Ten years ago this month the BC government unveiled a brand new, not-quite-arms-length coastal ferry model. It promised jobs, economic development, modest fare increases and better service – all with no new public debt. The legislation included a move toward greater user pay, in order to reduce the Province’s contribution to coastal ferry service.
The model has failed to achieve its goals. This verdict is based on what we have been hearing for years from an overwhelming number of residents of the communities and users of the ferry routes we represent.
These points are a summary of views, framed by the government’s goals for the current model, followed by our recommendations.
• Improved service and customer choice There has been no change in choice the past ten years. BC Ferries reports some improved customer service measures, but these are trumped by concerns about fares. Perceptions of service will likely deteriorate in the future as the fleet ages and renewal is delayed. Vessels are old and unreliable, and even those given life extensions will cause service problems as they near 50 or even 60 years, which are some of the currently planned retirement ages.
• Guaranteed service levels and fair rates Service is guaranteed only within the four-year span of a given performance term. The guarantee of fair rates has failed dramatically and did so early on. The current model creates the opposite of the expected modest fare increases. Currently, fares fill the shortfall between BC Ferries’ revenue needs and what the Province chooses to contribute. This is not workable. Rates have gone up by more than 80%, and in several cases well over 100%. Fare growth is likely to continue to outstrip the rate of inflation. As fares have become prohibitive, ferry traffic has fallen significantly below projections.
• An independent regulator to protect the public interest The BC Ferry Commission has been successful at several things, but protecting the public interest is not one of them. For most of the past ten years, the Commission was required to consider the principle of increasing user pay. The Province now has removed that wording, and has added ferry users’ interests to those of taxpayers and the company, for the Commission to consider. But this is an incomplete measure. The Commission may well consider users’ interests along with the others, but it has no tools to balance the three and do anything about it. The result is a de facto continuation of the user-pay principle. This is not workable.
• Economic development and job creation This is a significant failure. The reality in our communities is the exact opposite of this intended goal. Ferry fares are a significant barrier to economic development and job creation; they have triggered collapsing tourism, economic shrinkage and job losses. Examples abound.
• Public ownership of ferry terminals Public terminal ownership offers no protection or benefit for ferry users or the public. BC Ferries’ extensive and expensive improvements on terminal properties are paid for through the rapidly climbing fares. Property taxes, which BC Ferries started paying only ten years ago, are a burden on either our fares or our communities. This fails users and communities.
• No new public debt New public debt has been avoided, but only by off-loading debt onto BC Ferries and through the fares, to its users. But the users can’t afford it. This is not workable.
• Ongoing accountability Accountability has been blurred. Each of the Province, Commission and BC Ferries has a role in the new structure, but the areas of responsibility are not clear to most users, and the roles are not meshing well. The result is that some decisions and accountability are slipping through the cracks between the roles.
These problems, especially the fares, are bigger, more urgent and of longer standing than the challenges framed in the consultation. The government’s immediate challenge, to find $26 million in service cuts, will not fix the problems with the failing model. Neither will the long-term strategies that are offered for consideration; the failing model offers no path to innovation for these or other strategies if it involves capital spending. No matter how much sense there may be in an innovation, current users simply cannot afford the extra burden of paying for savings for future users.
Fares and the user-pay ideology desperately need fixing before anything. User pay has burdened users with costs they simply can’t afford, shown in the table below. While the explosion in fuel costs was not foreseen, the growth in capital costs and its impact on fares could have been anticipated. It is neither reasonable nor possible for users to bear all the costs of fuel price hikes, and decades worth of government neglect of old, inadequate ships and terminals (with the only exception being some extra support for the northern routes). This is in addition to new costs in the model that were not present in the crown corporation model, as well as an increased portion of operating costs.
We believe that the failures in the current model can be fixed. Ten years of experience with the model has provided ample understanding of problems and potential solutions. The Ferry Advisory Committee Chairs identify these actions for government as essential for recovery.
RECOMMENDATIONS
• Fare rollback Fund a 25% rollback on non-major routes and Route 3, which saw the prohibitive fare increases of the past decade. The rollback is needed to bring fares closer to inflation of that period and begin to repair the damage from the fare increases, which includes depressed ferry traffic. The link between fares and traffic is not just the view of “some ferry users” as stated; it is an almost unanimous view of users. Among the evidence: simultaneous fare growth and traffic decline from 2005 on non-major routes; traffic during the Province-funded fare reduction pilot in Dec08-Jan09; overheight traffic increase with overheight fares reductions on most routes. There is also evidence from other ferry systems. Our recommendation of the 25% level arises from the experience of overheight fares and traffic. Overheight fares decreased in 2010 by roughly 35% for all routes except northern routes. The reductions produced sustained traffic increases, as shown in the graph below. The northern routes, with no fare reductions, had traffic declines. If a 35% fare reduction results in a 20% traffic increase, it is reasonable and conservative to assume that a 25% fare reduction will produce a 10% traffic increase. It could well be more.
• Capital plan Provide funds to allow timely decisions on necessary capital spending. This includes critical investment in terminals, information technology, and replacements for 54- and 48-year-old ships. The Province’s failure to make timely decisions has forced the company to consider ship life extensions instead of replacements. This has led to avoidable capital, maintenance and operations costs, which are borne by users. Money is being spent but the fleet is not being renewed; the same problem we have seen for decades. More than $200 million spent to date has extended the life of about a dozen vessels. This is producing a fleet that will include ships more than 50 and even more than 60 years old when they retire.
• New funding mechanism Develop a formula to balance provincial and user contributions. Future fare increases must be within the rate of inflation.
• New service model Once a workable funding mechanism is in place, conduct community-by-community consultations to shape a new service model, using criteria appropriate for each route. There is no point in holding consultations until the more basic fixes above have been completed. Service cuts and further efficiencies can only be realized safely once the fundamentals of the system are sound. A new service model also requires a further change to the Coastal Ferry Act, to give the Commission a mechanism to balance the interests of users, taxpayers and the company. Any change that alters the financial results of BC Ferries or the provincial government must consider the financial consequences to coastal communities. This is a cost that has not been factored into calculations to date. A fourth principle needs to be added to the list of interests in the Act: the public interest. The coastal ferry system benefits British Columbia as a whole, not just users who pay fares or communities at either end of a ferry route. The cost of coastal ferry service, spread among all BC residents is very modest when compared to the benefits to the province of affordable public access to the coast. Actions affecting ferry service must be weighed for their impact on that public good. The current structure makes the Province the guardian of the public interest; the Province needs to acknowledge and act on this responsibility.
-
In addition to increasingly urgent messages from coastal residents and businesses, the government has received well-considered advice from the Office of the Auditor General, the Comptroller General (pdf) and the BC Ferry Commission (pdf) over the past decade. Some of their recommendations not yet implemented would help to repair the model, to achieve some of the goals for the system and to fulfill the vision of ten years ago.
The health of all coastal communities and their lifeline transportation depends on it.
Respectfully, Ferry Advisory Committee Chairs
