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Lost highway

Did Ontario taxpayers get taken for a ride on Highway 407?

BY JIM TRAUTMAN

Upon coming to power in 1995, Premier Mike Harris proclaimed the end of subsidies. Handouts to "special interest groups" were at an end. The other buzzword was "partnerships" between government and private enterprise.

A strange model of public/private partnerships can be found on the northern edge of Toronto, where the 407 Electronic Toll Road Highway cuts across the region.

The expensive project was inherited from the previous NDP government of Bob Rae. Before the highway was opened, millions in extra costs were incurred due to safety improvements deemed necessary by the OPP, but when it opened for business in October 1997, the 407 became a revenue-generating machine operated in a partnership between the province, now run by the Tories, and Canadian Highways International Corp. (CHIC) of Mississauga.

In 1999, just before an election call, the highway was sold. Many details of the sales agreement remain secret. What information has become public suggests it was not the best deal for the taxpayers of Ontario.

Elements of the secretive arrangement between the provincial government and the private consortium that runs the 407 show that the taxpayer is still stuck with some of the costs of the toll road, while the profits go to the private investors.

One thing for sure is that rates have been jacked up, despite a promise by Mike Harris that that wouldn't happen.

Also clear is the 407's place in the emergence of a three-tier system for Ontario's highways. At the high end are toll roads run by private companies or the government. They are too expensive for transport trucks but ideal for private drivers in a hurry to move across the (solidly Tory-voting) the 905 region.

The provincial government has found money for the second tier of highways, those feeding the ridings of key government officials. But other public roadways are seriously underfunded, following the downloading of financial responsibilities for highway maintenance onto municipalities.

By dumping the problems and maintenance costs of highway and road maintenance on small-town governments, the Harris government ensured that the majority of taxpayers will have to take their chances travelling third-class on poorly maintained roads and truck-clogged highways.

THE FUTURE IS EXPENSIVE

The 69-kilometre 407 describes itself as "the world's first all-electronic open toll highway." Its automated equipment, which tracks regular users electronically through transponders and picks up one-time users with cameras that capture licence plates, tracks an average of 243,000 trips per weekday.

Has the investment of tax dollars in the 407 provided a proper return to the citizens of Ontario? According to MPP Gilles Bisson, NDP transportation critic, it has not. The 407 was planned as a public/private partnership, but only for as long as it took to pay off the construction costs -- then the 407 was supposed to become a freeway. "Tolls were to come off after the 407 was paid off -- in 15 to 20 years," says Bisson.

Sometime in 1998, the plan changed. There was a provincial election in the offing, and the loss of revenue due to tax cuts had created financial problems. Despite extensive spending cuts and the greatest economic boom since the 1960s, the Harris government was still several billion dollars away from balancing the books.

With the Tories trailing in opinion polls and facing public concern about cuts to health care, the premier's political advisers felt the government might be vulnerable. In real estate, it's location, location, location. In politics, it's timing, timing, timing.

Privatization had been one of the main goals of the Tories' Common Sense Revolution. But after four years, sales of government assets amounted to just a couple of small nurseries and the aircraft owned by NorOntAir. What was needed was the sale of a major asset that could bring in major revenue. On Oct. 19, 1998, Rob Sampson, minister without portfolio with responsibility for privatization, introduced legislation to place the 407 on the market. The Harris government was getting out of the toll highway business.

The 407 was already being managed by a private company -- CHIC. Mitch Patten, one of the original Harris political strategists, left his job as the premier's deputy principal secretary and became vice-president of corporate affairs for CHIC in October 1996. When contacted about conflict-of-interest guidelines in coming and going, Patten says he left "prior to conflict-of-interest guidelines" later introduced by the Harris government that state government employees cannot work in areas with which they have had involvement for 12 months. After CHIC lost in the bidding to purchase the 407, Patten returned to Queen's Park in August 1999. He now heads the Olympic and Waterfront Agency for the Harris government.

In late 1998, the timeline to sell the 407, receive the cash, announce the budget and call an election was tight. Planning for the early summer election was well underway. Over $93 million had been spent on television, newspaper and radio ads about the good job the government had been doing and a promise of more tax cuts if the Tories were re-elected.

On April 13, 1999, Sampson announced the sale of the highway to a consortium led by Cintra Concesiones de Infraestructuras de Transporte (a Spanish company) and SNC-Lavalin of Montreal. The consortium purchased the right to own and operate the 407 and build east and west extensions. The selling price was $3.1 billion -- the largest selling price for a public asset in Canadian history. According to the minister, the people of Ontario had doubled their investment.

The sale closed on May 5, 1999. According to Sampson, there would be a method to regulate tolls and link in some unexplained manner of toll revenue to congestion relief: "The travelling public will be happy to know that we have struck this deal with their time and pocketbooks in mind."

On the surface it appeared taxpayers had received a good deal, and with an election underway, the sale became a minor issue. More recently, though, questions have been raised about the real costs and benefits.

The ink had barely dried on the deal when the full $3.1 billion was added to the provincial revenues for the new budget, which came just ahead of the election call. Even with the one-time revenue from the sale, the province was $2 billion in the red. But the problem for the long-term was that the money from the sale of the 407 was placed in general revenues, instead of being applied to the debt from money borrowed to build the highway -- about $1.2 billion. That debt remains on the books.

(In the last year of Bob Rae's NDP government, the provincial debt was $80.6 billion, with $7.1 billion a year needed to pay the interest costs alone. In 2000, the debt stands at $114.1 billion and over $9 billion required for interest payments.)

FOR WHOM THE TOLLS BILL

In the United States, toll highways are common. The New York Thruway is typical of state toll highways -- it is operated by a state highway authority that puts the revenue back into maintaining the system. It is described as a "user-fee supported highway." Profits from the 407, on the other hand, go to its owners and investors.

There is another major difference between the Thruway and the 407 -- the toll fees. The ride from Buffalo to New York City, at 691 km, costs $18.65 (Canadian funds). The same distance on the 407 would cost $69. And the New York Thruway offers discounts to frequent users, while the 407 does not.

Announcing the sale of the highway, Premier Harris stated, "We're going to strictly control tolls." He promised tolls would increase by no more than 2 per cent per year. Since September 1999, the 407 has raised its tolls by 50 per cent.

As part of the agreement for the sale of the highway, several contractual obligations were agreed to by the government. Each is interesting and unique.

First, the province has become a collection agency for the private company that operates the highway. If a driver has not paid an outstanding bill for using the 407, that information appears in the Ministry of Transportation database. Failure to pay will result in the ministry denying renewal of the offending individual's registration and driver's licence. (Besides employing the registration and licence punishment, the government can also turn delinquent individuals' names over to a collection agency for further action.) Over $2.4 million in outstanding fees has so far been collected by the Ministry of Transportation and turned over to the 407 highway consortium.

So far, thousands of motorists have been incorrectly placed in the data bank as not paying their fees. At one point, the number of drivers mistakenly placed in the data bank was 180,000. "Motorists have been ripped off and they should get their money back," stated Liberal MPP Mike Colle. The Canadian Automobile Association (CAA) earlier this year called for an investigation into the practices of the 407 consortium.

According to José Maria López de Fuentes, president of 407 International, "The company issued $2.15 billion in bonds, including $1.1 billion to the public, and needs the collection enforcement to ensure the investment." It seems fair to ask the question, if the government believed the private sector could operate the 407 more efficiently, why is the government acting as a collection agency for a private company? In fact, it appears that the government's offer to act as a collection agency was a keystone of the deal.

A second unique section of the agreement appears to include free advertising. Each new automobile registration package sent out by the transportation ministry includes a brochure in English and French with a quarter-page ad for the 407. Bob Nichols, a spokesperson in the office of transportation minister David Turnbull, says, "The ad was not paid for by the 407 ETR consortium, but the matter is presently under review."

The entire deal is shrouded in secrecy. The government has not allowed even members of the legislature to see the entire agreement -- Liberal MPP Gerry Phillips has been trying since last year. Speaking to the legislature last month, Phillips pointed out that the consortium's pitch for investors said that, "provided certain traffic is realized, tolls may be increased without limit."

Requests for 407 International to reveal details of the sales agreement have been refused, although Premier Harris has stated there is nothing to hide. The province says it will release the agreement if it is ordered to do so by the Information and Privacy Commissioner. But the involvement of a third party with a commercial interest in keeping the agreement secret will be a strong argument against publishing it.

A FUTURE PAVED WITH TOLL ROADS

In a February speech to the Ontario Road Builders Association, finance minister Ernie Eves said, "If the private sector has a better way of providing services currently provided by government ... we are ready, willing and able to listen." Eves spoke of a new toll highway in the Niagara Peninsula and a toll-road link to Pearson Airport.

Two weeks later, Premier Harris told the London Free Press editorial board that "the province is considering toll express lanes alongside free collector lanes." The areas under consideration appear to be the 401 from Cornwall to Windsor and the Queen Elizabeth Way from Toronto to Fort Erie.

David Leonhardt, a spokesperson for the Ontario branch of the CAA, points out that Ontario drivers contribute $3.62 billion a year to the province in gas taxes, diesel taxes and vehicle and driver's licence taxes. "To pay tolls on top of that is ridiculous," he says.

The good-news provincial budget of May 2 assigned less than $1 billion to road construction and repair. The only major new highway construction discussed was for speeding up the expansion of Highway 69 and 11 to four lanes. One of those runs through Eves' riding, the other through the riding of Premier Harris.

None of the $3.6 billion the province collects from drivers every year is available for municipalities, even though municipalities are now responsible for maintaining local roads, as a result of the Harris government's downloading of responsibilities to cities and townships. Without that revenue, there is no way to keep up with necessary repairs. There is money for roads and highways in the province's Superbuild Fund, but that is available only to projects that include private investors.

Elsewhere in Canada, toll highways seem to be falling out of favour. On March 1, New Brunswick premier Bernard Lord kept his election promise and scrapped the tolls on a new highway built by the previous government.

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