Thoughts and Opinions On Today's Important Issues

Tuesday, January 05, 2010

Fortune Telling And The DRIC Bridge

Aren't book-keeping tricks wonderful? You can do most anything if you know the ropes.

I can tell you absolutely everything that is going to happen to the DRIC Bridge Project between Windsor and Detroit.

No I am not a fortune teller nor do I read tea leaves even though, according to Gord, I am a "learned type with the impressive diplomas and immaculately polished crystal balls."

If I want to know what is going to happen to the DRIC bridge, I just go and look at what is happening to the Port Mann Bridge in BC.

You remember that project where Macquarie was unable to find the billions of dollars needed to finance the project so that the Provincial Government had to take it over. Interestingly, using the same contractors, the Province was going to build it a year quicker and a billion dollars cheaper.

Now it looks like the Provincial Auditor General is not too happy about how it will be treated for accounting purposes for the purpose of financing. When you read the story, just think of MDOT and how they say that the DRIC Bridge will make money when the cost is in the billions and they have to compete against the lower-cost tolls of the Ambassador Bridge.

Here is what they claim:
  • "Shreck wanted to correct any perception the new DRIC bridge would drain funds from other Michigan road projects: "Any bridge that is built will be financed with bonds and paid for by tolls, not state and federal gas tax funds, so it will not affect any other road projects.”

Here is how SEMCOG describes it:

  • "The total U.S. cost to be programmed in the 2030 RTP is $1.5 billion in 2011 dollars (although this figure would be refined once a Preferred Alternative is selected and a Final EIS submitted). Current estimates on the Canadian side range from $2.1 - $2.5 billion, not including right-of-way costs. The Michigan Department of Transportation anticipates funding the U.S. cost with bonds to be repaid with toll revenues."

Accurate but narrow? Based on hope? Based on taking a good chunk of the BWB and Tunnel traffic and most of that from the Ambassador Bridge?

Trouble is BONDS are defined as "BOND: State Bond Funds" In another SEMCOG document, Funding Codes, "BOND means Michigan General Obligation Bond" I guess Michigna taxpayers are on the hook if the toll money is not there!

But no one wants to mention that. It might worry people in a State with little money.

  • Auditor-general rightly rejects claim Port Mann Bridge is self-supporting

    Auditor-General John Doyle got straight to the point with a legislature committee recently, when explaining his rejection of the B.C. Liberal government decision to to classify the Port Mann Bridge project as a “self-supporting crown corporation.”

    “There are no tolls, there is no bridge,” Doyle told the public accounts committee. “Therefore it is premature to consider it to be a self-supporting entity.”

    The more detailed explanation took some time and amounted to much the same thing. The independent financial watchdog disagrees with the government’s accounting treatment of the single most expensive public construction project in provincial history.

    The Liberals, on the eve of the last election, launched the $3.3-billion plan to replace the existing Port Mann crossing with a twinned span and widen adjacent sections of Highway 1.

    They vowed the funding for the entire project — construction and interest charges over five years, maintenance and operation costs for the following three decades–would be recovered by a hefty vehicle toll.

    On that expectation, they parked the project on the books of the Transportation Investment Corporation, a government-owned entity that was especially legislated into being in the spring of 2008.

    But initially, the Liberals had intended that the corporation would be the government player in a public private partnership.

    The private partners and their bankers would bankroll construction, assume much of the risk, and recover their investment through a 35-year operating agreement that gave them access to the estimated $100 million a year (for starters) tolling revenues.

    Then came the near collapse of credit markets in the fall of 2008. The Liberals soon found themselves short of private sector suitors on their preferred time frame — i.e. getting the project underway in time for the spring 2009 election campaign.

    So they decided the government would become the banker, using its taxpayer-backed powers to borrow and spend. The first $313 million was out the door by summer. The remaining $3 billion will be doled out before the scheduled completion date in the winter of 2013.

    But even though central government was now the sole underwriter of the Port Mann project, the Liberals continued to insist that it was being built by a “self-supporting crown corporation.”

    The distinction matters. The provincial debt is accounted for in two main categories. Borrowing to build schools, hospitals, roads, bridges — all that is underwritten by tax revenues. Hence the term taxpayer-supported debt.

    But the big commercial crown corporations like BC Hydro and the Insurance Corp. of B.C. have their own sources of revenue from ratepayers and customers. Their borrowing is considered self-supported debt.

    The government’s own debt-management targets put the emphasis on holding down taxpayer-supported debt. So the Liberals, by relegating the Port Mann project to a so-called “self-supporting crown corporation,” were excluding its share of borrowing from the taxpayer-supported debt.

    A not inconsequential bit of bookkeeping, as it turns out. Over time the taxpayer-supported share of the total provincial debt could be understated by several billion dollars.

    And it was that prospect that prompted Doyle to blow the whistle. He registered his initial objection in June, by placing a formal reservation on the financial statements ( “public accounts”) for the 2008-09 fiscal year.

    He expanded on his reasons last week, during testimony before the public accounts committee, which routinely examines his comments on the financial statements.

    Doyle emphasized that his current reservations about the treatment of the Port Mann project won’t necessarily hold for all time.

    “This is something where my office will look every year at this particular organization to see whether we think it has tipped into the self-supporting,” he told the committee.

    “The bridge is due to be completed and tolls due to flow within about three to four years.

    Then, obviously, over time, you need to generate enough surpluses to pay back the interest and also the funds that you’ve borrowed. That will happen, according to the model that I’ve seen, over the lifespan of the whole project.

    “But it doesn’t turn into a profitable or a net self-supporting type of organization, according to the model, until about 10 years from now.”

    Until closer to that time, Doyle wouldn’t allow the Port Mann project to be booked along such genuinely self-supporting entities as BC Hydro and ICBC. For the short-to-medium term, the project and all of its attendant spending and debt ought to be consolidated with the accounts of central government.

    Moreover, the auditor-general put the province on notice as to what will happen if it fails to consolidate. Every year he will place “a qualification” on the books. Every year, he’ll record the “impact that has on the financial statements.” Every year, as the spending continues and the debt accumulates, “this will get bigger and bigger as a significant issue.”