Windsor-Detroit Bridge Deal Not the Best Use of Public Infrastructure Dollars

Commentary, Public Sector, Steve Lafleur (historic), Uncategorized

The Government of Canada and the State of Michigan signed a deal this June to build a new $2 billion bridge between Detroit and Windsor. Including highway upgrades and customs plazas, the estimated cost is $4 billion. The government of Canada will absorb the entire cost. Backers of the New International Trade Crossing (NITC) believe that there is need for increased capacity at the Windsor-Detroit border. As much as 25 per cent of trade between Canada and the United States presently crosses the Ambassador Bridge between the two cities, and there are serious delays at the border. Post-9/11 border security is partly to blame, but it is unlikely to change. Meanwhile, car traffic is expected to increase by 57 per cent and truck traffic 128 per cent by 2035.

While there would undoubtedly be some benefits from the NITC, it would make more sense to allow the private sector to build and finance the bridge, while diverting the capital expenditures elsewhere. In a world of finite resources, it makes little sense to build something that the private sector would otherwise provide. And, indeed, the private sector would provide increased bridge capacity—if it were allowed to.

One has to wonder why a private company hasn’t already built another bridge to take advantage of the potential toll revenue. The Ambassador Bridge is currently providing an estimated $60 million profit annually. While a new bridge would eat into the Ambassador Bridge profits, and would have an immense capital cost, the estimates above suggest that it could be profitable in the long run. Given that border delays cost an estimated $13.6 billion to the US and Canadian economies in 2004, there is likely room to introduce a new bridge with higher toll rates. After all, current delays at peak time are costing Canadian companies $75,000/hour. Commercial shippers could choose to pay a larger toll if it means reducing the lost revenue from delays. Matty Maroun, owner of the Ambassador Bridge, has proposed to build a new bridge at zero cost to the taxpayers. However, the Government of Michigan has blocked this proposal.

Maroun owns the only commercial crossing between Windsor and Detroit, and has been lobbying against the NITC. He argues that there will be insufficient traffic to pay for the new bridge through tolls. He points out that if traffic volumes fall short of projections, taxpayers will be on the hook for the difference. Maroun proposed to build his own six lane bridge next to the Ambassador Bridge, funneling traffic in the same direction. The Governor of Michigan circumvented the Michigan legislature to sign the NITC agreement.

Maroun’s proposal isn’t perfect. The Ambassador Bridge currently funnels traffic through Huron-Church Street in downtown Windsor. This creates traffic problems in the city. Moreover, the street contains the only 17 traffic lights on the route between Montreal and Miami. These logistical elements explain why the NITC would bypass Windsor via an extension of Highway 401.

Michigan State could have attempted to persuade Maroun to build their preferred bridge. It could have made sense even if some elements of the project (such as the 401 extension and new interchanges) required public funding. It would have prevented the impending legal battle between Maroun and the State of Michigan.

Had Maroun refused to compromise, Governor Snyder ought to have partnered with the Government of Canada to put out a transparent request for proposals for private companies to build a new bridge. The Canadian government could have allowed the winning bidder to keep all tolls collected as compensation for the construction costs. In the worst case where no company was willing to do it on those terms, Michigan and Ottawa could have partnered to offer a least-cost subsidy as compensation. Unless the bridge is completely uneconomic, there would be bids. Canada’s taxpayers would likely be on the hook for far less than $4 billion. Given the uncertainty in the global economy, the NITC is a big financial risk for the Government of Canada to absorb. Another global economic slowdown would reduce cross border traffic, meaning lower than projected revenue.

The agreement that the Harper government signed does have some virtues, assuming a publicly funded bridge to Detroit is of sufficiently high priority to justify the financial outlay. Given the state of the Michigan economy, and the fact that the voters could have overturned a decision to fund the bridge through a ballot initiative, it seems unlikely that the bridge could have proceeded without the Government of Canada footing the bill. But the decision to fund the bridge through a public-private partnership should help to contain costs.

Furthermore, the use of tolls to finance the bridge is far superior to funding it out of general government revenue. With the cost of delays at the Ambassador Bridge projected to reach $20.8 billion annually by 2030, an imperfect bridge is better than nothing. However, it is difficult to imagine that the agreed upon bridge is sufficiently superior to the bridge proposed by Maroun to justify the $4 billion dollar financial risk. As an alternative, the government could have offered to pay for upgrades to the local road network in Windsor to accommodate Maroun’s project, were Governor Syder to agree to it.

Ultimately, it is not clear that the new bridge is the best use of infrastructure dollars at the moment. The $4 billion could have been used to undertake several highway projects within Canada that would have a dramatic effect on commute times in the country. The projected cost of the new bridge would be roughly the combined cost of extending the 407 east of Toronto from Pickering to Oshawa, twinning Highway 63 to Fort McMurray and Highway 17 from Manitoba to Kenora and funding all of the road infrastructure upgrades called for in Winnipeg’s transportation master plan

In a world of finite resources, governments need to weigh the tradeoffs of spending decisions carefully. Given the myriad of infrastructure projects that could be funded with $4 billion, the NITC is not the best use of funds. Expanding capacity at the Windsor-Detroit crossing would be as valuable to Maroun and the State of Michigan as it would be to Canada. If another bridge is needed, the other parties ought to pay their share.