Enduring Bilateral Ties: Detroit’s Bankruptcy, Canadian-Fueled Recovery, and the Importance of the Canada-U.S. Economic Partnership

Detroit’s bankruptcy has put a spotlight on the role provinces, states, and localities play in the Canada-U.S. bilateral relationship.  But, more pressing for Detroit’s future, it highlights the importance of the Canada-U.S. economic relationship, and why enhancing crossborder trade–through the Beyond the Border Action Plan and Regulatory Cooperation Council–is so important to the economic futures of Detroit, Canada, and the United States.

Detroit’s bankruptcy–which, if approved, would be the largest public sector bankruptcy in American history–has dominated U.S. headlines.

But this regrettable, if necessary, move has revealed some noteworthy characteristics of the Canada-U.S. bilateral relationship.

First, Detroit’s bankruptcy has shown the unique role provinces, states, and local governments play within Canada-U.S. relations.  (Note:  The recent peace bridge dispute was resolved through an agreement between New York State and Canada).  CBC offers up a report reassuring readers that a Windsor-Detroit ferry proposal won’t fall victim to Detroit’s financial troubles:

Bankruptcy proceedings won’t sink an international ferry proposal being floated by the Detroit Port Authority.

The port authority has been working on establishing the ferry between Windsor and Detroit for two years.

The chief of staff for the Detroit Port Authority says the bankruptcy filing won’t affect the authority because it’s a separate entity.

He says even if the $250,000 a year it receives from the city dries up it won’t scuttle the ferry plan.

In Canada, Windsor West NDP MP Brian Masse says the challenge now is to get customs officials on both sides of the river to agree on the logistics.

Masse and other officials toured the Detroit Port Authority facility in Detroit last summer. At that time the Americans believed the ferry would be running by now.

And let’s not neglect Windsor’s mayor expressing interest in buying Detroit’s half of the Detroit-Windsor tunnel, a key-piece of crossborder infrastructure:

Windsor Mayor Eddie Francis told the Windsor Star that his city would only consider purchasing the other half of the tunnel if officials believed it might otherwise go to someone who doesn’t have the public interest at heart.

“As long as the tunnel remains in the public interest, then the City of Windsor has no interest in the tunnel. However, if at that time there is a move to take the Detroit half of the tunnel, if it is put on the auction block or if it is being sold or disposed of in a way that is adverse to the public interest, then the City of Windsor will take steps to do whatever we can do to make sure it remains in the public interest,” Francis told the Star.

The idea of selling Detroit’s half of the tunnel to relieve the city’s fiscal distress has come up before. In 2008, Detroit city officials floated the suggestion that an outright sale of the tunnel might raise $65 million. In 2010, officials raised the idea again but estimated a tunnel sale might fetch $100 million.

Second, Canada and the United States have the unique ability to learn from one another’s economic and political developments, and Detroit’s bankruptcy is no different.  As Amber Hildebrandt’s excellent CBC report that highlights, Detroit’s bankruptcy brings to mind past Canadian experience–and holds lessons for Canadian municipalities:

Canada’s municipalities may be unlikely to face the same fate as Detroit, but the financial fall of Motor City carries lessons for towns and cities here, experts say.

“Detroit is a wake-up call to say that long-term problems can eventually get to you if they’re allowed to remain long term,” said Brian Kelcey, a Toronto-based policy consultant who’s worked in municipal affairs across the country.

Municipalities can take on debt to fund large-scale infrastructure projects, but provinces enforce strict rules on how much debt can be incurred.

In Ontario, for example, a city cannot have debt charges exceeding 25 per cent of what they bring in with their own source revenues.

“If they get into trouble — even with those rules — then the province would step in with a supervisor to help them,” said Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto’s Munk School of Global Affairs.

During the Great Depression, at least five British Columbia municipalities went bankrupt. Burnaby, Merritt, Prince Rupert, plus the city and district of North Vancouver fell into a state of budget disrepair in the early 1930s.

The communities saw falling property tax revenue as fewer residents were able to pay. At the time, municipalities were also responsible for unemployment relief, taxing dwindling resources.

The disastrous failure took decades to rectify. It also became a lesson for municipalities and provinces.

A provincial ministry of municipal affairs was born, property taxation changed and social services became a provincial domain. Also, Slack notes, “a lot of the rules on borrowing came in at that time.”

Finally, Detroit’s financial difficulties can’t hide one incredible economic “building block” the city will soon possess courtesy of its crossborder location (and Canadian financial backing):  a new Detroit-Windsor bridge.  Barry D. Wood’s Market Watch article actually puts the big as the first of six “essential elements of a turnaround” Detroit has:

Obscured by the prevailing gloom, Detroit possesses the essential elements of a turnaround. If built upon and wisely managed, Detroit will experience the kind of renaissance that has made a retooled Pittsburgh so attractive and vibrant. Here are some of the building blocks:

Bridge to Canada

A year ago Michigan’s governor and Canadian leaders agreed to build a $1 billion second bridge between Windsor and Detroit. The project is so central to Canadian commerce that they are funding the American construction costs, to be repaid from bridge tolls. Preliminary work on the Windsor side is under way and the bridge is expected to operational in 2020.

Analysts say the bridge will create 48,000 jobs, 8,000 of which will be permanent in southeastern Michigan. Unknown to many, the Windsor crossing is the busiest trade gateway in North America, accounting for one quarter of U.S.-Canada trade. The bridge will connect with US I-75 in depressed southeast Detroit.

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