407 reasons to be wary of privatization

Thursday, January 13, 2005


Written by Scott Piatkowski

It’s the right-winger’s lament: “If only we let the private sector provide X service, it would be so much cheaper, better, more efficient.” You’ll hear them say it about the LCBO, about the CBC and, in their moments of true candour, even about health care. If only we had some example to look at so that we could see what happens when something traditionally done by the public sector is put into private hands. We need only look at the 407 Electronic Toll Route to find such an example – but it doesn’t exactly make a strong case for privatization.

The 407 was originally conceived by the NDP government as a way to take traffic off the 401 and provide construction jobs at a time when the province was in the midst of the worst recession since the 1930s. In order to recover the $1.2 billion cost of construction, there were to be tolls on the road for its first twenty to twenty-five years of operation, at which time ownership would revert to the province. I was one of many New Democrats who had a problem with this arrangement at the time, but I could not have anticipated how far subsequent governments would go in making a bad idea worse.

By 1998, the Harris government had realized that its budget numbers weren’t adding up (too many tax cuts). If it was going to be able to promise anything to voters in the upcoming election, it would have to sell off some assets. The 407 looked like a good candidate. When the deal closed on May 5, 1999, Privatization Minister Rob Sampson indicated that tolls would continue to be regulated. “The travelling public will be happy to know that we have struck this deal with their time and pocketbooks in mind.” Premier Harris assured that “We're going to strictly control tolls,” specifying that they would go up by no more than 2 per cent per year. Sampson added that he was “thrilled with the result. With sale proceeds of more than $3.1 billion, Ontarians will receive double their investment in Highway 407… This is a great day for all Ontarians.”

But, it soon became clear that the day was not really a great one for all Ontarians. First of all, that $3.1 billion was put directly into the province’s operating budget, rather than being applied first against the debt accumulated to build the highway. As well, independent financial analysts were soon reporting that the highway was worth at least four times its sale price. This estimate was confirmed in 2002 when a six per cent share in the 407 consortium, originally valued at $45 million, sold for $178 million.

Meanwhile, tolls were quickly increased and then increased again – by as much as 92 per cent each time. As Liberal MPP Gerry Phillips (now Chair of Management Board in Dalton McGuinty’s cabinet) pointed out in the legislature in 2000, the consortium that now owned the highway was bragging to investors that, “provided certain traffic is realized, tolls may be increased without limit.”

Drivers soon found that increasing tolls were only part of their worries. If they didn’t have a transponder, or if their transponder stopped working, they were dinged for an additional fee. If they underpaid their bill by as little as 12 cents, they were hit with a flat $30 late fee. Drivers who had never been anywhere near the 407 were getting bills. Customer service proved to be a nightmare. Still, the province happily sent out free advertising for the 407 in its driver’s license renewals and acted as a collection agency for unpaid tolls. The situation got so bad that the Canadian Automobile Association called for a public inquiry into the sale and operation of the highway.

Everything was to change in 2003 when the Tories were replaced by a Liberal government that had promised to do away with double digit toll rate increases. Even a series of court setbacks, the most recent one coming last week, have not deterred the Premier Dalton McGuinty and Transportation Minister Harinder Takhar from insisting that they will limit tolls. Apparently, they will do this by using the ultimate weapon: press releases. The fact is that the Liberals knew all along (see Gerry Phillips’ comment above) that they could do nothing to limit toll increases, but made the promise anyway. They are desperately trying to make it look like they are protecting drivers. Former Transportation Minister Frank Klees (a staunch advocate of privatization), spelled out the futility of the Liberals position last year: “I've had the same briefings as Mr. Takhar had and the protection he's talking about simply does not exist.”

The 407 privatization deal is so had that even Ontario PC leader John Tory doesn’t bother to defend it. “Whether I think the contract is fair or not is irrelevant,” he said in response to questions from reporters. Still, Dalton McGuinty calls further toll roads “a fact of life”, but promises that the toll rates on the new roads will be cheaper than those applied to 407 users. “We will ensure that the kind of tolling that is used is regulated, that it is reasonable, and that it is removed once the highway has been paid for.” Yeah, where have we heard that one before?

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