Boosting the Great Lakes International Economy

Brookings Institution

The regions on both sides of the Great Lakes international border need to team up to strengthen their highly integrated economies.

That was the conclusion of over 250 public and private leaders from both the United States and Canada recently brought together by Brookings and the University of Toronto Mowat Centre in Detroit-Windsor

The tone was set by Bruce Katz’s keynote–where he pressed for international metro action to expand exports and encouraged the industrial Great Lakes to seize and lead the low-carbon, clean-tech economy.

Overall, two topics dominated discussion by delegates as ripe for international teamwork.

One was building the 21st century transportation infrastructure the region needs as a platform for enhanced exports–and in particular building a state-of-the-art span connecting Detroit and Windsor, the world’s highest dollar international trade crossing point. Michigan Senate Majority Leader Randy Richardville, and Canada’s Consul General Roy Norton were pitching hard for the Michigan Legislature to follow Governor Rick Snyder’s call, and vote final approval for the new bridge.

The New International Trade Crossing has been 10 years in the planning, and is strongly backed by business leaders and governments on both sides of the border. It seemed a done-deal when Gov. Snyder announced that Ontario would pay cash-strapped Michigan’s share of the project, and in turn the U.S. Department of Transportation would let the Canadian dollars stand-in as Michigan’s match for federally-funded highway projects across Michigan.

The project keeps being sabotaged by the aging billionaire Mattie Maroun (born 1927), owner of the equally aging Ambassador Bridge (built 1929), fighting hard to keep a monopoly on toll traffic.

Maroun has contributed hundreds of thousands of dollars to Michigan State legislators, and bankrolled groups that are behind dirty tricks that would make Donald Segretti blush, including fake eviction notices at the doors of homeowners near the proposed bridge and patently false TV spots claiming Michigan taxpayers will foot the bill.

Meanwhile the whole $250 billion economic relationship with Canada is at risk, as the tightly wound manufacturing, agricultural, and commerce supply chains are bottlenecked–just at a moment they are poised to grow.

Another area for Great Lakes international teamwork is converting the region’s prodigious innovation, technology-base, and manufacturing talent to support new jobs and leadership in the clean-technology market. Recent Brookings research shows Michigan already 12th in the nation in share of clean-tech jobs and confirmed the jobs potential of clean-tech growth.

Grand Rapids Mayor George Heartwell made the point, “I can think of nothing more important than a more robust, and better harmonized Great Lakes renewable energy portfolio standard to drive job creation in the clean energy sector.”

Heartwell was articulating the market opportunities seen by business leaders in West Michigan, who feel well positioned to grow product lines and new jobs developing and manufacturing clean-energy and clean water solutions. When Gov. Snyder showed up in West Michigan to give his first “Reinvent Michigan Award” to Energetx, a wind turbine and electric vehicle parts supplier, the former venture capitalist was also petitioned by a 40-member delegation of clean energy business buddies, asking him to better support these emerging markets with more aggressive public policy.

As the Brookings study shows, clean-tech is one emerging arena in which to repurpose the engineering and manufacturing competencies of the Great Lakes to replace jobs lost in auto and other sectors–if state and metro leaders provide the supportive policy platform.

Ambassador Bridge truck traffic up 40.42% over last year

Vehicle Traffic of the Ambassador Bridge
2009 Compared to 2010*

Last month June-09 June-10 Change Percentage
Passenger Cars 332,030 386,951 54,921 16.54%
Trucks 173,202 243,210 70,008 40.42%
Buses & Misc. 944 1,106 162 17.16%
TOTAL 506,176 631,267 125,091 24.71%
Year-to-date Jan-June 09 Jan-June 10 Change Percentage
Passenger Cars 2,006,844 2,176,781 169,937 8.47%
Trucks 1,067,869 1,348,179 280,310 26.25%
Buses & Misc. 6,427 6,632 205 3.19%
TOTAL 3,081,140 3,531,140 450,452 14.62%

Data provided by the Public Borders Operators Association (PBOA) show that during the month of June, commercial truck traffic was up more than 40% over the same period last year.  All vehicle traffic across the Ambassador Bridge has increased by 24.71% compared to the same month last year. For the year, truck traffic is up more than 26% and all traffic is up more than 14%.

Traffic has been up every month this year as compared to 2009. Traffic, especially truck traffic, will increase as the economy continues to improve. Truck traffic provides approximately 80% of the Ambassador Bridge’s revenues.

*Data from Public Borders Operators Association report, July 2010

Transport Canada outlines how the DRIC project will be financed. Bottom line: No cost to Michigan!


Detroit River International Crossing
Financial Arrangements under a Public-Private Partnership (P3)

Questions have been raised by Representatives and Senators of the Michigan Legislature concerning the proposed public-private partnership (P3) arrangement for the new Detroit River International Crossing project and the financial liability this could pose for Michigan in the future.  This document explains the proposed P3 arrangement and how financial risks would be allocated.  It also addresses the issue of whether anticipated toll revenues could cover future costs, and demonstrates that Michigan would not be liable for any costs for the DRIC project.

1) Project Component Costs and Funding Sources

Allocation of Canada’s $550 Million:

US Plaza                        $150.0 Million

I 75 I/Change               $385.9 Million

TOTAL                        $535.9 Million

Risk allocation

Q. If the P3 Partner goes bankrupt or fails to complete the project will Michigan be financially responsible for any additional costs?

A. No. If a default were to occur during the construction period, the P3’s lenders (e.g., financial institutions) bear all the risks to complete the project.  The lenders would have the obligation to complete the project at no additional costs to government – i.e., the private lenders bear all the risks as this is a contractual obligation under the P3 concession agreement.

Similarly, if the default were to occur over the operating period, again the lenders would bear all the risks associated with covering the default and continuing with the operations.  This obligation is secured by the payments for the construction costs of the bridge, which are only paid out from toll revenues during the operating period if the facility performs in line with the contractual obligations of the concessionaire.

2) Operating revenues and costs

The table below reflects projected traffic volumes from the Wilber Smith and Associates study prepared for MDOT.  Revenue is calculated using current (non-inflation adjusted) toll rates charged by the Ambassador Bridge.

Revenue shortfall

Q. Are there years when there may be insufficient revenues to cover all costs?

A. For such projects, there is normally a “ramp up” period of traffic and revenues during the initial years of a project’s operations.  Any shortfalls will be capitalized and repaid in subsequent years.  Over the concession period, projections show that there will be more than sufficient funds to cover costs, that is, Michigan will not incur any future financial liability.

3) Operating Income (Fiscal 2009) at comparable international crossings

For other major Canada-U.S. bridges, as shown below, none of them reported operating losses in 2009 despite traffic declines due to the recession.

Prepared by Transport Canada and Michigan Department of Transportation

May 27, 2010

Public Private Partnerships

Opening the door to private investment in Michigan’s public infrastructure

As Michigan’s tax revenues continue to decline, the U.S. Federal Highway Trust Fund dries up and our roads and bridges continue to deteriorate – Michigan has little or no money to invest in new transportation projects that add capacity are needed to develop our economy.

Public Private Partnerships (P3s) provide an innovative and creative method to bring private investment and public ownership together to finance, design, build and operate new transportation projects in Michigan – without the need to raise taxes.

House Bill 4961: This bill, introduced in 2009 by Representative Gonzales, would amend Public Act 286 of 1964 to provide for public-private transportation to provide for public-private transportation facilities and to authorize public-private agreements related to “researching, planning, studying, designing, developing, financing, acquiring, constructing, tolling, operating, or maintaining a public-private transportation facility, or any combination of those activities…[1]

How will the Public Private Partnership legislation be used for the Detroit River International Crossing (DRIC) bridge?

The legislation would open many new avenues to design, build, finance and operate the new bridge that would minimize or could even eliminate the state’s financial obligation without diminishing the state’s ownership or control over the bridge. Because Canada allows P3 projects, it would also allow Michigan to enter into a joint agreement to finance, design, construct and operate the bridge. The costs would be covered by tolls paid by those using the bridge.

How do Public Private Partnerships benefit Michigan?

  • Private investments allow Michigan to build important transportation projects the state does not have the resources to pursue.
  • Historically, P3 projects are delivered faster, with less expense and more effectively than with traditional approaches.
  • P3 ‘s allow for many different financing and payment programs to be used by MDOT to maximize the use of transportation dollars to meet current budget needs.
  • P3 expenditures for the design, construction and maintenance of tolled facilities may qualify for toll credits that can allow Michigan to leverage additional federal transportation dollars.
  • Using private investment to add or accelerate the construction of new transportation projects can create thousands of new jobs. (i.e. it is estimated that 10,000 Michigan construction jobs would be supported during the 4-5 year construction period for the DRIC project).

Will Public Private Partnership projects apply to our existing roads?

In some cases the answer is “yes”. For instance, one potential P3 project is adding a fourth lane to eighteen miles of I-75 in Oakland County. Though the added capacity is desperately needed, there is no money in our transportation budget for such a large project. However, with private investment a “fast” toll lane could be built adjacent to the existing lanes. Drivers who wanted to pay the tolls could guarantee faster travel and other drivers would have an expressway with less traffic.

Who else uses Public Private Partnerships for Public projects?

In the United States, there are 30 states with public private partnerships building transportation projects. Florida is building roads and tunnels. Virginia is adding managed lanes to some highways. And California, Texas, Colorado, Oregon and Nevada all have current P3 projects in the works. Ireland, Spain and Portugal have used private investments to build mass transit projects. Canada has used P3 to build bridges and mass transit projects and Taiwan and Finland have used private investments to build high-speed rail.

What are the other potential P3 projects in Michigan?

Michigan Department of Transportation

Potential Public/Private Partnership Opportunities

(Arranged by Investment Amount)

Project Industry Investment (2009 Dollars)
Detroit River International Crossing* Transportation Approx. $1.85 billion for U.S. portion
I-94 (Detroit) Transportation Approx. $1.3 billion
I-75 (Oakland County) Transportation Approx. $631 million
Blue Water Bridge (St. Clair County) Transportation Estimated at $535 million construction cost
Detroit Intermodal Freight Terminal Transportation Approx. $500 million
Norfolk Southern Line Transportation Approx. $500 million

(ARRA funding plus $100 million)

I-94 (Jackson County) Transportation Approx. $450 million
U.S. 23 (Washtenaw County) Transportation Approx. $408 million
M-231 (Ottawa County) Transportation Approx. $150 million
Ann Arbor to Detroit Commuter Rail Transportation Approx. $100 million
Ann Arbor to Howell Commuter Rail Transportation Approx. $35 million

Other resources:

Federal Highway Agency:

Michigan Department of Treasury Public Private Partnership:

[1] House Fiscal Agency analysis.