Brother, Can You Spare A Billion

It should be interesting to hear what the Michigan Legislators have to say about the hearings when they make their statements.

In the end, it appears to me that what it comes down to is one thing: FINANCES!

The obvious question to ask is why is a crossing, other than a Twinned Bridge, even being considered when the Americans for a decade have spent hundreds of millions of dollars building the Ambassador Gateway project. That project was designed to accommodate the Twinned Bridge.

Can you imagine the scandal if the Ambassador Bridge was "public" and some bureaucrat or politician suggested building another bridge a mile down the road and spending millions studying the concept even after the President's designate refused to give his concurrence to build that bridge and not revealing that refusal for 6 months? It would never happen.

Can you imagine the scandal if the Ambassador Bridge was "public" and some bureaucrat or politician suggested building another bridge a mile down the road and spending a total of $3 billion or more on both sides of the river for the project even after the President's designate refused to give his concurrence to build that bridge? It would never happen.

Can you imagine the scandal if the Ambassador Bridge was "public" and some bureaucrat or politician suggested building another bridge a mile down the road and spending a total of $1 billion or more for the project (with Michigan's share being at least $200 million) when the State could receive up to $2 billion in Federal matching funds if the Bridge Co. undertook the building of a bridge using private money? It would never happen.

However, since the Ambassador Bridge is "private," it is happening!

Some months ago I did a BLOG questioning the financial viability of a new crossing in the first place using DRTP numbers as a test case. [BLOG January 20, 2006 New Border Bridge Financing 101.] And speaking of DRTP, how can they be serious with their "enhancement"---their tunnelled DRTP--- unless the Canadian Government will finance it all. I thought that Marge Byington suggested a number of $2 billion for the cost of the enhanced DRTP at a previous Lansing hearing. They need a $150 million handout with a 2-lane above ground truck expressway. What do they need with a 6-lane tunnelled corridor: total life support!

I bring this issue up because at the last hearing, Citigroup, the Bridge Co.'s financial advisor, provided their views as to financing via a letter that was introduced as part of the Bridge Co. package.

Because of the costs that the DRIC project would have to pay out for plazas, land acquisition and freeway connection charges, Citigroup estimated that the DRIC project would cost about 3 times more than that of the Twinned Bridge.

If the new bridge competed with the Ambassador Bridge, Citigroup assumed the new one could capture 40% of the car traffic and 50% of the truck traffic for the sake of their analysis (although those numbers are suspect if there was true competition as shown below).

Citigroup thought that the new bridge would have trouble accessing the capital market without a government guarantee. Investors would wonder if the new bridge could be financially successful against the Bridge Co. which had flexibility to reduce tolls to retain traffic and still be profitable.

Citigroup projected a funding shortfall for the DRIC bridge of $965 million with billions in subsidies to make their plan financially feasible.

To cover costs without a government subsidy, the DRIC bridge tolls for cars and trucks would be about 60% higher than the tolls of the Bridge Co. Obviously, the Bridge Co. could take away a significant volume of traffic by lowering tolls and still be profitable.

In its conclusion Citigroup "call into question the economic feasibility of the DRIC Plan absent large government subsidies."

So much for the capital cost. How about the operating expenses? Of course, no one has, so far as I can recall, talked about how much such a new crossing would cost in day-to-day expenses ie would it be more costly to staff 2 locations for car and truck Customs inspections rather than using the single International Center proposed at the Ambassador Gateway? Figure it out---with the need to fill a booth for 3 shifts per day and the need for support staff inside the office for each Customs officer in a booth, the costs are NOT cheap!

But this topic is for some other time!