Ferry Tales: Different Operator, Same Blank Cheque
Posted April 1, 2016
Suppose that two parties are negotiating a deal. One has publicly committed itself to reaching an agreement by a certain date. As the date approaches, with many details still to be resolved, the one who has not made any such commitment is going to have his way in all the negotiations. This explains the most recent episode of Ferry Tales, announced on March 25th.
It must be said that Bay Ferries is a more knowledgeable and experienced operator than STM Quest, operator of the Nova Star for the past two seasons. Other than that, there is not much of an improvement in the new arrangement:
(1) The ship to be used is not ready, so $9 million from taxpayers is to be used rushing it into shape by June 15. Expect delays.
(2) The ship is leased from the American Navy and, as such, must be crewed entirely by Americans. No jobs for Nova Scotians there. Transportation and Infrastructure Renewal Minister Geoff MacLellan nevertheless made the peculiar suggestion that the service is somehow comparable to the TransCanada highway.
(3) The province is committed to the service for ten years, but only assured a lease on the ship for up to four years. There is no certainty as to availability or price after that.
(4) Between passenger revenues and provincial subsidies, Bay Ferries is to be paid each year for all operating expenses including support services, plus a management fee. The contract is disclosed but the management fee concealed.
(5) If the province wants to cancel the contract, it must pay Bay Ferries all wind-down expenses plus three years of management fees if termination is before the end of year three, two years of fees for the next three years, and slowly diminishing amounts after that.
(6) The high speed ship, which carries up to 282 cars, consumes vast quantities of fuel (hint: its fuel tank holds 215,000 litres). That is environmentally unfriendly and vulnerable to massive cost increases if the price of oil recovers to previous levels.
(7) The prices customers will pay have not yet been determined. Any estimate of future passenger loads must be viewed as entirely conjectural. Unless revenues grow or expenses reduce, the annual subsidy will grow to $14 million after the second year.
What’s not to dislike?
The 2012 report on ferries said that an investment of $30-$35 million might be justifiable if it led to a self-funding service after a few years. We have already spent more than that on the Nova Star. The hope that the service might someday become self-sustaining has disappeared.
Based on passenger numbers more than double those now predicted, the more optimistic of the 2012 report’s two forecasts predicted an incremental 300 jobs and $6.8 million of employment income across the province. These seasonal jobs would produce $1.0 million of additional federal tax and $1.4 million for the province. Not much return for a $14 million annual expenditure.
The seeds of this mess go back to the 2013 election, in which all three parties rushed to unconditionally promise resumption of the ferry service. None of them is yet willing to say how much cost is too much.
Was it possible to negotiate a better deal? One can’t know for sure, but the minister left himself defenceless. He announced that Bay Ferries would be the operator in late October without even knowing which ship would be proposed.
A 45-day deadline for identifying the ship came and went in December. In early February, the minister again assured tourism operators that a ferry would run in 2016, still without knowing which ship it would be or what it would cost.
Bay Ferries, being the only bidder, was able to insist on terms to its liking as the sailing season got ever closer. Let’s hope the same tactics are not used the next time a big highway project is being built.
The more pertinent question is not about negotiating tactics. Is this the best way to spend $14 million per year in support of tourism—or any other part of the economy?
Surely, for that kind of money, we can generate more than 100 to 200 seasonal jobs. If it is 200 jobs, they will each cost $70,000 every year, likely six or more times what the employees get paid over the four months.
By way of contrast, consider the payroll rebate agreement paying a total up to $1.2 million for 50 continuing jobs in Mulgrave, paying an average of $72,000—or 27 jobs at high-tech Acadian Seaplants for $500,000, just under $20,000 per continuing job.
The return on the ferry expenditure does not come anywhere close to these kinds of returns. There is no valid economic argument for spending this much on a service with modest benefits for our tourism industry. Worse, there is no indication that the Liberals—or the opposition parties—have drawn a line in the sand beyond which they are unwilling to go.