Murray pays the price for Ontario government's $500M MaRS scandal

There were plenty of casualties in the recent Provincial election; some deserved and some not. This post tries to give you some background on one of them.

It has been about two months since it came to light that the Provincial Liberals were in the process of forking over $500 million to bail-out the guarantee provided by MaRS to a U.S.-based real estate developer. To put that figure in context, in January, Premier Wynne committed a paltry $36.3 million in total over the next five or so years to the Venture Catalyst Fund, the successor to the Ontario Venture Capital Fund (see prior post “Northleaf’s Venture Catalyst Fund gets to work” Feb. 27-14). Compare that to a $90 million commitment to OVCF under Dalton McGuinty in 2008. The new NVCF commitment works out to a Provincial investment of about $7 million per annum into primarily Canadian VC funds that are then to invest in job-creating entrepreneurial ventures.

A pittance as compared to the MaRS’ bricks-and-mortar bailout, which is why the ecosystem got so irate when the news broke, as captured on the chat pages of StartUpNorth and our own comment section.

It came as no surprise to some of us that the MaRS II project was missing a key ingredient: tech start-up tenants. When the project was announced, it seemed to me that MaRS II was the government’s idea of an immediate and tangible election-ready response to the McGuinty/Duncan-initiated innovation crisis that has been underway in the Province for at least half a decade. Of that there can by little doubt (see prior representative posts “Ontario politicians asked to address deteriorating VC climate” Oct. 1-07, “The great LSIF myth” July 2-08, “UAE’s Sheikh Khalifa Fund vs. Ontario’s OVCF” Jan. 10-10, “Summing up Ontario’s VC industry in 5 minutes flat” Jan. 31-10).

The current version of the Provincial Liberals didn’t make good on the prior McGuinty election promise of an Angel Tax Credit program (ala British Columbia), nor did it reverse Dwight Duncan’s sacrifice of the effective Ontario Emerging Technologies Fund to help reduce the government budget deficit (see prior post “Ontario government puts $250M Emerging Technology Fund on ice” June 21-12). The very OETF that the Liberals put in place, along with OVCF, after they cancelled the LSIF program with the promise that they had a better way to get capital into the innovation economy.

The only quasi-new idea that the government has introduced of late has been “corporate welfare” for firms that promise to create IT jobs in Ontario. First to the trough was Open Text, which has its HQ in Waterloo (no more Samsung’s, our tax dollars are going to folks who are already here). For $120 million in public funds, Chairman Tom Jenkins promised to create 1,200 jobs in Waterloo, Richmond Hill, Kingston, Ottawa and Peterborough over the next seven years. Now, $120 million may not seem like a lot of money to you, given your sense of the size of OTC. But on $451.7 million of pre-tax earnings over the 2011-13 fiscal years, Jenkins et al only paid $54.79 million in corporate tax: an average effective rate of 12.1%. Interestingly, $120 million equals almost exactly the amount of aggregate tax Open Text will pay to all governments over a seven year period, assuming its 3-year average carries on. $120 million is also more than 3x Premier Wynne’s parsimonious commitment to NVCF.

Was this $120M taxpayer gift a form of payback for the fact that Open Text was the only non-FI corp to participate in January’s NVCF launch, with a ~$20 million LP commitment? Perhaps it would be more appropriate to say that the Province and OTC have a strong business relationship. Although, according to rumours swirling in Waterloo, not so strong as to keep Mr. Jenkins from recently declaring Alberta as his residence for personal tax reasons after being a proud member of the K-W area for decades.

Cancelled programs, reduced budgets, misguided tax spending…. As the former MRI boss himself, Minister Murray would have been well-aware of these multi-faceted machinations. Which practically forced his hand one can only assume, as Minister of Infrastructure, when the MaRS team told the Cabinet they were keen on phase two.

I appreciate how angry the Premier was as this MaRS stuff broke during the topsy-turvy election campaign. So, once she’d prevailed in the election, it appeared as though she was looking for a scape-goat, and Transportation and Infrastructure Minister Glen Murray stood out as the most obvious candidate.

Near as I can tell, that’s the only explanation for his move from the Transportation/Infrastructure portfolio, which he loved and allowed his “builder” juices to flow, to Environment, which is seen to be far less important and influential in the halls of power. One can’t forget that it was Premier Wynne herself who promoted Mr. Murray into Transport/Infrastructure in the first place as his reward for being the first leadership candidate to withdraw to support her in last year’s convention.

Unhappy to be carrying the can for seven years of mismanagement on the Innovation front, Minister Murray announces that he’s retiring from politics four years early; having just won re-election. That goes to show you just how bitter the pill was.

After years of failures and false-starts at Queen’s Park, Ontario’s innovation ecosystem knows the taste of a bitter pill only too well. The only difference is, if we all quit and find something else to do, Ontario’s hope for ever building a sustainable “new economy” is in tatters.

MRM
(this post, like all blogs, is an Opinion Piece)