Mystery on the Waterfront: How the "Smart City" Allure Led a Major Public Agency in Toronto Into a Reckless Deal with Big Tech

Posted December 3, 2018
By Mariana Valverde / Co-written by Alexandra Flynn

Once upon a time, Waterfront Toronto (WT) was a high-profile public agency that had largely succeeded in combining enthusiastic support for upscale waterfront condos with a progressive civic agenda – no mean feat in an age of increasing political polarization and urban inequality. For example, zoning bylaws for waterfront developments, put in place before any condo building be designed, require at least 20% of affordable housing. WT also imposed high design standards on buildings and public spaces. And they came up with clever legal innovations furthering the public interest, such as crafting building height limits in contracts with developers, so developers could not go over the city’s head to the provincial Ontario Municipal Board and get approval for more height, as is often the case elsewhere in urban Ontario. WT was also a pioneer in public community consultations. 

The agency reached its peak of public support eight years ago, when then city councillor Doug Ford (now premier of Ontario) famously derided the nicely designed and very popular Sugar Beach, and mused about putting a casino and a ferris wheel on the waterfront instead – a suggestion that was probably an Trumpian off-the-cuff opinion rather than an alternative plan, but which had the counterproductive (for the Ford agenda) effect of mobilizing hundreds of local citizens to defend the existing WT plan for the waterfront. In contrast to many arms-length public authorities and agencies, including the storied New York Port Authority, Waterfront Toronto was frequently praised for its rich approach to public space and community engagement. 

It was thus quite surprising to local civic activists when WT announced, in the fall of 2017, that it was entering into an unspecified relationship with Sidewalk Labs, a sister company of Google, and persistently refused to disclose the agreement. WT let all the public engagements sessions run in 2017 and 2018 to be run by Sidewalk Labs and avoided difficult questions from the concerned public. 

City officials, including councillors, were absent from these large meetings, again highly unusual in the local context. City councillor Denzil Minnan-Wong, the sole public official on the WT board, had seen the secret agreement, and he told his fellow councillors, at a meeting of council’s executive committee in January of 2018, that “I know enough about the agreement that I think you would like to know more about the agreement [before you approve anything].” In the end the committee, instead of endorsing the plan and sending it to full council for approval, decided to hold the item in limbo during the long municipal election campaign that ended on October 22.

From the first announcement in October 2017, a wide range of people have expressed dismay about the apparent willingness of WT to hand over a chunk of our city to a large, private US corporation. In addition, many people complained that there was no reason at all to keep the initial agreement secret, since there was no definite project and hence no possible commercial secrecy. 

After poring over WT documents and interviewing half a dozen key informants, it is clear to us that the vague-sounding deal struck with a Google-affiliated company was part of a larger change taking place at WT. Around 2014-15, the public interest focus of the organization shifted, begging the question: is WT representing the public interest along the waterfront? 

WATERFRONT 2.0 AND THE ENTREPRENEURIALIZATION OF A PUBLIC AGENCY

The genesis of what would later become WT was a bid for the Olympics. While the bid for the 2008 Olympics lost, the three governments created a task force, headed by Bay street financier Robert Fung, whichrecommended the creation of a joint federal, provincial, and municipal entity modelled on waterfront development agencies in London and New York. WT became a catalyst for the development Toronto’s mostly industrial waterfront but was given a limited mandate and a limited time frame. WT is a provincial corporation with significant limits to its powers. The federal, provincial and municipal governments are equal, non-equity share partners of WT. It is prevented from borrowing money on its own (a power enjoyed by many other public corporations) or using its assets as collateral. It also lacks the power to create subsidiaries – a power that Sidewalk Labs, as a regular corporation based in the United States, is regularly using in its Toronto ventures. 

All three levels of government must approve each project, separately, and must approve each disbursement of government grant money even when the overall funding package had been previously approved.

In short, WT is not equipped to pursue entrepreneurial projects, very much in contrast to what is widely regarded as the mother of all arms-length public corporations, the Port Authority of New York. Governments have WT on a very short leash, even though the same governments justified the formation of the agency by claiming that private sector expertise and methods would greatly accelerate and improve waterfront revitalization. Expecting an agency to be nimble and entrepreneurial but giving it little financial and legal autonomy was perhaps a recipe for trouble. 

WT’s 2014-2023 Strategic Business plan, setting out the entity’s long-term plan, may help to explain the decision made by its board in 2017 to walk blindly into an undefined partnership with one of the world’s savviest and wealthiest companies. That 2014 plan tackled head-on the existential crisis (one rarely mentioned in routine communications): the agency had been legislatively set up to have a limited 20-year lifespan, with the potential for a 5-year extension. The hefty government contributions that had fed it since its inception were supposed to be drying up around 2019-20. 

But even before that, in 2014, when Stephen Harper’s penny-pinching conservatives ruled in Ottawa, the continuation of government largesse could not be counted upon. So the big thinkers at WT presented a strategy for institutional survival, labelling it Waterfront 2.0, and argued, yet again, to be granted power to borrow money on its own, to use its assets as collateral for loans, and to create subsidiaries. None of powers were given to WT, although it was allowed to borrow $40 million, as a one-time concession.

The strategic business plan focused on, as an unfunded but necessary future project, the extension of the Queen’s Quay LRT east to Cherry Street – a priority mentioned by one of our interviewees, who also added that if the province failed to cooperate, the federal government might sell off some of its scant remaining assets on the waterfront to fund the LRT. The other big priority was flood proofing the Portlands, which at that time was anticipated would cost about $765m. In an almost final act of cooperation with the waning Liberal Ontario regime of Kathleen Wynne, the federal government announced, in the spring of 2017, a multi-year flood protection project.  

WT did not get the increased legal powers that it argued – quite correctly—were needed for a transition to a self-sufficient agency. And the philanthropic revenue that in 2014 was imagined as filling the gap between desire and reality did not materialize in any significant manner, as the 2018-19 corporate plan and the 2017-18 financial statement reveal. The quest for greater financial independence from governments may have contributed to the hiring of Will Fleissig, a US private sector manager with no Toronto experience. 

Fleissig was not alone in infusing entrepreneurial habit and norms into WT. WT’s board, appointed by the three levels of government, all new as of 2016, is very heavy on finance and real estate, with no environmental folks and no affordable housing advocates. 

SO WHAT WAS BEHIND THE 2017 DEAL? AND WHY DID THE BOARD THINK IT WAS A GOOD ONE?

The scholarly literature on bureaucracies suggests that the first concern of every publicly funded entity is to preserve its own existence. A large-scale deal that might grow to include all manner of new sources of revenue including software products or income from rental housing might look like a godsend, especially for senior staff accustomed to big private-sector salaries made up mainly of public funds. But the self-interest of senior staff would not suffice to ink the deal. 

Sources suggest that in, respect of the Sidewalk deal, the federal government has been guiding WT’s work more than the other two partners. Indeed, two well-placed informants we interviewed (one public sector, one private sector) claimed that the Prime Minister’s Office itself, not the Ministry of Infrastructure or the federal Waterfront secretariat, initiated the smart-city deal with Sidewalk Labs. We do not know, however, why or how WT board members went along with the proposal. Unlike government officials, WT’s board members are not accountable to the public and are limited in what they can disclose (although Julie Di Lorenzo, a board member who came out of the private real estate sector, resigned in protest, stating –as recorded in WT board minutes-- that even board members had barely any time to read the documents before being asked to vote on partnering with Sidewalk).

Whoever initiated the deal, the fact is that those on the ground felt a great need to keep the deal private. Throughout, WT senior staff have refused to answer even the innocuous question of what criteria were used to award Sidewalk the project. For example, WT Vice President Kristina Verner said, at a large public meeting, that there were no specific criteria in the choice of partner, it was just “a general impression.” In their public appearances and in the available documents, WT senior staff give the impression that they do not even know how unprecedented it is for a public entity to give the private sector power to define a project in advance --and to then withhold all relevant information including the criteria used to choose the ‘winner’. 

Despite the secrecy surrounding the terms of the agreement, a lot of opposition quickly developed to the very idea of entering into an agreement with a US behemoth long known in tech circles for jealously guarding the secrecy of its key money-making tool, that is, the algorithms used to give greater or lesser visibility to businesses and other entities seeking a place in cyberspace. Local tech expert Bianca Wylie, a de facto leader trying to hold WT accountable in regard to the digital economy, has long chided WT by saying “you don’t let a vendor set policy”. This is a key point. In normal procurement, a public entity decides what it wants (a small park at the X street corner; a single-family home subdivision in Y township; a prison in town Z) and then they issue an RFP (request for proposals) for that specific project. These days public agencies are supposed to encourage creativity in design and construction, so the RFP’s may not be overly prescriptive. But decision-making power, in the sense of deciding which specific public needs will be met and which will remain unfunded, rests with public authorities, such as ministries and municipalities. That is what ‘procurement’ means.

WT was therefore ignoring the normal Canadian paths of infrastructure planning and urban development by announcing a ‘partnership’ for a wholly unspecified overlapping set of projects, said to include such non-digital things as health services and transit. As Blackberry founder Jim Balsillie pointed out, the WT board did not possess sufficient experience with the digital economy and intellectual property to be able to properly guard the public interest. Vague promises of openness and accountability on the part of Sidewalk took the place of hard and fast contractual provisions spelling out who is to build what, who will assume what risks, and who will take home what profits.

THE RHETORIC AND THE REALITY OF PARTNERSHIP

There’s much confusion about the extent to which WT and Sidewalk are acting together or separately on the smart-city project. So let us bring a modicum of clarity to the mystery on the waterfront. ‘Sidewalk Toronto’, the name both of the ‘partners’ routinely use to refer to the smart-city project, is not a legal Ontario company, despite having a cool logo that makes it seem that it is incorporated. Instead, a Sidewalk Toronto Limited Partnership (LP) is registered in British Columbia, with scanty information available. The corporate registry includes only the name of the “general” or decision-making partner, which is Sidewalk WT Master Developer GP, Ltd. and its mailing address, which is, wait for it -- that of Google itself, or legally speaking, Google LLC.  

We do not know what connection Waterfront Toronto has to this entity, if any. The LP was named, together with WT and Sidewalk Labs, in the Framework Agreement, the agreement kept secret for a year. In the Plan Development Agreement (PDA), released in July 2018, the LP was not included as a party. In addition, the PDA states that Waterfront Toronto and Sidewalk Labs were, at the time of the executed development plan, independent contractors and not in a partnership, agency, employment or joint venture relationship whatsoever. It is unlikely that WT is a limited partner of the LP (limited partners being also known as ‘silent’ partners, who do not make decisions). Despite requests, we have not been given any information on the structure, partners, and purposes of the LP, or WT’s stake in it. More likely, the LP was created to limit the liability at the same time as maintaining profitability for Sidewalk Labs – an American company incorporated in Delaware and whose headquarters are in New York City. Under the PDA, the $50 M US invested in Quayside flows through Sidewalk’s limited partnership. 

If this sounds like Sidewalk funding itself, well, that may be indeed what is going on – especially since early reports revealed most of the initial funds were going to hiring staff from or in New York, such as the two app designers who built the two open-access apps revealed to much fanfare by Sidewalk leader Rohit Aggarwala. The question is: what is the benefit, then, for WT and for Torontonians generally?

Limited partnerships also have tax advantages over regular corporations. Whatever the reasons why the Google lawyers chose to set up Sidewalk Toronto as a limited partnership, the bottom line for locals, and indeed for the long-suffering taxpayers of Canada, who have sunk hundreds of millions into waterfront revitalization, is a lack of transparency into how much money is going into WT’s own coffers, contrary to the ambitious aims of Waterfront 2.0 and the initial hype about $50 million USD. One searches recent financial statements and corporate plans in vain for any sign of Sidewalk or other US money flowing to the public agency, either now or in the near future. 

Money flows may change over time; but the take away is that there is little evidence thus far that Sidewalk Toronto is a public-private partnership, legally-speaking. This would help to explain the vagueness of the dreams of US dollar revenue contained in the July 2018 PDA, to the effect that WT will have “the opportunity” to share in the profits that will flow once gadgets have been piloted in Toronto. We have found no evidence of future profits for WT. And worse: the Globe and Mail reportedthat despite the vague promises of profit sharing made in the July 31 agreement, “a new document obtained by the GM [in August] asks potential building design partners to hand over all rights to their designs’ intellectual property, and with it, the potential to further commercialize that work on subsequent projects world-wide”. If handing over the IP is “not possible”, the article continues, Sidewalk will have an exclusive royalty-free world-wide licence to use the innovations. 

Thus, whatever its public discourse, when actually preparing to do serious work, like contracting out design work, it is unclear how a public agency or government would derive any financial benefit. 

The misleading talk of ‘partnership’ should be replaced by clear facts. There is indeed a publicly available agreement, dated July 31, 2018, but this document, which admittedly is somewhat more in keeping with the public interest than the secret initial agreement, does not bring Sidewalk Toronto into legal existence, and neither does it fully spell out who assumes what risks and who takes home what profits. It is essentially a commitment to work towards a final agreement. It is not a legal partnership or a contract.

And neither does the “Plan Development Agreement” have the status of a planning document, despite its name. Provincial legislation gives much planning power to municipalities, including the authority to create binding land-use plans for districts such as Quayside. All precinct plans and development applications must be consistent with city policies such as the Offical Plan and the Central Waterfront Toronto Secondary Plan. Technical standards for infrastructure, buildings and utilities must also be followed. 

If exceptions to rules are being sought, City council has the final say on all necessary zoning amendments and other legal changes. The city is not a party to the PDA, but has stepped in, rather quietly but firmly at key moments to remind WT that the city is in charge of planning decisions. The city also has strict procurement policies to prevent pre-cooked backroom deals, and these may become relevant when council is considering the Quayside plan.

As if the legal status of the ‘partnership’ were not sufficiently murky, there is more than one Sidewalk company floating around the waterfront. The new City Council needs to ask Sidewalk and WT serious questions not just about the mysterious status of Sidewalk Toronto but also about the equally troubling status of a variety of Sidewalk-affiliated companies that have not done much if anything yet on the waterfront but have been extremely frequent visitors to the mayor’s office. 

SIDEWALK’S REACH

New York City’s Sidewalk Labs has a finger in many corporate pots, including countless subsidiaries and affiliated companies. Google / Sidewalk Labs’ corporate reach is especially striking given WT’s inability to form subsidiary companies on its own.  The full extent of Sidewalk Labs’ reach and the implications for Toronto are not fully known, mostly because the information has not been disclosed to the public. So we went on a scavenger hunt, conducting corporate searches in Canada and the United States. 

A company called Sidewalk Labs Employees LLC, a BC-based company, has an $2 lease interest in 307 Lake Shore Blvd E., a parcel of land located in Quayside which serves as the office and “experimental workspace” of Sidewalk Labs. As the website notes, “This is where we work every day, exploring many of the ideas that might become part of a future neighbourhood.”The parcel changed hands shortly before the initial Framework Agreement was entered into. The lease agreement mentions that there are other “terms, obligations, agreement and commitments” between the owner of the property and this BC-based Sidewalk company. We don’t know anything more about these parties or how they relate to Sidewalk Labs or WT, and this interest has not been publicly disclosed. The PDA affirms that WT owns only part of Quayside and that the agreement “does not create any real property interest in Quayside WT and that the Sidewalk Funding Commitment does not constitute a payment towards any real property interest in Quayside WT.”Quayside WT is only the land owned by WT, not the parcels in the rest of Quayside. The final agreement between WT and Sidewalk Labs will eventually include proposals related to all Quayside lands. Right now, there is no mention of this existing lease interest or why the rent is only $2. 

In the meantime, three companies related to Google and Sidewalk Labs are registered as lobbyists at Toronto City Hall. These lobbyists, urban health initiative CityblockHealth Inc., urban transit systems company Flow Inc., and digital infrastructure company Intersection ParentInc., which have either received investment from or are subsidiaries of Sidewalk Labs or Alphabet. Founder and CEO of Sidewalk Labs, Dan Doctoroff, is a board member of all three companies. According to a scathing Logic article published in June 2018, Sidewalk Labs and theseGoogle-networked companies have had over 18 meetings with recently re-elected Mayor John Tory, and the mayor also flew to New York to visit Sidewalk Labs’ headquarters. The existence and intentions of these affiliated companies has not been discussed in connection with the Waterfront Toronto-Sidewalk Labs partnership, nor is it clear whether the lobbyists specifically discussed Quayside.

In addition, Sidewalk Labs Employees LLC (a different company than the one who entered into a lease), recently filed 19 lobbying communications reports with federal departments. These reports had CEO Dan Doctoroff’s name on them.

Google’s network of subsidiaries and LPs lies in stark contrast to the powers held by Waterfront Toronto. In WT’s ten-year strategic plan, entitled Waterfront 2.0, WT sought legal power to create subsidiaries as well as the legal power to float bonds or otherwise borrow money on its own. This request was not granted. 

Sidewalk has huge advantages not only in annual revenues and digital expertise, as is well known, but also, what is not so well known, in legal powers. Going forward, we can expect ‘limited partnerships’ and subsidiaries incorporated in corporate-friendly US states and Canadian provinces to proliferate on Toronto’s waterfront. And there are few mechanisms right now to demand more transparency from Sidewalk, its ‘sisters’ and its offspring, never mind accountability. One can only conclude that the governance structure that underpins – and simultaneously obscures-- the ‘smart city’ project is such that the citizens of Toronto, and citizens and corporations in Canada more generally, are likely to lose out, and not only in terms of privacy lost to potential sensors built into the streets and buildings throughout Quayside. 

Let’s call it out: Sidewalk has no legal obligation to make their corporate games visible in Canada.And we should not keep hoping against hope that Sidewalk will somehow go against type and decide to be transparent and benevolent. But there is a large, long-established public agency whose staff and board are by law supposed to serve the public interest. This entity is Waterfront Toronto. They should not be allowed to evade their responsibilities. And, if they continue to do so, the governments that created WT must rein in the project. 

There are signs that this may happen, perhaps through the province’s audit, the city’s interventions, or opposition at the federal level.

Let’s hope that they do so, soon.