The Butler Did It

That's the answer to the question: who let us know the DRIC bridge is on life-support.

Mark Butler of Transport Canada suggested in a Toronto Star article that the new DRIC bridge would cost $1-2 billion and that there would be a tender process for it. I am sure he was misquoted ie he probably said that a P3 was one of the possibilities and the cost of the Federal involvement--bridge and plaza--might be that amount.

Finally, it appears that the truth is starting to come out. For the sake of this BLOG, let's admit it's true.

Taking Butler's amount, it is up to 4 times higher than the cost for the Ambassador Bridge's Enhancement Project which means its tolls should be 4 times higher too (assuming fair and unsubsidized competition which, if not happening, would allow the Bridge Co. to sue for damages).

Who would ever use the highest cost crossing. Its toll would be comparable to that of the Truck ferry that few ever use because of price.

Get real now, no one will finance it either. Even if it got 50% of the truck business, which is higly unlikely, it would be in the red for millions every year for who knows how long. I am not really prepared to see my tax monies wasted for that to be honest. I would expect that if it survived, it could only do so by taking away business from all of the crossings in SW Ontario. That could result in financial problems for the Ambassador Bridge, the Detroit/Windsor Tunnel and the Blue Water bridge.

I have said this before but now we have some real numbers to work with so do the math yourself and see that I am right.

Use as your basis for calculation the OMERS benchmark rate of return for infrastructure investments which is 11.8 per cent. After all, why should a pension plan, the only ones with this kind of money accept less (In fact, why would OMERS want to invest in a this type of an asset when they can invest in other such investments and get an average of 23.2 per cent in 2005. Their DRTP experience should teach them that volumes are dropping).

Figure out the salaries and benefits of Customs officers on a 24 hour basis for each booth of traffic at the new bridge plus back-up staff. Add in maintenance, other operations charges, customs recovery charges, reserves amounts and so on. I will guess that it is not too hard to generate a figure over $150 million per year when everything is added in togther.

Let's also assume that the Bridge Co.'s revenues are $60 million since that is what Forbes magazine thought it was and Forbes cannot be wrong. Since traffic is not going up as DRIC projected, for the sake of argument, let's not factor increases in (If we add traffic in, then we have to factor inflation in too and things get too complicated). With a new bridge in play, let us also assume that each bridge gets 50% of the traffic. Accordingly, each bridge's revenue would be $30 million.

So unless my math is incorrect, there is a shortfall of over $120 million per year on the DRIC bridge. Errrrrrr who will pay for that deficiency? You and I, dear reader, in our taxes. Frankly, I can think of a lot better things on which to spend tax money. (Don't expect the Americans to pay half of the costs either. They have their financial woes. Ask the Governor)

Now be honest, who would suggest building the DRIC bridge at this financial cost when the traffic volumes are not growing and there is no foreseeable reason why they should rise dramatically to reach the DRIC projected numbers.

Come on, if the auto industry is in permanent restructuring mode, not the usual volume hiccup, shouldn't we rethink traffic volumes too.

I'll be the first to say it publicly:

THE DRIC BRIDGE IS DEAD!

Of course the West End activists and politicos will not believe me. They will need more proof. We need to look to the other side of the river for that.

We already know what Kwame has written to the Governor so we know what Detroit wants.

As for the Michigan Legislature, we know they passed one anti-DRIC piece of legislation which the Governor did not veto. But what the Star has never reported was the "No means NO" Bill also passed by the Michigan Legislators:

STATE OF MICHIGAN
93RD LEGISLATURE
REGULAR SESSION OF 2006
Introduced by Senators Prusi and Emerson

ENROLLED SENATE BILL No. 1081

• AN ACT to make, supplement, and adjust appropriations for various state departments and agencies and for capital outlay for the fiscal years ending September 30, 2006 and September 30, 2007; to provide conditions on those appropriations; to provide for the expenditure of the appropriations; and to repeal acts and parts of acts.
  
  The People of the State of Michigan enact:
  
  Sec. 1205. (1) Notwithstanding any other provision of law, the state transportation department shall not, directly or indirectly, expend any funds appropriated in 2006 PA 345, 2005 PA 158, 2004 PA 361, 2003 PA 162, or 2002 PA 561 to continue the Detroit River international crossing study project nor further participate in any manner whatsoever with the border transportation partnership.
  
  (2) Within 10 days of the effective date of this act, the department shall submit a report to the senate and house of representatives appropriations subcommittees on transportation and to the state transportation commission that identifies the source and use of all funds attributable to or expended in furtherance of the Detroit River international crossing study or the border transportation partnership. The report shall include copies of all contracts, agreements, and expenses associated with the project from October 1, 2003 to December 31, 2006.

Unfortunately life is not that simple. This section was merely a small part of a huge Bill passed in Michigan and the entire Bill was vetoed by the Governor since "lawmakers have not yet addressed a deficit looming from the early elimination of the state's Single Business Tax." In other words, it is part of a political game between the Governor and the Legislators.

Notwithstanding what may actually take place in Michigan, I would think that the Legislators' actions are a strong signal for what their position is. NO DRIC BRIDGE!

And then the US Transportation Secretary gave a speech recently . Here are parts of it that are relevant from a financial perspective:

• "Today’s challenges require us to rethink traditional tactics. Allowing the private sector to play a bigger role in funding, building, and managing transportation is one of the most promising options available to all of us.
  
  We have heard a lot about the private sector infusing much-needed capital into our transportation network. This pool of potential resources becomes more and more attractive as state budgets are stretched thin and gasoline taxes become increasingly unsustainable as long-term sources of funding.
  
  Of course, involving the private sector in transportation is about more than finding new sources of money. It is about promoting accountability and letting the free market deliver to transportation the innovation, cost savings, and quality it has delivered in other industries. As our needs continue to grow and public revenue continues to slow, it is an idea whose time has come."

I know, I know, Governments want a P3 at the Ambassador Bridge. Well, hello, they have had one for almost 80 years with the Bridge Co.! They have had a successful private investor there willing to spend its own money and who has made the Bridge #1 in border corssings. I am still waiting for a good reason why it should not be continued.

Is there a reason to replace one private operator with another? In the end, is that what DRIC is really all about?