Thoughts and Opinions On Today's Important Issues

Thursday, April 17, 2008

Show Me The Money

I know that I have a broad readership including people from the other side of the river. However it is not very often that I get notes from them about what I write.

Imagine my surprise then when I received a note from a Detroiter in which I received a very gentle scolding. The gist of his note was why I was attacking the transaction over the Tunnel deal. He said that the deal was good for Detroit, presumably because it helped out Detroit on its budget issues, and gave Windsor advantages. He thought that we on our side ought to be applauding our City Government for this and then asked in the end:

  • "tell me where I am wrong?"

To my reader in Detroit and to you, dear reader, let me say that there is a big difference between me not supporting the transaction and attacking the transaction. I'm still at the stage where if I can be convinced that the transaction made sense I could support it. Unfortunately I'm not at the stage. Just wait until I start opposing it if I think it is a dumb deal and will hurt this City and me personally as a taxpayer.

I am aware that a number of infrastructure transactions have been arranged. The P3 deal in Chicago that gave that City almost $2 billion is obviously well-known in Windsor and Detroit City Government. The concept might well have worked here (although many commentators object to P3 deals since they do not all work as well as claimed) and might be something I could congratulate our Council for achieving. In fact, if it had been done years ago when the Mayor said the Tunnel on our side I believe was worth $2-300M, I would have been happier.

What I would say to my Detroit reader is very simple. What is the deal? What is the transaction? Is it a P3 lease, is it a sale, is it a loan, is it a combination of all of these or is it something different? How does Windsor make out well financially. Is some MBA going to give me a spreadsheet of traffic and revenue projections for the next 75 years showing barrels of money coming in.

You know what I think about those projections after DRIC's traffic projections proved to be so incorrect. I have not got the faintest idea what is going on. Even the Detroit Mayor recently described the deal in different terms only days apart. To be blunt, if the deal is that good, why would Detroit settle for just $75M? Is our Mayor taking advantage of a friend because of YOUR financial problems?

To be blunt about it, I have never signed a blank cheque in my life and I don't intend to do so now.

Let me even be more direct... while I have the utmost of respect for my neighbours in Detroit and understand their financial problems, I happen to live in Windsor. I see no reason at this time to help solve Detroit's financial problems by putting the burden on Windsor taxpayers in a transaction I do not know anything about.

I am a Windsor taxpayer. I really have no desire to see Windsor close to bankruptcy if this or other big transactions fail or to see our taxes rise dramatically to cover the losses. We have seen that already on Canderel and MFP. I ask my friend in all seriousness, would he help us out in Windsor in the way he is asking me?

I assume that I and other Windsorites are to take comfort from these remarks by the City's outside lawyer:

  • "I've said all along from square one I will not recommend a deal to the city of Windsor that did not make business sense," he said. "My intention has not changed.

    "In all of these negotiations everything I've done is with that in mind."

I am certain that Mr. Sutts means that. His reputation as a lawyer in Windsor is extremely high from what I know. I remember his advice on one of the arena deals a long time ago that he did not like from a business perspective and he said so.

However, with all due respect to Mr. Sutts and his abilities, I am surprised at his remark. I thought he was hired as a lawyer. Was he also hired as a business consultant? What are his qualifications to advise from the business perspective especially on long-term infrastructure deals involving both sides of the border? If he wants to provide a real assurance on the business side, put something in writing to that effect and have his partners back it up in writing as well! Let him assume the business risk and liability if the deal goes sour. Words in the Windsor Star do not give me personally comfort no matter how well-intentioned they are meant to be.

It is very simple my Detroit friend, if you want my support, show me the money. Show me how Windsor does well on the transaction when the City looks like it is going to be borrowing and putting our financial position at risk in the amount of $75 million or substantially more in my view, but of course I don't know.

This has nothing to do with the personal issues that the Detroit Mayor has. This has nothing to do with the controversy between the Detroit Mayor and the Detroit Council. I'm not choosing sides since I have very little information to go on other than what is said in the media. This has everything to do with not knowing what the business transaction is.

Let me make my Detroit friend a little bit aware of some of the reasons for my skepticism. He may not know that this Mayor and Council have been criticized severely, including by the Windsor Star, of lack of openness and transparency. My simple question is that if this deal is so good for Windsor why hasn't the Mayor explained fully to the people by now. He can use some good press.

I have to wonder how bad things are in this transaction since it was supposed to close in June 2007, is still not closed and may not be closed for some time since the City does not have a financial source for the borrowing. I assume that the City or perhaps even Detroit or its consultants have been trying to find the money. To go to the Province of Ontario, after the Feds have turned down being involved in the transaction, suggests to me that no private investor wants to be involved and that this is the lender of last resort for this transaction.

My dear Detroit friend. I have this sneaking suspicion that Windsor doesn't have much free money to play with and yet we are prepared to put the City at risk for a borrowing of $75 million. We did not have enough money today to invest in moving the University's Engineering Complex downtown. We do not have $30 million to put into a Jobs Today fund today to help get our people back to work since our unemployment rate is about the highest in Canada. We don't even have enough money today to put into the Tunnel Improvement Project and deferred it for a number of years even though the Senior Levels are committed to paying two thirds of the cost estimated at $30 million. Well, that was the sum of money some time ago and is more today I would bet.

You may not know this but we are building at taxpayer expense a new East End Arena that is supposed to cost $65 million but few really believe that amount when you add in all of the costs including roads and infrastructure. It was supposed to have been a P3 deal downtown on land already expropriated by the City with the City's maximum exposure at $15M. Many of us expect the costs to increase dramatically. Our Treasurer warned Council that we really have no money to do anything else if we intend to pay it off according to the very tight schedule that Council demanded. And you want me to support the borrowing of $75 million? I as a taxpayer am already being the Bank for the City through my taxes so that the Mayor might impress S&P.

We want to reduce borrowings and increase reserves which are very low in comparison with other cities after increasing water rates by 86% to fund almost $850M in watermain charges. And you ask us to fund this deal too on blind faith!

In one of my BLOGs, I estimated what the Tunnel is worth with my uneducated appraisal perspective. It was nowhere near $75 million for our side. I take some comfort in my numbers from the fact that the Bridge Company offer was less and that our Federal Government walked away. Can you imagine my shock when the City rolled over the Tunnel to a subsidiary in an amount over $100 million. I asked for a copy of the valuation but I have not received it.

Why not dear friend? What's there to hide since it really is the asset of taxpayers? I have noted that the valuation was done as of June, 2007. That was eight months before US DRIC said that its new bridge would take away about a quarter of the Tunnel's business. They did not say how much the Ambassador Bridge would take away as well if the Bridge Company had to compete against the DRIC Bridge for car and truck business. Already, the Tunnel's tolls are higher than that at the Bridge. If the tolls increase at the Tunnel, how much more market share will they lose? I estimate a charge of at least another dollar per car to cover interest costs based on 5M cars per year. What if we cannot pass that amount on or lose traffic to the bridges? Who pays the interest?

A couple of years ago, and you may not have been in attendance, our two Councils met in a Joint Council Session and the idea of a joint operation of the Tunnel was hatched. I was there to listen. At that time, I believe that Detroit was told that the dividend that Windsor received from our operation was in the range of $6 to 7 million. Do you know how much our dividend is today from the Tunnel: $0! The Tunnel's market share is dropping like a stone and even with extensive advertising and the Ambassador Gateway project under way, it still has lost more business year to date compared with last year. Can you explain that to me?

I have written this before but I do not believe that this City is capable of entering into a sophisticated financial transaction without a mess occurring. It should be fascinating to see the terms of the agreement with our hockey team that was wrapped in confidentiality until the Ontario Privacy Commissioner made a decision that it should be opened to the public.

We have had huge losses with a public-private partnership called MFP. Our showplace building on the river that you can see from the Detroit side has been a fiscal mess that cost us millions. The Mayor was involved when he was a Councillor and a Tunnel Commissioner in doing a deal with a garage near the Tunnel that cost us millions. He gave away our Cleary Auditorium at a value of many millions to a local Community College. I never understood the Greyhound Bus Company deal where they obtained a 50% interest in our funky bus terminal. If you want cheap parking when you dine in Downtown Windsor, ask a server at the Keg restaurant about the five cent parking deal.

My dear friend, with that kind of a track record do you expect me to support a transaction that may cost the City dearly without knowing anything about it.

Let me ask you to give me an answer. And this has been asked of me rhetorically by other of my readers. If we have to borrow $75 million, or more because the City has to make something on the deal, how do we pay it back? The interest charges alone depending on the interest rate will be several million dollars a year. Where does that come from especially when maintenance costs will increase dramatically given the life of the Tunnel. Repairs at the Tunnel ventilation building cost many million dollars more than originally budgeted. What happens if there is not enough money to pay the interest? What then?

There are more things I could say to you but let me tell you why I personally am very troubled by the transaction. It all has to go with faith in government and of government. To be blunt, I personally have little faith in our Mayor and Council and I have little faith in them on this deal from what I have seen to date. Just look at my criticism about how they are ruining this City by the stalling on the border crossing issue. We need jobs and we get an advertising campaign.

I have made a complaint to the Meetings Investigator. My issue is very simple. Why didn't the Mayor tell people that a public meeting was going to be held to discuss the rollover of the Tunnel to a new Tunnel Corporation.

As was quoted in the Star before the session, he told us that there was going to be discussion about incorporating a company and that it needed to be held in camera. I guess that he forgot that there had already been such a discussion and that it had been held in public many months before. I guess that he forgot that the Canadian Tunnel Company had been incorporated in the fall of last year. Perhaps he was talking about the US Tunnel Company but he already had permission to incorporate one on the US side. After the meeting he told us that there were conversations about the negotiations in Detroit. It was only because subsequently I asked for and received the Agenda for the meeting that I was shocked to find out that in fact the rollover was discussed. For some strange reason the Minutes of that meeting had not been posted although the Minutes of the meetings before and after were.

I won't bore you with my complaint about what happened to my deferral request on another Tunnel matter when it appeared that several members of Council were in a hypnotic trance such that the Mayor had to poke them to let them know that they had already agreed to defer my request.

Why is our Mayor so afraid to have me and other members of the public appear as delegations to talk about such a huge transaction. Is there something wrong with it, will we be able to convince Councillors that they should not do the transaction. Oh by the way, our Councillors sometimes don't look at agreements even though they approve them, even on big transactions. That hardly gives me a feeling of comfort especially when I ask one of our Councillors to provide me with information that she claimed give her comfort when the legal bills that we are paying to our outside lawyer and consultants are in an amount of over $1 million.

I hope that this short note helps you out, dear friend. I am sure that there are other factors I could comment on but I trust that this gives you some insight into my thinking.

It is not that you are wrong. I would really like to help out my neighbour who has troubles. But I am getting no assistance in supporting you from my Mayor and Council so at this time I cannot support the deal.

Could I ask a big favour of you? As a Detroiter, our Mayor may well listen to you more than his own taxpayer strange as that may seem. Would you be good enough to write him and ask him why he is so afraid to let us in on the deal. Perhaps after I have seen the details, I could become a cheerleader too, just this one time!