 totals the same in the individual years? 21 A: I believe that they are, yes. 22 Q: Are the totals the same in the individual 23 months? 24 A: I believe that they are, yes. 25 Q: And do they come down to the dollar?

110

1 A: Yes. 2 Q: And is there any rational explanation for 3 that based on coincidence or happenstance? 4 A: None that I can see. 5 Q: And so you -- you're -- the conclusion 6 you drew as a result of that -- that -- that -- the matching 7 up of these two things was what? 8 A: Well, the conclusion I drew was that the 9 formula was designed to be interpreted two different ways so 10 that depending on what party MFP was speaking to, they would 11 interpret it in the -- in the appropriate manner to -- to 12 derive the total payments that they were suggesting to that 13 party. 14 Q: And now I just want to turn to the 15 information that was provided to Council or was available to 16 Council with respect to the sub lease rent -- or, at least, 17 you business plan projections of what the sub lease rents 18 would be and as I understand it, the information they had was 19 as follows. They had the complete detail of your financial 20 plan spreadsheets in the first version which was back in 21 January of 2000; is that correct? 22 A: All except for one tab which was the cash 23 flow tab. 24 Q: Okay. And in that -- that's the one 25 that, in fact, would allow you, with a little arithmetic, to

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1 come up with the total lease payments; is that correct? 2 A: That's right. 3 Q: All right. So, even at that stage, they 4 had only the detailed lease payments for years one (1) to 5 five (5); correct? 6 A: Yes. 7 Q: And they also knew about your assumption 8 with respect to the inflation effect in years 2006 going 9 forward; correct? 10 A: Yes. I think that's something we would 11 have explained to Council. 12 Q: All right. And in terms of the -- the 13 May business plan that they get, in essence that's exactly 14 the same information they get at that point in time? 15 A: It's the first five (5) years. Yes. 16 Q: The first five (5) years plus inflation? 17 A: After that, yes. 18 Q: Yeah. And so, again, to a -- to a 19 curious person, the information was available to figure out 20 what the total might be? 21 A: The calculations can be done, yes. 22 Q: And did Council ever express any 23 particular interest or make a particular request with respect 24 to knowing what the total nominal lease payments were 25 anticipated to be over the course of the -- of the lease?

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1 A: Yes. I believe they made that request to 2 staff. 3 Q: Okay. And can you assist us with, sort 4 of, the time frame for that? 5 A: Well, I think it would have been during 6 the -- the first five (5) months of 2000. 7 Q: Okay. And was that information provided 8 to them? 9 A: Yes. 10 Q: Okay. And -- 11 A: Basically we said in the neighbourhood of 12 $100 million because there were still some variables that 13 weren't fixed yet. 14 Q: Okay. And in the -- in the -- in terms 15 of the last version of your business plan -- or the financial 16 plan, pardon me, which gets printed in -- in -- in August of 17 -- of 2000, had any of these numbers materially changed from 18 the May numbers? 19 A: Not from my perspective. No. 20 Q: Okay. Now, one moment, there's one more 21 document I want to take you to. If I could just get you to 22 turn up in Volume 3 of your materials and it's Tab 77 I'd 23 like to get you to turn up. And that is the article from The 24 K-W Record, February 22, 2000. Do you have that? 25 A: Yes, I do.

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1 Q: And -- and that is a report the day after 2 the Council meeting on February the 21st, and is essentially 3 reporting on that Council meeting and its output, correct? 4 A: Yes. 5 Q: Okay. And if I could just take you to 6 the second page, left hand column, halfway down that column, 7 a statement is made, 8 "When interest is factored in, the City 9 expects to pay about $100 million to MFP 10 over thirty (30) years, said John Ford, the 11 City's Finance Commissioner." 12 So, is it fair to say that that $100 million 13 ballpark estimate is out in the public domain as early as 14 February 22nd? 15 A: Yes, it is. 16 Q: And within -- that -- that $100 million 17 number, in terms of your subsequent financial planning, did 18 that remain a good ballpark estimate, in terms of the total 19 cost? 20 A: Yes, it did. 21 Q: All right. 22 23 (BRIEF PAUSE) 24 25 Q: And then, in the next column, the first

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1 full paragraph, there's a quote there, from Councillor 2 Strickland. He says, 3 "We're looking at creating a facility 4 that's going to be ten (10) times what the 5 Rec Complex is" 6 At a similar operating cost, Strickland said. 7 So, it -- it appears that Councillor Strickland had a 8 particular interest in that item, is that fair to say? 9 A: Yes, he did. 10 Q: And -- and that dovetails back to the -- 11 the report that you provided to Council, at his request, 12 comparing the cost of those two (2) facilities? 13 A: Yes. 14 Q: Is that fair? 15 A: That's right. 16 17 (BRIEF PAUSE) 18 19 MR. RICHARD STEPHENSON: Those are my 20 questions, thank you, Mr. Friedel. 21 MR. COMMISSIONER: Thank you very much. Mr. 22 Caskey, do you have any questions? 23 MR. JAMES CASKEY: I have no questions, sir. 24 MR. COMMISSIONER: All right, thank you. 25 Mr. Friedel, thank you very much. You're

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1 three (3) days is up and I'm sure you'll be happy with that. 2 THE WITNESS: Yes. 3 4 (WITNESS STANDS DOWN) 5 6 MR. COMMISSIONER: All right, we'll recess 7 now until 2:15. 8 THE REGISTRAR: The City of Waterloo Judicial 9 Inquiry is now stands adjourned until 2:15 p.m.. 10 11 --- Upon recessing at 1:05 p.m. 12 13 --- Upon resuming at 2:22 p.m. 14 15 THE REGISTRAR: The City of Waterloo Judicial 16 Inquiry is now continuing. Please be seated. 17 MR. COMMISSIONER: Thank you. 18 MR. JAMES CASKEY: Mr. Commissioner. My next 19 witness is Mayor Woolstencroft. 20 MR. COMMISSIONER: All right. Thank you. 21 MR. JAMES CASKEY: Mayor Woolstencroft 22 please. 23 MR. COMMISSIONER: Good afternoon Madam 24 Mayor, I wonder if you would just stand there for a moment 25 and listen to the clerk.

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1 LYNNE WOOLSTENCROFT, Sworn: 2 3 MR. JAMES CASKEY: Mr. Commissioner, I 4 propose to ask the Mayor a number of questions and to put to 5 her a number of documents that we have put in a brief, single 6 volume and I would ask that this volume become Exhibit 25? 7 MR. COMMISSIONER: All right. Exhibit 25. 8 9 --- EXHIBIT NO. 25: Brief of documents from Mayor 10 Woolstencroft. 11 12 MR. COMMISSIONER: I take it all counsel as 13 well as the witness have a copy of the brief? 14 MR. JAMES CASKEY: That, I believe is 15 accurate, sir. 16 MR. COMMISSIONER: The press is back there 17 without one and are they to have one? The efficient 18 Ms. Hocking will see that your requirements are satisfied. 19 MR. JAMES CASKEY: She will be back shortly, 20 I'm sure. 21 MR. COMMISSIONER: I'm sure you can begin. 22 MR. JAMES CASKEY: If I may begin then, 23 Mr. Commissioner? 24 25 EXAMINATION-IN-CHIEF BY MR. JAMES CASKEY:

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1 Q: Mayor Woolstencroft, I understand that 2 you live in Waterloo? 3 A: I do. 4 Q: And that your date of birth is 5 September 23, 1943? 6 A: That is correct, unfortunately. 7 Q: It's better than the alternative, let me 8 assure you. You're presently the Mayor of the City of 9 Waterloo? 10 A: I am. 11 Q: And you became the Mayor as of December 12 the 1st of 2000? 13 A: That's correct. 14 Q: From 1985 to 1991 you were a City and 15 Regional Councillor being appointed to the Regional Council 16 in 1986? 17 A: That's right. 18 Q: 1997 to 2000 you were one of three (3) 19 Regional Councillors on the City of Waterloo Council? 20 A: Yes. That's correct. 21 Q: Mayor Woolstencroft, if I can take you 22 back to 1998, there were a number of initiatives that were 23 out there, in so far as the City of Waterloo was concerned, 24 in relation to recreation and leisure and by way of 25 prompting, there was a citizens group and there was also the

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1 -- the needs initiative on the part of the City of Waterloo. 2 From your perspective as a Councillor at that 3 time, would you be good enough to tell us what you knew of 4 those initiatives by those groups? 5 A: May I take you back one step? 6 Q: Absolutely. 7 A: Regional Councillors are -- those 8 Councillors who ran at large were considered to be Regional 9 Councillors first and City Councillors second and we were a 10 very important link between the two (2) tiers. 11 Some Regional Councillors took more active 12 roles in City government, and some took less. I was aware of 13 two (2) things, I was very much aware of the citizen's 14 committee, that was looking at recreation needs in 1998. It 15 was a continuation of needs that had been addressed as far 16 back as 1991. 17 I was also aware that the City engaged a 18 company to make an assessment, and I was very interested in 19 their assessment. 20 Q: In -- in what specifically, from your 21 perspective, were the needs that you were going to be able to 22 address, both regionally and perhaps in the City? 23 A: There had long been a sense that the City 24 was not adequately addressing its own recreation needs. And 25 in fact, from time to time, skirmishes broke out between the

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1 cities of Kitchener and the Township of Woolwich. And I -- 2 I'm sorry, the cities of Kitchener and Waterloo, and the 3 Township of Woolwich and Waterloo. 4 Q: All right. 5 A: And those skirmishes were not, perhaps, 6 very well known except when it came to library service. 7 Q: Of course, nothing will be said more. 8 A: Thank you. I'm going to really try to 9 restrain myself. 10 But the City of Kitchener eventually exacted a 11 fee on the City of Waterloo, for -- for library service. The 12 citizens of Waterloo who wished to buy -- borrow books from 13 KPL, had to pay a fee. 14 Q: All right. 15 A: So that was one of the areas of -- of 16 significant interest to me. 17 The second thing was that -- that we knew that 18 we had two (2), it seemed, diametrically opposed trends going 19 on. The first was that we had an increase, we were one of 20 the few communities in the province, with an increase in 21 youthful population, and we also were becoming something of a 22 retirement destination. 23 So we knew we had needs for both age groups, 24 active seniors being a very important part, and young people 25 who did not have adequate ice time, court time, recreation

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1 facilities. 2 Q: And, what did you know of the citizens 3 committee? What involvement did you have, and -- and -- of 4 their initiative? 5 A: I'm very involved with a number of 6 citizens groups, and one of them was the minor soccer. I 7 wasn't an official member of minor soccer, I just happened to 8 play bridge with a few people who are involved in minor 9 soccer. And so I was really well aware of that. 10 I was well aware of the needs in minor hockey. 11 I knew very well that we had a problem with -- with a number 12 of fields for sports, such as -- as baseball. And I knew 13 that there were older people who were very keen to have, not 14 just slow pitch, but fast pitch baseball. 15 So, I was aware of the citizens group from, I 16 suppose, a broad range, if you will. 17 Q: All right. If I could take you to the 18 first tab in your brief, which is Exhibit 25? And it's a 19 notice of an in-camera meeting of April 19th of 1999, at tab 20 1. 21 A: Yes, sir. 22 Q: And -- yes. And it talks in terms of -- 23 of the discussion on the 19th of April, relating to the 24 Millennium Sports Complex. You'll see that, there? 25 A: Yes.

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1 Q: And -- and, at that point in time, back 2 in April of 1999, what was your knowledge of the Millennium 3 Sports Complex? 4 A: What I knew was, that there had been a 5 very well known person who headed up a community group to 6 look at Millennium gifts, if you will. And that came under 7 the Recreation and Culture Program, and -- or Department. 8 And Ms. Norman had, on behalf of that committee, reported to 9 Council a number of, I think, weeks before, a list. And 10 amongst those things was a multi purpose recreation park, 11 which became fondly known as the Millennium Recreation 12 Complex. 13 Q: All right, now I take it you and Council 14 were aware of -- of the land that was available in the 15 entire -- 16 A: Yes. 17 Q: -- City of Waterloo for any recreation or 18 sports facilities. Where were you going to put this complex? 19 As a City Councillor you much surely have turned your 20 attention to that as well? 21 A: Absolutely, and in fact that's one of the 22 -- one of the duties of a Councillor is to try to answer the 23 needs and wants of the community against the desires of -- 24 and ability of the community to pay. 25 So we -- we were looking in both east and west

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1 for land to -- to purchase within the City limits. 2 Q: Right, and -- and did anything, from your 3 perspective, appear as -- as a likely area that -- that could 4 be developed for this purpose? 5 A: Well I was on the Grand River 6 Conservation Authority, and I knew that there was land out 7 here that was proposed to become an active gravel operation, 8 and to expand. And that quite concerned me in terms of the 9 growth of the City in this direction. 10 So I was aware that there were properties that 11 were for sale, or perhaps not for sale, I think that our CAO 12 had to go out to some of the people who owned farms in this 13 area, and actually talk with them about whether they would be 14 prepared to sell. 15 Q: All right, and -- and your CAO was Mr. 16 Stockie? 17 A: Yes. 18 Q: All right. What instructions did Council 19 give to Mr. Stockie in relation to any sports complex, was -- 20 was there specific instructions to -- 21 A: Well and I'm talk -- I -- I have to 22 confess that my knowledge of this is not particularly 23 detailed, but I believe that in April we sent Mr. Stockie and 24 I think Mr. Eichinger out to make conditional offers on some 25 of the farm lands.

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1 Q: All right. And -- and do you recall 2 whether or not it was in the area of this in-camera meeting 3 that that sort of discussion would have taken place? 4 A: I'm sorry, Mr. Caskey, I wouldn't want to 5 say definitively, but I believe that it was in this time 6 frame. 7 Q: All right, if we could go to tab 2, it is 8 a -- a minute, some of the minutes of the -- of the meeting 9 of April 21 of 1999? 10 A: Yes. 11 Q: Special meeting of Council held at the 12 Waterloo Inn? 13 A: Yes. 14 Q: That's -- that's not the usual place that 15 you hold meetings of Council? 16 A: No. 17 Q: All right, why was it that you were at 18 the Waterloo Inn? 19 A: There was a -- a special meeting called, 20 which requires special notice from the Clerk and the Mayor, 21 and that was because it was the amateur sports dinner night, 22 and there had been a kind of, I don't know whether you'd call 23 it stagy, or dramatic, but we wanted to roll out our plan for 24 the community to see. And there -- before I got there, I 25 understand there'd been a slide show, showing the lands and

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1 -- and then we held the meeting. 2 Q: All right, and I noticed that -- that 3 number 2 under presentations is in fact the Millennium Sports 4 Project that was demonstrated. 5 If I go to page -- the second page, which was 6 3386, at the top -- 7 A: yes. 8 Q: -- and -- and at this point in time 9 Councillor Woolstencroft arrived and took -- took her seat. 10 Is -- is the announcement there at the top? 11 A: Yes. 12 Q: The matters that are discussed here, the 13 report, CAO-99-03, and I take it that's Mr. Stockie's report? 14 A: Yes. 15 Q: All right: 16 "That the City Council proceed with its due 17 diligence to acquire lands for the 18 Millennium Recreation Project." 19 And that's in -- in keeping with making the 20 commitment to go ahead on this site, I take it? 21 A: Yes. 22 Q: Or close to it? 23 A: Yes. 24 Q: All right. And then you're going to get 25 RH & L Architects with a -- with a fee assessed for the

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1 purpose of the building site plan in consultation with the 2 various stakeholders, and in talking of the various 3 stakeholders, I take it that included the community group and 4 others? 5 A: It actually became broader, as I 6 understand it. But, again, I'm not positive. I believe 7 that, in fact, the executive of each of the minor sports 8 groups was to be involved. 9 I believe that the 55 plus advisory committee 10 was to have a discussion about this Millennium Recreation 11 Project. 12 Q: Good. So there was going to be a lot of 13 community input? 14 A: Yes. 15 Q: All right. The third thing, the 16 JF Group, what did -- what did the JF Group do for you? That 17 was an evaluation -- 18 A: It was an evaluation -- it was an 19 evaluation. I do not know what the -- the name JF stands 20 for, but I do know that they did give us an evaluation and 21 they took a look at how quickly we could design and build 22 such a project, what kind of financing we would have to 23 expect and how much we could expect to, in ballpark figures, 24 receive in revenue that would offset the operation costs. 25 Q: All right. And then the 5(a) is the

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1 establishment of a non-profit organization and I take it that 2 was going to be, more or less, the codification of this 3 Citizens Committee? 4 A: And the Citizens Committee, that 5 particular non-profit group was headed up by two (2) people, 6 one of them was Dan Scott and Dan has already testified and I 7 thought admirably explained what that non-profit group was. 8 Q: All right. And Mr. Gladwish, I think, 9 was the other person who was involved? 10 A: Bill Gladwish was the other person. 11 Q: All right. 12 A: And he had been a senior in one of the 13 accounting companies locally, I'm sorry I don't know which 14 one. 15 Q: KPMG, if I recall? 16 A: Okay. 17 Q: And then the other items there, you're 18 going to define the role of the Not-For-Profit and you're 19 going to have Council representation in the persons of 20 Mr. Anderson and Mr. Roeder, from the staff Mr. McFarland and 21 Mr. Stockie, they would be on it and so you'd have your input 22 both through administration and your elected members? 23 A: Yes. And Councillors Anderson and Roeder 24 especially had very good connections with local sports 25 groups.

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1 Q: Good. And then you were also going to 2 look at -- at raising some money from the community so that 3 there was community involvement, even aside from those that 4 paid their taxes? 5 A: And that was a very important component 6 for the -- the Council. We wanted to have fund-raising go on 7 in the community. 8 Q: If I go to the next report which is at 9 Tab 3, it's June 21st of 1999 and, as I see it, the 10 recommendation coming from Mr. McFarland is that -- that any 11 conditions that were placed on the purchase of the parcels of 12 land out here be waived so that you go ahead as a 13 municipality and acquire those lands, regardless of what the 14 -- the lawyers wanted by way of conditions? 15 A: That's right. 16 Q: Get the property, we want to demonstrate 17 we're going ahead? 18 A: Yes. 19 Q: All right. And then you were going to 20 carry out an environmental impact study and you're going to 21 have request for proposals from a golf course architect and, 22 in your initial concept, was a golf course something that you 23 thought about? 24 A: I don't recall when I actually started to 25 think about a golf course. I think it's pretty well-known

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1 that much of my community involvement has had an 2 environmental flavour to it, Mr. Caskey, and -- and so the 3 word golf course contiguous to a river is a little 4 problematic. 5 So I became very interested in the potential 6 to build a golf course. 7 Q: All right. So I take it that if that 8 were to have impacted negatively on your environmental 9 situation, you would not have been in favour of it? 10 A: This -- this part of the river had been 11 compromised by having cattle break down the banks. I was 12 aware of flora and fauna that had been destroyed by the 13 farming activities. So it also gave us a chance to 14 rehabilitate the property. 15 Q: So it wasn't all bad? 16 A: Oh, no. 17 Q: Okay. Now, the next document that I've 18 got, Mayor Woolstencroft, is at document number 4. And it's 19 an in-camera meeting in January 24, 2000. So there's a long 20 time between June 21st of 1999 and -- and January, 2000, and 21 a lot of things happened in that time? 22 A: Yes. 23 Q: I take it, the land was acquired? You 24 had reports on the scope of the project, that could go ahead? 25 A: The potential for phases.

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1 Q: Yes, indeed. And was there -- was there 2 any discussion that you recall, in that time frame, in 3 relation to how you were going to finance this project? 4 A: Between September and January? 5 Q: Well actually, it's between June of 1999 6 and January of 2000. Do you recall anything coming to you, 7 as a Councillor? Or, did you make any assumptions about how 8 this project would be financed? 9 A: I think that probably, I -- I made an 10 assumption that we would try to be as responsible as we 11 could, so I was thinking, debentures. But, we also had a 12 history of being entrepreneurial, as a Council, and for 13 certain, the province had given a direction that we were to 14 find creative ways to -- to answer the needs of our 15 community. 16 So, you've asked me a more direction question 17 than that and I want to be fair to you. I don't, truly -- I 18 don't recall anything coming to me -- 19 Q: All right. 20 A: -- as a Councillor. 21 Q: All right. Do you recall anything coming 22 to you as a Councillor, in relation to the First Gulf, or the 23 development of the parking garage downtown? 24 A: I remember the proposal for the 25 development of the parking garage downtown. I -- I think --

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1 I -- I don't recall the financing of that, particularly. 2 Q: All right. Was there anything about this 3 project, aside from what you've talked about, the 4 environmental issues, that -- that gave you any particular 5 concern as the reports were coming in from your 6 administration, and as you got community input, was there -- 7 were there any red flags that were going up, for you, in this 8 period of time? 9 A: No, and I -- I have a pretty good 10 relationship with some members of staff. So, I would have 11 thought that if there were red flags, I would have been made 12 aware. 13 Q: All right. If we can, then, go to tab 14 number 4? It is a notice of, again, an in-camera meeting for 15 January 24th, 2000, re the Millennium Recreation Project. 16 And I notice that the copies of this, from Mr. 17 Dobbs, went to you, to Mayor McKinnon, to Members of Council, 18 which included you, to the senior management team, to William 19 White and to Pamela Helmes-Hayes. 20 Would you make any assumptions, when you saw 21 those other people to whom it went, in relation to what this 22 meeting was all about? 23 A: Well, if Pamela Helmes-Hayes, who was 24 then the Executive Assistant to the Mayor, was called, and 25 William White, who was the solicitor for the City, was

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1 called, then I would make the assumption that we were going 2 to be discussing something legal. 3 Q: Okay. And I take it, you don't have a 4 present recollection of what that was about, at that time? 5 A: I don't. 6 Q: Okay. If we go, then, to tab number 5. 7 This is a memorandum that comes to you from Mr. Friedel. And 8 at that point in time, do you recall what Mr. Friedel's 9 position was with the municipality? 10 A: I'm very foggy about when Mr. Friedel 11 moved from Team Leader in the Finance Department, to 12 Assistant -- to -- to the Chief Administrative Officer. 13 Q: All right. That's fine, he's given his 14 testimony as to that. 15 If we could look, then, at this memorandum, 16 he's saying to Mayor and Council, 17 "Attached is the Millennium Recreation 18 Project business plan, for an in-camera 19 meeting, January 24th. City staff and the 20 Not-For-Profit Board have worked together 21 to produce this plan. Included in the 22 appendices are the NPO by-laws and the 23 proposed operating agreement between the 24 City and the NPO Board. Please note that 25 this is a draft document for discussion."

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1 And I take it then this would come to you in 2 your package as a Council member? 3 A: Yes. 4 Q: All right. And -- and without asking you 5 what's in it, if we go to the next tab, which is tab 6, this 6 is a PowerPoint Presentation that I take it would have been 7 made to the Council and that -- that you then would have been 8 part of that information? 9 A: Yes. 10 Q: It's noted on the top, January 24th, 11 2000, file MRP Project. Do you recognize that handwriting at 12 the top? 13 A: No, sir. 14 Q: It's not yours? 15 A: No, it's not. 16 Q: All right. I take it then this was the 17 business plan 2000 that was presented to Council in 18 PowerPoint form in January 24 of 2000? 19 A: Yes, and there was -- my recollection is 20 that the role of the NPO Board was the object of some 21 discussion. 22 Q: All right, because that is in fact the 23 first matter of tonight's decision, is the role of the NPO 24 Board, and there were some problems for Council in relation 25 to an NPO Board, if it was in fact going to own the land?

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  1                 A:   Yes, sir.
  2                 Q:   Okay, would you give me your perspective
  3  on that please?
  4                 A:   There have been sports parks that have
  5  been successful in this community that are privately owned,
  6  but there have not been, to my knowledge, a sports park that
  7  is owned by a sports group and operated by a Municipality,
  8  that has been successful.  And there was a concern, I
  9  believe, from not only the Councillors, but perhaps -- I'll
 10  speak on behalf of the Councillors.
 11                 There was concern that the Council would lose
 12  some control of not only the bills but the kind of operation
 13  that it would become if -- if we simply had somebody else own
 14  it and -- and -- and we leased it, so to speak.
 15                 Q:   Okay.  And if -- if we then look on the
 16  second page of that, 3433 at the top.
 17                 A:   Yes, sir.
 18                 Q:   The operating options.  
 19                 A:   Yes.
 20                 Q:   Public/private partnership, City owned
 21  and operated, Not-For-Profit partnership and then the first 
 22  -- well, before that is that they don't recommend a
 23  public/private partnership to the Council?
 24                 A:   Right.
 25                 Q:   And I take it that was something that the

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1 Council was prepared to accept that recommendation? 2 A: I can't speak on behalf of any other 3 Councillor, I just know that I was not in favour of the 4 public/private partnership. 5 Q: All right. And ultimately it was 6 determined that it wouldn't be owned by the Not-For-Profit 7 Organization? 8 A: Yes, sir. 9 Q: And so then you come down to -- and there 10 are advantages and disadvantages, I take it, all the way 11 around? 12 A: Absolutely. 13 Q: And it's up to you as a Council member to 14 weigh those and do what you think is in the best interests of 15 the Municipality and the taxpayers? 16 A: Right. 17 Q: All right. At the end of the day, as I 18 understand it, at your Council meeting on the 24th, a 19 decision was made that you would not have a Not-For-Profit 20 Organization run it, the City would own it and run it and you 21 would create an advisory? 22 A: Yes. 23 Q: All right. 24 A: And many of the members who were on the 25 Not-For-Profit Board, became members of the Advisory

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1 Committee. 2 Q: Right. 3 A: But not all of them. 4 Q: No, I -- I take it that they were given 5 the option and opportunity to continue with their -- their 6 service? 7 A: Yes, sir. 8 Q: And those that decided to stay on did and 9 those that decided that they'd done their duty said thanks, 10 but no thanks? 11 A: Yes. 12 Q: Okay. If we could go to 3436, Mayor 13 Woolstencroft, under financing. Now under this point in time 14 in -- in January of 2000, you hadn't heard very much, I take 15 it, in relation to financing or if you had, it wasn't 16 something that was really of concern to you at that point? 17 A: It didn't rise to the radar. 18 Q: All right. The other issues had taken 19 your attention -- 20 A: Yes. 21 Q: -- I take it? 22 A: Yes, they had. 23 Q: All right. If we take a look at this 24 report, it talks in terms of financing, donations of 5 25 million, that was the -- the --

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1 A: Original -- 2 Q: -- the fund-raising initiative? MFP 3 operating lease, had you ever heard of MFP before this 4 document came to your attention? 5 A: Not that I recall. 6 Q: All right. And did you have any idea of 7 what they were talking about when they talked about an 8 operating lease? 9 A: I didn't, at that time, no. 10 Q: Did anybody explain to you at that 11 meeting what was meant by operating lease? 12 A: Sir, I can't recall. 13 Q: All right. Then the third bullet on that 14 is "City support of $1.127 million annually for operating and 15 capital"; I take it that was explained to you? 16 A: Yes. It was explained in relation to the 17 kind of financing that we had gone through in a project that 18 I'd been aware of and that is the Memorial Recreation 19 Project. 20 Q: All right. Known as the WRC? 21 A: Yes. 22 Q: Right. So, I take it that that -- that 23 said to you that this project, if they do it on the basis 24 they're talking about, is going to require tax payer support 25 of something in excess of a million one?

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1 A: Yes. 2 Q: Right. 3 A: And we're used to doing things that way. 4 Q: All right. That's part of the way in 5 which Waterloo proceeds? 6 A: Yes. We've done it with other projects. 7 Q: Right. Now, the second -- the last 8 bullet on that page, the financing, talks about Phase 2 -- 9 A: Yes. 10 Q: -- and I take it then, in the 11 presentation that -- that you were given a first phase or an 12 initial from the needs standpoint and that this was the 13 ultimate proposal that -- that if we really do well, this is 14 what we can ultimately achieve? 15 A: Yes. And it was for more skating pads, 16 more soccer fields. I think perhaps more baseball fields. 17 Q: All right. And at that point, I take it 18 as well, that the golf course was something that was very 19 much a reality in the minds of the -- the people putting 20 together the proposal? 21 A: Yes, sir. 22 Q: Okay. And then if I can go over to 3438 23 under "next steps" talking about January the 31st, hire a 24 project manager and for February 7th meeting, the Not-For- 25 Profit operating agreement terms of reference, at some point

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1 in time, this is before the February meeting when you've 2 ultimately decided on the advisory, but you were looking at 3 -- at the way in which you could codify that and work with 4 them? 5 A: Yes. 6 Q: All right. 7 A: To just put an editorial on it, when -- 8 whenever you had this kind of citizen initiative, you want to 9 keep their interest and their worth. 10 Q: I take it, as a member of an elected 11 body, that you rely very much on community input and you rely 12 very much on those people that volunteer their time? 13 A: We do. And, in fact, when we won the 14 award for the second most livable community just a couple of 15 weeks ago in our category out of 600 or so communities that 16 were involved in that, one of the things that the judges 17 mentioned to us was the level of involvement of our 18 volunteers. We're very proud of our volunteers. 19 Q: If I could then take you to Tab 7 and at 20 Tab 7, I take it, Mayor Woolstencroft, that -- that this is a 21 good example of the way in which reports come to Council with 22 recommendations and I see that it's a report from 23 Mr. McFarland and Andrew Friedel, it's in relation to the 24 advisory committee terms of reference; that it's for a 25 Council meeting February 21st and the report itself is dated

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1 the 16th. 2 But when I look down in the bottom left corner 3 I see "Director, Bob McFarland and Chief Administrative 4 Officer, T.B. Stockie_, Tom Stockie; what do those signatures 5 at that bottom left tell you about the information that 6 you're getting? 7 A: When I receive reports like this, I know 8 that the director of the department has not only vetted the 9 actual report, but has had Team Leader meetings and has 10 called in people to -- to talk about that issue. And when 11 Tom Stockie signs a report, although I have very rarely 12 attended senior management team meetings, it's my assumption 13 that he's been through a higher level discussion, and is 14 aware of -- of what is contained in the report, and approves 15 of the direction. 16 Q: All right. So that -- that it's a, if 17 you will, a sign off by them, that -- that says, this is for 18 your action and we approve of it? 19 A: Yes, sir. 20 Q: Is that a fair -- 21 A: Yes. 22 Q: -- comment? 23 A: It is. 24 Q: All right. 25 A: Yes.

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1 Q: So that what you're getting, then, 2 from -- from Mr. McFarland and Mr. Friedel, here, is a 3 recommendation that there be a Millennium Recreation Project 4 Advisory Committee, which is a change in direction from that 5 which was initially contemplated? 6 A: As I understood it, the NPO was 7 incorporated. And the Advisory Committee reports directly to 8 Council. 9 Q: All right. And it -- it, then, has -- 10 has representation, as you pointed out, from -- from both 11 sides? 12 A: Yes. 13 Q: All right. 14 A: But, the ultimate responsibility lies 15 with the Council, when it becomes an Advisory Committee. 16 Q: Right. If we go, then, to tab number 8. 17 This is a report. And I take it, when I look at the bottom 18 left, that it -- it's in draft form because this one doesn't 19 appear to be signed by Mr. Stockie or by -- that might be Mr. 20 Trushinski's initial at the bottom, but I don't think so. 21 Is -- is that a fair characterization, that -- 22 that matters that come to you without any signatures at the 23 bottom, are in draft, only? 24 A: Would you -- would you say the question, 25 again, please?

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1 Q: Yes. If -- if I look at the bottom 2 left -- 3 A: Yes. 4 Q: -- I'm looking for the Director's 5 signature -- 6 A: Yes. 7 Q: -- and I'm looking for the Chief 8 Administrative Officer's signatures, neither one of which 9 appear to be there? 10 A: Right. 11 Q: So, it -- it hasn't come in a final 12 form -- 13 A: No. 14 Q: -- to you? 15 A: No, it's a work in progress. 16 Q: Work -- work in progress, okay. Assuming 17 that it's -- it's something that's going to go ahead, it is 18 the Environmental Implementation Team, Terms of Reference? 19 A: Yes. And if I could just add, when 20 something comes to Council in this form, quite often, the 21 Council's discussion becomes part of the finally approved 22 report that comes back to Council. 23 Q: All right. So that you, then, would have 24 your own input into this, and -- and changes would be made -- 25 A: Yes.

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1 Q: -- before it's signed off on, by the 2 Chief Administrative Officer -- 3 A: Yes. 4 Q: -- and the Director of the particular 5 department? 6 A: That's right. So, Mr. Trushinski as a 7 Team Leader, very badly wanted to have kind of committee. 8 But, there were people within the organization who were not, 9 necessarily, sold, and they wanted to hear how Council 10 responded. 11 Q: All right. So it comes to you in that 12 form and you then have your input at the meeting? 13 A: Yes. 14 Q: All right. If we go, then, to tab number 15 9, it's dated the 18th of February, it's for your February 16 21st meeting. And it's the Millennium Recreation Project 17 financing, it's the report that comes to you from John Ford. 18 You -- you have the signature of John Ford down at the 19 bottom, along with Mr. Stockie's? 20 A: Yes. 21 Q: And, I take it that, aside from what was 22 in the -- the slide show, if you will, or the -- the 23 presentation, this would be the report that would tell you 24 what the financing was all about? 25 A: Yes.

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1 Q: The summary on the front page, it says, 2 "Part of the planning process for the 3 Millennium Recreation Project has been an 4 examination of funding sources. We have 5 examined options..." 6 A: Yes. 7 Q: If I stop right there, do you recall 8 anybody at that meeting, talking to you about the options 9 that had been examined? Or, did you just take it from Mr. 10 Ford's report that the administration had examined options, 11 and this was the result -- the recommendation was a result of 12 what they did? 13 A: I have a memory but I don't know if it's 14 of this meeting, that there was a questioning of the kinds of 15 options. But I would have thought it had come prior to this. 16 Q: All right. 17 A: Just logically, so that when Mr. Ford 18 wrote that _We have examined options for long term 19 financing." 20 That they had looked at traditional 21 debenturing -- 22 Q: Yes. 23 A: -- they had looked at sinking funds, they 24 had looked at perhaps sequential debenturing, they had looked 25 at various kinds of long term lease or long arrangements --

144
  1                 Q:   Okay.
  2                 A:   -- with various companies.
  3                 Q:   Because they are all options that are
  4  available to a Municipality, depending on what you want to
  5  achieve and the amount -- 
  6                 A:   Yes.
  7                 Q:   -- involved.  And the ability of the --
  8  of the public to -- to bear the cost?
  9                 A:   Well and it's -- it's not just to
 10  Municipal Council, Hospital Boards, Grand River Conservation
 11  Authority, other kinds of Boards that I've been associated
 12  with that are in the public domain, are often approached by 
 13  -- by groups offering various kinds of financing.
 14                 Q:   All right.  So those are all just things
 15  that -- that they appear here as having been options looked
 16  at, that you expected would have been looked at?
 17                 A:   Absolutely.
 18                 Q:   Right.  And then he goes on to say:
 19                   "We have recently been pursuing an
 20                   innovative long term financing strategy
 21                   with MFP Financial Services Limited."
 22                 And I take it aside from what he's going to
 23  say in here, at that point in time your knowledge of MFP was
 24  non-existent, you hadn't heard of them?
 25                 A:   I had not heard of them, no.

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1 Q: All right. So he goes on to tell you: 2 "It's publicly traded, providing asset 3 based financing for public and private 4 sector organizations, they tailor financial 5 solutions to specific customer needs, 6 provide innovative financial thinking in 7 partnership with customers." 8 So at that point I take it that's from the 9 culture of -- of Waterloo, that's the language that -- that's 10 going to get your attention? 11 A: The language, the precise word that would 12 get my attention is the word partnership. 13 Q: All right. So that -- that -- that's 14 sort of a -- a key to you, the work in partnership with the 15 lending institution? 16 A: Yes, because when we've, for instance, 17 had agreements with our banks, we have had to invite them to 18 come in to discuss things with us from time to time. And 19 although it's now in that order, I think it's a good thing to 20 have a partnership, because you build traditions and trust 21 with each -- 22 Q: All right. 23 A: -- through partnership. 24 Q: He tells you that: 25 "MFP provides off balance sheet financing."

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1 Did that make any sense to you at all, or have 2 any significance for you? 3 A: It -- it didn't make sense, I do know 4 what -- what it was driving at. I come from a very old 5 school where a debt is a debt, and whether it's something 6 that is on the balance sheet or off the balance sheet, it 7 doesn't much matter to me, it's got to be considered in 8 whatever financial arrangements are being made. 9 Q: And it's got to be paid? 10 A: Yes, it definitely has to be paid. 11 Q: Right. So that -- that was not a -- a -- 12 something that -- that you were going to look at as being a 13 particularly -- 14 A: Part of it is that the Province 15 ultimately decides what is on and off balance sheet, if there 16 -- if there is such a thing. 17 And I believe that the Province may decide 18 that this is not off balance sheet. 19 Q: All right. Then we talk about: 20 "Rates well below traditional debenture 21 financing." 22 A: Now, that really interested me. 23 Q: Right. Did you have an idea of what 24 traditional debenture financing would have cost the 25 Municipality at that point?

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1 A: I -- I did, Mr. Caskey, because I have 2 been Vice-Chair of the Finance Committee and Administration 3 Committee at the -- the Region, and it was my information 4 that at that time it would have cost us between a $125 and 5 $145 million to debenture this Park. 6 Q: All right, and that's what -- that's what 7 your information from the Region told you? 8 A: Well, I've actually tried to find the 9 person I spoke with. It was such an informal conversation 10 that that person doesn't recall it, so I am loathe to mention 11 a name, but I did have that conversation. 12 Q: All right. 13 A: And that's why I knew the range. 14 Q: And so this, I take it, was very 15 attractive to you as a Councillor? 16 A: Absolutely. 17 Q: All right. Although structured in the 18 form of a lease, the effective rates are even below typical 19 business lease rates; again, something that was attractive to 20 you as a -- as a member of Council responsible for the public 21 purse? 22 A: Yes, sir. 23 Q: All right. They talk about the work in 24 -- in process here with Waterloo, a number of discussions in 25 relation to cash flows and things of that sort and begun to

148

1 work very closely with your staff, which, I take it, was in 2 keeping with the partnership aspect? 3 A: Yes. 4 Q: All right. Second page of that, 169, it 5 goes on to -- to tell you of the repayment side model is 6 being developed, could match annual lease payments to 7 operational cash flows. Again, important to you? 8 A: Yes, because there are two very different 9 kinds of repayment schedules. One is operations and the 10 other is capital and they -- in everything that I've ever 11 done in public life, whether it was school board or on 12 councils or on hospital boards, they are very, very different 13 pots of money and they have very different repayment 14 implications for the body. 15 Q: All right. And I take it that to be able 16 to match those flows together was -- was something that was 17 attractive? 18 A: Yes, sir. It was. 19 Q: So what it meant was the annual payments 20 under the lease agreement could be structured to meet the 21 business cash flows and increase over the years as the use of 22 the facilities peaked and as the operational efficiencies 23 materialized, that was the advantage to Waterloo? 24 A: It was because it meant that the present 25 population did not have to bear the full brunt of the -- of

149

1 the debt, that it could be geared to the growth of the 2 community which had been at approximately two (2) to two (2) 3 and a half percent per year and had reliably gone through 4 that kind of growth for a long time. 5 So that the assessment base then could be an 6 instrument to pay off this loan. 7 Q: Now, Mr. Ford is telling you that -- he 8 says, "in our discussions", being the administration's 9 discussions, 10 "... with MFP, MFP has been talking about 11 providing financing for the Millennium 12 Recreation Project at interest rates in the 13 low 5 percent range." 14 Had you ever heard of rates like that being 15 available to any municipality, regionally or at Waterloo 16 A: Well, ever in my political life is a long 17 time, Mr. Caskey. 18 Q: I appreciate -- 19 A: So, yes, I had -- 20 Q: Good point. 21 A: -- been aware of 5 percent. 22 Q: Let's put it back to the time since 23 you've been on Council? 24 A: Yeah. But, at this point, things were 25 between 8 and 9 percent, as I recall.

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1 Q: So that would be a very major -- 2 A: So this was incredibly attractive. 3 Q: And then goes on, 4 "The rate MFP uses and guarantees is tied 5 to the interest rate market, specifically 6 Government of Canada Bond Rate. Moves as 7 the market moves. The economy is becoming 8 a little more volatile now and it appears 9 that interest rates may be on the move 10 again. In order to secure a guaranteed 11 rate, we require approval from Council to 12 proceed with formal negotiations?_ 13 Now, was it advantageous to the City of 14 Waterloo to get, at that point, a guaranteed rate? 15 A: Well, it's hard to remember two (2) years 16 ago when we've been living through the kind of meltdown that 17 has occurred worldwide. But, yes, at that time, it was very 18 important to lock in the rates. 19 Q: All right. And -- and that was the next 20 point that was made in this, if you commit now, you will lock 21 in the rate? 22 A: That's right. 23 Q: Did you understand what -- what MFP was 24 offering to do at that point? 25 A: I did. In fact, it was almost like

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1 getting a loan from my father, in some ways, because I would 2 have the money locked in at this percent, and if the -- if 3 the market sank, then I would be able to take advantage of 4 the sinking, but if it rose, then MFP was going to take the 5 beating. 6 Q: All right. And that -- that was your 7 understanding, at that time? If -- if that's -- 8 A: Yes, sir. 9 Q: -- my understanding? So, Mr. Ford, in 10 this report, is recommending that you go on the basis of MFP 11 as the financial institution, and -- and with these prospects 12 at hand as to how they would go about it? 13 A: Yes. 14 Q: If we go to 170 and take a look at what's 15 called, "Additional Information Addendum", it is, in fact, 16 sort of a critique of MFP and -- and what people think of 17 them -- 18 A: Meaning -- 19 Q: -- I take it, you read that material? 20 A: I -- I did, very carefully. 21 Q: All right. Did you, independently of 22 anybody on Council, make any inquiry into MFP, to determine 23 whether or not what was being said about MFP was accurate, at 24 that time? 25 A: Not at that time.

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1 Q: All right. Did you instruct anyone on 2 your staff to make any inquiries to see if what was being 3 represented here, was accurate? 4 A: Not at that time. 5 Q: All right. And, did anybody on staff 6 indicate that they had, in fact, carried out any due 7 diligence in relation to MFP? 8 A: Well, I would have to put you back to the 9 preceding pages, where it appeared that due diligence had 10 taken place, when we have examined all the options, we have 11 looked at the rates, we have talked about the size of the 12 project. There were only four (4) components, as far as I 13 was concerned, that could have been moved around, and this 14 hit -- this report hit three (3) of them. 15 Q: All right. So, it -- it took care of 16 three (3) of -- of the variables, for you? 17 A: Yes. 18 Q: Now, because that's the date of report 19 that comes to you, and we're going to get to the meeting, 20 at -- at tab number 10, we have, again, a PowerPoint 21 presentation. And when I look on the second page, 2077, of 22 tab number 10 -- 23 A: Yes. 24 Q: -- we look at today's decisions. They're 25 asking you to look at the scope, the annual operating budget

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1 impact, financing partnership and the tender process for 2 major building, the advisory committee structure. So there 3 are five (5) matters that -- that are really major in this 4 meeting? 5 A: Yes. 6 Q: All right. And then it talks in terms of 7 the project scope. And again, it's -- it's recognized that 8 there are two (2) ways you can go about this, one is 9 the -- the minimum requirement and one is the ultimate, if I 10 can use those two? 11 A: And I looked at it as, one is the 12 conservative approach and one is the answering of the 13 community's needs approach. 14 Q: Could we go to page 2081, please? When 15 you look at operating impact, it ends up at taxpayer support 16 required as a result of this plan put before you, of $1.207 17 million, annually? 18 A: $100,000 more than had previously been 19 set to Council. 20 Q: Right. And I take it, there was some 21 discussion about that, and -- and whether or not that was 22 a -- a reasonable amount, in excess of what had originally 23 been predicted? 24 A: Well, and again, I think that we had, in 25 our minds, that the Waterloo Memorial Rec Complex had been

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1 supported in -- in -- since its inception at a $1.2 million 2 level. So, this, although it was seven thousand dollars 3 ($7,000) more, was also reflected -- it would not have had an 4 impact because the community had grown that much more. 5 Q: All right. Over to 2082, and in the 6 decision making process, they're asking you to lock in the 7 rates, approve the business plan, approve final design and 8 tenders for outdoor components, and select successful bid for 9 major buildings. 10 Those are all matters that -- that are coming 11 before you, for decision? 12 A: Yes, sir. 13 Q: Right. Included in that is the tendering 14 process for what's going to be occurring here, for some of 15 the services to be provided. Was there ever any discussion 16 at Council about tendering for the financing for this 17 project? 18 A: I've racked my brain about that, because 19 it's become such a community issue, but I truly cannot recall 20 ever discussing tendering for financial services. 21 Q: All right. Did you consider that 22 financing services were included in your by-law for provision 23 of services? Or did you even give it any thought? 24 A: I did give it thought, but not at that 25 time.

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1 Q: All right. 2 A: I've come to believe that tendering is 3 probably a more safe way to do things, on the other hand, I 4 do know that Windsor -- I now know that Windsor tendered, and 5 it didn't protect them. 6 Q: All right, so that -- that it doesn't 7 necessarily guarantee you safety, but -- 8 A: It does add to your pool of information, 9 it does allow you to seek competition, and it -- it tests the 10 marketplace. 11 Q: If we look at 11 again, we have the -- 12 the PowerPoint Presentation for Council meeting of February 13 21st. And it's -- it's much the same, it seems to be a 14 little expanded. 15 You've indicated that -- that this impact of 16 1.2 million on the taxpayers was approximately the same as 17 the WRC, and that was a -- a level that you were comfortable 18 with as a Councillor? 19 A: Yes -- 20 Q: Okay. 21 A: I was comfortable. 22 Q: If we can look at tab 11, and go over to 23 1909. This is a -- a part of this presentation that wasn't 24 in the former exhibit. You'll see under financial 25 partnerships, and again I -- I take you back to the word

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1 partnership. I take it that for you was very important? 2 A: Yes. 3 Q: The concept of partnering with the people 4 loaning you the money? 5 A: I considered partnership, true 6 partnership to be a very important component, yes. 7 Q: All right. At this point we're talking 8 about MFP Financial Services, you're told that they have 9 Municipal experience, and I take it you knew that from 10 looking at the resume that was part of the presentation from 11 Mr. Ford? 12 A: By that time I had probably gone to my 13 own computer and taken a look on the website at MFP's -- what 14 I remember very well is that it was almost like an old 15 fashioned cash register and things went ka'ching, and you 16 could -- you could ring up what they had done, so -- 17 Q: That was their presentation? 18 A: That was their presentation, but I'd 19 looked at it, and I was very interested to know the -- you 20 know, some of the testimonials come from -- had come from 21 people as high up as Deputy Ministers, so it was pretty 22 apparent that they were a prestigious company. 23 Q: All right. And I take it that you -- you 24 had a comfort level from that? 25 A: I never have comfort when I'm spending

157

1 taxpayers money. 2 Q: All right. The second is innovative 3 lease arrangements, that -- that did you have any reason to 4 question innovative lease arrangements as being something 5 that was not available through MFP? 6 A: Well the question that I raised was if 7 MFP did go bankrupt and we were leasing from them, who would 8 own the Park. And we were told very clearly that we would 9 own the Park. 10 Q: All right, now who did that information 11 come from, if you recall? 12 A: Mr. Caskey, I feel very badly about this, 13 but quite frankly, I didn't know the people who represented 14 MFP, I -- I truly still would only recognize probably the 15 people with whom I negotiated a settlement many months later. 16 Q: All right. So you didn't really know who 17 they were or very much and aside from going to the website, 18 you didn't know much about the company at all? 19 A: No. I knew that the school board had a 20 computer arrangement with them. I had done some homework by 21 that time. I -- I knew that the school board's level of 22 satisfaction with MFP was very high. 23 Now, it's a very different thing to lease 24 hardware that has a finite life and -- and land. 25 Q: Yes.

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1 A: And so -- but whether I had those 2 misgivings then is -- is a moot point. I -- I doubt that I 3 had those misgivings. I thought I was doing my part of due 4 diligence. 5 Q: Okay. If we could look at the next tab 6 which is, in fact, the minutes of the meeting of February 21, 7 2000, that's at Tab 12 and as I look at -- at the tab, I see 8 the first thing is February 21st, it's a regular meeting of 9 Council and I see that you are in attendance? 10 A: Yes, sir. 11 Q: Okay. If you'd be good enough to go to 12 page 1563 please under "staff reports" on paragraph 9, there 13 are, indeed, four (4) of them. All deal with this project, 14 the terms of reference of the advisory committee, the scope 15 of the project, the financing of the project and the 16 tendering process. 17 And in your Council meetings, I take it that 18 members of the administration then make a presentation in 19 relation to the reports that have been presented? 20 A: I wish I -- 21 Q: Or generally do? 22 A: I wish I could say yes in all instances. 23 But, sometimes, Council has heard things so many times that 24 they just simply want to read the report and ask questions. 25 Q: All right. So that can happen too?

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1 A: Yes. 2 Q: Right. In this particular instance, it 3 appears that a number of people made presentations? 4 A: Oh, it was a huge presentation. This was 5 a very big meeting for the City of Waterloo. 6 Q: Right. And you start off with 7 Mr. Stockie, followed by Mr. McFarland in relation to a 8 couple of his reports and then Mr. Ford for the financing and 9 then in the bottom third of page 1564, Dave Robson is there 10 and makes a presentation to Council? 11 A: Yes, sir. 12 Q: Had you ever seen Mr. Robson before? 13 A: Not that I'm aware of or not that I 14 recollect. I don't recall ever being introduced to 15 Mr. Robson. I don't have a visual memory of -- of him making 16 this presentation. 17 Q: All right. Now, at the end of the 18 meeting, and we have to go over to pages -- 19 A: May I -- may I just -- 20 Q: Yes. 21 A: -- interrupt you. 22 Q: Sorry. 23 A: If you're a Councillor and you're looking 24 at a large project for the City and you're advised that MFP 25 is 75 percent owned by six (6) Canadian institutions,

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1 including a bank and three (3) insurance companies and one of 2 the major industries in your community is banking/financial 3 institutions/insurance companies and the fact that it is 4 publicly-traded, all of those things add up to a very -- lead 5 one to believe that it's a highly reputable company. 6 Q: All right. And Mr. Robson being there in 7 person for MFP, did that have an influence? 8 A: I -- I would expect that when someone is 9 introduced -- and I believe he was introduced as a vice- 10 president -- 11 Q: Yes. He was. 12 A: Yes. Okay. So you -- I -- I assumed 13 that he had a position of responsibility and that the company 14 thought well enough of the agreement, to send someone who was 15 important, to the meeting, to talk to us. 16 Q: And he did, in fact, talk to you? 17 A: Oh, yes. As I said, I -- I doubt that I 18 would recognize him, even now. I don't have a visual memory, 19 but I do remember the -- the kinds of things he said. 20 Q: All right. And -- and at the end of the 21 evening, and as I say, if we go over to page 1566 and 1567, 22 there are the -- the votes on each one of those areas, that 23 were brought to you? 24 A: Yes. 25 Q: The first one, Councillor Jones and

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1 Councillor Anderson, that the Advisory Committee be 2 established and the terms of it. And that was carried 3 unanimously? 4 A: Yes, sir. 5 Q: The second, by Councillors Anderson and 6 Alexander, in relation to the recreation project, in 7 principle, with a capital repayment cost not to exceed $1.2 8 million, annually. 9 A: Annually. 10 Q: And that was important? 11 A: It was very important. 12 Q: All right. Council saw fit to put that 13 in the form of a -- of a resolution, right? Was there any 14 reason why, Mayor Woolstencroft, the interest rate that you 15 were prepared to pay, was not enshrined in that particular 16 resolution? That is, you've put -- you've put an -- an upper 17 limit on -- on the amount of taxpayer participation -- 18 A: Yes. 19 Q: Was it not something that was considered 20 to put, and not to exceed -- 21 A: In hindsight, you know, the other things 22 that we should have put into that resolution, I suppose, are 23 user fees and a cap on the amount that the interest rate 24 would -- would be. 25 Q: All right.

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1 A: But -- 2 Q: Not at the time? 3 A: It didn't occur to me, at the time. 4 Q: All right. 5 A: Because we were, as I understood it, this 6 was simply authorizing staff to start negotiations, at this 7 meeting. 8 Q: All right. Was this going to have the 9 effect of doing anything, as far as you knew, of locking in 10 the rates with MFP? 11 12 (BRIEF PAUSE) 13 14 A: This was the February 21st meeting. 15 Q: Yes. 16 A: And I was under the distinct impression 17 that I was going there to authorize a number of staff 18 initiatives and negotiations, amongst them being the lock in 19 rate, because we'd had that report. 20 Q: All right. And that is, in fact, when we 21 come to page 1567, where Councillor Strickland and Councillor 22 Roeder, move the Corporation/Finance Report 00-17, that MFP 23 Financial Services be the organization with whom you have the 24 agreement. 25 I take it, that was passed unanimously. And

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1 is it fair to say, that had the effect of allowing -- 2 A: Of authorizing the previous report, 3 saying, you are to negotiate at below 5 percent. 4 Q: Right. Lock it in, and -- and that's 5 where we are, from this point in time, on? 6 A: Yes, or lower. 7 Q: Is that fair -- 8 A: There, or lower. 9 Q: There or lower, all right. Could not 10 exceed? 11 A: Yes. 12 Q: All right. And then the final one is, 13 that you're talking about, Council approve. And I think that 14 -- that this is you, Councillor Woolstencroft and Councillor 15 Alexander, that Council approve the proposed method and time 16 line for the awarding of the design, build tender. And that 17 Mayor McKinnon and Councillors and Anderson and Roeder sit on 18 the selection committee? 19 A: Yes. 20 Q: All right. All of those passed at that 21 meeting. And as you've indicated, that was a very important 22 step that was taken that night? 23 A: Absolutely. 24 Q: All right. If we look at the next tab, 25 13, which is also of the same date, but it talks about the

164

1 tendering process and -- and the report comes to you, again, 2 signed by Mr. McFarland and Mr. Stockie, that Council 3 approved the proposed method and time line for the awarding 4 of the design, build, and do it. That was one of the things 5 that was approved. 6 We go over to tab 15, and this is the scope of 7 the project? 8 A: Yes. 9 Q: And it's got, that, 10 "Subject to the finalization of the 11 environmental assessment, that the scope of 12 the project be as follows." 13 And -- and here there is a report that goes 14 forward that details the extent of which you're going to 15 attempt to create this facility? 16 A: What you've said is true, but for me 17 point number 3 is the important point: 18 "The construction of any or all elements of 19 the Millennium Recreation Project be 20 subject to final approval by Council." 21 Q: All right. 22 A: So that we were still maintaining report 23 back mechanisms. 24 Q: All right. So -- so as I look at -- at 25 tab 15 then, which is the -- the report of -- of Mr.

165
  1  McFarland and Mr. Stockie, or Mr. Friedel?
  2                 A:   Yes.
  3                 Q:   We talk in terms of the 1.2 million and
  4  the environmental situation, but Council still had the final
  5  say?
  6                 A:   Yes.
  7                 Q:   You come back to us when you want to make
  8  any final decisions?
  9                 A:   Exactly.
 10                 Q:   All right.  And I take it that was your
 11  direction to your administration that gave you the ultimate
 12  control that you sought?
 13                 A:   Yes, it's -- it's not so much a matter of
 14  control as accountability.  I -- I realize that you do have
 15  control, but there's also the issue of public accountability
 16  when you are a public body.
 17                 Q:   All right.  Now at -- at the conclusion
 18  of that meeting there was a request that -- that Mr. Friedel
 19  look at the MRP versus the WRC and do an analysis.  I think
 20  that was Mr. Strickland's request?
 21                 A:   Yes, it was.
 22                 Q:   All right.
 23                 A:   Yes.
 24                 Q:   Now is -- is there, from your
 25  perspective, any reason why Mr. Friedel was asked to do that,

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1 that was a question that was asked of him this morning. Do 2 you know why Mr. Friedel was asked to do that? 3 A: I think I -- I have some insight into it. 4 Mr. Friedel is a highly competent accountant, he has been 5 known to give answers that were painful even to himself 6 sometimes, he's exceedingly precise, as you probably 7 witnessed. 8 He was the team leader in Finance at one point 9 and was transferred to become the Executive Assistant to Tom 10 Stockie, but he carried with him the financial responsibility 11 for the Millennium Recreation Project. So he was the one 12 person, because he'd developed many phases of the business 13 plan, he was the one person who had perhaps the best and most 14 minute detail who came to -- to talk with Council. 15 I am certain that there are other members of 16 the Finance Department who have deep understanding of some 17 parts of -- of the project, but he would have the umbrella 18 understanding. 19 Q: All right. So I take it, it was no 20 surprise to you that Mr. Strickland asked Mr. Friedel to do 21 it? Or Mr. Friedel was asked to do it? 22 A: No, Mr. Strickland sat beside me in those 23 days, so I knew a lot of what he thought. 24 Q: Okay. In any event, at that meeting the 25 question was asked to do a comparison of the two (2)?

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1 A: Yes. 2 Q: All right, and -- and this is at tab 16, 3 the results, where -- where he looks at the WRC and -- and 4 he's told us that he brought it up to present value, so that 5 he was doing apples to apples to show what you got for your 6 money at that time, and what you would get for your money 7 this time? 8 A: Yes, yes. 9 Q: And -- and -- and the comparison was I 10 take it, from your standpoint, quite favourable? 11 A: It was, indeed, favourable. 12 Q: All right. And -- and it really said to 13 you, you're getting a lot more for your taxpayer dollar than 14 -- than you got before? 15 A: Well if you take a look, the per capita 16 impact of the net 2000 capital costs on number 4 -- 17 Q: Yes. 18 A: -- are significantly different. At four 19 hundred and seventy-six dollars ($476) for the MRP and one 20 hundred and thirty-six dollars ($136) for the WRC, and you 21 are getting incrementally more at the MRP, than the three and 22 a half (3 1/2) times the cost, so, yes. 23 Q: Okay. There was a note that he put on 24 there, that: 25 "The actual financing for the MRP will be a

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1 lease back arrangement, not debt, and it's 2 considered to be off balance sheet 3 financing." 4 Was that necessary for you to know? I mean 5 you'd talked about that before? 6 A: I was still grumbling, I suppose, behind 7 the scenes, about the words off balance sheet. 8 Q: Right. Now once we get by the 21st of 9 April -- of February, from your perspective as a -- as a 10 Councillor in the Municipality, what had you done aside from 11 requiring things to come back to you as a Councillor, but 12 what had you instructed your administration to do and what 13 did you see the direction to be that you had given, as a 14 Council? 15 A: As a Council? We had -- will you just 16 give me a moment to collect myself, because I -- I think I 17 have a reasonable answer, but I want to just go over it. 18 MR. COMMISSIONER: I'm prepared to give the 19 witness a little more time. It's time for a break in any 20 event, and perhaps you can remember the question. 21 MR. JAMES CASKEY: I'm -- I'm counting on the 22 Mayor to remember the answer. 23 MR. COMMISSIONER: Yes, I'm quite sure the 24 Mayor will remember the answer when we come back. We'll take 25 fifteen (15) minutes.

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1 MR. JAMES CASKEY: Thank you, sir. 2 THE REGISTRAR: The City of Waterloo Judicial 3 Inquiry is now in recess for fifteen (15) minutes. 4 5 --- Upon recessing at 3:37 p.m. 6 7 --- Upon resuming at 3:58 p.m. 8 9 THE REGISTRAR: Order. All rise. The City 10 of Waterloo Judicial Inquiry has now resumed. Please be 11 seated. 12 MR. COMMISSIONER: Now, do we remember the 13 question? 14 THE WITNESS: I do. 15 MR. COMMISSIONER: Well, you can give us the 16 answer. 17 THE WITNESS: What were the four (4) things 18 -- or what were the things that we had accomplished at the 19 meeting and I said that there were four (4). 20 MR. JAMES CASKEY: Yes. 21 THE WITNESS: And for me the first one was 22 that we had moved the Not-For-Profit to a -- the Not-For- 23 Profit Organization to a -- an advisory committee. 24 The second thing is, and perhaps or more 25 interest to the community, was that we had locked in the

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1 rates and authorized staff to negotiate with MFP. 2 The third thing was that we had established 3 the tender process and the last thing was that we had 4 expanded the scope, I suppose, or had established the scope 5 of the project. It was no longer in phases, it was to be one 6 large project, if at all possible. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: So then those -- those were the major 10 accomplishments, as far as you're concerned, from that 11 meeting? 12 A: They were. 13 Q: All right. And then we talk about the 14 comparison with the WRC -- 15 A: Yes. 16 Q: -- and if we can then go to the -- the 17 next document which is at Tab 17, and it is the grading and 18 site works contract and this is in keeping with you telling 19 your administration, come back to us with these decisions? 20 A: Yes, sir. 21 Q: All right. So this is a -- a report that 22 comes to you. It's dated April 25, 2000 for the Gateman 23 Milloy contract for the grading and site works. They give 24 you the other bidders that are involved -- 25 A: Yes.

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1 Q: -- and they have their recommendation 2 which was, in fact, accepted? 3 A: Yes. 4 Q: And if I look on the second page of that 5 document, in the -- in the part that -- that is set out there 6 at the bottom, the second last paragraph, 7 "On February 21, 2000 Council approved, in 8 principle, annual funding of 1.2 million 9 for the MFP based on the estimates 10 available today. This level of annual 11 funding will support the capital components 12 of the project, including this grading and 13 site work contract." 14 A: Yes. 15 Q: And I take it that that was the 16 information that you needed in order to approve the 17 recommendation that came forward? 18 A: Yes. 19 Q: And that went then before Council and -- 20 and was approved? 21 A: Yes. 22 Q: All right. If we can look at Tab 18 23 please, this is a PowerPoint presentation and it's a status 24 update for the Millennium Recreation Park dated April 26th, 25 2000 and do you recall who it was that made this

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1 presentation, is there any -- would this have been 2 Mr. Friedel, as far as you recall? 3 A: I -- I think it would have been 4 Mr. Friedel, but it could very well have been a combination 5 of Mr. Ford, Mr. Friedel and -- and Ms. Card. 6 Q: All right. Because all three, I take it 7 were -- were people that were involved in keeping Council 8 apprised of the progress? 9 A: Yes. 10 Q: All right. If I -- If I go to the end to 11 1150 is the last page in the tab and in the presentation and 12 the significance of this, Mayor Woolstencroft, is that 13 wonderful announcement of the ground-breaking ceremony, 14 12:00 noon on the 15th of May? 15 A: Right. 16 Q: And that -- that would be a wonderful 17 opportunity for members of Council to demonstrate to the 18 public that they were behind this project? 19 A: And it's also a wonderful opportunity for 20 members of the community who've been involved to also have a 21 shovel and I think that the previous Mayor called it a "dig- 22 in", but I'm not sure. 23 Q: All right. As a matter of fact, if we go 24 to Tab 19 which is the PowerPoint for status update of May 25 the 1st --

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1 A: Yes. 2 Q: -- and we go to the last page which is 3 1577 -- 4 A: The Big Dig. 5 Q: Yeah. The Big Dig it's called and it 6 says "bring your own shovel". So that was -- that was all 7 part of -- of the joy that was being exhibited at that time, 8 I take it? 9 A: Yes. 10 Q: All right. If we can go to Tab 20 please 11 and this, again, is a copy of the former recommendation that 12 dealt with the -- the type of contract letting, the tendering 13 process if you will, it's a continuation. This is the multi- 14 purpose recreation building design build team selection and 15 again they have a recommendation that PCL Contractors Canada 16 Inc. be awarded the contract? 17 A: Yes. 18 Q: If I go to the second page, there's a 19 slight difference between this presentation and the -- the 20 prior one from the standpoint of this blurb about February 21 21 because at this point we're saying 22 "Council approved in principle annual 23 funding of 1.2 million for the MRP which 24 was based on a total project cost of 25 56.6 million."

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1 So that additional bit of information as to 2 the total cost was included in this presentation to Council? 3 A: Yes. 4 Q: And the report? And, again, 5 "... based on the estimates available 6 today, this level of annual funding will 7 support the capital and operating 8 components of the project including this 9 contract." 10 Again, those are the words of comfort that you 11 need from your administration? 12 A: Yes. 13 Q: Thank you. If we go to Tab 21, if I 14 could refer to this as a legal nicety requirement, this comes 15 to you because of the need to put the advertisement in the 16 Waterloo Chronicle of a proposed thirty (30) year lease which 17 exceeds -- 18 A: The twenty-one (21). 19 Q: -- the twenty-one (21) years so that it's 20 -- it's -- they've got to be notified -- the public has to be 21 notified it will be deemed a disposition of property which -- 22 which you must go through this process in order to achieve? 23 A: Yes. 24 Q: And Council understood that that was the 25 process. It was a thirty (30) years lease that you were

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1 entering into a commitment for that length of time? 2 A: Yes. Actually, I had in my mind a 3 thirty-one (31) year lease, but we certainly knew it was 4 longer than twenty-one (21). 5 Q: All right. So the thirty-one (31) would 6 have been because the first year had no payments -- 7 A: Yes. 8 Q: -- and that's the way they worked that 9 out -- 10 A: Yes. 11 Q: -- as it turns out? 12 A: Okay. 13 Q: But in any event, you were -- you were 14 authorizing the notice to be published to -- to fill in that 15 requirement? 16 A: Yes. 17 Q: All right. May 29th of 2000 is a meeting 18 of the Council. And again, I see that you're in attendance 19 at it. If we could go to page 1610, please, of that report? 20 And again, it's staff report from Mr. Friedel. 21 And Mr. Friedel is providing you with the -- 22 the input on the Millennium Recreation Park Multi-Purpose 23 Recreation Building, design build team selection. And -- and 24 he goes through what is involved in that, from the 25 perspective of the administration and the need for Council

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1 approval? 2 A: Yes. 3 Q: And that, again, was something that was 4 approved? 5 A: It was. 6 MR. COMMISSIONER: That's the same thing we 7 dealt with, under -- at tab 20? 8 MR. JAMES CASKEY: Correct. 9 10 CONTINUED BY MR. JAMES CASKEY: 11 Q: At tab 23, we have, again, a PowerPoint 12 presentation. And I take it, Mayor Woolstencroft, this was, 13 again, the -- the sort of procedure that would allow you to 14 be brought up to date, both visually and by the oral reports 15 that are made? 16 A: And it also allows Council to ask 17 questions about certain issues. So that, if you took a look 18 at tab -- I've lost the tab -- tab 23, CW-1786? 19 Q: Yes? 20 A: You will see that, this hasn't come up, 21 as far as I know, at any place in these proceedings, but 22 resolve the hydro issues. Those kinds of things were not 23 necessarily parts of other reports, but we could ask a lot of 24 questions about things that were troublesome to citizens or 25 the Advisory Committee, or Members of Council.

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1 Q: Right. And -- and in addition, too, on 2 that page, resolving the hydro issues, you had to obtain 3 approval of University Avenue extension contract? 4 A: Extension, from -- yes. 5 Q: And this was all part of the 6 infrastructure, that was necessary to get people to the site, 7 I take it? 8 A: That's right. 9 Q: All right. And that had, then, other 10 implications from the standpoint of -- of waste disposal 11 and -- and utilization of the land? 12 A: And -- and, I think that probably one of 13 the things that was on the environmental implementation teams 14 screen, was the fact that there were two (2) wetlands. And 15 how are we going to make sure that the little beasties who 16 live in wetlands, survive? 17 Q: The salamanders? 18 A: That's right. 19 Q: Okay. 20 A: Not just the salamanders, there are some 21 spring peepers too. 22 Q: Okay. Could we go to page 1791, please? 23 A: Yes. 24 Q: As -- as of this date, and this is being 25 brought up to date as of May 29th, 2000, Mr. Friedel has --

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1 has said to you, we've accomplished the complete -- 2 completing the business plan? 3 A: Yes. 4 Q: So as of the end of May, the business 5 plan for this complex had been completed, from his 6 perspective? 7 A: Yes. 8 Q: And I guess, from the standpoint of 9 Council, if they accepted it? 10 A: Yes. 11 Q: Then it talks about completing upcoming 12 process -- complete financing agreement with MFP Financial 13 Services? 14 A: Yes. 15 Q: At that point in time, what did you think 16 had to be done, in order to complete the agreement with MFP? 17 (a) Did you think there had already been an 18 agreement with MFP? And -- and -- 19 A: No, I thought there was an agreement in 20 principle. And I thought that we would have to have a report 21 back from staff, telling us what the actual rate was, what 22 the -- the actual repayment streams were and -- and then the 23 Council would approve them, and the Mayor and Clerk would 24 sign them. 25 Q: All right. That was your expectation.

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1 Was there a time frame that you thought that might happen in? 2 A: I didn't have an expectation of time 3 frame because, the experience that I've had, for instance, 4 with Superbuild, is that's it's a very long and tedious 5 process to negotiate with a variety of partners, to achieve 6 financial agreements. 7 And that's why municipalities have lines of 8 credit, that -- that seem pretty mammoth to any members of 9 the public. So that you can proceed with activities, when 10 your positive that the financing will come. 11 Q: Right, because you'd already had a 12 groundbreaking ceremony by this time? 13 A: Yes. 14 Q: And you didn't have a final agreement 15 with MFP? 16 A: No. 17 Q: Was that of concern to you? 18 A: I was always of the opinion that the fall 19 back position would be sinking funds and -- and serial 20 debentures, so, no. 21 Q: All right, and -- and I -- I take it as 22 well the -- the scope of the project? 23 A: Absolutely, although we had pretty much 24 locked in the scope on February 21st. 25 Q: All right. If we go to tab 24, again

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1 this -- this is the -- the memorandum that talks about the 2 need to declare the land surplus, in order to meet that -- 3 that thirty (30) year lease time line? 4 5 (BRIEF PAUSE) 6 7 A: Yes. 8 Q: All right. 9 10 (BRIEF PAUSE) 11 12 Q: If we -- and by the way, was it of any 13 concern to you, aside from the fact that the -- the contracts 14 had been less of -- the groundbreaking had taken place, the 15 length of time between February 21st and the end of May, that 16 -- that -- that an agreement had not been signed, was that 17 something that was of concern to you at that time? Aside 18 from the fact that you'd broken ground and started, just the 19 length of time that had taken, did that seem inordinate to 20 you? 21 A: I don't have a recollection of being 22 concerned. 23 Q: All right. If we look, Mayor 24 Woolstencroft, at tab 45, and this is the Canadian Bond 25 Rating Service, it's dated June the 8th of 2000.

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1 Did anybody indicate to you as a member of 2 Council, that there was going to be a credit analysis made of 3 the City of Waterloo by anyone for the purpose of this 4 funding that you were going through with MFP? 5 A: No one indicated that to me. 6 Q: Was there -- was there any thought on 7 your part that as part of the financing, the credit 8 worthiness of Waterloo would be a factor? 9 A: No. 10 Q: All right. Were -- were you aware that 11 this was being carried out? I mean did -- did anybody 12 contact you as a member of Council for your input? 13 A: No. 14 Q: And I take it then the first time you 15 knew about this was long after? 16 A: I -- I think it was late September when 17 we finally got this report. 18 Q: All right. This credit rating talks 19 about Waterloo having an A+ rating. Your experience with the 20 Region and with the City, what is an A+ rating from your 21 perspective? 22 A: The way I like to explain it is it's a 23 bit like getting a C on a major paper at University, it is 24 not a good credit rating. Triple A is the best. Double A is 25 okay, A+ --

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1 Q: So I take it that when you did see the 2 rating you weren't terribly enthusiastic about that? 3 A: No, I wasn't, and in fact I did make 4 comment about it. 5 Q: All right. 6 A: And the other thing that I want you to -- 7 to know that I know is that the A+ credit rating would come 8 within the context of the Region's triple A credit rating, 9 and we'd just been through that at the Region. It was 10 Standard and Poors that did the -- the credit rating at the 11 -- the Region. 12 Q: Right. And -- and I take it then the 13 Region's credit rating was Triple A? 14 A: It is Triple A. 15 Q: It is Triple A, but so that -- that 16 somewhere along the way Waterloo's wasn't quite up to that 17 mark? 18 A: In my opinion. 19 Q: Okay. If we can look at 2019, and -- and 20 the -- in the bond rating, looking at revenues/expenditures. 21 What I'd like to talk to you about a bit is the ratios at the 22 bottom of that page? 23 A: Yes. 24 Q: And would you be good enough to explain 25 what constraints there are on a Municipality from a borrowing

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1 standpoint? 2 A: I don't have the Municipal Act in front 3 of me, but the Municipal Act is pretty clear that we can't 4 have 25 percent or more of our annual revenue in borrowing. 5 Q: All right. So that that's a legislative 6 constraint that you must -- you must not exceed? 7 A: Absolutely. And I don't know if it's 8 time for an editorial or not but I -- I have prided myself on 9 influencing every public body that I've been on to move to a 10 pay as you go policy. 11 Q: All right. In the process of going 12 through this financing, was there ever any concern on your 13 part as a Councillor that your debt ratio was -- was either 14 close to or being exceeded that which you thought it should 15 be? 16 A: We were consistently reassured that it 17 was nowhere near and at one point when there were tough times 18 in the City of Waterloo there had been a previous CAO, and I 19 believe it was Mr. Byron, who had Mr. Stockie, who was then 20 our Treasurer, show us the -- the debt load that we were 21 carrying and we worked very hard to move ourselves out of 22 that and to put money into reserves. 23 MR. COMMISSIONER: These numbers are the for 24 the years '97, '98, in any event? 25 MR. JAMES CASKEY: In any event, yes.

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1 THE WITNESS: Yes. 2 3 CONTINUED BY MR. JAMES CASKEY: 4 Q: Now, you'd have to, as you read through, 5 into this new financing, that would then affect the -- the 6 percentage that was there but, I take from what you've said, 7 the assurances given by your administration is that even with 8 this commitment of $56 million that you were nowhere close to 9 your upper limit of your authorities? 10 A: And as I understood it better when 11 Ms. Card presented the revised debt loading, part of it is 12 that it's only an -- when I say only -- it's an annual 13 payment that is built into our debt loading as opposed to a 14 complete chunk. 15 And I'll give you a reasonable example, I 16 hope. The City of Waterloo City Centre sits as a debt on our 17 books. The fact that it is self-sustaining through rental 18 and, in fact, we are able to put away reserves because of -- 19 for maintenance of that building and upkeep, based on that, 20 it doesn't have an impact on the tax rate. 21 But it does, when you put it out there on a 22 slide, it's considered debt and well it should be. 23 Q: Right. But from the standpoint of an 24 impact on the tax payer, it's -- it's, if you will, revenue 25 neutral and --

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1 A: Revenue neutral. 2 Q: -- obligation neutral? 3 A: That's right. 4 Q: All right. So that from the standpoint 5 of you, as a Council, you may look at it differently, but 6 from the standpoint of the debt load and the ratio, it's a 7 factor? 8 A: Yes. It is. 9 Q: All right. Tab 26 is a duplicate, 10 Mayor Woolstencroft, of Tab 22, so I don't think we have to 11 look at that. 12 A: Good. 13 Q: But if we go then to -- to the -- Tab 14 27 -- 15 A: Yes. 16 Q: -- and by this time we're into September? 17 A: Yes. 18 Q: At that point in time, had you heard 19 anything that concerned you about the process to date? 20 A: No. In fact, there was a fair amount of 21 excitement amongst staff and some of the Councillors who were 22 associated with the project. Things were moving along very 23 nicely. 24 Q: All right. And -- and you could see 25 ground actually being moved and things happening here?

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1 A: Oh yes. 2 Q: Very tangible -- 3 A: Oh yes. 4 Q: -- evidence of what you were doing? 5 A: Yes. 6 Q: And I take it, as well, the information 7 coming to Council was that you were preparing to sign the 8 final agreements? 9 A: Now, that part I hadn't heard but I did 10 know that the fund-raising was going exceedingly well. 11 Q: All right. 12 A: Quickly and well. 13 Q: This is a notice to you and members of 14 Council and the senior management team of an in-camera 15 meeting that's to be held on the 18th of September and I take 16 it that you would have received, in advance of that in-camera 17 meeting, certain information from Mr. Friedel and others in 18 the administration? 19 A: We don't necessarily get information 20 ahead of time but I believe in this instance we did. 21 Q: All right. If we can go to the next tab, 22 which is tab 28. And -- and this is called, "The MFP 23 Financing Model". Up to this point in time, had you seen 24 anything of this? 25 A: No.

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1 Q: All right. And this is a presentation to 2 Council, September 18th of 2000. Did that indicate to you 3 that it was going to Council in-camera, or would it be in the 4 public portion? 5 A: If it says, to Council, usually that 6 means in public. 7 Q: All right. This is telling you that -- 8 that the owner is going to be the City of Waterloo, that 9 there is a head lease and a -- and a sub lease, that MFP 10 Financial Services and it's Canadian Institutional Investors 11 are -- are the financing organization, and that Waterloo or 12 it's Assignees are the operator/user of the facility. And 13 that's in schematic form. 14 The second page of that, at 2173, talks in 15 terms of the status of the lease agreements. You're being 16 told that they're working on the terms and conditions, and 17 that -- that, at the Council meeting on the 25th of 18 September, that will be the time that you're asked to sign 19 them? 20 A: Yes. 21 Q: All right. At that point in time, had 22 you ever seen the head lease or the sub lease, or indeed, any 23 of the schedules to them? 24 A: Not that I can recall. 25 Q: All right. As a Councillor, would you

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1 have expected to see those documents, in advance of them 2 coming to Council, for approval? 3 A: Yes. 4 Q: All right. 5 A: Not necessarily the actual agreements, 6 but certainly a summary that highlights the terms and 7 conditions. 8 Q: All right. What would you, as a 9 Councillor, require to give you the comfort to approve things 10 of that sort, from the standpoint of people signing off on 11 it? What would you want to know, if you were, as a 12 Councillor, going to give authority to sign a head lease and 13 a sub lease? 14 A: I would want an outside auditor's 15 opinion. I would want our lawyer's opinion. I might even 16 want a second legal opinion. I think it's important that you 17 have, what I call, clean eyes, look at things. 18 So, if our auditor has been involved in the 19 process, then I would want someone else, who's perhaps with 20 the same company, but is not aware of -- of the -- the lease 21 arrangement, to take a look at it, just to make sure. 22 I -- I -- I would hope that the team, within 23 my own organization, within the Council -- within the City 24 Hall, that finance team, would put together a group of people 25 to vet the contract.

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1 I -- I've made some very significant moves and 2 I'm not trying to presuppose what Mr. Commissioner will find, 3 but it's been very important to me that we regain our 4 credibility as a -- as a -- an organization, with the 5 community. So, I'm hoping that, not only will we have our 6 first Finance committee meeting next week, but that we will 7 establish an Audit committee made up of people from the 8 community. 9 So, I -- I -- I think that something that is a 10 large amount of money for a small organization, such as ours, 11 and I would think that that would be anything over $2 12 million, should be vetted by just exactly such a group. 13 Q: All right. Was that process in place on 14 the 25th of September of 19 -- of 2000? 15 A: Unfortunately, not. 16 Q: Okay. Now, getting back to 2174, you're 17 being told, simply agreement, standard lease provisions, head 18 lease. 19 Did you understand that -- what upfront meant, 20 when they talked about all payments up -- prepaid upfront? 21 A: No. 22 Q: All right. Did you ask anybody what that 23 did mean, or did they tell you? 24 A: I did not ask. 25 Q: All right. You came to understand, later

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1 on, I take it? 2 A: I -- I did. 3 Q: All right. Now, when they're talking 4 about, get 100 percent financing, did anybody explain to you 5 what the 100 percent meant? 6 A: I'm sure that someone did, it doesn't 7 remain in my memory. 8 Q: Okay. If I look at the second -- the 9 next page, 2175, on the sub lease: 10 "Lease payments tied to the business plan." 11 And I take it that was the business plan that 12 was presented at the end of May? 13 A: Mr. Friedel's finished business plan, I 14 believe. But the word that sticks in my mind about this 15 particular slide is _mirror_. And I -- I'm assuming that 16 that means that the lease payment mirrored the business plan, 17 which was a mirror of the community. 18 Q: All right, that you're going to have, if 19 I've got it correctly, at 2175, the -- the prepayment 20 privileges? 21 A: Yes. 22 Q: And the interest rate? 23 A: At 4.75, which was new to me, because I'd 24 expected something at around 5 percent. 25 Q: All right, was there any explanation

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1 given as to how that got to 4.75, at that point in time? 2 A: It had to do with the thirty (30) day 3 bond rate, Canada Bond -- 4 MR. COMMISSIONER: Thirty (30) year? 5 THE WITNESS: -- I mean thirty (30) year, 6 thank you. Thirty (30) year Canada Bond Rate. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: All right. 10 A: And it had gone down. 11 Q: On page 2176 is the MRP capital costs, 12 and again this is the 56.655 million, the fundraising 13 projected at seven (7), so that the net financing requirement 14 was 49.655? 15 A: And the fundraising was a change too, 16 from what had previously been discussed, and that was 5 17 million to 7 million, so obviously the fundraising was going 18 better than expected. 19 Q: All right. 20 MR. COMMISSIONER: Is it fair to say that the 21 fundraising was set at 5 million when you were talking about 22 the first phase, as opposed to the ultimate model? 23 THE WITNESS: It is. And -- and you're very 24 astute to have noticed that. That's exactly right. The -- 25 the first phase was going to be a much smaller multi-purpose

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1 building. 2 MR. COMMISSIONER: Thank you. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: The 2177, the proposed financing model, 6 again the head lease, _Surplus funds retained." 7 Now, I'm going to take that next loan, the 8 Library for expansion out of the discussion, and talk 9 about -- 10 MR. COMMISSIONER: I've made him afraid of 11 the word. 12 MR. JAMES CASKEY: I can't even use it, 13 that's -- 14 THE WITNESS: So that entity for expansion? 15 16 CONTINUED BY MR. JAMES CASKEY: 17 Q: That entity, correct. Now, as a 18 Councillor, and this has -- questions have been asked about 19 this. What did you understand that that process was in 20 borrowing the whole 56.6 million from MRP, if indeed that's 21 what happened. What was going to happen with the money that 22 you raised by way of public subscription? 23 A: I did not have a good understanding of 24 this. I probably thought that 4.75 percent was a very, very 25 good rate and it gave us an additional amount of room. And

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1 if you recall two (2) years ago, many buildings and projects 2 were coming in at far above the costs that had been 3 anticipated. It didn't happen here, as it turns out, but it 4 -- it was a good way to make sure that we had the capability 5 to borrow money at a very low rate. 6 Q: Right. Again, if we look at the other -- 7 the next page at 2178, and it goes through the projected 8 revenues and the operating costs. Any significance there 9 from your perspective, other than the fact that the City tax 10 base support is -- is now at one million two ten, it's sort 11 of inched up a little? 12 A: It's been inching all the way along 13 hasn't it? 14 Q: It has. Was that of concern at all in 15 this presentation? 16 A: I start to get quite grumbly about 17 inching. 18 Q: All right. The next page talks in terms 19 of the debt charge capacity, and this is -- this is what you 20 were talking about with the 25 percent debt charge limit. 21 And in -- they're talking about the actual debt charge as a 22 percent of net revenues at 10.42, which gave you a lot of 23 wiggle room I take it, up to the 25 percent? 24 A: Yes. 25 Q: All right. The next page is the updated

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1 debt charge capacity. And -- and that shows your net revenue 2 fund revenues for 1999. And again, it shows the debt charge 3 as a percentage of net revenues at 9.43? 4 A: Right. 5 Q: All right. 6 MR. JAMES CASKEY: Mr. Commissioner, I'm -- 7 I'm not obviously going to finish the Mayor today, unless we 8 fit some considerable time into the future, but I am prepared 9 to do so if -- if that's your wish? 10 MR. COMMISSIONER: Okay, how much longer do 11 you think you've got? 12 MR. JAMES CASKEY: Well I certainly will be a 13 half an hour more -- 14 MR. COMMISSIONER: I think -- 15 MR. JAMES CASKEY: -- and perhaps more. 16 MR. COMMISSIONER: I think we can take the 17 time and we'll come back and do it tomorrow. And -- 18 THE WITNESS: Mr. Commissioner, I have a 19 request to make of you, if I may? 20 MR. COMMISSIONER: Well I think I know what 21 it is, and it's with respect to the funeral tomorrow? 22 THE WITNESS: Yes. 23 MR. COMMISSIONER: That's not a problem. 24 We'll -- it's my hope that we can get through all of your 25 evidence by noon. If we don't, we'll probably shut down and

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1 so that those who wish to, can attend Mr. Ostner's funeral. 2 And we'll pick it up on Monday. 3 So does that suit you okay? Okay, and we'll 4 recess now until ten o'clock tomorrow morning. 5 THE WITNESS: Thank you. 6 THE REGISTRAR: The City of Waterloo Judicial 7 Inquiry now stands adjourned until 10:00 a.m. tomorrow 8 morning. 9 10 --- Upon adjourning at 4:32 p.m. 11 12 Certified Correct 13 14 15 _______________________ 16 Carol Geehan 17 Court Reporter 18 19 20 21 22 23 24 25