Thoughts and Opinions On Today's Important Issues

Tuesday, April 15, 2008

Tunnel Deal Exposed

You would think that the Tunnel deal that was to close in June, 2007 would have everything ready to go but apparently not.

Lots to talk about with respect to the Detroit/Windsor Tunnel, including what I think will happen with respect to the financing and who might do it. It may be that the Province of Ontario is not only going to open a trade office in China but will be involved in an international border crossing. They must think that they are the Federal Government or something.

I have all kinds of legal questions on our side about whether or not the Regulations to the Municipal Act to supposedly allow a new City of Windsor American Tunnel Corporation to run the Detroit side actually give the permission requested. My view is that the Municipal Act itself must be amended in order to do so and that has never been done. I also have some doubt whether the rollover meeting was a valid one and that is why I sought to have the Agenda item at Council deferred yesterday so that the Meeting Investigator can make its report.

I also wondered whether there are US Homeland Security issues involved that we have not heard about that might have caused problems given that the Tunnel is a unique security risk. One of the Detroit Councillors raised that matter about a year ago.

I have requested certain documentation from the City but have not yet received it so that I as a citizen can make my own evaluation of whether there is a business case to be made for this transaction. As you know by now, it may be a great deal for Detroit but is becoming a poorer and poorer deal for Windsor as I see it

Does anyone really know what is going on? Detroit talks about a lease of the Tunnel and everything that I have heard on this side of the river talks about a loan.

Here's a story from the Detroit News

  • "A Detroit City Council committee has today delayed approving a $75 million deal to lease part of the Detroit-Windsor Tunnel to help balance the city's budget. Questions remain about the deal's financing, and those questions could be answered by April 25.

    The deal is seen as crucial in helping the city balance its budget and reduce what is projected to be a nearly $124 million budget deficit, according to City Council estimates. Mayor Kwame Kilpatrick's staff is predicting they will end the year with a balanced budget."

Yet on our side, the City's lawyer needs about two months to complete surveys just so that he can complete the rollover transaction transferring the Canadian side of the Tunnel to the new Tunnel Corporation. Naturally, citizens have been given little information with respect to this transaction including valuation of the Tunnel.

The deal is getting riskier every month. I saw recently some statistics on border traffic to the end of March. To say that the numbers are horrible, both car and truck, is an understatement. Instead of volumes going up as DRIC would have everyone believe, they are going down and rather dramatically. There is no doubt that the Ambassador Gateway project is hurting the Bridge Company's numbers.

Once again, one must question the DRIC results on border traffic numbers and hope that the company that is being retained, Wilbur Smith, to do an investment grade traffic survey analysis will do a proper job and report on what the real numbers for the border traffic projections will be.

I do not know how any reasonable observer with a history of traffic today both here and in Sarnia could claim that there is enough traffic volume for a new bridge and that additional capacity is needed. What is needed, as the Canadian Government says through one side of their mouth through Minister Prentice and the $75M in the Federal Budget, is more Customs officers to man booths. The Bridge Company built six new ones on the Canadian side but can't use them...absurd. In fact, Customs has no use for them which must mean there is no increase in traffic that they can see for the foreseeable future.

What is more fascinating however is that the drop in traffic is not being picked up by the Tunnel in spite of their massive advertising on our side. In fact, the Tunnel had a drop in traffic in March again. The volume lost by the Bridge Company did not go to the Tunnel but clearly it means that people, both tourist and industry, did not come over to Windsor at all. That is extremely distressing for this City's future. For the year, the Tunnel is down about 5% in their traffic volume even with the work on the Ambassador Gateway.

Again the question that needs asking from Windsor's perspective is why are we plugging the whole in Detroit's budget when this deal seems to make no sense and may open up a hole that we can drive a truck through on our side.

Finally, I believe that I may know where Eddie's source of money is. We know that the Feds won't put any money in. I doubt that any private investor will do so since the Tunnel is a declining asset, it is old and it looks like it's going to have major new competition that will take away at least a quarter of its existing traffic. Why would you invest in this asset if there are so many other good ones out there is a logical question to ask.

Accordingly there is only one other group that I think of that has the ability to put money in without necessarily caring if they get a proper return. That party is the Province of Ontario.

Remember, that the Mayor of Detroit had suggested that the Province would put money into the project. I must admit that I cannot see the Minister of Finance sinking in a bunch of money into a border crossing when money is getting tighter in Ontario and there are a lot better things to put his money into such as the Ford plant.

In my opinion, Dwight would be attacked viciously in Queen's Park if he dared put money into the Tunnel. Not only that, it totally undermines the Provinces's position with the Federal Government when they plead poverty on infrastructure for Windsor and other areas and yet at the same time can waste up to $75 million or more in helping Detroit out.

Given also Dwight's comment THE MAYOR IS WRONG. THE MAYOR IS WRONG. I do not see him being all that interested in helping out his political opponent, our Mayor, especially when our Mayor snubbed him at the pre-budget meeting and snubbed him and Sandra when they came down to offer infrastructure money.

However, there is another Government Department in Ontario where money could be available. That Department is headed by Minister David Caplan, Dwight's good buddy I am told. That Department is the Ministry of Public Infrastructure Renewal. You remember Minister Caplan don't you. He and Dwight came down here sometime ago and offered $500 million from the Province one day and then withdrew it the next day in what was described as a Gong Show performance.

I must admit I cannot believe that if Caplan has any involvement in the transaction that he would want to be embarrassed again in a border file. I cannot believe that the Opposition at Queen's Park would not go after him in exactly the same way that they would go after Dwight.

However that Department can make up to 40 year loans for all capital expenditures. One major risk for Windsor is that if there is an event of default, "Infrastructure Ontario is authorized to request the Minister of Finance to intercept certain provincial grants to the borrower in the case of default."

Could this be the way that the transaction will be financed? Perhaps. However, I would be surprised if the Government would waste its scarce resources to finance a moneymaking venture when other municipalities have infrastructure needs.

I have doubts that it would meet a key mandate of the program:

  • "benefit key public sectors and the standard of living in Ontario over the long run."

I expect as well that what was undertaken at the the University with respect to its recent financing was used by Eddie and his consultants as a model. The viability of the program however depends on the Tunnel being able to stay in business for a good number of years at a profit without requiring massive renovations. Being that it is a unique a security risk, I get very nervous about the whole thing.


It gets even curiouser. Here is a story from the Detroit News:

  • "Also Friday, a City Council committee delayed acting on a deal to lease Detroit's part of the Detroit-Windsor Tunnel to help balance the city budget. Members want more information about the deal's financing, and those questions could be answered by April 25.

    Adams asked the committee members to establish an authority to which Windsor would deposit the money at a later date. He also asked committee members to approve the lease of the Detroit side of the tunnel for a "minimum of $65 million."

    Councilwoman Sheila Cockrel was reluctant to approve pieces of the deal and wanted to see the full proposal before voting.

    "This has the feeling of essentially giving preapproval of the entire transaction," she said. "For this council member, it is an absolute nonstarter."

    Adams disagreed.

    "Setting up the authority does nothing ... but it allows the parties to move forward," Adams said. "It does not transfer the asset itself."

    Adams said Windsor officials are negotiating with their provincial government to get the money."
From the Free Press
  • "Tunnel, economic plans are criticized

    Detroit Mayor Kwame Kilpatrick's idea to lease the city's half of the Detroit-Windsor Tunnel to Windsor as a way to patch the budget got a chilly reception Friday from the City Council.

    And his $300-million economic and city improvement plan got an even chillier review from the council's fiscal analyst.

    At a meeting of the council's Budget, Finance and Audit Committee, Councilwoman Sheila Cockrel said that the administration has yet to provide enough detail to expect the council to approve the lease, which Kilpatrick says would yield $65 million to keep the 2007-08 budget balanced.

    He proposed the tunnel deal in his budget presentation a year ago, but didn't send the documents to the council until April 4. He is to present his 2008-09 budget to council Monday.

    "We can't turn this around on a dime," Cockrel said.

    A report from the council's Fiscal Analysis Division says its staff envisions "virtually no possibility of completion" of the tunnel deal prior to the end of the current fiscal year, June 30.

    But Deputy Mayor Anthony Adams warned of a "cascade effect" if the council waits too long to approve the deal that could jeopardize closing it in time and keeping the budget balanced."

Hmmmm "deposit the money at a later date," "approval of a lease in advance," piece-mealing the transaction. Did you also like the expression "cascade effect." Probably sounds better than "domino effect."

The big point is that the amount of the deal has dropped $10M to $65M already and will have to drop a lot more if DRIC is right about taking away a quarter of the Tunnel business.

It sounds to me like a deal that is on life-support but no one wants to say pull the plug...just like Mr. Sutts needing another 60 days to undertake surveys. It is not convenient for anyone yet to say the deal is dead so keep it breathing for awhile longer.

As for the Province putting up the cash, we can only hope that Dwight's animosity with Eddie continues and that Infrastructure Ontario has more sense.

It will be fun watching Kwame pin the mess in Detroit's Budget on Eddie! And you better believe he has to do it politically.

My advice to Deputy Mayor Adams. Do it before our Mayor blames it on you. That is his style you know...find a scapegoat because he is never wrong or to be blamed.