Ferry Tales – Chapter Four
Posted October 24, 2014
The Liberal government has chosen to dole out another $5 million to STM Quest to keep the Yarmouth Ferry alive. They have been commendably transparent about events as they happen. What they think about the future is much less clear.
The $5 million is just to clean-up the bills from the year just ended. It has been provided before government has a chance to inspect the accounts. It is not clear yet whether more will be needed to get the boat through the winter, let alone begin the next season.
Minister Samson contends that the province “is not in the ferry business.” That is questionable. He is sending in KPMG to validate the accounting and provide advice on the business plan for next year. He will be negotiating directly with the boat owner STM on the cost of the lease. He has “directed Nova Star to pursue every possible lead for winter work.” He is prescribing management compensation and requiring weekly cash-flow projections. He is working directly with the governor of Maine to seek financial support.
And, he has been making up 100% of the shortfall. Nova Scotian taxpayers have every reason to feel that he is up to his neck in the ferry business, on their behalf. Like rebuilding the Bluenose, this is not one of government’s core competencies.
All three political parties were energetic supporters of renewing the ferry in the 2013 election campaign. The minister points out that the nature of the arrangement that the NDP had negotiated was not evident until after the election, and that he had to stick with it if service was to begin this year.
Nevertheless, it should have been immediately obvious that STM Quest had no operating experience and no financial capacity to absorb losses, and that the touted $5 million of support from Maine might not happen. Accordingly, the province’s current steps to provide more intense oversight and involvement should have begun not later than the first unscheduled request for extra money.
The ferry is not a piece of crucial transportation infrastructure like the MacDonald Bridge or Englishtown Ferry. Its purpose is not to make it easier for Nova Scotians to visit New England instead of vacationing closer to home. Rather, supporters of the ferry base their argument on the economic benefits of increased tourism. These have been meager.
Through August, the ferry brought 18,000 visitors. Visitors to Nova Scotia from New England were up 5,000, suggesting that the $4.2 million Nova Scotia tourism marketing campaign there had some impact. But most New Englanders drove through New Brunswick or flew rather than taking the ferry.
On the other hand, entries through Amherst were down 40,000. Most of this is attributable to visitors from the rest of Canada using planes more often, but some appears to be American traffic that diverted to the ferry.
Room nights in June-August were up 10,000 in Yarmouth and Acadian Shores, but down by about the same amount in the rest of the province outside of Halifax. Even if we pretended that the province will have gained 10,000 room nights as a result of the ferry season, the province’s payments to STM Quest would amount to a subsidy of $2,600 per room night.
If the ferry resulted in 150 extra seasonal jobs, the subsidy would amount to more than $170,000 per job. This would make some of the NDP’s more wretched choices look pretty good.
Of course the minister points out that the NDP own this one, and he is partly correct—he either had to accept the poor deal they made, or miss the 2014 season.
But now all of the choices are his to defend. How much is a reasonable level of subsidy going forward?
The 2012 report on the ferry calculated benefits if there were 95,000 passengers in the first year, growing to 135,000 in year 10. The more optimistic of two earlier studies forecasted $6.8 million of incremental employment income. The seasonal jobs would produce $1.0 million of additional federal tax and $1.4 million for the province.
Let’s compare with some other economic development initiatives this year:
- DSM, the Dutch company that bought Ocean Nutrition, will receive $1.2 million in payroll rebates over five years if it creates 50 new jobs in Mulgrave, in addition to the 145 already there. Average salary is targeted at $72,000, which would mean $3.6 million in payroll for the added employees.
- Innovatia Inc., an IT company, will receive payroll rebates of $9,600 per job for up to 100 full-time jobs that it adds over 5 years.
- CGI, an IT firm with 400 employees, can earn $24,000 per employee added for up to 450 positions, producing $126 million of income over 7 years. These typically pay $60,000.
- Acadian Seaplants expects to add 27 jobs as a result of a $4 million capital investment. The province is contributing just under $20,000 per job.
All of these are one-time payments for creation of permanent full-time positions. The payroll rebates are only paid for positions actually created.
It is against these examples that the minister’s choices for further spending on the ferry should be tested. He has just spent $5 million to keep the future possibilities for the ferry afloat.
That, and whatever follows for both advertising and future ferry subsidies, must be weighed against the jobs and employment income generated. They should, like every other economic development investment, be evaluated by an independent third party.
The ferry has already been an ugly exception to the minister’s generally disciplined approach to economic development spending. It is hard to see how a case can be made for the kind of further spending that will be required.