How Public Bridges Set Their Tolls

I am so tired hearing NDP member Brian Masse's whinging about public and private bridges, especially when the public ones try to run like private businesses anyway.

I know, I know, Brian's Public Authorities are so wonderful too except don't forget my Blog December 07, 2005 "Only The Shadow Knows"

I am so disappointed that Brian did not compare the private Ambassador Bridge with public ones to see which is the best operator. [Blog January 12, 2006 "More On Public And Private"] But then again, if he did that, he could not complain any more and what would he do then?

Could Brian explain to us why truckers who have a choice between the public Blue Water Bridge and the private Ambassador Bridge, who supposedly charges higher tolls, choose to use the Ambassador Bridge even if they have to fight the traffic on Huron Church Road? Perhaps they recognize that the Bridge Co. charges more so that their facilities move them across the border more quickly! Pay a buck or two more at the Ambassador Bridge whose owner adds new booths, and fights the US Government to do it, to get you through more quickly or sit on Highway 402 waiting to get across the border!

Since I am one of his constituents, this exchange below with the Transport Minister will probably wind up in one of his pre-election mailings to show us what a great job he is doing for us in this Minority Government. Yes, asking questions but doing nothing else on the border. And please, he had better not try and tell us about his Bill C-3 amendment successes and not mention his Bill C-3 failures or else I will scream! [BLOG June 20, 2006 "Brian Masse In Action"]

• Mr. Brian Masse (Windsor West, NDP):
  
  Mr. Speaker, the private investment firm Citigroup recently commissioned a study on public and private ownership of bridges. The group study has concluded that private ownership increases the tolls 35% to 45% higher. Despite that evidence, the Minister of Transport, Infrastructure and Communities has now put the Windsor-Detroit border crossing, the most important one, on the auction block.
  
  What I want to know from the minister right now is this. Will he guarantee that the crossing there will be publicly owned, operated and accountable so we have the lowest cost fares and the busiest, most accountable border crossing?
  
  Hon. Lawrence Cannon (Minister of Transport, Infrastructure and Communities, CPC):
  
  Mr. Speaker, first, the government is committed to increasing Canada's competitiveness. The government is committed to being able to get our products and services across the border in the best fashion possible.
  
  We have indicated that we will look at the different options available and we will take the best decisions in Canada's interest.
  
  Mr. Brian Masse (Windsor West, NDP):
  
  Mr. Speaker, my community is not up for sale. This community deserves the proper crossing, and that is what the study proves. More important, it is the same practice across the country. Why is Windsor being treated differently?
  
  We have to signal to industry that we are serious about fixing this problem, and it has to be done with accountability and with support for the city.
  
  I ask the minister to ensure that there are no new toll roads and no new high toll bridges, where private pockets are lined at the expense of citizens.
  
  Hon. Lawrence Cannon (Minister of Transport, Infrastructure and Communities, CPC):
  
  Mr. Speaker, I would have expected congratulations on behalf of the hon. member.
  This morning I was with the provincial transport minister, Donna Cansfield, to announce the creation of the gateway for southern Ontario, another move that will increase Canada's competitiveness abroad.

Whew, good thing Brian stopped. I thought Brian was going to ask the Minister next about the border crossing fees in Windsor. Wow, would Brian ever have been embarrassed if the Minister had said that the return toll at the big, bad "private" Ambassador Bridge was cheaper than at the "public" Detroit-Windsor Tunnel. How would Brian explain that?

Let's take a look at how "public" bridges price their tolls. Watch as they talk about how they try to copy private enterprise. Watch how their tolls could be lower than you might think, watch how they are run by the interests of their bondholders. Watch as they charge what the market will bear! Frankly, it seems that bondholders are more important than users.

Public and "non-profit" may not be as beneficial as some think. Just remember also the stories I have written about the Public Authority abuses as well and read the horrific stories in the Commons hearings transcripts of public bridges that are under-financed.

1. Here's an explanation given in a hearing in the Ontario Legislature some years ago by the secretary-treasurer and Canadian officer of the Buffalo and Fort Erie Public Bridge Authority:
   
   "...most not-for-profit international bridges are already bound into major infrastructure expansion programs financed by private United States bond issues. The indentures already include fairly aggressive toll increase schedules over the next decade calculated to the maximum point of consumer resistance."
   


2. In front of the Commons Committee on Bill C-3, a BTOA rep said:
   
   "the resolutions authorizing the issuance of the [Niagara Falls Bridge] commission's bonds specifically require that the commission at all times charge and collect tolls sufficient to generate net revenues equal to at least 130% of maximum current or annual debt service and 100% of any deficiency in the reserve account....
   
   money required for maintenance of the spans comes from operating revenues, but I can tell you that all of my toll revenue is first pledged to the bond holders. The bond holders get paid before I do. The bond holders get paid before the bridge is painted. The bond holders get paid before we build facilities for Canada Border Services Agency.
   
   What I use to underwrite general maintenance and our payrolls, our IT department, and all of the things that are required to operate three international crossings is in large part our non-toll income...
   
   The third part of it is that we have built significant reserves in the past ten years as we have been getting ready for significant capital improvement. Those reserves have also thrown off some interest income, but we're about to deplete that, so you're right--then we go into the financial markets to float additional bonds for any additional capital construction that we need to accomplish."
   


3. Then in front of the Seante we heard this:
   
   Senator Zimmer: Thank you for your presentation, sir. I think your quantity and quality of answers are good.
   
   The questions are in the area of financial impact. Senator Eyton touched on the first part of it. I want to join the free enterprise club with him and Senator Mercer.
   
   My question concerns non-profit and not-for-profit organizations. As my colleague Senator Johnson from Manitoba knows, I am involved in many non-profit organizations. To me, gentlemen, you are smiling and sitting there too happy. I say because I would like to get an idea of the financial impact of revenues versus expenses on these bridges. Can you give us an idea of what volumes we are talking about -- not only rates but also amounts of revenues versus expenses and surpluses which will be, I presume, ploughed back into the maintenance repairs and infrastructure of bridges. Can you give us a general idea of what numbers we are talking about?
   
   Mr. Garlock:
   While we are private, public benefit corporations, we bring an entrepreneurial business-like approach to how we operate these crossings. I can tell you that at the Niagara Falls Bridge Commission there is a period from 1995 through about 2005 where our expenses dropped every year. A new general manager had been brought on and the board had a new and entrepreneurial business-like approach…We operate very much like private sector interests. As opposed to satisfying shareholders, we are trying to drop more to the bottom line to help finance our capital improvements.
   
   To give you a profile on the Niagara Falls Bridge Commission, it costs us about $13 million to $14 million per year to operate the three bridges. On top of that, we have debt service of about another $7 million. We drop everything that is left -- that usually runs about $12 million to $13 million -- to our capital reserves. Right now, we are carrying $90 million in debt from those 1992 bonds that were refinanced in 2003, but we have about $120 million in reserves. You say, well, that is a little bit outrageous. However, we are looking at $130 million that we will have to put into the Queenston Plaza and then turn around. While the Government of the United States ultimately pays for their facilities, we front the money and then they make us whole after the fact. Lewiston will run us $75 to $88 million. We also have a commission policy that we do not let our reserves drop below $60 million. The reason for that is twofold. First and foremost, it is to preserve our bond rating on Wall Street. That A rating is terribly valuable to us and saves a great deal of money for the toll payers in terms of interest charges.
   
   The other interest is if we had a catastrophic occurrence on one of the bridges we would be able to step in and have the financial wherewithal to address it very quickly.
   
   Therefore, our revenue stream is comprised of three components. First and foremost, tolls. Second, it is comprised of non-toll income. We have duty-free operators who lease space on the plazas from us, and we receive a percentage of their sales. That is a very important component.
   
   We also receive payments in excess of $3 million per year from the government of the United States for use of their facilities on the U.S. side. That is a payment reflective of our capital and borrowing costs, particularly when we rebuilt the Rainbow Bridge in the mid 1990s. That payment pays for such things as repair, maintenance and things such as utilities.
   
   Our third source of revenue is the interest income being thrown off by the reserves but being ploughed back in for capital construction.
   
   Ron Rienas, General Manager, Buffalo and Fort Erie Public Bridge Authority: The Peace Bridge is very similar in a sense that we operate much like the Niagara Falls Bridge Commission with private sector principles.
   
   Over the last five years, our expense line has gone down in large part to reflect the decline in traffic crossing the border. I am sure you have all heard about the decline of U.S. visitors to Canada. That is directly reflected in our bottom line.
   
   In summary, our total revenues are slightly in excess of $25 million. Our expenses are generally about $16 million or $17 million. That amount is ploughed back into capital infrastructure reserves.
   
   We have a total bonding capacity. We talked about building another bridge. Those are all known as revenue bonds. We can bond to a total of about $230 million to build a new crossing between Buffalo and Fort Erie. Our existing debt load presently is about $43 million, which we refinanced in 2005 and are presently paying an interest rate of 3 per cent as a result of municipal tax exempt bonds in the U.S.
   
   The big advantage of being an international authority is we can finance on the U.S. side without having to pay taxes on it.
   
   Senator Zimmer: One thing we have found with non-profit organizations is it is not a mortal sin to earn a profit. It is important to be good business people, even in non-profit organizations, because they will survive with a good posture and attitude.