Fiscal Fairness

Fiscal Fairness

A Sustainable Model for Ferries System Management

Fiscal Fairness is a principle rooted in Canada since confederation, that when a government is delivering essential services as a monopoly it has a responsibility to spend tax dollars equitably so that all taxpayers are treated equally.

The ferry service in British Columbia is a monopoly that has been considered “essential” to the economic well-being of residents in coastal communities throughout its history.  When Premier WAC Bennett, a successful man of business, established the ferry service, he declared that reliable ferry connections constituted an essential service because British Columbians have a right to uninterrupted and affordable transportation services to their communities.  And he expressed his conviction that this service would generate economic returns for the province.  But in 2003, when the Gordon Campbell government made BC Ferries a semi-private corporation, the principle of fairness was soon violated and replaced by a drive to make the “user pay”.

There is a national commitment to the principle that every Canadian is equal to every other Canadian, enshrined in the Charter of Rights and Freedoms, regardless of where in this country she or he lives. But as a result of the current BC Ferries structure, British Columbians who use the ferry system are no longer being treated equally.

Governments have long used Crown Corporations for the provision of equitable levels of service to all its citizens across this country, and they have become a cornerstone of Canadian democracy:

  • The Canada Health Act recognizes the need for government subsidy so that all citizens have equal access to services, “to facilitate reasonable access to health services without financial or other barriers”.
  • Canada Post delivers mail at the same postage stamp price to all Canadians no matter where they live.
  • All residential customers of BC Hydro pay the same base rate up to 16 kWh per two-month billing cycle.  People who live in remote regions, where delivery costs are higher, are not expected to pay more for electricity than the base rate paid by people in the Fraser Valley or Prince George.
  • The Liquor Distribution Branch operates over 200 liquor stores throughout British Columbia, and no matter where you live or how much it costs for delivery of the product, you still pay the same price for that bottle of wine as any other citizen of the province.

The Ministry of Transportation and Infrastructure has as its mandate to provide transportation services to all areas of the province where need exists. None of these transportation services are provided with the goal of making a profit, but rather to serve British Columbians and encourage economic growth.  Government then realizes economic benefits in the form of taxes.

For instance, the provincial highways system costs British Columbians half a billion dollars per year in maintenance costs alone, but the users of BC highways are not asked to re-pay this money.  It is considered an investment in the economy of the province.  The provincial government has also made huge commitments to Canada’s multi-billion dollar Pacific Gateway Transportation Project, a $21 billion expansion of port, rail, road and airport facilities in British Columbia.  To date the BC government has committed close to $4 billion to this project with more to come, a massive investment in BC’s transportation infrastructure and services.

Yet while citizens are not asked to pay for the cost of these projects in any way other than through the payment of their taxes, users of the ferry system do not have the same benefit.

Much like the Ministry of Transportation, BC Ferries also has a mandate to provide transportation infrastructure and services.  Outside of the Vancouver – Victoria – Nanaimo triangle, the corporation services an area containing 20% of BC’s population and a wide variety of commercial enterprises which generate 36% of BC’s annual tax revenue, yet this area only benefits from about 6% of the capital expenditures on highways.  However the area’s greater transportation need comes not in the form of highway connections, but ferry connections.

While the Province undertakes a huge development in British Columbia’s transportation infrastructure backed by the full weight of the Government’s ability to finance such projects, BC Ferries has been allowed to drift into financial peril.

Under the semi-private scenario entered into in 2003 BC Ferries has become a “user pay” service, in utter opposition to the principle of Fiscal Fairness that has operated across Canada since confederation, thrusting a huge burden onto the shoulders of the citizens who use the service.  BC Ferries passengers actually pay for about 93% of the system’s operating costs through fares, one of the highest recovery rates of any ferry system in the world.  But BC Ferries is still in crisis.  In comparison, transit users in Metro Vancouver pay 52% of operating costs, with the balance provided by taxpayers.

In order to meet its costs, BC Ferries continues to raise fares. Over the past 25 years fares have risen as much as 500%.  In addition to increased fares, service levels on many routes have declined.  Eventually this unsustainable model reaches a “tipping point”, where people and businesses can no longer afford the high fares and simply travel less.  Traffic drops and BC Ferries can’t meet its revenue targets.  When the company can’t meet revenue targets, it has to raise fares and cut services even more.  And so on and so on.  This eventually results in a “death spiral” of falling revenue and declining ridership that cannot be dealt with under the current “user pay” structure.

Fare increases and service cuts also result in shrinking local economies. Many people and businesses in coastal communities are forced to leave or shut down. The economy shrinks and the government takes in less revenue in taxes.  Service cuts may decrease ferry costs in the short term, but the resulting decline in ridership offsets the gains, and capital costs keep growing adding to future fare hikes. The affordability death spiral continues.  The ferry corporation’s sustainability is inevitably tied to the economic sustainability of coastal regions.  The two cannot be separated.

When BC Ferries was converted from a crown corporation into a semi-private business, it inherited an old fleet in urgent need of renewal.  The average age of the fleet was 28 years. Since then, BC Ferries has built five new vessels and bought two used vessels.  Yet, the average age of the fleet has grown to 33 years, and for the non-major routes it is now 37 years.  Recommended vessel lifespan is 40 years. The process of fleet renewal is only just starting, which means fares have yet to feel the impact of spending to meet those capital needs.  These looming capital costs are unavoidable, and it is ferry users who will be expected to pay the freight.

All this is happening when the BC government is spending a record amount of money on bridges, tunnels, roads, and ports.  Outside of ferries, the transportation network in BC is vastly increasing its capacity and infrastructure to the tune of billions of dollars in investment.  But in the ferry system capacity is being cut and funding throttled.

Another measure of the vast philosophical difference between “user pay” and “government operated” services is the Ministry of Transportation’s inland ferry system.  The Ministry operates 16 inland ferries that cross various lakes and other waterways to connect highways that are interrupted by bodies of water – without any charge to the user.  According to the Ministry, they are considered “an integral link in British Columbia’s transportation network”.  This fleet carries over 2.4 million passengers and 1.5 million vehicles a year for free, at an operating cost of $21 million.

This inland ferry fleet is composed of vessels that are comparable to many vessels in the BC Ferries fleet, and that are built at similar costs.  But the Ministry of Transportation provides the inland ferry service and infrastructure free of charge because it is considered part of the highway system.

To give you an idea of how government wishes to influence your perception, in provincial budget documents the funds applied to running inland ferries, improving roads and highways, or constructing capital projects such as the Port Mann Bridge, are all described as transportation “investments”.  Funding for the coastal ferry service is always described as a “subsidy.”

The methods used to borrow and spend huge amounts of money on behalf of the people of this province are vastly different depending upon whether it is for the Ministry of Transportation or BC Ferries.  Consider the following sample of transportation costs that must be financed:

  • BC Ferries 2013 total capital spending:  $114 million
  • BC Transportation Financing Authority 2013 capital spending:  $1.1 billion
  • BC Ferries 2012 operating loss:  -$16.5 million
  • BC Transportation Financing Authority operating loss:  -$668 million

If BC Ferries were absorbed back into the Ministry of Transportation and Infrastructure under a Fiscal Fairness strategy, and its financing needs incorporated into what the Ministry’s financing authority is already doing, the added financial burden would barely be noticed.

It is quite conceivable that if BC Ferries implemented a more frequent and affordable passenger service, ridership rates which are currently in decline would reverse.  Not only would those communities that rely upon ferries experience desirable economic growth, but business and tourism activity throughout the province would greatly benefit, generating more provincial tax revenue and financial stability for the ferry system.

To address the government’s violation of the principle of fiscal fairness, and to restore the economic integrity of the BC coastal economy, BC Ferries must be treated as a tolled portion of the highways and financed through the Ministry of Transportation, where costs are equitably shared by all British Columbians.  Lower fares, higher ridership, and more vibrant communities would be the result.

We are grateful to the Powell River Chamber of Commerce for the research and development of the Fiscal Fairness strategy for the provision of ferry services to the people of British Columbia, and wholeheartedly endorse its implementation.  We also thank the Ferry Advisory Committee Chairs for their report “Coastal Ferries: An Unnecessary Crisis”, which is the source for much of the financial commentary in this document.

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