Thoughts and Opinions On Today's Important Issues

Thursday, June 17, 2010

DRIC Revenues BUT No Costs, Again


Where is the financial data necessary for someone to make an informed decision? Once again, MDOT has not released key information about the DRIC financing relevant to make a determination whether the P3 Bill should be passed.

This is asinine. Why do the Senators have to beg for information that should have been given to them already. Nothing really different has come out after the three page handout that Transport Canada prepared for the Senators, not MDOT. Well, at least that is what the DRIC-ites told us:
  • "Transport Canada outlines how the DRIC project will be financed"

I guess that Captain Kirk and his friends aren't smart enough yet to figure out how to do this and they have to let Canada do all the work even though they are not yet an Instrumentality of Government of Michigan. Surprisingly then, MDOT is to be given the absolute power to enter into P3s without, it seems, the skill-set to do so.


I am sorry. It is different. They have added some pages to the old report that was submitted previously so that the Senators have to try and figure out what changed and waste more time doing it. There was also an update of an earlier report and I guess that the Senators have to go through that as well, all several hundred pages of it, and try and figure out what is different.

That should keep them busy this weekend.

I am sorry but this is NOT the job of a Senator. This is MDOT's job. MDOT's role is to present all relevant information fairly so that the Senators can perform their legal obligation to taxpayers.


Frankly, if I was a Senator I would not bother talking about the P3 Bill any longer. I would table it and refuse to vote on it until such time as MDOT provided all the relevant information in a nice neat package that is easily understandable. Blame it on MDOT and the term-limited, lame-duck Governor!

Why couldn't Senators get a simple table like this that I found on the web from Wilbur Smith for a bridge in Alaska that gives out all the relevant information in a very simple form.

What's the big deal about secrecy. This was all released publicly in Alaska for the Bridge there. Why shouldn't it be done for the Bridge to Nowhere here?


Now Governor Granholm and MDOT Director Steudle:

  • Would you like a "mortgage" that lends you more than the value of the DRIC Bridge?
  • Would you like it structured so that your first payments are extra low?
  • If the mortgage weren't structured that way, would you be unable to afford the payments?
  • Are you convinced that truck traffic will continue to rise?
  • Do you have a poor credit history?
  • Congratulations if you answered "Yes" to most or all of those questions! You're an ideal target for a subprime DRIC bridge financing!
That is how CBC described a US sub-prime mortgage deal.

It is just like what is being proposed in Michigan for the DRIC except no one has been told the payments yet.


Now we get an elongated 3-page revenue report with no costs again so Legislators should be satisfied, right.

To try to be helpful, I did another spreadsheet.

I made these assumptions:
  • started at at $1.5 billion although that amount might be low
  • debt would be 90% of the amount of money involved
  • the P3 partner would put in equity in the amount of 10%
  • took the rate of interest at 8% for a 50 year deal, assuming no re-financing
  • the rate of return on equity at the high end of the range, 18%, because of the Ambassador Bridge competition and traffic projection risks
  • took the start toll number and increased it by 6% per year
  • calculated the cost of the operations of the Bridge based on the Blue Water Bridge percentages also increasing by 6% per year. The operations amounts are probably low considering that major repairs need to be done every few years on a bridge.

Now I know that the Director said that the toll revenues can pay off the financing but I'm not sure how.


I have a huge "blimp" payment required at the end of 50 years of over $28B or another refinancing will have to be done to keep this in private hands for who knows how long. No paydowns of principal ever take place because of Lansing-izing (ie capitalizing) shortfalls. The P3 Bill permits that remember.

You can check out my spreadsheet at

Okay, okay, okay. What do I know about anything? So forget about my spreadsheet. What would an expert have to say? Well we already know. The vast majority of the P3 proponents who responded to the DRIC RFPOI told us in very plain language

  • "The toll revenues ain't gonna cut it."

For most of the proponents, they demanded State "availability payments." In other words, the taxpayers have to pay the money up front and try and collect the tolls back themselves to reduce the amount of their liability.

Oh my goodness, minimizing liability, that is what the P3 Bill allows MDOT to do. Now you know why that Section 7B (14) is in the P3 Bill.


Surely by now the Senators have had enough. Director Steudle has had two kicks at the can and still has not revealed all the relevant information. The costs of the project including the financing and operational ones are still kept secret.

He is deliberately hiding that information because he knows what the result would be, or rather that is the inference that I believe that Senators have to draw. If the true financial information had been revealed months ago, then the DRIC project would have died.

MDOT and Transport Canada are bluffing it out, hoping that no one will call them on it. First give out a simple three-page memo that provides incomplete financial information. Then give out hundreds of pages of information that provide incomplete financial information. Then watch the media run stories like:

  • "Bridge skeptics now have the details"

Then let the DRIC-ites and their followers like the Governor, the $630 per hour ex-Governor, the Detroit Chamber, L. Brooks, the auto companies and OTA's David Bradley whine and cry and talk about 10,000 jobs again and try and put the pressure on to pass defective legislation so that MDOT can enter into a dumb deal with no legislative oversight.


There is more to talk about in another BLOG. Now we know why there are rules about the content in hamburgers. What MDOT has given us is not 100% beef but a bit of meat and a lot of filler!