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Experts say new international bridge won’t cost Michigan taxpayers

From the Detroit Free Press
September 23, 2012
By: John Gallagher

Claims that have bombarded Michigan voters for months that taxpayers will be stuck with the bill for a multi-billion dollar bridge to Canada are not based in reality, said three independent law professors asked by the Free Press to review an international Crossing Agreement signed in June.

The advertising campaign from the People Should Decide, a group financially backed by Ambassador Bridge owner Manuel (Matty) Moroun and his family, has pushed that consistent message in several rounds of anti-bridge ads that are misleading, said two advertising experts who reviewed a recently released ad, also at the request of the Free Press.

Jennifer Henderson, a law professor at University of Detroit Mercy, John Mogk, a law professor at Wayne State University, and Marcia Valiante of the University of Windsor said the Crossing Agreement between Gov. Rick Snyder and Canadian Transport Minister Denis Lebel is crystal clear that Canada pays for the bridge and then recoups Michigan’s share, about $550 million, from future bridge tolls — not from Michigan taxpayers.

“It very clearly says it’s not funded by Michigan. … And throughout the agreement those words are repeated,” Henderson said.

Even so, the two ad experts say the anti-bridge message might be resonating because it’s working like political attack ads — thumping a single message even if it’s short on context or supportable facts.

The People Should Decide says its analysis of bridge finances is sound and that approval of Snyder’s New International Trade Crossing, and other projects like it, should be put to citizen votes. They say its consultant has determined costs for the bridge will skyrocket and that other “hidden costs” will saddle Michigan taxpayers with unwanted expenses for the next 50 years.

Recent ads claim the new bridge will end up costing $8 billion — nearly four times the official estimate — and force Michigan to lay off police and teachers and even tap senior citizen pensions to cover the cost.

“Will the ad be effective? Probably. Is it legal? Probably. Is it ethical or fair? Probably not,” said Hugh Cannon, a professor of advertising at Wayne State University.

Ballot issue in play

The Free Press asked the local professors for their opinions in light of a Moroun-backed ballot referendum, which, if approved, would create a constitutional requirement that any new international bridge or tunnel get a statewide and local vote before Michigan could spend any money. The referendum language says it would apply retroactively, impacting the NITC, to be built 2 miles downstream from the Ambassador. That issue, however, likely would be decided in court if the referendum passes, legal experts have said.

Mickey Blashfield, director of government relations for the Moroun business network and head of the People Should Decide effort, points out that the Crossing Agreement contains a clause that allows the terms to be changed in the future, which, he says, could mean a reshuffling of financial responsibilities. And a reworking of that agreement, he said, is more likely in the event of construction cost overruns and shortfalls in future toll revenue, according to the recent study paid for by the Moroun-backed group.

“Different experts have tackled this cost issue from different angles, but the one thing they all seem to agree on is the fact that there’s no such thing as a free bridge,” said Blashfield, whose group commissioned O’Keefe & Associates financial consulting firm of Bloomfield Hills to examine the new bridge project’s financial structure. “With so much on the line, the people deserve the right to decide how public money is best spent.”

Major corporations, including Detroit’s three auto companies, Honda, Toyota and various auto suppliers, back the NITC project, plus multiple business groups across the state, including the three largest chamber organizations — Detroit Regional Chamber, Grand Rapids Chamber and Traverse City Area Chamber of Commerce. They call the bridge a boon for Michigan’s economic future, saying traffic across the NITC inevitably will increase as the economy in Michigan and Ontario expands and the advantages of the new modern bridge become apparent to users.

Brad Williams, vice president of government relations for the Detroit chamber, said Detroit needs another international crossing option because drivers who cross the Ambassador Bridge have to contend with 18 stoplights in Windsor.

He said many European goods making their way into the U.S. arrive to Canada at its deepwater port in Halifax, Nova Scotia, but the trucks carrying those goods need a more efficient way to cross the border into the U.S.that doesn’t involve navigating Windsor traffic.

“Detroit is a logical choice. There’s a real opportunity here to build out a transportation, distribution and logistics industry,” Williams said. “The auto industry is completely integrated between Ontario and Michigan.”

Checking the claims

The Michigan Truth Squad, an effort connected with the nonprofit Center for Michigan think tank, issued a “flagrant foul,” its toughest verdict, against the People Should Decide’s claims made in advertisements, mainly that Michigan taxpayers will end up paying for the bridge and that the state’s debt load will increase because of it. The group characterizes a flagrant foul as a “statement that distorts or incorrectly states a fact.”

The group explains its verdict on its website: “These ads repeat claims, or advance new variants of old claims, that do not match available documents. The agreement with Canada puts the financial onus on Michigan’s neighbor, not Michigan, for paying the bills, including interest. Since Michigan is not appropriating construction dollars, no dollars are being diverted away from other public uses. Michigan is not increasing its debt load with the NITC project.”

The group said it is evenhanded in its assessments and looks at political commercials and speeches, issue advertisements, news releases, political websites and white papers. The group examines claims suggested by the public.

There have been several rounds of Moroun-backed ads that all push the idea that the cost of the bridge to be covered by Canada will somehow backfire on Michigan taxpayers. The Moroun-backed group has spent an estimated $10 million so far on the ads.

A recent ad called “Tough Choices,” says the bridge will become so expensive that Michigan would be forced to lose “quality teachers, cops on the beat, firefighters and EMTs,” and to reduce pension payments to seniors.

“Real cuts hurting real people,” the voice-over says. “Now that we know how much this bridge could cost us, shouldn’t the people decide?”

Cannon of WSU said the ad and others like it are dangerous because they are “deliberately using misleading imagery to “push the electorate to a certain decision,” which “undermines the very foundations of our political system.”

At the same time, Michael Bernacchi, a professor at University of Detroit Mercy, said the ads may be effective simply because they’re so bold and aggressive.

“I wouldn’t like to be combating this from the other side,” he said. “They’re out there first. They’ve been out there for a considerable amount of time with a single message. It’s developed a whole brand — it’s simple: ‘No bridge.’ ”

Lt. Gov. Brian Calley, who serves as Snyder’s point man on bridge issues, condemned the “Tough Choices” ad.

“Their claims keep getting more bizarre,” he said. “They’re throwing out numbers. I don’t know what’s next. One hundred billion? A trillion? They don’t seem to be bound by any factual information.”

New anti-NITC ads starting this week follow the same story line as the others, depicting ordinary people worrying about their finances as the expense of a new bridge looms, threatening their futures. Central to the Moroun case is the claim that Michiganders will get stuck paying for the bridge despite contractual assurances to the contrary.

The legal ties

The Free Press asked the three law professors to review the Crossing Agreement language and give their opinions about the strength of protections for Michigan taxpayers in the document.

Valiante of the University of Windsor said, “The basic concept is that Canada will pay for everything up front then will recoup those costs through tolls and other revenues.”

Mogk, an expert at WSU on development issues, said, “I think it’s airtight on that question.”

On the first page of the agreement, it says the project will be built “with funding approved by Canada, but with no funding by the Michigan Parties. The Michigan Parties are not obligated to pay any of the costs of the new International Crossing.”

And on page 30 of the agreement, it says, “The Michigan Parties shall not be required to fund any International Crossing Costs, Michigan Interchange Costs, U.S. Federal Plaza Costs, Crossing Authority Costs or International Authority Costs.”

There are multiple similar references throughout the agreement.

Henderson noted that the agreement does state that the parties could amend the document in the future, which could mean some new payment scheme that might include a cost to Michigan. But she said major changes are only a theoretical possibility and not something likely to happen.

Change of heart?

Blashfield, head of the People Should Decide, contends it’s more than theoretical and a likely scenario as the Canadians find themselves responsible for a bridge that cost too much and with fewer tolls than predicted to cover the tab.

He pointed out that any shortfall in tolls allows Canada to collect its amount due plus interest from future revenues, creating a snowball effect moving forward that will push up the bridge cost to more than $8 billion, according to a study commissioned by the People Should Decide from the O’Keefe & Associates financial consulting firm of Bloomfield Hills.

Patrick O’Keefe, founder and CEO of the firm, told the Free Press the figure assumes a 10% cost overrun on construction costs, a 20% shortfall on toll revenue and a 50-year time frame for the mounting debt and interest to grow.

The analysis doesn’t explain how Michigan taxpayers would become responsible for the financial burden — which, according to the crossing agreement, belongs to Canada — nor does it assess the likelihood of toll revenues falling short.

According to the firm’s website, O’Keefe “is recognized as an expert in the fields of corporate reorganization, debt restructuring, turnaround consulting, refinancing solutions, due diligence support, valuation and litigation support.”

Blashfield said other “hidden costs” of the project also will burden Michigan taxpayers over the years. Among those:

• Tolls on the Blue Water Bridge that now go to Michigan will in part go to Canada in the future as some traffic diverts to the new bridge.

• Homeowners in Detroit’s Delray neighborhood, where the new bridge will land, will no longer pay property taxes once they’ve been moved out.

• Workers employed by the Ambassador Bridge who might lose their jobs to competition from the new bridge will pay less income tax.

Backers of the new bridge respond that new commerce generated by a more modern and efficient bridge will more than make up for any incidental economic losses, including employing its own bridge operators and construction workers. The new bridge will be wider, have more modern plazas on either end and provide seamless connections to expressways on both sides of the border.

The backers, including the governor’s office, point out that Delray is an economically downtrodden area with high unemployment, and most residents there are happy to be bought out so they can move.

Carl Smith, 60, favors construction of a new bridge, even if it means he will be forced to move from the Delray neighborhood where he has lived most of his life.

“It’s going to create jobs. It’s going to create jobs during construction and it’s going to create jobs when it opens,” he said.

Contact John Gallagher: 313-222-5173