Liveblogging Sidewalk Labs’ Master Innovation and Development Plan, Entry 14: The MIDP Overview V: The Partnership

In which Sidewalk Labs drops the sunny language and tells us how they want to get paid for their $39 billion plan, including for a very heavily qualified promise not to sell your personal information, the many, many new bureaucracies they want to create (and Torontonians to pay for), and the laws they want changed in order to make their dreams a reality.

Also, suggested questions for Waterfront Toronto! And an ultra-obscure 80s Canadian comedy reference.

Previous Master Innovation and Development Plan liveblog entries available here

Here are the section titles in this part of the Overview:

Section D: The Partnership

Part 1: A New Type of Partnership to Catalyze Inclusive Growth in the Digital Age (pp. 196-201)
Part 2: Summary of the Proposed Innovation and Funding Partnership (pp. 202-211)
Part 3: Summary of the Financial Terms (pp, 212-221)
Part 4: How the Proposal Reflects the Transaction Principles (p. 222-239)

A Vision of the Waterfront in 2050: A Global Model for Inclusive Growth (p. 240-249)

From the start, there was an unusual — and, for some, almost hard to imagine — alignment between the subsidiary of an American tech giant and an innovative revitalization agency in Toronto. Both shared an aspiration to deliver a project that served multiple bottom lines: measured not just in dollars but in the vibrancy and inclusivity of the community it would create, in the solutions it would pursue to address pressing urban challenges, and in the path forward it would illuminate for Toronto and cities around the world (The Partnership, p. 198)

Despite the collegial talk of shared visions and unlikely alignments, Section D is where Sidewalk Labs drops the sunny, techno-utopian sales job and lays bare the extent of its outsized ambitions, reducing Waterfront Toronto to an afterthought to be eliminated or retrofitted to suit Sidewalk Labs’ needs. Waterfront Toronto had Quayside, but the IDEA District and the River District belong to Sidewalk Labs. Their rules; their game.

This section’s no-nonsense tone and total lack of artwork, save for a map of Sidewalk Labs’ desired domain on page 227, make it clear that these pages are the real overview, so one best pay attention.

Land-related issues

As the run-up to this section made clear, Sidewalk Labs wants to create an IDEA District, which would include Quayside plus a “River District.”

Of course, this proposal goes far beyond the original RFP, which only envisioned Waterfront Toronto using anything developed in Quayside, and possibly (likely?) working with its Quayside partner, to expand the Quayside development into the rest of the Eastern Waterfront. That Sidewalk Labs is not presenting a true standalone Quayside proposal should be grounds to argue that it has not fulfilled Waterfront Toronto’s stated objectives.
That said, this is probably why Sidewalk Labs has argued in the MIDP Overview that it is accelerating Waterfront Toronto’s desired timeline (p. 156).

Sidewalk Labs wants Google’s Canadian branch headquarters to be located on Villiers Island (500,000 square feet).

Given the actual Google’s central role in this bid, can we please stop pretending that Sidewalk Labs is anything but a division of Google, Inc.?

Sidewalk Labs would be the lead developer for Quayside and “Villiers West,” home of the Google Canadian branch headquarters. As lead developer in these areas, it would identify and oversee “sophisticated third-party operators and partners” (p. 206). Specifically, it would assume

responsibility for identifying operators and partners to implement the advanced power grid, thermal grid, and the other systems identified as vital to the success of Quayside and the Villiers West urban innovation campus, and to achieving the priority outcomes identified by Waterfront Toronto (p. 230).

This would put it, and not Waterfront Toronto, in a position to provide preferential treatment to its preferred partners.

Other companies can develop the rest of the River District.

As we’ve already seen, this land grab is justified on the grounds that Quayside isn’t enough to justify Sidewalk Labs’ time or money:

Quayside cannot support the estimated 6 million square feet of buildable area needed to catalyze the wood construction supply chain. A condo resale fee would likewise require time and unit resales to generate value to redeploy towards the below-market housing program. (p. 224)

i.e., they can’t deliver on the original RFP.

But while Quayside’s four blocks can serve as an effective demonstration project, the solutions offered in the plan only begin to meaningfully affect mobility patterns when linked to a larger street and transit network. Additionally, Quayside alone is not large enough to support the financing of the proposed LRT extension, a major, new public work; the density across a larger area is needed to cover the projected cost (p. 224).

delivering on this promise [of economic development] and creating new jobs requires a critical mass of space, resources, and investment, and a holistic approach to economic development that extends into broader geography (pp. 224-225).

Oh, and I almost forgot! It wants Quayside and Villiers West at a substantial discount, because of all the awesome things it is going to do for Toronto!

Sidewalk Labs expects to purchase (or long-term lease) the land in Quayside and Villiers West from Waterfront Toronto at a price such that the innovation risk and cost would be borne by Sidewalk Labs, but that also fairly accounts for the heightened public policy outcomes required, such as levels of sustainability and affordability unprecedented in any commercial development (p. 208).

No word on whether Sidewalk Labs will refund Toronto if its myriad promises don’t pay off. Remember: for Sidewalk Labs’ plans to work, self-driving cars have to become a reality, factory-produced timber skyscrapers have to become a thing, and the various levels of government have to agree to many, many legal changes.

Governance issues

This is the most important part of the proposal. Sidewalk Labs isn’t just a developer (it’s hardly that at the moment anyway) or a provider of technological solutions (albeit one with no track record). It wants to set the rules and the governance framework for their desired section of the Eastern Waterfront, and not just Quayside and Google HQ.

New government entities

Sidewalk Labs proposes the creation of several new government agencies and very many regulatory changes. According to Dr. Tusikov, who’s reading ahead, we won’t get to the granular details until the last pages of the final volume – please enjoy my surprised face – but this Part foreshadows some incredibly audacious asks.

Such as the designation by “government” (which would have to be all three levels) of a public entity to serve — or in the case of Waterfront Toronto, continue to serve — as revitalization lead for the IDEA District” (p. 203).

It’s always a shock when one realizes that one does not fit with the décor.*

This new entity would:

hold Sidewalk Labs and others working in the district accountable for performance;
steer innovation strategy; and
oversee the governance structures needed to manage new district systems.

It would also have “additional powers.” Rules (read: the laws of the land) would have to be changed “to enable critical infrastructure and innovative strategies” (p. 210).

I’m assuming that we’ll have to wait until the season finale of Volume 3 to see what these are. Still, bringing in the three levels of government and who knows how many agencies makes this proposal that much more difficult to implement. Laws cannot be changed overnight, even assuming that the political will exists.

Sidewalk Labs as co-equal level of government

Sidewalk Labs would work with this new entity to develop the Innovation Design Standards and Guidelines for the entire IDEA District.

Given Waterfront Toronto’s track record and Ontario’s lack of understanding of smart-city issues as laid out in the Auditor General’s report, it’s safe to assume that the development of these rules – which will govern development in the District – will be driven almost exclusively by Sidewalk Labs. Similarly, these agencies’ lack of independent technical capacity would threaten to create an unbalanced partnership.

Sidewalk Labs would also “support and advise the public administrator on achieving innovation objectives, providing advisory This role would involve advisory services, “limited technology deployment” (on which more below), and “optional infrastructure financing” (also see below) (p. 203).

It would also involve “preparing the technical specifications and performance requirements to guide innovative development” (p. 206). In other words, it would be responsible for setting standards that it could then export as a product, and which other companies and cities would have to adopt should it become a dominant standard.

“I ain’t in this for your revolution. … I expect to be well paid. I’m in it for the money.”– Han Solo, Star Wars

And there, on pages 220 and 221, is what has long been the Holy Grail, or Ogopogo, of the Toronto Smart City Debate: A straightforward explanation of how Sidewalk Labs will make its money from this project, a subject on which the for-profit company has played coy since the very beginning. Of course, being a key player in what we’ve established is an urban development thriller, there are more than a few caveats, but for the moment, let’s enjoy the illusion of solidity.

Sidewalk Labs revenue streams

Real estate development: “In delivering Quayside and Villiers West, Sidewalk Labs expects to receive revenue from the sources traditionally associated with real estate projects: rental revenue, income from the sale of condominiums, and income from the sale of individual buildings.”

Technology deployment: “The limited number of its own technology products that Sidewalk Labs deploys in the project would be provided at cost. For technologies that Sidewalk Labs develops and deploys at scale in Toronto that meet the testbed criteria, Sidewalk Labs proposes to share 10 percent of the profits with the public sector when that product is sold in other cities.”

They provide a bit more detail on intellectual property on page 237:

The MIDP proposes a two-pronged test to distinguish technologies used in the project that would be developed by Sidewalk Labs in the normal course, even were the project not to proceed, from those that arise because of the conditions created by Sidewalk Labs’ public partners. For a product that passes that test, the MIDP proposes that the public sector receive 10 percent of profits over a 10-year period following the sale of the product to a second customer (p. 237, emphasis added).

I’m sure I’ll have more to say later when I reach the relevant section of the relevant volume. For now, the question is, is this an adequate return on Canada’s investment?

Advisory services: “Advisory services provided to Waterfront Toronto by Sidewalk Labs in its role as Innovation and Funding Partner are proposed to be paid back, at cost, to Sidewalk Labs.”

This seems to include a 15-year agreement to provide ongoing technical, advisory, and management services for planning, design, and implementation in the IDEA District, including for advanced systems and certain other horizontal infrastructure (bullet list, p. 210; not in main text).

Implementation services (municipal infrastructure): “Third-party operators would compensate Sidewalk Labs directly for its role as lead developer of advanced systems in Quayside and Villiers West. This includes reimbursement for the costs to prepare the preliminary designs, plans, and specifications issued with the procurement documents for certain systems, as needed.

“In Quayside and Villiers West, third-party operators would also pay Sidewalk Labs an advanced system development fee applied as a percentage of project costs specified upfront in the procurement documents. This fee would vary based on the degree of Sidewalk Labs participation required.”

Implementation services (advanced systems): “For work managed by the public administrator in Quayside and Villiers West, and thereafter, Sidewalk Labs would receive a lower percentage (2 percent) of related soft costs for supporting the public administrator in integrating municipal infrastructure with advanced systems infrastructure.”

Venture fund seed funding: “This investment [$10 million], likely to be undertaken with partners, would have stand-alone economics and the same potential upside and risks as typical venture investing.”

Mass timber factory: “This investment, likely to be undertaken with partners, would have stand-alone economics and the same potential upside and risks as other investments in manufacturing.”

Optional LRT financing: “In the event government elects to utilize Sidewalk Labs’ optional LRT financing, Sidewalk Labs would receive revenue that reflects a market return for the magnitude and risk associated with the agreed-upon financing structure.”

Optional municipal infrastructure financing: “In the event government elects to utilize Sidewalk Labs’ optional municipal infrastructure financing, Sidewalk Labs would receive revenue that reflects a market return for the magnitude and risk associated with the agreed-upon financing structure.”

Optional advanced systems financing: “In the event a SIP financing package was utilized to implement an advanced infrastructure system, SIP would receive revenues related to the operation of that system, to provide SIP an opportunity to achieve a standard market return associated with the financing of a project of such magnitude and risk.”

Performance payment: “In the event of final stage-gate achievement and delivery of success for the overall project, as defined through a series of metrics agreed upon in the Implementation Agreements, Sidewalk Labs expects to receive revenue in the form of a performance payment.”

Nothing comes for free (I): Your privacy or your cash

Sidewalk Labs’ MIDP is an audacious document. Its most audacious aspect is doubtlessly its call for the elimination of the organization, Waterfront Toronto, to which Sidewalk Labs is submitting its report.

A close second, though, is Sidewalk Labs’ justification for a bonus “performance payment.” “This payment would compensate Sidewalk Labs for catalyzing the acceleration of development within the IDEA District, and its achievement of performance targets tied to Waterfront Toronto’s priority outcomes.” Performance payments would be “returns on investment above and beyond revenues tied to specific components of the project (such as real estate development on Quayside and Villiers West)” (p. 228). In other words, Sidewalk Labs wants more money for doing the job for which it was hired, above and beyond the sweet data, products and IP it will generate from what is, at the end of the day, a privatized urban laboratory.

Then again, CEOs are given bonuses for doing less all the time, so whatever.

No, what raises its demand from routine, numbing audacity into the realm of sublime audaciousness is its claim that it deserves these payments because it has structured the business model, in response to feedback from a range of stakeholders, in ways that limit its opportunity for upside elsewhere – by forgoing revenue streams that might be less directly connected to the public interest or sought by more conventional companies” (p. 238).

And what has Sidewalk Labs given up? Read on:

Sidewalk Labs limits the amount of real estate the company would develop to two small pieces of the overall project; seeks no real estate interest in the remainder of the IDEA District; puts urban data under the control of an independent entity; makes a number of constraining unilateral commitments with regard to the commercialization of data; and does not seek special tax subsidies.

It also reflects the unusual nature of certain early investments Sidewalk Labs will have made with no direct opportunity for a return, including its spending to develop this plan (acting as seed funding for the project), to subsidize advance infrastructure systems at the Quayside and Villers West scale in order to prove their viability while maintaining reasonable user rates, and offer advisory services at cost (p. 238).

This last part is a bit rich, since only a page later Sidewalk Labs claims that “This planning work was paid for by Sidewalk Labs with no promises of approval, because as a company, Sidewalk Labs believes there is no better opportunity in the world to show the way forward for the future of cities.” But if it can get paid on the back end for this work, then why not?

It’s really hard to read this as saying anything other than this performance payment is the price Torontonians have to pay for Sidewalk Labs/Google not sucking up everyone’s data and plastering advertising upon every imaginable surface (unless people give their “explicit consent”). Those less generous of spirit might suggest that that Sidewalk Labs should not be compensated for heeding Torontonians’ wishes for their city, especially given the dubious nature of what they’re passing up – selling Torontonians’ data to shady third parties; subjecting IDEA District interlopers to inane personalized ads.

More positively, I’m looking forward to seeing Google’s determination of the cash equivalent of our privacy, i.e., how much it thinks our data is actually worth.

Nothing comes for free (II): Overall costs and Sidewalk Labs’ financing role

Conspicuously absent from this report until now has been the overall cost of the project, which Sidewalk Labs pegs at $39 billion on page 215. Costs and expected sources of the funds can be found on pages 216 and 217.

Of particular interest, and understanding that later volumes are needed to understand fully these numbers:

Cost to taxpayers, light rail extension: Sidewalk Labs wants taxpayers to be on the hook for at least $430 million financing (plus interest) for the light rail transit. [Note: I think this number might be larger?] Sidewalk Labs is offering $100 million in possible financing (i.e., loan provision to taxpayers).
Cost to taxpayers, municipal infrastructure: The infrastructure cost to the city would be $2.3 billion (Waterfront Toronto’s pet project is getting pricey).
Mass timber: Sidewalk Labs (and partners) will invest $80 million in a mass timber factor.
Sidewalk Labs’ investment: Sidewalk Labs (“and its partners”) commits “over $900 million” (much of this being the provision of financing, I believe) to the project, and to reinvest “over $2 billion of proceeds received as the project progresses”
Urban Innovation Institute: It will provide an $10 million in seed funding for an Urban Innovation Institute
Venture capital: $10 million, alongside other institutional funders, “including one or more local venture firms” to invest in local urban-innovation startups.

Waterfront Toronto: You had two jobs…

This Overview is a demonstration of Sidewalk Labs’ audacity, to be celebrated or regarded with amazed horror depending on your opinion of the specifics. It is also, however, a condemnation of Waterfront Toronto’s total lack of vision for its small parcel of land, and its abdication of its fundamental responsibility: to actually govern the land under its control.

The most revolutionary parts of this proposal aren’t technological – these technologies will either work or they won’t. Rather, they’re regulatory and bureaucratic. If Waterfront Toronto really wanted to build a smart city – and there are plenty of reasons why embracing this form of techno-utopianism is not a good idea and won’t age well – the should have studied the issue and brought the expertise in-house.

Instead, they outsourced their core regulatory responsibility to plan for the future. They are in the midst of outsourcing their other core responsibility, to regulate the land under their control, possibly leaving a private corporation in effective control over a significant part of Toronto’s waterfront. A corporation that, like all responsible corporations, will attend to its bottom line first and last and always.