Transport Committee on May 16th, 2006

[Charles Hubbard, Liberal, Miramichi, NB]

If we were to ask you about the International Falls Bridge, which is outside your mandate, which is going to require certain changes in terms of its international views, traffic would be the big concern anyone would have in maintaining, replacing, or taking over that type of bridge. Would that be true?

[Thomas Garlock]

I'm not intimately familiar with that crossing, but traffic is generally what drives income. Obviously there's some limitation to how much toll can be supported by a crossing.

If you wanted an entity such as the Niagara Falls Bridge Commission to step in, we would have to look at whether we could derive enough revenue from the crossing to maintain it and replace parts of it that might require replacing--and that is all driven by traffic. In fact, with all of our toll structure and bonding covenants, a traffic analysis is the first thing that happens.

[Charles Hubbard, Liberal, Miramichi, NB]

Thanks, Mr. Chair.

We have a very good organization here that has done a tremendous service to our country. We have to be very careful in what we do that we don't cost our government, our treasury, a great deal of money in the future.

Thank you.

[The Chair, Conservative, Merv Tweed]

Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair. Good morning, Mr. Garlock.

I would like to come back to subsection 15( b). In order to ensure smooth traffic, the department is trying to optimize traffic flow. In other words, under this subsection, the department could be led to conclude that if tolls were to drop, traffic on the bridge would increase, and therefore improve traffic flow. How would you react to a suggestion to reduce rates?

[Thomas Garlock]

In our discussions with the agency, when they have spoken to an instance of reduced tolls they have expressed concern that an operator could conceivably reduce tolls and gain more volume at that crossing at the expense of another crossing. As we've said this morning, these are very expensive crossings to construct and maintain. So in the instance of my good friend Ron Rienas dropping his tolls to next to nothing and attracting a great deal of volume from my bridges, I would be without revenue to repay my obligations, and it could put me in a precarious situation. That kind of predatory activity, as the agency has expressed to us, is the intent of this language.

In fact, the agency has said to us informally--and of course this would have to be worked out in making regulations--that they are not necessarily envisioning a case where the Niagara Falls Bridge Commission would have to submit a toll structure to the minister for approval. Rather, the minister would only step in if the minister saw something that undermined the efficiency of the border. I'm not speaking for the agency, but that's some of the discussion we have had. But it is that predatory practice that the minister has an interest in.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

You talked about amending this clause. Is your amendment intended to protect the profitability of bridge administration? Earlier you spoke very quickly about your amendment. Will you be submitting it so that we can become familiar with it?

[Thomas Garlock]

Absolutely. We have provided it to the clerk of the committee, and we would be happy to continue discussions with members concerning it.

I think it's important for me to say that I don't think there's a significant difference between what the minister and the agency seek to accomplish, and the purpose of the bridge and tunnel operators. We all want an efficient border.

Some of the members may be concerned that I'm a bit oversensitive on the whole financial markets issue, but again, the letters we have placed with the clerk from bond counsel, financial advisers, and Standard & Poor's will more clearly outline why that sensitivity has come to the fore.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Sections 13 and 14 deal with maintenance and repair. Following an inspection carried out by the department, the government can recommend or ask you to make potentially very expensive repairs, which could force you to increase your tolls. Once again, is your problem unsolvable? Would you like to see clauses dealing with financial considerations added to the bill?

[Thomas Garlock]

I don't believe we do have a problem with that clause. As I said earlier, these are important links for Canada. They are important economic links, and I think if the minister sees a situation that could undermine the safety of a crossing, it is within the government's purview to step in and say this has to be taken care of.

In terms of finances, we did have some discussion with the Department of Transport along these lines. I'll give you just a brief overview. As I have been operating three bridges, and Ron has been operating a bridge between two wonderful communities, Fort Erie and Buffalo, New York, we have been able to be self-sufficient. Some of the members of the Bridge and Tunnel Operators Association, though, don't deal with the volume that we do. So looking at a security standard and looking at the Niagara Falls Bridge Commission with more than 150 cameras on top of the bridges, under the bridges, in the plazas, with motion detection down in the gorge, with controlled access for all 90-some doors around the commission--a $3.5 million system--we're very proud of what we've done in security, both in hardware and in our practices.

The international bridge at the Sault, however, does not have the resources to do that. I think if it became an interest of the government to emulate the strongest standard and to require, say, a similar security system to what I would have or Ron would have at the Ogdensburg Bridge or even at the Federal Bridge Corporation Seaway International Bridge, then the federal government might have to look at some financial assistance.

Those are discussions that we have had, but we're not here proposing that a financial component be included in the bill.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

Just continuing on with Mr. Carrier's questions about the finances, for the quasi-public authorities--not for the Ambassador Bridge, obviously--is it safe to assume that maintenance costs are basically covered through the user fees and that capital costs are paid for through financial markets, through bond issues, etc.? In other words, there are very few subsidies or grants that go to these bridge entities?

[Thomas Garlock]

The answer to your latter question is yes. But on the former, money required for maintenance of the spans comes from operating revenues, but I can tell you that all of my toll revenue is first pledged to the bond holders. The bond holders get paid before I do. The bond holders get paid before the bridge is painted. The bond holders get paid before we build facilities for Canada Border Services Agency.

What I use to underwrite general maintenance and our payrolls, our IT department, and all of the things that are required to operate three international crossings is in large part our non-toll income. We receive more than $4 million a year from the Government of the United States of America for the lease of the facilities for customs and border protection, USDA, and what have you. There is normally an agreement between the owner of the bridge or tunnel and the operators of the duty-free shops, whereby the bridge owners get a percentage of their sales. We have a private currency exchange operator on our bridges, and we get a percentage of that.

The third part of it is that we have built significant reserves in the past ten years as we have been getting ready for significant capital improvement. Those reserves have also thrown off some interest income, but we're about to deplete that, so you're right--then we go into the financial markets to float additional bonds for any additional capital construction that we need to accomplish.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

That would be the case for all ten members of the public authority?

And I have a supplementary question to that: What are the current financial ratings? You said you have an A rating. What are the current financial ratings of the other operators?

[Thomas Garlock]

To the first question, I'm not certain that the international bridge over the Saint Lawrence River would finance in the same way as we do. In Canada, they're part of the Federal Bridge Corporation—I'm not certain of it—but I think it would be safe to say that the majority of us do indeed access the bond markets for work.

In the United States, I think I mentioned earlier that these bonds are floated on a tax-exempt basis. They're very attractive for the purchasers, and as you can appreciate, that really drives down our borrowing cost.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Would most of the bond holders be American? Is that fair to say?

[Thomas Garlock]

They could be Canadian. Of course, in that category, Canadians would not derive the tax benefit, but they could purchase the bonds, if they found them attractive. Probably most of my bonds are held by Americans.

In the matter of the Blue Water Bridge Authority, I know that their bonds were issued in Canada.

In terms of rating, I can't tell you that everyone is the same because, as I indicated earlier, there are smaller and larger entities, and they are all over the map in terms of their financial strength. Our bond rating is an A, and the Buffalo and Fort Erie Public Bridge Authority's rating is an A minus, which are very attractive ratings from the agencies.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Okay.

For our committee's information, you mentioned in your case going from a triple B in 1993 to a single A in 2003. What's the financial impact of having that rise in rating? Then what are your concerns about what might happen if the same bond agencies decide that if there are no changes made to the legislation, they have more concerns about issuing the bonds and may not give you the same rating?

[Thomas Garlock]

This is an easy answer. In 1993 we borrowed $130 million on a triple-B rating. In 2003 we refinanced with an A and saved $20 million. That difference was all in the rating and in what we paid the bondholders. It is significant. Just the movement between an A and an A minus or to a B is dramatic.

As I said earlier, there's only one place we can go to recoup our costs if they escalate significantly, and that is to our toll payers—that is to Canadians, Americans, and visitors to the two countries.

Again, I need to emphasize that this is discussed further in some of the materials I made available to the clerk.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

[The Chair, Conservative, Merv Tweed]

Mr. Blaney.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you, Mr. Chair.

I believe that you gave a good explanation of your concerns regarding the potential financial implications of having Transport Canada impose restrictions on the tolls that you collect when people use your bridges and tunnels.

You talked about a second point, which is perhaps less important for you, that of operating and maintaining your infrastructure. You seem to be saying that bridges located in Ontario are already covered by an array of legislation. If your bridges had to be repaired, would these laws force you to make the repairs?

[Thomas Garlock]

I believe the answer to your question is yes. I would agree with that, Mr. Blaney, but your earlier statement is accurate as well. Ontario has very stringent standards, as does New York, as does Michigan, to ensure the safety of these spans.

As I noted earlier, we take it a step further. I believe Transport Canada already asks us to provide inspection reports of the spans every other year. We send them every year. Most--in fact, almost all--of the bridge and tunnel operators do their inspections on an annual basis. Again, it's reflective of our understanding of the importance of these crossings to both countries.

For another thing, we are unique, and part of the benefit of all these public benefit corporations operating the crossings.... Take, for example, the Ministry of Transportation for the Province of Ontario. They have thousands of spans to look after across the province. We have the luxury at the Niagara Falls Bridge Commission of only looking after three.

If I could, I would tell you that I think the Minister of Transportation for the province holds us in some regard, in that, through the BIF program in 2003 there was an allocation to the province for provincial Highway 405. For only the second time in the province's history, the MTO designated an agent to do the Highway 405 project for them. It was a $14.4 million project. The Niagara Falls Bridge Commission, with no material interest in a provincial highway, was named the agent.

We took it from the moment of design and engineering to substantial completion in 13 months. That is because we were able to concentrate on the project. We are able to concentrate on our spans. I feel that you would find the majority of our spans in superior condition relative to non-border spans in the same regions.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

You want to make sure that there is no duplication of laws that would entail a double inspection. As you say, we don't need to reinvent the wheel. The purpose of the legislation is to ensure that all standing infrastructure is in good condition and properly inspected. I believe that there is already a regulatory framework. Does the United States also have a regulatory framework for the inspection of infrastructure? If there are problems, are administrations obliged to make investments in bridge maintenance?

[Thomas Garlock]

That would be correct. As they should, they will invest if there is a problem.

As far as the approach is concerned, there are very specific regimens that are followed by the inspectors, specific things according to the type of span or the tunnel that the inspectors have to examine and report upon. It's a very detailed inspection. I know at our crossing it takes upwards of two to three weeks to inspect all three spans.

Ron, I believe your inspection goes at least more than a week, and two weeks at the Peace Bridge.

In fact, Mr. Blaney and all members, if you have an interest, please contact us. We would love to have you down during an inspection period. You haven't lived until you're in the bucket of a C-arm that is underneath the Rainbow Bridge, 270 feet above the river. We do look at everything in some detail.

Please don't misunderstand me. If the minister, in his or her wisdom, believes there is something more that has to occur that the provinces, the states, or the various security interests have not addressed and the minister feels that he or she must step in, we have no quarrel with that whatsoever.