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Gordie Howe Bridge Massive Taxpayer Subsidy

Massive Taxpayer Subsidy Predicted For Gordie Howe Bridge

Feature photo: New Ambassador Bridge enhancement shows no piers in the water and a longer span. Photo rendering courtesy of the Detroit International Bridge Company.

Massive Taxpayer Subsidy Predicted For Gordie Howe Bridge

Incredibly, one key question has generally been overlooked in the swirl of contention surrounding the proposals to build two bridges over the Detroit River the Gordie Howe Bridge and a new Ambassador Bridge.

The Windsor-Detroit Bridge Authority (WDBA) plans to build the Gordie Howe Bridge with financing promised by the Canadian government. The Detroit International Bridge Company, owned by the Matty Moroun family, plans to build the new Ambassador Bridge with its own money.

But, to twist the Build It And They Will Come phrase from the iconic movie Field of Dreams, the question is: Build them, but will they come?

Yes the vehicles will come, but a little research tells us there will not be nearly enough of them to financially sustain two six-lane bridges.

Stan Korosec, Director of Government Relations and Security for the Ambassador Bridge, alerted me to the fact that traffic on his employer’s bridge has been declining since 1999.

He suggested I read an October 13 column in iPOLITICS by the respected journalist Alan Freeman, who also writes Canadian articles for The Washington Post. Freeman pulls no punches.

Do we actually need the Gordie Howe Bridge between Windsor and Detroit, with a price tag estimated as high as $4 billion?” Freeman asks in the article, which should be required reading for Canadian taxpayers.

Basically, he concludes the mantra that both bridges are needed is a crock of crap based on “a faulty premise that Canada-U.S. trade is growing so fast that the privately-owned Ambassador Bridge can’t possibly deal with all the traffic.”

In fact, there were 6.8 million crossings on the bridge last year, compared to 12.2 million in 2000, a drop of 45%. Truck crossings fell from 3.5 million in 2000 to 2.5 million in 2016. Traffic through the Detroit-Windsor Tunnel tumbled 49% over the same period.

Traffic at all 11 crossings between Ontario, Michigan and New York State, is down 36% since 2000, with truck traffic falling 20 percent, according to the Public Border Operators Association (PBOA).

The Ambassador Bridge would jump to six lanes on a new crossing. The Gordie Howe Bridge would add another six, tripling the current capacity. “With demand falling, the two bridges would simply cannibalize each other,” Freeman concludes.

No one in their right mind would be building a new bridge,” an official at another Ontario-U.S. crossing told Freeman.

Based on traffic volumes, there’s no need for additional lane capacity at any border crossings. If there are problems, it’s with antiquated Customs systems at the borders and lack of customs officers caused by budget cuts on both sides of the border. A $4 billion bridge won’t solve that.”

We anticipate that truck volumes will be flat to 1% growth for the foreseeable future,” says Korosec, noting that actual volumes are far below projections prepared by the Conservative government in 2004.

Korosec referred me to Ron Rianas, General Manager of the three-lane Peace Bridge over the Niagara River between Buffalo and Fort Erie, and President of the Bridge and Tunnel Operators Association (BTOA), a loose knit association of the international bridges and tunnel referenced above.

A BTOA website reports that border crossings have declined due to the post 9/11 security environment (passport requirement, longer inspections, etc.) and changing global trade patterns.

The year 2000 saw peak traffic volume following 15 years of significant commercial traffic increases related to the original Canada-U.S. trade agreement and then NAFTA. As a result, the year 2000 was also the year the Peace Bridge Authority began the Environmental Impact Statement (EIS) for a new bridge and expanded border capacity, and the Canadian and U.S. governments began the EIS process for a new crossing between Windsor and Detroit, now called the Gordie Howe Bridge.

The Peace Bridge project was killed in 2011 when the wise board officers of that non-profit organization pulled the plug because of traffic numbers and escalating project costs. Instead they started a rehabilitation project on the existing bridge, costing a meagre $100 million U.S.

The Gordie Howe project, in contrast, chugged along to where it is today, saddled with escalating costs and interminable delays.

 The promise that the Gordie Howe construction and operation will be at no cost to the taxpayer, with the repayment covered by tolls, has been described by one industry official as “absolute BS.”

The original Request For Quotations (RFQ) on the project indicated the Canadian Government will be paid back the billions it is investing through tolls over 30 years.

We are building a bridge, not just for the immediate future, but to ensure long-term needs. The Gordie Howe Bridge is expected to have an operational life of 125 years, and both the bridge and Port of Entry designs are anticipated to accommodate traffic volumes and growth over the long term. While providing for current and future capacity is an important benefit, the completed project which will provide a highway-to-highway connection between Ontario and Michigan will also provide redundancy, system connectivity and improved border processing.” –  Mark Butler, WDBA Director Communications

 I asked him if there is any possibility the general taxpayer will be on the hook to subsidize the debt of the Gordie Howe Bridge?

 “The timeline to recoup Canada’s investment will be dependent on three things: (1) how much capital it invests; (2) what the eventual toll rates are; and (3) traffic volumes,” Butler responds. “This results in some flexibility in the timeline required to repay any investment made by the Government of Canada. Thirty years is the expected length of the operations and maintenance portion of our contract with our eventual private-sector partner. Tolls will continue to be collected throughout the lifespan of the bridge.”

While some pundits are estimating the six-lane bridge will cost up to $5 billion, authority officials insist they won’t know how much until a private sector operator in a P-3 (Public Private Partnership) arrangement is chosen, sometime next year.

It’s in the best interests of taxpayers to not discuss cost estimates for the entire scope of the contract during the procurement phase, as doing so could jeopardize the competitive process,” says Butler, artful dodger of hard questions for his employer.

On August 31, the Ambassador Bridge received approval from the federal government to build a new six-lane span, conditional on demolishing the existing four-lane span. Bridge officials estimate their project will cost $1 billion, including the $500 million already spent on the Michigan gateway and other preliminary work.

The $1 billion will all be private money no government grants,” intones Korosec, who subscribes to journalist Freeman’s cannibalization theory. The question should be asked, who will be the flesh eater and who will be the prey?

Traffic volumes, as mentioned earlier, are well below estimates prepared in 2004. Korosec attributes 40% of the decline to the shrinking auto industry in Canada, a pattern not likely to change as low cost countries China and Mexico snare bigger slices of the manufacturing pie.

I don’t see it . . . it will have to be subsidized,” he says of claims that Canada’s investment in the Gordie Howe Bridge will be repaid by tolls.

There is one interesting piece of news from Butler: “We have already committed $350 million to preparatory activities in Canada and the U.S. This includes work related to site preparation, minor and major utility relocation and the building of a Perimeter Access Road at the Canadian Port of Entry and minor utility relocation, preliminary site investigation and demolition at the U.S. Port of Entry. This is in addition to the costs of Canadian and U.S. property acquisition. The funds for these works are through the Government of Canada’s allocation to WDBA. The private-sector partner will not be required to assume these costs.”

All international border crossings have struggled with congestion, even with declining traffic, due to inadequate Customs booths staffing, computer and IT outages, antiquated Customs procedures and methodologies etc.

You can build all the lanes over the river you want and it is all meaningless, because without proper customs management all you will have constructed is the most expensive parking lot in the sky,” says a frustrated industry official.

With the six-lane Gordie Howe Bridge, six-lane Ambassador Bridge, and two-lane Detroit Windsor Tunnel there would be 14 lanes crossing the Detroit River carrying a total volume of approximately 11.1 million vehicles annually.

Last year the four-lane Ambassador Bridge carried less than seven million vehicles. Based on traffic figures from the BTOA, and assuming the present $4.50 car toll (U.S. average discounted rate) and $20 to$25 truck toll, that would net about $70 million (U.S.) in annual toll revenues.

The Gordie Howe Bridge would presumably split that revenue, probably cutting the $70 million in half to about $35 million. Operational and maintenance costs would likely be in the vicinity of $25-$30 million a year for each bridge, leaving about $10 million to service the debt incurred to construct a $4-to-$5 billion Gordie Howe project, which includes the cost of the bridge, U.S. and Canadian plazas and connecting roads.

A 30-year bond for $4 billion at a 3.5 % borrowing rate would result in principal and interest payments of roughly $229 million annually. Given such a small surplus from operations, this means the annual taxpayer subsidy of the Gordie Howe Bridge would be about $219 million to service the debt.
Even extending financing for 100 years at 3.5% results in annual debt service costs of $148 million per year. The  taxpayer funded subsidy would still be a whopping $138 million annually, and for a much longer period of time.

In other words, given the traffic volumes and realistic toll rates, it is impossible to construct, operate and finance this project without massive taxpayer subsidies for the entire life of the Gordie Howe Bridge.

I asked Butler if WDBA has done a traffic and revenue forecast to support the 30-year plan to repay the government through tolls.

Again he demurred: “The last public traffic forecast was completed in 2010. There have been other studies completed since that time, however, the detailed results are not all available to the public as they are commercially confidential as part of the Request for Proposals (RFP) process now underway.”

In other words, all taxpayers can do is buckle up and wait on these terrifying figures.