Detroit/Windsor Tunnel To File For Bankruptcy

Oh don't get so excited. This will be the headline in the media years from now after all of the border machinations play their way through the system.

When a new DRIC bridge takes away a quarter of your traffic at a time when one is not making any money, then how can one stay in business. The easy answer is: one cannot. And that just suits the P3 partner for the DRIC bridge just fine because a DRIC P3 partner wants a monopoly in order to make a good rate of return on its investment. So the Tunnel has to go broke.

Before my friends in Detroit get all upset, and Windsorites too because we will be stuck with this white elephant, I'm going to assist Detroiters not only with fixing their budget problems, but making a few dollars more. (Don't worry citizens of Windsor, we're not really going to own this financial disaster).

I'm going to trust the Deputy Mayor in Detroit who seems to be in charge of this file now and probably the President of Council in Detroit too to be fair and to give me a commission based on my recommendations. I would think that a fee of 10% of the amount over $75 million ought to be reasonable. My target number is $175 million which is just slightly more than the City Of Windsor consultants said that the Windsor half was worth. Of course it's not but who cares when none of this has to do with money anyway but a hidden Government Agenda.

Thanks to a story in the Detroit Free Press, we are learning what the deal really is. In effect, the City of Windsor will run the Tunnel for 75 years and presumably get all of the tolls in exchange for a $75M payment which I want to increase to $175Million. Hey, that makes my commission $10 million:

• Mayor pushes tunnel sale
  Money from Detroit's half would shore up budget and avoid service cuts, aide says
  
  "New details also were revealed that show Kilpatrick's tunnel proposal has changed considerably since he proposed a year ago leasing the tunnel to Windsor for 75 years as a way of keeping Detroit's budget balanced without raising taxes or cutting services. Now, the mayor proposes to sell the city's half of the tunnel to an authority appointed by the mayor and council...
  
  Under the new version of the deal, both Windsor and Detroit would permanently turn over their halves of the tunnel to separate authorities that would be composed of appointees of the two city governments.
  
  On the Detroit side, Kilpatrick and the council would appoint members to the newly created Detroit Tunnel Authority. Windsor already has transferred ownership of its half of the tunnel to the newly created Windsor-Detroit Tunnel Corp.
  
  The $75 million would originate from the Ontario government and be routed to the Detroit authority, which would give $65 million to the City of Detroit and use the rest for insurance and transaction costs.
  
  In 2020, when the existing lease on Detroit's half of the tunnel expires, both the Detroit authority and the Windsor corporation would operate the tunnel, said Kilpatrick press secretary Denise Tolliver. But the report from the council's research division suggests the agreement would enable the Windsor corporation to operate both sides of the tunnel.
  
  Windsor officials have said they like the deal because it would ensure the tunnel stays in public hands. Windsor has long fumed over the handling of the privately owned Ambassador Bridge and feared a bid by the bridge's owner for the tunnel."

Now this transaction is at least understandable. Windsor in effect will pay $75 million to get control of the Tunnel for an agreed number of years and will make its money presumably on the difference between what it will pay and the tolls that it can bring in. Of course, the number crunchers will show on the Canadian side how much money the City will make so that our Councillors will go along with the deal. I would expect that the City of Detroit gets the $75 million free and clear so that should solve the short-term budget issues for them as well.

And everybody lives happily ever after.

Of course, this isn't the deal because it doesn't make any logical sense. Just look at what I've written. Why does Detroit have to sell its interest in the Tunnel and set up a new organization, the Detroit Tunnel Authority? Interestingly, liability concerns were not the issue on the Detroit side as they were in Windsor. I think it's safe to assume therefore that there is something more going on that we are not being told.

The other absurdity is that the Province would finance this transaction. At a time when the Province desperately needs money, Ontario is going to finance the budget shortfall of the City of Detroit. Please explain that one to me.

One of the complicating matters that will have to be resolved will be the operation of the Detroit side by Alinda until 2020. Expect that to end soon after the Tunnel deal is completed with a big payout to Alinda to buy them off. That probably explains what they are not involved in trying to keep control of the Tunnel and to make an offer for it. Not a bad profit for them to make on such a short term of Tunnel management. Eddie's numbers clearly make their contract worth more too. Who knows, Windsor might keep them on as its manager too,

The key line in the news story is the following:

• "But the report from the council's research division suggests the agreement would enable the Windsor corporation to operate both sides of the tunnel."

How wonderful that the City is now an entrepreneurial border operator that competes with the Ambassador Bridge instead of a City Government that fixes roads, sewers, and watermains. The City has been unsuccessful to date in its competition since it has lost significant market share to the Bridge. Why will operating all of the Tunnel make things any better? After all, in a few short years under the Chairmanship of our Mayor, the dividend has dropped from $6.6 million to $0. How wonderful as well that the City is making it so easy for the Bridge Company to sue us because of anticompetitive practices and for punitive damages also. I wonder how much that will add to my tax bill in the future.

There are several forces at play that the Deputy Mayor and President of Council should understand that will increase their payout if they follow my advice:

1. Transport Canada's has a Corridors and Gateways policy which is their claim to fame which they believe is essential to maintain Canada's economy i.e. that is the way to protect Canada's ability to maintain its trade with United States


2. Transport Canada needs to control all of the border crossings in Southwest Ontario/Southeast Michigan including the Tunnel as I have described previously


3. Canada will "own" all of the crossings and will use the financial resources of private parties to do so through public/private partnerships. That may explain why the OMERS people attended the Rotary luncheon when Dwight Duncan, the Minister of Finance, spoke.


4. Notwithstanding the theatrics, the three Canadian Governments are all working together against a common foe, the Americans, but are merely fighting amongst themselves to see who gets what


5. The City of Windsor and the Province are the front for the Federal Government on this deal so that the US Federal Government will not go ballistic when Canada controls the Tunnel


6. A P3 partner needs to be assured of high tolls to make a profit so that is why the Tunnel has to be in Canadian hands amongst other reasons.


7. Bankruptcy will allow the P3 partner to incorporate the Tunnel into its border arrangement with the new bridge since who else would have an interest in it.

I hope therefore that Messrs. Adams and Cockrel are starting to understand why they can ask for any figure for their interest in that Tunnel and they will get it, within reason of course. $175 million is probably at the upper limit but it will all be buried into the cost of the DRIC project as "soft costs" so there is no reason to worry.

Oh, about the headline of bankruptcy. When the Tunnel goes bankrupt, since it has already been sold by the City of Detroit, it does not impact that City just the Authority. When the Tunnel goes bankrupt, since it has been rolled over to the City of Windsor, it does not impact the Windsor, just the Tunnel Corporation. Of course, the deal will be non-recourse as well to the Cities but the security for the transaction will be the asset, the Tunnel, itself.

Expect by the way that the loan amount from the Province will not be the amount that Detroit wants as we are all assuming but it will be that amount plus the least $100 million so that the Tunnel Corporation can pay off its promissory note to the City. Why else would Windsor get involved in this unless it was able to get something out of the deal.

What does this all mean... since the Province is the lender to the City of Windsor or the Tunnel Corporation, it will take over the asset. Of course, the Province doesn't want the asset so the Federal Government will graciously come in and salvage it, or rather, the P3 operator will do so in order that the American Federal Government will not get upset.

Do you see how nicely it all comes together. The P3 operator will ensure now that the tolls are such that it makes money no matter where a vehicle crosses in the area because it will be in control of all of the tolls. Of course, the tolls will be skyhigh and no one will complain because all of the crossings are Government-owned. The Canadian Government will be happy because it will maintain entry for Canadian goods to the US through the biggest corridor into the United States from Ontario and Québec. Detroit will get their $175M if they listen to me (less my commission) and Windsor will get $100M.

I know you think I'm merely speculating again but, as a matter of interest, the Government Press Release for the new DRIC Road "The Government of Canada welcomes the design proposal for the Windsor-Essex Parkway" had as part of the backgrounder this discussion which is totally out of place:

• "MEMORANDUM OF UNDERSTANDING FOR THE DEVELOPMENT OF THE ONTARIO-QUEBEC CONTINENTAL GATEWAY AND TRADE CORRIDOR...
  
  The Memorandum of Understanding (MOU) between Canada, Ontario and Quebecestablishes the framework for federal-provincial collaboration to develop the Ontario-Quebec Continental Gateway and Trade Corridor in partnership with the private and public sectors. The main objective of this MOU is to establishthis commercial gateway and trade corridor as a strategic, integrated andglobally competitive transportation system that better supports the movementof international trade."

It really is not so difficult to understand once you can put all the pieces together in a logical fashion. There is however one fly in the ointment: that darned Ambassador Bridge Company. Their presence will scare away any P3 investor.

As I told you before, their elimination is what the DRIC process is all about. Take it as a given that the new bridge will be built beside the existing bridge just like the experience in Sarnia. The Enhancement Project Bridge will be the new crossing. The only question will be who the owner is.

Oh, Deputy Mayor and Council President, I will let you know the address to which you should send my commission payment.