Michigan Sec Transp flips on T&R for DRIC - WSA: tolls 2016 $70m, 2025 $124m
With the majority leader of the state senate Mike Bishop saying there would be no vote on P3 enabling legislation needed for the new DRIC bridge in Detroit unless they got revenue forecasts, Michigan transportation secretary Kirk Steuble flipped this week, releasing the secret Wilbur Smith Associates (WSA) forecasts.
The forecasts are that toll revenues will open in 2016 at $70m, rise to $124m by 2025 and by 2035 be $196m.
In 2025 they say the DRIC will attract 44% of trucks and 28% of cars crossing the Michigan/Ontario border, carrying 13.5k trucks average weekday, 12.8k cars. The DRIC stands for Detroit River International Crossing. It would be located 1.8 miles, 2.9km downriver of the Ambassador Bridge and link US/I-75 to Canada's H401. The rival Ambassador Bridge company is pushing a modern parallel span to the 1929 suspension bridge as a more economical alternative, but faces great hostility to its plans.
According to the WSA study forecasts with the opening of the new bridge the Ambassador Bridge will lose 32pp (percentage points) truck share, and Blue Water Bridge 12pp.
Ambassador Bridge will lose 13pp share of cars, Detroit-Windsor Tunnel 12pp, Blue Water 3pp.
DRIC's toll revenue is expected to be about 80% from trucks.
Modeled opening year 2016 the DRIC would attract 5.9m vehicles (trucks 2.75m, cars 3.07m) and toll revenue of $70m (trucks $56m, cars $14m). DRIC traffic would grow an average annual 4% to 8.4m (trucks 3.92m, cars 4.42m) in 2025 when toll revenue growing at 6.4%/yr would be $124m (trucks $98m, cars $24m).
Toll rates on the DRIC are assumed to be set at the same level as Ambassador Bridge tolls ($22.50 for common 18-wheelers but an average truck toll of $17.50) and to grow approximately with inflation.
The WSA report in conjunction with IBI Group, Resource Systems and Centre for Spatial Economics draws on an impressive list of studies and involves stated preference and origin-destination surveys travel time estimates and traffic counts.
The WSA forecasting is based on traffic models of the regional planning organizations on each side of the border (SEMCOG, WALTS) and an Ontario trucking model. (pES7)
The forecasters have to make some sense of recent trends Michigan-Ontario and what they might mean for the future.
Truck traffic grew strongly from the early 1980s through 1999, average annual growth 1972 to 1999 being 5.6%, taking traffic from around 1.2m to about 5.2m. The 1990s alone saw truck traffic double from around 2.7m in 1990.
1999 to 2007 there was stagnation in truck traffic, the annual number moving in the range 5.0m to 5.3m.
The last couple of years saw a plunge from 5.0m to 3.8m.
This is summarized by WSA as average annual decline of 3.2% 1999 to 2009.
Car traffic saw little growth in the 1970s then 17 years of solid growth going from 12m in 1982 to 22m in 1999 - 2.4%/yr average growth 1972 to 1999. Since 1999 there has been rapid and continuous decline in car traffic back down to slightly below 12m in 2009. That last decade represents annual average decline of 6.6%.
Car crossings in 2009 were slightly below the early 1970s.
(Beyond the WSA study this year truck traffic has recovered an impressive 20 to 25% so there's the prospect of a recovery from 3.8m to somewhere in the range 4.6m-4.8m versus the 2000 high of 5.3m, but car crossings are still at all-time lows since the 1970s.
DRIC bridge is projected to yield border crossing travel time savings of between 2 and 8 minutes compared to Ambassador and Blue Water bridges based on representative journeys. This is mainly attributable it seems to a shorter distance as compared to the northern Blue Water Bridge. In the case of DRIC v Ambassador there is a mile saving and a 3mph speed advantage for the new bridge I-75 to H401.
I-96 to H401 has a distance advantage for the Ambassador but again DRIC has a speed advantage so the travel time is just marginally advantageous to the DRIC.
The Ambassador is assumed to link with Canadian expressways by slower city surface streets (Huron Church Road) indefinitely.
WSA says: "The DRIC was shown to maintain a competitive advantage for the commercial vehicle traffic over the Ambassador bridge govern its direct (expressway-to-expressway) connectivity." p7-8
Assumes great improvement in Detroit economy
The WSA study adopts a projection of a three-fold increase - from 0.4% 1996 to 2006 to 1.2% annual growth in income 2006 to 2030. Income is assumed to grow faster in Wayne County (the heart of Detroit) than state and regional averages. (p4-23)
No explanation is given as to why such an economic revival should be expected.
Detroit itself has been declining in population for many years but the SE Michigan metro region (4.8m) has historically grown an average 0.3%/yr. Across the river the Windsor Essex area is forecast to grow at 0.9%/yr but it is only 0.42m people.
The forecast trend lines for Ontario trade and trucking are likely to be controversial. They posit a return to nearly 6% annual growth 2010 to 2020, and a trend line sloping up at a rate only achieved in the 1990s after NAFTA was implemented - see blue and orange dashed lines in the graph nearby. (Fig 4-40, p4-46)
Sensitivity analysis presents higher and lower forecasts based on different corridor growth, longer ramp-up, variations in travel time. The differences are huge. On a low case for example 2025 toll revenues are $75.3m v $123.4m base case. In 2035 the low case yields $101m v $196m base case.
Revenue maximizing truck tolls higher
Revenue maximization for cars occurs at a toll of $4, slightly lower than the present toll, but revenue maximization for trucks is at $35, about twice the present truck tolls and compared with a $20 baseline toll assumed on opening in 2015.
The report states: "there is potential to increase the commercial (truck) toll rates well beyond the baseline assumptions to generate additional needed revenues." (p6-14) see graph nearby
This conclusion is important in indicating the potential for increasing revenues if traffic volumes are weaker than expected.
WSA have a Disclaimer at the beginning of the DRIC study that is worth bearing in mind, similar to disclaimers included in most of their reports.
Extracts: "....as with any forecast of the future...there may well be differences between forecasted and actual results that may be caused by events beyond the control of the forecasters. The WSA review... has relied upon the accuracy and completeness of... information provided... by Michigan DOT and several local and state agencies... (it) has not been independently verified... WSA has made qualitative judgments related to several key variables.. to develop the traffic and revenue forecasts that must be considered as a whole; therefore selecting portions... may create a misleading... view....
"All estimates and projections reported... are based on WSA's experience and judgment... These estimates and projections may not be indicative of actual or future values, and are therefore subject to substantial uncertainty... Future developments cannot be predicted with certainty and may affect the estimates... such forward looking statements involve risks band uncertainties that may cause actual results to differ materially from the results predicted. WSA take no responsibility... to advise of changes that may... affect the assumptions..."
COMMENT: The strong traffic and revenue numbers are credible if the underlying strong growth assumption 2010-on is considered credible. We're not sold on that, but others may be. The opportunity to increase revenue beyond baseline projections with higher toll rates is encouraging.
Promoters of this project will need to go from the traffic and revenue numbers to a plan of finance based on net revenue after operational expenses and see whether financing costs can be supported by the net.