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Does Michigan Need a $550M Gift From the Canadian Taxpayer?

Posted: 07/05/2012 5:26 pm

In mid-June, the federal government committed every Canadian man, woman and child to pay $15.79 to create jobs and build infrastructure in Michigan -- yes, Michigan -- whose per capita income is nearly the same as Canada's.

Weeks later, nobody here seems to have noticed. The foreign aid will cover that state's costs for a multi-billion dollar bridge project linking Michigan and Ontario. Of course, the upside is economic benefit on this side of the Detroit River and better infrastructure for North America's busiest trade corridor. But that doesn't change the fact that the deal seems to be too clever by half.

The background: $130 billion worth of trade and commerce goes across the Detroit River each year via a ferry, a tunnel, and the Ambassador Bridge, connecting Windsor and Detroit. The toll bridge is privately owned by the Detroit International Bridge Company and its Canadian subsidiary. After 9/11, governments pushed for a second bridge, adding capacity during emergencies and speeding up traffic (and thus trade).

So began a long feud between governments and the company. In response, the toll-bridge owners spent a small fortune lobbying Michigan legislators to protect the Ambassador Bridge from government-financed competition. They've delayed every bi-national effort to build a new crossing. So when the Bridge Company suggested it could build a second span at its own expense, Ottawa revoked the company's permits to do so.

The result: a costly political stalemate.

Thus, the June announcement. Ottawa hopes to break the stalemate by funding a new bridge with Michigan. The spin is that the Canadian government is loaning Michigan the money. Except that it's not really a loan, and it's not really practical.

The Americans are candid. The Detroit Free Press called the deal a "tasty gift on a platter." Michigan Governor Rick Snyder said the project "will not cost Michigan taxpayers any money." Michigan's handout on the deal says the state "will bear no responsibility for repayment of the Canadian funding." Not so long ago, Canadian officials were more candid, too. In early 2011, then-Transportation Minister Chuck Strahl contacted a Michigan-based business newspaper to explain the offer. "Let me be very clear -- the additional $550 million is not a loan," Strahl said.

Ottawa's spin that we're loaning Michigan the $550 million to be repaid by future tolls charged on the Canadian side. But tolls aren't expected to cover Michigan's share until somewhere between 2054 and 2064. That's if construction costs stay on-budget, and if toll revenues appear as projected. Both are big ifs. Freight traffic across the Ambassador Bridge has been in decline for several years. Last year, truck traffic was 25 per cent less than its 2006 peak.

The most remarkable part: the 44-page deal, the triumphant press conference in Windsor and the $550 million "gift on a platter" might not even break the stalemate.

Governor Snyder tried to outflank his opponents by cutting the legislature right out of the June 15 deal. It's a bold strategy -- and an unpopular one. A January poll found Michigan voters would oppose such a gubernatorial effort by a 2:1 margin (60 per cent to 30 per cent). If that opposition holds, it's a big problem. And it's not the only problem: the latest deal depends on the state delivering on controversial land assembly work on the Michigan shore. Even if Canadian taxpayers pay for that work, expropriation is still subject to state law; the Bridge Company thus has at least one legal route to delay the plan.

That's why the real story here is a story of Canadian wishful thinking, not Canadian success. Speaking vaguely of "battles ahead," the Prime Minister talked tough. "We are prepared to do whatever it takes" to get the proposed bridge built, he said.

Apparently, "whatever it takes" includes foreign aid to Michigan, but it doesn't include other alternatives that might have produced a cheaper, more conclusive outcome. If the Ambassador Bridge's owners are truly anti-competitive, then Canada should have tried playing legal hardball with its Canadian subsidiary, or even tested a bridge boycott (with trade rerouted through Sarnia) to push for a more reasonable outcome. Negotiation was also an option. Canada could have demanded 'fair conditions' -- like a toll agreement or a Canadian partner -- under which we'd accept the Bridge Company's plan for a second span, since this could have led to a second-best option at a far lower price.

Instead, the Conservatives did the sort of thing that conservatives aren't supposed to do. They threw cash and a splashy press conference at the problem, and then cheered as if either step represented some sort of victory.

It's enough to make you wonder: if Ottawa finally signs a free trade agreement with South Korea, will we be loaning out $550 million to help seal the deal?

 
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